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INDUSTRY | COMMENTJANUARY 9, 2012

International E&P - An Early Spring Clean

Macro Update: Continued Strong Oil Price FocusesAttention On Stock Specifics

Today’s small changes to our macro assumptions have been overshadowed bythe roll forward of our discount date, to January 2012, and a early springcleaning – we have taken the opportunity to review all our NAVs and TargetPrices, including a first stab at modelling Cairn Energy’s earnings withoutCairn India, DNO International’s earnings (cash flow) with Rak Petroleumand Gulfsands Petroleum post EU sanctions in Syria.Discount rate assumptions: Our new sum-of-the-parts valuations arediscounted from the start of 2012, which has benefited the companies withnear-term developments, and we have widened the range of applicablediscount rates from eight to 20% to reflect the increase breadth of our peergroup.Macro Changes: We have revised our earnings and cash flows forecasts forthe 2011 actuals, but our 2012+ Brent oil price forecasts are unchanged -$109/bbl in 2012, $113/bbl in 2013 and $102/bbl long-term real, thereafter.Our long-term exchange rate assumptions, including dollar/sterling at $1.60/£,are also unchanged.As a result of our "Spring Cleaning" we have today made a series ofrecommendation changes:Upgrades:Tullow Oil to Outperform (Above Average Risk) from Sector Perform - the"quality" name in the sector, with an enviable opportunity set.Downgrades:Bankers Petroleum to Sector Perform (Above Average Risk) fromOutperform, without a rising oil price the market awaits the delivery ofproduction growth.Heritage Oil to Underperform (Speculative Risk) from Sector Perform -appears strategically challenged.Valiant Petroleum to Sector Perform (Speculative Risk) from Outperform -lacks catalysts in a competitive North Sea-focused subgroup.

Priced as of prior trading day's market close, EST (unless otherwise noted).All values in USD unless otherwise noted.

RBC Europe Limited

Al Stanton (Analyst)(+44) (0)131-222-3638; [email protected]

Nathan Piper (Analyst)(+44) (0)131-222-3649;[email protected]

James Hosie, CFA (Analyst)(+44) (0)131-222-3695; [email protected]

Theresa Pfab, CA (Associate)(+44) (0) 131 222 3696;[email protected]

For Required Non-U.S. Analyst and Conflicts Disclosures, see page 16.

2

Oil Price Outlook

World oil prices underwent a roller-coaster ride during 2011, lifted by the Arab spring and Japanese nuclear crisis and besieged by the

European sovereign debt crisis and renewed risk of a double-dip recession. In our eyes, the global oil price equation in 2012 is as

much supply as it is demand driven, revolving around the pace at which Libya's oil production regains ground and the potential for

firmer demand conditions to take shape.

Against the backdrop of moderate demand growth and recovering Libyan production, global oil fundamentals are poised for a much

needed breather following a year in which the supply/demand landscape tightened. Barring unforeseen outages, principally in Iran,

OPEC-11 usable spare capacity levels should remain relatively stable in the 3.6 - 3.8 mmb/d range as OECD stocks recover. These

factors have been reflected in our unchanged Brent outlook of $109/bbl in 2012 and $113/bbl in 2013.

Five key points:

US Dollar Stability. Amongst other factors outlined below, our Brent outlook of $109/bbl in 2012 and US$113/bbl in 2013

reflects a relatively stable US dollar on a trade weighted basis.

Brent-WTI Spread. Our outlook reflects a WTI discount to Brent of $9/bbl in 2012 and $7/bbl in 2013. Over the long haul, we

anticipate that WTI will trade at a $2/bbl discount to Brent.

Global Oil Demand. Amid moderate global GDP growth of 3.25% in 2012, we anticipate global oil demand growth of 1.0mmb/d

(to 90.0mmb/d) and a further 1.3mmb/d (to 91.3mmb/d) in 2013 as economies regain momentum. We anticipate further regression

in oil demand in the industrialized economies - principally the United States and Europe, while the Middle East (0.27mmb/d of

demand growth) and China (0.47mmb/d of demand growth) remain the twin engines of global oil demand growth.

Global Oil Supply. Our global oil supply growth outlook of 2.5% (2.2mmb/d) in 2012 and 1.5% (1.3mmb/d) in 2013 is reflective

of a partial return of Libyan oil production and an improving non-OPEC supply picture. Iranian oil production of 3.7mmb/d

remains intact throughout our forecast period.

