27 June 14 - Pryderi - Catching The Stena Line

IPB Petroleum
Australia | Oil & Gas | IPB Petroleum
27 June 2014
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 derisked 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.
Equities
Recommendation: BUY
Target: A$0.93 Price: A$0.26
Key data
Year to June (A$m)
2013
Sales
2014E
2015E
2016E
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
IPB is unique amongst E&Ps in Australias 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 IPBs strategic position when one considers that
approximately 1.6bn barrels of oil have already been developed and
produced from the Carnarvon Basin to date.
A$35m
Free float
48.2%
Bloomberg
IPB AU
Reuters
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.
Mkt. cap.
IPB.ASX
One-year graph
0.5
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Share price of IPB
IPB relative to ASX
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
cslresearch@firstcitygroup.com
cslresearch@fcmbuk.com
CSL Stockbrokers is a division of FCMB (UK) Limited which is authorised by the Prudential Regulation Authority
(PRA) and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in
the United Kingdom.
IPB Petroleum
Equities
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. IPBs 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. IPBs
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
governments 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.
the United Kingdom.
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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.
the United Kingdom.
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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 46,000km of 3D seismic
data have been acquired. The fourth well drilled in the basin, Scott Reef 1
(completed in 1971), was significant in discovering Australias 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
the United Kingdom.
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IPB Petroleum
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Block WA-424-P
IPB Petroleum has been working in permit WA-424-P since October 2010
following the permits 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-424P.
IPBs 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 permits 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.
the United Kingdom.
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IPB Petroleum
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GMG Area within WA 424-P
Beyond the initial Pryderi exploration prospect, there are potentially larger
prospects within IPBs 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.
the United Kingdom.
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Carnarvon Basin
113
114
115
116
117
100 km
Mutineer
Exeter
NT
QLD
Fletcher
Martell
Thebe
Eaglehawk
Egret
Perseus
Chandon
Jupiter
Echo/Yodel
Wheatstone
Io/Jansz
Urania
Scarborough
Eurytion
Geryon
Iago
Wilcox
Brulimar
Brunello
Venture
Julimar
Dionysus
Maenad
Orthrus
Nimblefoot
Chrysaor
Corvus
West Tryal Rocks
Clio
Oryx
John Brookes
Gorgon
Gas field
Oil field
Gas pipeline
Cherring
Gas pipeline (proposed)
Gungurru
Wandoo
Morrel
Hampton
Oil pipeline
Oil subsea tieback
Gas subsea tieback
Scheduled area boundary
(OPGGSA 2006)
Stag
Centaur
Conventional gas platform

Conventional oil platform
Montgomery
Maitland
Spar
Legendre
Antler
Chamois
Altostratus
Gorgon
Hurricane
Okapi
Elk
NSW
VIC
TAS
Sage
Saffron
Rosemary
Reindeer
Caribou
Tusk
SA
Talisman
Amulet
Angel
Forestier
Cossack
Ajax
Wanaea
Tidepole
Pemberton
Keast/Dockrell
Rankin
Lady Nora
Dixon
Haycock
Iago
Pluto
Saturn
Briseis
Glencoe
Gaea
Sculptor
WA
Hermes
Lambert
Montague
North
Rankin
Goodwyn
Kentish Knock
Dampier Storage
Dampier
East Spar
Zeepaard
Oil accumulation
Wickham
Karratha
Abandoned field
Floating production storage and
offloading vessel
Floating production storage and
offloading vessel (under construction)
Roebourne
Antiope
See Inset B
Woollybutt
Griffin
Pyrenees/
Macedon
Leatherback
Santa Cruz
ladin A, B, C
din
2130'
Tripod
09-4205-2
Monopod/Minipod
Inset B
Campbell
22
See Inset A
Ridley
Flag
Wonnich
Orpheus
Bambra East
2030'
Topaz
Inset C
Rose
Harriet
Gipsy
Alkimos
2040'
Artreus
Gobi
11515'
Monet
Ginger
Subsea completion
Baker
2045'
Tanami
West Cycad
Agincourt
Subsea oil & gas well
Bob
Rosette
WESTERN
AUSTRALIA
Subsea oil well
Gudrun
Jane
Rough Range
Lee
Monty
Josephine
Cape Range
Browse Basin
Oil storage tanks

Subsea gas well
Linda
See Inset C
North
Marra
11535'
North Alkimos
Parrot Hill
Windsor
Sinbad
Bambra
11530'
Rivoli
Mini platform
LNG storage tanks
Kultarr
South Plato
WA
Onshore oil production

