Europe: Energy: Oil & Gas - E&P

May 30, 2011

Europe: Energy: Oil & Gas - E&P

Equity Research

5 themes and 17 companies to generate alpha in an industry in transformation

E&P - seek exposure to five key themes

We highlight five themes that we believe will

drive share price performance in the E&P sector;

high-impact, frontier exploration; unconventional

gas; unconventional liquids; explorers with a

strong core value; and NOC-driven M&A. We

highlight 17 companies that we believe provide

the most attractive exposure to these themes.

Frontier exploration increasingly attractive

We highlight five E&P stocks with high re-rating

potential from exploration in new basins. We

expect the majors and NOCs to show increasing

appetite for these types of assets after a decade of

poor exploration performance.

Unconventional gas in deficit markets

Increasing gas prices and new technical advances

benefit unconventional gas producers in countries

fighting for less dependency on foreign gas

imports. Stocks we believe will benefit from this

theme include Conviction Buy Aurelian.

Unconventional liquids

Technological progress being made in established

unconventional liquid/oil shale plays in the US

could be levered to new basins and countries; we

highlight two stocks that should benefit from this

trend, including Conviction Buy Panoro.

Balanced exploration

We identify five stocks with high-impact

exploration supported by core values that mitigate

downside risk of exploration failure. Bowleven

and Rockhopper (Conviction Buys) screen well.

NOC-driven M&A

We see NOCs as the most price-insensitive buyers

and believe that high materiality and exposure to

new technologies drive such activity.

Rating changes

We upgrade Noreco and Maurel and Prom to Buy

(from Neutral). We upgrade DNO and Encore Oil

to Neutral (Sell). We downgrade Salamander, Det

Norske and Coastal Energy to Neutral (Buy), and

downgrade Premier to Sell (Neutral).

ACTION

RATINGS & UPSIDE TO 12-MONTH PRICE TARGETS

Source: Datastream, Goldman Sachs Research estimates.

Coverage View: Attractive

Christophor Jost +44(20)7774-0014 [email protected] Goldman Sachs International

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Ruth Brooker +44(20)7774-6842 [email protected] Goldman Sachs International Michele della Vigna, CFA +44(20)7552-9383 [email protected] Goldman Sachs International

Henry Tarr +44(20)7552-5981 [email protected] Goldman Sachs International

The Goldman Sachs Group, Inc. Global Investment Research

Upside to TP Market Cap (USDmn)Conviction BuyRockhopper 241% 901Aurelian 181% 411Panoro 154% 261Bowleven 107% 1074BuyGlobal Energy Development 189% 37BPC 168% 316Northern Petroleum 164% 173Max Petroleum 159% 164Falkland Oil & Gas 140% 192PA Resources 132% 418Nighthawk Energy 125% 36Dominion 117% 146Igas 117% 187Nautical Petroleum 112% 470Cove Energy 108% 691Aminex Plc 104% 100Great Eastern Energy 97% 771Borders and Southern 96% 392Noreco 96% 523Green Dragon 95% 1718Maurel & Prom 89% 2604Bankers Petroleum 89% 1950SellPremier Oil 22% 3578Hardy Oil 22% 241Lundin Petroleum 14% 4315

May 30, 2011 Europe: Energy: Oil & Gas - E&P

Goldman Sachs Global Investment Research 2

Table of contents

Five themes to play in the E&P sector 3

Frontier exploration set to be a major theme in late 2011/early 2012. Industry appetite for frontier exploration provides additional benefits for explorers. 5

Rising gas prices, energy security and production ramp-ups to drive outperformance in unconventional gas 10

Unconventional liquids – de-risking of assets and potential M&A the key driver 15

Free exploration options remain a compelling investment case 18

M&A – Materiality and technical access a further potential driver of NOC activity 19

Thematic summary for E&P universe 21

Oil price sensitivity and the E&Ps; higher fiscal risk, but lower commercial thresholds; maintaining US$100/bl in our valuations 22

E&P screens; updating target prices and ratings 27

Medium-term exploration & balanced explorers still top performing exploration screens 34

Portfolio update for the E&Ps 38

North Sea performance weak on tax change; Falklands and Kurdistan remain weak 40

Maurel & Prom (MAUP.PA): Core value and ‘free’ exploration exposure; up to Buy 43

Noreco (NOR.OL): Core value combined with ‘free’ Norwegian exploration option; Buy 44

Premier Oil (PMO.L): Company’s strengths already in the price, down to Sell. 45

DNO international (DNO.OL): Underperformance & political de-risking of KRG, Neutral 46

Salamander Energy (SMDR.L): Downgrading to Neutral after recent outperformance 48

Det Norske (DETNOR.OL): Downgrading to Neutral following outperformance 50

Coastal Energy (CEO.L): Removing from Buy List, better upside elsewhere; Neutral 52

Encore Oil (EO.L): Underperformance and Cladhan reaction overdone; up to Neutral 54

Prices in this report are as of the close of May 25, 2011 unless stated otherwise.



Five themes to play in the E&P sector

Our E&P universe provides exposure to a diverse set of themes and geologies. We highlight key themes in the E&P space that we

believe complement broader industry themes that we expect to drive share price outperformance.

High-impact, long-dated exploration: We identify stocks which we estimate have more than 50% of their value in exploration

prospects with potentially greater than 300 mn bls of net resource. We see an increasing appetite among majors and NOCs to

pursue high-impact frontier exploration, which we believe could encourage farm-ins, potentially improving terms. We believe that

the attractive economics of these exploration plays could attract M&A in the event of discoveries.

Unconventional gas: With gas demand in Japan likely to increase in our view, and upwards cost pressure on LNG developments,

we view companies with gas assets in markets with gas deficits positively. We particularly highlight unconventional gas assets,

which we believe are risked too harshly by the market, given the progress that has been made in unconventional gas in the US and

Australia.

Unconventional liquids: We believe that the technological progress being made in the established unconventional liquid/oil shale

plays in the US could be levered to new basins and countries, improving drilling economics and flow rates. These assets are

typically low enough on the cost curve to attract potential acquirers.

Balanced exploration: We take a sceptical view on the ability to select stocks on the basis of the existence of a geological “edge”.

We therefore favour companies which combine a strong core value (including discoveries) that fully supports the share price and a

high level of exploration potential (66% re-rating potential to our valuations in the next 12 months).

NOC-driven M&A: We believe that NOCs are the price insensitive buyers in the market and we therefore view NOC-driven M&A as

particularly attractive. As we believe NOCs are keen to be partners in material developments, we identify companies with over

200mn bls of discovered resource in a single asset. We also believe that access to new, high-tech developments is an attraction for

these purchasers. We highlight companies with stakes in assets which could fulfill this criteria.

Exhibit 1: Buy-rated stocks exposed to top E&P themes and potential upsides to our 12-month price targets

Source: Goldman Sachs Research estimates, Bloomberg.

Company Upside Company Upside Company Upside Company Upside Company Upside

BPC 168% Aurelian 181% Panoro 154% Rockhopper 241% Cove Energy 108%Max Petroleum 159% Igas 117% Nighthawk Energy 125% Aurelian 181% Green Dragon 95%

Falkland Oil & Gas 140% Green Dragon 95% Bowleven 107% Bankers Petroleum 89%Dominion 117% Great Eastern Energy 97% Aminex Plc 104%

Borders and Southern 96% Noreco 96%

Balanced Exploration NOC‐driven M&AHigh impact exploration. Unconventional Gas Unconventional liquids



Exhibit 2: Thematic winners: descriptions and potential upside to our 12-month price targets

Source: Goldman Sachs Research estimates, Company data.

Company Theme Description & investment case Potential upsideExploration re‐rating potential

Potential uplift to valuation from complete de‐

risking

Upside / downside to

core RegionBPC Exploration Early stage explorer in the Bahamas. Early indications from seismic indicate multi‐billion barrel potential

prospects. Previous wells in the area have encountered live oil shows and reservoir. Farm out and CPR the likely next catalysts in summer 2011

168% 1417% 1417% ‐74% Bahamas

Dominion Exploration East African based explorer with licnces in Tanzania, Kenya, Uganda and DRC. 100% stake in Block 7 in deepwater Tanzania is the key near‐term driver. Seismic indicates multi‐tcf potential. Block is located close to blocks owned by Majors and in the same region as recent discoveries by Cove and BG

117% 1389% 1389% ‐82% East Africa

Falkland Oil & Gas Exploration Explorer in South Falklands. High risk prospects, being drilled from 2D seismic with CSEM support with prospect sizes well in excess of 1bn bls in many cases. Deepwater, harsh environment but discoveries of this size are likely to be commercial.

140% 2504% 2504% ‐76% Falklands (South)

Borders and Southern Exploration Targeting prospects in the South Falklands with the aid of 3D sesimic. Shares many of the same risks as Falkland Oil & Gas. Drilling planned for early 2012.

96% 1668% 1668% ‐74% Falklands (South)

Max Petroleum Exploration Targeting shallow and deep prospects in Kazakhstan. Shallow wells are cheaper and smaller, whereas the liquids content of the deeper portion offers re‐rating potential in the event of success. Shallow drilling taking place throughout 2010 with sub‐salt wells to start drilling in mid‐2011

159% 259% 275% ‐26% Kazakkhstan

Aurelian Uncon. Gas / Balanced explorer

Primarily focused on Poland. Main asset is the Sierkierki tight gas asset ‐ first horizontal multi frac well programme is underway. First well showed promising, likely commercial geology but hit mechnical issues. Significant exploration acreage in Poland and Romania

181% 345% 361% 17% Poland

Green Dragon Uncon. Gas / NOC M&A

Chinese CBM play ‐ owns 6 PSCs containing c. 25tcf gas in place. Production from GSS PSC set to begin production ramp up which should de‐risk asset base. Continued drilling in other acreage and migration of 3P reserves into 2P should help drive performance.

95% 0% 177% 61% China

Igas Uncon. Gas Owns 100% of c. 300mn boe of CBM gas in England and Wales. At an early stage but production set to increase over the coming years.

117% 0% 106% 190% UK

Great Eastern Energy Uncon. Gas / NOC M&A

2 CBM licences in India containing c. 3tcf. Production from the Raniganj asset set to ramp up significantly in coming years. Pricing is advantaged (c. US$12/mcf+) due to lack of cheap substitutes in the region. Company owns infrastructure to take gas to market.

97% 0% 52% 113% India

Panoro Uncon. liquids Proucing gas asset (prices linked to Brazilian inflation) supports the share price. Company also has a potentially signficant tight oil asset in Congo. Flow rates from early wells suggest commerciality. Additional exploration and discoveries in Brazil and West Africa.

154% 53% 116% 134% Atlantic

Nighthawk Energy Uncon. liquids Owns 50% stake in over 400,000 acres in the Jolly Ranch oil shale play in the US. Drilling is at an early stage at present with vertical wells attempting to determine the baest completion and drilling methods. Wells being drilled at present are unlikely to be commercial but success could unlock significant value and create a compelling M&A story

125% 0% 386% 238% US

Rockhopper Balanced expl. Owns 100% of the Sea Lion discovery in North Falkland basin which more than supports the share price on a risked basis and is commercial on our estimates. Further upside exists at the field from additional appraisal and seismic. The company holds c. 1,500 square kilometres of exploration acreage around the discovery which we believe will offer further, substantial upside.

241% 160% 196% 102% Falklands (North)

Bowleven Balanced expl. Exploration and appraisal in shallow water Cameroon licences. Recent Sapele discovery has substantially de‐risked surrounding acreage which should provide signfiicant exploration catalysts. Commercial thresholds for assets are low.

107% 117% 145% 18% Cameroon

Aminex Plc Balanced expl. Core value lies in the US and in Tanzania. Significant re‐rating potetnial through the Likonde permit in Tanzania where Tullow are operators. The first well on the licence encountered encouraging signs of hydrocarbons and reservoir, although no commercial discovery was made. Success at this prospect would lift our valuation by over 150% as well as potentially de‐risking additional prospects

104% 216% 225% 9% US / Tanzania

Noreco Balanced expl. Full cycle E&P operating primarily in the North Sea. Rerating potential in the next 12 months is signficiant with 180% potential uplift to our valuations in the event of 100% success. Recent sale of Brage field also relieves funding pressure

96% 180% 214% 17% Norway

Cove Energy High‐tech Main driver is the 8.5% stake in Anadarko's deepwater offshore Rovuma block in Mozambique. Multi tcf discoveries justifiying a 2 train LNG development have already been made. Block covers c. 10,000 square kilometres offering significant scope for further exploration with oil a possibility in the south of the block. Also has a stake in the newly emerging Kenyan basin.

108% 189% 236% 14% East Africa

Bankers Petroleum High‐tech Owns 100% of subtantial heavy oil field in Albania (238mnbls of 2P reserves and 1.2bn bls of 2C reserves). Production from the 2P reserves is ongoing with the contingent requiring success of the thermal pilot programme.

89% 0% 99% 90% Albania



Frontier exploration set to be a major theme in late 2011/early 2012. Industry appetite for

frontier exploration provides additional benefits for explorers

Potentially major new basins to be tested in the next 18 months; vast re-rating potential

In the next 12-18 months, a number of companies in our coverage are expected to drill potentially transformational wells in new,

frontier basins. Risks are clearly high, but volumes are significant, especially for the companies involved, and success could re-rate

stocks and open up new basins. The key new basins we identify in our coverage universe are Namibia (Tower and Chariot), the

South Falklands Basin (Borders and Southern and FOGL) and the Bahamas (BPC). We also note that Max Petroleum (Kazakhstan)

and Dominion (Tanzania) are due to drill very large prospects in areas with previous successes in finding hydrocarbons.

Exhibit 3: Exploration re-rating potential by time period

Source: Goldman Sachs Research estimates.

‐500%

0%

500%

1000%

1500%

2000%

2500%

3000%

Falkland

Oil & Gas

Tower Resou

rces

Borders and

Sou

thern

Chariot O

il & Gas

BPC

Dom

inion

Sterling Energy

Northern Pe

troleu

mDesire Pe

troleu

mPA

Resou

rces

Serica

Amerisur

Aurelian

Hardy

Oil

Max Petroleum

Aminex

Plc

Cove

Ene

rgy

Noreco

Rockho

pper

Melrose Resou

rces

Bowleven

Det Norske

Encore

Coastal Ene

rgy

Nautical Petroleum

Salamande

r DNO

Gulfsands

Pano

roValiant Petroleum

Regal

Heritage

Oil

Faroe Pe

troleu

mMaurel &

Prom

Lund

in Petroleum JKX

Gulf K

eyston

eSoco

Tullow

Prem

ier O

il Enqu

est

Bankers p

etroleum

Global Ene

rgy Develop

men

tNorse Ene

rgy

Nighthawk Energy

Ithaca

Great Eastern Ene

rgy

Igas

Dragon Oil

Green

Dragon

Re‐rating po

tential in the even

t of 1

00% exploration

success

Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Rest of 2012



High-impact explorers offer access to geographically diverse basins

The companies we have highlighted as providing exposure to this frontier, high-impact exploration theme are testing different

basins in a number of different regions of the world (Exhibit 5). While risks are high on these exploration wells, the re-rating

potential is substantial – we estimate average upside of almost 1,500% in the event of success for our winners.

Where appropriate, we assume farm-outs to provide funding for these potentially expensive, high-risk wells. While we assume that

farm-outs are typically dilutive from a valuation perspective, we believe that a likely increase in appetite from larger companies for

access to high-impact exploration should increase competition, thereby potentially allowing farm-outs to take place on attractive

terms, as well as providing additional credibility and additional clarity to the timing catalyst. Any such trend would be an upside risk

to our valuation of these companies.

Exhibit 4: High-impact explorer metrics and re-rating potential Assuming GS estimates of farm-outs where appropriate

Exhibit 5: High-impact explorers are testing a number of new basins High-impact explorers by location


Source: Company data.

Company Location of main activityMarket cap (US$mn)

Existing discovered reserves

Potential gross resource to be drilled in next 12

months

Potential gross resource to be drilled beyond 12 months

Total potential net resource Average CoS

Potential upflit to valuation in event

of successUpside to de‐

risked valuationFalkland Oil & Gas Falklands 192 0 3200 0 1920 4% 2504% 6682%Borders and Southern Falklands 392 0 2040 0 2040 5% 1668% 3599%BPC Bahamas 316 0 0 4305 1291 6% 1417% 3988%Dominion Tanzania 146 0 80 1641 745 13% 1389% 3292%Max Petroleum Kazakhstan 164 60 1262 0 1262 28% 259% 1324%

Average 242 12 1316 1189 1452 11% 1447% 3777%

Chariot Oil & Gas Namibia 612 0 5081 667 2663 9% 1441% 2842%Sterling Energy Cameroon, Madagascar 159 0 0 1950 1387 17% 1229% 1062%Tower Resources Namibia, Uganda 106 0 40 4366 675 9% 1997% 4177%Desire Petroleum Falklands 63 0 637 230 700 10% 611% 955%Hardy Oil India 241 0 1844 1147 299 40% 305% 517%

Average 236 0 1521 1672 1145 17% 1117% 1911%

Winners

Others

Bahamas Petroleum Company

Falkland Oil & Gas, Borders &Southern, Desire Petroleum

Max Petroleum

Dominion Petroleum

Chariot Oil & GasTower Resources

Hardy Oil & Gas

Sterling Energy



High-impact exploration to become increasingly attractive to the industry

Based on our Top 330 analysis, most of the discoveries that have been made over the last five years have been made in the deep

offshore, with Brazil dominating, followed by GoM and Ghana. Onshore discoveries of substantial size have typically been limited to

Kurdistan and Uganda. Notably, the more traditional areas of exploration (shallow GoM, Nigeria, Angola) that are typically the

provinces of the majors, have been increasingly less relevant – it has been new frontiers that has driven this exploration. The result

has been a relative lack of success with the drill bit for the larger companies, with majors having found less than other companies

each year since 2003. With exploration budgets at the major’s looking set to increase, we believe this trend is set to reverse, and

believe that competition for attractive, high-impact acreage is likely to increase, thereby improving potential farm-out terms.

Exhibit 6: A pick up in recent exploration success has been led by frontier

basins Oil reserves discovered each year in giant fields (Top 330 projects) – 2000 includes

15 bn bls from Kashagan

Exhibit 7: Majors’ reliance on established basins has not been effective Top 330 oil reserves discovered by company type

Source: Company data, Goldman Sachs Research estimates.


0

5,000

10,000

15,000

20,000

25,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Traditional offshore Onshore traditional Onshore frontier Offshore frontier0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010mn bls

Major Other NOC



Frontier exploration is well placed on the cost curve – another incentive for the majors

We believe that aside from the potentially material volumes that reward frontier exploration, there are compelling economic reasons

supporting the attractiveness of frontier exploration - namely the position that these fields hold on the cost curve. On our oil cost

curve, we find that the majority of those projects (which break-even at low oil prices and generate significant returns) are fields that

have been discovered in frontier territories (i.e. Brazil, Ghana, Uganda, Vietnam).

We believe this will become increasingly important in the future: in the last year, with the addition of new discoveries in attractive,

frontier fiscal regimes, and the growing importance of unconventional liquids in the production mix, the breakeven cost required to

achieve production from our Top 330 universe has dropped substantially. As a result, portfolios located at the top of the cost curve

(heavy oil, deepwater Angola etc.) will become increasingly marginalized in our view. Consequently, we view exposure to low cost

assets as a positive and would expect the attractiveness of such assets to increase for majors looking to grow production in the

short to medium term.

We note that a risk to the value of frontier exploration is the tendency for advantageous fiscal regimes to eventually be renegotiated.

As a result, we believe that it is possible that economics in frontier areas may worsen at some point in the future, but we believe

that this is unlikely to happen until substantial levels of production have been achieved.

Exhibit 8: Frontier exploration sits low on the cost curve Frontier exploration shaded grey

Exhibit 9: The cost curve has shifted down since last year, marginalising

some majors’ portfolios Breakeven of non-producing oil assets: Top 330 vs. Top 280



20

30

40

50

60

70

80

90

100

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

Commercial breakeven

(US$/bl)

Cumulative peak oil production (kb/d)

Kashagan US$121/blPrirazlom US$110/blNasr US$109/bl

Novoportovskoye US$107.50/blYurubchenko‐Tahomskoye US$101.50/bl

Uganda, Blocks 1, 2 & 3

Franco

Waimea

Florim TweneboaTupi Northeast

TGTAruana

Shaikan

Guara South

Jubilee

Jidong Nanpu

Iara Surrounding Area

GuaraMKB Pipeline

Kizomba Satellites

IaraCalifornia Shale

Upper Zakum expansion

Lula & CernambiTempa Rossa

Abare WestAkri Bijeel

Caesar Tonga

Vesuvio

Block 15‐06

Granite WashGumusut

Eagle Ford

El Merk

Delaware Basin HorizontalPeregrino

Mars B

Egina

Carioca

Bonga SW Aparo

Block 18 West

Pazflor

FreedomAppomattox

Lucapa

Knotty Head

NabiyeKodiak

Wahoo

Umm al‐Lulu

Itaipu

Block 17 CLOVJack / St Malo

Clair Ridge

AmalShenandoah

VitoGrouse

Kirby

Usan

RosebankCarmon Creek

Leismer

Perdido

Bakken Shale

Kaskida

Buckskin

Narrows Lake

Big FootTiber

Block 32 Phase 1Block 31 SE

BosiBlock 31 NE Sunrise

Block 31 WestHebron

LuciusPike

Point Thomson liquids

Block 32 Phase 2Nsiko

Kearl Lake

Mariner BressayGoliatThickwood

Dover

Firebag

MacKay River Expansion

Waha (North Gialo & NC‐98)Greater Thornbury Area

Cascade & Chinook

Stones

Amal SteamPapa Terra

Lower ZakumMembro Siri

Al Ghubar

MTPS

Harweel

Ofon 2

Carabobo 1

BS‐4

Pearl GTL

Junin 5Ugnu

Fort HillsRusskoye

Northern LightsSuzunskoye & TagulskoyeJoslynSAS expansion

Frontier

‐

10

20

30

40

50

60

70

80

90

100

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

Breakeven (US$/bl)

Cumulative Peak Production (kbls/d)

Top 330Top 280



Recent sell-off of non-producers creates an attractive opportunity to buy exploration

We believe that the recent weakening in risk appetite has created an attractive entry point into those companies with limited

production. Since the beginning of March, companies with more than 20% of their operational value in production have

outperformed those companies with no production by almost 10%. Although the current backwardation of the forward oil curve

would suggest a slight advantage for producing companies that can benefit from short-term oil price strength, we do not believe

that this is sufficiently advantageous to warrant such outperformance. In our view, the fundamental operational metrics of

exploration led-businesses have not changed for the worse, and we do not believe that a flight to producing assets is necessarily a

theme that will create value in the medium term.

