Vous êtes sur la page 1sur 16

u

Evolution X
S EC U R I T IES
www.evosecurities.com

Nautical Petroleum (NPE.L) (initiated as) Buy


Price/Target: 8p/17p Initiation of coverage 15 June 2007

Value in Heavy Oil

X Large portfolio of defined heavy oil reserves and resources

X Current oil prices make economic development attractive

X Development underway, cash flow in from late 2008/9

X Farm out deal lowers exploration drilling costs

Known reserve base in low risk area


Nautical has built up a significant portfolio of heavy oil reserves and resources,
Source: JCF Group
predominantly in the UK North Sea, at modest cost. 2P reserves and resources add up
to around 70m bbls contained in seven discoveries.
Reuters NPE.L
Bloomberg NPE.LN
Mariner development to go for FDP approval by early 2008
EVO Sector Resources - Oils
EVO Sub Sector Oils
The development of the Mariner field (22m bbls net to NPE) is likely to accelerate once
Listing AIM
Chevron’s stake has been sold to a more enthusiastic operator. Nautical has a 27%
No. of Shares 1078m stake. FDP approval is likely in early 2008. A successful Kraken appraisal (24m bbls net
Free Float 30% to NPE) in 2H07 could lead to another rapid field development.
Next News drilling - Sept
Low risk exploration and appraisal in 2007/8
Market Cap £88m Many heavy oil discoveries have remained dormant for years due to low oil prices and
Net Cash (FY07E) £8.2 previous lack of technological solutions. As prices and technology have improved,
Pension Surplus/(Deficit) (E) £0m Nautical has been able to farm out a portion of its interests to a third party whilst
Post Tax ROCE (E) 0% getting a significant portion of its costs paid, thus reducing financial exposure. The
ROE (E) n.a active well programme for 2H07/2008 has unrisked upside of over 30p/share.
Net Debt/(Equity) (E) cash
EBIT Interest Cover (E) 0x Attractive portfolio and valuation
The combination of higher oil prices and the difficulty of finding new reserves through
Share price performance: Abs Rel to FTA exploration makes Nautical’s portfolio increasingly attractive. Indeed, once the initial
1 mth -6% -10% heavy oil development is underway we might expect the company to prove attractive to
3 mths 2% -9%
a third party. Our core NAV of 6p is based on Mariner only, whilst core plus risked
12 mths -29% -31%
discoveries is 17p, and risked exploration (excluding the 24th round blocks) takes core
plus risked EMV to 23p/share.
Keith Morris
+44 (0) 20 7071 4408
keith.morris@evosecurities.com Year end June 30 2005A 2006A 2007E 2008E 2009E
Sales (£m) 0.0 0.0 0.0 0.0 0.0
EBITDA (£m) 0.0 -2.6 -2.0 -2.5 -3.0
EVO PBT (£m) 0.0 -7.2 -1.6 -2.5 -3.0
EVO Securities makes markets in Nautical
EPS (p) 0.0 -0.9 -0.4 -0.3 -0.3
Petroleum
DPS (p) 0 0 0 0 0
P/E (x) - - - - -
EV/Sales (x) - - - - -
EV/EBITDA (x) -32.1 -18.6 -17.4 -21.1 -27.3
The company has reviewed a draft of this research EV/EBITA (x) -32.1 -6.4 -17.4 -21.1 -27.3
note and factual changes have been made. FCF Yield (%) 0.0 -3.1 -17.3 -29.0 -28.6
Yield (%) - - - - -
June 07

Heavy Oil, low risk


AIM investors have become increasingly risk averse towards long lead time
exploration-only portfolios. However, in our view they have ignored the low risk,
high reward potential for exploiting known heavy oil reserves in the UK North Sea.

Nautical portfolio has development Many of these discoveries were made in the 1980’s and 1990’s when oil prices were
rather than exploration risk significantly lower than today and before major advances in horizontal and highly
deviated well technology. These have radically improved project economics of such
field developments.

