1. WH Ireland Limited, 11 St James’s Square, Manchester, M2 6WH
WH Ireland is authorised and regulated by The Financial Conduct Authority and is a member of The London Stock Exchange.
Important disclosures and certifications regarding companies that are the subject of this report can be found within the disclosures page
at the end of this document.
IPB Petroleum Limited (IPB)*
Initiation of Coverage – Pryderi in sight
Current share price does not reflect the true intrinsic value of the company in our
opinion, which we estimate is 61cents/share. We view recent share price weakness post
IPO as more a function of marginal seed capital sellers who we estimate still constitute
15% of the existing shares. We view this short term price aberration as a good buying
opportunity into what is a solid exploration story. The longer term benefits of having an
enlarged free float, importantly with liquidity, could lead to an evolving long term solid
institutional shareholder base that is prepared to invest in a low risk/high return exploration
play in Australia’s third largest offshore hydrocarbon basin. One possible indication of this
appetite comes from the fact that in the IPO the minimum AU$2.5m subscription threshold
was surpassed to AU$2.92m, with a number of larger holdings (>AU$300k) being
registered. We see sentiment improving as the spudding date for Pryderi approaches in
3Q.
Fully funded to complete its drilling programme on Pryderi-1 located in WA 424-P
where IPB has identified an adjacent and larger oil structure to Gwydion drilled in 1995 by
BHP. To date, the Browse Basin has had a number of large gas condensate finds
including Ichthys (Inpex) and Calliance (Woodside), however, acreage could yield new oil
finds in our opinion with estimated gross resources of 685mmbbls (mean contingent and
prospective resources) in WA-424-P. Geological risk looks low at 45% for an oil find and
80% for a hydrocarbon (oil or gas) find, and is higher than the average hit rate on the
Browse Basin which is nearly 20% for 102 wells drilled to date. Despite this, the Browse
Basin is perceived to be a high risk/reward area given its remoteness (300km to land), gas
bias (which implies phasing risk), and high capital costs, although IPB has opted for the
exact opposite of this through a shallow project near to land, specific oil prospect, and
100% cost carry by its partner CalEnergy.
Further upside could by crystallised into IPB’s valuation through additional leads
near Pryderi, which we estimate could add a further 47¢/share risked to IPB’s valuation.
These leads are not prospects and although unrisked mean prospective resources
estimates of 282mmbbls have been attributed to them by the independent technical
specialist, we have valued IPB based for its core value on Gwydion and Pryderi alone
which implies a value of 61 cents per share. BUY
BUY
Price AU$25 ¢
Target Price AU$61¢
Reuters/BBG IPB AX /IPB AU
Index ASX
Sector Oil & Gas
Market Cap AU$25m
Shares in Issue 98m
Performance All-Share Sector
1 month: -1.6% -3.8%
3 months: 3.4% -4.9%
12 months: -2.5% -10.1%
High/Low 43¢/24¢
Last Results IPO - 30th
Apr 2013
Next Results Full Year - 30th
Aug 2013
Next Event Pryderi Well result – 3Q’12
0.20
0.22
0.24
0.26
0.28
0.30
0.32
0.34
0.36
30th
April
2nd
May
4th
May
6th
May
8th
May
14th
May
16th
May
Source: S&P Capital IQ
Analyst Angus McPhail
+44 (0)20 7220 7160
angus.mcphail@wh-ireland.co.uk
IPB which recently listed on the ASX, offers investors a unique free option on an
exploration programme which is fully funded through principle backer CalEnergy -
a wholly owned subsidiary of Buffett’s MidAmerican Energy Holdings. IPB has a
strong financial backer that has farmed into its core asset in the Browse Basin
(greater NW Shelf offshore Australia). This fact, combined with a high geological
chance of success (45% for oil) on its first drillable prospect, Pryderi, makes IPB
more than just a typical binary play of success or failure at the drill bit. We have
conservatively valued IPB post IPO at 61¢/share with a blue sky value of
AU$1.08/share, and initiate coverage with a BUY recommendation.
16
th
May 2013 UK EQUITY RESEARCH
OIL & GAS
*WH Ireland provides Investor Relations and
paid for research services for this company.
Marketing Communication
This document has not been prepared in
accordance with legal requirements designed
to promote the independence of investment
research. Please refer to important
disclosures towards the end of this
document.
The distribution of this document, in certain
jurisdictions, may be restricted by law. Please
refer to the disclaimers at the back of this
document.
2. WH Ireland 2
IPB PETROLEUM
Contents
Valuation 3
Shareholders 5
Browse Basin – Overview 6
Analogous Fields 10
Geology 12
IPB Exploration Programme 13
Development Plans 19
Cal Energy ‘Strong Partners’ 20
Financials 21
Company History 24
Management 26
Risk Factors & SWOT Analysis 28
3. WH Ireland 3
IPB PETROLEUM
Valuation
We have valued IPB Petroleum using a traditional NPV analysis which applies a
geological risk factor to P50 resource estimates. The value of contingent resources which
comprise solely of the Gwydion discovery have been valued based on the cost of
exploration (AU$15m) which implies a value of US$7.2/bbl for 2mmboe (Contingent
resources on a P50 basis). This implies a value of AU$15¢ (risked) on Gwydion. On the
Pryderi 3D drillable prospect we have utilised NPV$/bbl estimates that reflect the implied
value derived from the Cal Energy farm in deal. This farmout value of 25% of WA-424-P is
AU$15m which based on recoverable resource estimates of 32mmboe (gross) implies a
value of $1.80/bbl for the Pryderi prospect, or 46cents/share risked, and 102¢/share
unrisked.
