Westhouse FCMB Conference Sept 2011 Final

1 | London Oil & Gas Equity Capital Markets - Outlook for Nigerian E&P Listings
London Oil & Gas Equity Capital Markets

Outlook for Nigerian E&P Listings
28 September 2011

Andrew Matharu
Head of Oil & Gas
Overview

London Oil &
Gas ECM
UK listed oil & gas landscape
Recent UK E&P sector performance
Primary and secondary capital market issues

African E&P
Sector
African Exploration on LSE From concept to discoveries
Sub-Saharan African E&P performance
Momentum builds in African exploration

Nigerian E&P
Sector
Nigerian oil exposure on worlds stock markets
How to succeed on the London Stock market
The dream ticket for a London E&P listing
London Oil & Gas Equity Capital Markets
UK listed oil & gas landscape
FTSE-100 FTSE-250 AIM
Oil majors
Large OFS
Established E&P
Mid-cap OFS
Early stage E&P
Pure Explorers
BP
Shell
Tullow Oil
Cairn Energy
Petrofac
Wood Group
Premier Oil
Afren
JKX Oil & Gas
Salamander Energy

Chariot Oil & Gas
Cove Energy
Dominion Petroleum
Rockhopper Exploration
Nigerian E&P
Sector
Source: Bloomberg.
UK AIM-listed E&P sector rally and sell-off characterised by:

Rerating driven by success in high-impact drilling programmes
Equity pricing was front running the oil price in anticipation of exploration success
De-rating due to risk aversion Pure explorers hit more severely than stocks
underpinned by reserves and decoupled from oil price
Explorers exposed to emerging markets underperformed the most
Sector viewed as source of liquidity against margin calls
Recent sector themes and activity

Momentum Plays Distinguished by consistent exploration delivery thereby
proving up specific basinal plays which offer materiality and repeatability,
eg Kurdistan, East Africa
Frontier Exploration Investors have become more cautious of buying ahead of
high-risk, high-impact wells in unproven basins, eg Greenland, Mongolia
Unconventional Plays Investors are in stand-by mode until technology has
de-risked shale gas/oil and CBM plays, eg Poland
Exploration Risk - Investors continue to underestimate the risk inherent in
exploration following a single-well success, eg Falkland Islands

Primary and secondary capital market issues - AIM
Source: London Stock Exchange.
The African E&P Sector:
Momentum Builds in Sub-Saharan Exploration
African within a global context
Proven oil & gas reserves 2010 (bn boe) Oil & gas production 2010 (000 boepd)
Source for these charts: BP Statistical Review of World Energy, 2010.
Sub-Saharan African Exploration on LSE From concept to discoveries
1996
2004
2005
Energy Africa lists on the LSE Main Board
Tullow Oil acquires Energy Africa
Afren AIM listing
Jubilee Discovery, Ghana Tullow Oil
2008
Kingfisher Discovery
Tullow Oil, Heritage Oil
2009
Afren moves to the
LSE Main Board
2010
2011
Jubilee field commences production
Tullow Oil buys Heritage Oil out of Uganda
Gas discoveries offshore East Africa (Cove Energy, BG Group)
CNOOC and Total buys Tullows Uganda acreage
Ophir Energy lists on LSE
Kosmos Energy lists on NYSE
A number of oil discoveries since 2000 have had a transformational impact on the
Sub-Saharan E&P sector helped by several key trends:

Improving geological knowledge, particularly plate tectonics
Improving long-term oil price outlook from the lows of the mid-1990s
Advances in exploration and development technology
Political developments, post-Soviet Union in 1989, which opened up several countries
to participation from Western firms
Development of a global LNG market

Licenses in Africa
Source: Westhouse Securities from company information.
Sub-Saharan African E&P performance
Source: Bloomberg.
Companies trading at discount to valuations
0
50
100
150
200
250
300
350
BLVN COV DPL
WSTH TP
Price (20/09/11)
0
2
4
6
8
10
12
14
16
CHAR VOG TRP
WSTH TP
Price (20/09/11)
Source: Bloomberg, Westhouse Securities estimates.
Momentum builds in African Exploration
Reassessment of risk and opportunities for rerating:

Risk Appetite Appetite for exploration risk returns
Exploration Success High-impact success in key frontier areas
Commercial Activity Farm-in deals, asset A&D
Corporate Activity M&A activity
Capital Markets Activity IPOs and secondary fundraisings

Momentum builds in African Exploration
Opportunities
Key exploration wells in Africa coming up in:
Namibia, Mozambique, Tanzania and the Gabon
Continuing exploration success in established areas:
Ghana, Uganda
Majors looking to increase participation through farm-ins/corporate takeovers
Continuing interest from Chinese and Russian companies