Nautical has gathered together a unique portfolio of developable 2P reserves,


known resources requiring appraisal and low risk exploration opportunities.

The attraction of this portfolio is as follows:

X Known reserves

X Balanced portfolio of development, low risk appraisal and exploration

X Development projects very profitable at current oil prices

X Fiscal security – UK North Sea, OECD, no appropriation of assets!

X Prospect of cash flow from field development – Mariner FDP to be submitted


in early 2008, Kraken later in 2008 – if appraisal well successful

X Short term news flow as three well slots are secured for 2007/8

X Farm out to SK Corp. reduces Nautical’s financial exposure enabling the


company to undertake the active exploration programme without further
equity funding

2P reserves of Mariner underpins The core value of 2P reserves associated with the initial field development at
¾ of current share price Mariner almost underpins the current share price. With existing discoveries, the
core NAV rises to 17p. Core plus risked EMV upside is at least 23p/share, without
adding any value for latest UK 24th round licence awards.

2
June 07

Business overview
Nautical formed by Masefield Nautical was established in 2005 to secure, develop and add value to heavy oil
Group and listed through reverse discoveries initially in the UK and Continental Europe. The company was funded by
takeover of Bullion Resources the Masefield Group, a crude oil & products trading group. It was listed on AIM in
March 2005 as Nautical Petroleum through a reverse takeover of Bullion Resources.

International Energy Group (formerly Masefield Energy Holdings) retain a 44.1%


holding in Nautical.
An extensive portfolio has been built up at minimal cost in the North Sea and
France, with reserves and resources of over 70m barrels net to Nautical.

Focus on existing heavy oil The bulk of the licences are focussed on the UK East Shetland Platform, where the
reserves in UK North Sea majority of the North Sea heavy oilfields are located.

In 2006 Nautical secured a significant farm out to SK Corporation subsidiary Celtic


Oil which:

X confirms the prospectivity and potential of the exploration acreage

X reduces Nautical’s financial exposure and risk for exploration drilling

Economics of heavy oil


Viscosity is the major technical API gravity (the relative density of the petroleum liquid and the density of water) is
challenge in the development of usually mentioned as the main problem for economic development of heavy oil, but
heavy oil fields it is the viscosity (measured in centipoise – cp), the ability of the oil to flow which is
the real influence on project economics. Viscosity is often, but not universally
related to, API gravity.

The Department of Trade and Industry define “heavy” oilfields as reservoirs with in-
situ viscosities >5cp. They also indicate that the UKCS could contain around 10
billion barrels of heavy oil in place.

The majority of UK heavy oil fields occur in shallow reservoirs of the Lower Tertiary,
consisting of high porosity unconsolidated sands with excellent permeability. The oil
columns are usually at least partly underlain by water and some have primary gas
caps. The low gravity and high viscosity is usually attributed to biodegradation.
These reservoir parameters present a special set of reservoir engineering challenges
because of the difficulty of achieving and maintaining sufficiently high production
rates to allow economic development.

The high horizontal permeability makes these reservoirs good candidates for the
application of horizontal well technology.

Chevron’s heavy oil Captain field Chevron has already developed the Captain field (started production in 1997),
has been successfully producing where the oil is 19 degree API. We note that the viscosity in this field is higher than
since 1997 Mariner (88-150 cp). The development scheme is based on horizontal producing
wells from two drilling centres, and consists of a drilling platform and FPSO.
Horizontal lengths in excess of 6000 ft have been achieved. Artificial lift is achieved
using ESPs or hydraulic submersible pumps. Oil rates of 15,000 bopd have been
achieved in some of these wells.

Polymer injection for improving viscosity and reservoir conformance is proposed for
a pilot area of the Captain field.

An early well test is also planned by Chevron in 2008 on the large Bressay field
(3/28a) – a 11 degree API field with 1000 cp viscosity, , discovered in 1978, which is
adjacent to Nautical’s Kraken field.

