27 June 14 - Pryderi - Catching the Stena Line

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IPB Petroleum

Australia | Oil & Gas | IPB Petroleum

27 June 2014

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Pryderi – Catching the Stena Line

We initiate coverage on IPB Petroleum with a BUY recommendation and

target price of A$0.93 cents/share based on our DCF valuation. The

company is set to drill its first exploration well at Pryderi-1 located in

offshore NW Australia shortly with the Stena Clyde rig booked for mid

October 2014. This could open up a new oil fairway across a shallow

water area with a substantial number of leads and prospects being de-

risked in the event of initial success with this well. These additional leads

and prospects could add an estimated (risked) A$0.81cents/share

according to our analysis.

The Greater NW Shelf of Australia remains a prolific area for exploration

companies with a success rate of 1:5 or 20% over the last 40+ years

making this a better area for prospectors than traditional wildcat areas at

1:10 or 10% chance of success.

IPB is unique amongst E&P’s in Australia’s Browse Basin since it has a

shallow water oil play which has a low risk attached to it, compared to the

deepwater plays in the same basin that are gas/condensate prone. IPB

recently revamped its Board with the addition of Non-Executive Chairman

Bruce McKay, a well regarded industry veteran.

Pryderi is a major catalyst for IPB with drilling set for mid October 2014,

which, if successful, would be a company maker and would also derisk a

substantial number of additional prospects and leads from WA-424-P

(IPB 75%) into WA-485-P (IPB 100%). To date eleven stratigraphic leads

have been identified in WA-424-P, and a further 16 in WA-485-P using

the same inversion analysis applied to Pryderi.. The geologically

analogous nature of the Browse Basin to the Carnarvon Basin is an

attractive feature of IPB’s strategic position when one considers that

approximately 1.6bn barrels of oil have already been developed and

produced from the Carnarvon Basin to date.

Recommendation: BUY Target: A$0.93¢ Price: A$0.26¢

Key data

Year to June (A$m)

2013 2014E 2015E 2016E

Sales 0 0 0 352

Net Income (1.8) (1.2) (1.2) 353

EPS (2.0) (1.1) (1.1) 324

PER (x) n.a n.a n.a 0.1

EV/DACF (x) n.a n.a n.a 0.1

Div Yield (%) n.a n.a n.a n.a

Mkt. cap. A$35m

Free float 48.2%

Bloomberg IPB AU

Reuters IPB.ASX

One-year graph

Contact information

Analyst: Angus McPhail

+44 (0)20 7290 6848

Head of Research: Guy Czartoryski

+234 (0)1 448 5436

Sales: Temi Popoola, CFA

+234 (0) 1 738 4176

Lagos: +234 (0)1 448 5436

London: +44 (0) 20 7290 6842

[email protected] [email protected]

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Share price of IPB IPB relative to ASX

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Executive Summary

IPB Petroleum is an ASX-listed junior E&P with shallow water acreage in

offshore North Western Australia where the company believes there is good

prospectivity to find oil reserves. IPB’s Board has recently been changed to

include Non-Executive Chairman Bruce McKay, the founding Chairman of

AWE Ltd and is a well regarded ExxonMobil industry veteran. IPB’s

remaining management and technical staff are primarily derived from BHP

Petroleum, and have direct experience in exploring and developing assets

offshore NW Australia. The underlying knowledge base of the company for

this part of the world is therefore very high.

The Browse Basin is the third-largest basin in Australia (including onshore

basins) with estimated gas resources of 33.6 tcf. It is therefore considered to

be a world-class province for gas/condensate exploration and development,

with the Ichthys (Inpex) and Prelude (Shell) gas/condensate fields currently

under development and the Browse project (Woodside) Brecknock -Torosa

gas/condensate field discoveries estimated to contain a combined contingent

resource of about 15.9tcf and 436mmbbls of condensate respectively. BP,

ConocoPhillips, Inpex, Santos, and Total all have interests in the Browse

Basin.

Although the valuation is largely dependent on a single project, Pryderi-1,

this specific risk is lowered somewhat by the presence of CalEnergy, which

has farmed into 25% of WA-424-P in return for full funding of the Pryderi-1

well estimated at A$15m. CalEnergy is wholly owned by Berkshire Hathaway

Energy, which is controlled by Warren Buffett through Berkshire Hathaway.

CalEnergy has the option to increase its stake in WA-424-P to 60% within

three months of a successful well at Pryderi. The farm-in deal also allows it

to take a 25% stake in WA-471-P. At WA-471-P the government recently

granted a 12 month extension onto the existing licence term to allow a new

3D seismic survey to be acquired by May 2015. This underlines the

government’s commitment to encourage exploration activity in the Browse

Basin, which has suffered from an undersupply of suitable available vessels

to conduct seismic and drill exploration wells.

IPB raised A$3m through an equity placing in Q413 priced at

A$27cents/share to cover ongoing studies, new ventures and G&A costs.

Through its farm-in, IPB is covered on one and possibly two wells

(exploration and appraisal). CalEnergy has the option to increase its stake in

the balance of the WA-424-P permit from 25% to 60%, three months after

drilling the Pryderi-1 well by spending further funds of up to A$32.4m less

the costs expended on the Pryderi well, which IPB expects to be around

A$15m-A$20m.

