African Petroleum: Standing on the shoulders of giants

African Petroleum (APCL) is an Oslo-listed explorer with a regional focus on West Africa. The company’s strategic remit is to pick up early stage exploration assets ahead of the pack, work up the prospectivity in house and then look to sell-down to the industry at a
premium in exchange for a carry through drilling. Much of the hard graft has been done already. The company signed its first two licences offshore Liberia a decade ago and has progressively expanded the portfolio, adding eight blocks in nearby Côte d’Ivoire, Sierra Leone, Senegal and Gambia. It now presides over the largest net acreage position in the
prolific West African Transform Margin (WATM). Moreover, following an intensive period of data gathering, APCL has acquired 3D seismic over all its licences and matured a drillready prospect inventory with an estimated 12.5 bn bbls of net prospective oil resources
(independently assessed by ERC Equipoise).
The primary focus for the company now is to close out an advanced, multi-asset farm-out
process. At the forefront of these talks are its Côte d’Ivoire and Gambia/Senegal assets which have attracted a flurry of industry interest (due to proximal oil discoveries in 2014 by Total in Côte d’Ivoire and Cairn in Senegal – see Figure 1, above) and are poised for
drilling to start in late 2015-16. Despite a subdued farm-out market, we remain confident that APCL will secure exploration funding on attractive terms (2 for 1, or better), providing industry endorsement and line of sight on a near-term, high impact multi-well programme. Moreover, in contrast to many small-caps, APCL has retained operatorship and control of
all its licences through the seismic acquisition phase, providing the flexibility to sell down
without undue dilution to drilling. With an unrisked NAV of 47x the current share price, we believe that the equity market is materially undervaluing the potential of the portfolio. Accordingly, we reiterate our BUY recommendation with a NOK 0.88/shr price target.

http://www.africanpetroleum.com.au/system/files/Mirabaud - APCL Research Note.pdf