Phantom
Mulyery
Tubridgi
Exmouth
Dillson
Outtrim
Blencathra
Onshore gas production
Immortelle
Bennet
Bandar
Nasutus Thringa
Myanore Mardie
Carnie
Coniston
Nimrod
Vincent/Van Gogh
Bleaberry West
Corowa
Eskdale
Enfield
Stybarrow
Skiddaw
Laverda Scafell
Falcone
Ravensworth
Crosby
Stickle
Harrison
Errol
South Pepper
North
Herald
Rosily
Boojum
Resolution
Chervil
Elder
South
Chervil
Cyrano
Cadell
Pepper
Chinook/ Bowers
Scindian
Zeewulf
Gas accumulation
Oil and gas accumulation
Lauda
ie Island Basil
ow
Equities
IPB Petroleum
2.5 km Pedirka
Albert
Victoria
Double Island
Simpson
Gibson
Highgrove
Narvik
Cycad
Barrow Island
Hermite
Peck
North Pedirka
Mohave
Dugong
Hoover
Little Sandy
Denver
Pasco
11530'
10 km
11545'
Field outlines are provided by GPinfo, an

Encom Petroleum Information Pty Ltd
product.
Field outlines in GPinfo are
sourced, where possible, from the
operators of the fields only. Outlines are
updated at irregular intervals but with at
least one major update per year.
Figure 2. Oil and gas accumulations, production infrastructure and pipelines in the Northern Carnarvon 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.
the United Kingdom.
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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 IPBs inversion model, this
technique could potentially open up numerous other prospects within IPBs
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.
the United Kingdom.
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Equities
IPB Petroleum
WA-471-P and WA 485-P Extension of Pryderi Play
Interpreted
extension of
M.australis play
Oil leads and prospects
IPBs 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 CalEnergys
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.
the United Kingdom.
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Equities
IPB Petroleum
IPB Development Plan

2014
Q1
Q2
2015
Q3
Q4
Q1
Q2
2016
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
Studies
Acquire Seismic in WA-471-P
Process WA-471-P Seismic
Potential Farmout of WA-471-P
Well Planning WA-471-P
Drill Commitment Well WA-471-P
WA-485-P Term End
Year 1
Year 2
Year 3
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
Well Planning WA-485-P
Drill Commitment Wells WA-485-P (2016)
IPB Indicative Future Work Program Options
Contingent Plan
Acquire further 3D Seismic data WA-424-P
Drill Appraisal Well Pryderi-2
Process 3D Seismic data WA-424-P
Further drilling WA-424-P, WA-485-P
LEGEND
IPO
Firm Work Commitments
Contingent Plans
Primary Term Permit Year End
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
the United Kingdom.
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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.
the United Kingdom.
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IPB Petroleum
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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 exBHP 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
Australias largest gold mining company. From 1997 to 2010 Bruce was Nonexecutive 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
the United Kingdom.
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Limited). Mr Smiths 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.
the United Kingdom.
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Key Risks:
Apart from the risks common to all E&Ps 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 IPBs drilling programme from end of
3Q 2014 represents a risk to IPBs 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 CalEnergys 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.
the United Kingdom.
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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. CalEnergys 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 IPBs 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 IPBs 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.
the United Kingdom.
Page 15
Equities
IPB Petroleum
NAV IPB Petroleum

Asset
Diluted WI
%
GCoS
%
TCoS
%
Recoverable Reserves
CoS
Gross
Net
%
mmboe
mmboe
Australia
40.0%
100%
34%
34%
19.14
35
0.12
0.35
Australia
40.0%
45%
75%
34%
40
16
14.21
77
113
0.79
0.93
2.33
2.70
Country
Net (Debt) Cash

SG&A
Core NAV
Discovery
Gwydion
Exploration (2014/15)
Pryderi prospect
RENAV
NPV/boe
$/boe
Net Risked Value per share

value
Risked
$m
/share
4
0.04
-2
-0.02
2
0.02
Unrisked
/share
0.04
-0.02
0.02
Source: CSL estimates

Additional Upside From Prospects and Leads (Bluesky)
Asset
2D Pryderi Channel leads
Mathony Prospect
Arianrhod 3D Stratigraphic lead
Total NAV
Country
Australia
Australia
Australia
Diluted WI
%
75%
75%
75%
GCoS
%
8%
14%
24%
TCoS
%
20%
20%
20%
Recoverable Reserves
CoS
Gross
Net
%
mmboe
mmboe
2%
90
68
3%
0.8
0.6
5%
8.0
6
NPV/boe
$/boe
1.13
0.64
0.38
Net Risked Value per share

value
Risked
$m
/share
75.94
0.780
0.39
0.004
2.25
0.023
0.807
Unrisked
/share
48.77
0.14
0.48
49.39
Source: CSL estimates
the United Kingdom.
Page 16
Equities
IPB Petroleum
Financials
Year to end as at June 30th; A$m (except where stated)
P&L summary
2012
2013
2014(e)
2015(e)
2012
2013
2014(e)
2015(e)
Oil & gas production (mboe/d)
Op CF before w orking cap.
(2,180)
(1,512)
(1,180)
(1,166)
Sales
Net cash from operations
(2,180)
(1,512)
(1,180)
(1,166)
Gross profit
Interest
(63)
98
(113)
(175)
(46)
Purchase of fixed assets
(429)
(1,067)
(676)
Operating expenses
(1,524)
(1,672)
(1,211)
(1,285)
Cash flow from investing
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)
65
212
93
98
Dividends paid
(113)
(175)
(46)
Proceeds from share issue
2,403
2,761
2,893
Others
(80)
(78)
(1,685)
(1,812)
(1,210)
(1,187)
Net cash from financing
2,403
2,761
2,813
(78)
Cash & liquid assets at start
2,623
2,418
2,600
3,494
Net inc/(dec) in cash
(205)
182
894
(1,146)
Cash & liquidity at close
2,418
2,600
3,494
2,348
Other income
Net interest income (cost)