IPB Petroleum

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The key risks to which IPB are exposed include the fact that Pryderi may not

discover oil or gas and even in the event of exploration success, the level of

reserves discovered may not be sufficient to justify full development. This

risk could be mitigated through a potential aggregation with other existing

fields, (eg Gwydion), but is still dependent on the size of any discoveries

ultimately made. Phasing risk (oil/gas) is also present with nearby deeper

exploration finds indicating gas rather than oil. Gas has a lower monetary

value relative to oil and therefore requires large volumes offshore to justify

economic development. In the oil service industry there is currently high

demand for oil and gas exploration and production equipment and personnel

globally, which has already impacted the WA-424-P joint venture in terms of

being able to book a relatively small period (12-15 days) to drill, with drilling

impacted at Pryderi-1 by over 1 year already.

IPB Petroleum

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Browse Basin - NW offshore Australia Exploration commenced in the Browse Basin in 1967, when Burmah Oil

Company Australia (now Woodside) acquired 1,600km of regional seismic

data. Since that time, over 180,000km of 2D and 46,000km² of 3D seismic

data have been acquired. The fourth well drilled in the basin, Scott Reef 1

(completed in 1971), was significant in discovering Australia’s potentially

largest gasfield. Since then, an estimated 110 wells have been drilled and

there have been 21 hydrocarbon discoveries (including uncommercial

discoveries). Recent discoveries include the Toccata, Fortissimo, Ichthys

North, Ichthys West, Poseidon, Mimia, Burnside and Kronos wells. The

combined gas reserves of these fields, which are almost 300km from the

mainland, are estimated to be over 33.4Tcf, Two massive projects projects

are currently under development, Ichthys (Inpex and Total) for US $35 billion

and Prelude (Shell) at US$11 Billion. The Woodside operated Browse

Project (Torosa, Brecknock and Calliance) is expected to reach project

sanction within the coming 12-24 months.

The Browse Basin has had over 110 wells drilled in the last 40 years. Out of

these wells 21 discoveries were achieved which implies a success rate of

19% or around 1:5. This indicates relatively good historical prospectivity

compared to frontier basin exploration wells which are typically 1:10 or 10%.

Browse Basin – Wells Drilled and Discoveries

Source: Australian Government

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Block WA-424-P

IPB Petroleum has been working in permit WA-424-P since October 2010

following the permit’s acquisition (via royalty agreement) from Nexus Energy.

This agreement is based on a 3% royalty on petroleum sales receipts from

WA-424-P (net of PRRT) up to 50mmbbl sold, rising to 4% (net of PRRT) for

sales above 50mmbbls. CalEnergy is providing a full carry on phase one of

the drilling programme on the Pryderi prospect in Block WA-424-P.

CalEnergy has agreed to fund this in exchange for a 25% stake, in WA-424-

P.

IPB’s Browse Basin Shelf Acreage

Source: IPB Petroleum

The GMG area is located within WA424-P, and contains the Gwydion

discovery as well as the Mathonwy and Gilfaethwy structures. CalEnergy is

earning a 25% interest in WA-424-P, but a 60% interest in the permit’s much

smaller GMG area in exchange for fully funding the Pryderi-1 well.

CalEnergy has the option, exercisable for three months after drilling the

Pryderi well, to increase its interest in the balance of the WA-424-P permit to

60% by spending up to an amount of US$32.4m less the costs expended on

the Pryderi well.

In addition, CalEnergy, as part of this agreement, has been granted the

option to acquire a 25% interest in WA-471-P, within three months of drilling

the Pryderi-1 well.

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GMG Area within WA 424-P


Beyond the initial Pryderi exploration prospect, there are potentially larger

prospects within IPB’s portfolio across WA-424-P and WA-485-P, which

could open up a new oil fairway along the southern margin of the Browse

Basin. However, with 3D coverage and well control at the Gwydion oil

discovery 5km away, Pryderi is currently the most attractive prospect in the

portfolio with a high chance of success. This is supported by ISIS (an

independent resource consultant), which has estimated that there is a 75%

chance of a hydrocarbon discovery at Pryderi, and in the event of a

discovery there is a 60% probability that the hydrocarbon phase would be oil.

This makes the chance that Pryderi will be an oil discovery at 45%.

The chance of success has been increased through the use of modern

inversion technology with the 3D seismic data, and geological inputs derived

from the adjacent Gwydion discovery ( within the 3D area) and other regional

wells. The company believes that the Browse Basin has the potential for an

oil fairway along the southern margin similar to the southern margin of the

Carnarvon Basin, where approximately 1.6bn barrels of oil have been

produced from multiple oil fields. The Browse Basin could therefore be

considered to be in its infancy in relation to its exploration and development

if compared to other similar basins in Australia and indeed globally.

IPB Petroleum

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Carnarvon Basin

Browse Basin

It is important to stress here that there is a strong correlation between the chances of success in Pryderi prospect and those of the 2D Pryderi play type leads , and a similar risk interdependency between Mordred structural leads. This means that any drilling success in the play type would increase the likelihood of success for the other leads in that play.

