May 30, 2011
Europe: Energy: Oil & Gas - E&P
Equity Research
5 themes and 17 companies to generate alpha in an industry in transformation
E&P - seek exposure to five key themes
Unconventional liquids
We highlight five themes that we believe will
drive share price performance in the E&P sector;
high-impact, frontier exploration; unconventional
gas; unconventional liquids; explorers with a
strong core value; and NOC-driven M&A. We
highlight 17 companies that we believe provide
the most attractive exposure to these themes.
Technological progress being made in established
unconventional liquid/oil shale plays in the US
could be levered to new basins and countries; we
highlight two stocks that should benefit from this
trend, including Conviction Buy Panoro.
Frontier exploration increasingly attractive
We highlight five E&P stocks with high re-rating
potential from exploration in new basins. We
expect the majors and NOCs to show increasing
appetite for these types of assets after a decade of
poor exploration performance.
Unconventional gas in deficit markets
Increasing gas prices and new technical advances
benefit unconventional gas producers in countries
fighting for less dependency on foreign gas
imports. Stocks we believe will benefit from this
theme include Conviction Buy Aurelian.
Christophor Jost
+44(20)7774-0014 christophor.jost@gs.com Goldman Sachs International
Ruth Brooker
+44(20)7774-6842 ruth.brooker@gs.com Goldman Sachs International
Michele della Vigna, CFA
+44(20)7552-9383 michele.dellavigna@gs.com Goldman Sachs International
Henry Tarr
+44(20)7552-5981 henry.tarr@gs.com Goldman Sachs International
The Goldman Sachs Group, Inc.
Balanced exploration
We identify five stocks with high-impact
exploration supported by core values that mitigate
downside risk of exploration failure. Bowleven
and Rockhopper (Conviction Buys) screen well.
NOC-driven M&A
We see NOCs as the most price-insensitive buyers
and believe that high materiality and exposure to
new technologies drive such activity.
ACTION
RATINGS & UPSIDE TO 12-MONTH PRICE TARGETS
Conviction Buy
Rockhopper
Aurelian
Panoro
Bowleven
Buy
Global Energy Development
BPC
Northern Petroleum
Max Petroleum
Falkland Oil & Gas
PA Resources
Nighthawk Energy
Dominion
Igas
Nautical Petroleum
Cove Energy
Aminex Plc
Great Eastern Energy
Borders and Southern
Noreco
Green Dragon
Maurel & Prom
Bankers Petroleum
Sell
Premier Oil Hardy Oil
Lundin Petroleum
Upside to TP
Market Cap (USDmn)
241%
181%
154%
107%
901
411
261
1074
189%
168%
164%
159%
140%
132%
125%
117%
117%
112%
108%
104%
97%
96%
96%
95%
89%
89%
37
316
173
164
192
418
36
146
187
470
691
100
771
392
523
1718
2604
1950
22%
22%
14%
3578
241
4315
Source: Datastream, Goldman Sachs Research estimates.
Coverage View: Attractive
Rating changes
We upgrade Noreco and Maurel and Prom to Buy
(from Neutral). We upgrade DNO and Encore Oil
to Neutral (Sell). We downgrade Salamander, Det
Norske and Coastal Energy to Neutral (Buy), and
downgrade Premier to Sell (Neutral).
The Goldman Sachs Group, Inc. does and seeks to do business with
companies covered in its research reports. As a result, investors should
be aware that the firm may have a conflict of interest that could affect
the objectivity of this report. Investors should consider this report as
only a single factor in making their investment decision. For Reg AC
certification, see the end of the text. Other important disclosures follow
the Reg AC certification, or go to www.gs.com/research/hedge.html.
Analysts employed by non-US affiliates are not registered/qualified as
research analysts with FINRA in the U.S.
Global Investment Research
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Table of contents
Five themes to play in the E&P sector
3 Frontier exploration set to be a major theme in late 2011/early 2012. Industry appetite for frontier exploration provides additional benefits for explorers.
5 Rising gas prices, energy security and production ramp-ups to drive outperformance in unconventional gas
10 Unconventional liquids – de-risking of assets and potential M&A the key driver
15 Free exploration options remain a compelling investment case
18 M&A – Materiality and technical access a further potential driver of NOC activity
19 Thematic summary for E&P universe
21 Oil price sensitivity and the E&Ps; higher fiscal risk, but lower commercial thresholds; maintaining US$100/bl in our valuations
22 E&P screens; updating target prices and ratings
27 Medium-term exploration & balanced explorers still top performing exploration screens
34 Portfolio update for the E&Ps
38 North Sea performance weak on tax change; Falklands and Kurdistan remain weak
40 Maurel & Prom (MAUP.PA): Core value and ‘free’ exploration exposure; up to Buy
43 Noreco (NOR.OL): Core value combined with ‘free’ Norwegian exploration option; Buy
44 Premier Oil (PMO.L): Company’s strengths already in the price, down to Sell.
45 DNO international (DNO.OL): Underperformance & political de-risking of KRG, Neutral
46 Salamander Energy (SMDR.L): Downgrading to Neutral after recent outperformance
48 Det Norske (DETNOR.OL): Downgrading to Neutral following outperformance
50 Coastal Energy (CEO.L): Removing from Buy List, better upside elsewhere; Neutral
52 Encore Oil (EO.L): Underperformance and Cladhan reaction overdone; up to Neutral
54 Prices in this report are as of the close of May 25, 2011 unless stated otherwise.
Goldman Sachs Global Investment Research
2
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Five themes to play in the E&P sector
Our E&P universe provides exposure to a diverse set of themes and geologies. We highlight key themes in the E&P space that we
believe complement broader industry themes that we expect to drive share price outperformance.
High-impact, long-dated exploration: We identify stocks which we estimate have more than 50% of their value in exploration
prospects with potentially greater than 300 mn bls of net resource. We see an increasing appetite among majors and NOCs to
pursue high-impact frontier exploration, which we believe could encourage farm-ins, potentially improving terms. We believe that
the attractive economics of these exploration plays could attract M&A in the event of discoveries.
Unconventional gas: With gas demand in Japan likely to increase in our view, and upwards cost pressure on LNG developments,
we view companies with gas assets in markets with gas deficits positively. We particularly highlight unconventional gas assets,
which we believe are risked too harshly by the market, given the progress that has been made in unconventional gas in the US and
Australia.
Unconventional liquids: We believe that the technological progress being made in the established unconventional liquid/oil shale
plays in the US could be levered to new basins and countries, improving drilling economics and flow rates. These assets are
typically low enough on the cost curve to attract potential acquirers.
Balanced exploration: We take a sceptical view on the ability to select stocks on the basis of the existence of a geological “edge”.
We therefore favour companies which combine a strong core value (including discoveries) that fully supports the share price and a
high level of exploration potential (66% re-rating potential to our valuations in the next 12 months).
NOC-driven M&A: We believe that NOCs are the price insensitive buyers in the market and we therefore view NOC-driven M&A as
particularly attractive. As we believe NOCs are keen to be partners in material developments, we identify companies with over
200mn bls of discovered resource in a single asset. We also believe that access to new, high-tech developments is an attraction for
these purchasers. We highlight companies with stakes in assets which could fulfill this criteria.
Exhibit 1: Buy-rated stocks exposed to top E&P themes and potential upsides to our 12-month price targets
High impact exploration. Company
Upside
BPC
Max Petroleum
Falkland Oil & Gas
Dominion
Borders and Southern
168%
159%
140%
117%
96%
Unconventional Gas
Company
Upside
Aurelian
Igas
Green Dragon
Great Eastern Energy
181%
117%
95%
97%
Unconventional liquids
Company
Upside
Panoro
Nighthawk Energy
154%
125%
Balanced Exploration
Company
Upside
Rockhopper
Aurelian
Bowleven
Aminex Plc
Noreco
241%
181%
107%
104%
96%
NOC‐driven M&A
Company
Upside
Cove Energy
Green Dragon
Bankers Petroleum
108%
95%
89%
Source: Goldman Sachs Research estimates, Bloomberg.
Goldman Sachs Global Investment Research
3
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Exhibit 2: Thematic winners: descriptions and potential upside to our 12-month price targets
Potential uplift to valuation from Exploration re‐
complete de‐
Potential upside rating potential
risking
168%
1417%
1417%
Upside / downside to core
‐74%
Region
Bahamas
Company
BPC
Theme
Exploration
Description & investment case
Early stage explorer in the Bahamas. Early indications from seismic indicate multi‐billion barrel potential prospects. Previous wells in the area have encountered live oil shows and reservoir. Farm out and CPR the likely next catalysts in summer 2011
Dominion
Exploration
East African based explorer with licnces in Tanzania, Kenya, Uganda and DRC. 100% stake in Block 7 in deepwater Tanzania is the key near‐term driver. Seismic indicates multi‐tcf potential. Block is located close to blocks owned by Majors and in the same region as recent discoveries by Cove and BG
117%
1389%
1389%
‐82%
East Africa
Falkland Oil & Gas
Exploration
Explorer in South Falklands. High risk prospects, being drilled from 2D seismic with CSEM support with prospect sizes well in excess of 1bn bls in many cases. Deepwater, harsh environment but discoveries of this size are likely to be commercial.
140%
2504%
2504%
‐76%
Falklands (South)
Borders and Southern Exploration
Targeting prospects in the South Falklands with the aid of 3D sesimic. Shares many of the same risks as Falkland Oil & Gas. Drilling planned for early 2012.
96%
1668%
1668%
‐74%
Falklands (South)
Max Petroleum
Exploration
Targeting shallow and deep prospects in Kazakhstan. Shallow wells are cheaper and smaller, whereas the liquids content of the deeper portion offers re‐rating potential in the event of success. Shallow drilling taking place throughout 2010 with sub‐salt wells to start drilling in mid‐2011
159%
259%
275%
‐26%
Kazakkhstan
Aurelian
Uncon. Gas / Primarily focused on Poland. Main asset is the Sierkierki tight gas asset ‐ first horizontal multi frac well Balanced explorer programme is underway. First well showed promising, likely commercial geology but hit mechnical issues. Significant exploration acreage in Poland and Romania
181%
345%
361%
17%
Poland
Green Dragon
Uncon. Gas / NOC Chinese CBM play ‐ owns 6 PSCs containing c. 25tcf gas in place. Production from GSS PSC set to begin production ramp up which should de‐risk asset base. Continued drilling in other acreage and migration of 3P M&A
reserves into 2P should help drive performance.
Uncon. Gas
Owns 100% of c. 300mn boe of CBM gas in England and Wales. At an early stage but production set to increase over the coming years.
95%
0%
177%
61%
China
117%
0%
106%
190%
UK
Igas
Great Eastern Energy
Uncon. Gas / NOC 2 CBM licences in India containing c. 3tcf. Production from the Raniganj asset set to ramp up significantly in M&A
coming years. Pricing is advantaged (c. US$12/mcf+) due to lack of cheap substitutes in the region. Company owns infrastructure to take gas to market.
97%
0%
52%
113%
India
Panoro
Uncon. liquids
154%
53%
116%
134%
Atlantic
Nighthawk Energy
Uncon. liquids
Proucing gas asset (prices linked to Brazilian inflation) supports the share price. Company also has a potentially signficant tight oil asset in Congo. Flow rates from early wells suggest commerciality. Additional exploration and discoveries in Brazil and West Africa.
Owns 50% stake in over 400,000 acres in the Jolly Ranch oil shale play in the US. Drilling is at an early stage at present with vertical wells attempting to determine the baest completion and drilling methods. Wells being drilled at present are unlikely to be commercial but success could unlock significant value and create a compelling M&A story
125%
0%
386%
238%
US
Rockhopper
Balanced expl.
Owns 100% of the Sea Lion discovery in North Falkland basin which more than supports the share price on a risked basis and is commercial on our estimates. Further upside exists at the field from additional appraisal and seismic. The company holds c. 1,500 square kilometres of exploration acreage around the discovery which we believe will offer further, substantial upside.
241%
160%
196%
102%
Falklands (North)
Bowleven
Balanced expl.
107%
117%
145%
18%
Cameroon
Aminex Plc
Balanced expl.
Exploration and appraisal in shallow water Cameroon licences. Recent Sapele discovery has substantially de‐
risked surrounding acreage which should provide signfiicant exploration catalysts. Commercial thresholds for assets are low.
Core value lies in the US and in Tanzania. Significant re‐rating potetnial through the Likonde permit in Tanzania where Tullow are operators. The first well on the licence encountered encouraging signs of hydrocarbons and reservoir, although no commercial discovery was made. Success at this prospect would lift our valuation by over 150% as well as potentially de‐risking additional prospects
104%
216%
225%
9%
US / Tanzania
Noreco
Balanced expl.
96%
180%
214%
17%
Norway
Cove Energy
High‐tech
108%
189%
236%
14%
East Africa
Bankers Petroleum
High‐tech
89%
0%
99%
90%
Albania
Full cycle E&P operating primarily in the North Sea. Rerating potential in the next 12 months is signficiant with 180% potential uplift to our valuations in the event of 100% success. Recent sale of Brage field also relieves funding pressure
Main driver is the 8.5% stake in Anadarko's deepwater offshore Rovuma block in Mozambique. Multi tcf discoveries justifiying a 2 train LNG development have already been made. Block covers c. 10,000 square kilometres offering significant scope for further exploration with oil a possibility in the south of the block. Also has a stake in the newly emerging Kenyan basin.
Owns 100% of subtantial heavy oil field in Albania (238mnbls of 2P reserves and 1.2bn bls of 2C reserves). Production from the 2P reserves is ongoing with the contingent requiring success of the thermal pilot programme.
Source: Goldman Sachs Research estimates, Company data.
Goldman Sachs Global Investment Research
4
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Frontier exploration set to be a major theme in late 2011/early 2012. Industry appetite for
frontier exploration provides additional benefits for explorers
Potentially major new basins to be tested in the next 18 months; vast re-rating potential
In the next 12-18 months, a number of companies in our coverage are expected to drill potentially transformational wells in new,
frontier basins. Risks are clearly high, but volumes are significant, especially for the companies involved, and success could re-rate
stocks and open up new basins. The key new basins we identify in our coverage universe are Namibia (Tower and Chariot), the
South Falklands Basin (Borders and Southern and FOGL) and the Bahamas (BPC). We also note that Max Petroleum (Kazakhstan)
and Dominion (Tanzania) are due to drill very large prospects in areas with previous successes in finding hydrocarbons.
3000%
2500%
2000%
1500%
1000%
500%
0%
‐500%
Falkland Oil & Gas
Tower Resources
Borders and Southern
Chariot Oil & Gas
BPC
Dominion
Sterling Energy
Northern Petroleum
Desire Petroleum
PA Resources
Serica
Amerisur
Aurelian
Hardy Oil
Max Petroleum
Aminex Plc
Cove Energy
Noreco
Rockhopper
Melrose Resources
Bowleven
Det Norske
Encore
Coastal Energy
Nautical Petroleum
Salamander DNO
Gulfsands
Panoro
Valiant Petroleum
Regal
Heritage Oil
Faroe Petroleum
Maurel & Prom
Lundin Petroleum
JKX
Gulf Keystone
Soco
Tullow
Premier Oil Enquest
Bankers petroleum
Global Energy Development
Norse Energy
Nighthawk Energy
Ithaca
Great Eastern Energy
Igas
Dragon Oil
Green Dragon
Re‐rating potential in the event of 100% exploration success
Exhibit 3: Exploration re-rating potential by time period
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Rest of 2012
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
5
May 30, 2011
Europe: Energy: Oil & Gas - E&P
High-impact explorers offer access to geographically diverse basins
The companies we have highlighted as providing exposure to this frontier, high-impact exploration theme are testing different
basins in a number of different regions of the world (Exhibit 5). While risks are high on these exploration wells, the re-rating
potential is substantial – we estimate average upside of almost 1,500% in the event of success for our winners.
Where appropriate, we assume farm-outs to provide funding for these potentially expensive, high-risk wells. While we assume that
farm-outs are typically dilutive from a valuation perspective, we believe that a likely increase in appetite from larger companies for
access to high-impact exploration should increase competition, thereby potentially allowing farm-outs to take place on attractive
terms, as well as providing additional credibility and additional clarity to the timing catalyst. Any such trend would be an upside risk
to our valuation of these companies.
Exhibit 4: High-impact explorer metrics and re-rating potential
Exhibit 5: High-impact explorers are testing a number of new basins
Assuming GS estimates of farm-outs where appropriate
High-impact explorers by location
Company
Falkland Oil & Gas
Borders and Southern
Winners
BPC
Dominion
Max Petroleum
Location of main activity
Falklands
Falklands
Bahamas
Tanzania
Kazakhstan
Average
Others
Chariot Oil & Gas
Sterling Energy
Tower Resources
Desire Petroleum
Hardy Oil
Average
Namibia
Cameroon, Madagascar
Namibia, Uganda
Falklands
India
Potential gross Potential upflit to Potential gross resource to be valuation in event Upside to de‐
drilled in next 12 resource to be drilled Total potential of success
risked valuation
beyond 12 months
net resource Average CoS
months
3200
0
1920
4%
2504%
6682%
2040
0
2040
5%
1668%
3599%
0
4305
1291
6%
1417%
3988%
80
1641
745
13%
1389%
3292%
1262
0
1262
28%
259%
1324%
Market cap (US$mn)
192
392
316
146
164
Existing discovered reserves
0
0
0
0
60
242
12
1316
1189
1452
11%
1447%
3777%
612
159
106
63
241
0
0
0
0
0
5081
0
40
637
1844
667
1950
4366
230
1147
2663
1387
675
700
299
9%
17%
9%
10%
40%
1441%
1229%
1997%
611%
305%
2842%
1062%
4177%
955%
517%
236
0
1521
1672
1145
17%
1117%
1911%
Max
Petroleum
Bahamas
Petroleum
Company
Hardy Oil & Gas
Sterling
Energy
Chariot Oil & Gas
Tower Resources
Dominion
Petroleum
Falkland Oil & Gas,
Borders &Southern,
Desire Petroleum
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
Source: Company data.
6
May 30, 2011
Europe: Energy: Oil & Gas - E&P
High-impact exploration to become increasingly attractive to the industry
Based on our Top 330 analysis, most of the discoveries that have been made over the last five years have been made in the deep
offshore, with Brazil dominating, followed by GoM and Ghana. Onshore discoveries of substantial size have typically been limited to
Kurdistan and Uganda. Notably, the more traditional areas of exploration (shallow GoM, Nigeria, Angola) that are typically the
provinces of the majors, have been increasingly less relevant – it has been new frontiers that has driven this exploration. The result
has been a relative lack of success with the drill bit for the larger companies, with majors having found less than other companies
each year since 2003. With exploration budgets at the major’s looking set to increase, we believe this trend is set to reverse, and
believe that competition for attractive, high-impact acreage is likely to increase, thereby improving potential farm-out terms.
Exhibit 6: A pick up in recent exploration success has been led by frontier
basins
Exhibit 7: Majors’ reliance on established basins has not been effective
Top 330 oil reserves discovered by company type
Oil reserves discovered each year in giant fields (Top 330 projects) – 2000 includes
15 bn bls from Kashagan
20000
25,000
18000
20,000
16000
14000
15,000
mn bls
12000
10,000
10000
8000
5,000
6000
4000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2000
0
Traditional offshore
Onshore traditional
Onshore frontier
Offshore frontier
1998
1999
2000
2001
2002
2003
Major
Source: Company data, Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
2004
Other
2005
2006
2007
2008
2009
2010
NOC
Source: Company data, Goldman Sachs Research estimates.
7
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Frontier exploration is well placed on the cost curve – another incentive for the majors
We believe that aside from the potentially material volumes that reward frontier exploration, there are compelling economic reasons
supporting the attractiveness of frontier exploration - namely the position that these fields hold on the cost curve. On our oil cost
curve, we find that the majority of those projects (which break-even at low oil prices and generate significant returns) are fields that
have been discovered in frontier territories (i.e. Brazil, Ghana, Uganda, Vietnam).
We believe this will become increasingly important in the future: in the last year, with the addition of new discoveries in attractive,
frontier fiscal regimes, and the growing importance of unconventional liquids in the production mix, the breakeven cost required to
achieve production from our Top 330 universe has dropped substantially. As a result, portfolios located at the top of the cost curve
(heavy oil, deepwater Angola etc.) will become increasingly marginalized in our view. Consequently, we view exposure to low cost
assets as a positive and would expect the attractiveness of such assets to increase for majors looking to grow production in the
short to medium term.
We note that a risk to the value of frontier exploration is the tendency for advantageous fiscal regimes to eventually be renegotiated.
As a result, we believe that it is possible that economics in frontier areas may worsen at some point in the future, but we believe
that this is unlikely to happen until substantial levels of production have been achieved.
Exhibit 9: The cost curve has shifted down since last year, marginalising
some majors’ portfolios
Exhibit 8: Frontier exploration sits low on the cost curve
Frontier exploration shaded grey
Breakeven of non-producing oil assets: Top 330 vs. Top 280
100 Commercial breakeven (US$/bl)
80 70 60 50 40 30 100 Kashagan US$121/bl
Prirazlom US$110/bl
Nasr US$109/bl
Novoportovskoye US$107.50/bl
Yurubchenko‐Tahomskoye US$101.50/bl
Frontier
Suzunskoye & Tagulskoye Northern Lights
Joslyn
SAS expansion Russkoye
Fort Hills
Carabobo 1
Junin 5
MTPS
Ugnu
Ofon 2 Pearl GTL
Al GhubarHarweel
BS‐4
Cascade & Chinook
Dover Waha (North Gialo & NC‐98)
Lower Zakum
Membro Siri
Point Thomson liquids
Greater Thornbury Area
Firebag
Amal Steam
Mariner Bressay Papa Terra
Block 31 West
Kaskida
Goliat
HebronNsiko
Thickwood Block 32 Phase 2
Pike
Block 32 Phase 1
Lucius
Grouse
Block 31 SE Kearl LakeMacKay River Expansion
Leismer VitoKirby Buckskin
Stones
Block 31 NE Sunrise
Block 17 CLOV
Bosi
Jack / St Malo Perdido Rosebank Tiber
Big Foot
Carmon Creek
Clair Ridge
Appomattox Shenandoah
Usan Bakken Shale
Freedom
Narrows Lake
Mars B
Amal
Nabiye
Itaipu
Bonga SW Aparo
Lucapa Kodiak
Peregrino
Pazflor Wahoo
Delaware Basin HorizontalEgina
Knotty Head
Block 15‐06
Block 18 West
El Merk
Umm al‐Lulu
Vesuvio
Upper Zakum expansion
Carioca
Gumusut
Akri Bijeel
Kizomba Satellites
Granite Wash
Iara Surrounding Area Abare West Caesar TongaEagle Ford
Lula & Cernambi
Jubilee
Tempa Rossa
California Shale
Shaikan Guara
Iara
MKB Pipeline
Aruana Uganda, Blocks 1, 2 & 3
Waimea
TGTGuara South
Tupi Northeast
Tweneboa
Jidong Nanpu
Franco Florim
20 0
2,000
4,000
6,000
8,000
10,000
12,000
Cumulative peak oil production (kb/d)
Source: Company data, Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
14,000
16,000
18,000
20,000
Top 280
Top 330
90 80 70 Breakeven (US$/bl)
90 60 50 40 30 20 10 ‐
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Cumulative Peak Production (kbls/d)
Source: Company data, Goldman Sachs Research estimates.
8
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Recent sell-off of non-producers creates an attractive opportunity to buy exploration
We believe that the recent weakening in risk appetite has created an attractive entry point into those companies with limited
production. Since the beginning of March, companies with more than 20% of their operational value in production have
outperformed those companies with no production by almost 10%. Although the current backwardation of the forward oil curve
would suggest a slight advantage for producing companies that can benefit from short-term oil price strength, we do not believe
that this is sufficiently advantageous to warrant such outperformance. In our view, the fundamental operational metrics of
exploration led-businesses have not changed for the worse, and we do not believe that a flight to producing assets is necessarily a
theme that will create value in the medium term.
Exhibit 10: Performance of “producers” vs. “non-producers” since end-March 2011
23 firms count as “producers”, 27 firms as “non-producers”
110
105
100
95
90
85
80
Producers
Non‐producers
Source: Datastream.
Goldman Sachs Global Investment Research
9
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Rising gas prices, energy security and production ramp-ups to drive outperformance in
unconventional gas
We are positive on gas price exposure in countries with substantial gas deficits, as we believe LNG prices (likely to remain the global
determinant of marginal gas prices in importing markets) will remain strong or strengthen further in the medium term, providing
increased tightness on global markets. As a result, we view companies exposed to gas importing markets, where LNG is likely to be
the marginal fuel positively.
While we believe that the current situation in Japan is likely to put upward pressure on demand, we also see structural pressures on
cost in the supply base providing support to global gas prices. We believe that the marginal costs of projects being brought on line
will remain a key determinant of prices in the long term. Floating LNG projects remain the marginal cost area within LNG in our
view, but there are a number of projects with imminent sanction dates that require US$13/mcf or more to reach an 11% cost of
capital on our estimates, such as Gladstone LNG, Arrow LNG or Evans Shoal.
Exhibit 11: Marginal Top 330 gas fields require over US$12/mcf
Breakeven of non-producing gas assets
16 14 LNG is the maringal asset type, providing support for medium term global prices at c. US$13/mcf+
Commercial breakeven (US$/mcf)
12 10 8 6 Sierkierki
Horn River Shale
Haynesville Shale
Fayetteville Shale
Pinedale Tight Gas
UK CBMi
4 Shizhuang
Raniganj
Unconventional gas breaks even low down on the cost curve, partly as a result of its proximity to local markets
2 ‐
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Cumulative peak gas production (kboe/d)
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
10
May 30, 2011
Europe: Energy: Oil & Gas - E&P
LNG cost inflation a further risk to the upside for gas prices
We believe there is upside risk to our LNG cost forecast, which could provide further support to emerging market gas prices. We
believe that LNG projects in Queensland, expected to come on stream between 2014 and 2016, are at risk from additional cost
pressures, reflecting the level of activity the region is set to experience during the construction phase. Exhibit 12 shows our forecast
for LNG capex in Queensland over the coming years, vs. the level of capex seen in the Canadian oil sands between 2003 and 2007.
The oil sands projects suffered severe cost inflation during this period, as a result of raw material cost inflation, a lack of
experienced construction and oil service workers and, in part, difficulties managing the unprecedented level of spend in the region.
The labour markets in Queensland and Alberta are comparable in our view, as both are located in developed countries with heavily
unionized labour forces, both are likely to rely in part on foreign labour to get through the construction phase and, like Alberta from
the early 2000s, Queensland from 2011 is embarking on a transformational investment programme in its hydrocarbon industries.
We have run sensitivities showing the breakeven level of the Queensland gas projects in a hyperinflationary environment such as
that seen in the oil sands (Exhibit 13). We believe this is an extreme scenario, as costs for the four oil sands projects we included in
the Top 100 report in January 2005 increased 140% in capex per flowing barrel terms. We express breakeven in terms of the oil price
implied as most long-term LNG contracts are linked to this.
Exhibit 12: We forecast a more aggressive ramp-up in Queensland LNG capex
than we saw in the Canadian oil sands boom period
Exhibit 13: Should the same level of inflation be seen in Queensland, projects
would require up to US$170/boe oil contracts to break even
Queensland CBM LNG capex vs. Canadian oil sands
Commercial breakeven, base and extreme inflation scenario
18,000 200.00 16,000 180.00 14,000 160.00 140.00 Oil price breakeven (US$/boe)
Capex (US$ mn)
12,000 10,000 8,000 6,000 120.00 100.00 80.00 60.00 4,000 40.00 2,000 20.00 ‐
0
1
2
3
LNG Capex, Queensland CBM projects, 2010 ‐ 2014
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
4
‐
Arrow LNG
Year
Canadian Oil Sands Capex, 2003 ‐ 2007
Gladstone LNG
GS Base case
APLNG
Queensland Curtis LNG
Hyper‐inflation scenario
Source: Goldman Sachs Research estimates.
11
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Gas price leverage hard to come by in the E&P universe
Obtaining exposure to this theme is not as easy as one may think in the E&P universe, with oil by far the most important commodity
as a driver of the universe. Gas as a commodity represents only 17% of the operational value of the E&P companies under our
coverage. Exposure is, however, significant for certain stocks. We would highlight Great Eastern (North East India), IGas (UK), Green
Dragon (China), JKX (Ukraine), Dominion (LNG), Cove (LNG), Northern Petroleum (Netherlands), Aurealian (Poland) and Hardy
(India) as stocks with significant gas exposure to markets where a net deficit exists. Although companies such as Panoro, Premier
and Salamander have significant exposure to gas, we note that prices are fixed for significant portions of their volumes.
We have identified companies with over 40% of their value in markets with gas deficits, and where prices are not fixed by contracts
or the government, and show the impact on our valuations of a 25% increase in gas prices. We note that a 25% increase to our gas
price assumptions would not take prices above the US$13/mcf we see as the marginal cost for Queensland LNG projects apart from
in the case of Great Eastern, where competing fuels are LPG / fuel oil more than LNG.
Exhibit 14: Exposure to gas in attractive locations is not a common theme
among European E&Ps
Exhibit 15: Potential increase to valuation from a 25% increase in gas prices
in deficit markets
Gas price exposure by value
Revised gas prices take Poland to c.US$12/mcf, the UK to US$12.5/mcf, India (KG
basin) to US$10/mcf, Chinese bucket price after downstream / midstream margins
to US$13/mcf
40%
120%
35%
Upside to valuation from a 25% increase in gas prices
% of value attribute to gas by region
100%
80%
60%
40%
0%
Great Eastern Energy
Igas
Green Dragon
JKX
Hardy Oil
Regal
Cove Energy
Dominion
Aurelian
Northern Petroleum
Melrose Resources
Panoro
Salamander Premier Oil Aminex Plc
Ithaca
Serica
Heritage Oil
PA Resources
Noreco
Chariot Oil & Gas
Faroe Petroleum
Tower Resources
Encore
Dragon Oil
Tullow
Coastal Energy
Nautical Petroleum
Lundin Petroleum
Det Norske
Valiant Petroleum
Maurel & Prom
Nighthawk Energy
Sterling Energy
Gulfsands
Enquest
Rockhopper
DNO
Norse Energy
Bowleven
Bankers petroleum
Borders and Southern
Amerisur
Desire Petroleum
Falkland Oil & Gas
Global Energy …
Gulf Keystone
Max Petroleum
BPC
Soco
20%
Western Europe gas
Emerging market gas
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
LNG
Eastern Europe gas
30%
25%
20%
15%
10%
5%
0%
Regal
Great Eastern Energy
Igas
Green Dragon
Aurelian
JKX
Northern Petroleum
Hardy Oil
Source: Goldman Sachs Research estimates.
12
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Unconventional gas assets over-risked in our view; breakevens are low and production ramp ups /
flow tests should begin to challenge bearish assumptions
We are especially positive on unconventional gas assets, and believe that in many cases, excessive risking is applied to them by the
market, reflecting a belief that they are marginal and that transferability of technology is limited to areas of successful application
(primarily in the US and Australia) to new geologies.
On the commerciality issue, despite the relatively intensive nature of the drilling, the cost profile of these fields is hugely
advantaged vs. LNG, reflecting the proximity to an LNG consuming market. We would highlight, Aurelian (Poland), Great Eastern
Energy (India), Green Dragon (China) and Igas (UK) as being particularly well placed to benefit from the global tightness in the
markets and marginal costs in LNG, without exposure to the likely cost inflation and capex spend that we see in the LNG space.
While we believe that technology is not directly transferrable from region to region, and while completion techniques will likely be
different in different locations, we believe that the operational knowledge that has been built up from the development of large-scale
unconventional gas in the US and Australia should help service providers and upstream operators start from a long way up the
learning curve in developing similar assets in different regions. We believe that with production ramp up expected from Great
Eastern Energy and Green Dragon in 2011, assumptions on risk related to CBM assets in these regions will be tested, while
Aurelian’s testing of its Sierkierki asset should also highlight the potential from a de-risking of this asset.
Exhibit 16: Unconventional gas assets can be attractive if in close proximity
to a net importing market
Exhibit 17: In line execution for unconventional assets could drive
outperformance
Breakeven of global gas assets at commercial hurdle rates (unconventional E&P
assets highlighted)
Impact of de-risking unconventional assets under development for unconventional
gas players
16.00 14.00 Breakeven (US$/mcf)
12.00 10.00 8.00 6.00 4.00 2.00 Shah
Kinteroni
Umm Shaif
Margarita
Raniganj
Shizhuang
Barzan Phase 1
Maranhao
Miran
Marcellus Shale
Khazzan & Makarem
Montney Tight Gas
Satis
Perla
Forcados Yokri
Longgang
Chayanda
Skarv
Tamar
Gendalo
Bongkot South
Kebabangan Gas Cluster
Poseidon
Haynesville Shale
Chuandongbei
Pinedale Tight Gas
Horn River Shale
Fayetteville Shale
Leviathan
West Nile Delta domestic
UK CBM
Sierkierki
Abu Qir
Vietnam Gas Development
Block 405B
Sanga Sanga CBM
West Mediterranean
Sulige South
Severenergiya
Woodford Shale
Platong 2
Gehem
Myanmar M‐9
Culzean
Shwe
Liwan
Ahnet
Bovanenko
Laggan Tormore
Alaska Gas
Greater Gorgon
Sakhalin 1
MacKenzie Gas
Pluto LNG 2
Prelude
Reggane
Angola LNG
Rovuma Offshore Area 1 LNG
PNG Gas Project
Nigeria LNG Train 7
Jupiter
Queensland Curtis LNG
Browse LNG
Ichthys
Brass LNG
Pluto LNG 1
APLNG
OK LNG
Wheatstone LNG
Shtokman
WLGP LNG
Gladstone LNG
Kovykta
Arrow LNG
Greater Sunrise LNG
Evans Shoal
Yamal LNG
Abadi LNG
‐
Impact on valuation of de‐risking of unconventinal gas assets currently under development
80%
70%
60%
50%
40%
30%
20%
10%
0%
Igas
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
Great Eastern Energy
Green Dragon
Aurelian
Source: Goldman Sachs Research estimates.
13
May 30, 2011
Europe: Energy: Oil & Gas - E&P
We expect performance of unconventional assets to improve, in line with US shale assets
We believe that these unconventional assets will begin to improve drilling economics through time, in line with the trend that we
have seen in more established basins in the US. We believe that this expected improvement is likely to drive further performance
and help de-risk the unconventional assets in our coverage further.
Exhibit 18: The “legacy” and emerging shale plays in the US have seen material improvement in drilling economics over time
Average initial production rates and days to drill (excludes completion and tie in time)
25
2,200
2,100
15
2,000
10
1,900
5
Average IP
rate
1,800
0
1,700
2007
2008
2009
2010
2,200
Average IP rate in the Fayetteville
Shale, MMcf/d
20
2,300
25
Average
drilling days
24
2,100
23
2,000
22
1,900
21
1,800
20
1,700
19
1,600
1,500
1,400
18
Average IP
rate
17
16
1,300
Average drilling days in the
Fayetteville Shale
2,300
Average
drilling days
Average drilling days in the
Barnett Shale
Average IP rate in the Barnett
Shale, MMcf/d
2,400
15
2007
2008
2009
2010
Barnett/Fayetteville Shale annual averages based on data from CHK/DVN and CHK/SWN respectively
56
54
7,700
52
7,200
50
6,700
48
6,200
46
5,700
Average IP
rate
5,200
44
42
40
4,700
2007
2008
2009
Average IP rate in the Granite
Wash, MMcf/d
Average
drilling days
8,600
60
7,600
50
6,600
5,600
Average
drilling days
40
30
4,600
20
3,600
Average IP
rate
2,600
10
Average drilling days in the
Granite Wash
8,200
58
Average drilling days in the
Haynesville Shale
Average IP rate in the Haynesville
Shale, MMcf/d
8,700
0
1,600
2007
2008
2009
2010
Haynesville Shale and Granite Wash annual averages based on data from CHK
Source: Chesapeake Energy, Devon Energy, Southwestern Energy.
Goldman Sachs Global Investment Research
14
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Unconventional liquids – de-risking of assets and potential M&A the key driver
As with the levels of risking we see in unconventional gas assets, we believe that a similarly high risking is applied to
unconventional liquids outside the more established basins in the US (such as the Bakken, Eagle Ford, Granite Wash etc.). Again,
while we believe that the drilling techniques perfected in these basins are unlikely to be able to applied directly to different
geologies, we believe that the experience in these basins serves to help the process of unlocking the potential of new basins. We
also note that the trend is for well performance to improve through time, as more is learnt about the optimal way in which to drill
and complete wells, and therefore we expect to see incremental improvements from these assets at an early stage of development.
As shown in Exhibits 19 and 20, drilling efficiencies also tend to improve, with times to drill, and costs decreasing through time.
Exhibit 19: Flow rates in the the Bakken Shale have gradually increased
through time
Exhibit 20: North Dakota monthly implied spud-to-spud days and average rig
count
Initial production rates for wells in tier 1 of the Bakken Shale
3.50
3.00
60
180
55
160
140
IP rates (kbopd)
2.50
120
45
100
40
80
35
60
2.00
30
Average Rig Count
Spud-to-spud Days
50
40
25
20
20
0
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Jul-07
Oct-07
1.00
Apr-07
Jan-07
1.50
1 2 3 4 5 6 7 8 9 10 1112 13 1415 1617 18 1920 2122 23 24 25 2627 2829 30 3132 3334 35 3637 3839 4041 42 4344 4546 47 4849 5051 5253 54 5556 5758 59
IP rates from tier 1 Bakken shale assets
Source: Company data.
Goldman Sachs Global Investment Research
Linear (IP rates from tier 1 Bakken shale assets)
Rig count
Implied Spud-to-spud days
Source: North Dakota Oil & Gas Commission. Goldman Sachs Research estimates.
15
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Flow rates and costs key to unlocking value
We highlight Panoro (with its low permeability MKB asset in Congo) and Nighthawk (with its oil shale Jolly Ranch play in the US) as
companies with exposure to unconventional liquids assets at an early stage of development. We believe that a de-risking of these
assets could result in substantial upside from current levels. While we note that risk remains around these assets (especially for
Nighthawk, which has only drilled one well to date that we would consider commercial), we believe that the heavy risk factors that
we apply to these assets account for this uncertainty.
We believe there is significant further upside to be realized from both these assets from:

A de-risking of the assets as drilling continues;

The potential to improve flow rates;

The potential for drilling efficiencies to improve and, subsequently, for costs to come down.
In the event of de-risking these plays, we see significant re-rating potential for both Panoro and Nighthawk (Exhibit 22). We see the
key to de-risking these unconventional assets and determining value as the flow rates that can be achieved by the wells.
Exhibit 21: Assumed flow rates per well
Exhibit 22: Increased flow rates, more efficient drilling and de-risking of
unconventional liquid assets have the potential to re-rate Panoro and
Nighthawk
Potential uplift to valuation as percentage of market cap
0.06
0.40
0.04
0.30
0.03
0.20
0.02
kbopd
0.05
Potential value added as % of market cap (Nighthawk)
0.07
0.50
kbopd
120%
1100%
100%
900%
80%
700%
60%
500%
40%
300%
20%
100%
0.08
0.60
0.10
0.01
0%
0.00
0.00
1
2
3
4
Assumed MKB flow rates (Panoro ‐ LHS)
5
6
8
9
Assumed Jolly ranch vertical flow rates (Nighthawk ‐ RHS)
Source: Company data, Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
7
10
‐100%
De‐risking
50% higher IP rate (no risking changes)
100% de‐risking
IP rates 50% higher
Panoro (LHS)
Drop in costs by 50%
Costs 50% down
Nighthawk (RHS)
Source: Goldman Sachs Research estimates.
16
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Unconventional liquids set for M&A in the future
We note that the majors are conspicuously absent from unconventional liquids at present. Despite the presence of some majors in
the Eagle Ford shale (i.e. Shell, Statoil) the only two majors with significant exposure to the unconventional liquids plays in the US
are Exxon and Conoco.
We note that Panoro’s and Nighthawk’s operations are at an early stage, and that further drilling and de-risking is required before
these are likely to screen as potential M&A targets. Nonetheless, we believe the early results at Panoro’s MKB fields are very
encouraging. Nighthawk’s Jolly Ranch asset has greater risk in our view, but as Exhibit 23 shows, in the event of the company
proving the geology of the play, the potential upside based on US deal metrics from similar assets could be substantial.
Exhibit 23: Majors are generally under-represented in unconventional liquids
Exhibit 24: The size of the prize for unlocking new plays is substantial
NPV of unconventional liquids resource as % of EV (as at April 6, 2011)
Oil shale transaction implications for Nighthawk
NPV 2011 of unconventional liquids portfolio as a % of 2011 EV
70%
60%
50%
Buyer
High Bid
Hess
XTO
High Bid
High Bid
Northern Oil
El Paso
Rex Energy
Hilcorp Energy
Average
Seller
Wyoming lease sale
Marathon
Headington
Wyoming lease sale
Wyoming lease sale
Windsor bakken
UoT lease sale
Private company
Lucas Energy
Date
4/9/10
28/7/10
15/7/08
9/7/10
12/5/10
1/6/09
23/9/10
30/6/10
5/7/10
Asset
Niobrara
Bakken
Bakken
Niobrara
Niobrara
Bakken
Wolfcamp Niobrara
Eagle Ford
000 acres
0.6
85.0
352.0
0.3
0.6
3.0
123.1
18.7
9.525
Price (US$mn)
3.8
445.0
1800.0
1.0
1.9
7.3
180.0
18.7
8.9
000' US$ / acre
5.9
5.2
5.1
3.2
3.0
2.4
1.5
1.0
0.9
2.9
Implied Nighthawk value
1195
1060
1035
647
606
491
294
200
187
577.5
Implied upside
3248%
2870%
2801%
1712%
1598%
1276%
723%
461%
423%
1518%
40%
30%
20%
10%
0%
Source: Goldman Sachs Research estimates, Bloomberg.
Goldman Sachs Global Investment Research
Source: Company data, Goldman Sachs Research estimates, Wyoming Land Auction data.
17
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Free exploration options remain a compelling investment case
Since we expanded our universe of stocks on November 5, 2010, a key theme of ours has been identifying those companies in
which the value of their cash, production and discoveries supports the share price, but which also contain material exploration
upside – essentially providing re-rating potential through exploration that does not need to be paid for in the share price. Since
November, these companies have outperformed our coverage by c.10%.
We believe that these companies offer a compelling mix of value and exploration upside, and therefore highlight those companies
in our universe which we estimate have re-rating potential of over 66% in the next six months, combined with a share price that is
fully supported by cash, production, developments and risked discoveries. Of particular interest, in our view, are Bowleven and
Rockhopper, due to the de-risked nature of their exploration.
Exhibit 25: Balanced explorers have performed well since November 2010
Balanced explorers vs. E&P coverage
Exhibit 26: Exploration re-rating potential with core value support is an
attractive combination
6-month re-rating potential vs. upside / downside to core value (+discoveries)
140
220%
Short term re‐
rating potential comes at a cost
135
130
Noreco
170%
Exploration upside within 12 months
125
120
115
110
105
100
Free, material short term re‐
rating potential
Aminex Plc
120%
Det Norske
Encore
Bowleven
70%
Faroe Petroleum
Rockhopper
Salamander 20%
Less material re‐
rating potential partially priced ‐20%
into stock
95
90
08/11/2010
08/12/2010
08/01/2011
08/02/2011
08/03/2011
08/04/2011
08/05/2011
30%
80%
130%
180%
Cheap core value
‐30%
Core value / price
Balanced explorers
Source: IHS Herold.
Goldman Sachs Global Investment Research
E&P universe
Aurelian has 314% re-rating potential and 17% upside to core valuation, Amerisur has 297% and 3%.
Source: Goldman Sachs Research.
18
May 30, 2011
Europe: Energy: Oil & Gas - E&P
M&A – Materiality and technical access a further potential driver of NOC activity
We believe that M&A remains a key theme in the industry. However, with NOC’s the most price insensitive buyers, in our view, we
believe that isolating M&A likely to be driven by NOCs is the most attractive way to play this theme.
We believe that larger assets are likely to be attractive to NOCs and therefore consider companies with discovered resource of
greater than 200 mn bls in a single block / asset to screen attractively in this regard (Exhibit 28).
In recent years, we have also seen an increasing bias towards NOC purchases of complex assets. We believe that this is in large part
inspired by a desire to develop technical skills, through exposure to highly skilled operators, pushing back the technological
boundaries of the industry. We would expect this trend to continue, with a number of “gaps” remaining in the portfolios of NOCs.
We have assessed which companies could provide a possible entry point into such assets. In our view, there are a number in our
coverage that provide exposure to what we regard as technical asset types. Companies with particularly high exposure include a
number of early stage CBM operators, such as and Green Dragon (China). Cove Energy represents an interesting potential entry into
a deepwater LNG scheme, while Bankers offers a high level of exposure to heavy oil developments. Tullow also offers exposure to
deepwater expertise.
Exhibit 27: NOC transactions have been highly focused on technical assets
Exhibit 28: Materiality a key concern for NOCs
NOC deals in high-tech win zones since 2006
Percentage of value lying in assets of 200 mn bls or more. Assets exposed to
technical frontiers are highlighted.
Heavy Oil
OML 130 (Akpo, Egina), 2006
CRTHE, 2009
Unconventional gas / liquids
LNG
Eagle Ford, 2010
Wyoming, Colorado, 2011
Curtis LNG, 2010
Sakhalin II, 2006
Eagle Ford, 2011
120%
100%
BC‐10, 2006
PetroChina
MacKay River & Dover, 2009
Petronas
PTTEP
Kai Kos Dehseh, 2010
Encana Cutbank Ridge gas assets, 2011
Mauritania, 2007
Arrow Energy, 2010
Gladstone LNG, 2008
Marcellus, 2010
Eagle Ford, 2010
Reliance
Rosneft
Sinochem
Sinopec
DW West Africa
% value in assets over 200mn bls
CNOOC
Gazprom
KNOC
ONGC
DW Brazil
80%
60%
40%
Peregrino, 2010
Northern Lights, 2009
Tanganyika, 2008
Syncrude, 2010
Block 15, 17, 18/06, Repsol Brasil, 2010 2006
20%
0%
Bankers petroleum
Source: Goldman Sachs Research.
Goldman Sachs Global Investment Research
Dragon Oil
Green Dragon
Gulf Keystone
Cove Energy
Tullow
Heritage Oil
Source: Goldman Sachs Research estimates.
19
May 30, 2011
Europe: Energy: Oil & Gas - E&P
NOC interest could be a material value driver
We are especially attracted towards M&A that could potentially involve NOCs as we note that recent deals involving NOCs as the
acquirers have been done at significantly higher prices than those that have attracted IOC attention. We believe that this is a
function of the IOCs typically looking to buy assets at commercial costs of capital (to generate value), while the NOCs’ deal
rationales are often more strategic. Exhibit 29 shows the discount rates implied by recent deals, with NOC’s paying discount rates of
8% or lower in order to secure assets.
Exhibit 30 shows the re-rating potential from those companies that we believe could attract NOC attention either as a result of the
large materiality, or as a result of the technical nature of the asset if we use an 8% discount rate to value those assets we view as
attractive.
Exhibit 29: NOC acquisitions have been more price insensitive driving
potentially greater returns
Exhibit 30: Deals done at NOC costs of capital could see significant upside to
current valuations
Implied discount rates of recent deals
Highlighted companies screen attractively for both materiality and technical
access
90%
18.00%
NOC acquirer
but with
controlling stake
16.00%
80%
IOC acquirers
NOC acquirers
14.00%
Average WACC for
sector per GS
valuations
Uplift to valaution at NOC valuations
Discount rate implied by deal at long run oil price
12.00%
70%
10.00%
8.00%
6.00%
4.00%
2.00%
60%
50%
40%
30%
20%
0.00%
Peregrino
Athabasca Oil
Sands
Corporation
assets
Dana *
* Excluding exploration value
** Assuming 80% development risking
Source: IHS Herold.
Goldman Sachs Global Investment Research
Block 32 Marathon
stake
Jack/St Malo
Mariner**
Uganda,
blocks 1 & 3
(ENI &
Heritage)
Dragon
10%
0%
Cove Energy
Dragon Oil
Gulf Keystone
Green Dragon
Bankers petroleum
Heritage Oil
Tullow
Source: Goldman Sachs Research.
20
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Thematic summary for E&P universe
In this report we have highlighted as thematic winners only those stocks on which we have a Buy rating. In Exhibit 31 we show
where all our coverage sits in relation to our five key themes, regardless of rating.
Exhibit 31: Thematic exposure of entire E&P coverage universe
High impact exploration. Company
Upside
Thematic, buy rated winners
Thematic exposure already in price (netural & sell rated stocks)
Unconventional Gas
Company
Upside
BPC
Max Petroleum
Falkland Oil & Gas
Dominion
Borders and Southern
168%
159%
140%
117%
96%
Aurelian
Igas
Green Dragon
Great Eastern Energy
181%
117%
95%
97%
Sterling Energy
Chariot Oil & Gas
Tower Resources
Desire Petroleum
Hardy Oil
82%
81%
72%
48%
22%
JKX
Regal
Hardy Oil
40%
32%
22%
Unconventional liquids
Company
Upside
Panoro
Nighthawk Energy
154%
125%
Balanced Exploration
Company
Upside
NOC‐driven M&A
Company
Upside
Others
Company
Upside
Rockhopper
Aurelian
Bowleven
Aminex Plc
Noreco
241%
181%
107%
104%
96%
Cove Energy
Green Dragon
Bankers Petroleum
108%
95%
89%
Global Energy Development
Northern Petroleum
PA Resources
Aminex Plc
Nautical Petroleum
Maurel & Prom
189%
164%
132%
104%
112%
89%
Faroe Petroleum
Det Norske
Salamander Amerisur
Encore
82%
81%
79%
60%
38%
Gulf Keystone
Heritage Oil
Dragon Oil
Tullow
85%
55%
35%
32%
Gulfsands
Norse Energy
Serica
Coastal Energy
Valiant Petroleum
Ithaca
DNO
Soco
Melrose Resources
Enquest
Premier Oil Lundin Petroleum
78%
79%
75%
82%
64%
52%
64%
34%
28%
28%
22%
14%
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
21
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Oil price sensitivity and the E&Ps; higher fiscal risk, but lower commercial thresholds;
maintaining US$100/bl in our valuations
We currently value our E&P universe using a long-run oil price of US$100/bl. At present, with the 3-year forward Brent price trading
at c.US$100/bl, we see no need to adjust our valuations.
We note, however, that our assumption is below the current Brent spot price, and substantially below the level at which the oil price
peaked in late April/early May (at c.US$125/bl). As a result, we have run sensitivities at US$125/bl (with additional cost inflation
included) to show the potential impact on valuation (Exhibit 31). The companies most exposed to the commodity are those with
either high operational leverage (i.e. Regal, Dominion), high exposure to oil-based reserves in licence regimes (Lundin, Noreco), or
those with high levels of financial leverage (i.e. Noreco, PA Resources).
However, the equity market appears reluctant to price in high spot prices into valuations, as shown by the divergence of the spot
price and equity performance in mid-2008, and in the early part of 2011 (Exhibit 33). We believe this is the result of (1) a greater
focus on the long-term crude price (where most of the value in these stocks lies), (2) a reluctance to price in potentially short-term
spikes in the oil price, and (3) a recognition that at higher oil prices the operating environment becomes more challenging as a result
of inflation, higher fiscal risk and risks of bottlenecks in service capacity. We believe that to price in higher oil prices in equity
valuations, the market will need to see sustained high oil prices across the curve.
Exhibit 33: E&P equities have typically failed to price in spot price highs
Impact of increase in oil price from US$100/bl to US$125/bl on valuation
Brent spot price vs. E&P sector
Uplift in valuation from US$100/bl to US$125/bl
Exhibit 32: Oil price sensitivity to US$125/bl
60%
160
50%
140
120
40%
100
30%
80
20%
60
10%
40
Regal
Noreco
Dominion
PA Resources
Tullow
Lundin Petroleum
Cove Energy
Tower Resources
Great Eastern Energy
Nighthawk Energy
JKX
Melrose Resources
Igas
Chariot Oil & Gas
Rockhopper
Bankers petroleum
DNO
Global Energy Development
Amerisur
Borders and Southern
Dragon Oil
Soco
Aurelian
Coastal Energy
Falkland Oil & Gas
Maurel & Prom
Premier Oil Serica
Gulf Keystone
Valiant Petroleum
Nautical Petroleum
Det Norske
BPC
Max Petroleum
Bowleven
Enquest
Gulfsands
Encore
Faroe Petroleum
Sterling Energy
Ithaca
Northern Petroleum
Desire Petroleum
Salamander Heritage Oil
Panoro
Green Dragon
Aminex Plc
Hardy Oil
Norse Energy
0%
20
0
Brent spot price
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
E&P sector performance (indexed to Brent spot price)
Source: Datastream.
22
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Oil prices and commerciality - fiscal risk increases under higher oil prices
Higher oil prices do not necessarily result in higher valuations as they can also cause countries to adjust their fiscal regimes to
effectively tax away outsized returns gained through access to a country’s hydrocarbons. We believe that three factors are worthy of
consideration in assessing whether a country is at risk of adjusting its fiscal terms:

High returns for producers in the country. Countries need to ensure that companies continue activities and therefore low
returns are likely to reduce the likelihood of fiscal changes;

A low existing tax rate. If a government’s fiscal take is already high, a relatively large proportion of profits will go to the
government in any case and the possible delta by which to move the tax take is more limited

Assets are already producing. We believe there is less incentive to avoid changing the fiscal terms as oil companies in the
country will have already sunk substantial costs and will be less able to simply halt development. Most frontier areas remain at
lower tax rates until production begins (with Israel’s recent tax rise being a notable exception).
We show in Exhibits 33 and 34 the returns vs. tax take at US$85/bl (the 5-year forward price through most of 2009/2010) and at
US$110/bl. We believe in a sustained high oil price environment, tax rates in many countries to the right of the line in Exhibit 35 will
be at risk of change, although those countries with an immature or emerging industry may be reluctant to make changes to fiscal
regimes until production has been established.
Exhibit 34: High P/Is and low tax rates put outsized returns at risk
Exhibit 35: Higher oil price may lead to further tax increases
Country tax rates vs. PIs for pre-sanction and under development projects
Country tax rates vs. PI at US$110/bl
100%
100%
Low returns and / or high
existing tax rates limit chance
of fiscal renegotiation
UAE
UAE
90%
Iraq
90%
Iraq
Low returns and / or high
existing tax rates limit
chance of fiscal
renegotiation
Peru
Peru
Algeria
Overall tax take
70%
Israel
Kazakhstan
Oman
Myanmar
Venezuela
Qatar
Norway
Russia
60%
80%
Libya
Malaysia
UK
Uganda
Angola
Nigeria
Egypt
70%
Overall tax take @ US$110/bl
80%
Vietnam
Thailand
Indonesia
50%
Canada
Congo
Bolivia
UK - Top 280
Australia
China Italy
Brazil
40%
Ghana
US
Mozambique
Papua New Guinea
30%
20%
1.00x
1.50x
Israel - Top 280
2.00x
2.50x
High returns and relatively low
existing tax rates increase
risk of fiscal renegotiation
3.00x
3.50x
60%
Israel
Algeria
Malaysia
Libya
Kazakhstan
Norway
Myanmar
Oman
Russia Qatar
Venezuela
UK
Egypt
Indonesia
Uganda:
PI 3.52x,
73%
Angola
Nigeria
Thailand
Canada
50%
Congo
Bolivia
China
Australia
Goldman Sachs Global Investment Research
Ghana
Brazil
Italy
40%
US
30%
20%
1.00x
Papua New Guinea
1.50x
2.00x
Mozambique
2.50x
High returns and relatively
low existing tax rates
increase risk of fiscal
renegotiation
3.00x
3.50x
PI ratio @ US$110/bl
PI ratio
Source: Goldman Sachs Research estimates.
Vietnam
Source: Goldman Sachs Research estimates.
23
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Commercial thresholds drop at higher oil prices which should also drive de-risking
The other major impact of an increased oil price environment is that it allows commercialization of previously unattractive assets.
Although valuations of marginal assets increase at higher oil prices, we believe that there is rarely an additional increase in the
valuations equity markets ascribe to more marginal assets as a result of reductions in the commerciality risk at higher oil prices.
We highlight the North Falklands Basin as an asset where the market regards commerciality with a degree of scepticism as a result
of its relative isolation. Although we believe that these concerns are substantially overdone (with the use of FPSOs limiting the need
for major infrastructure in the area), we note that in the current oil price environment, concerns should be receding; at the current oil
price, even costs of over US$30/bl are comfortably commercial using a 15% hurdle rate. We do not believe that the market has fully
accounted for this impact in more marginal basins in our coverage, and we believe that projects perceived as marginal have seen
little de-risking in this higher oil price environment.
Exhibit 36: Higher oil prices should drive de-risking of more marginal assets
IRR and NPV/bl of North Falklands asset at differing cost and oil price assumptions (assuming US$16/bl opex costs)
F&D per barrel
NPV12/bl
$10
$15
$20
$25
$30
US$70
7.67
4.88
2.02
‐0.84
‐3.63
US$85
11.33
8.54
5.68
2.81
0.03
Uncommercial at 12% hurdle rate
Uncommercial at 15% hurdle rate
Oil price
US$100
14.99
12.2
9.33
6.47
3.68
US$115
18.64
15.85
12.99
10.13
7.34
US$130
22.30
19.51
16.65
13.78
11.00
IRR
F&D per barrel
$10
$15
$20
$25
$30
US$70
50%
29%
18%
10%
5%
US$85
65%
41%
27%
18%
12%
Oil price
US$100
79%
52%
36%
26%
19%
US$115
91%
62%
45%
33%
25%
US$130
102%
71%
53%
40%
31%
Uncommercial at 12% hurdle rate
Uncommercial at 15% hurdle rate
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
24
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Adjustment to long-term exploration discount
We previously applied a 50% discount to medium-term drilling catalysts, reflecting uncertainties with long-dated catalysts (timing of
drilling, resource updates following additional seismic, lack of CPRs, etc.). Following further analysis of the performance of stocks
into drilling campaigns, we note that performance into a major catalyst is far from uniform, with many stocks outperforming up to
two years before the campaign. Catalysts, such as the booking of rigs, CPRs etc., however continue to drive shares. As a result, we
remove the blanket discount we had previously used and replace it with asset-specific discounts to account for specific uncertainties
in the build up to drilling. We also apply these discounts to high-impact exploration prospects being drilled in the next 12 months,
where these prospects represent greater than 50% of a company’s valuation. We now adjust our chances of success for the
following:

Lack of 3D seismic over prospects, 15% discount to chance of success (CoS);

Lack of CPR, 20% discount to CoS;

Lack of rig booked, 10% discount to CoS.
Exhibit 37: Chariot Oil has outperformed steadily into drilling in Namibia…
Chariot Oil’s share price performance vs. E&P universe
Exhibit 38: …while much of Desire’s outperformance came over 12 months
before
Desire’s share price performance vs. E&P universe
900%
250%
Rig booked
800%
Nimrod structure identified
Liz well dry
200%
700%
CPR (small decrease in prospective resource)
600%
500%
150%
100%
Increase in prospective resources
400%
300%
Seismic acquired (no sizes)
Farm in partner announced
50%
200%
0%
100%
‐50%
0%
‐100%
Source: Datastream.
Goldman Sachs Global Investment Research
‐100%
Source: Datastream.
25
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Impact on long-dated exploration
Our adjustments have the following impact on our chances of success for long-dated exploration drilling:
Exhibit 39: Material medium-term exploration catalysts
Company
Prospect
Amerisur
Borders and Southern
BPC
Chariot Oil & Gas
Cove Energy
Cove Energy
Dominion
Dominion
Dominion
Dominion
Falkland Oil & Gas
Hardy Oil
Hardy Oil
Max
Northern petroleum
PA Resources
Panoro
Rockhopper
Sterling
Sterling
Tower
Paraguay
Falklands
Bahamas
Namibia
Gas
Oil
Alpha ‐ gas
Alpha ‐ oil
Beta ‐ gas
Beta ‐ oil
Falklands
D9
D3
Kasakhstan ‐ weighted average
Sicily
Greenland
Santos basin
Falklands
Cameroon
Madagascar
Namibia
Basic CoS
No processed 3D seismic
No CPR
No rig
Final CoS
5%
5%
10%
10%
40%
15%
15%
3%
15%
3%
5%
10%
60%
28%
15%
10%
25%
20%
25%
10%
10%
15%
0%
15%
0%
0%
0%
15%
15%
15%
15%
10%
0%
0%
0%
0%
15%
0%
0%
15%
15%
15%
20%
0%
20%
0%
20%
20%
0%
0%
20%
20%
20%
0%
0%
0%
20%
20%
20%
0%
20%
0%
0%
10%
0%
10%
10%
0%
0%
10%
10%
10%
10%
0%
0%
0%
0%
10%
10%
10%
0%
10%
10%
10%
3%
5%
6%
9%
32%
12%
14%
2%
9%
2%
4%
10%
60%
28%
11%
6%
18%
20%
15%
8%
8%
Processed 3D?
N
Y
N
Y
Y
Y
N
N
N
N
N
Y
Y
Y
Y
N
Y
Y
N
N
N
CPR?
N
Y
N
Y
N
N
Y
Y
N
N
N
Y
Y
Y
N
N
N
Y
N
Y
Y
Rig?
N
Y
N
N
Y
Y
N
N
N
N
Y
y
Y
Y
N
N
N
y
N
N
N
*CPR: Competent person report, CoS: Chance of Success
Source: Goldman Sachs Research estimates, Company data
Goldman Sachs Global Investment Research
26
May 30, 2011
Europe: Energy: Oil & Gas - E&P
E&P screens; updating target prices and ratings
We make several adjustments to the valuations of the companies in our coverage, reflecting recent newsflow. As in our last
sub-sector publication on January 31, 2011, we use a US$100/bl oil price to value the E&Ps, broadly in line with the forward curve
and our 2011 oil price estimates. Our target prices imply average potential upside for the sector of 88%, (26% excluding exploration
value) and hence we retain our Attractive coverage view. We also update for movements in fx.
Exhibit 40: Target prices and ratings changes (sorted by upside potential to 12-month target price)
% change from previous, does not include the impact of the roll-forward.
#
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Company
Rockhopper
Global Energy Development
Aurelian
BPC
Northern Petroleum
Max Petroleum
Panoro
Falkland Oil & Gas
PA Resources
Nighthawk Energy
Dominion
Igas
Nautical Petroleum
Cove Energy
Bowleven
Aminex Plc
Great Eastern Energy
Borders and Southern
Noreco
Green Dragon
Maurel & Prom
Bankers petroleum
Gulf Keystone
Sterling Energy
Coastal Energy
Market cap Current (USDmn)
price
901
2.15
37
0.64
411
0.52
316
0.16
173
1.16
164
0.13
261
6.18
192
0.62
418
4.14
36
0.06
146
0.06
187
0.73
470
3.29
691
0.87
1,074
3.06
100
0.08
771
4.20
392
0.56
523
11.90
1,718
12.95
2,604
15.22
1,950
4.90
1,778
1.45
159
0.45
758
4.25
New Updated Updated Previous target price target price potential upside to (not rolled (with roll‐
target forward) target price
forward)
price
6.84
6.57
7.32
241%
1.94
1.65
1.85
189%
1.52
1.34
1.46
181%
0.31
0.38
0.42
168%
2.58
2.84
3.05
164%
0.32
0.29
0.34
159%
15.40
14.48
15.72
154%
2.08
1.33
1.48
140%
9.92
8.35
9.61
132%
0.20
0.13
0.14
125%
0.11
0.11
0.12
117%
1.65
1.45
1.57
117%
7.03
6.44
6.97
112%
1.55
1.62
1.80
108%
5.78
5.69
6.35
107%
0.17
0.15
0.16
104%
6.49
7.37
8.28
97%
1.21
1.00
1.10
96%
28.50
22.01
23.37
96%
23.80
22.37
25.20
95%
18.05
25.89
28.82
89%
8.80
8.36
9.26
89%
2.34
2.34
2.68
85%
0.89
0.74
0.81
82%
7.75
7.06
7.74
82%
Upside / % change downside to 12‐month re‐
from core value rating potential
previous
‐4%
102%
73%
‐15%
283%
0%
‐12%
17%
314%
19%
‐74%
0%
10%
120%
18%
‐8%
‐26%
259%
‐6%
134%
12%
‐36%
‐76%
2504%
‐16%
46%
34%
‐38%
238%
0%
5%
‐82%
39%
‐12%
190%
0%
‐8%
76%
65%
5%
14%
60%
‐2%
18%
78%
‐16%
9%
208%
14%
113%
0%
‐17%
‐74%
1668%
‐23%
17%
180%
‐6%
61%
0%
43%
64%
37%
‐5%
90%
0%
0%
‐12%
44%
‐17%
‐58%
17%
‐9%
25%
54%
Old rating New rating Currency
B*
B*
GBp
B
B
GBp
B*
B*
GBp
B
B
GBp
B
B
GBp
B
B
GBp
B*
B*
NOK
B
B
GBp
B
B
SEK
B
B
GBp
B
B
GBp
B
B
GBp
B
B
GBp
B
B
GBp
B*
B*
GBp
B
B
GBp
B
B
GBp
B
B
GBp
N
B
NOK
B
B
USD
N
B
EUR
B
B
GBp
N
N
GBp
N
N
GBp
B
N
GBp
Source: Bloomberg, Goldman Sachs Research estimates. *Conviction List member.
Goldman Sachs Global Investment Research
27
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Exhibit 40 cont'd: Target price and ratings changes (sorted by upside potential to 12-month target price)
#
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Company
Faroe Petroleum
Det Norske
Chariot Oil & Gas
Norse Energy
Salamander
Gulfsands
Serica
Tower Resources
Valiant Petroleum
DNO
Amerisur
Heritage Oil
Ithaca
Desire Petroleum
JKX
Encore
Dragon Oil
Soco
Regal
Tullow
Melrose Resources
Enquest
Hardy Oil
Premier Oil
Lundin Petroleum
Market cap Current (USDmn)
price
479
1.39
612
30.60
612
2.08
86
0.64
702
2.80
513
2.59
78
0.27
106
0.06
343
5.32
1,201
7.02
357
0.24
1,115
2.38
545
1.31
63
0.11
808
2.89
328
0.70
4,416
5.26
2,120
3.83
229
0.44
18,684
12.92
457
2.45
1,718
1.32
241
2.06
3,578
4.72
4,315
84.15
Updated Updated New Previous target price target price potential target (not rolled (with roll‐
upside to price
forward)
forward) target price
2.59
2.40
2.52
82%
54.70
52.40
55.46
81%
3.84
3.37
3.76
81%
2.06
1.08
1.15
79%
4.65
4.60
5.00
79%
4.78
4.22
4.63
78%
0.61
0.43
0.48
75%
0.07
0.09
0.10
72%
10.06
8.03
8.75
64%
9.70
10.50
11.49
64%
0.28
0.36
0.38
60%
4.20
3.54
3.69
55%
1.99
1.87
1.99
52%
0.53
0.15
0.17
48%
4.02
3.70
4.05
40%
1.33
0.88
0.96
38%
6.96
6.77
7.08
35%
5.08
4.80
5.11
34%
0.42
0.52
0.58
32%
17.03
16.22
17.03
32%
3.19
2.81
3.14
28%
1.77
1.52
1.69
28%
1.73
2.32
2.52
22%
5.97
5.54
5.74
22%
80.00
90.72
96.00
14%
% change Upside / from downside to 12‐month re‐
core value rating potential
previous
‐7%
52%
78%
‐4%
36%
95%
‐12%
‐69%
1331%
‐48%
92%
0%
‐1%
15%
66%
‐12%
49%
60%
‐30%
‐4%
127%
21%
‐95%
53%
‐20%
51%
47%
8%
10%
60%
27%
3%
297%
‐16%
5%
55%
‐6%
58%
0%
‐71%
‐52%
84%
‐8%
‐11%
46%
‐34%
6%
86%
‐3%
27%
1%
‐6%
7%
6%
24%
‐6%
0%
‐5%
‐24%
40%
‐12%
‐18%
147%
‐14%
27%
0%
34%
‐52%
158%
‐7%
8%
28%
13%
‐12%
57%
Old rating New rating Currency
N
N
GBp
B
N
NOK
N
N
GBp
N
N
NOK
B
N
GBp
N
N
GBp
N
N
GBp
N
N
GBp
N
N
GBp
S
N
NOK
N
N
GBp
N
N
GBp
N
N
GBp
N
N
GBp
N
N
GBp
S
N
GBp
N
N
GBp
N
N
GBp
N
N
GBp
N
N
GBp
N
N
GBp
N
N
GBp
S
S
GBp
N
S
GBp
S
S
SEK
Source: Bloomberg, Goldman Sachs Research estimates. *Conviction List member.
Material changes to 12-month target prices and rationale
We discuss the rationale for our target price changes in excess of 10% below: We make revisions to our assumed farm-out terms
following discussions with management teams, and now typically assume a 33% stake retention in return for a 1-2 well carry. We
also roll forward our valuation, making 2011 our new front year.