Table 1: NAV Summary
Net to IPB Recoverable Risk Factor US$/bbl US$(m) AS$(m) A$ Cents per share (risked) A$ Cents per share (unrisked)
Contingent Resources P90 P50 P10 Mean
Gwydion 1 2 3 2 100% 7.2 14 15 15 15
Prospective Resources
Pryderi 3D Prospect 9 24 59 30 45% 1.8 47 45 46 101
Mathonwy Prospect 0.5 0.8 1.2 0.8 72% 0.9 1 0 0.5 1
2D Pryderi Channel Leads 70 89 111 90 40% 0.9 31 30 30 76
Arianrhod 3D Stratigraphic Lead 3 8 20 11 24% 0.9 2 2 2 7
Mordred Structural Leads 35 47 64 48 20% 0.9 8 8 8 40
Tristram Oil Case 85 179 362 207 4% 0.9 6 6 6.1 153
TOTAL 204 350 620 389 19% 109 106 107 393
Cash 3.1 3.1 3.2
Share options -0.2 -0.2 -0.2
Capex & expenses -2.8 -2.9 -2.9
TOTAL (inc bluesky) 106 108 393
TOTAL (core value) 60 61 116
Current Price A$(cents) 24 24
Upside/(Downside) 153% 385%
Source: WH Ireland research / Company data, as at 16
th
May 2013
IPB’s remaining leads have been valued based on STOIIP resources using 90¢/bbl,
although we view these leads as being more relevant to a potential bluesky valuation
given the need for further seismic work and interpretation. We have calculated a core
value which includes only the value of the Gwydion and Pryderi, with a blue sky value
We have applied a traditional NPV
valuation to IPB
Fig 1: Waterfall Chart
0
20
40
60
80
100
120
Gw ydion Cash Pryderi 3D
Prospect
NAV Core Value Other leads Capex &
expenses
Bluesky Value
A$(cents)
Source: WH Ireland research / Company data
4. WH Ireland 4
IPB PETROLEUM
equating to the cumulative value of additional prospects including further Pryderi leads
where 2D seismic has been shot to date.
In addition we have also examined the effect on the valuation from success at Pryderi in
terms of the production and development potential using two different size parameters – a
40mmbbls and 80mmbbls find respectively.
Figure 2 shows the respective NPV values are AU$681 for a 40mmbbls find and
AU$1643m for an 80mmbbls find. The project is NPV positive at around a 11mmbbls find
although this may not be high enough to justify full development. In AU$/share terms
these values are significant and equate to AU$2.77/share and AU$6.70/share respectively
(Assuming IPB’s retained interest in the subject permit is reduced to 40% under the
CalEnergy Farmout), which is quantum’s in terms of returns for original IPO investors who
bought in at 50¢/share, and higher for those at less than this. This ignores the effect of
further equity issuance which in our view is highly likely to fund future exploration and/or
development in the event of exploration success.
Further upside could occur from additional prospective resources for Gwydion and
Mathonwy which could be tied into any Pryderi development. Upside could by crystallised
into IPB’s valuation through additional leads near Pryderi which we estimate could add a
further 47¢/share risked to IPB’s valuation. These leads are not prospects and although
unrisked mean prospective resources estimates of 282 mmbbls have been attributed to
them by the independent technical specialist, we have valued IPB based for its core value
on Gwydion and Pryderi alone which implies a value of 61¢/share.
Fig 2: NPV of Pryderi Development
y = 24.05x - 281
0
200
400
600
800
1000
1200
1400
1600
1800
0 10 20 30 40 50 60 70 80 90
Size of Find (2P) mmbbls
NPV A$(m)
Source: WH Ireland research / Company data
5. WH Ireland 5
IPB PETROLEUM
Shareholders
Figure 3 shows the breakdown in shareholders and management, with the company
having a free float of 25% excluding directors and two large institutional holdings.
According to the company’s IPO prospectus in March 2013, there were 64 existing
shareholders. New shareholders from the most recent IPO account for approximately
5.9% of the enlarged shareholder base. One issue which arose post the IPO, was the
overhang created by shareholders locked in at issue from the previous two private equity
raises. This was of particular relevance for shareholders locked in at an average price of
AU$18.3¢/share from November 2010, and resulted in the share price falling from the
initial 50¢/share to 26¢/share shortly after the IPO on relatively small volumes. If we
exclude the two largest institutions shown in figure 3 above which account for a total of
14% of the shareholder base, the AU$18.3¢/share seed investors from November 2010
account for around 15% of the remaining shareholder base.
We believe that the current share price does not reflect the true intrinsic value of the
company which is 61¢/share according to our NAV analysis. We view the current share
price a short term aberration which represents a good buying opportunity into what is a
solid exploration story. The longer term benefits of having an enlarged free float, and
higher liquidity, could lead to an evolving long term solid institutional shareholder base that
are prepared to invest in a low risk/high return exploration play on Australia’s emerging
North West Shelf. One possible indication of this appetite comes from the fact that in the
last IPO the minimum AU$2.5m threshold was surpassed to AU$2.92m, with a number of
larger holdings (>AU$300k) being registered. The current stock overhang by marginal
sellers could be reduced as we approach the drill date for Pryderi which is likely to occur
in the third quarter of 2013, and news flow increases ahead of any drill result which would
happen less than two weeks after spudding Pryderi.
The free float of the company is 25%
Fig 3: Shareholder Split Post IPO (April 2013)
IPB Directors
61%
PGS
8%
Others
25%
RMB Resources
6%
Source: WH Ireland research / Company data
An overhang of shareholders occurred
post IPO which we estimate is 15%
and falling
Table 2: Shareholder Split Post IPO (April 2013)
Date Price A$(cents) % of outstanding shares
Shares Issued Nov 2010 18.3* 28.5%
Shares Issued June 2012 46 4.0%
Shares Issued April 2013 50 5.9%
Source: WH Ireland research / Company data *Implied Price
The current share price does not
reflect the true intrinsic value of the
company
6. WH Ireland 6
IPB PETROLEUM
Browse Basin – Overview
Exploration
The Browse Basin is the third largest basin by estimated gas resources at 33.6Tcf. It is
therefore a proven hydrocarbon area with large discoveries like Ichthys gas condensate
field (over 500Mmbbls of condensate), the Scott Reef, Brecknock, Brecknock South,
Echuca Shoals and Crux gas/condensate fields and the Gwydion and Cornea Oil Fields all
proving its potential. It covers an area of approximately 140,000 km
2
and lies entirely
offshore, north of Broome. The basin is bounded by the Leveque Shelf in the south, the
Kimberley Block to the east, and the Ashmore Platform and Scott Plateau in the north, and
grades into the offshore Canning Basin to the southwest. The area can be serviced from
Broome and Derby, which has port and air facilities. The economics of development
operations in the Browse Basin are often adversely affected by the isolation of the area
and by the fact that the majority of the basin lies in waters more than 200m deep and
exploration target are gas. IPB’s permits lie along the southern margin and in contrast, are
believed to be oil prone and have an average water depth of approximately 100m, with
shallow reservoir targets making and potential hydrocarbon find more commercially viable
since jack up rigs rather than semi –submersibles with lower day rates can be utilised, as
well as the proximity to land and service facilities.
