Pancontinental (PCL, $0.22) – Initiation with a BUY – Price...

Pancontinental (PCL, $0.22) – Initiation with a BUY – Price target $0.40
Get into a real gas play!
Africa is exciting ground now and East Africa in
particular has emerged as a new hydrocarbon
province with some 25 major discoveries and total
resources exceeding 100 Tcf by now.
The purest Australian play is PCL who have:
? Four blocks in offshore Kenya and $47 mln to
pursue the play;
? Just announced a gas discovery in their first well Mbawa with 52 meters of net gas pay; and we conclude
? The discovery extends the prolific East Africa play to Kenya now putting a premium on PCL’s acreage.
We value the stock at $0.59 based on comparisons with Cove who agreed a take-over with
Thailand’s PPTEP at US$1.9bn in August. However we believe that the activity needs to increase
next year for the stock to attain this level – unless consolidators continue to be active. Cove is in
some of the same blocks as PCL with similar equities, but also has an 8.5% stake in the highly
prospective Block 1 in Mozambique where to date some 7 discoveries have been made with median
resources of 30 Tcf. PTTEP won the company with a bid of $1.9 bn.
The hottest new LNG play - 25 discoveries from 28 wells
The East Africa play has large ‘complexes’ which are aerially extensive and
contain a number of accumulations. Their characteristic are:
? Very large accumulations with extensive turbedite sand bodies;
? Stacked multi plays (Mbawa has a secondary objective); and
? High deliverability of 100 – 200 mmscfd per well, two orders of
magnitude up from CSG wells.





Mbawa gas discovery and acreage
PCL entered the country early (2002) and now
participates in 4 blocks offshore Kenya with a multi play
prospectivity in the Tana River Delta.
PCL reported Mbawa to be a gas discovery in offshore
Kenya Block L8 in the Late Cretaceous. The 1st well
drilled in an area with a success rate close to 90%, the
discovery extends the successful East Africa play way
into the north of Kenya.
It is too early to be precise on the size, but a 52 m (170 f)
net gas column hints at a possible accumulation of > 1 Tcf.
The well is yet to reach its second objective in the Early
Cretaceous and Jurassic.
Mbawa is typical of the large and aerially extensive turbedite
plays which have been successful to date. Further drilling is
planned at Mbawa in L8 in late 2013. Tullow have a option to
acquire an additional 5% for a well contribution of up to $6
mln, thus reducing PCL’s share to 10%. We expect Tullow to
exercise the option and the well to be drilled late 2013.

and drilling is scheduled at the earliest in
late 2013 after a farmout by Operator
FAR(60%) and PCL (40%).
In blocks L10A and B BG are planning
an accelerated exploration program and
may drill two wells in late 2013.
At the last quarter PCL had a cash
position of $47 mln, which will go some
way to fund further exploration. We
assess that PCL will need more funding
once the drilling program is determined.
The upgrade of the acreage through the
Mbawa discovery should allow Far nad
PCL to strike a better deal for the farmin.
We estimate well costs to be in the order
of $80 mln untested ($100 mln tested)
PCL have a carry through a farmin from
Tullow for a 2nd well up to $6 mln for the
PCL share in the Mbawa block L8.
Namibia
PLC also have 3 blocks totalling 17,295 km2 (2012B, 2112A and 2113B) in offshore Namibia with an
85% interest and operatorship. PCL has identified a number of plays, some addressing large (>500
mmboe) potential.
Major Operators have been farmin into the acreage
(BP, Repsol). Brazilian operators are also active,
pursuing the ‘other side’ of the offshore pre-drift
Brazilian basins. The block is deemed to be in the oil
maturation window with a turbidite play.
The area will gain momentum in late 2012 and 2013
as BP and Petrobras, Chariot and HRT Participaceos
gear up for drilling.
Other Assets
PCL also hold some interests in on-and-offshore WA
Canning Basin that we do not attribute much value
to.
Which other Australian companies are in East Africa?
Other players are Far (FAR, $ 0.049, mkt cap $122 mln), with a 60% interest in Block L6 (seismic just
finished and a 30% interest in Block L9, as well as in 6 other countries – a bit of shale gas, some shop
work Jamaican acreage in a farmout for 7 years, some Minor production in China, and Offshore WA
block and some acreage in Guinea Biasau). We asses that the Kenya exposure is quite diluted and
drilling in FAR’s blocks in not scheduled until 2013/14.
Origin ($11.79, SELL) hold 20% in the Mbawa discovery – a rounding error in ORG’s valuation.