Aurelian – increasing of risking at Sierkierki from 70% to 65% chance of success following mechanical issues with the Trzek 2
well.

Amerisur – removal of long-dated drilling discount

Aminex – dilution from placing and updating US reserves following recent guidance.

Borders and Southern – adjustment of chances of success for South Falklands prospects in line with new methodology.
Goldman Sachs Global Investment Research
28
May 30, 2011
Europe: Energy: Oil & Gas - E&P

BPC – increase of prospect sizes to 4.3 bn bls for two prospects based on preliminary seismic data and a removal of our
medium-term drilling discount. Partly offset by an increase in WACC to 14% to reflect concerns over ability to drill before US
elections and potential delays to drilling and a reduction in assumed block retention post farm-out to 30% (from 50%).

Chariot – greater retention of Southern blocks following placement, offset by adjustment of chance of success to account for
lack of rig under new methodology and revised farm-out terms for Northern blocks (now assuming 33% retention for two well
programme, vs. 50% before).

Coastal Energy – reserves downgrade at the Bua Ban asset largely offset by recent drilling success.

Cove Energy – updating exploration timeline. Removing long-term drilling discount on prospects, but adjusting chances of
success for medium-term exploration in line with new methodlogy.

Desire – dry well at Ninky.

Det Norske – dry wells at Gulris and Dovregrubben.

DNO – de-risking of KRG contracts following exports and release of oil export payments from Baghdad to contractors.

Encore – UK tax adjustment and adjustment to Cladhan volumes following unsuccessful appraisal well reduce target price.
Downwards effect is partially offset by an increase in assumed volumes in and around Catcher.

Enquest – adjustment for increase in UK tax.

Faroe Petroleum – adjustment for increase in UK tax.

Great Eastern Energy – increase in estimated ramp up and production plateau per well.

Gulfsands – increase in political risking for Syria (to 75% chance of success from 100%) following political unrest. We also
update for results at Twaiba, Yousefieh South and KHE-101.

Hardy Oil – increase in Indian gas price assumptions (to US$8/mcf in the long term) following recent news of partial price
liberalization for D6 block.

Heritage Oil – increased risking and delays to Malta drilling catalysts due to Libyan conflict likely impacting negotiations on
border dispute.

Igas – adjustment for increased UK tax.

Ithaca – adjustment for increased UK tax.

Lundin – Increasing of assumed volumes in Alvheim and surrounding area. We now assume a P50 volume for Alvheim of
300mn boe (ahead of current guidance).

Maurel & Prom – updating for 2011 exploration programme and reserves upgrade in Gabon.
Goldman Sachs Global Investment Research
29
May 30, 2011
Europe: Energy: Oil & Gas - E&P

Melrose – adjustments to reserves following year-end and operational update, especially related to the shrinking of Kaliakra.
Adjustments to exploration programme, with Mansoura exploration prospects removed.

Nautical – adjustment for increased UK tax. Partially offset by increase in assumed volumes in and around Catcher and the
purchase of an additional stake in the Kraken field.

Nighthawk – increased risking on Jolly Ranch to 25% chance of success following well updates that show flow rates remain
below our assumed rate required for the project to be commercial for recently completed wells. We do not believe that the
recent reserves report was sufficiently wide-ranging to justify a downgrade to our estimates of the potential resource.

Norse Energy – increased political risking to New York shale gas assets following recent Chesapeake spill incident.

Northern Petroleum – Removal of medium-term drilling discount.

Noreco – dry well at Ronaldo, failure of Oselvar/Enoch divestment, un-commercial find at Svaneogle and sale of Brage.

PA Resources – further downgrade of our reserves assumptions at Azurite and more conservative assumptions on potential
farm-out terms in Greenland (now assuming retention of c. one-third of block for a two well carry, in line with the rest of our
coverage).

Premier Oil – UK tax adjustment, dry hole at Cherry, downgrade of Ca Rong Do reserves all reduce valuation. Partially offset by
higher assumed volumes in and around Catcher.

Regal – De-risking of asset following partial takeover on assumptions of increased funding capabilities.

Salamander – reducing chances of success at Dao Ruang to 20% following a disappointing first well and adjustments to our
modeling of the SRB tax in Thailand, offset by increases in Bualuang reserves.

Serica – adjustments for increased UK tax, further Kambuna reserves downgrade and increased risking at Columbus following
delay of expected sanction.

Sterling Energy– removal of medium-term drilling discount offset by adjustment to assumed farm-out terms in Cameroon to
bring in line with rest of sector (33% retention for two well carry). We also make adjustments to assumptions for the Sangaw
North well, de-risking our gas case and increasing the risk on the oil case following the company’s recent update.

Tower Resources – removal of medium-term drilling discount.