Exhibit 10: Performance of “producers” vs. “non-producers” since end-March 2011 23 firms count as “producers”, 27 firms as “non-producers”

Source: Datastream.

80

85

90

95

100

105

110

Producers Non‐producers



Rising gas prices, energy security and production ramp-ups to drive outperformance in

unconventional gas

We are positive on gas price exposure in countries with substantial gas deficits, as we believe LNG prices (likely to remain the global

determinant of marginal gas prices in importing markets) will remain strong or strengthen further in the medium term, providing

increased tightness on global markets. As a result, we view companies exposed to gas importing markets, where LNG is likely to be

the marginal fuel positively.

While we believe that the current situation in Japan is likely to put upward pressure on demand, we also see structural pressures on

cost in the supply base providing support to global gas prices. We believe that the marginal costs of projects being brought on line

will remain a key determinant of prices in the long term. Floating LNG projects remain the marginal cost area within LNG in our

view, but there are a number of projects with imminent sanction dates that require US$13/mcf or more to reach an 11% cost of

capital on our estimates, such as Gladstone LNG, Arrow LNG or Evans Shoal.

Exhibit 11: Marginal Top 330 gas fields require over US$12/mcf

Breakeven of non-producing gas assets


‐

2

4

6

8

10

12

14

16

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000

Commercial breakeven

(US$/m

cf)

Cumulative peak gas production (kboe/d)

Shizhuang

Haynesville ShalePinedale Tight Gas

Horn River ShaleFayetteville Shale

LNG is the maringal asset type, providing support for medium term global prices at c. US$13/mcf+

Raniganj

SierkierkiUK CBMi Unconventional gas breaks

even low down on the cost curve, partly as a result of its proximity to local markets



LNG cost inflation a further risk to the upside for gas prices

We believe there is upside risk to our LNG cost forecast, which could provide further support to emerging market gas prices. We

believe that LNG projects in Queensland, expected to come on stream between 2014 and 2016, are at risk from additional cost

pressures, reflecting the level of activity the region is set to experience during the construction phase. Exhibit 12 shows our forecast

for LNG capex in Queensland over the coming years, vs. the level of capex seen in the Canadian oil sands between 2003 and 2007.

The oil sands projects suffered severe cost inflation during this period, as a result of raw material cost inflation, a lack of

experienced construction and oil service workers and, in part, difficulties managing the unprecedented level of spend in the region.

The labour markets in Queensland and Alberta are comparable in our view, as both are located in developed countries with heavily

unionized labour forces, both are likely to rely in part on foreign labour to get through the construction phase and, like Alberta from

the early 2000s, Queensland from 2011 is embarking on a transformational investment programme in its hydrocarbon industries.

We have run sensitivities showing the breakeven level of the Queensland gas projects in a hyperinflationary environment such as

that seen in the oil sands (Exhibit 13). We believe this is an extreme scenario, as costs for the four oil sands projects we included in

the Top 100 report in January 2005 increased 140% in capex per flowing barrel terms. We express breakeven in terms of the oil price

implied as most long-term LNG contracts are linked to this.

Exhibit 12: We forecast a more aggressive ramp-up in Queensland LNG capex

than we saw in the Canadian oil sands boom period Queensland CBM LNG capex vs. Canadian oil sands

Exhibit 13: Should the same level of inflation be seen in Queensland, projects

would require up to US$170/boe oil contracts to break even Commercial breakeven, base and extreme inflation scenario



‐

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

0 1 2 3 4

Cape

x (US$

mn)

Year

LNG Capex, Queensland CBM projects, 2010 ‐ 2014 Canadian Oil Sands Capex, 2003 ‐ 2007

‐

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

200.00

Arrow LNG Gladstone LNG APLNG Queensland Curtis LNG

Oil price breakeven (US$/boe

)

GS Base case Hyper‐inflation scenario



Gas price leverage hard to come by in the E&P universe

Obtaining exposure to this theme is not as easy as one may think in the E&P universe, with oil by far the most important commodity

as a driver of the universe. Gas as a commodity represents only 17% of the operational value of the E&P companies under our

coverage. Exposure is, however, significant for certain stocks. We would highlight Great Eastern (North East India), IGas (UK), Green

Dragon (China), JKX (Ukraine), Dominion (LNG), Cove (LNG), Northern Petroleum (Netherlands), Aurealian (Poland) and Hardy

(India) as stocks with significant gas exposure to markets where a net deficit exists. Although companies such as Panoro, Premier

and Salamander have significant exposure to gas, we note that prices are fixed for significant portions of their volumes.

We have identified companies with over 40% of their value in markets with gas deficits, and where prices are not fixed by contracts

or the government, and show the impact on our valuations of a 25% increase in gas prices. We note that a 25% increase to our gas

price assumptions would not take prices above the US$13/mcf we see as the marginal cost for Queensland LNG projects apart from

in the case of Great Eastern, where competing fuels are LPG / fuel oil more than LNG.

Exhibit 14: Exposure to gas in attractive locations is not a common theme

among European E&Ps Gas price exposure by value

Exhibit 15: Potential increase to valuation from a 25% increase in gas prices

in deficit markets Revised gas prices take Poland to c.US$12/mcf, the UK to US$12.5/mcf, India (KG

basin) to US$10/mcf, Chinese bucket price after downstream / midstream margins

to US$13/mcf



0%

20%

40%

60%

80%

100%

120%

Great Eastern Ene

rgy

Igas

Green

Dragon

JKX

Hardy

Oil

Regal

Cove

Ene

rgy

Dom

inion

Aurelian

Northern Pe

troleu

mMelrose Resou

rces

Pano

roSalamande

r Prem

ier O

il Aminex

Plc

Ithaca

Serica

Heritage

Oil

PA Resou

rces

Noreco

Chariot O

il & Gas

Faroe Pe

troleu

mTower Resou

rces

Encore

Dragon Oil

Tullow

Coastal Ene

rgy

Nautical Petroleum

Lund

in Petroleum

Det Norske

Valiant Petroleum

Maurel &

Prom

Nighthawk Energy

Sterling Energy

Gulfsands

Enqu

est

Rockho

pper

DNO

Norse Ene

rgy

Bowleven

Bankers p

etroleum

Borders and

Sou

thern

Amerisur

Desire Pe

troleu

mFalkland

Oil & Gas

Global Ene

rgy …

Gulf K

eyston

eMax Petroleum BPC

Soco

% of value

attribu

te to gas by

region

Western Europe gas Emerging market gas LNG Eastern Europe gas

0%

5%

10%

15%

20%

25%

30%

35%

40%

Regal Great Eastern Energy

Igas Green Dragon Aurelian JKX Northern Petroleum Hardy Oil

Upside to valuation

from a 25%

increase in

gas prices



Unconventional gas assets over-risked in our view; breakevens are low and production ramp ups /

flow tests should begin to challenge bearish assumptions

We are especially positive on unconventional gas assets, and believe that in many cases, excessive risking is applied to them by the

market, reflecting a belief that they are marginal and that transferability of technology is limited to areas of successful application

(primarily in the US and Australia) to new geologies.

On the commerciality issue, despite the relatively intensive nature of the drilling, the cost profile of these fields is hugely

advantaged vs. LNG, reflecting the proximity to an LNG consuming market. We would highlight, Aurelian (Poland), Great Eastern

Energy (India), Green Dragon (China) and Igas (UK) as being particularly well placed to benefit from the global tightness in the

markets and marginal costs in LNG, without exposure to the likely cost inflation and capex spend that we see in the LNG space.

While we believe that technology is not directly transferrable from region to region, and while completion techniques will likely be

different in different locations, we believe that the operational knowledge that has been built up from the development of large-scale

unconventional gas in the US and Australia should help service providers and upstream operators start from a long way up the

learning curve in developing similar assets in different regions. We believe that with production ramp up expected from Great

Eastern Energy and Green Dragon in 2011, assumptions on risk related to CBM assets in these regions will be tested, while

Aurelian’s testing of its Sierkierki asset should also highlight the potential from a de-risking of this asset.

Exhibit 16: Unconventional gas assets can be attractive if in close proximity

to a net importing market Breakeven of global gas assets at commercial hurdle rates (unconventional E&P

assets highlighted)

Exhibit 17: In line execution for unconventional assets could drive

outperformance Impact of de-risking unconventional assets under development for unconventional

gas players



‐

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Shah

Kinteroni

Umm Shaif

Margarita

Raniganj

Shizhu

ang

Barzan

Phase 1

Maranhao

Miran

Marcellu

s Shale

Khazzan & Makarem

Mon

tney

Tight Gas

Satis

Perla

Forcados Yokri

Longgang

Chayanda

Skarv

Tamar

Gen

dalo

Bongkot Sou

thKe

babangan

Gas Cluster

Poseidon

Hayne

sville Shale

Chuand

ongbei

Pine

dale Tight Gas

Horn River Shale

Fayetteville Shale

Leviathan

West N

ile Delta dom

estic

UK CB

MSierkierki

Abu Qir

Vietnam Gas Development

Block 40

5BSanga Sanga CB

MWest M

editerranean

Sulige South

Severenergiya

Woo

dford Shale

Platon

g 2

Geh

emMyanm

ar M

‐9Cu

lzean

Shwe

Liwan

Ahne

tBo

vane

nko

Laggan

Tormore

Alaska Gas

Greater Gorgon

Sakhalin 1

MacKe

nzie Gas

Pluto LN

G 2

Prelud

eRe

ggane

Angola LNG

Rovuma Offsho

re Area 1 LN

GPN

G Gas Project

Nigeria LNG Train 7

Jupiter

Que

ensland Cu

rtis LN

GBrow

se LNG

Ichthys

Brass LNG

Pluto LN

G 1

APLN

GOK LN

GWhe

atston

e LN

GShtokm

anWLG

P LN

GGladstone

LNG

Kovykta

Arrow LNG

Greater Sun

rise LNG

Evans Sho

alYamal LNG

Abadi LNG

Brea

keven (US$

/mcf)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Igas Great Eastern Energy Green Dragon Aurelian

Impact on

valua

tion

of d

e‐risking of u

ncon

ventinal gas assets currently

und

er develop

men

t



We expect performance of unconventional assets to improve, in line with US shale assets

We believe that these unconventional assets will begin to improve drilling economics through time, in line with the trend that we

have seen in more established basins in the US. We believe that this expected improvement is likely to drive further performance

and help de-risk the unconventional assets in our coverage further.

Exhibit 18: The “legacy” and emerging shale plays in the US have seen material improvement in drilling economics over time Average initial production rates and days to drill (excludes completion and tie in time)

Source: Chesapeake Energy, Devon Energy, Southwestern Energy.

Barnett/Fayetteville Shale annual averages based on data from CHK/DVN and CHK/SWN respectively

Haynesville Shale and Granite Wash annual averages based on data from CHK

Average IP rate

Average drilling days

0

5

10

15

20

25

1,700

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2007 2008 2009 2010

Average drilling days in the B

arnett Shale

Aver

age

IP ra

te in

the

Bar

nett

Shal

e, M

Mcf

/d

Average IP rate


40

42

44

46

48

50

52

54

56

58

4,700

5,200

5,700

6,200

6,700

7,200

7,700

8,200

8,700

2007 2008 2009

Average drilling days in the H

aynesville Shale

Ave

rage

IP ra

te in

the

Hay

nesv

ille

Shal

e, M

Mcf

/d

Average IP rate


15

16

17

18

19

20

21

22

23

24

25

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

2007 2008 2009 2010

Average drilling days in the

Fayetteville Shale

Aver

age

IP ra

te in

the

Faye

ttevi

lle

Shal

e, M

Mcf

/d

Average IP rate


0

10

20

30

40

50

60

1,600

2,600

3,600

4,600

5,600

6,600

7,600

8,600

2007 2008 2009 2010

Average drilling days in the G

ranite Wash

Aver

age

IP ra

te in

the

Gra

nite

W

ash,

MM

cf/d



Unconventional liquids – de-risking of assets and potential M&A the key driver

As with the levels of risking we see in unconventional gas assets, we believe that a similarly high risking is applied to

unconventional liquids outside the more established basins in the US (such as the Bakken, Eagle Ford, Granite Wash etc.). Again,

while we believe that the drilling techniques perfected in these basins are unlikely to be able to applied directly to different

geologies, we believe that the experience in these basins serves to help the process of unlocking the potential of new basins. We

also note that the trend is for well performance to improve through time, as more is learnt about the optimal way in which to drill

and complete wells, and therefore we expect to see incremental improvements from these assets at an early stage of development.

As shown in Exhibits 19 and 20, drilling efficiencies also tend to improve, with times to drill, and costs decreasing through time.

Exhibit 19: Flow rates in the the Bakken Shale have gradually increased

through time Initial production rates for wells in tier 1 of the Bakken Shale

Exhibit 20: North Dakota monthly implied spud-to-spud days and average rig

count

Source: Company data.

Source: North Dakota Oil & Gas Commission. Goldman Sachs Research estimates.

1.00

1.50

2.00

2.50

3.00

3.50

1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132333435363738394041424344454647484950515253545556575859

IP rates (kbo

pd)

IP rates from tier 1 Bakken shale assets Linear (IP rates from tier 1 Bakken shale assets)

0

20

40

60

80

100

120

140

160

180

20

25

30

35

40

45

50

55

60

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Average R

ig CountSp

ud-t

o-sp

ud D

ays

Rig count Implied Spud-to-spud days



Flow rates and costs key to unlocking value

We highlight Panoro (with its low permeability MKB asset in Congo) and Nighthawk (with its oil shale Jolly Ranch play in the US) as

companies with exposure to unconventional liquids assets at an early stage of development. We believe that a de-risking of these

assets could result in substantial upside from current levels. While we note that risk remains around these assets (especially for

Nighthawk, which has only drilled one well to date that we would consider commercial), we believe that the heavy risk factors that

we apply to these assets account for this uncertainty.

We believe there is significant further upside to be realized from both these assets from:

A de-risking of the assets as drilling continues;

The potential to improve flow rates;

The potential for drilling efficiencies to improve and, subsequently, for costs to come down.

In the event of de-risking these plays, we see significant re-rating potential for both Panoro and Nighthawk (Exhibit 22). We see the

key to de-risking these unconventional assets and determining value as the flow rates that can be achieved by the wells.

Exhibit 21: Assumed flow rates per well

Exhibit 22: Increased flow rates, more efficient drilling and de-risking of

unconventional liquid assets have the potential to re-rate Panoro and

Nighthawk Potential uplift to valuation as percentage of market cap



0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.00

0.10

0.20

0.30

0.40

0.50

0.60

1 2 3 4 5 6 7 8 9 10

kbop

d

kbop

d

Assumed MKB flow rates (Panoro ‐ LHS) Assumed Jol ly ranch vertical flow rates (Nighthawk ‐ RHS)

‐100%

100%

300%

500%

700%

900%

1100%

0%

20%

40%

60%

80%

100%

120%

De‐risking 50% higher IP rate (no risking changes) Drop in costs by 50%

Potential value

add

ed as % of m

arket cap (Nighthawk)

Panoro (LHS) Nighthawk (RHS)

100% de‐risking IP rates 50% higher Costs 50% down



Unconventional liquids set for M&A in the future

We note that the majors are conspicuously absent from unconventional liquids at present. Despite the presence of some majors in

the Eagle Ford shale (i.e. Shell, Statoil) the only two majors with significant exposure to the unconventional liquids plays in the US

are Exxon and Conoco.

We note that Panoro’s and Nighthawk’s operations are at an early stage, and that further drilling and de-risking is required before

these are likely to screen as potential M&A targets. Nonetheless, we believe the early results at Panoro’s MKB fields are very

encouraging. Nighthawk’s Jolly Ranch asset has greater risk in our view, but as Exhibit 23 shows, in the event of the company

proving the geology of the play, the potential upside based on US deal metrics from similar assets could be substantial.

Exhibit 23: Majors are generally under-represented in unconventional liquidsNPV of unconventional liquids resource as % of EV (as at April 6, 2011)

Exhibit 24: The size of the prize for unlocking new plays is substantial Oil shale transaction implications for Nighthawk


Source: Company data, Goldman Sachs Research estimates, Wyoming Land Auction data.

0%

10%

20%

30%

40%

50%

60%

70%

NPV

201

1 of uncon

ventional liquids portfolio as a % of 20

11 EV

Buyer Seller Date Asset 000 acres Price (US$mn) 000' US$ / acre Implied Nighthawk value Implied upsideHigh Bid Wyoming lease sale 4/9/10 Niobrara 0.6 3.8 5.9 1195 3248%Hess Marathon 28/7/10 Bakken 85.0 445.0 5.2 1060 2870%XTO Headington 15/7/08 Bakken 352.0 1800.0 5.1 1035 2801%High Bid Wyoming lease sale 9/7/10 Niobrara 0.3 1.0 3.2 647 1712%High Bid Wyoming lease sale 12/5/10 Niobrara 0.6 1.9 3.0 606 1598%Northern Oil Windsor bakken 1/6/09 Bakken 3.0 7.3 2.4 491 1276%El Paso UoT lease sale 23/9/10 Wolfcamp 123.1 180.0 1.5 294 723%Rex Energy Private company 30/6/10 Niobrara 18.7 18.7 1.0 200 461%Hilcorp Energy Lucas Energy 5/7/10 Eagle Ford 9.525 8.9 0.9 187 423%

Average 2.9 577.5 1518%



Free exploration options remain a compelling investment case

Since we expanded our universe of stocks on November 5, 2010, a key theme of ours has been identifying those companies in

which the value of their cash, production and discoveries supports the share price, but which also contain material exploration

upside – essentially providing re-rating potential through exploration that does not need to be paid for in the share price. Since

November, these companies have outperformed our coverage by c.10%.

We believe that these companies offer a compelling mix of value and exploration upside, and therefore highlight those companies

in our universe which we estimate have re-rating potential of over 66% in the next six months, combined with a share price that is

fully supported by cash, production, developments and risked discoveries. Of particular interest, in our view, are Bowleven and

Rockhopper, due to the de-risked nature of their exploration.

Exhibit 25: Balanced explorers have performed well since November 2010 Balanced explorers vs. E&P coverage

Exhibit 26: Exploration re-rating potential with core value support is an

attractive combination 6-month re-rating potential vs. upside / downside to core value (+discoveries)

Aurelian has 314% re-rating potential and 17% upside to core valuation, Amerisur has 297% and 3%.

Source: IHS Herold.

Source: Goldman Sachs Research.

90

95

100

105

110

115

120

125

130

135

140

08/11/2010 08/12/2010 08/01/2011 08/02/2011 08/03/2011 08/04/2011 08/05/2011

Balanced explorers E&P universe

‐30%

20%

70%

120%

170%

220%

‐20% 30% 80% 130% 180%

Exploration upside w

ithin 12 m

onths

Core value / price

Free, material short term re‐rating potential

Short term re‐rating potential comes at a cost

Less material re‐ratingpotential partially priced into stock

Cheap core value

Aminex Plc

Faroe PetroleumBowleven

Noreco

Det Norske

Salamander Rockhopper

Encore



M&A – Materiality and technical access a further potential driver of NOC activity

We believe that M&A remains a key theme in the industry. However, with NOC’s the most price insensitive buyers, in our view, we

believe that isolating M&A likely to be driven by NOCs is the most attractive way to play this theme.

We believe that larger assets are likely to be attractive to NOCs and therefore consider companies with discovered resource of

greater than 200 mn bls in a single block / asset to screen attractively in this regard (Exhibit 28).

In recent years, we have also seen an increasing bias towards NOC purchases of complex assets. We believe that this is in large part

inspired by a desire to develop technical skills, through exposure to highly skilled operators, pushing back the technological

boundaries of the industry. We would expect this trend to continue, with a number of “gaps” remaining in the portfolios of NOCs.

We have assessed which companies could provide a possible entry point into such assets. In our view, there are a number in our

coverage that provide exposure to what we regard as technical asset types. Companies with particularly high exposure include a

number of early stage CBM operators, such as and Green Dragon (China). Cove Energy represents an interesting potential entry into

a deepwater LNG scheme, while Bankers offers a high level of exposure to heavy oil developments. Tullow also offers exposure to

deepwater expertise.

Exhibit 27: NOC transactions have been highly focused on technical assets

NOC deals in high-tech win zones since 2006

Exhibit 28: Materiality a key concern for NOCs Percentage of value lying in assets of 200 mn bls or more. Assets exposed to

technical frontiers are highlighted.