WESTERNAUSTRALIA

See Inset A

See Inset B

Fletcher

Iago

Scafell

Sage

Echo/Yodel

Rankin

WickhamDampier

Exmouth

Karratha

Roebourne

Wanaea

Egret

Wandoo

Woollybutt

Legendre

Stybarrow

Hermes

Oryx

Corowa

Leatherback

Amulet

Blencathra

Chamois

Exeter

Griffin

Laverda

Lambert

Skiddaw

Coniston

Crosby

Mutineer

Tusk

Cossack

Harrison

Hurricane

South Pepper

Dixon

Ridley

Talisman

Eskdale

NorthHerald

Eaglehawk

Antler

Io/Jansz

Scarborough

Gorgon

Eurytion

Perseus

Pluto

Spar

Goodwyn

Maenad

Wheatstone

Geryon

Angel

Iago

OrthrusJulimar

Chrysaor

Keast/Dockrell

Pyrenees/Macedon

Maitland

Caribou

East Spar

Dionysus

John Brookes

Tubridgi

NorthRankin

West Tryal Rocks

Corvus

Errol

Urania

Brunello

Lady Nora

WilcoxBrulimar

Tidepole

Elk

Sculptor

Reindeer

Chinook/Scindian

Gaea

Enfield

Nasutus

Montague

Saffron

Stickle

Vincent/Van GoghBleaberry West

Pemberton

Ravensworth

Stag

Centaur

Ajax

Clio

Vinck

Topaz

Thebe

Okapi

Lauda

Morrel

Saturn

Rosily

Rivoli

Pepper

Nimrod

Antiope

Mardie

Gorgon

Carnie

Bowers

Boojum BennetBandar

Venture

Zeewulf

Thringa

Phantom

Outtrim

Myanore

Martell

Hampton

Glencoe

Falcone

Chandon

Briseis

Zeepaard

Gungurru

Forestier

Eendracht

Resolution

Nimblefoot

Immortelle

Cape Range

Rough Range

Parrot Hill

Altostratus

Sirius

Kentish Knock

Jupiter

Dampier Storage

Mulyery

Haycock

RosemaryCherring

0 100 kmNT

QLD

NSW

TAS

VIC

WA

SA

09-4205-2

Gas pipeline

Scheduled area boundary(OPGGSA 2006)

Gas pipeline (proposed)

Oil pipeline

Floating production storage andoffloading vessel

Floating production storage and offloading vessel (under construction)

Abandoned field

Conventional gas platform

Gas accumulation

Oil accumulation

Oil and gas accumulation

Oil subsea tieback

Gas subsea tieback

Gas field

Oil field

See Inset C

Cycad

Josephine

Bob

Flag

Peck

Pasco

Dugong

Hermite

Windsor

Orpheus

Highgrove

Narvik

Campbell

Rose

Linda

Sinbad

Lee

Bambra East

Kultarr

Baker

Monty

Barrow Island

Wonnich

Bambra

Gipsy

West Cycad

Onshore gas production

Onshore oil production

Tripod

Monopod/Minipod

Mini platform

LNG storage tanks

Oil storage tanks

Subsea oil well

Subsea gas well

Subsea oil & gas well

Subsea completion

Elder

WA

Crest

Dillson

Saladin

Roller

Chervil

Taunton

Australind

Yammaderry

Coaster

Cowle

Cadell

Skate

SouthChervil

Basil

Cyrano

Santa Cruz

Saladin A, B, C

Airlie Island

Thevenard Island

Onslow

Inset A

Inset B

Figure 2. Oil and gas accumulations, production infrastructure and pipelines in the Northern Carnarvon Basin.

Conventional oil platformMontgomery

Gobi

Jane

Denver

Ginger

MohaveAlbert

Artreus

Rosette

Alkimos

NorthMarra

Harriet

Simpson

Tanami

Victoria

Pedirka

South Plato

Agincourt

Gudrun

Double IslandLittle Sandy

Monet

Hoover

North Alkimos

North Pedirka

Gibson

Inset C

0 10 km

0 10 km

0 2.5 kmField outlines are provided by GPinfo, anEncom Petroleum Information Pty Ltdproduct. Field outlines in GPinfo are

sourced, where possible, from theoperators of the fields only. Outlines areupdated at irregular intervals but with atleast one major update per year.

115°00' 115°15'

21°30'

115°45'115°30'

20°30'

20°45'

115°35'

20°40'

115°30'

117°116°115°114°113°

20°

21°

22°


IPB Petroleum

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This is due to the fact that the seismic inversion work completed to date

supports the idea that stratigraphic traps exist within these other plays, and

by implication if Pryderi validates the use of IPB’s inversion model, this

technique could potentially open up numerous other prospects within IPB’s

acreage, thus unlocking the exploration opportunity. Pryderi success could

also lead to the development of Gwydion (5mmbbls of oil, P50 contingent

resource ie discovered) through a tie back to any existing development at

Pryderi, thereby monetising existing stranded contingent oil reserves.

