Energy: Oil & Gas - Bahamas Petroleum Company Plc

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November 5, 2010 Europe: Energy: Oil & Gas - E&P Medium term explorers: Buy early to avoid the rush – outperformance ahead of drilling has tended to start at least 7-8 months ahead of well results We have conducted a number of case studies of companies approaching high impact drilling programmes in order to ascertain the point at which the market begins to price in these catalysts. In the case of Cairn and the Falklands-focused companies, we have seen substantial outperformance beginning between a year and seven months prior to the results of the first well. Particular events that appear to be taken positively by the market before drilling include farm-ins to acreage, securing rigs, the start of drilling and publication of competent persons’ reports and prospect sizes. Exhibit 40: Salamander volatile but showed outperformance from eight months prior to 2010 programme; uninterrupted performance from three months Salamander vs. E&P universe from 01/01/09 30% 20% 10% 0% ‐10% ‐20% ‐30% ‐40% Outperformance into 2010 drilling campaign c. 8 months before 1st well result Source: Datastream. Capital markets day ‐ 2010 exploration programme discussed in more detail with investors Phu Kheng spudded Si Thatspudded Uncommercial gas flow announced at Phu Kheng Bang Nouan well announced ‐ water bearing in main reservoir Vietnamese Tom Su Lua‐1X well announced ‐ dry Convertible bond issued Angklung rig on tow to location Kambuna reserves downgraded Exhibit 41: Cairn began outperforming up to a year before Greenland drilling announcements Cairn performance vs. E&P universe from 01/01/09 Source: Datastream. Goldman Sachs Global Investment Research 36 0% ‐5% ‐10% ‐15% ‐20% ‐25% ‐30% ‐35% ‐40% Mangala development ongoing Prospect sizes and riskings announced for Greenland. Rajasthan production guidance lifted 1st rig for Greenland booked First oil from Mangala Petronas farm into Greenland Drilling in Greenland starts Outperformance c. 1 year before 1st well result 1st Greenland well finds gas shows Non‐commerical oil found in 2nd Greenland well
November 5, 2010 Europe: Energy: Oil & Gas - E&P Companies with few other assets experience great leverage to this trend: The Falklands explorers saw c.75% relative outperformance vs. the sector before drilling Looking at the share price performance of the Falklands players vs. the rest of our newly expanded coverage universe in more detail highlights the potential for outperformance from companies which have a large proportion of the asset base levered to longer dated exploration. The four Falklands players in aggregate outperformed the rest of the E&P sector by c.75% from the beginning of 2007 to early 2010, without a well even having been drilled. Catalysts for the stocks, aside from the increasing imminence of the drilling catalysts, included CPRs, booking of rigs and the release of seismic information. We note that a period of relative underperformance in the latter half of 2008 coincided with a steep rise in market volatility – an expected consequence of the effect of lower risk appetite on companies with little or no core value. The removal of the medium term exploration discount we apply would have a significant impact on our Medium Term Explorers screen. Exhibit 42: Falklands explorers showed c.75% outperformance vs. universe prior to drilling Performance of Rockhopper, Borders & Southern, FOGL and Desire vs. E&P coverage universe Outperformance of Falklands companies vs overall E&P performance 250% 200% 150% 100% 50% 0% ‐50% Rockhopper announces encouraging seismic data Source: Datastream. Desire annouces partner Borders & Southern equity raise Substantial outperformance even prior to first well being drilled B&S updates on seismic survey, Rockhopper CPR released Desire secures rig Poor reservoir quality announced at Liz well Sealion flowed Sealion discovery Exhibit 43: The stocks in our Medium Term Explorers screen are especially levered to the re-risking of medium-term exploration Source: Goldman Sachs Research estimates. Goldman Sachs Global Investment Research 37 Upside to vauation 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Medium term exploration Unrealised potential M&A Upside to current target price Upside from removal of medium term value discount Unconventional resource High risk binary plays Play openers Balanced explorers Oil price leverage Strategic assets Short term exploration Short term exploration (excluding structural winners)
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Energy: Oil & Gas - Bahamas Petroleum Company Plc

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