Heavy Oil DW Brazil DW West AfricaUnconventional gas / liquids LNG

CNOOCOML 130 (Akpo, Egina), 2006

Eagle Ford, 2010Wyoming, Colorado, 2011 Curtis LNG, 2010

Gazprom Sakhalin II, 2006KNOC CRTHE, 2009 Eagle Ford, 2011ONGC BC‐10, 2006

PetroChina MacKay River & Dover, 2009

Encana Cutbank Ridge gas assets, 2011 Arrow Energy, 2010

Petronas Mauritania, 2007 Gladstone LNG, 2008PTTEP Kai Kos Dehseh, 2010

RelianceMarcellus, 2010Eagle Ford, 2010

RosneftSinochem Peregrino, 2010

Sinopec

Northern Lights, 2009Tanganyika, 2008Syncrude, 2010 Repsol Brasil, 2010

Block 15, 17, 18/06, 2006

0%

20%

40%

60%

80%

100%

120%

Bankers petroleum

Dragon Oil Green Dragon Gulf Keystone Cove Energy Tullow Heritage Oil

% value

in assets over 200

mn bls



NOC interest could be a material value driver

We are especially attracted towards M&A that could potentially involve NOCs as we note that recent deals involving NOCs as the

acquirers have been done at significantly higher prices than those that have attracted IOC attention. We believe that this is a

function of the IOCs typically looking to buy assets at commercial costs of capital (to generate value), while the NOCs’ deal

rationales are often more strategic. Exhibit 29 shows the discount rates implied by recent deals, with NOC’s paying discount rates of

8% or lower in order to secure assets.

Exhibit 30 shows the re-rating potential from those companies that we believe could attract NOC attention either as a result of the

large materiality, or as a result of the technical nature of the asset if we use an 8% discount rate to value those assets we view as

attractive.

Exhibit 29: NOC acquisitions have been more price insensitive driving

potentially greater returns Implied discount rates of recent deals

Exhibit 30: Deals done at NOC costs of capital could see significant upside to

current valuations Highlighted companies screen attractively for both materiality and technical

access

Source: IHS Herold.


0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Peregrino Athabasca Oil Sands

Corporation assets

Dana * Block 32 -Marathon

stake

Jack/St Malo Mariner** Uganda, blocks 1 & 3

(ENI & Heritage)

Dragon

Dis

coun

t rat

e im

plie

d by

dea

l at l

ong

run

oil p

rice

NOC acquirersIOC acquirers

NOC acquirer but with controlling stake

* Excluding exploration value** Assuming 80% development risking

Average WACC for sector per GS valuations

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Cove Energy Dragon Oil Gulf Keystone Green Dragon Bankers petroleum Heritage Oil Tullow

Uplift to

valaution

at NOC valuations



Thematic summary for E&P universe

In this report we have highlighted as thematic winners only those stocks on which we have a Buy rating. In Exhibit 31 we show

where all our coverage sits in relation to our five key themes, regardless of rating.

Exhibit 31: Thematic exposure of entire E&P coverage universe


Company Upside Company Upside Company Upside Company Upside Company Upside Company Upside

BPC 168% Aurelian 181% Panoro 154% Rockhopper 241% Cove Energy 108% Global Energy Development 189%Max Petroleum 159% Igas 117% Nighthawk Energy 125% Aurelian 181% Green Dragon 95% Northern Petroleum 164%

Falkland Oil & Gas 140% Green Dragon 95% Bowleven 107% Bankers Petroleum 89% PA Resources 132%Dominion 117% Great Eastern Energy 97% Aminex Plc 104% Aminex Plc 104%

Borders and Southern 96% Noreco 96% Nautical Petroleum 112%Maurel & Prom 89%

Sterling Energy 82% JKX 40% Faroe Petroleum 82% Gulf Keystone 85% Gulfsands 78%Chariot Oil & Gas 81% Regal 32% Det Norske 81% Heritage Oil 55% Norse Energy 79%Tower Resources 72% Hardy Oil 22% Salamander 79% Dragon Oil 35% Serica 75%Desire Petroleum 48% Amerisur 60% Tullow 32% Coastal Energy 82%

Hardy Oil 22% Encore 38% Valiant Petroleum 64%Ithaca 52%DNO 64%Soco 34%

Melrose Resources 28%Enquest 28%

Premier Oil 22%Lundin Petroleum 14%

Balanced Exploration NOC‐driven M&A Others

Thematic, buy rated winners

Thematic exposure already in price (netural & sell rated stocks)

High impact exploration. Unconventional Gas Unconventional liquids



Oil price sensitivity and the E&Ps; higher fiscal risk, but lower commercial thresholds;

maintaining US$100/bl in our valuations

We currently value our E&P universe using a long-run oil price of US$100/bl. At present, with the 3-year forward Brent price trading

at c.US$100/bl, we see no need to adjust our valuations.

We note, however, that our assumption is below the current Brent spot price, and substantially below the level at which the oil price

peaked in late April/early May (at c.US$125/bl). As a result, we have run sensitivities at US$125/bl (with additional cost inflation

included) to show the potential impact on valuation (Exhibit 31). The companies most exposed to the commodity are those with

either high operational leverage (i.e. Regal, Dominion), high exposure to oil-based reserves in licence regimes (Lundin, Noreco), or

those with high levels of financial leverage (i.e. Noreco, PA Resources).

However, the equity market appears reluctant to price in high spot prices into valuations, as shown by the divergence of the spot

price and equity performance in mid-2008, and in the early part of 2011 (Exhibit 33). We believe this is the result of (1) a greater

focus on the long-term crude price (where most of the value in these stocks lies), (2) a reluctance to price in potentially short-term

spikes in the oil price, and (3) a recognition that at higher oil prices the operating environment becomes more challenging as a result

of inflation, higher fiscal risk and risks of bottlenecks in service capacity. We believe that to price in higher oil prices in equity

valuations, the market will need to see sustained high oil prices across the curve.

Exhibit 32: Oil price sensitivity to US$125/bl Impact of increase in oil price from US$100/bl to US$125/bl on valuation

Exhibit 33: E&P equities have typically failed to price in spot price highs Brent spot price vs. E&P sector


Source: Datastream.

0%

10%

20%

30%

40%

50%

60%

Regal

Noreco

Dom

inion

PA Resou

rces

Tullow

Lund

in Petroleum

Cove

Ene

rgy

Tower Resou

rces

Great Eastern Ene

rgy

Nighthawk Energy JKX

Melrose Resou

rces

Igas

Chariot O

il & Gas

Rockho

pper

Bankers p

etroleum DNO

Global Ene

rgy Develop

men

tAmerisur

Borders and

Sou

thern

Dragon Oil

Soco

Aurelian

Coastal Ene

rgy

Falkland

Oil & Gas

Maurel &

Prom

Prem

ier O

il Serica

Gulf K

eyston

eValiant Petroleum

Nautical Petroleum

Det Norske

BPC

Max Petroleum

Bowleve

nEnqu

est

Gulfsan

dsEncore

Faroe Pe

troleu

mSterling Energy

Ithaca

Northern Pe

troleu

mDesire Pe

troleu

mSalamande

r Heritage

Oil

Pano

roGreen

Dragon

Aminex

Plc

Hardy

Oil

Norse Ene

rgy

Uplift in valuation

from US$10

0/bl to

US$12

5/bl

0

20

40

60

80

100

120

140

160

Brent spot price E&P sector performance (indexed to Brent spot price)



Oil prices and commerciality - fiscal risk increases under higher oil prices

Higher oil prices do not necessarily result in higher valuations as they can also cause countries to adjust their fiscal regimes to

effectively tax away outsized returns gained through access to a country’s hydrocarbons. We believe that three factors are worthy of

consideration in assessing whether a country is at risk of adjusting its fiscal terms:

High returns for producers in the country. Countries need to ensure that companies continue activities and therefore low

returns are likely to reduce the likelihood of fiscal changes;

A low existing tax rate. If a government’s fiscal take is already high, a relatively large proportion of profits will go to the

government in any case and the possible delta by which to move the tax take is more limited

Assets are already producing. We believe there is less incentive to avoid changing the fiscal terms as oil companies in the

country will have already sunk substantial costs and will be less able to simply halt development. Most frontier areas remain at

lower tax rates until production begins (with Israel’s recent tax rise being a notable exception).

We show in Exhibits 33 and 34 the returns vs. tax take at US$85/bl (the 5-year forward price through most of 2009/2010) and at

US$110/bl. We believe in a sustained high oil price environment, tax rates in many countries to the right of the line in Exhibit 35 will

be at risk of change, although those countries with an immature or emerging industry may be reluctant to make changes to fiscal

regimes until production has been established.

Exhibit 34: High P/Is and low tax rates put outsized returns at risk Country tax rates vs. PIs for pre-sanction and under development projects

Exhibit 35: Higher oil price may lead to further tax increases Country tax rates vs. PI at US$110/bl



20%

30%

40%

50%

60%

70%

80%

90%

100%

1.00x 1.50x 2.00x 2.50x 3.00x 3.50x

Ove

rall

tax

take

PI ratio

Low returns and / or high existing tax rates limit chance

of fiscal renegotiation

High returns and relatively low existing tax rates increase risk of fiscal renegotiation

Algeria

Angola

Australia

Bolivia

Brazil

Canada

China

Congo

Egypt

Ghana

Indonesia

Iraq

Israel

Italy

Kazakhstan

LibyaMalaysia

Mozambique

Myanmar

Nigeria

Norway

Oman

Papua New Guinea

Peru

Qatar

Russia

Thailand

UAE

Uganda

UK

US

Venezuela

Vietnam

Israel - Top 280

UK - Top 280

20%

30%

40%

50%

60%

70%

80%

90%

100%

1.00x 1.50x 2.00x 2.50x 3.00x 3.50x

Ove

rall

tax

take

@ U

S$1

10/b

l

PI ratio @ US$110/bl

Low returns and / or high existing tax rates limit

chance of fiscal renegotiation

High returns and relatively low existing tax rates increase risk of fiscal

renegotiation

Algeria

Angola

Australia

Bolivia

Brazil

Canada

China

Congo

Egypt

Ghana

Indonesia

Iraq

Israel

Italy

KazakhstanLibya

Malaysia

Mozambique

Myanmar

Nigeria

Norway

Oman

Papua New Guinea

Peru

QatarRussia

Thailand

UAE

UK

US

VenezuelaVietnam

Uganda:PI 3.52x,

73%



Commercial thresholds drop at higher oil prices which should also drive de-risking

The other major impact of an increased oil price environment is that it allows commercialization of previously unattractive assets.

Although valuations of marginal assets increase at higher oil prices, we believe that there is rarely an additional increase in the

valuations equity markets ascribe to more marginal assets as a result of reductions in the commerciality risk at higher oil prices.

We highlight the North Falklands Basin as an asset where the market regards commerciality with a degree of scepticism as a result

of its relative isolation. Although we believe that these concerns are substantially overdone (with the use of FPSOs limiting the need

for major infrastructure in the area), we note that in the current oil price environment, concerns should be receding; at the current oil

price, even costs of over US$30/bl are comfortably commercial using a 15% hurdle rate. We do not believe that the market has fully

accounted for this impact in more marginal basins in our coverage, and we believe that projects perceived as marginal have seen

little de-risking in this higher oil price environment.

Exhibit 36: Higher oil prices should drive de-risking of more marginal assets IRR and NPV/bl of North Falklands asset at differing cost and oil price assumptions (assuming US$16/bl opex costs)


NPV12/bl US$70 US$85 US$100 US$115 US$130 IRR US$70 US$85 US$100 US$115 US$130$10 7.67 11.33 14.99 18.64 22.30 $10 50% 65% 79% 91% 102%$15 4.88 8.54 12.2 15.85 19.51 $15 29% 41% 52% 62% 71%$20 2.02 5.68 9.33 12.99 16.65 $20 18% 27% 36% 45% 53%$25 ‐0.84 2.81 6.47 10.13 13.78 $25 10% 18% 26% 33% 40%$30 ‐3.63 0.03 3.68 7.34 11.00 $30 5% 12% 19% 25% 31%

Uncommercial at 12% hurdle rate Uncommercial at 12% hurdle rateUncommercial at 15% hurdle rate Uncommercial at 15% hurdle rate

Oil price Oil price

F&D per barrel

F&D per barrel



Adjustment to long-term exploration discount

We previously applied a 50% discount to medium-term drilling catalysts, reflecting uncertainties with long-dated catalysts (timing of

drilling, resource updates following additional seismic, lack of CPRs, etc.). Following further analysis of the performance of stocks

into drilling campaigns, we note that performance into a major catalyst is far from uniform, with many stocks outperforming up to

two years before the campaign. Catalysts, such as the booking of rigs, CPRs etc., however continue to drive shares. As a result, we

remove the blanket discount we had previously used and replace it with asset-specific discounts to account for specific uncertainties

in the build up to drilling. We also apply these discounts to high-impact exploration prospects being drilled in the next 12 months,

where these prospects represent greater than 50% of a company’s valuation. We now adjust our chances of success for the

following:

Lack of 3D seismic over prospects, 15% discount to chance of success (CoS);

Lack of CPR, 20% discount to CoS;

Lack of rig booked, 10% discount to CoS.

Exhibit 37: Chariot Oil has outperformed steadily into drilling in Namibia…

Chariot Oil’s share price performance vs. E&P universe

Exhibit 38: …while much of Desire’s outperformance came over 12 months

before Desire’s share price performance vs. E&P universe

Source: Datastream.

Source: Datastream.

‐100%

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

Seismic acquired (no sizes)

Increase in prospective resources

CPR (small decrease in prospective resource)

Nimrod structure identified

‐100%

‐50%

0%

50%

100%

150%

200%

250%

Farm in partner announced

Liz well dryRig booked



Impact on long-dated exploration

Our adjustments have the following impact on our chances of success for long-dated exploration drilling:

Exhibit 39: Material medium-term exploration catalysts

Source: Goldman Sachs Research estimates, Company data

Company Prospect Basic CoSNo processed 3D seismic

No CPR No rig Final CoS Processed 3D? CPR? Rig?

Amerisur Paraguay 5% 15% 20% 10% 3% N N NBorders and Southern Falklands 5% 0% 0% 0% 5% Y Y YBPC Bahamas 10% 15% 20% 10% 6% N N NChariot Oil & Gas Namibia 10% 0% 0% 10% 9% Y Y NCove Energy Gas 40% 0% 20% 0% 32% Y N YCove Energy Oil 15% 0% 20% 0% 12% Y N YDominion Alpha ‐ gas 15% 15% 0% 10% 14% N Y NDominion Alpha ‐ oil 3% 15% 0% 10% 2% N Y NDominion Beta ‐ gas 15% 15% 20% 10% 9% N N NDominion Beta ‐ oil 3% 15% 20% 10% 2% N N NFalkland Oil & Gas Falklands 5% 10% 20% 0% 4% N N YHardy Oil D9 10% 0% 0% 0% 10% Y Y yHardy Oil D3 60% 0% 0% 0% 60% Y Y YMax Kasakhstan ‐ weighted average 28% 0% 0% 0% 28% Y Y YNorthern petroleum Sicily 15% 0% 20% 10% 11% Y N NPA Resources Greenland 10% 15% 20% 10% 6% N N NPanoro Santos basin 25% 0% 20% 10% 18% Y N NRockhopper Falklands 20% 0% 0% 0% 20% Y Y ySterling Cameroon 25% 15% 20% 10% 15% N N NSterling Madagascar 10% 15% 0% 10% 8% N Y NTower Namibia 10% 15% 0% 10% 8% N Y N

*CPR: Competent person report, CoS: Chance of Success



E&P screens; updating target prices and ratings

We make several adjustments to the valuations of the companies in our coverage, reflecting recent newsflow. As in our last

sub-sector publication on January 31, 2011, we use a US$100/bl oil price to value the E&Ps, broadly in line with the forward curve

and our 2011 oil price estimates. Our target prices imply average potential upside for the sector of 88%, (26% excluding exploration

value) and hence we retain our Attractive coverage view. We also update for movements in fx.

Exhibit 40: Target prices and ratings changes (sorted by upside potential to 12-month target price) % change from previous, does not include the impact of the roll-forward.

Source: Bloomberg, Goldman Sachs Research estimates. *Conviction List member.

# CompanyMarket cap (USDmn)

Current price

Previous target price

Updated target price (not rolled forward)

Updated target price (with roll‐forward)

New potential upside to target price

% change from

previous

Upside / downside to core value

12‐month re‐rating potential Old rating New rating Currency

1 Rockhopper 901 2.15 6.84 6.57 7.32 241% ‐4% 102% 73% B* B* GBp2 Global Energy Development 37 0.64 1.94 1.65 1.85 189% ‐15% 283% 0% B B GBp3 Aurelian 411 0.52 1.52 1.34 1.46 181% ‐12% 17% 314% B* B* GBp4 BPC 316 0.16 0.31 0.38 0.42 168% 19% ‐74% 0% B B GBp5 Northern Petroleum 173 1.16 2.58 2.84 3.05 164% 10% 120% 18% B B GBp6 Max Petroleum 164 0.13 0.32 0.29 0.34 159% ‐8% ‐26% 259% B B GBp7 Panoro 261 6.18 15.40 14.48 15.72 154% ‐6% 134% 12% B* B* NOK8 Falkland Oil & Gas 192 0.62 2.08 1.33 1.48 140% ‐36% ‐76% 2504% B B GBp9 PA Resources 418 4.14 9.92 8.35 9.61 132% ‐16% 46% 34% B B SEK10 Nighthawk Energy 36 0.06 0.20 0.13 0.14 125% ‐38% 238% 0% B B GBp11 Dominion 146 0.06 0.11 0.11 0.12 117% 5% ‐82% 39% B B GBp12 Igas 187 0.73 1.65 1.45 1.57 117% ‐12% 190% 0% B B GBp13 Nautical Petroleum 470 3.29 7.03 6.44 6.97 112% ‐8% 76% 65% B B GBp14 Cove Energy 691 0.87 1.55 1.62 1.80 108% 5% 14% 60% B B GBp15 Bowleven 1,074 3.06 5.78 5.69 6.35 107% ‐2% 18% 78% B* B* GBp16 Aminex Plc 100 0.08 0.17 0.15 0.16 104% ‐16% 9% 208% B B GBp17 Great Eastern Energy 771 4.20 6.49 7.37 8.28 97% 14% 113% 0% B B GBp18 Borders and Southern 392 0.56 1.21 1.00 1.10 96% ‐17% ‐74% 1668% B B GBp19 Noreco 523 11.90 28.50 22.01 23.37 96% ‐23% 17% 180% N B NOK20 Green Dragon 1,718 12.95 23.80 22.37 25.20 95% ‐6% 61% 0% B B USD21 Maurel & Prom 2,604 15.22 18.05 25.89 28.82 89% 43% 64% 37% N B EUR22 Bankers petroleum 1,950 4.90 8.80 8.36 9.26 89% ‐5% 90% 0% B B GBp23 Gulf Keystone 1,778 1.45 2.34 2.34 2.68 85% 0% ‐12% 44% N N GBp24 Sterling Energy 159 0.45 0.89 0.74 0.81 82% ‐17% ‐58% 17% N N GBp25 Coastal Energy 758 4.25 7.75 7.06 7.74 82% ‐9% 25% 54% B N GBp



Exhibit 40 cont'd: Target price and ratings changes (sorted by upside potential to 12-month target price)

Source: Bloomberg, Goldman Sachs Research estimates. *Conviction List member.

Material changes to 12-month target prices and rationale

We discuss the rationale for our target price changes in excess of 10% below: We make revisions to our assumed farm-out terms

following discussions with management teams, and now typically assume a 33% stake retention in return for a 1-2 well carry. We

also roll forward our valuation, making 2011 our new front year.

Aurelian – increasing of risking at Sierkierki from 70% to 65% chance of success following mechanical issues with the Trzek 2

well.

Amerisur – removal of long-dated drilling discount

Aminex – dilution from placing and updating US reserves following recent guidance.

Borders and Southern – adjustment of chances of success for South Falklands prospects in line with new methodology.