Risks
Risk appetite reducing due to global financial crisis
Funding risk for smaller companies

Primary capital markets activity - 2011
Ophir Energy LSE Main List, July 2011
Capital raise US$375m @ 250p per share
Enlarged share capital 29.4%
Market capitalisation at IPO US$1,276m
Index FTSE-250

Kosmos Energy NYSE, April 2011
Capital raise US$594m @ US$18.0 per share
Enlarged share capital 8.9%
Market capitalisation at IPO US$6,681m

Primary capital markets activity - 2011
Source: Bloomberg.
Nigerian E&P Sector Implications
Nigerian oil exposure on world stock exchanges
Vast majority of Nigerian exposure is via listed IOCs and NOCs
US Exxon, Chevron, ConocoPhilips
China PetroChina, CNOOC, Sinopec (Addax)
Others Petrobras (Brazil), Total (France), ENI (Italy), Statoil (Norway)

Nigerian exposure on the LSE is relatively limited
Royal Dutch Shell (FTSE-100)
Afren (FTSE-250)
Providence Resources (AIM)

How to succeed on the London Stock Market
Stick to your strategy: value creation for the shareholders is key
Exploration successes
Production on time, on budget and on production prediction
No negative surprises
Good corporate governance and effective financial PR
Active investor relations programme
Build shareholder base with large quality institutional investors
Leave market at appropriate opportunity

The dream ticket for a London E&P listing
A mix of production (low risk), and appraised (medium risk) and exploration (upside)
Clear corporate strategy for shareholder value creation
Geographical/basinal focus
Clarity on short and medium term funding requirements
Flexibility on issue price/valuation
Experienced Board and transparent corporate governance
Transparent legal and tax regime
Low political risk
Clear value strategy at maturity: sale or dividend

Summary
Valuation
Indigenisation of the
Nigerian E&P sector
Window remains open for
pre-development led
portfolios
Flexibility on valuations
required
Nigeria USP
Under-represented in the
London market
Lower risk than
frontier plays
Improving corporate
governance
Materiality and liquidity in
potential offerings
Demographics support
developing gas & power
markets
African E&P Macro
Scale, diversity, availability
and recognition of
opportunity
A number of very
high-profile success stories
Momentum building across a
number of technical and
commercial drivers
Drill-bit driven newsflow
Sub-Saharan sector is due a
rerating
Why invest
now?
Why invest
in Nigeria?
Why invest in
sub-Saharan Africa?
Ratings, certification and disclosures
Investment analyst certification
In my role as a Research Analyst for Westhouse Securities Limited, I hereby certify that the views about the companies and their securities discussed in this report are accurately expressed
and that Ihave not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.
Non-independent research
This is a marketing communication. It is non-independent research as it has not been prepared in accordance with legal requirements designed to promote the independence of
investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Investment research disclosures
Within the last twelve months, Westhouse or its affiliates have managed or co-managed a public offering of securities or related derivatives (includes placings) of Tower Resources , and
have been party to an agreement to provide investment banking services, or have received or been promised payment for such services. The research analyst involved in the preparation of
this report may, within the last twelve months, have received compensation from revenues in respect of investment banking services provided to Tower Resources.
Westhouse or its affiliates are acting as a market maker or liquidity provider in the securities or any related derivatives of the following stocks: Bowleven, Chariot Oil & Gas, Cove Energy,
Dominion Petroleum, Ophir Energy, Tower Resources, Victoria Oil & Gas.
Westhouse or its affiliates may, at any time, have a long or short position in any of the securities mentioned in this report.
Disclaimer
This research report has been published in accordance with our Conflicts of Interest policy which is available at:
http://westhousesecurities.com/archive/research/Managing_Conflicts_of_Interest.pdf.
This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.
The securities discussed in this report may not be suitable for all investors. This research recommendation is issued and approved for distribution within the UK only to eligible
counterparties and professional clients, as defined under the FSA rules. Our research is not directed at, may not be suitable for and should not be relied upon, by any other person.
Westhouse Securities Limited recommends that investors independently evaluate particular investments and strategies, as the appropriateness of a particular investment or strategy will
depend on an investors individual circumstances and objectives. This report is not an offer to buy or sell any security or to participate in any trading strategy, Westhouse Securities Limited
employees and its affiliates not involved in the preparation of this report may have investments in securities or derivatives of securities of companies mentioned in this report, and may
trade them in ways different from those discussed in this report.
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1 | London Oil & Gas Equity Capital Markets - Outlook for Nigerian E&P Listings

London Oil & Gas Equity Capital Markets

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