In the event that Pryderi is unsuccessful, it is possible that IPB and Cal

Energy (through the WA424-P J/V) will opt to drill the Mathonwy prospect,

which has the highest chance of success at 72% across all prospects and

leads. Mathonwy lies within the GMG area on WA-424-P, where CalEnergy

has a 60% stake under the terms of the initial farm-out agreement. This may

suggest there is additional value, which CalEnergy clearly recognises within

the existing farm-out. By targeting Mathonwy and achieving success, 2.0

mmbbls could be commercialised through a tie in development at Gwydion

where 5 mmbbls (2C) already exist. This is very much a worst case scenario

for IPB, however it could opt for this strategy to target production and

resulting cashflows for further exploration prospects not only in Australia but

also in other countries.

As well as Pryderi, there are 11 other stratigraphic leads in WA-424-P that

have been identified along the same horizon as Pryderi, referred to as the

‘Pryderi Channel leads’. Pryderi and its base analogue Gwydion have been

used by petroleum geologists to delineate these additional prospects, which

are shown as bright spots or high amplitude zones similar to Pryderi and

Gwydion. Substantial 2D seismic has been shot, but with the exception of

Arianrhod, further work involving 3D seismic could be required before

another prospect could be drill ready.

As well as WA-424-P, IPB has acreage in neighbouring WA-471-PP and

also WA-485-P , which it won as part of the Australian licensing rounds in

2011 and 2012. IPB recently won a 12 month extension to the existing six

year work programme at WA-471-P. Each permit has a minimum “firm”

Primary Term work programme of three years with 3D seismic and

geophysical studies in the second year, together with one to two exploration

wells in the third year of each licence. At WA-485-P associated Pryderi type

channel leads (which are referred to as the M.australis), are thought to

extend into WA-485-P from WA-424-P. This block alone is estimated by ISIS

to contain 166 mmbbl (Pmean prospective resources). At WA-471-P the

seismic data is too sparse to allow any resources to be assigned however

recent 2D seismic reprocessing has identified M. Australis type stratigraphic

play types within the acreage.

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WA-471-P and WA 485-P Extension of Pryderi Play


IPB’s development plan for all three permits is focussed on drilling Pryderi

and conducting seismic on other prospects and leads. Pryderi set to be

drilled around mid October 2014, from an original date of Q313 due to a lack

of offshore rigs in Australia and the resubmission of CalEnergy’s

environmental plan to the Australian National Offshore Petroleum Safety and

Environmental Management Authority (NOPSEMA), which we estimate

caused at least a six month delay to the original drilling programme.

Interpreted

extension of

M.australis play

Oil leads and prospects

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IPB Development Plan


On the positive side a drill result 12-15 days after spudding the well is

anticipated, with the Stena Clyde semi submersible rig which can operate in

up to 5,000ft water depths.

Stena Clyde Semi Submersible Rig

Source: OilRigPhotos

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Primary Permit Terms

Seismic Moratorium (Whale Migration)

WA-424-P Term End Year 2 and 3

Well Planning

Drill Pryderi-1 Well 12-15 days

WA-471-P Term End Year 2 Year 3

WA-485-P Term End Year 1 Year 2 Year 3

IPB Indicative Future Work Program Options

Contingent Plan

Further drilling WA-424-P, WA-485-P

LEGEND

IPO

Firm Work Commitments

Contingent Plans

Primary Term Permit Year End

Acquire further 3D Seismic data WA-424-P

Drill Appraisal Well Pryderi-2

Process 3D Seismic data WA-424-P

Drill Commitment Well WA-471-P

Studies

Reprocess & interpret 900km of 2D Seismic

Acquire 3D Seismic in WA-485-P

Process WA-485-P Seismic

Potential Farmout of WA-485-P

20162014 2015

Well Planning WA-485-P

Drill Commitment Wells WA-485-P (2016)

Studies

Acquire Seismic in WA-471-P

Process WA-471-P Seismic

Potential Farmout of WA-471-P

Well Planning WA-471-P

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The indicative development plan for Pryderi is based on two jackets with

eight production wells (5mmbbl recoverable per well) being exported to a

floating production, storage and offloading (FPSO) unit with four water

injectors in place.

Pryderi Development


Using an FPSO offers flexibility in terms of production (notably against the

prevailing annual cyclone season from December to the end of March) and

lowers the overall costs of the development by removing the need to build

pipelines to shore, with processing completed offshore. Given the shallow

water depth (80m) and estimated crude composition (mid-range pour point

27 degrees Celsius and 2.8cP viscosity), it would require electric

submersible pumps (ESPs) for the production wells and down-hole

maintenance from the jackets. This arrangement allows easier access for

remedial work to the wells and the ESPs, which are anticipated to be

replaced after two years, and offers a lower cost option than a subsea

development, according to company estimates.

In addition, there is the possibility of a tie back to Gwydion located 5km away

through a flowline, which could become commercial (5mmboe, P50 gross

contingent) through the development of Pryderi. Conceptually, the

development of Pryderi is similar to the Stag field operated by Apache and is

located in shallow water (49 metres), 60km offshore Dampier (WA-15-L) with

a similar reserve size to Pryderi, estimated at 60 mmbbl.

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Management

Recently some Board changes have been implemented including the

addition of a new non-executive Chairman, Bruce McKay, who we believe

enriches the depth and experience of the existing Board of IPB with very

substantial sector experience. The management team comprises mainly ex-

BHP staff who are familiar with NW Shelf geology from a technical and

commercial perspective. Brendan Brown (MD) who founded the company in

May 2009, and Philip Smith (Technical Director) who have between them

over 50 years’ experience in the oil and gas industry.