# CompanyMarket cap (USDmn)

Current price

Previous target price

Updated target price (not rolled forward)

Updated target price (with roll‐forward)

New potential upside to target price

% change from

previous

Upside / downside to core value

12‐month re‐rating potential Old rating New rating Currency

26 Faroe Petroleum 479 1.39 2.59 2.40 2.52 82% ‐7% 52% 78% N N GBp27 Det Norske 612 30.60 54.70 52.40 55.46 81% ‐4% 36% 95% B N NOK28 Chariot Oil & Gas 612 2.08 3.84 3.37 3.76 81% ‐12% ‐69% 1331% N N GBp29 Norse Energy 86 0.64 2.06 1.08 1.15 79% ‐48% 92% 0% N N NOK30 Salamander 702 2.80 4.65 4.60 5.00 79% ‐1% 15% 66% B N GBp31 Gulfsands 513 2.59 4.78 4.22 4.63 78% ‐12% 49% 60% N N GBp32 Serica 78 0.27 0.61 0.43 0.48 75% ‐30% ‐4% 127% N N GBp33 Tower Resources 106 0.06 0.07 0.09 0.10 72% 21% ‐95% 53% N N GBp34 Valiant Petroleum 343 5.32 10.06 8.03 8.75 64% ‐20% 51% 47% N N GBp35 DNO 1,201 7.02 9.70 10.50 11.49 64% 8% 10% 60% S N NOK36 Amerisur 357 0.24 0.28 0.36 0.38 60% 27% 3% 297% N N GBp37 Heritage Oil 1,115 2.38 4.20 3.54 3.69 55% ‐16% 5% 55% N N GBp38 Ithaca 545 1.31 1.99 1.87 1.99 52% ‐6% 58% 0% N N GBp39 Desire Petroleum 63 0.11 0.53 0.15 0.17 48% ‐71% ‐52% 84% N N GBp40 JKX 808 2.89 4.02 3.70 4.05 40% ‐8% ‐11% 46% N N GBp41 Encore 328 0.70 1.33 0.88 0.96 38% ‐34% 6% 86% S N GBp42 Dragon Oil 4,416 5.26 6.96 6.77 7.08 35% ‐3% 27% 1% N N GBp43 Soco 2,120 3.83 5.08 4.80 5.11 34% ‐6% 7% 6% N N GBp44 Regal 229 0.44 0.42 0.52 0.58 32% 24% ‐6% 0% N N GBp45 Tullow 18,684 12.92 17.03 16.22 17.03 32% ‐5% ‐24% 40% N N GBp46 Melrose Resources 457 2.45 3.19 2.81 3.14 28% ‐12% ‐18% 147% N N GBp47 Enquest 1,718 1.32 1.77 1.52 1.69 28% ‐14% 27% 0% N N GBp48 Hardy Oil 241 2.06 1.73 2.32 2.52 22% 34% ‐52% 158% S S GBp49 Premier Oil 3,578 4.72 5.97 5.54 5.74 22% ‐7% 8% 28% N S GBp50 Lundin Petroleum 4,315 84.15 80.00 90.72 96.00 14% 13% ‐12% 57% S S SEK



BPC – increase of prospect sizes to 4.3 bn bls for two prospects based on preliminary seismic data and a removal of our

medium-term drilling discount. Partly offset by an increase in WACC to 14% to reflect concerns over ability to drill before US

elections and potential delays to drilling and a reduction in assumed block retention post farm-out to 30% (from 50%).

Chariot – greater retention of Southern blocks following placement, offset by adjustment of chance of success to account for

lack of rig under new methodology and revised farm-out terms for Northern blocks (now assuming 33% retention for two well

programme, vs. 50% before).

Coastal Energy – reserves downgrade at the Bua Ban asset largely offset by recent drilling success.

Cove Energy – updating exploration timeline. Removing long-term drilling discount on prospects, but adjusting chances of

success for medium-term exploration in line with new methodlogy.

Desire – dry well at Ninky.

Det Norske – dry wells at Gulris and Dovregrubben.

DNO – de-risking of KRG contracts following exports and release of oil export payments from Baghdad to contractors.

Encore – UK tax adjustment and adjustment to Cladhan volumes following unsuccessful appraisal well reduce target price.

Downwards effect is partially offset by an increase in assumed volumes in and around Catcher.

Enquest – adjustment for increase in UK tax.

Faroe Petroleum – adjustment for increase in UK tax.

Great Eastern Energy – increase in estimated ramp up and production plateau per well.

Gulfsands – increase in political risking for Syria (to 75% chance of success from 100%) following political unrest. We also

update for results at Twaiba, Yousefieh South and KHE-101.

Hardy Oil – increase in Indian gas price assumptions (to US$8/mcf in the long term) following recent news of partial price

liberalization for D6 block.

Heritage Oil – increased risking and delays to Malta drilling catalysts due to Libyan conflict likely impacting negotiations on

border dispute.

Igas – adjustment for increased UK tax.

Ithaca – adjustment for increased UK tax.

Lundin – Increasing of assumed volumes in Alvheim and surrounding area. We now assume a P50 volume for Alvheim of

300mn boe (ahead of current guidance).

Maurel & Prom – updating for 2011 exploration programme and reserves upgrade in Gabon.



Melrose – adjustments to reserves following year-end and operational update, especially related to the shrinking of Kaliakra.

Adjustments to exploration programme, with Mansoura exploration prospects removed.

Nautical – adjustment for increased UK tax. Partially offset by increase in assumed volumes in and around Catcher and the

purchase of an additional stake in the Kraken field.

Nighthawk – increased risking on Jolly Ranch to 25% chance of success following well updates that show flow rates remain

below our assumed rate required for the project to be commercial for recently completed wells. We do not believe that the

recent reserves report was sufficiently wide-ranging to justify a downgrade to our estimates of the potential resource.

Norse Energy – increased political risking to New York shale gas assets following recent Chesapeake spill incident.

Northern Petroleum – Removal of medium-term drilling discount.

Noreco – dry well at Ronaldo, failure of Oselvar/Enoch divestment, un-commercial find at Svaneogle and sale of Brage.

PA Resources – further downgrade of our reserves assumptions at Azurite and more conservative assumptions on potential

farm-out terms in Greenland (now assuming retention of c. one-third of block for a two well carry, in line with the rest of our

coverage).

Premier Oil – UK tax adjustment, dry hole at Cherry, downgrade of Ca Rong Do reserves all reduce valuation. Partially offset by

higher assumed volumes in and around Catcher.

Regal – De-risking of asset following partial takeover on assumptions of increased funding capabilities.

Salamander – reducing chances of success at Dao Ruang to 20% following a disappointing first well and adjustments to our

modeling of the SRB tax in Thailand, offset by increases in Bualuang reserves.

Serica – adjustments for increased UK tax, further Kambuna reserves downgrade and increased risking at Columbus following

delay of expected sanction.

Sterling Energy– removal of medium-term drilling discount offset by adjustment to assumed farm-out terms in Cameroon to

bring in line with rest of sector (33% retention for two well carry). We also make adjustments to assumptions for the Sangaw

North well, de-risking our gas case and increasing the risk on the oil case following the company’s recent update.

Tower Resources – removal of medium-term drilling discount.

Valiant Petroleum – UK tax adjustment, downgrade of assumed reserves potential at Tybalt (to 13mn bls), adjustment of

assumptions on farm out at Handcross (now assuming retention of one-third of asset vs. half previously).



Average potential upside of 88% across our coverage

Following recent share price moves and adjustments to our price targets we see an average 88% potential upside across our

coverage. Underperformance of DNO and Encore leads us to upgrade the stocks, while outperformance over the last three months

has led us to downgrade Det Norske, Salamander and Coastal Energy to Neutral. Premier has outperformed the sector since our last

update, despite the increase in North Sea taxes, a dry well at Cherry and a disappointing appraisal at Ca Rong Do. As a result, we

downgrade the stock to Sell. The underperformance of Encore and Noreco leads us to upgrade the stocks (to Neutral and Buy

respectively).

Exhibit 41: Valuation at US$100/bl crude price assumption Valuations by sanctioned projects and cash, discoveries and short- and long-term exploration. Includes impact of warrants, options and assumed equity raise. Dotted line =

0% upside


‐100%

‐50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

Rockho

pper

Global Ene

rgy Develop

men

tAurelian

BPC

Northern Pe

troleu

mMax Petroleum

Pano

roFalkland

Oil & Gas

PA Resou

rces

Nighthawk Energy

Dom

inion

Igas

Nautical Petroleum

Cove

Ene

rgy

Bowleven

Aminex

Plc

Great Eastern Ene

rgy

Borders and

Sou

thern

Noreco

Green

Dragon

Maurel &

Prom

Bankers p

etroleum

Gulf K

eyston

eSterling Energy

Coastal Ene

rgy

Faroe Pe

troleu

mDet Norske

Chariot O

il & Gas

Norse Ene

rgy

Salamande

r Gulfsands

Serica

Tower Resou

rces

Valiant Petroleum

DNO

Amerisur

Heritage

Oil

Ithaca

Desire Pe

troleu

mJKX

Encore

Dragon Oil

Soco

Regal

Tullow

Melrose Resou

rces

Enqu

est

Hardy

Oil

Prem

ier O

il Lund

in Petroleum

Value

as % of share price

Sanctioned assets, cash and other Discoveries Short term exploration Long term exploration Strategic asset premium Liquidity discount NAV / Price



Recent de-risking in equities has led to underperformance vs. the long-dated crude price;

producers have been more insulated

Since our last subsector update on January 31, 2011, the E&P universe has underperformed the Brent price by c.10%. We believe

that this has been driven by a weakening risk appetite among investors, which has driven up equity risk premia. However, we

maintain our belief that tangible, dollar-based assets are not the right assets to be selling during periods of instability, and we would

expect the sector to ultimately revert back to levels implied by the long run crude price. As a result, we remain positive on the

subsector.

Another impact of this reduced appetite for risk has been a favouring of companies with production over companies without. Since

the end of March, companies with over 20% of their value in producing assets (GS estimates) have outperformed those with less by

almost 10%. We believe that this has created an attractive entry point into the non-producers, especially given the thematic

advantages that we believe the high-impact explorers will increasingly enjoy.

Exhibit 42: Equities have underperformed the crude price since our last

subsector update

Exhibit 43: Producers have outperformed explorers

23 companies classed as “producers”, 27 classed as “non-producers”

Source: Datastream.

Source: Datastream.

80

90

100

110

120

130

140

E&Ps Brent price

80

85

90

95

100

105

110

Producers Non‐producers



Subsector trading at discount to core value + discoveries at US $100/bl

Our estimates suggest that assuming a long run oil price of US$100/bl the core value (including risked discoveries) of the sector is

currently pricing in average upside of 26% to current share prices. This has increased from a 6% premium since our last subsector

update – a result of the weakness in the sector that has taken place during the period and a result of rolling forward our numbers to

make 2011 our front year. Given the re-rating potential we see in a number of stocks in the universe and that we are using a long-

run oil price close to the current 3-year forward price, we regard the risk / reward in the sector as attractive and believe that the

drops in share prices as a result of de-risking has been overdone.

Exhibit 44: Average 26% upside to core value is attractive in our view

Upside/downside excluding liquidity/funding adjustments


‐150%

‐100%

‐50%

0%

50%

100%

150%

200%

250%

300%

350%

Global Ene

rgy Develop

men

tNighthawk Energy Igas

Pano

roNorthern Pe

troleu

mGreat Eastern Ene

rgy

Rockho

pper

Norse Ene

rgy

Bankers p

etroleum

Nautical Petroleum

Maurel &

Prom

Green

Dragon

Ithaca

Faroe Pe

troleu

mValiant Petroleum

Gulfsands

PA Resou

rces

Det N

orske

Dragon

Oil

Enqu

est

Coastal Ene

rgy

Bowleven

Noreco

Aurelian

Salamande

r Co

ve Ene

rgy

DNO

Aminex

Plc

Prem

ier O

il Soco

Encore

Heritage

Oil

Amerisu

rSerica

Regal

JKX

Lund

in Petroleum

Melrose Resou

rces

Gulf K

eyston

eTullow

Max Petroleum

Desire Pe

troleu

mHardy

Oil

Chariot O

il & Gas

Sterling Energy

Borders and

Sou

thern

BPC

Falkland

Oil & Gas

Dominion

Tower Resou

rces

Upside to co

re value



Medium-term exploration & balanced explorers still top performing exploration screens

We continue to track the performance of our E&P investment screens. Balanced explorers have continued to perform well,

reinforcing our view that a combination of value and catalysts together are conceptually important to E&P stock selection. To date,

however, the clear outperformer within the E&P exploration screens has been the medium-dated exploration theme, in which we

include stocks that have greater than 40% of their value in high-impact catalysts due to be drilled in more than 12 months time.

Despite a recent pull back, the screen has still outperformed the sector by c.50% since we created it in November 2010. Other

screens have been weaker. The high-risk screen has been especially impacted by Desire’s unsuccessful Ninky well, the

underperformance of Nighthawk Energy following a reserves report that disappointed the market and the recent reduction in risk

appetite. The play openers screen has also been weak, but has begun to strengthen recently and is now outperforming the

short-term explorers - our less preferred short term exploration theme which continues to perform poorly.

Exhibit 45: Performance of exploration screens since November 8, 2010

Source: Datastream

70

90

110

130

150

170

190

210

Performance

Balanced explorers Short term explorers Short term explorers excluding other basket

Medium term explorers Play openers High risk, binary

Overall perfoarmance

Balancedexplorers

Medium term explorers

High risk, binary

Play openers

Short termexplorers (excludingother screen members)

Short termexplorers



M&A and commodity screens

The performance of our M&A and commodity screens has been more muted. Despite a generally strong oil price, the oil price

leverage screen has not been a particularly strong performer, being dragged down in part by poor operational performance from PA

resources and the impact of the North Sea tax on Nautical Petroleum. The strategic assets screen has been reasonably strong –

highlighting the attractiveness of large resources in a time when concerns over risk are high.

Exhibit 46: Performance of M&A and commodity screens since November 8, 2010

Source: Datastream.

80

85

90

95

100

105

110

115

120

125

130

M&A Unrealised potential Strategic assets Universe Oil price leverage Unconventiontal Resource

Unrealised potential

Oil price leverage

M&A

UnconventionalResource

Strategic assets



Changes to the exploration screens

We make the following changes to our exploration screens as a result of changes in our assumptions and share price movements:

Balanced explorers: We remove Valiant as a result of changes to our assumed exploration programme. Gulfsands is also removed

as results have come in on Twaiba and Yousefiah South, thereby reducing short-term exploration re-rating potential. Coastal is also

removed as we downgrade our core value to reflect the Bua Ban reserves downgrade. We add Noreco, Encore and Bowleven as

recent drops in their share prices leave the companies trading at a discount to our estimate of their core value.

Short-term exploration: Desire is removed after the failed Ninky well. Coastal is also removed as its exploration programme

progresses and we de-risk certain prospects near Bua Ban, thereby reducing upside potential. Det Norske is included as drilling

catalysts at Ulvetanna and Aldous Major approach.

Exhibit 47: Update exploration screens

New companies shaded grey


Balanced explorers Short term exploration Medium term exploration Play openers High risk binary playsDESCRIPTION We are sceptical of having a

geological "edge" entering into drilling catalysts. This basket includes companies which

combine strong core value and high levels of exploration impact

We believe that short term exploration catalysts are often

aggressively valued to the point at which the risk / reward balance becomes less compelling. We

have isolated explorers with the potential to double from

exploration in the next 12 months and see relatively little upside to this basket, especially when members of other baskets are

excluded

Companies without short term catalysts tend to have long term

catalysts discounted excessively by the market. Despite our

application of a 50% discount to medium term exploration, the screen still offers substantial

average upside. We believe that a screen of these stocks can

outperform as drilling catalysts approach, rigs are booked and seismic interpretations clarified

We believe that companies which have significant de‐risked acreage

and high levels of follow‐on potential from de‐risked discoveries have a

structural advantage over peers with access to material, lower risk

exploration catalysts over a period of 2‐3 years which may not be fully priced in by the market at an early

stage. This screen includes companies which have recently participated in opening up new

basins

In our view, the market is overly conservative in assessing

companies with high levels of binary risk. Baskets of these stocks can therefore buy diversified risk at good value. This basket includes

a diversified portfolio of companies with a large proportion

of value in high‐risk assets.

SCREENING CRITERIA

* Short term exploration impact of > 70% in next 12 months

* Greater than 100% of market cap supported by core value

* Short term exploration impact of > 75% in next 2 quarters

* Over 40% of valuation in exploration catalysts expected

beyond 12 months

* 30%+ of value in net acreage of > 1000 km2 which contains at least 1 discovery of commercial size, which has been successfully flow tested but

has no production

* Greater than 40% of value in a single asset / play risked at greater

than 50%* Potential uplift of 100% from de‐

risking event

Amerisur Det Norske BPC Rockhopper Norse EnergyAminex Plc Hardy Oil Tower Resources Salamander Desire PetroleumBowleven Max Petroleum Sterling Energy Cove Energy Falkland Oil & GasRockhopper Melrose Resources Dominion Tullow Borders and SouthernDet Norske Noreco Green Dragon Nighthawk Energy

Faroe Petroleum Bowleven RegalNoreco Chariot Oil & Gas

Salamander AurelianEncore

Gulfsands Desire PetroleumCoastal DNO

Valiant Petroleum Coastal Energy

REMOVED

COMPANIES

Exploration screens



Changes to M&A and commodity screens

We make the following changes to our M&A/commodity screens as a result of changes in our assumptions and share price

movements:

M&A: As a result of the recent underperformance of many E&P stocks, we increase our benchmark for this screen from 30% upside

from core value to 75% to maintain differentiation. As a result of the relative performance of the two stocks, we switch Rockhopper

for Green Dragon in this basket.

Exhibit 48: Updated M&A/commodity screens


M&A Unrealised potential Strategic assets Oil price leverage Unconventional resourceDESCRIPTION Concentrated and sizable resource

in core valuations are attractive value candidates for potential

industry acquirers

Stocks with high‐class assets that have insufficient cash to fully

develop these trade at a discount in our view. Attractive as M&A candidates as a stronger balance sheet can unlock additional NPV

Our analysis suggests that large, oily assets are attractive to NOCs who are willing to pay premiums to equity market valuations.

Buying companies with significant value in these types of assets therefore offers exposure to an

NOC / equity market discount rate arbitrage

We are constructive on the oil price with a forecast price of US$100/bl in 2011. Stocks

exposed to oily assets with higher operating leverage and licence

based fiscal regimes are the most leveraged to the commodity

We believe that higher commodity prices should encourage additional

investment in unconventional resource technology as well as making more marginal fields

profitable. We include companies with material exposure to

unconventional resource plays in this screen

SCREENING CRITERIA

* Core value offers over 75% upside to current valuations when valued at the forward curve and

our costs of capital* >95% of value concentrated in

one region

* Over 50% of company's valuation in an asset whose value could be increased by greater than 30% due to a significant capital

injection* Over 100mn boe net recoverable in the asset

* More than 30% of company's value sits in a "strategic" asset (>

200mn boe)* Net stake is greater than 50 mn

boe * Asset is oil, LNG or EM based gas

* Sensitivity to a US$10/bl move in the oil price of greater than 20%

without inflation (15% with inflation)

* Greater than 90% of value in discovered resource

* Weighted average portfolio chance of success > 50%

* Greater than 70% of value lies in either CBM, shale gas or shale oil

Global Energy Development Igas Great Eastern Energy Noreco IgasNorthern Petroleum Global Energy Development Bankers Petroleum Nautical Petroleum Norse Energy

Rockhopper Norse Energy Green Dragon PA Resources Great Eastern EnergyNorse Energy Nighthawk Energy Dragon Oil Igas Nighthawk Energy

Nighthawk Energy Great Eastern Energy Soco Bankers petroleum Green DragonGreat Eastern Energy Gulf KeystoneBankers petroleum Heritage Oil

Igas RockhopperTullow

Green Dragon

Commodity price screens

REMOVED

COMPANIES

M&A screens



Portfolio update for the E&Ps

Although investment cases in companies with no exploration, or high-impact explorers can be compelling, we also see a

combination of high impact exploration in companies where the valuation is well supported by the core value as attractive. We chart

the combination of discovered value vs. exploration upside in our universe to assess where “free” exploration exposure may be

found. Of particular interest are those “balanced explorers” in the top right quadrant which we see as particularly advantaged.

Exhibit 49: Percentage of core value support for share price vs. short-term exploration upside


‐30%

20%

70%

120%

170%

220%

‐20% 30% 80% 130% 180%

Exploration up

side

within 12

mon

ths

Core value / price

Free, material short term re‐rating potential

Short term re‐rating potential comes at a cost

Less material re‐ratingpotential partially priced into stock

Cheap core value

Aminex Plc

Desire Petroleum

Gulfsands

Dominion

Faroe PetroleumBowleven

Gulf Keystone

Hardy Oil

Noreco

PA Resources

Rockhopper

Sterling Energy

Tower Resources

Melrose Resources

Norse Energy

Serica

DNOJKX

Regal Enquest

Det Norske

Nautical Petroleum

Valiant Petroleum

Ithaca

Cove Energy

Great Eastern Energy

Bankers petroleumBPC

Coastal Energy

Soco

Encore

Dragon Oil

Heritage Oil

Premier Oil

Salamander

Tullow

Lundin Petroleum

Green Dragon

Maurel & Prom



South Falklands explorers still show highest potential uplift to exploration in the next 12 months

but risks are clear; 1Q 2012 drilling beginning to fall into investable time horizon

We see the two companies planning to explore the South Falkland basin (Borders and Southern and FOGL) as having the highest

potential uplift through exploration until the end of 1Q 2012. Drilling is expected to begin in the South Falklands basin towards the

end of 2011, following the announcement that a rig is to be mobilized to the area in 4Q 2011, to undertake the combined Borders &

Southern and FOGL drilling programme. We believe that the market will soon begin pricing in exploration activity set to take place

through to the end of 1Q 2012 (assuming a 12-month time horizon), and believe that companies especially well placed to benefit

from this (i.e. those companies with valuable exploration options sitting in 1Q 2012 are Chariot (Namibia), Aminex (Tanzania),

Aurelian (Karpaty East) and Max Petroleum (pre-salt prospects). As such, we remove our 50% discount for long-dated drilling for 1Q

2012 exploration catalysts.

