Energy: Oil & Gas - Bahamas Petroleum Company Plc

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November 5, 2010 Europe: Energy: Oil & Gas - E&P Balanced explorers: The best type of drilling programme is a “free” one We are sceptical that it is possible to have a geological “edge” in predicting the possible outcomes of drilling campaigns and, as discussed above, do not subscribe to the theory that buying just before a drilling campaign is a robust method of generating alpha (unless stocks are bought far enough in advance of a campaign before it has been priced in by the market). Instead we believe that buying exploration catalysts that are well supported by core value is the best way of generating alpha from short term exploration. Our balanced explorer screen therefore identifies re-rating potential in the next 12 months of at least 50%, where the share price is justified by a company’s core valuation (before liquidity discounts or assumed equity raises). Exhibit 38: Stocks in the top right quadrant are in our balanced explorer screen and offer a material “free” exploration option Core value / price vs. exploration re-rating potential Exploration upside within 12 months 220% Short term re‐ rating potential comes at a cost 170% 120% 70% 20% Less material re‐ ratingpotential ‐20% partially priced 0% into stock ‐30% 20% 40% 60% 80% 100% 120% 140% Cheap 160% core value 180% Source: Goldman Sachs Research estimates. Core value / price Coastal Energy Rockhopper Faroe Petroleum Free, material short term re‐ rating potential Goldman Sachs Global Investment Research 34 Bowleven Det Norske
November 5, 2010 Europe: Energy: Oil & Gas - E&P Balanced explorers: A more selective approach than the short term explorers Our balanced explorer screen contains a number of the same names as are in our short term explorers screen. However, we believe that the more selective approach of buying “free” exploration options is one that could substantially outperform over the next 12 months. While our short term explorer screen has only 51% on average of its value supported by core assets, our balanced explorers justify over 100% of their share prices with core value, essentially meaning that the re-rating exploration potential comes for “free”. Despite the strong core value support, these stocks still have substantial re-rating potential in our view with an average potential uplift from exploration success of almost 120%. Bowleven and Coastal Energy screen as particularly attractive with the potential for material re-rating in the event of 100% exploration success, although we note that Coastal Energy’s drilling campaign includes a substantially higher number of prospects, meaning that risk is more diversified and that it is less likely to be as volatile as Bowleven as a result of activity with the drill bit. Exhibit 39: Bowleven and Coastal offer the highest re-rating potential of the balanced explorers Potential uplift from 12 Weighted average Upside / Market cap month (short term) % of value supported exploration chance of downside to (US$mn) exploration by core value success target price Key prospects Faroe Petroleum 484 95% 108% 21% 29% North Sea Bowleven 591 176% 117% 14% 50% Sapele Det Norske 480 69% 170% 20% 74% Kavlklumpen Rockhopper 1284 101% 102% 18% 107% North Falkland basin Coastal Energy 503 152% 103% 21% 28% Bua Ban prospects Average 119% 120% 19% 57% Source: Goldman Sachs Research estimates. Goldman Sachs Global Investment Research 35
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Energy: Oil & Gas - Bahamas Petroleum Company Plc

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