Valiant Petroleum – UK tax adjustment, downgrade of assumed reserves potential at Tybalt (to 13mn bls), adjustment of
assumptions on farm out at Handcross (now assuming retention of one-third of asset vs. half previously).
Goldman Sachs Global Investment Research
30
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Average potential upside of 88% across our coverage
Following recent share price moves and adjustments to our price targets we see an average 88% potential upside across our
coverage. Underperformance of DNO and Encore leads us to upgrade the stocks, while outperformance over the last three months
has led us to downgrade Det Norske, Salamander and Coastal Energy to Neutral. Premier has outperformed the sector since our last
update, despite the increase in North Sea taxes, a dry well at Cherry and a disappointing appraisal at Ca Rong Do. As a result, we
downgrade the stock to Sell. The underperformance of Encore and Noreco leads us to upgrade the stocks (to Neutral and Buy
respectively).
Exhibit 41: Valuation at US$100/bl crude price assumption
Valuations by sanctioned projects and cash, discoveries and short- and long-term exploration. Includes impact of warrants, options and assumed equity raise. Dotted line =
0% upside
400%
350%
Value as % of share price
300%
250%
200%
150%
100%
50%
0%
‐50%
Rockhopper
Global Energy Development
Aurelian
BPC
Northern Petroleum
Max Petroleum
Panoro
Falkland Oil & Gas
PA Resources
Nighthawk Energy
Dominion
Igas
Nautical Petroleum
Cove Energy
Bowleven
Aminex Plc
Great Eastern Energy
Borders and Southern
Noreco
Green Dragon
Maurel & Prom
Bankers petroleum
Gulf Keystone
Sterling Energy
Coastal Energy
Faroe Petroleum
Det Norske
Chariot Oil & Gas
Norse Energy
Salamander Gulfsands
Serica
Tower Resources
Valiant Petroleum
DNO
Amerisur
Heritage Oil
Ithaca
Desire Petroleum
JKX
Encore
Dragon Oil
Soco
Regal
Tullow
Melrose Resources
Enquest
Hardy Oil
Premier Oil Lundin Petroleum
‐100%
Sanctioned assets, cash and other
Discoveries
Short term exploration
Long term exploration
Strategic asset premium
Liquidity discount
NAV / Price
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
31
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Recent de-risking in equities has led to underperformance vs. the long-dated crude price;
producers have been more insulated
Since our last subsector update on January 31, 2011, the E&P universe has underperformed the Brent price by c.10%. We believe
that this has been driven by a weakening risk appetite among investors, which has driven up equity risk premia. However, we
maintain our belief that tangible, dollar-based assets are not the right assets to be selling during periods of instability, and we would
expect the sector to ultimately revert back to levels implied by the long run crude price. As a result, we remain positive on the
subsector.
Another impact of this reduced appetite for risk has been a favouring of companies with production over companies without. Since
the end of March, companies with over 20% of their value in producing assets (GS estimates) have outperformed those with less by
almost 10%. We believe that this has created an attractive entry point into the non-producers, especially given the thematic
advantages that we believe the high-impact explorers will increasingly enjoy.
Exhibit 42: Equities have underperformed the crude price since our last
subsector update
Exhibit 43: Producers have outperformed explorers
23 companies classed as “producers”, 27 classed as “non-producers”
140
130
110
105
120
100
110
95
100
90
90
85
80
80
E&Ps
Source: Datastream.
Goldman Sachs Global Investment Research
Producers
Brent price
Non‐producers
Source: Datastream.
32
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Subsector trading at discount to core value + discoveries at US $100/bl
Our estimates suggest that assuming a long run oil price of US$100/bl the core value (including risked discoveries) of the sector is
currently pricing in average upside of 26% to current share prices. This has increased from a 6% premium since our last subsector
update – a result of the weakness in the sector that has taken place during the period and a result of rolling forward our numbers to
make 2011 our front year. Given the re-rating potential we see in a number of stocks in the universe and that we are using a longrun oil price close to the current 3-year forward price, we regard the risk / reward in the sector as attractive and believe that the
drops in share prices as a result of de-risking has been overdone.
Exhibit 44: Average 26% upside to core value is attractive in our view
Upside/downside excluding liquidity/funding adjustments
350%
300%
250%
Upside to core value
200%
150%
100%
50%
0%
‐50%
‐100%
Global Energy Development
Nighthawk Energy
Igas
Panoro
Northern Petroleum
Great Eastern Energy
Rockhopper
Norse Energy
Bankers petroleum
Nautical Petroleum
Maurel & Prom
Green Dragon
Ithaca
Faroe Petroleum
Valiant Petroleum
Gulfsands
PA Resources
Det Norske
Dragon Oil
Enquest
Coastal Energy
Bowleven
Noreco
Aurelian
Salamander Cove Energy
DNO
Aminex Plc
Premier Oil Soco
Encore
Heritage Oil
Amerisur
Serica
Regal
JKX
Lundin Petroleum
Melrose Resources
Gulf Keystone
Tullow
Max Petroleum
Desire Petroleum
Hardy Oil
Chariot Oil & Gas
Sterling Energy
Borders and Southern
BPC
Falkland Oil & Gas
Dominion
Tower Resources
‐150%
Source: Goldman Sachs Research estimates, Bloomberg.
Goldman Sachs Global Investment Research
33
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Medium-term exploration & balanced explorers still top performing exploration screens
We continue to track the performance of our E&P investment screens. Balanced explorers have continued to perform well,
reinforcing our view that a combination of value and catalysts together are conceptually important to E&P stock selection. To date,
however, the clear outperformer within the E&P exploration screens has been the medium-dated exploration theme, in which we
include stocks that have greater than 40% of their value in high-impact catalysts due to be drilled in more than 12 months time.
Despite a recent pull back, the screen has still outperformed the sector by c.50% since we created it in November 2010. Other
screens have been weaker. The high-risk screen has been especially impacted by Desire’s unsuccessful Ninky well, the
underperformance of Nighthawk Energy following a reserves report that disappointed the market and the recent reduction in risk
appetite. The play openers screen has also been weak, but has begun to strengthen recently and is now outperforming the
short-term explorers - our less preferred short term exploration theme which continues to perform poorly.
Exhibit 45: Performance of exploration screens since November 8, 2010
210
190
Performance
170
Medium term explorers
150
130
Balanced
explorers
110
Play openers
Short term
explorers (excluding
other screen members)
90
Short term
explorers
70
High risk, binary
Balanced explorers
Medium term explorers
Overall perfoarmance
Short term explorers
Play openers
Short term explorers excluding other basket
High risk, binary
Source: Datastream
Goldman Sachs Global Investment Research
34
May 30, 2011
Europe: Energy: Oil & Gas - E&P
M&A and commodity screens
The performance of our M&A and commodity screens has been more muted. Despite a generally strong oil price, the oil price
leverage screen has not been a particularly strong performer, being dragged down in part by poor operational performance from PA
resources and the impact of the North Sea tax on Nautical Petroleum. The strategic assets screen has been reasonably strong –
highlighting the attractiveness of large resources in a time when concerns over risk are high.
Exhibit 46: Performance of M&A and commodity screens since November 8, 2010
130
125
120
115
110
105
Strategic assets
100
M&A
95
Oil price leverage
90
Unconventional
Resource
85
Unrealised potential
80
M&A
Unrealised potential
Strategic assets
Universe
Oil price leverage
Unconventiontal Resource
Source: Datastream.
Goldman Sachs Global Investment Research
35
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Changes to the exploration screens
We make the following changes to our exploration screens as a result of changes in our assumptions and share price movements:
Balanced explorers: We remove Valiant as a result of changes to our assumed exploration programme. Gulfsands is also removed
as results have come in on Twaiba and Yousefiah South, thereby reducing short-term exploration re-rating potential. Coastal is also
removed as we downgrade our core value to reflect the Bua Ban reserves downgrade. We add Noreco, Encore and Bowleven as
recent drops in their share prices leave the companies trading at a discount to our estimate of their core value.
Short-term exploration: Desire is removed after the failed Ninky well. Coastal is also removed as its exploration programme
progresses and we de-risk certain prospects near Bua Ban, thereby reducing upside potential. Det Norske is included as drilling
catalysts at Ulvetanna and Aldous Major approach.
Exhibit 47: Update exploration screens
DESCRIPTION
Exploration screens
Balanced explorers
Short term exploration
Medium term exploration
Play openers
High risk binary plays
We believe that companies which In our view, the market is overly Companies without short term We are sceptical of having a We believe that short term geological "edge" entering into exploration catalysts are often catalysts tend to have long term have significant de‐risked acreage conservative in assessing drilling catalysts. This basket aggressively valued to the point at catalysts discounted excessively by and high levels of follow‐on potential companies with high levels of includes companies which from de‐risked discoveries have a binary risk. Baskets of these stocks the market. Despite our which the risk / reward balance combine strong core value and application of a 50% discount to structural advantage over peers with can therefore buy diversified risk becomes less compelling. We high levels of exploration impact have isolated explorers with the access to material, lower risk medium term exploration, the at good value. This basket includes screen still offers substantial exploration catalysts over a period of potential to double from a diversified portfolio of exploration in the next 12 months average upside. We believe that a 2‐3 years which may not be fully companies with a large proportion priced in by the market at an early screen of these stocks can and see relatively little upside to of value in high‐risk assets.
outperform as drilling catalysts this basket, especially when stage. This screen includes approach, rigs are booked and members of other baskets are companies which have recently seismic interpretations clarified
excluded
participated in opening up new basins
SCREENING CRITERIA
* Short term exploration impact of > 70% in next 12 months
* Greater than 100% of market cap supported by core value
* Short term exploration impact of > 75% in next 2 quarters
* Over 40% of valuation in exploration catalysts expected beyond 12 months
COMPANIES
Amerisur
Aminex Plc
Bowleven
Rockhopper
Det Norske
Faroe Petroleum
Noreco
Salamander Aurelian
Encore
Det Norske
Hardy Oil
Max Petroleum
Melrose Resources
Noreco
BPC
Tower Resources
Sterling Energy
Dominion
REMOVED
Gulfsands
Coastal
Valiant Petroleum
Desire Petroleum
DNO
Coastal Energy
* 30%+ of value in net acreage of > * Greater than 40% of value in a 1000 km2 which contains at least 1 single asset / play risked at greater discovery of commercial size, which than 50%
has been successfully flow tested but * Potential uplift of 100% from de‐
has no production
risking event
Rockhopper
Salamander Cove Energy
Tullow
Green Dragon
Bowleven
Norse Energy
Desire Petroleum
Falkland Oil & Gas
Borders and Southern
Nighthawk Energy
Regal
Chariot Oil & Gas
New companies shaded grey
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
36
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Changes to M&A and commodity screens
We make the following changes to our M&A/commodity screens as a result of changes in our assumptions and share price
movements:
M&A: As a result of the recent underperformance of many E&P stocks, we increase our benchmark for this screen from 30% upside
from core value to 75% to maintain differentiation. As a result of the relative performance of the two stocks, we switch Rockhopper
for Green Dragon in this basket.
Exhibit 48: Updated M&A/commodity screens
DESCRIPTION
SCREENING CRITERIA
COMPANIES
REMOVED
M&A screens
Commodity price screens
M&A Unrealised potential
Strategic assets
Oil price leverage
Unconventional resource
Concentrated and sizable resource Stocks with high‐class assets that Our analysis suggests that large, We are constructive on the oil We believe that higher commodity price with a forecast price of prices should encourage additional in core valuations are attractive have insufficient cash to fully oily assets are attractive to NOCs US$100/bl in 2011. Stocks value candidates for potential develop these trade at a discount who are willing to pay premiums investment in unconventional exposed to oily assets with higher resource technology as well as industry acquirers
in our view. Attractive as M&A to equity market valuations. candidates as a stronger balance Buying companies with significant operating leverage and licence making more marginal fields sheet can unlock additional NPV
based fiscal regimes are the most profitable. We include companies value in these types of assets with material exposure to leveraged to the commodity
therefore offers exposure to an unconventional resource plays in NOC / equity market discount rate this screen
arbitrage
* Core value offers over 75% * Over 50% of company's * More than 30% of company's * Sensitivity to a US$10/bl move in * Greater than 70% of value lies in upside to current valuations when valuation in an asset whose value value sits in a "strategic" asset (> the oil price of greater than 20% either CBM, shale gas or shale oil
valued at the forward curve and could be increased by greater than without inflation (15% with 200mn boe)
our costs of capital
30% due to a significant capital * Net stake is greater than 50 mn inflation)
* >95% of value concentrated in injection
* Greater than 90% of value in boe * Asset is oil, LNG or EM based gas
one region
* Over 100mn boe net discovered resource
recoverable in the asset
* Weighted average portfolio chance of success > 50%
Global Energy Development
Northern Petroleum
Rockhopper
Norse Energy
Nighthawk Energy
Great Eastern Energy
Bankers petroleum
Igas
Igas
Global Energy Development
Norse Energy
Nighthawk Energy
Great Eastern Energy
Great Eastern Energy
Bankers Petroleum
Green Dragon
Dragon Oil
Soco
Gulf Keystone
Heritage Oil
Rockhopper
Tullow
Noreco
Nautical Petroleum
PA Resources
Igas
Bankers petroleum
Igas
Norse Energy
Great Eastern Energy
Nighthawk Energy
Green Dragon
Green Dragon
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
37
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Portfolio update for the E&Ps
Although investment cases in companies with no exploration, or high-impact explorers can be compelling, we also see a
combination of high impact exploration in companies where the valuation is well supported by the core value as attractive. We chart
the combination of discovered value vs. exploration upside in our universe to assess where “free” exploration exposure may be
found. Of particular interest are those “balanced explorers” in the top right quadrant which we see as particularly advantaged.
Exhibit 49: Percentage of core value support for share price vs. short-term exploration upside
220%
Free, material short term re‐
rating potential
Aminex Plc
Short term re‐
rating potential comes at a cost
Noreco
Exploration upside within 12 months
170%
Hardy Oil
Melrose Resources
Serica
120%
Det Norske
Desire Petroleum
70%
Tower Resources
Dominion
20%
‐20%
BPC
30%
‐30%
Less material re‐rating potential partially priced into stock
Encore
Salamander Cove Energy
Tullow JKXHeritage Oil
Bowleven
Faroe Petroleum
Rockhopper
Nautical Petroleum
DNO
Gulfsands
Coastal Energy
Valiant Petroleum
Maurel & Prom
Gulf Keystone
Lundin Petroleum
PA Resources
Premier Oil Sterling Energy
Dragon Oil
Soco
Green Dragon Bankers petroleum
Regal
Enquest
Ithaca
Norse Energy
Great Eastern Energy
80%
130%
180%
Cheap core value
Core value / price
Source: Goldman Sachs Research estimates, Bloomberg.
Goldman Sachs Global Investment Research
38
May 30, 2011
Europe: Energy: Oil & Gas - E&P
South Falklands explorers still show highest potential uplift to exploration in the next 12 months
but risks are clear; 1Q 2012 drilling beginning to fall into investable time horizon
We see the two companies planning to explore the South Falkland basin (Borders and Southern and FOGL) as having the highest
potential uplift through exploration until the end of 1Q 2012. Drilling is expected to begin in the South Falklands basin towards the
end of 2011, following the announcement that a rig is to be mobilized to the area in 4Q 2011, to undertake the combined Borders &
Southern and FOGL drilling programme. We believe that the market will soon begin pricing in exploration activity set to take place
through to the end of 1Q 2012 (assuming a 12-month time horizon), and believe that companies especially well placed to benefit
from this (i.e. those companies with valuable exploration options sitting in 1Q 2012 are Chariot (Namibia), Aminex (Tanzania),
Aurelian (Karpaty East) and Max Petroleum (pre-salt prospects). As such, we remove our 50% discount for long-dated drilling for 1Q
2012 exploration catalysts.
Exhibit 50: 2011 exploration re-rating potential
800%
700%
600%
500%
400%
300%
200%
100%
0%
‐100%
Falkland Oil & Gas
Borders and Southern
Chariot Oil & Gas
Aurelian
Amerisur
Max Petroleum
Aminex Plc
Noreco
Melrose Resources
Hardy Oil
Serica
Det Norske
Bowleven
Encore
Rockhopper
Coastal Energy
Nautical Petroleum
Salamander Tower Resources
DNO
Gulfsands
Cove Energy
Heritage Oil
Valiant Petroleum
Regal
Dominion
Faroe Petroleum
PA Resources
Maurel & Prom
Lundin Petroleum
Northern Petroleum
JKX
Sterling Energy
Panoro
Gulf Keystone
Soco
Tullow
Premier Oil Desire Petroleum
Enquest
Bankers petroleum
Global Energy Development
Norse Energy
Nighthawk Energy
Ithaca
Great Eastern Energy
BPC
Igas
Dragon Oil
Green Dragon
Re‐rating potential in the event of 100% exploration success
Exploration catalysts by quarter
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
39
May 30, 2011
Europe: Energy: Oil & Gas - E&P
North Sea performance weak on tax change; Falklands and Kurdistan remain weak
We continue to track the performance of the regions. Since our last sector update (January 31, 2011), the Kurdistan and Falkland
regions have remained weak. Desire’s disappointing Ninky well result has impacted the Falklands basin significantly. Stocks
exposed to the UK’S North Sea have been particularly weak, following the UK budget ruling on increased tax to be paid in oil price
environments above US$75/bl.
Ukraine has been the best performer, driven by continuing good performance from Regal. Nambia’s approaching drilling catalysts
have also helped strong performance, despite some concerns over resource nationalism following reports of changes to future
mining contracts.
Exhibit 51: Regional performance since November 8, 2010
240.0
220.0
Ukraine
200.0
180.0
Namibia
160.0
West Africa
140.0
East Africa
120.0
Norway
UK North Sea
100.0
Kurdistan
80.0
Falklands
60.0
Falklands
Kurdistan
North Sea
Ukraine
East Africa
West Africa
Norway
Namibia
Source: Datastream.
Goldman Sachs Global Investment Research
40
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Our revised EPS estimates are shown in Exhibit 52. We also introduce 2014 estimates for Great Eastern Energy. We update our oil
price deck, in line with that published in ”Oil entering demand rationing phase”, May 23, 2011.
Exhibit 52: EPS estimate changes
Company name
Reporting currency name
Amerisur Resources Plc
Aminex Plc
Aurelian Oil & Gas Plc
Bahamas Petroleum Company Plc
Bankers Petroleum Ltd
Borders and Southern
BowLeven Plc
Chariot Oil and Gas Ltd
Coastal Energy Company
Cove Energy Plc
Desire Petroleum Plc
Det Norske Oljeselskap ASA
DNO International ASA
Dominion Petroleum Ltd
Dragon Oil PLC
EnCore Oil Plc
EnQuest Plc
Falkland Oil & Gas Ltd
Faroe Petroleum Plc
Global Energy Development Plc
Great Eastern Energy Corporation L
Green Dragon Gas Ltd
Gulf Keystone Petroleum Ltd
Gulfsands Petroleum Plc
Hardy Oil and Gas Plc
Heritage Oil
IGAS Energy Plc
Ithaca Energy Inc
JKX Oil and Gas
Lundin Petroleum
Maurel & Prom
Max Petroleum Plc
Melrose Resources Plc
Nautical Petroleum Plc
Nighthawk Energy Plc
Norse Energy Corp
Northern Petroleum Plc
Norwegian Energy Company ASA
PA Resources AB
Panoro Energy ASA
Premier Oil
Regal Petroleum
Rockhopper Exploration Plc
Salamander Energy PLC
Serica Energy Plc
Soco International Plc
Sterling Energy Plc
Tower Resources Plc
Tullow Oil Plc
Valiant Petroleum Plc
U.S. Dollar
U.S. Dollar
Euro
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
Norwegian Krone
Norwegian Krone
U.S. Dollar
U.S. Dollar
British Pounds/Pence
U.S. Dollar
U.S. Dollar
British Pounds/Pence
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
British Pounds/Pence
U.S. Dollar
U.S. Dollar
Swedish Krona
Euro
U.S. Dollar
U.S. Dollar
British Pounds/Pence
U.S. Dollar
U.S. Dollar
Euro
Norwegian Krone
Swedish Krona
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
U.S. Dollar
EPS old
2011E
0.01
0.01
0.00
0.00
0.41
0.00
-0.04
-0.01
1.62
0.00
-0.01
-0.92
1.00
-0.01
1.07
-0.58
0.30
-0.01
-1.73
1.70
0.01
0.05
-0.01
1.17
0.06
-0.01
2.97
0.31
0.95
5.31
2.51
-0.02
0.69
-1.80
0.01
0.01
0.04
0.87
0.40
0.09
0.74
0.03
-0.13
0.63
0.05
0.58
-0.01
0.00
0.94
1.99
EPS old
2012E
0.10
0.02
0.00
0.00
0.43
0.00
-0.04
-0.01
2.21
0.00
-0.01
-0.97
0.69
-0.01
1.29
-0.62
0.42
-0.01
-1.70
4.41
0.08
0.36
0.00
2.09
0.40
0.07
11.00
0.47
1.23
5.92
2.66
-0.02
0.66
-0.69
0.02
0.03
0.06
1.38
1.27
0.31
1.56
0.03
0.00
0.75
0.04
1.16
-0.01
0.00
1.64
2.72
EPS old
2013E
0.11
0.00
0.00
0.00
0.88
0.00
-0.04
-0.01
0.41
0.00
-0.01
2.42
0.68
-0.01
0.94
-0.64
0.31
-0.01
-1.76
6.91
0.30
1.24
0.03
2.19
0.14
0.07
13.65
0.50
0.78
4.05
2.24
-0.01
0.49
-0.74
0.03
0.05
0.03
3.70
1.03
0.34
1.23
0.02
-0.01
0.45
0.02
0.84
-0.01
0.00
1.66
1.54
EPS new EPS new EPS new % change % change % change
Reason for movements
2011E
2012E
2013E
0.02
0.12
0.18
21%
20%
60% Oil price adjustments
0.00
0.00
0.00
-85%
-87%
-133% Oil price adjustments, updated capex and production profile, included placing and open offer
0.00
0.00
0.00
-49%
-10%
-10% Updated capex profile, included Romania asset disposal
0.00
0.00
0.00
45%
7%
9% Updated capex, included equity raise
0.58
0.81
1.56
40%
90%
77% Updated production profile and tax/royalty adjustments
0.00
0.00
0.00
-20%
-76%
-183% Updated capex profile
-0.04
-0.04
-0.04
0%
0%
0%
-0.01
-0.01
0.00
13%
-37%
-72% Updated capex profile and included equity raise
1.62
1.93
0.53
0%
-13%
27% Oil price adjustments, updated capex and production profile
0.00
0.00
0.00
-143%
-263%
-378% Updated capex profile
-0.01
-0.01
-0.01
-7%
-12%
-12% Updated capex profile
-5.49
0.16
2.50
500%
-117%
3% Oil price adjustments, updated capex and production profile, expensed dry well costs
1.47
1.93
0.65
47%
179%
-4% Oil price adjustments, updated capex profile
-0.01
-0.01
-0.01
-1%
-2%
-2% Updated capex profile
1.53
1.83
1.93
42%
42%
105% Oil price adjustments and flow rate assumptions
-0.58
-0.62
-0.64
0%
0%
0%
0.29
0.35
0.39
-5%
-16%
25% Oil price adjustments, updated capex and production profile, updated for share issue associated with Stratic Energy acquisition, UK tax adjust
-0.01
-0.01
-0.01
-45%
-49%
-37% Updated capex profile and updated for equity raise
6.10
7.31
5.81
-454%
-530%
-429% Oil price adjustments, updated production and capex profile, UK tax adjustments
0.64
2.28
5.26
-62%
-48%
-24% Oil price adjustments, updated production profile
0.00
0.08
0.30
-100%
1%
1%
0.05
0.36
1.22
5%
1%
-2% Updated for issue of shares associated with placing
-0.02
0.08
0.12
24%
-4244%
364% Oil price adjustments, updated capex and production profile
1.17
1.71
2.04
1%
-18%
-7% Oil price adjustments, updated capex and production profile
0.05
0.30
0.34
-12%
-26%
140% Updated production profile, oil price adjustments
0.02
0.01
0.09
-569%
-89%
23% Production profile adjustments to Russian asset, oil price adjustments
0.56
3.57
5.65
-81%
-68%
-59% Updated for completion of acquisition and placing, UK tax adjustment, commodity price adjustment
0.25
0.44
0.66
-19%
-7%
34% Oil price adjustments, updated production profile and UK tax adjustment
0.73
1.11
1.08
-22%
-10%
39% Oil price adjustments, updated production profile
0.70
1.07
1.21
-87%
-82%
-70% Production profile adjustments to Russian asset, oil price adjustments