The issue over economics for big gas condensate projects was recently demonstrated by
Woodside putting on hold its plans for Browse LNG, where they were planning to build a
US$34bn plant onshore at James Price Point which lies 52km north of Broome. We
understand that the company may now opt for a more cost effective solution through
Floating LNG ‘FLNG’ ships which offer several advantages including lower capital costs
Fig 4: Australian Hydrocarbon Basins 2012 (Estimated Gas Resources)
Source: Western Australian Natural Statistics Digest 2011/12
The Browse Basin is a proven
hydrocarbon basin
Floating LNG projects are now
emerging on cost grounds
7. WH Ireland 7
IPB PETROLEUM
than traditional onshore LNG facilities. Time is a major consideration for oil companies
with the Gorgon project taking almost two decades to commit and then develop and
budgeted to cost US$52bn (Chevron, Dec 2012 statement). Early start up in terms of
getting stranded gas resource reserves to market is one sweet spot for FLNG. Shell’s
Prelude FLNG project is a good example of this concept being applied to their field which
lies 200km from land and approximately 75km from IPB’s permits. This project has
commenced the construction of a massive 488 metre long ship capable of processing
5.3mT pa of liquids and 3.6mT pa of LNG.
Seven large Australian LNG schemes are currently under construction. Four draw from
gas fields in northern Western Australia (Gorgon, Prelude, Wheatstone and Ichthys) and
three CSM based developments are in Queensland (Queensland Curtis LNG, Gladstone
LNG and Australia Pacific LNG). Gorgon will have three trains producing 15mpta from
2014. Wheatstone will produce an initial 8.9mpta from 2016. Prelude will produce
3.5mtpa, starting from 2016 or 2017. Ichthys will pipe gas to a liquefaction plant near
Darwin. It will produce 8.4mtpa of LNG and is expected to start production in late 2016.
The total future value of these capital projects estimated to be $200bn, equivalent to 15%
of Australia’s current GDP, with LNG volumes projected to increase from 18.9mT (2011)
to 60mT by 2020.
The Browse Basin is therefore perceived to be a high risk/reward area given its
remoteness (300km to land) are traditional, gas bias (which implies phasing risk), and high
capital costs, although IPB have opted for the exact opposite of this through a shallow
project near to land, specific oil prospectivity, and 100% cost carry by its partner Cal
Energy.
Fig 5: Browse Basin – Wells Drilled
Source: DMP/Western Australia’s Petroleum & Geothermal Explorer’s Guide 2012
Seven LNG schemes are under
construction in Australia
The Browse Basin is perceived to be
high risk/reward
8. WH Ireland 8
IPB PETROLEUM
Table 3 shows the exploration success in the Browse Basin over the past 40 years with
four large undeveloped gas fields having been discovered at; Scott Reef (Torosa),
Brecknock, Brecknock South (Calliance), and Crux, together with a number of other gas
accumulations (Adele, Argus, Arquebus, Caspar, Echuca Shoals and Psepotus). Two gas
condensate fields under development are Prelude and Icthys with a total capital spend at
an estimated AU$40 billion. Small oil accumulations have been discovered at Caswell 2
and Cornea 1; oil and gas accumulations were encountered at Gwydion 1, Cornea South
2, Focus 1 and Sparkle 1, with minor oil shows having been found in several other wells.
The majority of discoveries have been made within the Middle to Lower Jurassic (Plover
formation) where gas accumulations were found. The exception has been the Gwydion-1
and Cornea wells drilled in 1995 and 1997 respectively where oil was found in the
Cretaceous. Gwydion 1 discovered three gas-bearing zones and one oil/gas-bearing zone
in Barremian to Albian shallow marine sandstones draped over a prominent basement
high. The Cornea 1, 1B and 2 wells encountered a 25 m gas column overlying an 18 m oil
column in the base Albian reservoir sequence and this was the first potentially commercial
oil discovery in what was previously considered to be a gas-prone basin. In 1998, Adele 1
discovered gas with oil shows in Middle Jurassic (Plover Formation) sands, and Psepotus
1 and Caspar 1A discovered small gas accumulations within Early Cretaceous sands on
the Leveque Shelf and Yampi Shelf, respectively.
Gas rather than oil has been a feature
of the Browse Basin, but there is
evidence of oil in the Cretaceous
Table 3: Oil & Gas Discoveries in Browse Basin
Year Field/Discovery Company Oil/Gas Formation Formation Age
1971 Scott Reef (Torosa) Woodside Gas Plover Middle to Lower Jurassic
1979 Brecknock Woodside Gas Plover Middle to Lower Jurassic
1980 Brewster Woodside Gas Plover Middle to Lower Jurassic
1995 Gwydion BHP Oil & Gas Aptian/Albian Middle Cretaceous
1997 Cornea Shell Oil Heywood Middle Cretaceous
2000 Brecknock South (Calliance) Woodside Gas Plover Middle to Lower Jurrasic
2007 Prelude Woodside Gas Plover Middle to Lower Jurrasic
2007 Toccata Gas NA -
2008 Fortissimo Shell Gas NA -
2008 Ichthys North Woodside Gas NA -
2008 Ichthys West Woodside Gas NA -
2008 Mimia Inpex Gas Brewster Lower Cretaceous
2011 Burnside Santos Gas Brewster Lower Cretaceous
2011 Kronos ConocoPhillips Gas NA -
Source: WH Ireland research / Company data
9. WH Ireland 9
IPB PETROLEUM
Figure 6 shows the total number of wells drilled in the Browse Basin for fields proposed or
under development which we estimate is about 56 up to the end of 2012. Forward
exploration plans by the largest operators including BHP Billiton, Shell, BP, Woodside and
Karoon Gas remain positive with increasing exploration capex being deployed into the
area. The total number of wells drilled to date in the Browse Basin is 102 with nineteen
discoveries, which equates to about an historical success factor of about one in five. This
lies in contrast to IPB’s Pryderi prospect which is rated by the ISIS to have a 45% chance
of being an oil discovery.
