3Jun 2016

Canadian Overseas Petroleum Limited

Canadian Overseas Petroleum (COPL) is a junior E&P company with a focus on deep water exploration opportunities in Sub-Saharan West Africa. The company’s core asset is a 17% interest in Block LB-13 in Liberia where COPL will be carried through US$120m of exploration expenditure by the operator, ExxonMobil. A high impact maiden exploration well is scheduled to be drilled on Block LB-13 in Q4 2016. COPL also has exciting exposure to prospective exploration assets in Nigeria, Equatorial Guinea and Namibia through its interest in ShoreCan, a 50/50 joint venture with major African conglomerate, Shoreline Energy International.

COPL’s exciting portfolio is focused on the offshore Cretaceous plays that have delivered so much exploration success across the deep water regions of West Africa in recent years. As a frontier explorer, COPL is seeking to follow these trends into underexplored basins where huge potential exploration upside is believed to exist.

 The company’s most advanced asset is its 17% stake in Block LB-13 in Liberia where the group will be carried through US$120m of exploration expenditure. Drilling activity is expected to commence with the spudding of the Mecurado-1 well in late 2016. This well will target multiple horizons with prospective resource potential estimated to be in excess of 1 billion barrels of oil.

 Weak oil prices since 2014 have depressed rig rates and increased availability in West Africa. As such, we believe that the value of ExxonMobil’s carry will provide for the drilling of a second well on Block LB-13. This has the potential to expose COPL to a significantly greater proportion of the estimated 2.6bn bbls of recoverable resources on the licence than was expected when the ExxonMobil farm-in was originated in 2011.

 Through its ShoreCan JV, COPL has a major interest in offshore Block OPL 226 in Nigeria which includes the untested Noa-1 discovery. Noa-1 exhibited several oil and gas pay zones and is only 5 km from the fully appraised Anyala discovery. COPL has noted that 3D seismic data on the block has identified numerous prospects that merit further exploration. The acquisition of Block OPL 226 is currently subject to Nigerian Ministerial
consent and a licence extension, both of which are in process.

 ShoreCan has a MOU with the Ministry of Mines, Industry and Energy to acquire the Production Sharing Contract for offshore Block EG-018 in Equatorial Guinea and negotiations are underway with ratification anticipated in late 2016. The offshore region of Equatorial Guinea is a relatively mature hydrocarbon province. However, ShoreCan has identified exciting anomalies in the underexplored central region of the Rio Muni Basin which has distinct similarities to the play types offshore Liberia.

ShoreCan also owns 100% interests in three exploration licences offshore Namibia. Blocks 1709, 1780 and 1808 are located in the Namibe Basin which has only had two exploration wells drilled to date. However, the Namibe Basin is thought to be highly prospective given that its conjugate basin is the Santos Basin in Brazil where some of the world’s largest offshore discoveries have been made.

COPL’s current share price is entirely underpinned by the value of its carried interest in Liberia and we have calculated that near term exploration drilling could be worth up to 13p per share (fully diluted) on a conservatively risked basis. With medium term upside calculated at over 30p per share, possibly in the event of a disposal of COPL’s interest in Block LB-13, we believe that COPL represents the most compelling West African exploration play on the market.

Shard COPL Research Note

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