2.19
2.47
3.33
-13%
-7%
49% Oil price adjustments, updated capex and production profiles
-0.02
-0.01
0.00
-6%
-33%
-70% Oil price adjustments, expensed dry well and updated shares for the exercise of options
0.56
0.56
0.51
-18%
-16%
5% Oil price adjustments, updated production and capex profile
-1.80
-0.69
-0.74
0%
0%
0%
0.01
0.03
0.05
28%
22%
76% Oil price adjustments, adjustment for exceptional item
-0.0016
0.01
0.03
-120%
-54%
-44% Updated for private placement and change to interest expense
0.07
0.09
0.11
60%
54%
292% Commodity price adjustment
0.37
1.22
7.28
-58%
-11%
97% Oil price adjustments, updated capex and production profile, expensed dry wells
0.42
1.02
1.11
4%
-19%
7% Oil price adjustments, updated production and capex profile
0.09
0.19
0.39
-4%
-36%
15% Oil price adjustments, updated production profile and included equity raise
1.07
2.24
2.48
44%
44%
101% Oil price adjustments and production profile adjustments
0.03
0.04
0.04
27%
39%
111% Oil price adjustments
-0.13
0.00
-0.01
0%
0%
0%
0.75
0.81
0.82
18%
7%
80% Oil price adjustments, production profile adjustments, SRB tax adjustments
0.03
0.02
0.02
-33%
-48%
-36% Oil price adjustments, updated capex and production profiles
0.63
1.70
1.31
8%
46%
55% Oil price adjustments and production profile adjustments
-0.01
-0.01
-0.01
-32%
-28%
-27%
0.00
0.00
0.00
-34%
-39%
-40% Updated capex profile and included equity raise
1.34
1.99
2.41
43%
21%
45% Oil price adjustments and production profile adjustments
2.13
2.73
2.64
7%
0%
72% Oil price adjustments and production profile adjustments
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
41
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Exhibit 53: Risks to our 12-month price targets (based on a SOTP at US$100/bl oil price)
It haca
Risks to 12 month target price
Failure to unlock Fenix block or failure to progress Paraguay leads to a drill ready state
Failure in the exploration programme or a delay or cancellation of upcoming catalysts
Disappointing results at the Trzek‐2 well or failures and delays in the exploration programme
Disappointing production numbers, worse than expected conversion of contingent reserves to 2P
Failure in the exploration programme or a deterioration of political relations between the UK and Argentina
Disappointment in the lower sections of Sapele or in the company's 2011 exploration / appraisal programme
Disappointing seismic update, delays in or a failure to farm out acreage, a refusal for the application for Western blocks
Exploration failure or a delay in the driling timetable
Delays or cost overruns in developing assets and a disappointing exploration / appraisal programme
Worse than expected drilling success or, in the longer term, delays or problems in selling asset stakes or developing assets
Exploration failure, an inability to raise further funds for additional drilling, deteriorating UK / Argentine relations
Failure in exploration programme, falls in the commodity price, tightening of regulation of offshore drilling in Norway
Positive resolutions on Kurdish exports, exploration success or a bid for the company
Exploration failure, or delays in farming out and drilling Block 7 in Tanzania
Production disappointments, value destructive acquisitions or drops in the oil price.
Greater than expected exploration success at Cladhan or Catcher, a bid for the company or monetisation of gas storage asset
Lower than expected production or drops in the oil price
Failure in the exploration programme or a deterioration of political relations between the UK and Argentina
Failure in exploration programme, falls in the commodity price, tightening of regulation of offshore drilling in Norway
Difficulties in executing 3 year plan, failure to obtain a farm in partner or a fall in the oil price
Drop in regional gas prices, poor well performance or difficulties in ramping up production
Difficulties in developing the resource base and political risks in China
Greater than expected volumes at Shaikan, greater than expected exploration success, positive resolution to Kurdish exports
Drop in the commodity price or worse than expected exploration success
Lack of success in the D9 block or delays in sanctioning discoveries
Geological issues impacting valuation of Miran asset or a worse than expected resolution to Kurdish exports
Technical failures in the development of the asset base or persistent weakness in the UK gas market
Delays or cost overruns in the development programme
JKX
Disappoint ing flow rat es or a lack of success in t he Callovian horizon in Russia
Lundin Pet roleum
Greater than expected exploration success, especially at the company's core Luno acreage
Difficulties in ramping up Nigerian production or worse than expected success in the exploration programme
Worse than expected drilling success in Kazakhstan, or an inablity to raise funds to drill pre‐salt targets
Delays or cost overruns in developments, exploration failure or difficulties with the sale of the US assets#
Poor exploration programme around the Catcher prospects or Kraken asset proving more complicated than we currently expect
Technical failures in the development and understanding of the Jolly Ranch shale or persistent oil price weakness
Failure in exploration programme, falls in the commodity price, tightening of regulation of offshore drilling in Norway
Extension of the moratorium on hydraulic fracturing in New York state or additional funding being required for Herkimer
Weakening gas prices, cost overruns in developing assets or delays in exploration and sanctioning in Italy
Cost overruns and delays or disappointing seismic results in the company's Greenland acreage
Disappointment at the Dussafu exploration asset and delays in sanctioning Santos basin assets
Failure of exploration / appraisal campaign and lower commodity prices
An eventual bid coming in at a substantially higher or lower price than we estimate, or a retraction of existing bids
The Sea Lion asset proving more complicated than we currently expect, detoriation of UK / Argentine relations
Failure in additional exploration in the company's acreage around the Angklung prospect
Delays to the 2011 exploration programme or failure in this programme
Disappointing appraisal on the TGT asset and delays to first oil from the asset
Failure in deeper sections of the Sangaw well and further delays in drilling in Cameroon and Madagascar
Continuing poor exploration in Uganda, or a delay to drilling in Namibia
Failure in the upcoming exploration programme and continuing delays to farm out in Uganda
Failure of the 2011 exploration programme and drops in the oil price
Company
Amerisur
Aminex Plc
Aurelian
Bankers petroleum
Borders and Sout hern
Bowleven
BPC
Chariot Oil & Gas
Coast al Energy
Cove Energy
Desire Pet roleum
Det Norske
DNO
Dominion
Dragon Oil
Encore
Enquest
Falkland Oil & Gas
Faroe Pet roleum
Global Energy Development
Great East ern Energy
Green Dragon
Gulf Keyst one
Gulfsands
Hardy Oil
Herit age Oil
Igas
Maurel & Prom
Max Pet roleum
Melrose Resources
Naut ical Pet roleum
Night hawk Energy
Noreco
Norse Energy
Nort hern Pet roleum
PA Resources
Panoro
Premier Oil
Regal
Rockhopper
Salamander
Serica
Soco
St erling Energy
Tower Resources
Tullow
Valiant Pet roleum
Source: Goldman Sachs Research estimates.
Goldman Sachs Global Investment Research
42
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Maurel & Prom (MAUP.PA): Core value and ‘free’ exploration exposure; up to Buy
Investment Profile
Source of opportunity
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Maurel & Prom (MAUP.PA)
Europe Oil & Gas Peer Group Average
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Key data
Current
Price (€)
12 month price target (€)
Upside/(downside) (%)
Market cap (€ mn)
Enterprise value (€ mn)
15.55
28.80
85
1,885.5
2,383.1
12/13E
419.7
42.8
3.33
2.24
3.7
4.7
0.0
22.0
NM
-NM
EBIT (€ mn) New
EBIT revision (%)
EPS (€) New
EPS (€) Old
EV/DACF (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
CROCI/WACC (X)
EV/GCI
12/10
(106.8)
NM
(1.26)
0.73
9.6
NM
0.0
(32.4)
NM
-NM
12/11E
287.9
(13.4)
2.19
2.51
7.7
7.1
0.0
4.6
NM
-NM
12/12E
320.1
(8.1)
2.47
2.66
6.0
6.3
0.0
16.6
NM
-NM
Price performance chart
16
370
15
360
14
350
13
340
12
330
11
320
10
310
9
300
8
May-10
We upgrade Maurel et Prom to Buy from Neutral with a 12-month target price of €28.8, implying 85% potential
upside. On our estimates, the stock trades at a discount to the value of its core assets, hence providing “free”
exposure to its 2011 exploration programme. We believe the stock offers exposure to organic growth in Africa
and South America, and view the fiscal benefits afforded to it as an indigenous Nigerian company through its
45% stake in SEPLAT as a significant source of potential future value (as it gives the company the ability to
access attractive fiscal terms and therefore inexpensive resources through acquisitions). We expect the recent
deal with Shell to be digested before new opportunities are pursued however.
We believe that Maurel et Prom’s Gabon acreage also offers an attractive mixture of core value and relatively
low-risk exploration upside, that is not currently being valued by the market. In our view, the key to the future
performance of the stock will be the company’s ability to develop its Nigerian reserves, the success of future
exploration and appraisal activities, and, in the longer term, its ability to do further deals in Nigeria. Pacifico
Rubiales’ recent farm-in to the company’s Colombian acreage also highlights the value of the company’s South
American portfolio. Updating for its 2011 exploration programme, and a reserves upgrade in Gabon, on our
estimates we believe that the market is under-pricing the value inherent in Maurel et Proms core assets, and see
c.64% potential upside to our valuation of these. Combined with the potential for a c. 37% uplift from successful
exploration over the next 12-months, we believe the company offers a well-balanced and diversified portfolio,
and as such we add the stock to the Buy List.
Catalyst
We believe production growth in Nigeria and (to a lesser degree) Gabon will help drive the shares up, as should
exploration success in the company’s African and South American exploration programmes. Additional deals in
Nigeria could also drive the stock, although we do not expect another deal in the short term as we believe it will
take time to develop the assets most recently acquired.
Valuation
Our 12-month SOTP-based target price of €28.8 is calculated using a US$100/bl oil price with exploration and
appraisal assets being valued on a NPV/bl basis.
290
Aug-10
Maurel & Prom (L)
Dec-10
Mar-11
Key risks
FTSE World Europe (EUR) (R)
The key downside risks to our view and price target are failures in ramping up production of the Nigerian
portfolio or worse than expected failure in the company’s exploration programme.
Share price performance (%)
Absolute
Rel. to FTSE World Europe (EUR)
3 month
18.5
21.8
6 month
54.0
48.3
12 month
64.9
41.8
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/26/2011 close.
Source: Company data, Goldman Sachs Research estimates, FactSet. This page is priced as of the close of May 26, 2011.
Goldman Sachs Global Investment Research
43
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Noreco (NOR.OL): Core value combined with ‘free’ Norwegian exploration option; Buy
Investment Profile
Source of opportunity
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Norwegian Energy Company ASA (NOR.OL)
Europe Oil & Gas Peer Group Average
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Key data
Current
Price (Nkr)
12 month price target (Nkr)
Upside/(downside) (%)
Market cap (Nkr mn)
Enterprise value (Nkr mn)
11.75
23.40
99
2,855.7
6,859.3
12/13E
2,460.3
65.1
7.28
3.70
1.7
1.6
0.0
81.9
NM
-NM
EBIT (Nkr mn) New
EBIT revision (%)
EPS (Nkr) New
EPS (Nkr) Old
EV/DACF (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
CROCI/WACC (X)
EV/GCI
12/10
194.5
(53.2)
0.57
0.35
11.0
27.6
0.0
2.8
NM
-NM
12/11E
594.8
(48.5)
0.37
0.87
6.3
31.8
0.0
(45.0)
NM
-NM
12/12E
1,342.4
(23.5)
1.22
1.38
5.7
9.6
0.0
(4.3)
NM
-NM
We upgrade Norwegian Energy Company (“Noreco”) to Buy from Neutral with a 12-month target price of
Nkr23.4, implying 99% potential upside. As a result of the stock’s recent underperformance (down 33% vs. the
E&Ps themselves down 7% since the beginning of 2011), which we believe reflected the disappointing outcome
of the stock’s failed strategic review, we now view the risk/reward on the stock positively. On our estimates, the
stock trades at a 14% discount to its core assets, resulting in a “free” exposure to its 2011 exploration
programme. The company operates in Norway, Denmark and the UK with a mixture of production, development
potential and exploration. We believe it has some of the highest re-rating potential in the Norwegian North Sea
of the companies in our coverage, principally from the Luna, Albert, Lupin and Chamonix wells. A total
de-risking of the exploration portfolio in the next 12 months would result in an uplift of c.180% to our valuation.
We view free exploration exposure of this magnitude positively and include the stock in our Balanced Explorers
screen. We note a large proportion of its exploration costs are refunded, as a result of tax rebates, and we
therefore believe it offers a low risk way to gain exposure to North Sea exploration in Norway. We also note that
the recent Brage sale has helped de-risk the balance sheet in our view. As a result of a strong core value, a
beneficial tax regime for exploration and 12-month re-rating potential from exploration success, we upgrade the
stock from Neutral to Buy.
Catalyst
Exploration success at prospects such as Albert and Luna are the most obvious potential catalysts. We believe
that, in the event of success at a material prospect, the company could benefit disproportionately as the market
not only de-risks the specific asset, but focuses its attention on the core value of the company implied by the
share price, which we believe is too low at present.
Price performance chart
20
480
19
460
18
440
17
420
16
400
15
380
14
360
13
340
12
320
11
May-10
300
Aug-10
Dec-10
Norwegian Energy Company ASA (L)
Share price performance (%)
Absolute
Rel. to FTSE World Europe (GBP)
Mar-11
Valuation
We value Noreco using a SOTP methodology assuming a US$100/bl oil price assumption. Exploration and
discoveries are valued using a risked NPV/bl approach.
Key risks
A disappointing exploration campaign or lower oil and gas prices are the biggest downside risks to our price
target and view.
FTSE World Europe (GBP) (R)
3 month
(34.7)
(33.4)
6 month
(29.6)
(33.5)
12 month
(11.3)
(25.1)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/26/2011 close.
Source: Company data, Goldman Sachs Research estimates, FactSet. This page is priced as of the close of May 26, 2011.
Goldman Sachs Global Investment Research
44
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Premier Oil (PMO.L): Company’s strengths already in the price, down to Sell.
Investment Profile
Source of opportunity
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Premier Oil (PMO.L)
Europe Oil & Gas Peer Group Average
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Key data
Current
Price (p)
12 month price target (p)
Upside/(downside) (%)
Market cap (£ mn)
Enterprise value ($ mn)
464.1
574
24
2,128.3
4,216.8
12/13E
1,498.2
69.8
2.48
1.23
1.2
3.1
0.0
36.4
38.8
-0.5
12/10
127.7
(67.8)
0.79
0.26
2.3
7.0
0.0
(147.7)
23.6
-0.5
EBIT ($ mn) New
EBIT revision (%)
EPS ($) New
EPS ($) Old
EV/DACF (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
CROCI/WACC (X)
EV/GCI
12/11E
773.6
16.6
1.07
0.74
4.2
7.1
0.0
4.9
29.0
-1.1
12/12E
1,385.2
18.2
2.24
1.56
1.9
3.4
0.0
37.4
40.9
-0.8
We downgrade Premier Oil from Neutral and add the stock to the Sell List with a 12-month target price of 574p,
implying 24% potential upside. The company has had significant success in recent months via the Catcher
discovery in which Premier has a 35% stake, and where we expect substantial potential follow on activity
towards the end of 2011. The stock is also likely to experience significant production growth over the next few
years, which could eventually take production above 100 kboepd. Despite this however, we believe expectations
for the stock are high, and that failure (or even success that fails to match expectations) could put the share price
under pressure. The stock has outperformed our coverage by 6% ytd, despite the announced UK tax increase, a
disappointing exploration result at Cherry and a downgrade of its Ca Rong Do reserves. On our forecasts, the
stock has 8% upside to its core value (vs. a sector average upside of c.26%) and short-term re-rating potential of
c.28% in the event of success (vs. a sector average of 172%). We therefore see more upside in both respects in
other stocks in our coverage.
We note that the success the company has achieved to date has expanded its market cap to a level at which
future wells are likely to have a smaller impact than was previously the case. The major remaining catalysts in
the short term are wells in the Tuna block in Indonesia, which we believe could add c.15% to our valuation in the
event that oil is found – relatively small in relation to our universe as a whole. As a result, we believe that
despite the quality of the asset base and the track record of management, there are less expensive ways to gain
exposure to E&P. In our opinion, the risk/reward profile is skewed to the downside vs. our universe. As a result
we downgrade Premier to Sell from Neutral.
Catalyst
Price performance chart
Any failure in exploration activity, particularly in the upcoming Tuna block, or success that fails to meet current
high expectations, would likely result in share price weakness.
550
420
500
400
450
380
Valuation
400
360
350
340
Our 12-month SOTP-based target price is calculated using a US$100/bl oil price with exploration and appraisal
assets being valued on an NPV/bl basis. Some 10% of our target price is made up of a valuation of the
company’s strategic assets (namely discovered and producing resource, primarily in the North Sea)., valued at
an 8% discount rate, to reflect its potentially strategic importance
300
320
250
May-10
300
Aug-10
Premier Oil (L)
Dec-10
Mar-11
FTSE World Europe (GBP) (R)
Key risks
Share price performance (%)
Absolute
Rel. to FTSE World Europe (GBP)
3 month
(10.4)
(8.7)
6 month
(1.5)
(7.0)
12 month
64.9
39.3
The main upside risks to our view and target price are greater than expected exploration and appraisal success
in the company’s exploration programme, M&A activity, and greater than expected production uplift.
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/26/2011 close.
Source: Company data, Goldman Sachs Research estimates, FactSet. This page is priced as of the close of May 26, 2011.
Goldman Sachs Global Investment Research
45
May 30, 2011
Europe: Energy: Oil & Gas - E&P
DNO international (DNO.OL): Underperformance & political de-risking of KRG, Neutral
Investment Profile
What happened
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Current view
DNO International ASA (DNO.OL)
Europe Oil & Gas Peer Group Average
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Key data
Current
Price (Nkr)
12 month price target (Nkr)
Upside/(downside) (%)
Market cap (Nkr mn)
Enterprise value (Nkr mn)
7.15
11.50
61
6,791.5
6,180.3
12/13E
506.2
(18.4)
0.65
0.68
2.6
11.0
0.0
16.0
NM
-NM
EBIT (Nkr mn) New
EBIT revision (%)
EPS (Nkr) New
EPS (Nkr) Old
EV/DACF (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
CROCI/WACC (X)
EV/GCI
12/10
156.8
(74.4)
(0.31)
0.68
13.4
NM
0.0
5.8
NM
-NM
12/11E
1,318.7
40.8
1.47
1.00
3.5
4.9
0.0
15.4
NM
-NM
12/12E
1,734.7
171.8
1.93
0.69
1.7
3.7
0.0
33.1
NM
-NM
Price performance chart
11.0
500
10.5
480
10.0
460
9.5
440
9.0
420
8.5
400
8.0
380
7.5
360
7.0
340
6.5
6.0
May-10
320
300
Aug-10
DNO International ASA (L)
Share price performance (%)
Absolute
Rel. to FTSE World Europe (GBP)
We are upgrading DNO to Neutral from Sell following the stock’s recent underperformance. Since being added
to the Sell List on November 5, 2010 the stock is down 22.2% vs. the oil and gas sector up 11.1% and the FTSE
World Europe Index up 1.3%; over 12 months DNO is down 7.7% vs. the FTSE World Europe’s gain of 18.4%.
Dec-10
Mar-11
We upgrade DNO from Sell to Neutral with a 12-month price of Nkr11.50, implying 61% potential upside.
Following news on the commencement of exports from Kurdistan, and an announcement of possible payments
from Baghdad, we further reduce our political risk assumptions on assets there. We now attribute a 100%
political chance of success to DNO’s Kurdish assets in the Tawke license (vs. 90% previously) and 75% for DNO’s
other licenses (vs. 60% previously). We are less cautious on the political risks for DNO’s Tawke license (vs. other
Kurdistan assets for both DNO and other companies that operate there) because the Tawke license agreement
was signed earlier than other ones in the region, which we believe may imply some additional protection for the
fiscal terms. DNO has a 55% stake in the producing Tawke field in the Kurdistan region of Iraq and stakes in oil
fields at various stages of the development cycle in Yemen. The exploration portfolio is diverse, with prospects
in Kurdistan, Yemen and Mozambique likely to be the main areas of activity of the next 12 months. RAK
Petroleum – a private Emirati oil company – has built a 30% stake in DNO, which has previously driven M&A
speculation. We give credit for M&A potential associated with stock: 40% of our target price is based on a
“strategic” company valuation applying an 8% discount rate to the Tawke field. Therefore, on our updated
forecasts, and given DNO’s recent underperformance on a sector-relative basis, we no longer see potential
downside in the stock, and as such remove it from the Sell List and upgrade to Neutral.
We value DNO using a SOTP methodology assuming a US$100/bl oil price. Our 12-month price target is
Nkr11.50 (from Nkr9.7). Some 40% of our target price is based on a company valuation in which the Tawke asset
is valued at a discount rate of 8% to reflect the strategic nature of the asset.
Key upside risks to our view and price target are further positive news on a possible payment mechanism for
exports, further resolution between the KRG and Baghdad allowing exports from the region on existing fiscal
terms, exploration success in Kurdistan and Yemen, or a bid for the company. The key downside risk is worse
than expected failure in the company’s exploration programme or a regression in the apparent progress being
made in Kurdistan.
FTSE World Europe (GBP) (R)
3 month
(23.7)
(22.2)
6 month
(12.3)
(17.1)
12 month
(7.7)
(22.0)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/26/2011 close.
Source: Company data, Goldman Sachs Research estimates, FactSet. This page is priced as of the close of May 26, 2011.
Goldman Sachs Global Investment Research
46
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Exhibit 54: Share price performance of DNO International versus peer group
Prices as of the close of May 26, 2011
Company
Ticker
Primary analyst
DNO.OL
AMER.L
AMNX.L
AUL.L
BPCB.L
BNKq.L
BG.L
BSTH.L
BLVN.L
BP.L
BP
CNE.L
CEP.MC
CHARC.L
CEO.L
COVE.L
DES.L
DETNOR.OL
DOPL.L
DGO.L
EO.L
ENI.MI
ENQ.L
ERG.MI
FOGL.L
FPM.L
GALP.LS
GBLE.L
GEECq.L
GDG.L
GKP.L
GPX.L
HAOG.L
HEPr.AT
HOIL.L
IGAS.L
IAE.L
JKX.L
LUPE.ST
MAUP.PA
MXP.L
MRS.L
MOLB.BU
MORr.AT
NPE.L
NES1V.HE
NGTE.L
NEC.OL
NOP.L
NOR.OL
OMVV.VI
PAR.ST
PENO.OL
PKNA.WA
PMO.L
RPT.L
REP.MC
RKH.L
RDSa
RDSa.AS
RDSb
RDSb.L
SMDR.L
SRS.MI
SBOE.VI
SQZ.L
SIA.L
STL.OL
SEY.L
TOTF.PA
TOWR.L
TLW.L
TUPRS.IS
VPP.L
PPHN.S
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Henry Morris
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Rudolf Dreyer
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Henry Morris
Price
currency
Price as of May
26, 2011
Price performance
since Nov 5, 2010
3 month price
performance
6 month price
performance
12 month price
performance
7.15
27.25
7.88
53.75
16.25
492.50
1392.00
56.00
302.00
461.20
45.38
440.70
27.82
219.00
422.50
86.50
11.50
31.00
5.73
520.00
68.50
16.24
132.10
9.16
61.25
152.50
14.47
64.00
417.50
12.85
145.25
250.00
209.25
6.67
238.60
72.50
133.63
292.40
83.70
15.55
13.75
238.25
22800.00
9.05
328.00
11.74
6.36
0.66
112.50
11.75
28.16
4.18
6.17
52.35
464.10
46.50
22.56
206.25
70.28
24.66
70.90
2142.00
282.60
1.69
64.50
28.00
377.50
136.40
45.75
39.20
5.78
1305.00
42.80
538.00
13.10
-22.2%
113.7%
5.7%
-9.7%
159.6%
7.1%
7.7%
-15.2%
59.8%
3.3%
3.6%
14.3%
53.7%
22.3%
47.0%
3.6%
-89.3%
22.5%
59.0%
15.6%
-45.4%
-1.0%
-3.9%
-8.0%
-41.0%
-14.3%
-1.1%
-3.0%
-5.1%
53.0%
-24.2%
-25.8%
11.3%
22.6%
-33.9%
13.3%
-10.9%
1.8%
21.2%
43.0%
-37.5%
-10.1%
11.5%
16.0%
-9.6%
-2.4%
-49.2%
-47.2%
15.4%
-29.2%
4.3%
-24.0%
7.3%
14.3%
5.2%
204.9%
13.0%
-34.1%
3.5%
2.6%
6.3%
4.8%
27.6%
13.4%
22.9%
