African Petroleum – Initiation

We initiate on African Petroleum (see link). Pure play E&Ps are not in favour of late as poor exploration results in recent years and the falling oil price has depressed sentiment. However, for investors willing to look through near-term oil prices and seek exposure to exploration risk, African Petroleum has ten offshore blocks with large working interest positions, many of which are very close to successful wells drilled in 2014 (not least SNE-1 and FAN-1 off Senegal, and Total off Côte d’Ivoire) – as seen below.

Farm-outs are needed, but the company should been able to retain material enough ownership to offer significant exposure to drilling in the coming years.

With no wells currently funded, it is too early to assign a RENAV, but we speculate that if successfully farmed out, the three blocks with drilling in 2015-16 may indicate a combined pre-drill valuation of NOK1.1/share. This implies upside, should the company be successful in farming down its portfolio. In addition, a commercial discovery should deliver further material upside.

After the jump: Maps of APCL’s acreage

African Petroleum’s acreage is very close to the successful SNE-1 and FAN-1 wells drilled by Cairn and FAR in 2014

Source: African Petroleum

Côte d’Ivoire prospects and Saphir-1XB location.

Source: African Petroluem