Fig 6: Browse Basin Fields Exploration and Development
Source: Karoon Gas
Browse has a 1:5 chance of success
given the 102 wells drilled to date
10. WH Ireland 10
IPB PETROLEUM
Analogous Fields
The Browse Basin is in the North of the greater NW shelf offshore Australia and maybe
compared in a number of ways geologically to the Carnarvon Basin which lies to the
south.
Fig 7: Comparison between Carnarvon and Browse Basin
Source: WH Ireland research / Company data
Figure 7 above shows that the Carnarvon Basin is about the same size as the Browse
Basin, with large gas structures being found in both areas. Along the southern margin of
the Carnarvon Basin there is a working oil hydrocarbon system where over 1 billion
barrels have been produced, with oil being found in well-defined structures. IPB think that
the Browse Basin although having less well defined structures does have stratigraphic
traps in place and there is therefore a good probability of finding oil through the application
of modern 3D seismic along its southern margin. The geological story can be described in
terms of the deeper basins being put under higher pressures and temperatures than the
shallower margin and through a process over millions of years these high pressures and
temperatures have effectively ‘cooked’ the hydrocarbon with the margin play not
experiencing this and therefore preserving the oil that has migrated there from the deeper
part of the basin.
The Carnarvon Basin is the same size
as the Browse Basin
Potential
oil fairway
11. WH Ireland 11
IPB PETROLEUM
Compared to the southern margin of the Browse Basin, the oil fairway of the Carnarvon
Basin has very well defined structures which, historically, often have only required 2D
seismic to delineate drilling prospects. Figure 8 shows the large number of producing oil
wells in the shallower area of this basin. In the potential oil prone southern margin of the
Browse Basin the structures are less well defined and therefore require 3D seismic to be
shot. IPB have found that by using, modern 3D and associated geophysical inversion
techniques they have been able to get better direct hydrocarbon indicators and delineate
potential prospects like Pryderi that lie in shallower water.
Fig 8: Carnarvon Basin - Producing wells and infrastructure
Source: WH Ireland research, PNR Online
The Browse Basin needs 3D seismic
and modern techniques to delineate
prospects
12. WH Ireland 12
IPB PETROLEUM
Geology
The Browse Basin developed during six major tectonic phases: Late Carboniferous to
Early Permian extension; Late Permian to Triassic thermal subsidence; Late Triassic to
Early Jurassic inversion; Early to Middle Jurassic extension; Late Jurassic to Early Tertiary
thermal subsidence; and Late Miocene inversion. The initial extension resulted in half-
graben geometries and the formation of two distinct depocentres, the Caswell and Barcoo
Sub-basins. These depocentres contain in excess of 15 km of sedimentary section and lie
in 100 to 1500 metres water depth. The outer Browse Basin underlies the deep-water
Scott Plateau (1500- 4000 metres water depth). Widespread transgression commenced in
the Valanginian and peaked in the Turonian and resulted in the deposition of thick open
marine claystones. The Early Cretaceous claystones provide a thick regional seal and
contain potential oil-prone source rocks. Potential source rocks also occur in the Late
Jurassic, Middle-Early Jurassic, Triassic and syn-rift Palaeozoic sections.
Fig 9: Stratigraphy of Browse Basin
Source: WH Ireland research /Australian Government
Oil is in the Cretaceous, Gas in the
Jurassic
13. WH Ireland 13
IPB PETROLEUM
IPB Exploration Programme
Figure 10 shows the size of IPB’s acreage relative to other large fields in the Browse
Basin.
As we have already highlighted, the Browse Basin is a world-class province for
gas/condensate exploration and development, with the Ichthys (Inpex) and Prelude (Shell)
gas/condensate fields currently under development and the Browse project (Woodside)
being considered as a future development. The Browse project includes Torosa,
Brecknock, and Calliance gas/condensate field discoveries which are estimated to contain
a combined contingent resource of about 13.3Tcf and 360mmbbls of condensate. Santos,
ConocoPhillips, BP, TOTAL and INPEX all have interests in the Browse Basin.
Along the southern margin of the Browse Basin, the two most important discoveries were
Gwydion and the Cornea (BHP, Shell). Both discoveries confirmed that oil has migrated
into this region of the basin from mature source rocks to the north/west and is therefore
analogous to the Carnarvon Basin as already described in this report. The bulk of this
area is still largely untested with only a handful of wells drilled. 3D Seismic has been shot
by IPB across a 200km² area on the WA-424-P permit covering the Gwydion oil discovery.
This new data has unveiled a previously unidentified prospect at Pryderi which IPB
currently anticipates to be drilled by the operator of the permit (CalEnergy) by mid July
2013 although we estimate that this could slip possibly into the third quarter of 2013
depending on rig availability, which is tight currently according to industry sources
(Riglogix) with a 100% utilisation rate on all 12 rigs in offshore Australia.
