'Bleak' update sees Bowleven shares slump

The Edinburgh-based company confirmed it had recovered light oil and gas from its second exploratory well, Sapele-2, offshore Cameroon but conceded that the productivity of the well was "lower … than anticipated" due to "damage sustained during drilling activities". Shares closed down 36.5p or 14 per cent at 225p

Bowleven said it would conclude its operations at Sapele-2 and move on to its third planned test well, Sapele-3 but said its farm-in partner, Vitol, had "elected not to participate".

The company said it would go ahead with drilling the third well on the MLHP-5 block, one of three blocks on its Etinde permit offshore Cameroon, on a sole-risk basis as it still believes the "potentially significant" well will provide a "material upside".

Chief executive Kevin Hart was "delighted" to have got oil flowing from the second test well and said there was "extensive remaining potential yet to be targeted".

He added: "The Sapele discoveries provide a foundation to Bowleven's strategy of moving resources to reserves on block MLHP-5 and the preparation of an appraisal plan for the area is already underway."

The firm also revised down its estimated oil recovery rates to between 10 and 30 per cent, adding that "factor ranges will be reviewed as technical evaluations and development planning activities are progressed."

Matrix Corporate Capital analyst Charlie Sharp said the update was "disappointing" and warned that the figures could mean that the recoverable oil from the wells may only prove "borderline commercial".

He said: "Bowleven also states that oil recovery rates are initially estimated to be 10-30 per cent. This compares with previous indications of 30 per cent as being a potentially low-end estimate.

"The result is that Sapele looks to have around 10-20 mmbbls (million barrels] of recoverable potential, but this looks borderline commercial.

"Overall, this is a bleak update from Bowleven and raises questions about the forward programme and remaining Block 5 potential. We are reviewing our target price and rating."

But analysts at Evolution found Bowleven's update "encouraging". In a note, the broker said that while operational issues had compromised bore conditions, the second well seemed to have the same oil quality and pressure found in the first well, which made the discovery appear to be "stratigraphic" or linked. But the firm added that "this could not be confirmed at this stage".

• Indian mining firm Vedanta Resources confirmed it received formal notice from the Indian government that it could go ahead with a deal to buy a further 30 per cent stake in Cairn India, subject to conditions.

The government has said it will support the deal as long as Cairn India - 52 per cent owned by Edinburgh-based parent, Cairn Energy - pays royalties estimated to cost as much as $1.2 billion (737 million) a year.

Last week, Cairn India said it would put the proposal to a shareholder vote, which is expected to be counted in September.