3
June 07

Development projects
Mariner
Nautical has a 26.67% interest in the Mariner Field in blocks 9/11a.

This interest was obtained through the purchase of Alba Resources (Holdings) Ltd.
and First Mariner Ltd in August 2005.

The Mariner Field was discovered in 1982 by well 9/11-2.

The oil is 15 degree API with viscosity of 65 centipoise.

Change in ownership of Mariner Chevron (CVX) is the operator of the project, but has recently put its 44.44% stake
should accelerate development up for sale as the field is not large enough to be of sufficient interest to the $174bn
plans market cap company. Nautical believe this is a positive move as they understand
that there are a number of independent players keen to acquire CVX’s stake and
operatorship of the project, and unlike CVX will be keen to rapidly move forward
towards development. We believe the other partner in the field is Eni with a 28.89%
stake are keen to move the development forward as well.

A front end engineering development (FEED) study is being carried out and
Nautical still believes that a field development plan (FDP) can still be submitted to
the Department of Trade and Industry in early 2008 with a field start-up date of
2011-12.

Location Map of Mariner Field, UK North Sea

Source: Company data

4
June 07

Reserve potential
Maureen Formation – 2P recoverable reserves of 82m bbls (21.9m bbls net to
Nautical). The reserves have been independently audited by RPS Energy. The field
is very well defined using reprocessed 3D and with 16 well penetrations of the
reservoir.

The development project is likely to be involve an FPSO solution. The reservoir is


likely to be developed using long large diameter horizontal wells or multilateral
wells with a cold water flood scheme. Most of the oil should be recovered at high
watercut, so water handling is a key to the topside process facilities.

Upside potential
A secondary reservoir, the Heimdal Sandstone has contingent resource of 51m bbls
gross, 13.6m net. The oil is more difficult to develop – 12 degree API and 540 cp
viscosity. This reservoir could be developed as a second phase after the Maureen
Formation development is in decline.

Kraken 9/2b (NPE 45%)


Nautical has a 45% interest in block 9/2b awarded by the DTi on 1st October 2003,
and converted to a traditional licence in October 2005.

Located on the East Shetland Platform west of the North Viking Graben, block 9/2b
contains the 9/2-1a discovery drilled in 1985 by Occidental.
The well tested 15° API oil on DST from the Heimdal Sandstone Member of the
Lista Formation which is Palaeocene Tertiary in age. Analysis to date has confirmed
an oil column of at least 33 metres (the base of the oil column was not encountered
in the well) and the interpretation of reprocessed 3D seismic reveals a large closure
up to 18 kilometres long and 5 kilometres wide.

Location Map of Kraken prospect, UK North Sea

Source: Company data

5
June 07

Reserve potential
The field could contain 490 mmbo (3P) oil in place as evidenced by studies by
Equipoise Solutions with best estimate contingent resources of 53mmbo (assessed
by RPS Energy).

Nautical has reprocessed over 200 kilometres of 1998 3-D seismic and has
interpreted this along with the 3-D over the nearby Bressay discovery to confirm a
large structural closure.

An appraisal well is planned for 3Q07 which will include a vertical crestal test to
confirm increased sand thickness and thicker hydrocarbon column and a planned
eastern flank sidetrack to determine the oil water contact. If successful, this is
potential development candidate for 2008. Again conceptual development studies
could point to using an FPSO, or a fixed structure and pipeline.

Reserves
The table below shows the current status of 2P reserves and contingent resources.

Nautical – 2P reserves and contingent resources


Field/ Discovery NPE % interest Net reserves (2P) m bbls

Mariner (Maureen Formation) 26.67 21.9

Net contingent resource

Mariner (Heimdal Formation) 26.67 13.6

Kraken 45% 23.9

Seahorse 15/7 (Funnel) 50% 8.5

Grenade 22% 2.8

Source: Company data - audited by RPS Energy

In addition Nautical has risked resource in existing discoveries at Skipper &


Bluebeard.