Bruce McKay (Non-Executive Chairman) Bruce commenced his career

with Esso Australia and worked for more than 23 years in exploration,

operations and executive management in Australia and overseas. At the

culmination of his career with Esso and Exxon affiliates, he held the

positions of General Manager Production for Esso Australia and Chief

Executive Officer of Delhi Petroleum. Subsequently he was Director of

Personnel at Telstra and then was appointed Chief Executive and Head of

School of the Australian Graduate School of Engineering Innovation in 1994.

From 1996 to 2002 he was on the Board of Normandy Mining, then

Australia’s largest gold mining company. From 1997 to 2010 Bruce was Non-

executive Chairman of AWE Limited, which achieved considerable success

with its growth from start-up to an ASX100 company. More recently he has

been Non-executive Chairman of Epic Energy (gas pipelines), Digitalcore

(technology services) and KUTh Energy (geothermal). He is currently

chairman of the Board of Management for the Australian School of

Petroleum at Adelaide University. He is an Honorary Life Member of APPEA

where he was Chairman between 1991-92. He is also a member of AAPG

and PESA.

Brendan Brown (Managing Director) has over 20 years' experience in

the oil and gas and finance industries. He commenced his career as an

engineer with BHP Petroleum, where he was involved in various projects

and operations including the Jabiru, Challis, Skua and Griffin oil field

developments. He has also been a successful analyst and corporate

adviser with ANZ Investment Bank. Prior to establishing IPB Petroleum in

2009, Mr Brown was General Manager Finance and Business

Development at Nexus Energy where he was responsible for the group's

substantial financing activities and the negotiation and maintenance of its

key commercial agreements and relationships.

Philip Smith (Technical Director) was appointed as the Technical

Director in October 2010. He has over 30 years' experience working as an

Exploration Geoscientist and commenced his career in London with Phillips

Petroleum and Kufpec before coming to Australia to join Woodside

Petroleum Limited and then BHP Petroleum Limited (now BHP Billiton

IPB Petroleum

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Limited). Mr Smith’s positions in his 15 years with BHP Petroleum Limited

were in senior technical and managerial roles, mainly involved in offshore

basins around Australia. He was involved in oil and gas discoveries in

Elang, Laminaria, Maple and Argus. Later he joined Nexus Energy Limited

where he was responsible for building the exploration portfolio and was

involved in the Longtom and Crux appraisal and development projects.

Stephen Tomlin (Senior Geophysicist) joined the Company in May

2011 and has over 30 years’ experience as a Geophysicist, having worked

for a variety of large companies in London and Aberdeen before coming to

Australia to work for Santos Limited. He has a proven track record in

exploration, having participated in new ventures, acreage evaluation,

prospect generation and oil and gas discoveries on three continents. He is

an expert seismic interpreter with experience in both 2D and 3D

interpretation.

Victoria Fitzgerald (Senior Geologist) joined the Company in May

2011 and brings 20 years’ experience as a Petroleum Geologist. She

began her career with Woodside Petroleum Limited in Perth where she

worked for 12 years on a range of domestic and international projects

before leaving to move to Melbourne, where she has worked as a

Consultant. She has experience in geochemistry, basin modelling, well site

geology and prospect generation.

Lee Anne Harris (Company Secretary) was appointed as the Company

Secretary in March 2014. She joined IPB as Financial Controller in May

2013. Ms Harris has over 15 years' experience in the Banking and Finance

Industry. She began her career at the Commonwealth Bank of Australia

and has held roles in Business Banking, Group Taxation and Group

Accounting Policy. With over 10 years’ experience specifically in Group

Finance she has experience in technical accounting sign off of structured

financing and capital raising deals, ASX financial reporting, US reporting,

risk reporting and group accounting policy interpretation and advice. She

has previously served as Company Secretary for a Not for Profit

Foundation and a small group of privately held companies.

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Key Risks:

Apart from the risks common to all E&P’s in terms of exploration and

operational risk, the key risks investors need to be aware of when investing

in IPB are:

1) Exploration risk: Pryderi may be a dry well, and even in the event

of a discovery, it may not have sufficient proven reserves to justify

economic development.

2) Environmental: The climate in NW Australia is tropical monsoonal,

with the cyclone season beginning in November and ending in

March. Any further slippages in IPB’s drilling programme from end of

3Q 2014 represents a risk to IPB’s drilling programme.

3) Capex/cost risk: Currently there is a high demand for oil and gas

exploration and production equipment and personnel, and this may

result in the company encountering delays or incurring higher than

anticipated costs in its exploration and production activities.

4) Operator risk: Oil and gas exploration activities involve certain

operating hazards such as blowouts and mechanical failures, which

could cause fires, explosions, hydrocarbon seepage or spillage or

chemical spills, which may lead to pollution or contamination on the

permits.

5) Partner risk: CalEnergy is a private company and is a wholly owned

subsidiary of MidAmerican Energy Holdings. Published financial

information on CalEnergy is therefore limited and as a result we

cannot ascertain CalEnergy’s ability to meet its drilling obligations on

Pryderi. However, MidAmerican Energy Holdings which wholly owns

Cal Energy, reports financial statements on a quarterly basis.