IPB has a two large blocks in shallow
water offshore NW Australia
Fig 10: IPB’s exploration blocks (blue) in the Browse Basin
Source: WH Ireland research, PNR Online
Oil migration has occurred and
Gwydion and Cornea prove this
concept
14. WH Ireland 14
IPB PETROLEUM
Block WA-424-P, Pryderi & Gwydion– 61 cents
The Pryderi Prospect lies adjacent to the Gwydion oil discovery. The presence of gas in
the main Barremian/Hauterivian-aged reservoir sand generates a high amplitude (red) on
the seismic data around the Gwydion-1 well, as shown in Figure 11 and 12. The Pryderi
prospect can be seen to have a similar high-amplitude seismic response. Further analysis
of the seismic data supports the interpretation that the trap could contain an oil leg
confined within a narrow channel. The Independent Technical Expert (ISIS Petroleum
Consultants) concluded that there is a mean recoverable prospective resource of
40mmbbls and with a 45% chance of an oil discovery. The latter being significantly higher
than typical frontier exploration plays with typically only a 10% chance of success. The
chance of success has been increased through 3D seismic with the main risk occurring
from reservoir quality rather than source and charge, seal or trap.
Fig 11: Pryderi-1 and Gwydion Direct Hydrocarbon Indicators (Shown in Red)
PryderiChannel
Pryderi-1
PryderiChannel
Pryderi-1
Source: WH Ireland research /Australian Government
Pryderi lies adjacent to Gwydion a
proven oil play
15. WH Ireland 15
IPB PETROLEUM
Fig 12: 3D Arbitrary Line through Gwydion oil discovery and Pryderi channel prospect
Source: WH Ireland research /Australian Government
The Gwydion-1 well was drilled by BHP in 1995. The well discovered a 14.5 metre gas
column in poor-quality glauconitic sand above a 10 metre oil column in good-quality
Cretaceous-aged Hauterivian/Barremian clean sand. The Independent Technical Expert’s
Report attributes a mean contingent recoverable resource of 6MMbbls to the Gwydion oil
discovery. The oil has an API gravity of 30.5 with a pour point of 27°C. The oil reservoir
sand has a porosity of 27% and is anticipated to have permeability’s in the range 100-
2000 millidarcies. Geochemical analysis indicates that the oil and gas have migrated into
the WA-424-P permit area from mature source rocks over 50km away to the north.
A second well, Caspar-1A, was drilled in 1998 by BHP as a follow-up to the success
experienced at Gwydion, and while the well intersected very good-quality reservoir sands
15m thick at the level that contained oil in the Gwydion-1 well, these sands were water-
wet. The well is considered to have been drilled out of closure at this level and therefore
not a valid test.
The Casper-1 well was drilled in 1998
but was drilled out of closure
16. WH Ireland 16
IPB PETROLEUM
Block WA-424-P Channel Leads – 47cents (BlueSky)
As well as the Pryderi prospect at least a further eleven stratigraphic leads have been
identified along the same horizon at Pryderi, which are referred to as ‘Pryderi channel
leads’. Pryderi was used as the base analogue by petroleum engineers for resource
explroation. In simple terms the leads have been identified through the presence of high
amplitude zones similar to that observed at Pryderi which may indicate the presence of
hydrocarbons. These leads reflect these zones. The presence of an extended
hydrocarbon fairway across IPB’s acreage could therefore be a real possibility
For the purposes of our valuation we have not included the value of this at this stage given
the prospective nature of the leads and lack of 3D data acquired. Substantial 2D seismic
has been shot but further 3D work would probably be required before another prospect is
drill ready. Our blue sky valuation indicates a risked value of 32¢/share for Pryderi
Channel leads alone
Fig 12: Pryderi Channel Leads
Source: WH Ireland research / Company data
Additional leads including Arianrhod (2¢ risked), Mordred (8¢ risked), Tristram (6¢ risked),
and Mathonwy (0.5¢ risked) all except Mathonwy and Arianrhod currently carry a relatively
high level of risk and require further seismic work.
A further 11 on-trend stratigraphic
leads have been identified
17. WH Ireland 17
IPB PETROLEUM
Block WA-471-P – 0 cents (BlueSky)
Block WA-471-P lies directly north of Block WA-424-P and was awarded to IPB for permit
years 1- 3 in May 2012. IPB has operatorship over this acreage and has a guaranteed
work program of geotechnical studies, the acquisition of a 600 km
2
3D seismic survey and
one exploration well at an estimated total value of AU$24m. The secondary work program
covering years 4-6 consists of geotechnical studies and one exploration well to an
estimated value of AU$15.6 m.
Geologists have identified the potential for Pryderi type stratigraphic type leads in the
acreage up to six different play types. No prospective resources have been identified at
this stage and we have therefore assigned zero NAV value to the block, however the area
does show promising Pryderi type leads at a deeper level in the south east portion of the
permit. It is clear from geochemical analysis that oil has migrated through this permit from
the source rocks to the north to the Gwydion oil field to the south. 3D seismic will be
required to identify drillable prospects.
Block WA-471-P lies directly north of
the Pryderi prospect
Fig 13: Block WA-471-P
Source: WH Ireland research / Australian Government
18. WH Ireland 18
IPB PETROLEUM
Beyond this greater potential lies in further leads which we have quantified within our NAV
valuation AU$31cents risked, AU$77cents unrisked. The fact that the Pryderi exploration
target is located in relatively shallow water (maximum depth 90m) and shallow reservoir
depths (approx. 600m) implies lower cost exploration and development compared to the
deeper part of the Browse Basin. The lack of existing infrastructure does represent a
challenge for gas explorers and developers however the proximity to shore and presence
of other global operators does help to mitigate this risk. This risk is further reduced by the
fact that IPB’s prospective resources are oilas opposed to gas, with the latter requiring
greater infrastructure requirements in order to successfully monetise such molecules.
There is no requirement for any off take agreement pipeline or gas market/LNG marketing
for oil development, with the economic scaling factor of oil more compelling than for gas.
Oil is worth 6x more on average when globally so there is also a strong economic
justification for pursuing this prospect.
Fig 14: Pryderi prospect & GMG Area
Source: WH Ireland research / Company data
There lies upside in future prospects
19. WH Ireland 19
IPB PETROLEUM
Development Plans
We expect that the Pryderi-1 well will most likely commence drilling in the third quarter of
2013 in order to fulfil Year 2 drilling commitments in the WA-424-P permit. This is
assuming a rig becomes available for that period. Other potential activities planned by IPB
in both the permits up to the end of 2015 are highlighted in Figure 15.