Production
Nautical has no current production. However, as mentioned earlier it has several
projects which could come forward for development in late 2007/ early 2008, which
could lead to production and cash flow in 2009 onwards.
In addition, the Grenade well in France could be put on a pumped production test
in mid 2008.

6
June 07

Potential of the exploration & appraisal programme


Appraisal and low-risk exploration In November 2006 Nautical announced that it had secured two rigs slots from Peak
wells in 2007/8 Group for wells to be drilled in the North Sea in 2007.

Potential of 2007/8 drilling programme


Well P50 net Risk of Unrisked
reserves success value
(company) (company) (p/share)

Kraken (9/2b) – appraisal (3Q07) 23.9m 100% 5.5

Grenade (St Laurent)– appraisal (4Q07) 2.8m 100% 0.6

Mermaid (9/11c)– exploration (4Q07) 77.4m 20% 18.0

Selkie/Kelpie (8/25a)– exploration (1H08) 21m 20% 4.9

Bluebeard – appraisal (2007/8) * 8.2m 33% 1.9

* assumes farm out


Source: Company data, EVO Securities

The Grenade onshore France well will be drilled using a local onshore drilling rig
and the well is likely to put on pump in spring 2008.

Appraisal programme can double The appraisal programme could easily double the 2P reserve base, and could lead
core value to the number of project developments increasing from 1 to 3.

The effect on the Core NAV would be to increase from 6p/share to over 12p/share.

Exploration programme can almost Meanwhile, the exploration prospects in 2007/8 (Mermaid, Selkie/Kelpie and
double core plus risked EMV value Bluebeard) have the potential to increase the core plus risked EMV upside from 23p
to 43p/share.

Board of Directors
Ian Williams – Chairman and member of Masefield Group Executive committee
27 years with Royal Dutch Shell.

Stephen Jenkins – CEO


Extensive upstream experience with Nimir Petroleum and previously with other oil
companies.

Hemant Thanawala – FD and member of Masefield Group Executive committee


Chartered accountant, previously FD of Rostel Group and CFO of Premier
Telesports Group.

Paul Jennings – Commercial Director


25 years in oil & gas as accountant, economist, commercial and business
development director.

All of the above were either employees of or consultants for Masefield, prior to the
setting up of Nautical.

7
June 07

Finances
No current production and cash As mentioned, Nautical has no current production and therefore no cash flow from
flow operations, relying on cash on the balance sheet to fund the exploration and
appraisal programme.

Most exploration expenditure incurred is capitalised and therefore the main cash
outflow comprises overhead associated with running the company. The company
has a small number of employees and relies on parent Masefield for some office
functions and consultants for some technical work.

Currently Nautical had around $18m of cash on the balance sheet.

The group has reduced its financial exposure to the exploration and appraisal
programme through a farm out process.

Farm out to SK Corp reduces The company estimates that the farm out to SK Corp. (Celtic Oil) is worth around
exploration/appraisal capex $30m based on current rig rates and 3D seismic acquisition costs.

Nautical is confident that it has sufficient attraction in its exploration portfolio to


ensure that it can negotiate similar favourable farm-ins to continue the process of
maximising exposure without too much financial risk.

Development plan approval will As far as development expenditure is concerned, there is no doubt that the
allow project-based finance company could use reserve-based project finance the bulk of the capital
expenditure for a Mariner and Kraken development once FDP approval has been
obtained. However, a modest equity issue cannot be ruled out to ensure continued
financial flexibility.

Once Mariner and/or Kraken is up and running, the company can write-off
exploration expenditure against income from these fields to reduce the tax take
(currently 50%).

8
June 07

Valuation
In the absence of cash flow and earnings, Nautical’s valuation is based on an
assessment of the discounted value of the 2P reserves (Core NAV), the risked
contingent resources and the risked expected monetary value (EMV) of the near
term exploration programme. The details are summarised below.