6) Limited financial resources: IPB has limited financial resources

and will need to farm out further assets in its existing acreage

regardless of the well result at Pryderi to service working capital

obligations related to SG&A.

IPB Petroleum

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Valuation

Despite the fact that IPB has only one mandated well this year at Pryderi, it

has secured a strong working partner through CalEnergy and by implication

Warren Buffett, which lowers the perceived risk inherent in what some

investors would consider a ‘one-trick pony’. This is further evidenced in the

structure of the CalEnergy farm-in deal, which allows it to take a 25% stake

in WA-471-P.

Block valuation based on farm-out

The farm-out with CalEnergy has provided us with a simple route to value

IPB based on risked market values. CalEnergy’s initial farm-in for 25% of

WA-424-P at US$15m for 679mmboe gross prospective resources implies a

value of US$0.09/boe or A$0.41/share for IPB’s 75% stake. After drilling

Pryderi, CalEnergy will have the option within three months to increase its

stake in WA-424-P from 25% to 60%, at an agreed capped cost of

US$32.4m less the cost of drilling Pryderi (which is US$15m from the initial

farm-in). Clearly this option would only be exercised in the event that Pryderi

is successful.

Fundamental valuation based on DCF

We have valued IPB using DCF methodology. Our base assumptions in the

DCF valuation include an oil price of US$90/bbl (Brent), with a 10% premium

being applied for Tapis and a 10% discount rate. This generates an NPV for

the assumed 40mmboe of gross 2C resource of US$77m, which equates to

an NPV value of US$14.21/bbl for Pryderi. We have only attributed value to

Gwydion and Pryderi, since all other leads and prospects are not currently

funded to drill, or have insufficient seismic work to justify exploration. Our

DCF calculation infers a value of A$0.93/share, which implies significant

upside to the current share price.

Bluesky Potential

We have already indicated that success at Pryderi 3D could open up further

value within IPB’s portfolio. Ascribing a market value to these additional

assets is difficult, however if we use the estimated US$15m farm-in value for

25% of WA-424-P this implies a risked value of A$0.09/bbl (based on

669mmboe gross prospective resources for US$60m gross value). If we then

de-risk this value by the respective geological chance of success of each

additional prospect and lead this implies a value of between US$0.38/boe

and US$1.13/bbl for additional leads and prospects, which includes the

Mathonwy prospect, Arianrhod and Pryderi 2D Channel leads, and equates

to a cumulative per share value of A$0.81cents/share.

IPB Petroleum

Equities


NAV IPB Petroleum

Source: CSL estimates

Additional Upside From Prospects and Leads (Bluesky)

Source: CSL estimates

Recoverable Reserves Net Risked Value per share

Country Diluted WI GCoS TCoS CoS Gross Net NPV/boe value Risked Unrisked

% % % % mmboe mmboe $/boe $m /share /share

Net (Debt) Cash 4 0.04 0.04

SG&A -2 -0.02 -0.02

Core NAV 2 0.02 0.02

Discovery

Gwydion Australia 40.0% 100% 34% 34% 6 2 19.14 35 0.12 0.35

Exploration (2014/15)

Pryderi prospect Australia 40.0% 45% 75% 34% 40 16 14.21 77 0.79 2.33

RENAV 113 0.93 2.70

Asset

Recoverable Reserves Net Risked Value per share

Country Diluted WI GCoS TCoS CoS Gross Net NPV/boe value Risked Unrisked

% % % % mmboe mmboe $/boe $m /share /share

2D Pryderi Channel leads Australia 75% 8% 20% 2% 90 68 1.13 75.94 0.780 48.77

Mathony Prospect Australia 75% 14% 20% 3% 0.8 0.6 0.64 0.39 0.004 0.14

Arianrhod 3D Stratigraphic lead Australia 75% 24% 20% 5% 8.0 6 0.38 2.25 0.023 0.48

Total NAV 0.807 49.39

Asset

IPB Petroleum

Equities


Financials

Year to end as at June 30th; A$m (except where stated)

P&L summary 2012 2013 2014(e) 2015(e) Cashflow summary 2012 2013 2014(e) 2015(e)

Oil & gas production (mboe/d) 0 0 0 0 Op CF before w orking cap. (2,180) (1,512) (1,180) (1,166)

Sales 0 0 0 0 Net cash from operations (2,180) (1,512) (1,180) (1,166)

Gross profit 0 0 0 0 Interest 0 0 (63) 98

Other income (113) (175) (46) 0 Purchase of f ixed assets (429) (1,067) (676) 0

Operating expenses (1,524) (1,672) (1,211) (1,285) Cash flow from investing 0 0 0 0

Operating profit (EBIT) (1,636) (1,848) (1,258) (1,285) Net CF after investment (2,609) (2,579) (1,919) (1,068)

EBITDA (1,608) (1,814) (1,229) (1,265) Net borrow ing inc/(dec) 0 0 0 0

Net interest income (cost) 65 212 93 98 Dividends paid 0 0 0 0

Other income/costs (113) (175) (46) 0 Proceeds from share issue 2,403 2,761 2,893 0

Exceptional items 0 0 0 0 Others 0 0 (80) (78)