Fig 15: IPB Development Plan
Source: WH Ireland research / Company data
The upper half of figure 15 shows the key activities in IPB’s Permits for the Primary
Terms, which encompass firm work commitments. The lower half of this figure containing
options A and B are indicative only at this stage and have been provided to give an insight
into the company’s view of the likely alternative activities the joint venture may pursue.
The actual timing and duration of activities may vary as well as the actual activities
themselves. In particular, Options A and B or, other potential future alternative work
programs will depend on the timing and results obtained with the Pryderi well, as well as
joint venture committee approval under the Operating Agreements.
Option A above shows the scenario where if Pryderi is successful, and the joint venture
decides to drill an appraisal well, (funded by CalEnergy by increasing its equity in WA-
IPB is expected to drill Pryderi in
3Q’13
20. WH Ireland 20
IPB PETROLEUM
424-P in accordance with the Farmout Agreement from 25% to 60%) followed by a larger
3D seismic survey covering the Pryderi play in WA-424-P. Option B shows the
unsuccessful scenario where Pryderi is not successful and the joint venture decides to
acquire a smaller 3D seismic survey covering some of the structural Mordred leads in WA-
424-P.
Cal Energy – Strong Partners
Cal Energy is a subsidiary of MidAmerican Energy Holdings Co (owned by Berkshire
Hathaway, a Warren Buffet ‘Sage of Omaha’ company), which is based in Iowa, USA. The
company has assets in the UK, Poland, and Australia and has been active in the oil and
gas industry since 1970.
We understand that IPB had over three interested parties interested in their core WA-424-
P acreage including Cal Energy, and this shows the good interest of the area. Cal Energy
was ultimately chosen due to their financial discipline, prudent low costs approach, and
complimentary strategy with IPB. It is also clear that in the event of a discovery the farm
out/option agreement has been structured to encourage further development and
exploration of WA-424-P and importantly additional acreage in WA-471-P.
IPB have structured the farm out with CalEnergy. We summarise this in the following three
points :
1) CalEnergy will have the full carry on the first exploration well Pryderi estimated to cost
AU$15m in return for a 25% interest in the permit WA-424-P. CalEnergy will also acquire
60% of the Gwydion Discovery and the neighbouring Mathonwy/Gilfaethwy structures
(“GMG”) Area Under the permit terms the well must commence drilling before 12
th
July
2013; unless extended by government, CalEnergy has become the operator of WA-424-P.
2) Cal Energy has the option for 3 months after drilling the Pryderi well (estimated to be up
to October 2013) to increase their interest in the balance of the WA-424-P permit to 60%
by spending further funds at CalEnergy’s discretion on exploration, appraisal and/or
development activities up to an amount of AU$32.4m less the costs expended on the
Pryderi well. Given IPB’s AU$15m estimated costs for the Pryderi well, this implies that
there is an estimated additional maximum of AU$17.4m available from the farm out deal
with Cal Energy.
3) CalEnergy has the option to participate at a 25% interest in the WA-471-P permit, which
can be exercised for nominal cost within 3 months of the date of the Pryderi well being
drilled. IPB will remain the operator of this permit.
In summary therefore The farm out deal is structured such that IPB has a strong backer
for its core exploration prospect, that has assumed through the drilling of the well the
upfront risk, yet has been able to maintain operatorship over its remaining acreage with
the possibility of additional funding being made available in the future. One could argue
that Warren Buffet has invested indirectly in IPB’s assets through MidAmerican
Energy/CalEnergy, with the farm in deal structured such that it minimises direct
exploration risk through yet maximises the potential upside value should a significant oil
find be achieved.
21. WH Ireland 21
IPB PETROLEUM
Financials
Figure 16 shows the projected capex spend on IPB’s two main permits which cumulatively
total AU$64.1m (on a 100% basis) over the next 3 years and is primarily back end loaded
towards 2015. Given the limited IPO raise of AU$2.92m further funding options in the
event of success will probably have to be examined, with CalEnergy providing possibly
half of this through their existing farm in option agreement which allows a maximum spend
of AU$32.4m.
Cumulative capex on a 100% permit
basis over the next 3 years is
AU$64m and is back end loaded
Fig 16: Projected Gross Capex on Two main Permits (2013)
0
5
10
15
20
25
30
35
2013E 2014E 2015E
A$(m)
WA 424-P WA-471-P
Source: WH Ireland research / Company data
Fig 17: Sources and Uses of Cash 2013
0.0
1.0
2.0
3.0
4.0
5.0
Existing cash Funds raised
at IPO
Exploration
and
development
expenditure
on WA-424-P
& WA-471-P
New permit
evaluation and
preliminary
exploration
activity
IPO Expenses Admin Working
Capital (Dec
2013)
A$(m)
Source: WH Ireland research
22. WH Ireland 22
IPB PETROLEUM
We have included an indicative financial analysis under the scenario of exploration
success at Pryderi assuming the following:
1) An oil price assumption of >US$95/bbl Tapis from 2016 onwards.
2) An equity raise in 2013 for AU$10m to cover working commitments on WA 424-
P, WA 471-P, with a carry of up to AU$17.4m with CalEnergy as detailed in our
section, ‘CalEnergy – Strong Partners’.
3) A debt/equity in 2014 to raise AU$80m, split 50/50 debt/equity, with a 10% farm
out on Pryderi raising an additional AU$39m.
4) Production commencing from Pryderi in 2017FY at 19kboepd (gross), and
5.7kboepd (net) generating estimated AU$47m (net profits) according to our
forecasts.
24. WH Ireland 24
IPB PETROLEUM
Company History
IPB Petroleum was established in 2009, with many of the management and technical
team coming from BHP Billiton where they had derived the necessary skills and
experience to build a successful upstream E&P business in offshore Australia. The IPB
Group comprises parent company IPB Petroleum Limited and its four wholly owned
subsidiaries. The IPB Group structure and key asset holdings are detailed in Figure 18
below. The two core assets WA-424-P and WA-471-P are the key areas of exploration
where IPB will be drilling its first exploration well Pyderi-1 in July 2013 (75% stake, in
WA424-P).