Valuation table
2P Reserves (boe) Value $m p/share
1077m shares in issue (fully diluted)
Core assets
Mariner (26.67%) 21.9 109 5.1
Balance sheet 20 0.9
Core NAV 129.3 6.0
Risked Discoveries Unrisked resources Risked value
Kraken 23.9 119.3 5.5
Seahorse 8.5 42.5 2.0
Grenade 2.8 13.9 0.6
Mariner (Heimdal) 13.6 22.4 1.0
Skipper 16.1 26.5 1.2
Bluebeard 8.2 13.5 0.6
Risked Discoveries 238 11.0
Risked Exploration (EMV)
Mermaid 77.4 77.4 3.6
Kelpie/Selkie 21 21 1.0
3/27a – lead C 19.1 19.1 0.9
Mariner Heimdal upside 16.2 16.2 0.9
Risked Exploration 133.7 133.7 6.2

Core plus risked EMV 501.1 23.3

Based on $50/bbl, 10% discount rate, $/£ FX of 2.00


Assumes farm out of Skipper and Bluebeard
No value attributed to 24th round blocks at this stage
Source: EVO Securities

We have assessed the value of Nautical’s 2P reserves using a conservative set of


assumptions, using economics similar to the existing Captain development. This
gives a 2P per barrel number of around $5/bbl – assuming a 15-20% discount to
Brent (although we understand that the typical discount is actually only around an
11% discount).

Sensitivity
Increasing the value of 2P reserves oil in the ground to $8/bbl (not unrealistic based
on the forward curve of $70/bbl rather than our conservative $50/bbl long term)
increases our core NAV of the Mariner asset to 9.0p/share, which is greater than the
current share price.

9
June 07

Recommendation
It is clear that Nautical has an attractive portfolio of reserves and resource which is
being largely ignored by the market, due to the reluctance of the market to
“believe” in the economic viability of heavy oil.

In our view, the combination of successful appraisal and exploration in 2007 and a
field development plan for Mariner should trigger a reassessment of the economics
and value of these reserves. We set a price target of 17p/share based on our risked
assessment of the existing reserves and resources.

In our view, in the absence of a stock market reassessment, the company could be
vulnerable to a takeover, provided Masefield is willing to realise its investment.

10
June 07

Asset Portfolio – details


Summary map of Nautical portfolio

Source: Company data

3/27a – NPE 45%


Farmed out 2 of 1 to SK Corp (Celtic Oil).

A number of leads in the Heimdal, & Lista Formations.

8/5 & 9/1


100% interest acquired in 23rd round – 2 leads.

8/25a (NPE 60%)


Located on the East Shetland Platform the block contains 2 prospects (Selkie and
Kelpie) at the Palaeocene (Dornoch Formation) level analogous to the Skipper
discovery, made by 9/21-2 immediately to the east.

Selkie is mostly covered by recent 3D seismic, and 2D seismic has been purchased
and 4-way dip closure has been confirmed. Kelpie is an analogous low risk trap to
the east.

11
June 07

The combined best estimate prospective resource is 35m bbls gross and 21m bbls
net.

Company puts the risk of success at 1 in 3.

The block was farmed out to SK Corp (Celtic Oil Limited) with Nautical retaining a
60% interest. SK are paying 80% of the well costs to get a 40% stake.

9/2b – see Kraken SK paying 60% for a 30% stake.

9/11c (NPE 60%)


SK Corp farmed in paying a 2 for 1 promote (pay 80% for 40% stake) for a well in
2H07. Site survey already acquired and rig slot allocated.

Located on the East Shetland Platform directly south of the Mariner discovery, the
block contains a large trap (Mermaid prospect) which is stratigraphically and
structurally analogous to the Mariner discovery and with the same reservoir
(Maureen Formation).

The 3D seismic has been reprocessed, interpreted and has confirmed the
robustness of the trap. Best estimate of prospective resources of 129m bbls gross,
77.4m bbls net to Nautical.