PBT post exceptionals (1,685) (1,812) (1,210) (1,187) Net cash from financing 2,403 2,761 2,813 (78)

Tax 0 0 0 0 Cash & liquid assets at start 2,623 2,418 2,600 3,494

Minority interest 0 0 0 0 Net inc/(dec) in cash (205) 182 894 (1,146)

Net attributable (1,685) (1,812) (1,210) (1,187) Cash & liquidity at close 2,418 2,600 3,494 2,348

Balance sheet summary 2012 2013 2014(e) 2015(e) 2012 2013 2014(e) 2015(e)

P, P & E 4,065 5,101 5,748 5,728 Long term debt 0 0 0 0

Other f ixed assets 0 0 0 0 Other long term liabilities 0 0 0 0

Total f ixed assets 4,065 5,101 5,748 5,728 Total long term liabilities 0 0 0 0

Inventories 0 0 0 0 Short term debt 0 0 0 0

Debtors & prepayments 0 0 0 0 Tax payable 0 0 0 0

Due from related companies 0 0 0 0 Other short term liabilities 409 314 236 236

Cash & liquid assets 2,418 2,600 3,494 2,348 Total current liabilities 409 314 236 236

Other current assets 0 0 0 0 Capital & reserves 6,892 8,015 9,479 8,313

Total current assets 2,418 2,600 3,494 2,348 Minority interest 0 0 0 0

Total assets 6,483 7,701 9,242 8,077 Total liabilities & sh funds 6,483 7,701 9,242 8,077

Per share data 2012 2013 2014(e) 2015(e) Key f inancial ratios 2012 2013 2014(e) 2015(e)

Av shares outstanding (m) 88 93 109 109 EBITDA/boe produced (US$) 0 0 0 0

Basic & diluted EPS (A$¢) (2) (2) (1) (1) Net inc/boe produced (US$) 0 0 0 0

FCF per share (US$) (2) 2 9 (10) EBITDA margin (%) NA NA NA NA

Dividend (A$) 0 0 0 0 Net income margin (%) NA NA NA NA

Payout ratio (%) 0 0 0 0 Net debt to equity 0% 0% 0% 0%

Company profile Share ownership

IPB Petroleum is an ASX-listed junior E&P w ith shallow w ater acreage in offshore

North Western Australia w here the company believes there is good prospectivity

to f ind oil reserves.

IPB’s remaining management and technical staff are primarily derived from BHP

Petroleum, and have direct experience of exploring and developing assets in

the Brow se Basin, offshore NW Australia w here its f irst exploration prospect

Pryderi-1 has been identif ied.

IPB are set to drill Pryderi in mid October 2014, and have additional acreage w here

other similar stratigraphic prospects and leads exists.

The company is backed by Cal Energy in terms fo a full carry on Pryderi-1 for 25%

of WA-424-P w ith the option of increasing this to 60% w ithin 3 months of the w ell

being drilled.

48%

52%

Management Institutions

IPB Petroleum

Equities


Analyst Certification

Each research analyst(s) principally responsible for the preparation and content of all or any identified portion of this research report hereby certifies that all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities that the research analyst covers in this research report. Each research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this research report.

Important disclosures

Ratings and Target Price History

IPB Petroleum (IPB AU)

Date Price (N) Old Target (N) New Price Target

(N) Old recommendation New

recommendation

27-June-14 A$0.26cents n/a A$0.93cents n/a Buy

Analysts' compensation is based upon activities and services intended to benefit the investor clients of FCMB (UK) Limited and the affiliates of First City Group, Lagos, Nigeria (“the Group”). Analysts receive compensation that is impacted by overall profitability of the Group, which includes revenues from, among other business units, Institutional Sales and Trading and Capital Markets/Investment Banking.

CSL Research Ratings Distribution

BUY HOLD SELL Not Rated Total

Coverage universe 10 11 6 0 27

% distribution 37% 41% 22% 0%

Investment banking clients 1 0 1 0 2


Explanation of CSL Research's equity research rating system

Buy: The analyst expects the stock to outperform the Benchmark over the next 12 months or the stated investment

horizon.

Hold: The analyst expects the stock to perform in line with the Benchmark over the next 12 months or the stated

investment horizon.

Sell: The analyst expects the stock to underperform the Benchmark over the next 12 months or the stated

investment horizon.

Not Rated: The rating and price target have been suspended temporarily to comply with applicable regulations and/or

firm policies in certain circumstances including when FCMB UK or the Group is acting in an advisory capacity in a merger or strategic transaction involving the company or due to factors which limits the analysts ability to provide forecasts for the company in question.

Benchmark: The benchmark is the trailing three year average yield of the 12 month T-Bill plus one standard deviation

rounded to the nearest percent.

Price targets: Price targets, if discussed, reflect in part the analyst's estimates for the company's earnings. The

achievement of any price target may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings fall short of estimates.

Asset allocation: Asset allocation is the responsibility of the strategy team. The recommended weight (Buy, Hold and Sell) for

equities, cash and fixed income instruments is based on a number of metrics and does not relate to a particular size change in one variable.

IPB Petroleum

Equities


Other disclosures

IPB Petroleum: N/A

A. The analyst(s) responsible for the preparation and content of this report (as shown on the front page of this report) holds personal positions in a class of common equity securities of the company.