Fig 18: IPB Petroleum Corporate Structure
*refer to CalEnergy farmout agreement Source: WH Ireland research / Company data
IPB acquired its first asset In October 2010, petroleum exploration permit WA-424-P
located in the Browse Basin offshore North West Australia. This permit was acquired from
a subsidiary of Nexus Energy Limited in exchange for the granting of a royalty based on
future production sales. The WA-424-P permit was chosen as the ideal cornerstone asset
from which IPB could build a future exploration, given the low political risk associated with
Australia, the presence of a working hydrocarbon system of good quality reservoirs which
has been confirmed through an oil discovery at Gwydion which BHP discovered in 1995
and also Casper in 1998. Importantly a working seal was evident above the Gwydion
reservoir. The basic logic underlying IPB’s main Pryderi prospect is based on the fact that
the 2D seismic shot shows direct hydrocarbon indicators (DHI’s) interpreted to be at the
same level as the Gwydion prospect.
In November 2010, the Company raised approximately AU$6million (after costs) through
the issue of new shares and immediately committed most of these funds to a new 3D
seismic survey, of Gwydion which was completed by PGS April 2011. Processing of the
seismic data was finalised in December 2011, with IPB’s interpretation completed by
March 2012. As a result of this work, IPB selected the Pryderi oil prospect as the location
for the next exploration well on the permit.
IPB has also been proactive in pursuing other acreage opportunities. With domestic oil
production in Australia in decline the government are keen to promote new indigenous
exploration, development and production through the annual release of acreage offshore.
In May 2012, following a successful bid in 2011 IPB was awarded the WA-471-P permit
immediately and strategically north of WA-424-P. It is here, with the benefit of the newly
acquired Gwydion 3D survey, that IPB could observe extensions of a number of similar
exploration plays identified in WA-424-P.
Having achieved two large permit areas and identified a exploration lead Pryderi, the
company raised a further AU$2.5 million in June 2012 for working capital and ongoing
25. WH Ireland 25
IPB PETROLEUM
activities. In September 2012, IPB signed a binding Farmout Agreement with CalEnergy –
100% owned by MidAmerican Energy Holdings Company. MidAmerican Energy Holdings
is approximately 90% owned by Berkshire Hathaway controlled by the ‘Sage of Omaha’
Warren Buffett who is considered to be the world’s most successful investor in the 20
th
Century.
26. WH Ireland 26
IPB PETROLEUM
Management
Shane Tanner (Non Executive Chairman)
Mr Tanner was appointed to the Board in October 2010 as an Independent Non-Executive
Chairman as well as a member of the Audit Committee. He is Chairman of Vision Eye
Institute Limited, Funtastic Limited and Paragon Care Limited, all listed entities. Mr Tanner
has strong and varied Commercial and Financial experience over a 30-year period. He is
a former CFO of Mayne Nickless Limited and was the inaugural CEO of Symbion Health
(formerly MN Diagnostics) and Chaired the IPO Committee of the Board of Optus
Communications prior to its listing on the ASX. Mr Tanner has helped many start-up
companies over the years develop through acquisition and organic growth into sizable
organisations.
Brendan Brown (Managing Director)
Mr Brown founded the Company in May 2009 and has over 20 years’ experience in the oil
and gas and finance industries. Having commenced his career as an engineer with BHP
Petroleum Limited (now BHP Billiton Limited), he has been involved in various projects
and operations including the Jabiru, Challis, Skua and Griffin oil field developments. He
has been a successful analyst and corporate adviser with ANZ Investment Bank, and
assisted Nexus Energy Limited as an independent advisor with its hostile takeover
defence in 2006. While subsequently employed at Nexus Energy in 2007–2008 as Head
of Finance and Business Development, he was responsible for substantial financing, both
equity and structured debt, secured by the company and the negotiation and maintenance
of its key commercial agreements and relationships.
Phillip Smith (Technical Director)
Mr Smith was appointed as the Technical Director in October 2010. He has over 30 years’
experience working as an Exploration Geoscientist and commenced his career in London
with Phillips Petroleum and Kufpec before coming to Australia to join Woodside Petroleum
Limited and then BHP Petroleum Limited (now BHP Billiton Limited). Mr Smith’s positions
in his 15 years with BHP Petroleum Limited were in senior technical and managerial roles,
mainly involved in offshore basins around Australia. He was involved in oil and gas
discoveries in Elang, Laminaria, Maple and Argus. Later he joined Nexus Energy Limited
where he was responsible for building the exploration portfolio and was involved in the
Longtom and Crux appraisal and development projects.
Craig Mathieson (Non Executive Director)
Mr Mathieson was appointed to the Board in August 2012 as an Non-Executive Director
and Chairman of the Audit Committee. Mr Mathieson brings 10 years’ experience from the
Financial sector and is the Chief Executive Officer of The Mathieson Group. He currently
sits on the board of Funtastic Limited and Great Western Exploration Limited, both ASX-
listed companies. He was Managing Director of Don Mathieson & Staff Pty Ltd from 2001
to 2007 and also gained a banking and commercial background while working with the
business banking division of ANZ Bank and the property and finance division of St George
Bank.
Geoffrey King (Non Executive Director)
Mr King was appointed to the Board in January 2013 as a Non-Executive Director and
member of the Audit Committee. He brings over 30 years’ experience within the oil and
gas industry, having commenced his career with Esso Australia Limited. Mr King then
joined BHP Petroleum Limited (now BHP Billiton Limited) where he held a number of
management positions and was directly involved in oil and gas discoveries at Macedon,
Pyrenees, Montara, Argus and Gwydion. He was the Vice President of Exploration
Australia/Asia for 4 years with BHP Billiton Limited and has experience in offshore basins
around Australia. With his wealth of knowledge in the Australian market, Mr King also has
experience in the oil and gas sector in the United States and South East Asia. He brings a
particular insight into the area of exploration in the Browse Basin.