Exhibit 50: 2011 exploration re-rating potential Exploration catalysts by quarter


‐100%

0%

100%

200%

300%

400%

500%

600%

700%

800%

Falkland

Oil & Gas

Borders and

Sou

thern

Chariot O

il & Gas

Aurelian

Amerisur

Max Petroleum

Aminex

Plc

Noreco

Melrose Resou

rces

Hardy

Oil

Serica

Det Norske

Bowleven

Encore

Rockho

pper

Coastal Ene

rgy

Nautical Petroleum

Salamande

r Tower Resou

rces

DNO

Gulfsands

Cove

Ene

rgy

Heritage

Oil

Valiant Petroleum

Regal

Dom

inion

Faroe Pe

troleu

mPA

Resou

rces

Maurel &

Prom

Lund

in Petroleum

Northern Pe

troleu

m JKX

Sterling Energy

Pano

roGulf K

eyston

eSoco

Tullow

Prem

ier O

il Desire Pe

troleu

mEnqu

est

Bankers p

etroleum

Global Ene

rgy Develop

men

tNorse Ene

rgy

Nighthawk Energy

Ithaca

Great Eastern Ene

rgy

BPC

Igas

Dragon Oil

Green

Dragon

Re‐rating po

tential in the even

t of 1

00% exploration

success

Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012



North Sea performance weak on tax change; Falklands and Kurdistan remain weak

We continue to track the performance of the regions. Since our last sector update (January 31, 2011), the Kurdistan and Falkland

regions have remained weak. Desire’s disappointing Ninky well result has impacted the Falklands basin significantly. Stocks

exposed to the UK’S North Sea have been particularly weak, following the UK budget ruling on increased tax to be paid in oil price

environments above US$75/bl.

Ukraine has been the best performer, driven by continuing good performance from Regal. Nambia’s approaching drilling catalysts

have also helped strong performance, despite some concerns over resource nationalism following reports of changes to future

mining contracts.

Exhibit 51: Regional performance since November 8, 2010

Source: Datastream.

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

220.0

240.0

Falklands Kurdistan North Sea Ukraine East Africa West Africa Norway Namibia

West Africa

East Africa

Ukraine

Norway

UK North Sea

Falklands

Kurdistan

Namibia



Our revised EPS estimates are shown in Exhibit 52. We also introduce 2014 estimates for Great Eastern Energy. We update our oil

price deck, in line with that published in ”Oil entering demand rationing phase”, May 23, 2011.

Exhibit 52: EPS estimate changes


Company name Reporting currency name EPS old EPS old EPS old EPS new EPS new EPS new % change % change % change

2011E 2012E 2013E 2011E 2012E 2013E

Amerisur Resources Plc U.S. Dollar 0.01 0.10 0.11 0.02 0.12 0.18 21% 20% 60% Oil price adjustments

Aminex Plc U.S. Dollar 0.01 0.02 0.00 0.00 0.00 0.00 -85% -87% -133% Oil price adjustments, updated capex and production profile, included placing and open offer

Aurelian Oil & Gas Plc Euro 0.00 0.00 0.00 0.00 0.00 0.00 -49% -10% -10% Updated capex profile, included Romania asset disposal

Bahamas Petroleum Company Plc U.S. Dollar 0.00 0.00 0.00 0.00 0.00 0.00 45% 7% 9% Updated capex, included equity raise

Bankers Petroleum Ltd U.S. Dollar 0.41 0.43 0.88 0.58 0.81 1.56 40% 90% 77% Updated production profile and tax/royalty adjustments

Borders and Southern U.S. Dollar 0.00 0.00 0.00 0.00 0.00 0.00 -20% -76% -183% Updated capex profile

BowLeven Plc U.S. Dollar -0.04 -0.04 -0.04 -0.04 -0.04 -0.04 0% 0% 0%

Chariot Oil and Gas Ltd U.S. Dollar -0.01 -0.01 -0.01 -0.01 -0.01 0.00 13% -37% -72% Updated capex profile and included equity raise

Coastal Energy Company U.S. Dollar 1.62 2.21 0.41 1.62 1.93 0.53 0% -13% 27% Oil price adjustments, updated capex and production profile

Cove Energy Plc U.S. Dollar 0.00 0.00 0.00 0.00 0.00 0.00 -143% -263% -378% Updated capex profile

Desire Petroleum Plc U.S. Dollar -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -7% -12% -12% Updated capex profile

Det Norske Oljeselskap ASA Norwegian Krone -0.92 -0.97 2.42 -5.49 0.16 2.50 500% -117% 3% Oil price adjustments, updated capex and production profile, expensed dry well costs

DNO International ASA Norwegian Krone 1.00 0.69 0.68 1.47 1.93 0.65 47% 179% -4% Oil price adjustments, updated capex profile

Dominion Petroleum Ltd U.S. Dollar -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -1% -2% -2% Updated capex profile

Dragon Oil PLC U.S. Dollar 1.07 1.29 0.94 1.53 1.83 1.93 42% 42% 105% Oil price adjustments and flow rate assumptions

EnCore Oil Plc British Pounds/Pence -0.58 -0.62 -0.64 -0.58 -0.62 -0.64 0% 0% 0%

EnQuest Plc U.S. Dollar 0.30 0.42 0.31 0.29 0.35 0.39 -5% -16% 25% Oil price adjustments, updated capex and production profile, updated for share issue associated with Stratic Energy acquisition, UK tax adjust

Falkland Oil & Gas Ltd U.S. Dollar -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -45% -49% -37% Updated capex profile and updated for equity raise

Faroe Petroleum Plc British Pounds/Pence -1.73 -1.70 -1.76 6.10 7.31 5.81 -454% -530% -429% Oil price adjustments, updated production and capex profile, UK tax adjustments

Global Energy Development Plc U.S. Dollar 1.70 4.41 6.91 0.64 2.28 5.26 -62% -48% -24% Oil price adjustments, updated production profile

Great Eastern Energy Corporation L U.S. Dollar 0.01 0.08 0.30 0.00 0.08 0.30 -100% 1% 1%

Green Dragon Gas Ltd U.S. Dollar 0.05 0.36 1.24 0.05 0.36 1.22 5% 1% -2% Updated for issue of shares associated with placing

Gulf Keystone Petroleum Ltd U.S. Dollar -0.01 0.00 0.03 -0.02 0.08 0.12 24% -4244% 364% Oil price adjustments, updated capex and production profile

Gulfsands Petroleum Plc U.S. Dollar 1.17 2.09 2.19 1.17 1.71 2.04 1% -18% -7% Oil price adjustments, updated capex and production profile

Hardy Oil and Gas Plc U.S. Dollar 0.06 0.40 0.14 0.05 0.30 0.34 -12% -26% 140% Updated production profile, oil price adjustments

Heritage Oil U.S. Dollar -0.01 0.07 0.07 0.02 0.01 0.09 -569% -89% 23% Production profile adjustments to Russian asset, oil price adjustments

IGAS Energy Plc British Pounds/Pence 2.97 11.00 13.65 0.56 3.57 5.65 -81% -68% -59% Updated for completion of acquisition and placing, UK tax adjustment, commodity price adjustment

Ithaca Energy Inc U.S. Dollar 0.31 0.47 0.50 0.25 0.44 0.66 -19% -7% 34% Oil price adjustments, updated production profile and UK tax adjustment

JKX Oil and Gas U.S. Dollar 0.95 1.23 0.78 0.73 1.11 1.08 -22% -10% 39% Oil price adjustments, updated production profile

Lundin Petroleum Swedish Krona 5.31 5.92 4.05 0.70 1.07 1.21 -87% -82% -70% Production profile adjustments to Russian asset, oil price adjustments

Maurel & Prom Euro 2.51 2.66 2.24 2.19 2.47 3.33 -13% -7% 49% Oil price adjustments, updated capex and production profiles

Max Petroleum Plc U.S. Dollar -0.02 -0.02 -0.01 -0.02 -0.01 0.00 -6% -33% -70% Oil price adjustments, expensed dry well and updated shares for the exercise of options

Melrose Resources Plc U.S. Dollar 0.69 0.66 0.49 0.56 0.56 0.51 -18% -16% 5% Oil price adjustments, updated production and capex profile

Nautical Petroleum Plc British Pounds/Pence -1.80 -0.69 -0.74 -1.80 -0.69 -0.74 0% 0% 0%

Nighthawk Energy Plc U.S. Dollar 0.01 0.02 0.03 0.01 0.03 0.05 28% 22% 76% Oil price adjustments, adjustment for exceptional item

Norse Energy Corp U.S. Dollar 0.01 0.03 0.05 -0.0016 0.01 0.03 -120% -54% -44% Updated for private placement and change to interest expense

Northern Petroleum Plc Euro 0.04 0.06 0.03 0.07 0.09 0.11 60% 54% 292% Commodity price adjustment

Norwegian Energy Company ASA Norwegian Krone 0.87 1.38 3.70 0.37 1.22 7.28 -58% -11% 97% Oil price adjustments, updated capex and production profile, expensed dry wells

PA Resources AB Swedish Krona 0.40 1.27 1.03 0.42 1.02 1.11 4% -19% 7% Oil price adjustments, updated production and capex profile

Panoro Energy ASA U.S. Dollar 0.09 0.31 0.34 0.09 0.19 0.39 -4% -36% 15% Oil price adjustments, updated production profile and included equity raise

Premier Oil U.S. Dollar 0.74 1.56 1.23 1.07 2.24 2.48 44% 44% 101% Oil price adjustments and production profile adjustments

Regal Petroleum U.S. Dollar 0.03 0.03 0.02 0.03 0.04 0.04 27% 39% 111% Oil price adjustments

Rockhopper Exploration Plc U.S. Dollar -0.13 0.00 -0.01 -0.13 0.00 -0.01 0% 0% 0%

Salamander Energy PLC U.S. Dollar 0.63 0.75 0.45 0.75 0.81 0.82 18% 7% 80% Oil price adjustments, production profile adjustments, SRB tax adjustments

Serica Energy Plc U.S. Dollar 0.05 0.04 0.02 0.03 0.02 0.02 -33% -48% -36% Oil price adjustments, updated capex and production profiles

Soco International Plc U.S. Dollar 0.58 1.16 0.84 0.63 1.70 1.31 8% 46% 55% Oil price adjustments and production profile adjustments

Sterling Energy Plc U.S. Dollar -0.01 -0.01 -0.01 -0.01 -0.01 -0.01 -32% -28% -27%

Tower Resources Plc U.S. Dollar 0.00 0.00 0.00 0.00 0.00 0.00 -34% -39% -40% Updated capex profile and included equity raise

Tullow Oil Plc U.S. Dollar 0.94 1.64 1.66 1.34 1.99 2.41 43% 21% 45% Oil price adjustments and production profile adjustments

Valiant Petroleum Plc U.S. Dollar 1.99 2.72 1.54 2.13 2.73 2.64 7% 0% 72% Oil price adjustments and production profile adjustments

Reason for movements



Exhibit 53: Risks to our 12-month price targets (based on a SOTP at US$100/bl oil price)


Company Risks to 12 month target priceAmerisur Failure to unlock Fenix block or failure to progress Paraguay leads to a drill ready stateAminex Plc Failure in the exploration programme or a delay or cancellation of upcoming catalystsAurelian Disappointing results at the Trzek‐2 well or failures and delays in the exploration programmeBankers petroleum Disappointing production numbers, worse than expected conversion of contingent reserves to 2PBorders and Southern Failure in the exploration programme or a deterioration of political relations between the UK and ArgentinaBowleven Disappointment in the lower sections of Sapele or in the company's 2011 exploration / appraisal programmeBPC Disappointing seismic update, delays in or a failure to farm out acreage, a refusal for the application for Western blocksChariot Oil & Gas Exploration failure or a delay in the driling timetableCoastal Energy Delays or cost overruns in developing assets and a disappointing exploration / appraisal programmeCove Energy Worse than expected drilling success or, in the longer term, delays or problems in selling asset stakes or developing assetsDesire Petroleum Exploration failure, an inability to raise further funds for additional drilling, deteriorating UK / Argentine relationsDet Norske Failure in exploration programme, falls in the commodity price, tightening of regulation of offshore drilling in NorwayDNO Positive resolutions on Kurdish exports, exploration success or a bid for the companyDominion Exploration failure, or delays in farming out and drilling Block 7 in TanzaniaDragon Oil Production disappointments, value destructive acquisitions or drops in the oil price.Encore Greater than expected exploration success at Cladhan or Catcher, a bid for the company or monetisation of gas storage assetEnquest Lower than expected production or drops in the oil priceFalkland Oil & Gas Failure in the exploration programme or a deterioration of political relations between the UK and ArgentinaFaroe Petroleum Failure in exploration programme, falls in the commodity price, tightening of regulation of offshore drilling in NorwayGlobal Energy Development Difficulties in executing 3 year plan, failure to obtain a farm in partner or a fall in the oil priceGreat Eastern Energy Drop in regional gas prices, poor well performance or difficulties in ramping up productionGreen Dragon Difficulties in developing the resource base and political risks in ChinaGulf Keystone Greater than expected volumes at Shaikan, greater than expected exploration success, positive resolution to Kurdish exportsGulfsands Drop in the commodity price or worse than expected exploration successHardy Oil Lack of success in the D9 block or delays in sanctioning discoveriesHeritage Oil Geological issues impacting valuation of Miran asset or a worse than expected resolution to Kurdish exportsIgas Technical failures in the development of the asset base or persistent weakness in the UK gas marketIthaca Delays or cost overruns in the development programmeJKX Disappoint ing flow rates or a lack of success in the Callovian horizon in RussiaLundin Petroleum Greater than expected exploration success, especially at the company's core Luno acreageMaurel & Prom Difficulties in ramping up Nigerian production or worse than expected success in the exploration programmeMax Petroleum Worse than expected drilling success in Kazakhstan, or an inablity to raise funds to drill pre‐salt targetsMelrose Resources Delays or cost overruns in developments, exploration failure or difficulties with the sale of the US assets#Nautical Petroleum Poor exploration programme around the Catcher prospects or Kraken asset proving more complicated than we currently expectNighthawk Energy Technical failures in the development and understanding of the Jolly Ranch shale or persistent oil price weaknessNoreco Failure in exploration programme, falls in the commodity price, tightening of regulation of offshore drilling in NorwayNorse Energy Extension of the moratorium on hydraulic fracturing in New York state or additional funding being required for HerkimerNorthern Petroleum Weakening gas prices, cost overruns in developing assets or delays in exploration and sanctioning in ItalyPA Resources Cost overruns and delays or disappointing seismic results in the company's Greenland acreagePanoro Disappointment at the Dussafu exploration asset and delays in sanctioning Santos basin assetsPremier Oil Failure of exploration / appraisal campaign and lower commodity pricesRegal An eventual bid coming in at a substantially higher or lower price than we estimate, or a retraction of existing bidsRockhopper The Sea Lion asset proving more complicated than we currently expect, detoriation of UK / Argentine relationsSalamander Failure in additional exploration in the company's acreage around the Angklung prospectSerica Delays to the 2011 exploration programme or failure in this programmeSoco Disappointing appraisal on the TGT asset and delays to first oil from the assetSterling Energy Failure in deeper sections of the Sangaw well and further delays in drilling in Cameroon and MadagascarTower Resources Continuing poor exploration in Uganda, or a delay to drilling in NamibiaTullow Failure in the upcoming exploration programme and continuing delays to farm out in UgandaValiant Petroleum Failure of the 2011 exploration programme and drops in the oil price



Maurel & Prom (MAUP.PA): Core value and ‘free’ exploration exposure; up to Buy

Source of opportunity

We upgrade Maurel et Prom to Buy from Neutral with a 12-month target price of €28.8, implying 85% potential

upside. On our estimates, the stock trades at a discount to the value of its core assets, hence providing “free”

exposure to its 2011 exploration programme. We believe the stock offers exposure to organic growth in Africa

and South America, and view the fiscal benefits afforded to it as an indigenous Nigerian company through its

45% stake in SEPLAT as a significant source of potential future value (as it gives the company the ability to

access attractive fiscal terms and therefore inexpensive resources through acquisitions). We expect the recent

deal with Shell to be digested before new opportunities are pursued however.

We believe that Maurel et Prom’s Gabon acreage also offers an attractive mixture of core value and relatively

low-risk exploration upside, that is not currently being valued by the market. In our view, the key to the future

performance of the stock will be the company’s ability to develop its Nigerian reserves, the success of future

exploration and appraisal activities, and, in the longer term, its ability to do further deals in Nigeria. Pacifico

Rubiales’ recent farm-in to the company’s Colombian acreage also highlights the value of the company’s South

American portfolio. Updating for its 2011 exploration programme, and a reserves upgrade in Gabon, on our

estimates we believe that the market is under-pricing the value inherent in Maurel et Proms core assets, and see

c.64% potential upside to our valuation of these. Combined with the potential for a c. 37% uplift from successful

exploration over the next 12-months, we believe the company offers a well-balanced and diversified portfolio,

and as such we add the stock to the Buy List.

Catalyst

We believe production growth in Nigeria and (to a lesser degree) Gabon will help drive the shares up, as should

exploration success in the company’s African and South American exploration programmes. Additional deals in

Nigeria could also drive the stock, although we do not expect another deal in the short term as we believe it will

take time to develop the assets most recently acquired.

Valuation

Our 12-month SOTP-based target price of €28.8 is calculated using a US$100/bl oil price with exploration and

appraisal assets being valued on a NPV/bl basis.

Key risks

The key downside risks to our view and price target are failures in ramping up production of the Nigerian

portfolio or worse than expected failure in the company’s exploration programme.

Source: Company data, Goldman Sachs Research estimates, FactSet. This page is priced as of the close of May 26, 2011.

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the investment

profile measures please refer to the

disclosure section of this document.

Maurel & Prom (MAUP.PA)

Europe Oil & Gas Peer Group Average

Key data Current

Price (€) 15.55

12 month price target (€) 28.80

Upside/(downside) (%) 85

Market cap (€ mn) 1,885.5

Enterprise value (€ mn) 2,383.1

12/10 12/11E 12/12E 12/13E

EBIT (€ mn) New (106.8) 287.9 320.1 419.7

EBIT revision (%) NM (13.4) (8.1) 42.8

EPS (€) New (1.26) 2.19 2.47 3.33

EPS (€) Old 0.73 2.51 2.66 2.24

EV/DACF (X) 9.6 7.7 6.0 3.7

P/E (X) NM 7.1 6.3 4.7

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) (32.4) 4.6 16.6 22.0

CROCI (%) NM NM NM NM

CROCI/WACC (X) -- -- -- --

EV/GCI NM NM NM NM

290

300

310

320

330

340

350

360

370

8

9

10

11

12

13

14

15

16

May-10 Aug-10 Dec-10 Mar-11

Price performance chart

Maurel & Prom (L) FTSE World Europe (EUR) (R)

Share price performance (%) 3 month 6 month 12 month

Absolute 18.5 54.0 64.9

Rel. to FTSE World Europe (EUR) 21.8 48.3 41.8

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 5/26/2011 close.



Noreco (NOR.OL): Core value combined with ‘free’ Norwegian exploration option; Buy


We upgrade Norwegian Energy Company (“Noreco”) to Buy from Neutral with a 12-month target price of

Nkr23.4, implying 99% potential upside. As a result of the stock’s recent underperformance (down 33% vs. the

E&Ps themselves down 7% since the beginning of 2011), which we believe reflected the disappointing outcome

of the stock’s failed strategic review, we now view the risk/reward on the stock positively. On our estimates, the

stock trades at a 14% discount to its core assets, resulting in a “free” exposure to its 2011 exploration

programme. The company operates in Norway, Denmark and the UK with a mixture of production, development

potential and exploration. We believe it has some of the highest re-rating potential in the Norwegian North Sea

of the companies in our coverage, principally from the Luna, Albert, Lupin and Chamonix wells. A total

de-risking of the exploration portfolio in the next 12 months would result in an uplift of c.180% to our valuation.

We view free exploration exposure of this magnitude positively and include the stock in our Balanced Explorers

screen. We note a large proportion of its exploration costs are refunded, as a result of tax rebates, and we

therefore believe it offers a low risk way to gain exposure to North Sea exploration in Norway. We also note that

the recent Brage sale has helped de-risk the balance sheet in our view. As a result of a strong core value, a

beneficial tax regime for exploration and 12-month re-rating potential from exploration success, we upgrade the

stock from Neutral to Buy.

Catalyst

Exploration success at prospects such as Albert and Luna are the most obvious potential catalysts. We believe

that, in the event of success at a material prospect, the company could benefit disproportionately as the market

not only de-risks the specific asset, but focuses its attention on the core value of the company implied by the

share price, which we believe is too low at present.

Valuation

We value Noreco using a SOTP methodology assuming a US$100/bl oil price assumption. Exploration and

discoveries are valued using a risked NPV/bl approach.

Key risks

A disappointing exploration campaign or lower oil and gas prices are the biggest downside risks to our price

target and view.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Norwegian Energy Company ASA (NOR.OL)


Key data Current

Price (Nkr) 11.75

12 month price target (Nkr) 23.40


Market cap (Nkr mn) 2,855.7

Enterprise value (Nkr mn) 6,859.3

12/10 12/11E 12/12E 12/13E

EBIT (Nkr mn) New 194.5 594.8 1,342.4 2,460.3

EBIT revision (%) (53.2) (48.5) (23.5) 65.1

EPS (Nkr) New 0.57 0.37 1.22 7.28

EPS (Nkr) Old 0.35 0.87 1.38 3.70

EV/DACF (X) 11.0 6.3 5.7 1.7

P/E (X) 27.6 31.8 9.6 1.6

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) 2.8 (45.0) (4.3) 81.9


CROCI/WACC (X) -- -- -- --

EV/GCI NM NM NM NM

300

320

340

360

380

400

420

440

460

480

11

12

13

14

15

16

17

18

19

20



Norwegian Energy Company ASA (L) FTSE World Europe (GBP) (R)


Absolute (34.7) (29.6) (11.3)

Rel. to FTSE World Europe (GBP) (33.4) (33.5) (25.1)




Premier Oil (PMO.L): Company’s strengths already in the price, down to Sell.