9/12b (NPE 98.5%)


Three wells have been drilled 9/12-3 (1975), 9/12b-6 (1985) and 9/12b-4 (1982), the
first two wells flowing 144 bopd and 728 bopd respectively from the Maureen
Formation.

This is the same reservoir as the Mariner discovery with better quality oil, 18-19° API
and less than 20cp. A further shallower reservoir, Eocene Mousa Formation was oil
bearing in 9/12-3.

A Competent Persons Report commissioned by Engen assigns a “best estimate”


contingent resource of 16.9 mmbo (gross) to the Bluebeard discovery.

9/21 (NPE 98.5%)


The block contains the Skipper discovery made in 1990 by the 9/21-2 well.

The well encountered a 16 metre oil column in excellent quality Palaeocene


Dornoch Formation sands.

An FDP, based on best estimate contingent resources of 33.1 mmbo (gross) and 2D
seismic interpretation was submitted to the DTI in October 2005.

15/7 (NPE 50%)


Located in the Outer Moray Firth, North of Witch Ground Graben and North Piper
Basin, the Block contains a heavy oil discovery made by Texaco in 1977 (Funnel).

The group have acquired 170 km2 of 3D seismic and 145 kms of 2D seismic,
confirming the extent of the oil discovery and identified further leads.

Nautical will reprocess 100 km2 of 3D and 100 km of 2D seismic to further define
the Seahorse Prospect (formally Funnel) and firm up the mapped leads.

12
June 07

France – St Laurent (NPE 22%)


This licence contains the Grenade discovery (GAR-1) drilled in 1975. The well
encountered a 75m heavy oil column in Albian carbonates. The well produced 8,000
barrels in a series of tests. Additional seismic has been shot and interpreted.

Best estimate contingent resources of 12.6m bbls gross, 2.8m bbls net to Nautical.
A high angle/ horizontal well is to be drilled in 4Q07 and tested in 1H08.

24th round blocks


Nautical was successful in gaining all the blocks it applied for in the UK 24th
licencing round. The following summarises the awards of 4 licences covering 7
blocks containing 3 discoveries.

113/29c, 113/30 (NPE 50%)


In the East Irish Sea basin. Looking for Triassic reservoirs as seen in Morecambe
field. Contains the large Merrow prospect with best estimate prospective resource
of 123m bbls or 393bcf gas in 2 horizons. Well likely to be drilled from an onshore
location directionally into the prospect which is in shallow water.

28/9, 28/10b (NPE 15%)


In the West Central Platform. Contains the Catcher prospect (best estimate
contingent resource of 30m bbls gross) and other leads define by DHI’s on 3D
seismic. Low 20’s API oil predicted. A well is to be drilled within 12 months.

14/30a (NPE 20%)


In the Outer Moray Firth. Contains the Tudor Rose discovery with best estimate
contingent resource of 38m bbls gross with stratigraphic upside.

2/3a, 2/4b (NPE 33.3%)


In the East Shetland platform. Contains 2/4-1 well, a discovery with 16.6 API oil.

Best estimate contingent resource of 40m bbls gross (2 prospects), 13.2m bbls net
to Nautical.

Process Equipment
Nautical owns (100%) specialised process equipment specifically designed for the
Mariner field extended well test (EWT). The equipment is suitable for use in testing
of heavy oils down to 10° gravity and will be used on the testing of 9/2b discovery
and on any other Nautical development programmes. The equipment can handle
up to 40,000 barrels per day of liquid production of which 25,000 barrels per day
can be oil. The resultant export stream has 0.5% basic sediment and water (BS &
W).

Ownership and control of this equipment affords Nautical commercial leverage and
competitive advantage. Having the means to more rapidly appraise and develop
heavy oil accumulations and to minimise plant supply lead times allows fast track
development programmes.