B. The company beneficially owns more than 5% in FCMB UK or First City Group (“the Group”).

C. FCMB UK or the Group is a market maker in the publicly traded equity securities of the company.

D. FCMB UK or the Group beneficially owns 1% or more of the equity securities of the company.

E. FCMB UK or the Group beneficially holds a significant interest of the debt of the company.

F. FCMB UK or the Group has been lead manager or co-lead manager over the previous 12 months of any publicly disclosed offer of securities of the company.

G. The company is a client of the investment banking division of the Group.

H. FCMB UK or the Group has lead managed or co-lead managed a public offering of the securities of the company within the last 12 months.

I. FCMB UK or the Group has received compensation for investment banking services from the company within the last 12 months.

J. FCMB UK or the Group expects to receive, or intends to seek, compensation for investment banking services from the company during the next 3 months.

Companies from which FCMB UK or the Group’s investment banking division has received compensation in

the last 12 months

Buy Hold Sell Not Rated Total

1 0 0 0 1


IPB Petroleum

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Important Risk Warnings and Disclaimers

CSL STOCKBROKERS LIMITED (“CSL Stockbrokers”) is regulated by the Securities and Exchange Commission, Nigeria. FCMB (UK) LIMITED (“FCMB UK”), trading in the name of ‘CSL Stockbrokers’, is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority in the United Kingdom. The details of the authorisation can be viewed at the Financial Services Register at http://www.fsa.gov.uk/register/home.do by entering the Firm Reference Number 502704. FCMB UK is registered in England and Wales No. 6621225. Both CSL Stockbrokers and FCMB UK are members of the FCMB Group (“the Group”) of Nigeria, a group of companies which also includes First City Monument Bank Ltd. RELIANCE ON THIS PUBLICATION FOR THE PURPOSE OF ENGAGING IN ANY INVESTMENT ACTIVITY MAY EXPOSE YOU TO A SIGNIFICANT RISK OF LOSS. By receiving this document, you will not be deemed a client or provided with the protections afforded to clients of CSL Stockbrokers and FCMB UK. When distributing this document, CSL Stockbrokers, FCMB UK or any member of the Group is not acting for any recipient of this document and will not be responsible for providing advice to any recipient in relation to this document. Accordingly, CSL Stockbrokers, FCMB UK or any member of the Group will not be responsible to any recipient for providing the protections afforded to its clients. If you are in the UK, you are a person to whom either Articles 19 or 49 of the Financial Services and Markets 2000 (Financial Promotion) Order 2005 apply or a person to whom this communication may otherwise be lawfully made. In the United Kingdom, this document is available only to such persons described above and persons of any other description should not rely on this document. Transmission of this document to any other person in the United Kingdom is unauthorized and may contravene the Financial Services and Markets Act 2000 (FSMA). If you are not such a person or if the distribution of this document is otherwise unlawful where you are, you are required to return the document immediately to CSL Stockbrokers. In the UK, the content of this document has been approved by an authorised person within the meaning of FSMA. . This document is not intended for Retail Clients in the UK. This document is not an offer to buy or sell or to solicit an offer to buy or sell any securities. This document 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 appropriateness of a particular investment will depend on an investor’s individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for all investors. CSL Stockbrokers, FCMB UK or any other member of the Group may effect transactions in shares mentioned herein and may take proprietary trading positions in those shares, and may receive remuneration for the publication of its research and for other services. Accordingly, this document may not be considered as objective or impartial. Additionally, information may be available to CSL Stockbrokers, FCMB UK or the Group, which is not reflected in this material. Further information on CSL Stockbrokers’ and FCMB UK’s policy regarding potential conflicts of interest in the context of investment research and CSL Stockbrokers and FCMB UK’s policy on disclosure and conflicts in general are available on request. This document is based on publicly available information obtained from sources which CSL Stockbrokers believes are reliable, but which it has not independently verified. Neither CSL Stockbrokers and FCMB UK nor their advisors, directors or employees make any guarantee, representation or warranty as to the accuracy, reasonableness or completeness of this information and neither CSL Stockbrokers and FCMB UK nor their advisors, directors or employees accepts any responsibility or liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. The

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opinions contained in this document are subject to change without notice and not to be relied upon and should not be used in substitution for the exercise of independent judgment. Nothing herein excludes or restricts any duty or liability to a customer which FCMB UK has under the Financial Services and Markets Act 2000 or under the Rules of the FCA. A recipient who chooses to deal with any person who is not a representative of FCMB UK in the UK may not enjoy the protections afforded under the UK regulatory regime. Past performance is not a guarantee of future performance. Investments may go down in value as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognised market it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. The information contained in this document is confidential and is solely for use of those persons to whom it is addressed and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purpose. @Copyright CSL STOCKBROKERS LIMITED, 2014. All rights reserved. CSL STOCKBROKERS LIMITED FCMB (UK) LIMITED Member of the Nigerian Stock Exchange (Trading as CSL Stockbrokers) First City Plaza, 44 Marina Broadbent House PO Box 9117 65 Grosvenor Street Lagos State London, W1K 3JH NIGERIA United Kingdom

27 June 14 - Pryderi - Catching the Stena Line

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