Other income/costs
Exceptional items
PBT post exceptionals
Tax
Minority interest
(1,685)
Net attributable
(1,812)
(1,210)
(1,187)
Balance sheet summary
2012
2013
2014(e)
2015(e)
P, P & E
4,065
5,101
5,748
5,728
4,065
5,101
5,748
5,728
Inventories
Debtors & prepayments
Due from related companies
Cash & liquid assets

Other current assets
Cashflow summary
2012
2013
2014(e)
2015(e)
Long term debt
Other long term liabilities
Total long term liabilities
Short term debt
Tax payable
Other short term liabilities
409
314
236
236
2,418
2,600
3,494
2,348
Total current assets
2,418
2,600
3,494
2,348
Minority interest
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
Key financial ratios
Other fixed assets

Total fixed assets
Total current liabilities

Capital & reserves
409
314
236
236
6,892
8,015
9,479
8,313
2012
2013
2014(e)
2015(e)
2012
2013
2014(e)
2015(e)
Av shares outstanding (m)
88
93
109
109
EBITDA/boe produced (US$)
Basic & diluted EPS (A$)
(2)
(2)
(1)
(1)
Net inc/boe produced (US$)
FCF per share (US$)
(2)
(10)
NA
NA
NA
NA
Dividend (A$)
Net income margin (%)
NA
NA
NA
NA
Payout ratio (%)
Net debt to equity
0%
0%
0%
0%
Company profile
EBITDA margin (%)
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 find oil reserves.
IPBs 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 first exploration prospect
Pryderi-1 has been identified.
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.
the United Kingdom.
Page 17
Equities
IPB Petroleum
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
27-June-14
Price (N)
A$0.26cents
New Price Target

(N)
A$0.93cents
Old Target (N)

n/a
Old recommendation
n/a
New
recommendation
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
% distribution
10
37%
11
41%
6
22%
0
0%
27
Investment banking clients

% distribution
1
50%
0
0%
1
50%
0
0%
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.
the United Kingdom.
Page 18
Equities
IPB Petroleum
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 Groups investment banking division has received compensation in
the last 12 months
% distribution
Buy
1
100%
Hold
0
0%
Sell
0
0%
Not Rated
0
0%
the United Kingdom.
Total
1
Page 19
IPB Petroleum
Equities
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Page 20
Equities
IPB Petroleum
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27 June 14 - Pryderi - Catching The Stena Line

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27 June 14 - Pryderi - Catching The Stena Line

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IPB Petroleum

Australia | Oil & Gas | IPB Petroleum

Pryderi Catching the Stena Line

Div Yield (%)

IPB is unique amongst E&Ps in Australias Browse Basin since it has a

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

Share price of IPB

IPB relative to ASX

Analyst: Angus McPhail

+234 (0)1 448 5436

Browse Basin - NW offshore Australia

Source: Australian Government

Source: IPB Petroleum

GMG Area within WA 424-P

Source: IPB Petroleum

West Tryal Rocks

Gas pipeline (proposed)

Conventional gas platform

Subsea oil & gas well

Subsea oil well

Oil storage tanks

Onshore oil production

Onshore gas production

Field outlines are provided by GPinfo, an

Source: IPB Petroleum

It is important to stress here that there is a strong correlation between the

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

Oil leads and prospects

Source: IPB Petroleum

IPB Development Plan

Primary Permit Terms

Source: IPB Petroleum

Stena Clyde Semi Submersible Rig

Source: IPB Petroleum

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

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

Limited). Mr Smiths positions in his 15 years with BHP Petroleum Limited

Stephen Tomlin (Senior Geophysicist) joined the Company in May

Block valuation based on farm-out

NAV IPB Petroleum

Net (Debt) Cash

Net Risked Value per share

Source: CSL estimates

Net Risked Value per share

Source: CSL estimates

Oil & gas production (mboe/d)

Op CF before w orking cap.

Net cash from operations

Purchase of fixed assets

Cash flow from investing

Operating profit (EBIT)

Net CF after investment

Net borrow ing inc/(dec)

Proceeds from share issue

Net cash from financing

Cash & liquid assets at start

Net inc/(dec) in cash

Cash & liquidity at close

Net interest income (cost)

Balance sheet summary

Debtors & prepayments

Due from related companies

Cash & liquid assets