We downgrade Premier Oil from Neutral and add the stock to the Sell List with a 12-month target price of 574p,

implying 24% potential upside. The company has had significant success in recent months via the Catcher

discovery in which Premier has a 35% stake, and where we expect substantial potential follow on activity

towards the end of 2011. The stock is also likely to experience significant production growth over the next few

years, which could eventually take production above 100 kboepd. Despite this however, we believe expectations

for the stock are high, and that failure (or even success that fails to match expectations) could put the share price

under pressure. The stock has outperformed our coverage by 6% ytd, despite the announced UK tax increase, a

disappointing exploration result at Cherry and a downgrade of its Ca Rong Do reserves. On our forecasts, the

stock has 8% upside to its core value (vs. a sector average upside of c.26%) and short-term re-rating potential of

c.28% in the event of success (vs. a sector average of 172%). We therefore see more upside in both respects in

other stocks in our coverage.

We note that the success the company has achieved to date has expanded its market cap to a level at which

future wells are likely to have a smaller impact than was previously the case. The major remaining catalysts in

the short term are wells in the Tuna block in Indonesia, which we believe could add c.15% to our valuation in the

event that oil is found – relatively small in relation to our universe as a whole. As a result, we believe that

despite the quality of the asset base and the track record of management, there are less expensive ways to gain

exposure to E&P. In our opinion, the risk/reward profile is skewed to the downside vs. our universe. As a result

we downgrade Premier to Sell from Neutral.

Catalyst

Any failure in exploration activity, particularly in the upcoming Tuna block, or success that fails to meet current

high expectations, would likely result in share price weakness.

Valuation

Our 12-month SOTP-based target price is calculated using a US$100/bl oil price with exploration and appraisal

assets being valued on an NPV/bl basis. Some 10% of our target price is made up of a valuation of the

company’s strategic assets (namely discovered and producing resource, primarily in the North Sea)., valued at

an 8% discount rate, to reflect its potentially strategic importance

Key risks

The main upside risks to our view and target price are greater than expected exploration and appraisal success

in the company’s exploration programme, M&A activity, and greater than expected production uplift.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Premier Oil (PMO.L)


Key data Current

Price (p) 464.1

12 month price target (p) 574


Market cap (£ mn) 2,128.3

Enterprise value ($ mn) 4,216.8

12/10 12/11E 12/12E 12/13E

EBIT ($ mn) New 127.7 773.6 1,385.2 1,498.2

EBIT revision (%) (67.8) 16.6 18.2 69.8

EPS ($) New 0.79 1.07 2.24 2.48

EPS ($) Old 0.26 0.74 1.56 1.23

EV/DACF (X) 2.3 4.2 1.9 1.2

P/E (X) 7.0 7.1 3.4 3.1

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) (147.7) 4.9 37.4 36.4

CROCI (%) 23.6 29.0 40.9 38.8

CROCI/WACC (X) -- -- -- --

EV/GCI 0.5 1.1 0.8 0.5

300

320

340

360

380

400

420

250

300

350

400

450

500

550



Premier Oil (L) FTSE World Europe (GBP) (R)


Absolute (10.4) (1.5) 64.9

Rel. to FTSE World Europe (GBP) (8.7) (7.0) 39.3




DNO international (DNO.OL): Underperformance & political de-risking of KRG, Neutral

What happened

We are upgrading DNO to Neutral from Sell following the stock’s recent underperformance. Since being added

to the Sell List on November 5, 2010 the stock is down 22.2% vs. the oil and gas sector up 11.1% and the FTSE

World Europe Index up 1.3%; over 12 months DNO is down 7.7% vs. the FTSE World Europe’s gain of 18.4%.

Current view

We upgrade DNO from Sell to Neutral with a 12-month price of Nkr11.50, implying 61% potential upside.

Following news on the commencement of exports from Kurdistan, and an announcement of possible payments

from Baghdad, we further reduce our political risk assumptions on assets there. We now attribute a 100%

political chance of success to DNO’s Kurdish assets in the Tawke license (vs. 90% previously) and 75% for DNO’s

other licenses (vs. 60% previously). We are less cautious on the political risks for DNO’s Tawke license (vs. other

Kurdistan assets for both DNO and other companies that operate there) because the Tawke license agreement

was signed earlier than other ones in the region, which we believe may imply some additional protection for the

fiscal terms. DNO has a 55% stake in the producing Tawke field in the Kurdistan region of Iraq and stakes in oil

fields at various stages of the development cycle in Yemen. The exploration portfolio is diverse, with prospects

in Kurdistan, Yemen and Mozambique likely to be the main areas of activity of the next 12 months. RAK

Petroleum – a private Emirati oil company – has built a 30% stake in DNO, which has previously driven M&A

speculation. We give credit for M&A potential associated with stock: 40% of our target price is based on a

“strategic” company valuation applying an 8% discount rate to the Tawke field. Therefore, on our updated

forecasts, and given DNO’s recent underperformance on a sector-relative basis, we no longer see potential

downside in the stock, and as such remove it from the Sell List and upgrade to Neutral.

We value DNO using a SOTP methodology assuming a US$100/bl oil price. Our 12-month price target is

Nkr11.50 (from Nkr9.7). Some 40% of our target price is based on a company valuation in which the Tawke asset

is valued at a discount rate of 8% to reflect the strategic nature of the asset.

Key upside risks to our view and price target are further positive news on a possible payment mechanism for

exports, further resolution between the KRG and Baghdad allowing exports from the region on existing fiscal

terms, exploration success in Kurdistan and Yemen, or a bid for the company. The key downside risk is worse

than expected failure in the company’s exploration programme or a regression in the apparent progress being

made in Kurdistan.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





DNO International ASA (DNO.OL)


Key data Current

Price (Nkr) 7.15





12/10 12/11E 12/12E 12/13E

EBIT (Nkr mn) New 156.8 1,318.7 1,734.7 506.2

EBIT revision (%) (74.4) 40.8 171.8 (18.4)

EPS (Nkr) New (0.31) 1.47 1.93 0.65

EPS (Nkr) Old 0.68 1.00 0.69 0.68

EV/DACF (X) 13.4 3.5 1.7 2.6

P/E (X) NM 4.9 3.7 11.0

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) 5.8 15.4 33.1 16.0


CROCI/WACC (X) -- -- -- --

EV/GCI NM NM NM NM

300

320

340

360

380

400

420

440

460

480

500

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0



DNO International ASA (L) FTSE World Europe (GBP) (R)


Absolute (23.7) (12.3) (7.7)

Rel. to FTSE World Europe (GBP) (22.2) (17.1) (22.0)




Exhibit 54: Share price performance of DNO International versus peer group Prices as of the close of May 26, 2011

Source: FactSet, Quantum database.

Company Ticker Primary analyst Price currency

Price as of May 26, 2011

Price performance since Nov 5, 2010

3 month price performance



Europe Oil & Gas Peer Group DNO International ASA DNO.OL Christophor Jost Nkr 7.15 -22.2% -23.7% -12.3% -7.7%Amerisur Resources Plc AMER.L Christophor Jost p 27.25 113.7% 14.7% 87.9% 65.2%Aminex Plc AMNX.L Christophor Jost p 7.88 5.7% -12.5% -10.4% 5.7%Aurelian Oil & Gas Plc AUL.L Christophor Jost p 53.75 -9.7% -37.3% -6.5% 34.4%Bahamas Petroleum Company Plc BPCB.L Christophor Jost p 16.25 159.6% -23.5% 35.4% 415.9%Bankers Petroleum Ltd BNKq.L Christophor Jost p 492.50 7.1% -15.5% 13.9% 1.0%BG Group BG.L Michele della Vigna, CFA p 1392.00 7.7% -7.0% 15.3% 37.1%Borders and Southern BSTH.L Christophor Jost p 56.00 -15.2% -2.6% -15.5% -23.5%BowLeven Plc BLVN.L Christophor Jost p 302.00 59.8% -10.0% -7.1% 182.2%BP plc BP.L Michele della Vigna, CFA p 461.20 3.3% -6.8% 5.8% -6.3%BP plc (ADS) BP Michele della Vigna, CFA $ 45.38 3.6% -5.7% 10.9% 7.0%Cairn Energy PLC CNE.L Christophor Jost p 440.70 14.3% 3.5% 11.6% 12.5%CEPSA CEP.MC Henry Morris € 27.82 53.7% -0.8% 50.4% 55.1%Chariot Oil and Gas Ltd CHARC.L Christophor Jost p 219.00 22.3% -9.1% 16.2% 61.9%Coastal Energy Company CEO.L Christophor Jost p 422.50 47.0% -2.9% 28.0% 99.8%Cove Energy Plc COVE.L Christophor Jost p 86.50 3.6% -8.0% -1.7% 73.0%Desire Petroleum Plc DES.L Christophor Jost p 11.50 -89.3% -64.9% -89.9% -85.5%Det Norske Oljeselskap ASA DETNOR.OL Christophor Jost Nkr 31.00 22.5% 10.7% 11.5% 16.5%Dominion Petroleum Ltd DOPL.L Christophor Jost p 5.73 59.0% -11.2% 15.7% -2.6%Dragon Oil PLC DGO.L Christophor Jost p 520.00 15.6% -11.4% 18.8% 31.0%EnCore Oil Plc EO.L Christophor Jost p 68.50 -45.4% -42.9% -41.5% 321.5%ENI ENI.MI Michele della Vigna, CFA € 16.24 -1.0% -7.5% 3.8% 8.8%EnQuest Plc ENQ.L Christophor Jost p 132.10 -3.9% -5.8% 1.5% 42.4%ERG ERG.MI Henry Morris € 9.16 -8.0% -8.6% -3.6% -3.5%Falkland Oil & Gas Ltd FOGL.L Christophor Jost p 61.25 -41.0% -24.4% -44.7% -67.8%Faroe Petroleum Plc FPM.L Christophor Jost p 152.50 -14.3% -17.3% -15.3% 33.2%Galp GALP.LS Henry Morris € 14.47 -1.1% -5.1% 10.5% 24.1%Global Energy Development Plc GBLE.L Christophor Jost p 64.00 -3.0% -31.9% -14.1% -41.6%Great Eastern Energy Corporation Ltd GEECq.L Christophor Jost p 417.50 -5.1% 14.4% 14.4% -14.2%Green Dragon Gas Ltd GDG.L Christophor Jost $ 12.85 53.0% -1.3% 15.5% 126.3%Gulf Keystone Petroleum Ltd GKP.L Christophor Jost p 145.25 -24.2% -1.5% -19.5% 86.8%Gulfsands Petroleum Plc GPX.L Christophor Jost p 250.00 -25.8% -20.0% -31.9% -2.7%Hardy Oil and Gas Plc HAOG.L Christophor Jost p 209.25 11.3% 27.0% 12.2% 28.8%Hellenic Petroleum HEPr.AT Henry Morris € 6.67 22.6% -10.2% 21.1% 9.9%Heritage Oil HOIL.L Christophor Jost p 238.60 -33.9% -10.6% -37.0% -28.7%IGAS Energy Plc IGAS.L Christophor Jost p 72.50 13.3% -2.0% 9.8% -14.7%Ithaca Energy Inc IAE.L Christophor Jost p 133.63 -10.9% -27.4% -6.6% -7.5%JKX Oil and Gas JKX.L Christophor Jost p 292.40 1.8% -3.8% -6.6% 28.2%Lundin Petroleum LUPE.ST Christophor Jost Skr 83.70 21.2% 6.1% 22.1% 139.5%Maurel & Prom MAUP.PA Christophor Jost € 15.55 43.0% 18.5% 54.0% 64.9%Max Petroleum Plc MXP.L Christophor Jost p 13.75 -37.5% -22.5% -34.5% -5.2%Melrose Resources Plc MRS.L Christophor Jost p 238.25 -10.1% -4.7% -0.7% -17.0%MOL MOLB.BU Henry Morris HUF 22800.00 11.5% -4.3% 21.3% 39.9%Motor Oil Hellas MORr.AT Henry Morris € 9.05 16.0% 1.7% 21.6% 22.3%Nautical Petroleum Plc NPE.L Christophor Jost p 328.00 -9.6% -26.3% -5.7% 556.0%Neste Oil NES1V.HE Henry Morris € 11.74 -2.4% -8.0% 5.8% -1.8%Nighthawk Energy Plc NGTE.L Christophor Jost p 6.36 -49.2% -28.5% -52.0% -69.0%Norse Energy Corp NEC.OL Christophor Jost Nkr 0.66 -47.2% -50.7% -50.7% -72.1%Northern Petroleum Plc NOP.L Christophor Jost p 112.50 15.4% -15.9% 7.1% -3.0%Norwegian Energy Company ASA NOR.OL Christophor Jost Nkr 11.75 -29.2% -34.7% -29.6% -11.3%OMV OMVV.VI Michele della Vigna, CFA € 28.16 4.3% -9.9% 5.4% 9.6%PA Resources AB PAR.ST Christophor Jost Skr 4.18 -24.0% -2.6% -28.5% -36.2%Panoro Energy ASA PENO.OL Christophor Jost Nkr 6.17 7.3% -20.4% -20.7% NAPKN PKNA.WA Henry Morris PLN 52.35 14.3% 16.8% 17.8% 42.6%Premier Oil PMO.L Christophor Jost p 464.10 5.2% -10.4% -1.5% 64.9%Regal Petroleum RPT.L Christophor Jost p 46.50 204.9% 22.0% 138.5% 31.9%Repsol YPF REP.MC Michele della Vigna, CFA € 22.56 13.0% -6.6% 19.8% 40.1%Rockhopper Exploration Plc RKH.L Christophor Jost p 206.25 -34.1% -11.5% -34.7% -10.3%Royal Dutch Shell plc (A ADR) RDSa Michele della Vigna, CFA $ 70.28 3.5% -1.8% 12.9% 39.6%Royal Dutch Shell plc (A) RDSa.AS Michele della Vigna, CFA € 24.66 2.6% -4.7% 5.0% 18.6%Royal Dutch Shell plc (B ADR) RDSb Michele della Vigna, CFA $ 70.90 6.3% -0.8% 15.1% 45.5%Royal Dutch Shell plc (B) RDSb.L Michele della Vigna, CFA p 2142.00 4.8% -2.7% 9.1% 26.5%Salamander Energy PLC SMDR.L Christophor Jost p 282.60 27.6% -7.6% 21.2% 24.7%Saras SRS.MI Henry Morris € 1.69 13.4% -6.3% 20.3% 4.5%Schoeller-Bleckmann SBOE.VI Rudolf Dreyer € 64.50 22.9% 5.4% 15.5% 79.2%Serica Energy Plc SQZ.L Christophor Jost p 28.00 -29.6% -26.1% -44.3% -67.3%Soco International Plc SIA.L Christophor Jost p 377.50 16.9% 12.0% 8.4% -3.2%Statoil STL.OL Michele della Vigna, CFA Nkr 136.40 10.5% -7.0% 9.0% 6.5%Sterling Energy Plc SEY.L Christophor Jost p 45.75 -31.2% -34.9% -11.2% -60.6%TOTAL SA TOTF.PA Michele della Vigna, CFA € 39.20 -3.4% -10.5% 3.9% 4.3%Tower Resources Plc TOWR.L Christophor Jost p 5.78 40.0% -9.8% 42.6% 344.2%Tullow Oil Plc TLW.L Christophor Jost p 1305.00 4.3% -7.8% 10.4% 23.8%Tupras TUPRS.IS Henry Morris YTL 42.80 11.5% 6.7% 23.3% 45.1%Valiant Petroleum Plc VPP.L Christophor Jost p 538.00 -7.2% -16.6% -2.7% -16.3%Petroplus Holdings PPHN.S Henry Morris SFr 13.10 22.7% -11.8% 31.7% -20.0%

Average 11.1% -10.6% 2.5% 44.8%

FTSE World Europe (GBP) 388.58 1.3% -1.9% 5.8% 18.4%

Note: Prices as of most recent available close, which could vary from the price date indicated aboveThis table shows movement in absolute share price and not total shareholder return. Results presented should not and cannot be viewed as an indicator of future performance.



Salamander Energy (SMDR.L): Downgrading to Neutral after recent outperformance

What happened

We are downgrading Salamander Energy from Buy to Neutral with a 12-month target price of 500p. Since being

added to the Buy List on April 7, 2010 the stock is up 0.9% vs. the oil and gas sector up 33% and the FTSE World

Europe Index’s gain of 1%; over 12 months Salamander is up 24.7% vs. the FTSE World Europe’s rise of 18.4%.

Since being added to the Buy List the stock has underperformed largely as a result of a disappointing

exploration campaign towards the beginning of 2010. Since we expanded our coverage universe (on November

5, 2010), however, Salamander has outperformed, up 27.6%, vs. our Oil and Gas universe up 11.2%.

Current view

We continue to see attractive upside potential (77%) to our 12-month target price of 500p and potential

attractions in the investment case. On our revised estimates, Salamander is currently trading at a c.13% discount

to our core valuation, and as such, the potential benefits of drilling in the company’s 2011 exploration

programme are “free”. On our estimates, the potential uplift to our valuation in the event of 100% exploration

success in the short term would be c.66% (vs. a sector average of c.172%) – with Cat Ba (Vietnam) and future

drilling around the Angklung prospect offering the most significant re-rating potential. In the medium term, we

believe that the company’s de-risked acreage around the 2010 Angklung discovery should provide additional

catalysts. We also note that production is likely to continue to increase, with 30kboepd of production a real

possibility in the medium term.

However, despite these attractions, following the recent outperformance of the stock since we expanded our

coverage universe, we now see greater upside and a better risk/reward in other names in our E&P coverage. We

therefore downgrade Salamander from Buy to Neutral.


assets being valued on an NPV/bl basis.


in the company’s exploration programme and greater than expected production uplift. The key downside risk is

worse than expected failure in the company’s exploration programme.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Salamander Energy PLC (SMDR.L)


Key data Current

Price (p) 282.6



Market cap (£ mn) 356.8

Enterprise value ($ mn) 942.9

12/10 12/11E 12/12E 12/13E

EBIT ($ mn) New 35.5 230.1 234.6 225.5

EBIT revision (%) (21.3) 1.9 (6.2) 49.4

EPS ($) New (0.12) 0.75 0.81 0.82

EPS ($) Old (0.02) 0.63 0.75 0.45

EV/DACF (X) 4.8 4.4 3.7 2.6

P/E (X) NM 6.2 5.7 5.6

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) 0.4 2.1 22.3 27.7

CROCI (%) 13.0 14.7 14.2 15.9

CROCI/WACC (X) -- -- -- --

EV/GCI 0.6 0.6 0.5 0.4

300

320

340

360

380

400

420

200

220

240

260

280

300

320



Salamander Energy PLC (L) FTSE World Europe (GBP) (R)


Absolute (7.6) 21.2 24.7

Rel. to FTSE World Europe (GBP) (5.8) 14.5 5.4




Exhibit 55: Share price performance of Salamander Energy versus peer group Prices as of the close of May 26, 2011




