Canadian Overseas Petroleum

Canadian Overseas Petroleum (COPL) is a junior E&P company with principal focus offshore Liberia. COPL has brought in a strong working partner and operator in the shape of ExxonMobil (XOM), where playopening exploration success in early 2014 could unlock substantial value for shareholders. COPL is also planning entry into Nigeria by acquiring producing/development assets to lower its wider portfolio exploration risk. Based on current Liberia drill activity our RENAV value of C$0.36/share implies 44% upside. However, taking into consideration the play-opening potential of its Liberia block, we anticipate a risked M&A valuation of C$1.60/share in the event of exploration success.

Unlocking Liberia
COPL’s entry into Liberia was finalised in May 2013, with the company now holding a 17% stake in LB-13 in exchange for a C$120m gross carry that should see it drill two wells (including one sidetrack). Encouragingly, partner Exxon, aware of the fact that additional detailed seismic work has been completed by COPL to further delineate prospects, has already farmed into Block LB-13 offshore Liberia. In view of that work, we expect upside to existing CPR prospective resource estimates that currently sit at 2.6bnboe gross. The presence of Exxon gives a strong endorsement for the exploration acreage, and provides financial backing, technical expertise and scope to open up a new frontier basin in the event of exploration success.

Nigerian acquisitions
COPL is looking to increase its African exposure through entry in Nigeria via producing/and/or development assets. This would lower specific portfolio exploration risk in COPL, and may provide a useful source of income. COPL also has existing unconventional assets in New Zealand, where drilling is not planned until 2015.

Valuation: Exploration success key
Our DCF methodology results in a RENAV of C$0.36/share, which implies 44% upside; however, this is restricted to initial drill targets. COPL investors may ascribe value to the potential play opening economics of Liberia, although in the event of exploration success we consider there is still substantial upside, with M&A metrics suggesting a valuation of C$1.60/share. Getting to a drill-ready position has not been easy for COPL, having farmed out 83% of LB-13, although the terms of the deal are still above African industry metrics.

To Read the Entire Report Please Click on the pdf File Below.