13
June 07

Disclosures & Disclaimers

Analyst Details
Keith Morris Abbot Group Afren Bateman Litwin Dragon Oil
Oil & Gas Research Analyst Emerald Energy Expro Faroe Petroleum Gulf Keystone Petroleum
Hunting PLC JKX Oil Lamprell Melrose Resources
Petroceltic Petrofac Sondex Sterling Energy
Wood Group

Recommendation History Charts (For the last 12 months to previous days closing)

Recommendation chart for Nautical Petroleum is not available as this is an initiation of coverage.

14
June 07

% of recommendations % of recommendations % of recommendations


(all stocks) (corporate stocks) (non corporate stocks)

not rated
not rated
Sell 4% 2%
7% not rated
Sell 3% Reduce
25%
Reduce 13%
11%
Buy 43%
Buy 46%
Sell 0%
Reduce
Buy 58%
4%

Add 13%
Add 31% Add 36%

Updated on a quarterly basis; last updated 9 May 2007

Evolution Securities – Recommendation Guide


Buy: Expected to outperform the FTSE All-Share Index by 10% or more in the next 12 months
Add: Expected to outperform the FTSE All-Share Index by up to 10% in the next 12 months
Reduce: Expected to underperform the FTSE All-Share Index by up to 10% in the next 12 months

Sell: Expected to underperform the FTSE All-Share Index by 10% or more in the next 12 months

Evolution Securities previous recommendation structure (to 21 July 2006) was similarly segmented into buy, add, reduce and sell recommendations. For
FTSE 100 stocks buy and sell recommendations were based on +10% and -10%, respectively, expectations of share price performance; FTSE Mid 250 stocks
buy and sell recommendations were based on +15% and -15%, respectively, expectations of share price performance; and for FTSE Small Cap, Fledgling
and AIM buy and sell recommendations were based on +25% and -25%, respectively, expectations of share price performance.

DARWIN Recommendations

DARWIN recommendations were introduced on 19 October 2005 and therefore there are no DARWIN recommendation history charts. For stocks under
formal coverage, readers should refer to the normal recommendation history charts and substitute ‘Add’ or ‘Buy’ with × and ‘Reduce’ or ‘Sell’ with Ø.
A copy of our publication, “Introducing DARWIN” is available at http://www.research.evosecurities.com/DARWIN.pdf

This document is issued by Evolution Securities Ltd (ESL) (Incorporated in England No. 2316630), which is authorised and regulated in the United Kingdom by
the Financial Services Authority (FSA) for designated investment business and is a member of the London Stock Exchange.
This document is for information purposes only and should not be regarded as an offer or solicitation to buy the securities or other instruments mentioned in
it. Expressions of opinions are those of the research department of ESL only and are subject to change without notice. No representation or warranty, either
expressed or implied, is made nor responsibility of any kind is accepted by any Evolution Group company, its directors or employees either as to the accuracy
or completeness of any information stated in this document. There is no regular update series for research issued by ESL.
ESL and/or its officers, directors and employees may have or take positions in securities mentioned in this document (or in any related investment) and may
from time to time dispose of any such securities (or instrument). ESL may act as a market maker in the securities of companies discussed in this document (or
related investments), and may sell them or buy them from customers on a principal basis and may also perform underwriting services for or relating to those
companies.
ESL or persons connected with it may provide or may have provided corporate services to the issuers of securities mentioned in this material and
recipients of this document should not therefore rely on this report as being an impartial document. Accordingly, information may be known to ESL
or persons connected with it which is not reflected in this material.
ESL has a conflicts management policy in relation to its investment research activities, this is available at:
http://www.research.evosecurities.com/conflicts.pdf
The stated price of any securities mentioned herein is as at the end of the 13 June 2007 unless otherwise stated and is not a representation that any
transaction can be effected at this price. No personal recommendation is being made to you; the securities referred to may not be suitable for you and
should not be relied upon in substitution for the exercise of independent judgement.
ESL shall not be liable for any direct or indirect damages, including lost profits arising in any way from the information contained in this material. This
material is for the use of intended recipients only and only for distribution to professional and institutional investors, i.e. persons who are authorised persons
or exempted persons within the meaning of the Financial Services and Markets Act 2000 of the United Kingdom, or persons who have been categorised by
ESL as intermediate customers under the rules of the FSA.
This document is being supplied to you solely for your information and may not be reproduced, re-distributed or passed to any other person or published in
whole or in part for any purpose.
The material in this document is not intended for distribution or use outside the United Kingdom. This material is not directed at you if ESL is prohibited or
restricted by any legislation or regulation in any jurisdiction from making it available to you.