Price performance since Apr 7, 2010




Europe Oil & Gas Peer Group Salamander Energy PLC SMDR.L Christophor Jost p 282.60 0.9% -7.6% 21.2% 24.7%Amerisur Resources Plc AMER.L Christophor Jost p 27.25 62.7% 14.7% 87.9% 65.2%Aminex Plc AMNX.L Christophor Jost p 7.88 -31.4% -12.5% -10.4% 5.7%Aurelian Oil & Gas Plc AUL.L Christophor Jost p 53.75 17.5% -37.3% -6.5% 34.4%Bahamas Petroleum Company Plc BPCB.L Christophor Jost p 16.25 291.6% -23.5% 35.4% 415.9%Bankers Petroleum Ltd BNKq.L Christophor Jost p 492.50 -18.6% -15.5% 13.9% 1.0%BG Group BG.L Michele della Vigna, CFA p 1392.00 19.7% -7.0% 15.3% 37.1%Borders and Southern BSTH.L Christophor Jost p 56.00 0.9% -2.6% -15.5% -23.5%BowLeven Plc BLVN.L Christophor Jost p 302.00 125.4% -10.0% -7.1% 182.2%BP plc BP.L Michele della Vigna, CFA p 461.20 -28.2% -6.8% 5.8% -6.3%BP plc (ADS) BP Michele della Vigna, CFA $ 45.38 -22.8% -5.7% 10.9% 7.0%Cairn Energy PLC CNE.L Christophor Jost p 440.70 3.2% 3.5% 11.6% 12.5%CEPSA CEP.MC Henry Morris € 27.82 34.1% -0.8% 50.4% 55.1%Chariot Oil and Gas Ltd CHARC.L Christophor Jost p 219.00 265.0% -9.1% 16.2% 61.9%Coastal Energy Company CEO.L Christophor Jost p 422.50 36.3% -2.9% 28.0% 99.8%Cove Energy Plc COVE.L Christophor Jost p 86.50 61.7% -8.0% -1.7% 73.0%Desire Petroleum Plc DES.L Christophor Jost p 11.50 -74.4% -64.9% -89.9% -85.5%Det Norske Oljeselskap ASA DETNOR.OL Christophor Jost Nkr 31.00 1.3% 10.7% 11.5% 16.5%DNO International ASA DNO.OL Christophor Jost Nkr 7.15 -8.0% -23.7% -12.3% -7.7%Dominion Petroleum Ltd DOPL.L Christophor Jost p 5.73 -10.2% -11.2% 15.7% -2.6%Dragon Oil PLC DGO.L Christophor Jost p 520.00 4.4% -11.4% 18.8% 31.0%EnCore Oil Plc EO.L Christophor Jost p 68.50 321.5% -42.9% -41.5% 321.5%ENI ENI.MI Michele della Vigna, CFA € 16.24 -6.4% -7.5% 3.8% 8.8%EnQuest Plc ENQ.L Christophor Jost p 132.10 32.2% -5.8% 1.5% 42.4%ERG ERG.MI Henry Morris € 9.16 -13.8% -8.6% -3.6% -3.5%Falkland Oil & Gas Ltd FOGL.L Christophor Jost p 61.25 -54.8% -24.4% -44.7% -67.8%Faroe Petroleum Plc FPM.L Christophor Jost p 152.50 26.6% -17.3% -15.3% 33.2%Galp GALP.LS Henry Morris € 14.47 10.5% -5.1% 10.5% 24.1%Global Energy Development Plc GBLE.L Christophor Jost p 64.00 -37.6% -31.9% -14.1% -41.6%Great Eastern Energy Corporation Ltd GEECq.L Christophor Jost p 417.50 -18.1% 14.4% 14.4% -14.2%Green Dragon Gas Ltd GDG.L Christophor Jost $ 12.85 95.6% -1.3% 15.5% 126.3%Gulf Keystone Petroleum Ltd GKP.L Christophor Jost p 145.25 64.1% -1.5% -19.5% 86.8%Gulfsands Petroleum Plc GPX.L Christophor Jost p 250.00 -25.4% -20.0% -31.9% -2.7%Hardy Oil and Gas Plc HAOG.L Christophor Jost p 209.25 -3.6% 27.0% 12.2% 28.8%Hellenic Petroleum HEPr.AT Henry Morris € 6.67 -16.0% -10.2% 21.1% 9.9%Heritage Oil HOIL.L Christophor Jost p 238.60 -40.8% -10.6% -37.0% -28.7%IGAS Energy Plc IGAS.L Christophor Jost p 72.50 -18.1% -2.0% 9.8% -14.7%Ithaca Energy Inc IAE.L Christophor Jost p 133.63 -5.6% -27.4% -6.6% -7.5%JKX Oil and Gas JKX.L Christophor Jost p 292.40 1.2% -3.8% -6.6% 28.2%Lundin Petroleum LUPE.ST Christophor Jost Skr 83.70 67.1% 6.1% 22.1% 139.5%Maurel & Prom MAUP.PA Christophor Jost € 15.55 23.2% 18.5% 54.0% 64.9%Max Petroleum Plc MXP.L Christophor Jost p 13.75 -34.5% -22.5% -34.5% -5.2%Melrose Resources Plc MRS.L Christophor Jost p 238.25 -21.9% -4.7% -0.7% -17.0%MOL MOLB.BU Henry Morris HUF 22800.00 8.1% -4.3% 21.3% 39.9%Motor Oil Hellas MORr.AT Henry Morris € 9.05 -8.6% 1.7% 21.6% 22.3%Nautical Petroleum Plc NPE.L Christophor Jost p 328.00 583.3% -26.3% -5.7% 556.0%Neste Oil NES1V.HE Henry Morris € 11.74 -13.4% -8.0% 5.8% -1.8%Nighthawk Energy Plc NGTE.L Christophor Jost p 6.36 -74.1% -28.5% -52.0% -69.0%Norse Energy Corp NEC.OL Christophor Jost Nkr 0.66 -78.3% -50.7% -50.7% -72.1%Northern Petroleum Plc NOP.L Christophor Jost p 112.50 -10.0% -15.9% 7.1% -3.0%Norwegian Energy Company ASA NOR.OL Christophor Jost Nkr 11.75 -39.4% -34.7% -29.6% -11.3%OMV OMVV.VI Michele della Vigna, CFA € 28.16 -6.4% -9.9% 5.4% 9.6%PA Resources AB PAR.ST Christophor Jost Skr 4.18 -67.4% -2.6% -28.5% -36.2%Panoro Energy ASA PENO.OL Christophor Jost Nkr 6.17 NA -20.4% -20.7% NAPKN PKNA.WA Henry Morris PLN 52.35 35.5% 16.8% 17.8% 42.6%Premier Oil PMO.L Christophor Jost p 464.10 42.6% -10.4% -1.5% 64.9%Regal Petroleum RPT.L Christophor Jost p 46.50 -33.6% 22.0% 138.5% 31.9%Repsol YPF REP.MC Michele della Vigna, CFA € 22.56 24.0% -6.6% 19.8% 40.1%Rockhopper Exploration Plc RKH.L Christophor Jost p 206.25 252.6% -11.5% -34.7% -10.3%Royal Dutch Shell plc (A ADR) RDSa Michele della Vigna, CFA $ 70.28 19.5% -1.8% 12.9% 39.6%Royal Dutch Shell plc (A) RDSa.AS Michele della Vigna, CFA € 24.66 11.7% -4.7% 5.0% 18.6%Royal Dutch Shell plc (B ADR) RDSb Michele della Vigna, CFA $ 70.90 25.6% -0.8% 15.1% 45.5%Royal Dutch Shell plc (B) RDSb.L Michele della Vigna, CFA p 2142.00 15.5% -2.7% 9.1% 26.5%Saras SRS.MI Henry Morris € 1.69 -18.3% -6.3% 20.3% 4.5%Schoeller-Bleckmann SBOE.VI Rudolf Dreyer € 64.50 51.8% 5.4% 15.5% 79.2%Serica Energy Plc SQZ.L Christophor Jost p 28.00 -69.2% -26.1% -44.3% -67.3%Soco International Plc SIA.L Christophor Jost p 377.50 -11.9% 12.0% 8.4% -3.2%Statoil STL.OL Michele della Vigna, CFA Nkr 136.40 -3.5% -7.0% 9.0% 6.5%Sterling Energy Plc SEY.L Christophor Jost p 45.75 -67.3% -34.9% -11.2% -60.6%TOTAL SA TOTF.PA Michele della Vigna, CFA € 39.20 -10.7% -10.5% 3.9% 4.3%Tower Resources Plc TOWR.L Christophor Jost p 5.78 344.2% -9.8% 42.6% 344.2%Tullow Oil Plc TLW.L Christophor Jost p 1305.00 -0.2% -7.8% 10.4% 23.8%Tupras TUPRS.IS Henry Morris YTL 42.80 31.7% 6.7% 23.3% 45.1%Valiant Petroleum Plc VPP.L Christophor Jost p 538.00 -13.9% -16.6% -2.7% -16.3%Petroplus Holdings PPHN.S Henry Morris SFr 13.10 -37.9% -11.8% 31.7% -20.0%

Average 33.0% -10.5% 2.5% 45.3%





Det Norske (DETNOR.OL): Downgrading to Neutral following outperformance

What happened

We are downgrading Det Norske from Buy to Neutral with a 12-month target price of Nkr55.50 following the

stock’s recent strong performance. Since being added to the Buy List on November 5, 2010 the stock is up 22.5%

vs. the oil and gas sector up 11.1% and the FTSE World Europe Index’s rise of 1.3%; over 12 months, Det Norske

is up 16.5% vs. the FTSE World Europe’s rise of 18.4%.

Current view

We continue to see attractive upside potential (79%) to our 12-month target price of Nkr55.50, but now see better

opportunities elsewhere in the sector on a 12-month basis, following the stock’s recent outperformance and

recent dry wells at Gullris and Dovregubben. There remain attractive elements to the investment case. On our

updated estimates, reflecting the reserve and dry well updates, Det Norske is currently trading at a c.27%

discount to our core valuation, and as such exploration drilling in the company’s 2011 exploration programme is

“free”. We also note that a large proportion of its exploration costs are refunded as a result of tax rebates, and

we therefore believe it provides a low-risk exposure to North Sea exploration in Norway. The company plans to

drill a number of wells in the coming quarters, resulting in further diversity of risk, but in aggregate we believe

that success at each one of these wells could result in an uplift of c.95% to our valuation. We view free

exploration of this order of magnitude positively, and include the stock in our Balanced Explorers Screen.

However, despite these benefits, we now see greater upside in other names in our E&P coverage and therefore

downgrade Det Norske from Buy to Neutral.


assets being valued on an NPV/bl basis.



worse than expected failure in the company’s exploration programme. Other risks include a fall in commodity

prices.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Det Norske Oljeselskap ASA (DETNOR.OL)


Key data Current

Price (Nkr) 31.00





12/10 12/11E 12/12E 12/13E

EBIT (Nkr mn) New (1,999.6) (530.4) 122.5 430.3

EBIT revision (%) (644.2) (458.2) NM (16.6)

EPS (Nkr) New (6.21) (5.49) 0.16 2.50

EPS (Nkr) Old (2.31) (0.92) (0.97) 2.42

EV/DACF (X) 2.3 30.6 27.2 9.4

P/E (X) NM NM 189.7 12.4

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) 22.0 (58.6) (15.1) 11.3


CROCI/WACC (X) -- -- -- --

EV/GCI NM NM NM NM

300

320

340

360

380

400

420

440

460

18

20

22

24

26

28

30

32

34



Det Norske Oljeselskap ASA (L) FTSE World Europe (GBP) (R)


Absolute 10.7 11.5 16.5

Rel. to FTSE World Europe (GBP) 12.9 5.4 (1.5)




Exhibit 56: Share price performance of Det Norske versus peer group Prices as of the close of May 26, 2011








Europe Oil & Gas Peer Group Det Norske Oljeselskap ASA DETNOR.OL Christophor Jost Nkr 31.00 22.5% 10.7% 11.5% 16.5%Amerisur Resources Plc AMER.L Christophor Jost p 27.25 113.7% 14.7% 87.9% 65.2%Aminex Plc AMNX.L Christophor Jost p 7.88 5.7% -12.5% -10.4% 5.7%Aurelian Oil & Gas Plc AUL.L Christophor Jost p 53.75 -9.7% -37.3% -6.5% 34.4%Bahamas Petroleum Company Plc BPCB.L Christophor Jost p 16.25 159.6% -23.5% 35.4% 415.9%Bankers Petroleum Ltd BNKq.L Christophor Jost p 492.50 7.1% -15.5% 13.9% 1.0%BG Group BG.L Michele della Vigna, CFA p 1392.00 7.7% -7.0% 15.3% 37.1%Borders and Southern BSTH.L Christophor Jost p 56.00 -15.2% -2.6% -15.5% -23.5%BowLeven Plc BLVN.L Christophor Jost p 302.00 59.8% -10.0% -7.1% 182.2%BP plc BP.L Michele della Vigna, CFA p 461.20 3.3% -6.8% 5.8% -6.3%BP plc (ADS) BP Michele della Vigna, CFA $ 45.38 3.6% -5.7% 10.9% 7.0%Cairn Energy PLC CNE.L Christophor Jost p 440.70 14.3% 3.5% 11.6% 12.5%CEPSA CEP.MC Henry Morris € 27.82 53.7% -0.8% 50.4% 55.1%Chariot Oil and Gas Ltd CHARC.L Christophor Jost p 219.00 22.3% -9.1% 16.2% 61.9%Coastal Energy Company CEO.L Christophor Jost p 422.50 47.0% -2.9% 28.0% 99.8%Cove Energy Plc COVE.L Christophor Jost p 86.50 3.6% -8.0% -1.7% 73.0%Desire Petroleum Plc DES.L Christophor Jost p 11.50 -89.3% -64.9% -89.9% -85.5%DNO International ASA DNO.OL Christophor Jost Nkr 7.15 -22.2% -23.7% -12.3% -7.7%Dominion Petroleum Ltd DOPL.L Christophor Jost p 5.73 59.0% -11.2% 15.7% -2.6%Dragon Oil PLC DGO.L Christophor Jost p 520.00 15.6% -11.4% 18.8% 31.0%EnCore Oil Plc EO.L Christophor Jost p 68.50 -45.4% -42.9% -41.5% 321.5%ENI ENI.MI Michele della Vigna, CFA € 16.24 -1.0% -7.5% 3.8% 8.8%EnQuest Plc ENQ.L Christophor Jost p 132.10 -3.9% -5.8% 1.5% 42.4%ERG ERG.MI Henry Morris € 9.16 -8.0% -8.6% -3.6% -3.5%Falkland Oil & Gas Ltd FOGL.L Christophor Jost p 61.25 -41.0% -24.4% -44.7% -67.8%Faroe Petroleum Plc FPM.L Christophor Jost p 152.50 -14.3% -17.3% -15.3% 33.2%Galp GALP.LS Henry Morris € 14.47 -1.1% -5.1% 10.5% 24.1%Global Energy Development Plc GBLE.L Christophor Jost p 64.00 -3.0% -31.9% -14.1% -41.6%Great Eastern Energy Corporation Ltd GEECq.L Christophor Jost p 417.50 -5.1% 14.4% 14.4% -14.2%Green Dragon Gas Ltd GDG.L Christophor Jost $ 12.85 53.0% -1.3% 15.5% 126.3%Gulf Keystone Petroleum Ltd GKP.L Christophor Jost p 145.25 -24.2% -1.5% -19.5% 86.8%Gulfsands Petroleum Plc GPX.L Christophor Jost p 250.00 -25.8% -20.0% -31.9% -2.7%Hardy Oil and Gas Plc HAOG.L Christophor Jost p 209.25 11.3% 27.0% 12.2% 28.8%Hellenic Petroleum HEPr.AT Henry Morris € 6.67 22.6% -10.2% 21.1% 9.9%Heritage Oil HOIL.L Christophor Jost p 238.60 -33.9% -10.6% -37.0% -28.7%IGAS Energy Plc IGAS.L Christophor Jost p 72.50 13.3% -2.0% 9.8% -14.7%Ithaca Energy Inc IAE.L Christophor Jost p 133.63 -10.9% -27.4% -6.6% -7.5%JKX Oil and Gas JKX.L Christophor Jost p 292.40 1.8% -3.8% -6.6% 28.2%Lundin Petroleum LUPE.ST Christophor Jost Skr 83.70 21.2% 6.1% 22.1% 139.5%Maurel & Prom MAUP.PA Christophor Jost € 15.55 43.0% 18.5% 54.0% 64.9%Max Petroleum Plc MXP.L Christophor Jost p 13.75 -37.5% -22.5% -34.5% -5.2%Melrose Resources Plc MRS.L Christophor Jost p 238.25 -10.1% -4.7% -0.7% -17.0%MOL MOLB.BU Henry Morris HUF 22800.00 11.5% -4.3% 21.3% 39.9%Motor Oil Hellas MORr.AT Henry Morris € 9.05 16.0% 1.7% 21.6% 22.3%Nautical Petroleum Plc NPE.L Christophor Jost p 328.00 -9.6% -26.3% -5.7% 556.0%Neste Oil NES1V.HE Henry Morris € 11.74 -2.4% -8.0% 5.8% -1.8%Nighthawk Energy Plc NGTE.L Christophor Jost p 6.36 -49.2% -28.5% -52.0% -69.0%Norse Energy Corp NEC.OL Christophor Jost Nkr 0.66 -47.2% -50.7% -50.7% -72.1%Northern Petroleum Plc NOP.L Christophor Jost p 112.50 15.4% -15.9% 7.1% -3.0%Norwegian Energy Company ASA NOR.OL Christophor Jost Nkr 11.75 -29.2% -34.7% -29.6% -11.3%OMV OMVV.VI Michele della Vigna, CFA € 28.16 4.3% -9.9% 5.4% 9.6%PA Resources AB PAR.ST Christophor Jost Skr 4.18 -24.0% -2.6% -28.5% -36.2%Panoro Energy ASA PENO.OL Christophor Jost Nkr 6.17 7.3% -20.4% -20.7% NAPKN PKNA.WA Henry Morris PLN 52.35 14.3% 16.8% 17.8% 42.6%Premier Oil PMO.L Christophor Jost p 464.10 5.2% -10.4% -1.5% 64.9%Regal Petroleum RPT.L Christophor Jost p 46.50 204.9% 22.0% 138.5% 31.9%Repsol YPF REP.MC Michele della Vigna, CFA € 22.56 13.0% -6.6% 19.8% 40.1%Rockhopper Exploration Plc RKH.L Christophor Jost p 206.25 -34.1% -11.5% -34.7% -10.3%Royal Dutch Shell plc (A ADR) RDSa Michele della Vigna, CFA $ 70.28 3.5% -1.8% 12.9% 39.6%Royal Dutch Shell plc (A) RDSa.AS Michele della Vigna, CFA € 24.66 2.6% -4.7% 5.0% 18.6%Royal Dutch Shell plc (B ADR) RDSb Michele della Vigna, CFA $ 70.90 6.3% -0.8% 15.1% 45.5%Royal Dutch Shell plc (B) RDSb.L Michele della Vigna, CFA p 2142.00 4.8% -2.7% 9.1% 26.5%Salamander Energy PLC SMDR.L Christophor Jost p 282.60 27.6% -7.6% 21.2% 24.7%Saras SRS.MI Henry Morris € 1.69 13.4% -6.3% 20.3% 4.5%Schoeller-Bleckmann SBOE.VI Rudolf Dreyer € 64.50 22.9% 5.4% 15.5% 79.2%Serica Energy Plc SQZ.L Christophor Jost p 28.00 -29.6% -26.1% -44.3% -67.3%Soco International Plc SIA.L Christophor Jost p 377.50 16.9% 12.0% 8.4% -3.2%Statoil STL.OL Michele della Vigna, CFA Nkr 136.40 10.5% -7.0% 9.0% 6.5%Sterling Energy Plc SEY.L Christophor Jost p 45.75 -31.2% -34.9% -11.2% -60.6%TOTAL SA TOTF.PA Michele della Vigna, CFA € 39.20 -3.4% -10.5% 3.9% 4.3%Tower Resources Plc TOWR.L Christophor Jost p 5.78 40.0% -9.8% 42.6% 344.2%Tullow Oil Plc TLW.L Christophor Jost p 1305.00 4.3% -7.8% 10.4% 23.8%Tupras TUPRS.IS Henry Morris YTL 42.80 11.5% 6.7% 23.3% 45.1%Valiant Petroleum Plc VPP.L Christophor Jost p 538.00 -7.2% -16.6% -2.7% -16.3%Petroplus Holdings PPHN.S Henry Morris SFr 13.10 22.7% -11.8% 31.7% -20.0%

Average 11.1% -10.6% 2.5% 44.8%





Coastal Energy (CEO.L): Removing from Buy List, better upside elsewhere; Neutral

What happened

We are downgrading Coastal Energy from Buy to Neutral with a 12-month target price of 774p. Since being

added to the Buy List on January 31, 2011 the stock is down 4% vs. the oil and gas sector’s fall of 8.8% and the

FTSE World Europe’s fall of 0.6%; over 12 months, Coastal is up 99.8% vs. the FTSE World Europe’s rise of

81.4%.

Current view

We continue to see attractive upside potential (83%) to our 12-month target price of 774p but now see better

opportunities elsewhere in the sector over the next 12 months following the stock’s decent performance, despite

a reserves downgrade at Bua Ban. On our revised forecasts, including the reserve downgrade at the Bua Ban

asset, Coastal continues to trade at a discount to our core valuation. Coastal’s operations are focused in

Thailand, where it holds a 100% interest in blocks G5/43 and G5/50 in the Gulf of Thailand. Future exploration

activity is likely to focus on various plays around the Bua Ban asset. On our estimates, the potential uplift to our

valuation in the event of 100% exploration success in the short term would be c.54% (vs. a sector average of

c.172%) – on an individual basis the exploration wells due to be drilled offer relatively little upside, but

combined, they provide attractive materiality. Additional upside could result if it transpires that the shale play

(currently risked at a 10% likelihood of success) at Bua Ban is commercial. However, despite these advantages,

we now see greater upside and a better risk/reward in other names in our E&P coverage and therefore

downgrade Coastal from Buy to Neutral.

Our 12-month SOTP-based target price is calculated using a US$100/bl oil price. We currently give value for two

exploration prospects around Bua Ban North, one on the Bua Ban Terrace and one exploration well at Bua Ban

South. We also give a small amount of risked value (now risked at 15% likelihood of success versus 10%

previously) for potential commercialization of the lacustrine shale play.



worse than expected failure in the company’s exploration programme.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





Coastal Energy Company (CEO.L)


Key data Current

Price (p) 422.5




Enterprise value ($ mn) 793.5

12/10 12/11E 12/12E 12/13E

EBIT ($ mn) New 47.0 342.8 388.9 77.8

EBIT revision (%) (78.0) (1.5) (14.9) 28.8

EPS ($) New 0.13 1.62 1.93 0.53

EPS ($) Old 0.92 1.62 2.21 0.41

EV/DACF (X) 4.5 4.1 2.5 7.4

P/E (X) 33.2 4.3 3.6 13.2

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) (7.9) 5.0 29.2 8.9


CROCI/WACC (X) -- -- -- --

EV/GCI NM NM NM NM

300

320

340

360

380

400

420

440

200

250

300

350

400

450

500

550



Coastal Energy Company (L) FTSE World Europe (GBP) (R)


Absolute (2.9) 28.0 99.8

Rel. to FTSE World Europe (GBP) (1.0) 21.0 68.8




Exhibit 57: Share price performance for Coastal Energy versus peer group Prices as of the close of May 26, 2011

Source: FactSet. Quantum database.