27. WH Ireland 27
IPB PETROLEUM
Risk Factors
Key factors are:
1) Oil Price Volatility
2) Exploration & Development Risk
3) Operations Risk
4) Environmental Risk
5) Funding Risk
6) Counterparty & Contractual Dispute
7) Permit Commitments
8) Early start up company
9) General global macroeconomic outlook
10) Market risk
11) Terrorism and other hostilities
12) Insurance
13) Reliance on key personnel
14) Government legislation and policy changes
15) Health & Safety
SWOT analysis
Strengths Weaknesses
Strong financial backers from CalEnergy/Berkshire
Hathaway/Warren Buffett. Farm in agreement pre drill which
underlines this.
Experienced ex BHP technical/ commercial team familiar
with geology and prospects.
Under explored area of Browse basin – shallow water with
relatively low NPV economic breakeven threshold.
Early exploration play, with perceived high risk Doesn’t have
operatorship of core asset Pryderi and WA-424-P field.
Threats Opportunities
Pryderi failure in July.
Lower oil & gas prices.
Cost overruns and inflation either on exploration or
development phases
Further financial resources from CalEnergy to acquire more
acreage or extend exploration programme.
Additional acreage from Australian licensing round in 2013.
Other farmouts, asset divestments as part of funding.
28. WH Ireland 28
IPB PETROLEUM
Share Price Target
The share price target is the level the stock should currently trade at if the market were to accept the analyst’s view
of the stock and if the necessary catalysts were in place to effect this change in perception within the performance
horizon.
Stock Rating Distribution
As at the quarter ending 31 March 2013 the distribution of all our published recommendations is as follows:
Recommendation Total Stocks Percentage % Corporate
Buy 71 76 54
Speculative Buy 14 15 14
Outperform 3 3 3
Market Perform 5 6 2
Underperform 0 0 0
Sell 0 0 0
Total 93 100 73
This table demonstrates the distribution of WH Ireland recommendations. The first column illustrates the distribution
in absolute terms with the second showing the percentages.
Conflicts of Interest Policy
This research is classified as being “non-independent” as defined by the FCA’s Conduct of Business Rule 12.3.
Please refer to www.wh-ireland.co.uk for a summary of our conflict of interest policy.
*WH Ireland provides paid for research and investor relation services
WH Ireland may have acted as manager in the underwriting or placement of securities of this company within the
last 12 months.
Within the past 12 months, WH Ireland has received compensation for investment banking services from this
company.
WH Ireland has received compensation for providing research services to IPB Petroleum Limited.
Analyst Certification
The research analyst or analysts attest that the views expressed in this research report accurately reflect his or her
personal views about the subject security and issuer.
Companies Mentioned
Share Price Date/Time
Company Name Recommendation Price Price Date/Time
IPB Petroleum Buy 25 cents 16
th
May 2013
Summary of Security Recommendations
Recommendation From To Analyst
Buy 16
th
May 2013 Current CA
Current Analyst (CA), Previous Analyst (PA)
WH Ireland Recommendation Definitions
Buy
Expected to outperform the FTSE All Share by
15% or more over the next 12 months.
Outperform
Expected to outperform the FTSE All Share by
5/15% over the next 12 months.
Market Perform
Expected to perform in line with the FTSE All
Share over the next 12 months.
Underperform
Expected to underperform the FTSE All Share
by 5/15% or more over the next 12 months.
Sell
Expected to underperform the FTSE All Share
by 15% or more over the next 12 months.
Speculative Buy
The stock has considerable level of upside but
there is a higher than average degree of risk.
Disclosures
Disclaimer
This research recommendation is intended only for
distribution to Professional Clients and Eligible
Counterparties as defined under the rules of the Financial
Services Authority and is not directed at Retail Clients.
This note contains investment advice of both a general and
specific nature. It has been prepared with all reasonable
care and is not knowingly misleading in whole or in part.
The information herein is obtained from sources which we
consider to be reliable but its accuracy and completeness
cannot be guaranteed. The opinions and conclusions given
herein are those of WH Ireland Ltd. and are subject to
change without notice. Clients are advised that WH Ireland
Ltd. and/or its directors and employees may have already
acted upon the recommendations contained herein or
made use of all information on which they are based. WH
Ireland is or may be providing, or has or may have
provided within the previous 12 months, significant advice
or investment services in relation to some of the
investments concerned or related investments.
Recommendations may or may not be suitable for
individual clients and some securities carry a greater risk
than others. Clients are advised to contact their investment
advisor as to the suitability of each recommendation for
their own circumstances before taking any action. No
responsibility is taken for any losses, including, without
limitation, any consequential loss, which may be incurred
by clients acting upon such recommendations. The value
of securities and the income from them may fluctuate. It
should be remembered that past performance is not
necessarily a guide to future performance. For our mutual
protection, telephone calls may be recorded and such
recordings may be used in the event of a dispute. Please
refer to www.wh-ireland.co.uk for a summary of our
conflicts of interest policy and procedures.
The distribution of the Document in certain
jurisdictions may be restricted by law and therefore
any person into whose possession they come should
inform himself about and observe any such restriction.
In particular, they must not be distributed by any
means (including electronic transmission) to persons
with addresses in Canada, Australia, Japan, the
Republic of South Africa, or to persons with addresses
in the United States of America, its territories or
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Australia, Japan, the Republic of South Africa or the
United States or to any corporation, partnership, or
other entity created or authorised under the laws
thereof. Any such distribution could result in a
violation of Canadian, Australian, Japanese, South
African or United States Law.
Company Name Recommendation Price Price Date/Time
IPB Petroleum Buy 25cents 16
th
May 2013
Inpex N/R ¥466,500 16
th
May 2013
Woodside Petroleum N/R AU$37.7 16
th
May 2013
BHP Billion N/R 1895p 15
th
May 2013
Royal Dutch Shell N/R 2294p 15
th
May 2013
Karoon Gas N/R AU$631 16
th
May 2013
BP N/R 468p 15
th
May 2013
TOTAL N/R €38.90 15
th
May 2013