15
June 07

Price / Target

Nautical Petroleum 8p / 17p Buy


Business Info Capitalisation
Exploration & production company focussed on heavy oil Reuters/Bloomberg NPE.L / NPE.LN Market Cap £88m

Issued Shares 1078m Net Cash/(Debt) (E) £8.2m

EVO Sector Resources - Oils 12 mth high/low 12p / 7p Pension Surplus/(Deficit) (E) 0m

EVO Sub Sector Oils Free Float 30%

Year end June 2005A 2006A 2007E 2008E 2009E Year end June, % 2005A 2006A 2007E 2008E 2009E

P&L (£m) Growth Drivers

Sales (excluding joint ventures) 0.0 0.0 0.0 0.0 0.0 Sales growth - - - - -

EBITA 0.0 -7.6 -2.0 -2.5 -3.0 EBITA growth - - - - -

Net Interest 0.0 0.4 0.4 0.0 0.0 EPS growth - - - - -

EVO PBT 0.0 -7.2 -1.6 -2.5 -3.0 DPS growth - - - - -

Exceptionals and other adjustments 0.0 0.0 0.0 0.0 0.0 Effective tax rate - - - CR CR

Per share data (p) Returns (%)

EVO EPS 0.0 -0.9 -0.4 -0.3 -0.3 Gross margin 0.0 0.0 0.0 0.0 0.0

Consensus EPS 0.0 -0.9 0.3 - - EBITDA margin - - - - -

DPS EBITA margin - - - - -

NAV 27.3 6.5 4.5 4.2 3.9 Asset turn 0.0 0.0 0.0 0.0 0.0

Cash flow (£m) Post-tax ROCE - - - - -

EBITDA 0.0 -2.6 -2.0 -2.5 -3.0 Valuation (x)

Change in working capital 0.0 -0.3 1.0 0.0 0.0 P/E - - - - -

Interest, tax & pref dividends 0.0 0.3 0.4 0.0 0.0 EV / Sales - - - - -

Free cashflow 0.0 -2.7 -0.6 -2.5 -3.0 EV / EBITDA -32.1 -18.6 -17.4 -21.1 -27.3

Capex and acquisitions net 0.1 -4.7 -2.0 -20.0 -20.0 EV/EBITA (x) -32.1 -6.4 -17.4 -21.1 -27.3

Share issues / (buybacks) 0.0 18.0 0.0 0.0 0.0 FCF Yield (%) 0.0 -3.1 -17.3 -29.0 -28.6

Dividends (paid) Yield (%) - - - - -

Other items -0.6 0.7 0.0 0.0 0.0 Financial gearing (x)

Change in net cash -0.5 11.3 -2.6 -22.5 -23.0 Net Debt/Equity (%) 2.1 - 4.8 57.0 116.0

Closing net cash -0.5 10.8 8.2 -14.3 -37.3 Net Debt/EBITDA 23.8 - 0.4 4.8 9.8

Balance sheet (£m) EBITA interest cover - - - - -

Net assets 21.2 53.2 48.8 45.3 42.2 Dividend cover 0.0 0.0 0.0 0.0 0.0

Capital employed 21.6 42.3 51.1 71.1 91.1

100 Wood Street London EC2V 7AN


Tel: 44 (0)20 7071 4300 Fax: 44 (0)20 7071 4457
Email: research@evosecurities.com