Price performance since Jan 31, 2011




Europe Oil & Gas Peer Group Coastal Energy Company CEO.L Christophor Jost p 422.50 -4.0% -2.9% 28.0% 99.8%Amerisur Resources Plc AMER.L Christophor Jost p 27.25 19.8% 14.7% 87.9% 65.2%Aminex Plc AMNX.L Christophor Jost p 7.88 -6.6% -12.5% -10.4% 5.7%Aurelian Oil & Gas Plc AUL.L Christophor Jost p 53.75 -30.0% -37.3% -6.5% 34.4%Bahamas Petroleum Company Plc BPCB.L Christophor Jost p 16.25 -15.6% -23.5% 35.4% 415.9%Bankers Petroleum Ltd BNKq.L Christophor Jost p 492.50 -5.3% -15.5% 13.9% 1.0%BG Group BG.L Michele della Vigna, CFA p 1392.00 -0.6% -7.0% 15.3% 37.1%Borders and Southern BSTH.L Christophor Jost p 56.00 -11.1% -2.6% -15.5% -23.5%BowLeven Plc BLVN.L Christophor Jost p 302.00 -13.8% -10.0% -7.1% 182.2%BP plc BP.L Michele della Vigna, CFA p 461.20 -4.9% -6.8% 5.8% -6.3%BP plc (ADS) BP Michele della Vigna, CFA $ 45.38 -4.4% -5.7% 10.9% 7.0%Cairn Energy PLC CNE.L Christophor Jost p 440.70 6.4% 3.5% 11.6% 12.5%CEPSA CEP.MC Henry Morris € 27.82 31.1% -0.8% 50.4% 55.1%Chariot Oil and Gas Ltd CHARC.L Christophor Jost p 219.00 -15.9% -9.1% 16.2% 61.9%Cove Energy Plc COVE.L Christophor Jost p 86.50 -17.6% -8.0% -1.7% 73.0%Desire Petroleum Plc DES.L Christophor Jost p 11.50 -70.1% -64.9% -89.9% -85.5%Det Norske Oljeselskap ASA DETNOR.OL Christophor Jost Nkr 31.00 9.5% 10.7% 11.5% 16.5%DNO International ASA DNO.OL Christophor Jost Nkr 7.15 -26.1% -23.7% -12.3% -7.7%Dominion Petroleum Ltd DOPL.L Christophor Jost p 5.73 -12.6% -11.2% 15.7% -2.6%Dragon Oil PLC DGO.L Christophor Jost p 520.00 -10.4% -11.4% 18.8% 31.0%EnCore Oil Plc EO.L Christophor Jost p 68.50 -49.1% -42.9% -41.5% 321.5%ENI ENI.MI Michele della Vigna, CFA € 16.24 -6.1% -7.5% 3.8% 8.8%EnQuest Plc ENQ.L Christophor Jost p 132.10 -6.6% -5.8% 1.5% 42.4%ERG ERG.MI Henry Morris € 9.16 -12.3% -8.6% -3.6% -3.5%Falkland Oil & Gas Ltd FOGL.L Christophor Jost p 61.25 -34.8% -24.4% -44.7% -67.8%Faroe Petroleum Plc FPM.L Christophor Jost p 152.50 -22.6% -17.3% -15.3% 33.2%Galp GALP.LS Henry Morris € 14.47 -3.0% -5.1% 10.5% 24.1%Global Energy Development Plc GBLE.L Christophor Jost p 64.00 -24.3% -31.9% -14.1% -41.6%Great Eastern Energy Corporation Ltd GEECq.L Christophor Jost p 417.50 14.4% 14.4% 14.4% -14.2%Green Dragon Gas Ltd GDG.L Christophor Jost $ 12.85 24.5% -1.3% 15.5% 126.3%Gulf Keystone Petroleum Ltd GKP.L Christophor Jost p 145.25 -8.6% -1.5% -19.5% 86.8%Gulfsands Petroleum Plc GPX.L Christophor Jost p 250.00 -25.2% -20.0% -31.9% -2.7%Hardy Oil and Gas Plc HAOG.L Christophor Jost p 209.25 39.5% 27.0% 12.2% 28.8%Hellenic Petroleum HEPr.AT Henry Morris € 6.67 -4.3% -10.2% 21.1% 9.9%Heritage Oil HOIL.L Christophor Jost p 238.60 -26.8% -10.6% -37.0% -28.7%IGAS Energy Plc IGAS.L Christophor Jost p 72.50 2.8% -2.0% 9.8% -14.7%Ithaca Energy Inc IAE.L Christophor Jost p 133.63 -22.1% -27.4% -6.6% -7.5%JKX Oil and Gas JKX.L Christophor Jost p 292.40 0.4% -3.8% -6.6% 28.2%Lundin Petroleum LUPE.ST Christophor Jost Skr 83.70 4.1% 6.1% 22.1% 139.5%Maurel & Prom MAUP.PA Christophor Jost € 15.55 13.5% 18.5% 54.0% 64.9%Max Petroleum Plc MXP.L Christophor Jost p 13.75 -32.1% -22.5% -34.5% -5.2%Melrose Resources Plc MRS.L Christophor Jost p 238.25 1.4% -4.7% -0.7% -17.0%MOL MOLB.BU Henry Morris HUF 22800.00 2.0% -4.3% 21.3% 39.9%Motor Oil Hellas MORr.AT Henry Morris € 9.05 -2.3% 1.7% 21.6% 22.3%Nautical Petroleum Plc NPE.L Christophor Jost p 328.00 -34.8% -26.3% -5.7% 556.0%Neste Oil NES1V.HE Henry Morris € 11.74 -14.8% -8.0% 5.8% -1.8%Nighthawk Energy Plc NGTE.L Christophor Jost p 6.36 -36.5% -28.5% -52.0% -69.0%Norse Energy Corp NEC.OL Christophor Jost Nkr 0.66 -54.2% -50.7% -50.7% -72.1%Northern Petroleum Plc NOP.L Christophor Jost p 112.50 -18.5% -15.9% 7.1% -3.0%Norwegian Energy Company ASA NOR.OL Christophor Jost Nkr 11.75 -37.8% -34.7% -29.6% -11.3%OMV OMVV.VI Michele della Vigna, CFA € 28.16 -13.1% -9.9% 5.4% 9.6%PA Resources AB PAR.ST Christophor Jost Skr 4.18 -17.2% -2.6% -28.5% -36.2%Panoro Energy ASA PENO.OL Christophor Jost Nkr 6.17 -28.9% -20.4% -20.7% NAPKN PKNA.WA Henry Morris PLN 52.35 9.7% 16.8% 17.8% 42.6%Premier Oil PMO.L Christophor Jost p 464.10 -8.4% -10.4% -1.5% 64.9%Regal Petroleum RPT.L Christophor Jost p 46.50 69.1% 22.0% 138.5% 31.9%Repsol YPF REP.MC Michele della Vigna, CFA € 22.56 -1.8% -6.6% 19.8% 40.1%Rockhopper Exploration Plc RKH.L Christophor Jost p 206.25 -42.1% -11.5% -34.7% -10.3%Royal Dutch Shell plc (A ADR) RDSa Michele della Vigna, CFA $ 70.28 -1.0% -1.8% 12.9% 39.6%Royal Dutch Shell plc (A) RDSa.AS Michele della Vigna, CFA € 24.66 -4.3% -4.7% 5.0% 18.6%Royal Dutch Shell plc (B ADR) RDSb Michele della Vigna, CFA $ 70.90 0.5% -0.8% 15.1% 45.5%Royal Dutch Shell plc (B) RDSb.L Michele della Vigna, CFA p 2142.00 -1.3% -2.7% 9.1% 26.5%Salamander Energy PLC SMDR.L Christophor Jost p 282.60 -2.9% -7.6% 21.2% 24.7%Saras SRS.MI Henry Morris € 1.69 -6.0% -6.3% 20.3% 4.5%Schoeller-Bleckmann SBOE.VI Rudolf Dreyer € 64.50 7.5% 5.4% 15.5% 79.2%Serica Energy Plc SQZ.L Christophor Jost p 28.00 -29.6% -26.1% -44.3% -67.3%Soco International Plc SIA.L Christophor Jost p 377.50 3.7% 12.0% 8.4% -3.2%Statoil STL.OL Michele della Vigna, CFA Nkr 136.40 -2.7% -7.0% 9.0% 6.5%Sterling Energy Plc SEY.L Christophor Jost p 45.75 -33.0% -34.9% -11.2% -60.6%TOTAL SA TOTF.PA Michele della Vigna, CFA € 39.20 -8.2% -10.5% 3.9% 4.3%Tower Resources Plc TOWR.L Christophor Jost p 5.78 13.8% -9.8% 42.6% 344.2%Tullow Oil Plc TLW.L Christophor Jost p 1305.00 -1.7% -7.8% 10.4% 23.8%Tupras TUPRS.IS Henry Morris YTL 42.80 2.9% 6.7% 23.3% 45.1%Valiant Petroleum Plc VPP.L Christophor Jost p 538.00 -15.0% -16.6% -2.7% -16.3%Petroplus Holdings PPHN.S Henry Morris SFr 13.10 -15.3% -11.8% 31.7% -20.0%

Average -8.8% -10.6% 2.5% 44.8%

FTSE World Europe (GBP) 388.58 -0.6% -1.9% 5.8% 18.4%




Encore Oil (EO.L): Underperformance and Cladhan reaction overdone; up to Neutral

What happened

We are upgrading Encore Oil to Neutral from Sell following the stock’s recent underperformance. Since being

added to the Sell List on November 5, 2010 the stock is down 45.4% vs. the oil and gas sector up 11.1% and the

FTSE World Europe Index up 1.3%; over 12 months Encore is up 321.5% vs. the FTSE World Europe up 18.4%.

Current view

We upgrade Encore from Sell to Neutral with a 12-month target price of 96p, implying 40% potential upside,

following a period of sector-relative underperformance. Although recent news flow on the Cladhan appraisal

drilling has been disappointing, we believe too much value has been taken out of the stock and thus upgrade

Encore to Neutral. Following the announcement on the first well on May 18, 2011, the stock is down 39%

implying a c.US$200 mn loss as a result of the failed Cladhan appraisal wells. We believe this overstates the

downside risk, as on our updated estimates, we valued the Cladhan discovery and associated upside at

c.US$146 mn on a pre-drill basis (and note that some value still remains). Following results of the appraisal

drilling on the Cladhan field we update our estimates for the discovered resource to 30 mnbls (on a gross

un-risked basis) versus 45 mn bls previously. We also update our estimate of potential gross upside (on top of

existing, discovered resource) from 84 mn bls down to c. 17 mn bls. Despite the downgrade of our Cladhan

volume estimates, we see a number of positives for Encore. The company holds a 15% stake at its operated

Catcher discovery where we expect substantial follow-on towards end of this year. We regard Spaniards as a

potentially interesting exploration play, with the potential for high upside in the event of proving up additional

reserves, while Tudor Rose, and the potential for a gas storage project at Esmond, offer further portfolio

optionality. On our estimates the stock currently offers c.6% upside to our core valuation and offers short-term

re-rating potential of 86% in the event of success.

We value Encore using a SOTP methodology, assuming a US$100/bl oil price assumption. We have a 12-month

price target of 96p (from 133p). Exploration and discoveries are valued using a risked NPV/bl approach.

Key downside risks to our view and target price are worse than expected exploration and appraisal activities.

Key upside risks to our view and target price are greater than expected volumes at Cladhan and greater than

expected success around the Catcher discovery. We note that Encore’s position in the Catcher block could make

it an attractive target for the larger partners in the block at the right price.


Growth

Returns *

Multiple


Multiple

Returns *

Growth

Investment Profile

Low High





EnCore Oil Plc (EO.L)


Key data Current

Price (p) 68.5




Enterprise value (£ mn) 178.7

6/10 6/11E 6/12E 6/13E

EBIT (£ mn) New (15.1) (2.8) (2.8) (2.8)

EBIT revision (%) 0.0 0.0 0.0 0.0

EPS (p) New 3.86 (0.58) (0.62) (0.64)

EPS (p) Old 3.86 (0.58) (0.62) (0.64)

EV/DACF (X) NM NM NM NM

P/E (X) 4.4 NM NM NM

Dividend yield (%) 0.0 0.0 0.0 0.0

FCF yield (%) (6.0) (5.6) (5.7) (0.9)


CROCI/WACC (X) -- -- -- --

EV/GCI NM NM NM NM

300

320

340

360

380

400

420

440

460

0

20

40

60

80

100

120

140

160



EnCore Oil Plc (L) FTSE World Europe (GBP) (R)


Absolute (42.9) (41.5) 321.5

Rel. to FTSE World Europe (GBP) (41.8) (44.7) 256.1




Exhibit 58: Share price performance for Encore Oil versus peer group Prices as of the close of May 26, 2011

Source: FactSet. Quantum database.







Europe Oil & Gas Peer Group EnCore Oil Plc EO.L Christophor Jost p 68.50 -45.4% -42.9% -41.5% 321.5%Amerisur Resources Plc AMER.L Christophor Jost p 27.25 113.7% 14.7% 87.9% 65.2%Aminex Plc AMNX.L Christophor Jost p 7.88 5.7% -12.5% -10.4% 5.7%Aurelian Oil & Gas Plc AUL.L Christophor Jost p 53.75 -9.7% -37.3% -6.5% 34.4%Bahamas Petroleum Company Plc BPCB.L Christophor Jost p 16.25 159.6% -23.5% 35.4% 415.9%Bankers Petroleum Ltd BNKq.L Christophor Jost p 492.50 7.1% -15.5% 13.9% 1.0%BG Group BG.L Michele della Vigna, CFA p 1392.00 7.7% -7.0% 15.3% 37.1%Borders and Southern BSTH.L Christophor Jost p 56.00 -15.2% -2.6% -15.5% -23.5%BowLeven Plc BLVN.L Christophor Jost p 302.00 59.8% -10.0% -7.1% 182.2%BP plc BP.L Michele della Vigna, CFA p 461.20 3.3% -6.8% 5.8% -6.3%BP plc (ADS) BP Michele della Vigna, CFA $ 45.38 3.6% -5.7% 10.9% 7.0%Cairn Energy PLC CNE.L Christophor Jost p 440.70 14.3% 3.5% 11.6% 12.5%CEPSA CEP.MC Henry Morris € 27.82 53.7% -0.8% 50.4% 55.1%Chariot Oil and Gas Ltd CHARC.L Christophor Jost p 219.00 22.3% -9.1% 16.2% 61.9%Coastal Energy Company CEO.L Christophor Jost p 422.50 47.0% -2.9% 28.0% 99.8%Cove Energy Plc COVE.L Christophor Jost p 86.50 3.6% -8.0% -1.7% 73.0%Desire Petroleum Plc DES.L Christophor Jost p 11.50 -89.3% -64.9% -89.9% -85.5%Det Norske Oljeselskap ASA DETNOR.OL Christophor Jost Nkr 31.00 22.5% 10.7% 11.5% 16.5%DNO International ASA DNO.OL Christophor Jost Nkr 7.15 -22.2% -23.7% -12.3% -7.7%Dominion Petroleum Ltd DOPL.L Christophor Jost p 5.73 59.0% -11.2% 15.7% -2.6%Dragon Oil PLC DGO.L Christophor Jost p 520.00 15.6% -11.4% 18.8% 31.0%ENI ENI.MI Michele della Vigna, CFA € 16.24 -1.0% -7.5% 3.8% 8.8%EnQuest Plc ENQ.L Christophor Jost p 132.10 -3.9% -5.8% 1.5% 42.4%ERG ERG.MI Henry Morris € 9.16 -8.0% -8.6% -3.6% -3.5%Falkland Oil & Gas Ltd FOGL.L Christophor Jost p 61.25 -41.0% -24.4% -44.7% -67.8%Faroe Petroleum Plc FPM.L Christophor Jost p 152.50 -14.3% -17.3% -15.3% 33.2%Galp GALP.LS Henry Morris € 14.47 -1.1% -5.1% 10.5% 24.1%Global Energy Development Plc GBLE.L Christophor Jost p 64.00 -3.0% -31.9% -14.1% -41.6%Great Eastern Energy Corporation Ltd GEECq.L Christophor Jost p 417.50 -5.1% 14.4% 14.4% -14.2%Green Dragon Gas Ltd GDG.L Christophor Jost $ 12.85 53.0% -1.3% 15.5% 126.3%Gulf Keystone Petroleum Ltd GKP.L Christophor Jost p 145.25 -24.2% -1.5% -19.5% 86.8%Gulfsands Petroleum Plc GPX.L Christophor Jost p 250.00 -25.8% -20.0% -31.9% -2.7%Hardy Oil and Gas Plc HAOG.L Christophor Jost p 209.25 11.3% 27.0% 12.2% 28.8%Hellenic Petroleum HEPr.AT Henry Morris € 6.67 22.6% -10.2% 21.1% 9.9%Heritage Oil HOIL.L Christophor Jost p 238.60 -33.9% -10.6% -37.0% -28.7%IGAS Energy Plc IGAS.L Christophor Jost p 72.50 13.3% -2.0% 9.8% -14.7%Ithaca Energy Inc IAE.L Christophor Jost p 133.63 -10.9% -27.4% -6.6% -7.5%JKX Oil and Gas JKX.L Christophor Jost p 292.40 1.8% -3.8% -6.6% 28.2%Lundin Petroleum LUPE.ST Christophor Jost Skr 83.70 21.2% 6.1% 22.1% 139.5%Maurel & Prom MAUP.PA Christophor Jost € 15.55 43.0% 18.5% 54.0% 64.9%Max Petroleum Plc MXP.L Christophor Jost p 13.75 -37.5% -22.5% -34.5% -5.2%Melrose Resources Plc MRS.L Christophor Jost p 238.25 -10.1% -4.7% -0.7% -17.0%MOL MOLB.BU Henry Morris HUF 22800.00 11.5% -4.3% 21.3% 39.9%Motor Oil Hellas MORr.AT Henry Morris € 9.05 16.0% 1.7% 21.6% 22.3%Nautical Petroleum Plc NPE.L Christophor Jost p 328.00 -9.6% -26.3% -5.7% 556.0%Neste Oil NES1V.HE Henry Morris € 11.74 -2.4% -8.0% 5.8% -1.8%Nighthawk Energy Plc NGTE.L Christophor Jost p 6.36 -49.2% -28.5% -52.0% -69.0%Norse Energy Corp NEC.OL Christophor Jost Nkr 0.66 -47.2% -50.7% -50.7% -72.1%Northern Petroleum Plc NOP.L Christophor Jost p 112.50 15.4% -15.9% 7.1% -3.0%Norwegian Energy Company ASA NOR.OL Christophor Jost Nkr 11.75 -29.2% -34.7% -29.6% -11.3%OMV OMVV.VI Michele della Vigna, CFA € 28.16 4.3% -9.9% 5.4% 9.6%PA Resources AB PAR.ST Christophor Jost Skr 4.18 -24.0% -2.6% -28.5% -36.2%Panoro Energy ASA PENO.OL Christophor Jost Nkr 6.17 7.3% -20.4% -20.7% NAPetroplus Holdings PPHN.S Henry Morris SFr 13.10 22.7% -11.8% 31.7% -20.0%PKN PKNA.WA Henry Morris PLN 52.35 14.3% 16.8% 17.8% 42.6%Premier Oil PMO.L Christophor Jost p 464.10 5.2% -10.4% -1.5% 64.9%Regal Petroleum RPT.L Christophor Jost p 46.50 204.9% 22.0% 138.5% 31.9%Repsol YPF REP.MC Michele della Vigna, CFA € 22.56 13.0% -6.6% 19.8% 40.1%Rockhopper Exploration Plc RKH.L Christophor Jost p 206.25 -34.1% -11.5% -34.7% -10.3%Royal Dutch Shell plc (A ADR) RDSa Michele della Vigna, CFA $ 70.28 3.5% -1.8% 12.9% 39.6%Royal Dutch Shell plc (A) RDSa.AS Michele della Vigna, CFA € 24.66 2.6% -4.7% 5.0% 18.6%Royal Dutch Shell plc (B ADR) RDSb Michele della Vigna, CFA $ 70.90 6.3% -0.8% 15.1% 45.5%Royal Dutch Shell plc (B) RDSb.L Michele della Vigna, CFA p 2142.00 4.8% -2.7% 9.1% 26.5%Salamander Energy PLC SMDR.L Christophor Jost p 282.60 27.6% -7.6% 21.2% 24.7%Saras SRS.MI Henry Morris € 1.69 13.4% -6.3% 20.3% 4.5%Schoeller-Bleckmann SBOE.VI Rudolf Dreyer € 64.50 22.9% 5.4% 15.5% 79.2%Serica Energy Plc SQZ.L Christophor Jost p 28.00 -29.6% -26.1% -44.3% -67.3%Soco International Plc SIA.L Christophor Jost p 377.50 16.9% 12.0% 8.4% -3.2%Statoil STL.OL Michele della Vigna, CFA Nkr 136.40 10.5% -7.0% 9.0% 6.5%Sterling Energy Plc SEY.L Christophor Jost p 45.75 -31.2% -34.9% -11.2% -60.6%TOTAL SA TOTF.PA Michele della Vigna, CFA € 39.20 -3.4% -10.5% 3.9% 4.3%Tower Resources Plc TOWR.L Christophor Jost p 5.78 40.0% -9.8% 42.6% 344.2%Tullow Oil Plc TLW.L Christophor Jost p 1305.00 4.3% -7.8% 10.4% 23.8%Tupras TUPRS.IS Henry Morris YTL 42.80 11.5% 6.7% 23.3% 45.1%Valiant Petroleum Plc VPP.L Christophor Jost p 538.00 -7.2% -16.6% -2.7% -16.3%

Average 11.1% -10.6% 2.5% 44.8%

FTSE World Europe (GBP) 388.58 1.3% -1.9% 5.8% 18.4%Index performance in stock price currency 388.58 1.3% -1.9% 5.8% 18.4%




Financial Advisory disclosures

Goldman Sachs is acting as financial advisor to another party in an announced strategic transaction which may be material to

Tullow Oil Plc.



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securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

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