-29.6%
16.9%
10.5%
-31.2%
-3.4%
40.0%
4.3%
11.5%
-7.2%
22.7%
-23.7%
14.7%
-12.5%
-37.3%
-23.5%
-15.5%
-7.0%
-2.6%
-10.0%
-6.8%
-5.7%
3.5%
-0.8%
-9.1%
-2.9%
-8.0%
-64.9%
10.7%
-11.2%
-11.4%
-42.9%
-7.5%
-5.8%
-8.6%
-24.4%
-17.3%
-5.1%
-31.9%
14.4%
-1.3%
-1.5%
-20.0%
27.0%
-10.2%
-10.6%
-2.0%
-27.4%
-3.8%
6.1%
18.5%
-22.5%
-4.7%
-4.3%
1.7%
-26.3%
-8.0%
-28.5%
-50.7%
-15.9%
-34.7%
-9.9%
-2.6%
-20.4%
16.8%
-10.4%
22.0%
-6.6%
-11.5%
-1.8%
-4.7%
-0.8%
-2.7%
-7.6%
-6.3%
5.4%
-26.1%
12.0%
-7.0%
-34.9%
-10.5%
-9.8%
-7.8%
6.7%
-16.6%
-11.8%
-12.3%
87.9%
-10.4%
-6.5%
35.4%
13.9%
15.3%
-15.5%
-7.1%
5.8%
10.9%
11.6%
50.4%
16.2%
28.0%
-1.7%
-89.9%
11.5%
15.7%
18.8%
-41.5%
3.8%
1.5%
-3.6%
-44.7%
-15.3%
10.5%
-14.1%
14.4%
15.5%
-19.5%
-31.9%
12.2%
21.1%
-37.0%
9.8%
-6.6%
-6.6%
22.1%
54.0%
-34.5%
-0.7%
21.3%
21.6%
-5.7%
5.8%
-52.0%
-50.7%
7.1%
-29.6%
5.4%
-28.5%
-20.7%
17.8%
-1.5%
138.5%
19.8%
-34.7%
12.9%
5.0%
15.1%
9.1%
21.2%
20.3%
15.5%
-44.3%
8.4%
9.0%
-11.2%
3.9%
42.6%
10.4%
23.3%
-2.7%
31.7%
-7.7%
65.2%
5.7%
34.4%
415.9%
1.0%
37.1%
-23.5%
182.2%
-6.3%
7.0%
12.5%
55.1%
61.9%
99.8%
73.0%
-85.5%
16.5%
-2.6%
31.0%
321.5%
8.8%
42.4%
-3.5%
-67.8%
33.2%
24.1%
-41.6%
-14.2%
126.3%
86.8%
-2.7%
28.8%
9.9%
-28.7%
-14.7%
-7.5%
28.2%
139.5%
64.9%
-5.2%
-17.0%
39.9%
22.3%
556.0%
-1.8%
-69.0%
-72.1%
-3.0%
-11.3%
9.6%
-36.2%
NA
42.6%
64.9%
31.9%
40.1%
-10.3%
39.6%
18.6%
45.5%
26.5%
24.7%
4.5%
79.2%
-67.3%
-3.2%
6.5%
-60.6%
4.3%
344.2%
23.8%
45.1%
-16.3%
-20.0%
11.1%
-10.6%
2.5%
44.8%
1.3%
-1.9%
5.8%
18.4%
Europe Oil & Gas Peer Group
DNO International ASA
Amerisur Resources Plc
Aminex Plc
Aurelian Oil & Gas Plc
Bahamas Petroleum Company Plc
Bankers Petroleum Ltd
BG Group
Borders and Southern
BowLeven Plc
BP plc
BP plc (ADS)
Cairn Energy PLC
CEPSA
Chariot Oil and Gas Ltd
Coastal Energy Company
Cove Energy Plc
Desire Petroleum Plc
Det Norske Oljeselskap ASA
Dominion Petroleum Ltd
Dragon Oil PLC
EnCore Oil Plc
ENI
EnQuest Plc
ERG
Falkland Oil & Gas Ltd
Faroe Petroleum Plc
Galp
Global Energy Development Plc
Great Eastern Energy Corporation Ltd
Green Dragon Gas Ltd
Gulf Keystone Petroleum Ltd
Gulfsands Petroleum Plc
Hardy Oil and Gas Plc
Hellenic Petroleum
Heritage Oil
IGAS Energy Plc
Ithaca Energy Inc
JKX Oil and Gas
Lundin Petroleum
Maurel & Prom
Max Petroleum Plc
Melrose Resources Plc
MOL
Motor Oil Hellas
Nautical Petroleum Plc
Neste Oil
Nighthawk Energy Plc
Norse Energy Corp
Northern Petroleum Plc
Norwegian Energy Company ASA
OMV
PA Resources AB
Panoro Energy ASA
PKN
Premier Oil
Regal Petroleum
Repsol YPF
Rockhopper Exploration Plc
Royal Dutch Shell plc (A ADR)
Royal Dutch Shell plc (A)
Royal Dutch Shell plc (B ADR)
Royal Dutch Shell plc (B)
Salamander Energy PLC
Saras
Schoeller-Bleckmann
Serica Energy Plc
Soco International Plc
Statoil
Sterling Energy Plc
TOTAL SA
Tower Resources Plc
Tullow Oil Plc
Tupras
Valiant Petroleum Plc
Petroplus Holdings
Nkr
p
p
p
p
p
p
p
p
p
$
p
€
p
p
p
p
Nkr
p
p
p
€
p
€
p
p
€
p
p
$
p
p
p
€
p
p
p
p
Skr
€
p
p
HUF
€
p
€
p
Nkr
p
Nkr
€
Skr
Nkr
PLN
p
p
€
p
$
€
$
p
p
€
€
p
p
Nkr
p
€
p
p
YTL
p
SFr
Average
FTSE World Europe (GBP)
388.58
Note: Prices as of most recent available close, which could vary from the price date indicated above
This table shows movement in absolute share price and not total shareholder return. Results presented should not and cannot be viewed as an indicator of future performance.
Source: FactSet, Quantum database.
Goldman Sachs Global Investment Research
47
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Salamander Energy (SMDR.L): Downgrading to Neutral after recent outperformance
Investment Profile
What happened
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Salamander Energy PLC (SMDR.L)
Europe Oil & Gas Peer Group Average
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Key data
Current
Price (p)
12 month price target (p)
Upside/(downside) (%)
Market cap (£ mn)
Enterprise value ($ mn)
EBIT ($ mn) New
EBIT revision (%)
EPS ($) New
EPS ($) Old
EV/DACF (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
CROCI/WACC (X)
EV/GCI
12/10
35.5
(21.3)
(0.12)
(0.02)
4.8
NM
0.0
0.4
13.0
-0.6
12/11E
230.1
1.9
0.75
0.63
4.4
6.2
0.0
2.1
14.7
-0.6
12/12E
234.6
(6.2)
0.81
0.75
3.7
5.7
0.0
22.3
14.2
-0.5
282.6
500
77
356.8
942.9
12/13E
225.5
49.4
0.82
0.45
2.6
5.6
0.0
27.7
15.9
-0.4
Price performance chart
320
420
300
400
280
380
260
360
240
340
220
320
200
May-10
300
Aug-10
Dec-10
Salamander Energy PLC (L)
Share price performance (%)
Absolute
Rel. to FTSE World Europe (GBP)
We are downgrading Salamander Energy from Buy to Neutral with a 12-month target price of 500p. Since being
added to the Buy List on April 7, 2010 the stock is up 0.9% vs. the oil and gas sector up 33% and the FTSE World
Europe Index’s gain of 1%; over 12 months Salamander is up 24.7% vs. the FTSE World Europe’s rise of 18.4%.
Since being added to the Buy List the stock has underperformed largely as a result of a disappointing
exploration campaign towards the beginning of 2010. Since we expanded our coverage universe (on November
5, 2010), however, Salamander has outperformed, up 27.6%, vs. our Oil and Gas universe up 11.2%.
Current view
We continue to see attractive upside potential (77%) to our 12-month target price of 500p and potential
attractions in the investment case. On our revised estimates, Salamander is currently trading at a c.13% discount
to our core valuation, and as such, the potential benefits of drilling in the company’s 2011 exploration
programme are “free”. On our estimates, the potential uplift to our valuation in the event of 100% exploration
success in the short term would be c.66% (vs. a sector average of c.172%) – with Cat Ba (Vietnam) and future
drilling around the Angklung prospect offering the most significant re-rating potential. In the medium term, we
believe that the company’s de-risked acreage around the 2010 Angklung discovery should provide additional
catalysts. We also note that production is likely to continue to increase, with 30kboepd of production a real
possibility in the medium term.
However, despite these attractions, following the recent outperformance of the stock since we expanded our
coverage universe, we now see greater upside and a better risk/reward in other names in our E&P coverage. We
therefore downgrade Salamander from Buy to Neutral.
Our 12-month SOTP-based target price is calculated using a US$100/bl oil price with exploration and appraisal
assets being valued on an NPV/bl basis.
The main upside risks to our view and target price are greater than expected exploration and appraisal success
in the company’s exploration programme and greater than expected production uplift. The key downside risk is
worse than expected failure in the company’s exploration programme.
Mar-11
FTSE World Europe (GBP) (R)
3 month
(7.6)
(5.8)
6 month
21.2
14.5
12 month
24.7
5.4
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/26/2011 close.
Source: Company data, Goldman Sachs Research estimates, FactSet. This page is priced as of the close of May 26, 2011.
Goldman Sachs Global Investment Research
48
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Exhibit 55: Share price performance of Salamander Energy versus peer group
Prices as of the close of May 26, 2011
Company
Ticker
Primary analyst
SMDR.L
AMER.L
AMNX.L
AUL.L
BPCB.L
BNKq.L
BG.L
BSTH.L
BLVN.L
BP.L
BP
CNE.L
CEP.MC
CHARC.L
CEO.L
COVE.L
DES.L
DETNOR.OL
DNO.OL
DOPL.L
DGO.L
EO.L
ENI.MI
ENQ.L
ERG.MI
FOGL.L
FPM.L
GALP.LS
GBLE.L
GEECq.L
GDG.L
GKP.L
GPX.L
HAOG.L
HEPr.AT
HOIL.L
IGAS.L
IAE.L
JKX.L
LUPE.ST
MAUP.PA
MXP.L
MRS.L
MOLB.BU
MORr.AT
NPE.L
NES1V.HE
NGTE.L
NEC.OL
NOP.L
NOR.OL
OMVV.VI
PAR.ST
PENO.OL
PKNA.WA
PMO.L
RPT.L
REP.MC
RKH.L
RDSa
RDSa.AS
RDSb
RDSb.L
SRS.MI
SBOE.VI
SQZ.L
SIA.L
STL.OL
SEY.L
TOTF.PA
TOWR.L
TLW.L
TUPRS.IS
VPP.L
PPHN.S
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Henry Morris
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Henry Morris
Rudolf Dreyer
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Henry Morris
Price
currency
Price as of May
26, 2011
Price performance
since Apr 7, 2010
3 month price
performance
6 month price
performance
12 month price
performance
282.60
27.25
7.88
53.75
16.25
492.50
1392.00
56.00
302.00
461.20
45.38
440.70
27.82
219.00
422.50
86.50
11.50
31.00
7.15
5.73
520.00
68.50
16.24
132.10
9.16
61.25
152.50
14.47
64.00
417.50
12.85
145.25
250.00
209.25
6.67
238.60
72.50
133.63
292.40
83.70
15.55
13.75
238.25
22800.00
9.05
328.00
11.74
6.36
0.66
112.50
11.75
28.16
4.18
6.17
52.35
464.10
46.50
22.56
206.25
70.28
24.66
70.90
2142.00
1.69
64.50
28.00
377.50
136.40
45.75
39.20
5.78
1305.00
42.80
538.00
13.10
0.9%
62.7%
-31.4%
17.5%
291.6%
-18.6%
19.7%
0.9%
125.4%
-28.2%
-22.8%
3.2%
34.1%
265.0%
36.3%
61.7%
-74.4%
1.3%
-8.0%
-10.2%
4.4%
321.5%
-6.4%
32.2%
-13.8%
-54.8%
26.6%
10.5%
-37.6%
-18.1%
95.6%
64.1%
-25.4%
-3.6%
-16.0%
-40.8%
-18.1%
-5.6%
1.2%
67.1%
23.2%
-34.5%
-21.9%
8.1%
-8.6%
583.3%
-13.4%
-74.1%
-78.3%
-10.0%
-39.4%
-6.4%
-67.4%
NA
35.5%
42.6%
-33.6%
24.0%
252.6%
19.5%
11.7%
25.6%
15.5%
-18.3%
51.8%
-69.2%
-11.9%
-3.5%
-67.3%
-10.7%
344.2%
-0.2%
31.7%
-13.9%
-37.9%
-7.6%
14.7%
-12.5%
-37.3%
-23.5%
-15.5%
-7.0%
-2.6%
-10.0%
-6.8%
-5.7%
3.5%
-0.8%
-9.1%
-2.9%
-8.0%
-64.9%
10.7%
-23.7%
-11.2%
-11.4%
-42.9%
-7.5%
-5.8%
-8.6%
-24.4%
-17.3%
-5.1%
-31.9%
14.4%
-1.3%
-1.5%
-20.0%
27.0%
-10.2%
-10.6%
-2.0%
-27.4%
-3.8%
6.1%
18.5%
-22.5%
-4.7%
-4.3%
1.7%
-26.3%
-8.0%
-28.5%
-50.7%
-15.9%
-34.7%
-9.9%
-2.6%
-20.4%
16.8%
-10.4%
22.0%
-6.6%
-11.5%
-1.8%
-4.7%
-0.8%
-2.7%
-6.3%
5.4%
-26.1%
12.0%
-7.0%
-34.9%
-10.5%
-9.8%
-7.8%
6.7%
-16.6%
-11.8%
21.2%
87.9%
-10.4%
-6.5%
35.4%
13.9%
15.3%
-15.5%
-7.1%
5.8%
10.9%
11.6%
50.4%
16.2%
28.0%
-1.7%
-89.9%
11.5%
-12.3%
15.7%
18.8%
-41.5%
3.8%
1.5%
-3.6%
-44.7%
-15.3%
10.5%
-14.1%
14.4%
15.5%
-19.5%
-31.9%
12.2%
21.1%
-37.0%
9.8%
-6.6%
-6.6%
22.1%
54.0%
-34.5%
-0.7%
21.3%
21.6%
-5.7%
5.8%
-52.0%
-50.7%
7.1%
-29.6%
5.4%
-28.5%
-20.7%
17.8%
-1.5%
138.5%
19.8%
-34.7%
12.9%
5.0%
15.1%
9.1%
20.3%
15.5%
-44.3%
8.4%
9.0%
-11.2%
3.9%
42.6%
10.4%
23.3%
-2.7%
31.7%
24.7%
65.2%
5.7%
34.4%
415.9%
1.0%
37.1%
-23.5%
182.2%
-6.3%
7.0%
12.5%
55.1%
61.9%
99.8%
73.0%
-85.5%
16.5%
-7.7%
-2.6%
31.0%
321.5%
8.8%
42.4%
-3.5%
-67.8%
33.2%
24.1%
-41.6%
-14.2%
126.3%
86.8%
-2.7%
28.8%
9.9%
-28.7%
-14.7%
-7.5%
28.2%
139.5%
64.9%
-5.2%
-17.0%
39.9%
22.3%
556.0%
-1.8%
-69.0%
-72.1%
-3.0%
-11.3%
9.6%
-36.2%
NA
42.6%
64.9%
31.9%
40.1%
-10.3%
39.6%
18.6%
45.5%
26.5%
4.5%
79.2%
-67.3%
-3.2%
6.5%
-60.6%
4.3%
344.2%
23.8%
45.1%
-16.3%
-20.0%
33.0%
-10.5%
2.5%
45.3%
1.0%
-1.9%
5.8%
18.4%
Europe Oil & Gas Peer Group
Salamander Energy PLC
Amerisur Resources Plc
Aminex Plc
Aurelian Oil & Gas Plc
Bahamas Petroleum Company Plc
Bankers Petroleum Ltd
BG Group
Borders and Southern
BowLeven Plc
BP plc
BP plc (ADS)
Cairn Energy PLC
CEPSA
Chariot Oil and Gas Ltd
Coastal Energy Company
Cove Energy Plc
Desire Petroleum Plc
Det Norske Oljeselskap ASA
DNO International ASA
Dominion Petroleum Ltd
Dragon Oil PLC
EnCore Oil Plc
ENI
EnQuest Plc
ERG
Falkland Oil & Gas Ltd
Faroe Petroleum Plc
Galp
Global Energy Development Plc
Great Eastern Energy Corporation Ltd
Green Dragon Gas Ltd
Gulf Keystone Petroleum Ltd
Gulfsands Petroleum Plc
Hardy Oil and Gas Plc
Hellenic Petroleum
Heritage Oil
IGAS Energy Plc
Ithaca Energy Inc
JKX Oil and Gas
Lundin Petroleum
Maurel & Prom
Max Petroleum Plc
Melrose Resources Plc
MOL
Motor Oil Hellas
Nautical Petroleum Plc
Neste Oil
Nighthawk Energy Plc
Norse Energy Corp
Northern Petroleum Plc
Norwegian Energy Company ASA
OMV
PA Resources AB
Panoro Energy ASA
PKN
Premier Oil
Regal Petroleum
Repsol YPF
Rockhopper Exploration Plc
Royal Dutch Shell plc (A ADR)
Royal Dutch Shell plc (A)
Royal Dutch Shell plc (B ADR)
Royal Dutch Shell plc (B)
Saras
Schoeller-Bleckmann
Serica Energy Plc
Soco International Plc
Statoil
Sterling Energy Plc
TOTAL SA
Tower Resources Plc
Tullow Oil Plc
Tupras
Valiant Petroleum Plc
Petroplus Holdings
p
p
p
p
p
p
p
p
p
p
$
p
€
p
p
p
p
Nkr
Nkr
p
p
p
€
p
€
p
p
€
p
p
$
p
p
p
€
p
p
p
p
Skr
€
p
p
HUF
€
p
€
p
Nkr
p
Nkr
€
Skr
Nkr
PLN
p
p
€
p
$
€
$
p
€
€
p
p
Nkr
p
€
p
p
YTL
p
SFr
Average
FTSE World Europe (GBP)
388.58
Note: Prices as of most recent available close, which could vary from the price date indicated above
This table shows movement in absolute share price and not total shareholder return. Results presented should not and cannot be viewed as an indicator of future performance.
Source: FactSet, Quantum database.
Goldman Sachs Global Investment Research
49
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Det Norske (DETNOR.OL): Downgrading to Neutral following outperformance
Investment Profile
What happened
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
We are downgrading Det Norske from Buy to Neutral with a 12-month target price of Nkr55.50 following the
stock’s recent strong performance. Since being added to the Buy List on November 5, 2010 the stock is up 22.5%
vs. the oil and gas sector up 11.1% and the FTSE World Europe Index’s rise of 1.3%; over 12 months, Det Norske
is up 16.5% vs. the FTSE World Europe’s rise of 18.4%.
Det Norske Oljeselskap ASA (DETNOR.OL)
Current view
Europe Oil & Gas Peer Group Average
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Key data
Current
Price (Nkr)
12 month price target (Nkr)
Upside/(downside) (%)
Market cap (Nkr mn)
Enterprise value (Nkr mn)
31.00
55.50
79
3,444.4
4,589.6
12/13E
430.3
(16.6)
2.50
2.42
9.4
12.4
0.0
11.3
NM
-NM
EBIT (Nkr mn) New
EBIT revision (%)
EPS (Nkr) New
EPS (Nkr) Old
EV/DACF (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
CROCI/WACC (X)
EV/GCI
12/10
(1,999.6)
(644.2)
(6.21)
(2.31)
2.3
NM
0.0
22.0
NM
-NM
12/11E
(530.4)
(458.2)
(5.49)
(0.92)
30.6
NM
0.0
(58.6)
NM
-NM
12/12E
122.5
NM
0.16
(0.97)
27.2
189.7
0.0
(15.1)
NM
-NM
Price performance chart
34
460
32
440
30
420
28
400
26
380
24
360
22
340
20
320
18
May-10
300
Aug-10
Dec-10
Det Norske Oljeselskap ASA (L)
Share price performance (%)
Absolute
Rel. to FTSE World Europe (GBP)
We continue to see attractive upside potential (79%) to our 12-month target price of Nkr55.50, but now see better
opportunities elsewhere in the sector on a 12-month basis, following the stock’s recent outperformance and
recent dry wells at Gullris and Dovregubben. There remain attractive elements to the investment case. On our
updated estimates, reflecting the reserve and dry well updates, Det Norske is currently trading at a c.27%
discount to our core valuation, and as such exploration drilling in the company’s 2011 exploration programme is
“free”. We also note that a large proportion of its exploration costs are refunded as a result of tax rebates, and
we therefore believe it provides a low-risk exposure to North Sea exploration in Norway. The company plans to
drill a number of wells in the coming quarters, resulting in further diversity of risk, but in aggregate we believe
that success at each one of these wells could result in an uplift of c.95% to our valuation. We view free
exploration of this order of magnitude positively, and include the stock in our Balanced Explorers Screen.
However, despite these benefits, we now see greater upside in other names in our E&P coverage and therefore
downgrade Det Norske from Buy to Neutral.
Our 12-month SOTP-based target price is calculated using a US$100/bl oil price with exploration and appraisal
assets being valued on an NPV/bl basis.
The main upside risks to our view and target price are greater than expected exploration and appraisal success
in the company’s exploration programme and greater than expected production uplift. The key downside risk is
worse than expected failure in the company’s exploration programme. Other risks include a fall in commodity
prices.
Mar-11
FTSE World Europe (GBP) (R)
3 month
10.7
12.9
6 month
11.5
5.4
12 month
16.5
(1.5)
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/26/2011 close.
Source: Company data, Goldman Sachs Research estimates, FactSet. This page is priced as of the close of May 26, 2011.
Goldman Sachs Global Investment Research
50
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Exhibit 56: Share price performance of Det Norske versus peer group
Prices as of the close of May 26, 2011
Company
Ticker
Primary analyst
DETNOR.OL
AMER.L
AMNX.L
AUL.L
BPCB.L
BNKq.L
BG.L
BSTH.L
BLVN.L
BP.L
BP
CNE.L
CEP.MC
CHARC.L
CEO.L
COVE.L
DES.L
DNO.OL
DOPL.L
DGO.L
EO.L
ENI.MI
ENQ.L
ERG.MI
FOGL.L
FPM.L
GALP.LS
GBLE.L
GEECq.L
GDG.L
GKP.L
GPX.L
HAOG.L
HEPr.AT
HOIL.L
IGAS.L
IAE.L
JKX.L
LUPE.ST
MAUP.PA
MXP.L
MRS.L
MOLB.BU
MORr.AT
NPE.L
NES1V.HE
NGTE.L
NEC.OL
NOP.L
NOR.OL
OMVV.VI
PAR.ST
PENO.OL
PKNA.WA
PMO.L
RPT.L
REP.MC
RKH.L
RDSa
RDSa.AS
RDSb
RDSb.L
SMDR.L
SRS.MI
SBOE.VI
SQZ.L
SIA.L
STL.OL
SEY.L
TOTF.PA
TOWR.L
TLW.L
TUPRS.IS
VPP.L
PPHN.S
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Henry Morris
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Rudolf Dreyer
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Henry Morris
Price
currency
Price as of May
26, 2011
Price performance
since Nov 5, 2010
3 month price
performance
6 month price
performance
12 month price
performance
31.00
27.25
7.88
53.75
16.25
492.50
1392.00
56.00
302.00
461.20
45.38
440.70
27.82
219.00
422.50
86.50
11.50
7.15
5.73
520.00
68.50
16.24
132.10
9.16
61.25
152.50
14.47
64.00
417.50
12.85
145.25
250.00
209.25
6.67
238.60
72.50
133.63
292.40
83.70
15.55
13.75
238.25
22800.00
9.05
328.00
11.74
6.36
0.66
112.50
11.75
28.16
4.18
6.17
52.35
464.10
46.50
22.56
206.25
70.28
24.66
70.90
2142.00
282.60
1.69
64.50
28.00
377.50
136.40
45.75
39.20
5.78
1305.00
42.80
538.00
13.10
22.5%
113.7%
5.7%
-9.7%
159.6%
7.1%
7.7%
-15.2%
59.8%
3.3%
3.6%
14.3%
53.7%
22.3%
47.0%
3.6%
-89.3%
-22.2%
59.0%
15.6%
-45.4%
-1.0%
-3.9%
-8.0%
-41.0%
-14.3%
-1.1%
-3.0%
-5.1%
53.0%
-24.2%
-25.8%
11.3%
22.6%
-33.9%
13.3%
-10.9%
1.8%
21.2%
43.0%
-37.5%
-10.1%
11.5%
16.0%
-9.6%
-2.4%
-49.2%
-47.2%
15.4%
-29.2%
4.3%
-24.0%
7.3%
14.3%
5.2%
204.9%
13.0%
-34.1%
3.5%
2.6%
6.3%
4.8%
27.6%
13.4%
22.9%
-29.6%
16.9%
10.5%
-31.2%
-3.4%
40.0%
4.3%
11.5%
-7.2%
22.7%
10.7%
14.7%
-12.5%
-37.3%
-23.5%
-15.5%
-7.0%
-2.6%
-10.0%
-6.8%
-5.7%
3.5%
-0.8%
-9.1%
-2.9%
-8.0%
-64.9%
-23.7%
-11.2%
-11.4%
-42.9%
-7.5%
-5.8%
-8.6%
-24.4%
-17.3%
-5.1%
-31.9%
14.4%
-1.3%
-1.5%
-20.0%
27.0%
-10.2%
-10.6%
-2.0%
-27.4%
-3.8%
6.1%
18.5%
-22.5%
-4.7%
-4.3%
1.7%
-26.3%
-8.0%
-28.5%
-50.7%
-15.9%
-34.7%
-9.9%
-2.6%
-20.4%
16.8%
-10.4%
22.0%
-6.6%
-11.5%
-1.8%
-4.7%
-0.8%
-2.7%
-7.6%
-6.3%
5.4%
-26.1%
12.0%
-7.0%
-34.9%
-10.5%
-9.8%
-7.8%
6.7%
-16.6%
-11.8%
11.5%
87.9%
-10.4%
-6.5%
35.4%
13.9%
15.3%
-15.5%
-7.1%
5.8%
10.9%
11.6%
50.4%
16.2%
28.0%
-1.7%
-89.9%
-12.3%
15.7%
18.8%
-41.5%
3.8%
1.5%
-3.6%
-44.7%
-15.3%
10.5%
-14.1%
14.4%
15.5%
-19.5%
-31.9%
12.2%
21.1%
-37.0%
9.8%
-6.6%
-6.6%
22.1%
54.0%
-34.5%
-0.7%
21.3%
21.6%
-5.7%
5.8%
-52.0%
-50.7%
7.1%
-29.6%
5.4%
-28.5%
-20.7%
17.8%
-1.5%
138.5%
19.8%
-34.7%
12.9%
5.0%
15.1%
9.1%
21.2%
20.3%
15.5%
-44.3%
8.4%
9.0%
-11.2%
3.9%
42.6%
10.4%
23.3%
-2.7%
31.7%
16.5%
65.2%
5.7%
34.4%
415.9%
1.0%
37.1%
-23.5%
182.2%
-6.3%
7.0%
12.5%
55.1%
61.9%
99.8%
73.0%
-85.5%
-7.7%
-2.6%
31.0%
321.5%
8.8%
42.4%
-3.5%
-67.8%
33.2%
24.1%
-41.6%
-14.2%
126.3%
86.8%
-2.7%
28.8%
9.9%
-28.7%
-14.7%
-7.5%
28.2%
139.5%
64.9%
-5.2%
-17.0%
39.9%
22.3%
556.0%
-1.8%
-69.0%
-72.1%
-3.0%
-11.3%
9.6%
-36.2%
NA
42.6%
64.9%
31.9%
40.1%
-10.3%
39.6%
18.6%
45.5%
26.5%
24.7%
4.5%
79.2%
-67.3%
-3.2%
6.5%
-60.6%
4.3%
344.2%
23.8%
45.1%
-16.3%
-20.0%
11.1%
-10.6%
2.5%
44.8%
1.3%
-1.9%
5.8%
18.4%
Europe Oil & Gas Peer Group
Det Norske Oljeselskap ASA
Amerisur Resources Plc
Aminex Plc
Aurelian Oil & Gas Plc
Bahamas Petroleum Company Plc
Bankers Petroleum Ltd
BG Group
Borders and Southern
BowLeven Plc
BP plc
BP plc (ADS)
Cairn Energy PLC
CEPSA
Chariot Oil and Gas Ltd
Coastal Energy Company
Cove Energy Plc
Desire Petroleum Plc
DNO International ASA
Dominion Petroleum Ltd
Dragon Oil PLC
EnCore Oil Plc
ENI
EnQuest Plc
ERG
Falkland Oil & Gas Ltd
Faroe Petroleum Plc
Galp
Global Energy Development Plc
Great Eastern Energy Corporation Ltd
Green Dragon Gas Ltd
Gulf Keystone Petroleum Ltd
Gulfsands Petroleum Plc
Hardy Oil and Gas Plc
Hellenic Petroleum
Heritage Oil
IGAS Energy Plc
Ithaca Energy Inc
JKX Oil and Gas
Lundin Petroleum
Maurel & Prom
Max Petroleum Plc
Melrose Resources Plc
MOL
Motor Oil Hellas
Nautical Petroleum Plc
Neste Oil
Nighthawk Energy Plc
Norse Energy Corp
Northern Petroleum Plc
Norwegian Energy Company ASA
OMV
PA Resources AB
Panoro Energy ASA
PKN
Premier Oil
Regal Petroleum
Repsol YPF
Rockhopper Exploration Plc
Royal Dutch Shell plc (A ADR)
Royal Dutch Shell plc (A)
Royal Dutch Shell plc (B ADR)
Royal Dutch Shell plc (B)
Salamander Energy PLC
Saras
Schoeller-Bleckmann
Serica Energy Plc
Soco International Plc
Statoil
Sterling Energy Plc
TOTAL SA
Tower Resources Plc
Tullow Oil Plc
Tupras
Valiant Petroleum Plc
Petroplus Holdings
Nkr
p
p
p
p
p
p
p
p
p
$
p
€
p
p
p
p
Nkr
p
p
p
€
p
€
p
p
€
p
p
$
p
p
p
€
p
p
p
p
Skr
€
p
p
HUF
€
p
€
p
Nkr
p
Nkr
€
Skr
Nkr
PLN
p
p
€
p
$
€
$
p
p
€
€
p
p
Nkr
p
€
p
p
YTL
p
SFr
Average
FTSE World Europe (GBP)
388.58
Note: Prices as of most recent available close, which could vary from the price date indicated above
This table shows movement in absolute share price and not total shareholder return. Results presented should not and cannot be viewed as an indicator of future performance.
Source: FactSet, Quantum database.
Goldman Sachs Global Investment Research
51
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Coastal Energy (CEO.L): Removing from Buy List, better upside elsewhere; Neutral
Investment Profile
What happened
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
We are downgrading Coastal Energy from Buy to Neutral with a 12-month target price of 774p. Since being
added to the Buy List on January 31, 2011 the stock is down 4% vs. the oil and gas sector’s fall of 8.8% and the
FTSE World Europe’s fall of 0.6%; over 12 months, Coastal is up 99.8% vs. the FTSE World Europe’s rise of
81.4%.
Coastal Energy Company (CEO.L)
Current view
Europe Oil & Gas Peer Group Average
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Key data
Current
Price (p)
12 month price target (p)
Upside/(downside) (%)
Market cap (£ mn)
Enterprise value ($ mn)
EBIT ($ mn) New
EBIT revision (%)
EPS ($) New
EPS ($) Old
EV/DACF (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
CROCI/WACC (X)
EV/GCI
12/10
47.0
(78.0)
0.13
0.92
4.5
33.2
0.0
(7.9)
NM
-NM
12/11E
342.8
(1.5)
1.62
1.62
4.1
4.3
0.0
5.0
NM
-NM
422.5
774
83
463.1
793.5
12/13E
77.8
28.8
0.53
0.41
7.4
13.2
0.0
8.9
NM
-NM
12/12E
388.9
(14.9)
1.93
2.21
2.5
3.6
0.0
29.2
NM
-NM
Price performance chart
440
550
500
420
450
400
400
380
350
360
300
340
250
320
200
May-10
300
Aug-10
Dec-10
Coastal Energy Company (L)
Share price performance (%)
Absolute
Rel. to FTSE World Europe (GBP)
We continue to see attractive upside potential (83%) to our 12-month target price of 774p but now see better
opportunities elsewhere in the sector over the next 12 months following the stock’s decent performance, despite
a reserves downgrade at Bua Ban. On our revised forecasts, including the reserve downgrade at the Bua Ban
asset, Coastal continues to trade at a discount to our core valuation. Coastal’s operations are focused in
Thailand, where it holds a 100% interest in blocks G5/43 and G5/50 in the Gulf of Thailand. Future exploration
activity is likely to focus on various plays around the Bua Ban asset. On our estimates, the potential uplift to our
valuation in the event of 100% exploration success in the short term would be c.54% (vs. a sector average of
c.172%) – on an individual basis the exploration wells due to be drilled offer relatively little upside, but
combined, they provide attractive materiality. Additional upside could result if it transpires that the shale play
(currently risked at a 10% likelihood of success) at Bua Ban is commercial. However, despite these advantages,
we now see greater upside and a better risk/reward in other names in our E&P coverage and therefore
downgrade Coastal from Buy to Neutral.
Our 12-month SOTP-based target price is calculated using a US$100/bl oil price. We currently give value for two
exploration prospects around Bua Ban North, one on the Bua Ban Terrace and one exploration well at Bua Ban
South. We also give a small amount of risked value (now risked at 15% likelihood of success versus 10%
previously) for potential commercialization of the lacustrine shale play.
The main upside risks to our view and target price are greater than expected exploration and appraisal success
in the company’s exploration programme and greater than expected production uplift. The key downside risk is
worse than expected failure in the company’s exploration programme.
Mar-11
FTSE World Europe (GBP) (R)
3 month
(2.9)
(1.0)
6 month
28.0
21.0
12 month
99.8
68.8
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/26/2011 close.
Source: Company data, Goldman Sachs Research estimates, FactSet. This page is priced as of the close of May 26, 2011.
Goldman Sachs Global Investment Research
52
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Exhibit 57: Share price performance for Coastal Energy versus peer group
Prices as of the close of May 26, 2011
Company
Ticker
Primary analyst
CEO.L
AMER.L
AMNX.L
AUL.L
BPCB.L
BNKq.L
BG.L
BSTH.L
BLVN.L
BP.L
BP
CNE.L
CEP.MC
CHARC.L
COVE.L
DES.L
DETNOR.OL
DNO.OL
DOPL.L
DGO.L
EO.L
ENI.MI
ENQ.L
ERG.MI
FOGL.L
FPM.L
GALP.LS
GBLE.L
GEECq.L
GDG.L
GKP.L
GPX.L
HAOG.L
HEPr.AT
HOIL.L
IGAS.L
IAE.L
JKX.L
LUPE.ST
MAUP.PA
MXP.L
MRS.L
MOLB.BU
MORr.AT
NPE.L
NES1V.HE
NGTE.L
NEC.OL
NOP.L
NOR.OL
OMVV.VI
PAR.ST
PENO.OL
PKNA.WA
PMO.L
RPT.L
REP.MC
RKH.L
RDSa
RDSa.AS
RDSb
RDSb.L
SMDR.L
SRS.MI
SBOE.VI
SQZ.L
SIA.L
STL.OL
SEY.L
TOTF.PA
TOWR.L
TLW.L
TUPRS.IS
VPP.L
PPHN.S
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Henry Morris
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Rudolf Dreyer
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Henry Morris
Price
currency
Price as of May
26, 2011
Price performance
since Jan 31, 2011
3 month price
performance
6 month price
performance
12 month price
performance
422.50
27.25
7.88
53.75
16.25
492.50
1392.00
56.00
302.00
461.20
45.38
440.70
27.82
219.00
86.50
11.50
31.00
7.15
5.73
520.00
68.50
16.24
132.10
9.16
61.25
152.50
14.47
64.00
417.50
12.85
145.25
250.00
209.25
6.67
238.60
72.50
133.63
292.40
83.70
15.55
13.75
238.25
22800.00
9.05
328.00
11.74
6.36
0.66
112.50
11.75
28.16
4.18
6.17
52.35
464.10
46.50
22.56
206.25
70.28
24.66
70.90
2142.00
282.60
1.69
64.50
28.00
377.50
136.40
45.75
39.20
5.78
1305.00
42.80
538.00
13.10
-4.0%
19.8%
-6.6%
-30.0%
-15.6%
-5.3%
-0.6%
-11.1%
-13.8%
-4.9%
-4.4%
6.4%
31.1%
-15.9%
-17.6%
-70.1%
9.5%
-26.1%
-12.6%
-10.4%
-49.1%
-6.1%
-6.6%
-12.3%
-34.8%
-22.6%
-3.0%
-24.3%
14.4%
24.5%
-8.6%
-25.2%
39.5%
-4.3%
-26.8%
2.8%
-22.1%
0.4%
4.1%
13.5%
-32.1%
1.4%
2.0%
-2.3%
-34.8%
-14.8%
-36.5%
-54.2%
-18.5%
-37.8%
-13.1%
-17.2%
-28.9%
9.7%
-8.4%
69.1%
-1.8%
-42.1%
-1.0%
-4.3%
0.5%
-1.3%
-2.9%
-6.0%
7.5%
-29.6%
3.7%
-2.7%
-33.0%
-8.2%
13.8%
-1.7%
2.9%
-15.0%
-15.3%
-2.9%
14.7%
-12.5%
-37.3%
-23.5%
-15.5%
-7.0%
-2.6%
-10.0%
-6.8%
-5.7%
3.5%
-0.8%
-9.1%
-8.0%
-64.9%
10.7%
-23.7%
-11.2%
-11.4%
-42.9%
-7.5%
-5.8%
-8.6%
-24.4%
-17.3%
-5.1%
-31.9%
14.4%
-1.3%
-1.5%
-20.0%
27.0%
-10.2%
-10.6%
-2.0%
-27.4%
-3.8%
6.1%
18.5%
-22.5%
-4.7%
-4.3%
1.7%
-26.3%
-8.0%
-28.5%
-50.7%
-15.9%
-34.7%
-9.9%
-2.6%
-20.4%
16.8%
-10.4%
22.0%
-6.6%
-11.5%
-1.8%
-4.7%
-0.8%
-2.7%
-7.6%
-6.3%
5.4%
-26.1%
12.0%
-7.0%
-34.9%
-10.5%
-9.8%
-7.8%
6.7%
-16.6%
-11.8%
28.0%
87.9%
-10.4%
-6.5%
35.4%
13.9%
15.3%
-15.5%
-7.1%
5.8%
10.9%
11.6%
50.4%
16.2%
-1.7%
-89.9%
11.5%
-12.3%
15.7%
18.8%
-41.5%
3.8%
1.5%
-3.6%
-44.7%
-15.3%
10.5%
-14.1%
14.4%
15.5%
-19.5%
-31.9%
12.2%
21.1%
-37.0%
9.8%
-6.6%
-6.6%
22.1%
54.0%
-34.5%
-0.7%
21.3%
21.6%
-5.7%
5.8%
-52.0%
-50.7%
7.1%
-29.6%
5.4%
-28.5%
-20.7%
17.8%
-1.5%
138.5%
19.8%
-34.7%
12.9%
5.0%
15.1%
9.1%
21.2%
20.3%
15.5%
-44.3%
8.4%
9.0%
-11.2%
3.9%
42.6%
10.4%
23.3%
-2.7%
31.7%
99.8%
65.2%
5.7%
34.4%
415.9%
1.0%
37.1%
-23.5%
182.2%
-6.3%
7.0%
12.5%
55.1%
61.9%
73.0%
-85.5%
16.5%
-7.7%
-2.6%
31.0%
321.5%
8.8%
42.4%
-3.5%
-67.8%
33.2%
24.1%
-41.6%
-14.2%
126.3%
86.8%
-2.7%
28.8%
9.9%
-28.7%
-14.7%
-7.5%
28.2%
139.5%
64.9%
-5.2%
-17.0%
39.9%
22.3%
556.0%
-1.8%
-69.0%
-72.1%
-3.0%
-11.3%
9.6%
-36.2%
NA
42.6%
64.9%
31.9%
40.1%
-10.3%
39.6%
18.6%
45.5%
26.5%
24.7%
4.5%
79.2%
-67.3%
-3.2%
6.5%
-60.6%
4.3%
344.2%
23.8%
45.1%
-16.3%
-20.0%
-8.8%
-10.6%
2.5%
44.8%
-0.6%
-1.9%
5.8%
18.4%
Europe Oil & Gas Peer Group
Coastal Energy Company
Amerisur Resources Plc
Aminex Plc
Aurelian Oil & Gas Plc
Bahamas Petroleum Company Plc
Bankers Petroleum Ltd
BG Group
Borders and Southern
BowLeven Plc
BP plc
BP plc (ADS)
Cairn Energy PLC
CEPSA
Chariot Oil and Gas Ltd
Cove Energy Plc
Desire Petroleum Plc
Det Norske Oljeselskap ASA
DNO International ASA
Dominion Petroleum Ltd
Dragon Oil PLC
EnCore Oil Plc
ENI
EnQuest Plc
ERG
Falkland Oil & Gas Ltd
Faroe Petroleum Plc
Galp
Global Energy Development Plc
Great Eastern Energy Corporation Ltd
Green Dragon Gas Ltd
Gulf Keystone Petroleum Ltd
Gulfsands Petroleum Plc
Hardy Oil and Gas Plc
Hellenic Petroleum
Heritage Oil
IGAS Energy Plc
Ithaca Energy Inc
JKX Oil and Gas
Lundin Petroleum
Maurel & Prom
Max Petroleum Plc
Melrose Resources Plc
MOL
Motor Oil Hellas
Nautical Petroleum Plc
Neste Oil
Nighthawk Energy Plc
Norse Energy Corp
Northern Petroleum Plc
Norwegian Energy Company ASA
OMV
PA Resources AB
Panoro Energy ASA
PKN
Premier Oil
Regal Petroleum
Repsol YPF
Rockhopper Exploration Plc
Royal Dutch Shell plc (A ADR)
Royal Dutch Shell plc (A)
Royal Dutch Shell plc (B ADR)
Royal Dutch Shell plc (B)
Salamander Energy PLC
Saras
Schoeller-Bleckmann
Serica Energy Plc
Soco International Plc
Statoil
Sterling Energy Plc
TOTAL SA
Tower Resources Plc
Tullow Oil Plc
Tupras
Valiant Petroleum Plc
Petroplus Holdings
p
p
p
p
p
p
p
p
p
p
$
p
€
p
p
p
Nkr
Nkr
p
p
p
€
p
€
p
p
€
p
p
$
p
p
p
€
p
p
p
p
Skr
€
p
p
HUF
€
p
€
p
Nkr
p
Nkr
€
Skr
Nkr
PLN
p
p
€
p
$
€
$
p
p
€
€
p
p
Nkr
p
€
p
p
YTL
p
SFr
Average
FTSE World Europe (GBP)
388.58
Note: Prices as of most recent available close, which could vary from the price date indicated above
This table shows movement in absolute share price and not total shareholder return. Results presented should not and cannot be viewed as an indicator of future performance.
Source: FactSet. Quantum database.
Goldman Sachs Global Investment Research
53
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Encore Oil (EO.L): Underperformance and Cladhan reaction overdone; up to Neutral
Investment Profile
What happened
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Current view
EnCore Oil Plc (EO.L)
Europe Oil & Gas Peer Group Average
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Key data
Current
Price (p)
12 month price target (p)
Upside/(downside) (%)
Market cap (£ mn)
Enterprise value (£ mn)
EBIT (£ mn) New
EBIT revision (%)
EPS (p) New
EPS (p) Old
EV/DACF (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
CROCI/WACC (X)
EV/GCI
We are upgrading Encore Oil to Neutral from Sell following the stock’s recent underperformance. Since being
added to the Sell List on November 5, 2010 the stock is down 45.4% vs. the oil and gas sector up 11.1% and the
FTSE World Europe Index up 1.3%; over 12 months Encore is up 321.5% vs. the FTSE World Europe up 18.4%.
6/10
(15.1)
0.0
3.86
3.86
NM
4.4
0.0
(6.0)
NM
-NM
6/11E
(2.8)
0.0
(0.58)
(0.58)
NM
NM
0.0
(5.6)
NM
-NM
6/12E
(2.8)
0.0
(0.62)
(0.62)
NM
NM
0.0
(5.7)
NM
-NM
68.5
96
40
198.8
178.7
6/13E
(2.8)
0.0
(0.64)
(0.64)
NM
NM
0.0
(0.9)
NM
-NM
We upgrade Encore from Sell to Neutral with a 12-month target price of 96p, implying 40% potential upside,
following a period of sector-relative underperformance. Although recent news flow on the Cladhan appraisal
drilling has been disappointing, we believe too much value has been taken out of the stock and thus upgrade
Encore to Neutral. Following the announcement on the first well on May 18, 2011, the stock is down 39%
implying a c.US$200 mn loss as a result of the failed Cladhan appraisal wells. We believe this overstates the
downside risk, as on our updated estimates, we valued the Cladhan discovery and associated upside at
c.US$146 mn on a pre-drill basis (and note that some value still remains). Following results of the appraisal
drilling on the Cladhan field we update our estimates for the discovered resource to 30 mnbls (on a gross
un-risked basis) versus 45 mn bls previously. We also update our estimate of potential gross upside (on top of
existing, discovered resource) from 84 mn bls down to c. 17 mn bls. Despite the downgrade of our Cladhan
volume estimates, we see a number of positives for Encore. The company holds a 15% stake at its operated
Catcher discovery where we expect substantial follow-on towards end of this year. We regard Spaniards as a
potentially interesting exploration play, with the potential for high upside in the event of proving up additional
reserves, while Tudor Rose, and the potential for a gas storage project at Esmond, offer further portfolio
optionality. On our estimates the stock currently offers c.6% upside to our core valuation and offers short-term
re-rating potential of 86% in the event of success.
Price performance chart
160
460
140
440
120
420
100
400
80
380
60
360
40
340
320
20
0
May-10
We value Encore using a SOTP methodology, assuming a US$100/bl oil price assumption. We have a 12-month
price target of 96p (from 133p). Exploration and discoveries are valued using a risked NPV/bl approach.
Key downside risks to our view and target price are worse than expected exploration and appraisal activities.
Key upside risks to our view and target price are greater than expected volumes at Cladhan and greater than
expected success around the Catcher discovery. We note that Encore’s position in the Catcher block could make
it an attractive target for the larger partners in the block at the right price.
300
Aug-10
EnCore Oil Plc (L)
Share price performance (%)
Absolute
Rel. to FTSE World Europe (GBP)
Dec-10
Mar-11
FTSE World Europe (GBP) (R)
3 month
(42.9)
(41.8)
6 month
(41.5)
(44.7)
12 month
321.5
256.1
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/26/2011 close.
Source: Company data, Goldman Sachs Research estimates, FactSet. This page is priced as of the close of May 26, 2011.
Goldman Sachs Global Investment Research
54
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Exhibit 58: Share price performance for Encore Oil versus peer group
Prices as of the close of May 26, 2011
Company
Ticker
Primary analyst
EO.L
AMER.L
AMNX.L
AUL.L
BPCB.L
BNKq.L
BG.L
BSTH.L
BLVN.L
BP.L
BP
CNE.L
CEP.MC
CHARC.L
CEO.L
COVE.L
DES.L
DETNOR.OL
DNO.OL
DOPL.L
DGO.L
ENI.MI
ENQ.L
ERG.MI
FOGL.L
FPM.L
GALP.LS
GBLE.L
GEECq.L
GDG.L
GKP.L
GPX.L
HAOG.L
HEPr.AT
HOIL.L
IGAS.L
IAE.L
JKX.L
LUPE.ST
MAUP.PA
MXP.L
MRS.L
MOLB.BU
MORr.AT
NPE.L
NES1V.HE
NGTE.L
NEC.OL
NOP.L
NOR.OL
OMVV.VI
PAR.ST
PENO.OL
PPHN.S
PKNA.WA
PMO.L
RPT.L
REP.MC
RKH.L
RDSa
RDSa.AS
RDSb
RDSb.L
SMDR.L
SRS.MI
SBOE.VI
SQZ.L
SIA.L
STL.OL
SEY.L
TOTF.PA
TOWR.L
TLW.L
TUPRS.IS
VPP.L
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Henry Morris
Henry Morris
Christophor Jost
Henry Morris
Christophor Jost
Christophor Jost
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Henry Morris
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Michele della Vigna, CFA
Christophor Jost
Henry Morris
Rudolf Dreyer
Christophor Jost
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Michele della Vigna, CFA
Christophor Jost
Christophor Jost
Henry Morris
Christophor Jost
Price
currency
Price as of May
26, 2011
Price performance
since Nov 5, 2010
3 month price
performance
6 month price
performance
12 month price
performance
68.50
27.25
7.88
53.75
16.25
492.50
1392.00
56.00
302.00
461.20
45.38
440.70
27.82
219.00
422.50
86.50
11.50
31.00
7.15
5.73
520.00
16.24
132.10
9.16
61.25
152.50
14.47
64.00
417.50
12.85
145.25
250.00
209.25
6.67
238.60
72.50
133.63
292.40
83.70
15.55
13.75
238.25
22800.00
9.05
328.00
11.74
6.36
0.66
112.50
11.75
28.16
4.18
6.17
13.10
52.35
464.10
46.50
22.56
206.25
70.28
24.66
70.90
2142.00
282.60
1.69
64.50
28.00
377.50
136.40
45.75
39.20
5.78
1305.00
42.80
538.00
-45.4%
113.7%
5.7%
-9.7%
159.6%
7.1%
7.7%
-15.2%
59.8%
3.3%
3.6%
14.3%
53.7%
22.3%
47.0%
3.6%
-89.3%
22.5%
-22.2%
59.0%
15.6%
-1.0%
-3.9%
-8.0%
-41.0%
-14.3%
-1.1%
-3.0%
-5.1%
53.0%
-24.2%
-25.8%
11.3%
22.6%
-33.9%
13.3%
-10.9%
1.8%
21.2%
43.0%
-37.5%
-10.1%
11.5%
16.0%
-9.6%
-2.4%
-49.2%
-47.2%
15.4%
-29.2%
4.3%
-24.0%
7.3%
22.7%
14.3%
5.2%
204.9%
13.0%
-34.1%
3.5%
2.6%
6.3%
4.8%
27.6%
13.4%
22.9%
-29.6%
16.9%
10.5%
-31.2%
-3.4%
40.0%
4.3%
11.5%
-7.2%
-42.9%
14.7%
-12.5%
-37.3%
-23.5%
-15.5%
-7.0%
-2.6%
-10.0%
-6.8%
-5.7%
3.5%
-0.8%
-9.1%
-2.9%
-8.0%
-64.9%
10.7%
-23.7%
-11.2%
-11.4%
-7.5%
-5.8%
-8.6%
-24.4%
-17.3%
-5.1%
-31.9%
14.4%
-1.3%
-1.5%
-20.0%
27.0%
-10.2%
-10.6%
-2.0%
-27.4%
-3.8%
6.1%
18.5%
-22.5%
-4.7%
-4.3%
1.7%
-26.3%
-8.0%
-28.5%
-50.7%
-15.9%
-34.7%
-9.9%
-2.6%
-20.4%
-11.8%
16.8%
-10.4%
22.0%
-6.6%
-11.5%
-1.8%
-4.7%
-0.8%
-2.7%
-7.6%
-6.3%
5.4%
-26.1%
12.0%
-7.0%
-34.9%
-10.5%
-9.8%
-7.8%
6.7%
-16.6%
-41.5%
87.9%
-10.4%
-6.5%
35.4%
13.9%
15.3%
-15.5%
-7.1%
5.8%
10.9%
11.6%
50.4%
16.2%
28.0%
-1.7%
-89.9%
11.5%
-12.3%
15.7%
18.8%
3.8%
1.5%
-3.6%
-44.7%
-15.3%
10.5%
-14.1%
14.4%
15.5%
-19.5%
-31.9%
12.2%
21.1%
-37.0%
9.8%
-6.6%
-6.6%
22.1%
54.0%
-34.5%
-0.7%
21.3%
21.6%
-5.7%
5.8%
-52.0%
-50.7%
7.1%
-29.6%
5.4%
-28.5%
-20.7%
31.7%
17.8%
-1.5%
138.5%
19.8%
-34.7%
12.9%
5.0%
15.1%
9.1%
21.2%
20.3%
15.5%
-44.3%
8.4%
9.0%
-11.2%
3.9%
42.6%
10.4%
23.3%
-2.7%
321.5%
65.2%
5.7%
34.4%
415.9%
1.0%
37.1%
-23.5%
182.2%
-6.3%
7.0%
12.5%
55.1%
61.9%
99.8%
73.0%
-85.5%
16.5%
-7.7%
-2.6%
31.0%
8.8%
42.4%
-3.5%
-67.8%
33.2%
24.1%
-41.6%
-14.2%
126.3%
86.8%
-2.7%
28.8%
9.9%
-28.7%
-14.7%
-7.5%
28.2%
139.5%
64.9%
-5.2%
-17.0%
39.9%
22.3%
556.0%
-1.8%
-69.0%
-72.1%
-3.0%
-11.3%
9.6%
-36.2%
NA
-20.0%
42.6%
64.9%
31.9%
40.1%
-10.3%
39.6%
18.6%
45.5%
26.5%
24.7%
4.5%
79.2%
-67.3%
-3.2%
6.5%
-60.6%
4.3%
344.2%
23.8%
45.1%
-16.3%
11.1%
-10.6%
2.5%
44.8%
1.3%
1.3%
-1.9%
-1.9%
5.8%
5.8%
18.4%
18.4%
Europe Oil & Gas Peer Group
EnCore Oil Plc
Amerisur Resources Plc
Aminex Plc
Aurelian Oil & Gas Plc
Bahamas Petroleum Company Plc
Bankers Petroleum Ltd
BG Group
Borders and Southern
BowLeven Plc
BP plc
BP plc (ADS)
Cairn Energy PLC
CEPSA
Chariot Oil and Gas Ltd
Coastal Energy Company
Cove Energy Plc
Desire Petroleum Plc
Det Norske Oljeselskap ASA
DNO International ASA
Dominion Petroleum Ltd
Dragon Oil PLC
ENI
EnQuest Plc
ERG
Falkland Oil & Gas Ltd
Faroe Petroleum Plc
Galp
Global Energy Development Plc
Great Eastern Energy Corporation Ltd
Green Dragon Gas Ltd
Gulf Keystone Petroleum Ltd
Gulfsands Petroleum Plc
Hardy Oil and Gas Plc
Hellenic Petroleum
Heritage Oil
IGAS Energy Plc
Ithaca Energy Inc
JKX Oil and Gas
Lundin Petroleum
Maurel & Prom
Max Petroleum Plc
Melrose Resources Plc
MOL
Motor Oil Hellas
Nautical Petroleum Plc
Neste Oil
Nighthawk Energy Plc
Norse Energy Corp
Northern Petroleum Plc
Norwegian Energy Company ASA
OMV
PA Resources AB
Panoro Energy ASA
Petroplus Holdings
PKN
Premier Oil
Regal Petroleum
Repsol YPF
Rockhopper Exploration Plc
Royal Dutch Shell plc (A ADR)
Royal Dutch Shell plc (A)
Royal Dutch Shell plc (B ADR)
Royal Dutch Shell plc (B)
Salamander Energy PLC
Saras
Schoeller-Bleckmann
Serica Energy Plc
Soco International Plc
Statoil
Sterling Energy Plc
TOTAL SA
Tower Resources Plc
Tullow Oil Plc
Tupras
Valiant Petroleum Plc
p
p
p
p
p
p
p
p
p
p
$
p
€
p
p
p
p
Nkr
Nkr
p
p
€
p
€
p
p
€
p
p
$
p
p
p
€
p
p
p
p
Skr
€
p
p
HUF
€
p
€
p
Nkr
p
Nkr
€
Skr
Nkr
SFr
PLN
p
p
€
p
$
€
$
p
p
€
€
p
p
Nkr
p
€
p
p
YTL
p
Average
FTSE World Europe (GBP)
Index performance in stock price currency
388.58
388.58
Note: Prices as of most recent available close, which could vary from the price date indicated above
This table shows movement in absolute share price and not total shareholder return. Results presented should not and cannot be viewed as an indicator of future performance.
Source: FactSet. Quantum database.
Goldman Sachs Global Investment Research
55
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Financial Advisory disclosures
Goldman Sachs is acting as financial advisor to another party in an announced strategic transaction which may be material to
Tullow Oil Plc.
Goldman Sachs Global Investment Research
56
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Reg AC
We, Christophor Jost and Ruth Brooker, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their
securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth,
returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage
universe.
The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,
ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month
volatility adjusted for dividends.
Quantum
Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make
comparisons between companies in different sectors and markets.
GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well
positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on
quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the
environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant
published research.
Company-specific regulatory disclosures
Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant
published research.
Goldman Sachs Global Investment Research
57
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe
Rating Distribution
Buy
Hold
Investment Banking Relationships
Sell
Buy
Hold
Sell
Global
32%
53%
15%
49%
41%
40%
As of April 1, 2011, Goldman Sachs Global Investment Research had investment ratings on 3,191 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment
Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage
groups and views and related definitions' below.
Price target and rating history chart(s)
Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant
published research.
Regulatory disclosures
Disclosures required by United States laws and regulations
See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or
other ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; for equity securities, market making and/or
specialist role. Goldman Sachs usually makes a market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities.
The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their
households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes
investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer,
director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be associated persons of Goldman Sachs & Co. and
therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions on communications with subject company, public appearances and trading securities held by the analysts.
Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if
with respect to multiple companies which are the subject of this report, on the Goldman Sachs website at http://www.gs.com/research/hedge.html.
Additional disclosures required under the laws and regulations of jurisdictions other than the United States
The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: This research, and any
access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. Canada: Goldman Sachs & Co. has approved of, and agreed to take responsibility for, this
research in Canada if and to the extent it relates to equity securities of Canadian issuers. Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the company
of travel expenses for such visits. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from Goldman Sachs (Asia) L.L.C.
India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited; Japan: See below. Korea: Further
information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. Russia: Research reports distributed in the Russian
Federation are not advertising as defined in the Russian legislation, but are information and analysis not having product promotion as their main purpose and do not provide appraisal within the
meaning of the Russian legislation on appraisal activity. Singapore: Further information on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte.
(Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider their own investment risk. Investment
results are the responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial
Services Authority, should read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent
to them by Goldman Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request.
Brazil: Disclosure information in relation to CVM Instruction 483 is available at http://www.gs.com/worldwide/brazil/gir/index.html. Where applicable, the Brazil-registered analyst primarily responsible
for the content of this research report, as defined in Article 16 of CVM Instruction 483, is the first author named at the beginning of this report, unless indicated otherwise at the end of the text.
European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available at
http://www.gs.com/client_services/global_investment_research/europeanpolicy.html which states the European Policy for Managing Conflicts of Interest in Connection with Investment Research.
Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer under the Financial Instrument and Exchange Law, registered with the Kanto Financial Bureau (Registration No. 69), and is a
member of Japan Securities Dealers Association (JSDA) and Financial Futures Association of Japan (FFAJ). Sales and purchase of equities are subject to commission pre-determined with clients plus
consumption tax. See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese Securities
Finance Company.
Goldman Sachs Global Investment Research
58
May 30, 2011
Europe: Energy: Oil & Gas - E&P
Ratings, coverage groups and views and related definitions
Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a
stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review
Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular
coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the
potential return or the likelihood of the realization of the return.
Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for
all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership.
Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one
of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The
investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12
months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage
group's historical fundamentals and/or valuation.
Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic
transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target for this stock, because
there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and
price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC).
Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not
meaningful and is therefore excluded.
Global product; distributing entities
The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certain contractual arrangements, on a global
basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics, currencies, commodities and portfolio
strategy. This research is disseminated in Australia by Goldman Sachs & Partners Australia Pty Ltd (ABN 21 006 797 897) on behalf of Goldman Sachs; in Canada by Goldman Sachs & Co. regarding
Canadian equities and by Goldman Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman
Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs & Partners New Zealand Limited on behalf of Goldman Sachs; in
Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W); and in the United States of America by Goldman Sachs & Co. Goldman Sachs
International has approved this research in connection with its distribution in the United Kingdom and European Union.
European Union: Goldman Sachs International, authorized and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the European Union and
United Kingdom; Goldman Sachs & Co. oHG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also distribute research in Germany.
General disclosures
This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is
accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports
published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment.
Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a
substantial percentage of the companies covered by our Global Investment Research Division. Goldman Sachs & Co., the United States broker dealer, is a member of SIPC (http://www.sipc.org).
Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are
contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the
recommendations or views expressed in this research.
We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or
derivatives, if any, referred to in this research.
This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal
recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this
research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income
from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have
adverse effects on the value or price of, or income derived from, certain investments.
Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options
disclosure documents which are available from Goldman Sachs sales representatives or at http://www.theocc.com/about/publications/character-risks.jsp. Transactions cost may be significant in option
strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation will be supplied upon request.
Goldman Sachs Global Investment Research
59
May 30, 2011
Europe: Energy: Oil & Gas - E&P
All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or
available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our research by third party aggregators. For all research available on a particular stock, please contact
your sales representative or go to http://360.gs.com.
Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY 10282.
Copyright 2011 Goldman Sachs.
No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs
Group, Inc.
Goldman Sachs Global Investment Research
60