Exhibit 1 - Market appears to be waiting for an oil price correction… while we see good value

-75%

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50%

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Pre

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Average prem/disc to NAV (LHS)

Brent Oil price (RHS)

Source RBC Capital Markets estimates and Reuters

International E&P - An Early Spring CleanJanuary 9, 2012

3

Exhibit 2 - Sector appears to be discounting $70/bbl oil

-

20

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80

100

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Exhibit 3 - Premium/discount to NAV

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4

Exhibit 4 - Changes to Valuations and estimates

Rating Changes Valuation Cash Flow per Share Recurring Earnings NAV per Share

Price Target 2011E 2012E 2013E 2011E 2012E 2013E RBC

Company Ticker Price Current Prior Risk P/NAV Target Change Implied Return New Change New Change New Change New Change New Change New Change New Change

Int E&P Large Cap

Ecopetrol S.A. EC $46.02 SP SP A 1.1x $43.00 (2.3%) (7%) $5.41 1.7% $5.88 (0.0%) $6.70 (0.0%) $4.19 2.1% $4.69 0.0% $5.52 0.0% $43.14 (0.1%)

Int E&P Mid Cap

Bankers Petroleum BNK C$4.85 SP O AA 0.5x C$7.00 (22.2%) 44% $0.67 2.8% $1.07 (2.9%) $1.52 (6.1%) $0.21 6.3% $0.41 (3.2%) $0.62 (7.0%) C$9.65 6.7%

Cairn Energy CNE 267p SP SP AA 0.8x 320p (17.9%) 20% $0.89 7.0% $0.01 (99.4%) ($0.00) (100.1%) $0.10 (71.6%) ($0.01) (101.1%) ($0.01) (102.2%) 320p (17.4%)

DNO International DNO Nk7.80 SP SP AA 0.5x Nk10.00 0.0% 28% Nk0.81 (4.8%) Nk1.11 (65.7%) Nk4.10 77.5% Nk0.31 NM Nk0.52 (81.4%) Nk3.52 78.8% Nk14.23 4.0%

EnQuest ENQ 98p SP SP AA 0.6x 135p (15.6%) 37% $0.76 (0.8%) $0.82 (0.0%) $0.85 (0.0%) $0.07 (0.3%) $0.17 (0.0%) $0.21 (0.0%) 156p (2.5%)

Gran Tierra Energy GTE C$5.02 O O AA 0.5x C$10.00 (9.1%) 99% $1.28 1.4% $1.49 (0.3%) $2.25 (0.1%) $0.47 3.9% $0.66 (0.6%) $1.20 (0.3%) C$9.86 (7.8%)

Heritage Oil HOIL 197p U SP S 1.0x 200p (16.7%) 2% ($0.09) NM ($0.06) NM ($0.07) NM ($0.10) NM ($0.13) NM ($0.14) NM 203p (16.6%)

JKX Oil & Gas JKX 140p SP SP AA 0.4x 350p 0.0% 151% $0.49 0.4% $0.54 (0.0%) $0.63 (0.1%) $0.25 0.8% $0.34 (0.1%) $0.39 (0.2%) 370p (0.3%)

Kosmos Energy KOS $13.21 O O AA 0.8x $17.00 6.3% 29% $1.18 0.5% $1.49 (10.3%) $1.96 (0.7%) ($0.02) NM $0.73 (13.9%) $1.08 (1.2%) $16.84 10.3%

Lundin Petroleum LUPE Sk175.30 SP SP AA 1.0x Sk200.00 11.1% 14% $3.06 2.9% $3.09 0.3% $2.85 9.1% $0.58 (12.5%) $0.59 1.2% $0.61 12.4% Sk181.51 10.7%

Niko Resources NKO C$49.16 O O AA 0.5x C$100 0.0% 103% $6.46 0.0% $4.59 0.2% $4.36 (0.1%) $2.60 0.0% ($1.03) NM $1.69 (0.1%) C$101.20 2.7%

Ophir Energy OPHR 299p O O S 0.7x 400p 11.1% 34% ($0.04) NM ($0.04) NM ($0.05) NM ($0.12) NM ($0.21) NM ($0.14) NM 414p 13.2%

Pacific Rubiales Energy PRE C$19.41 SP SP AA 0.5x C$36.00 9.1% 85% $4.16 3.4% $6.68 0.0% $7.61 0.0% $2.53 5.9% $3.62 0.0% $4.43 0.0% C$36.10 2.6%

Petrominerales PMG C$17.58 O O AA 0.4x C$40.00 (7.0%) 128% $7.87 1.8% $8.71 0.0% $9.43 0.0% $3.34 4.5% $5.19 0.0% $5.86 0.0% C$39.63 (8.7%)

Premier Oil PMO 377p *****Restricted*****

Salamander Energy SMDR 215p SP SP AA 0.7x 290p (6.5%) 35% $1.08 1.7% $1.37 0.0% $1.77 0.0% $0.31 6.2% $0.65 0.0% $1.00 0.0% 287p (13.6%)

SOCO International SIA 298p O O S 0.5x 450p (10.0%) 51% $0.41 (3.5%) $1.68 (4.9%) $1.05 (0.0%) $0.36 (3.3%) $1.39 (4.9%) $0.84 (0.1%) 545p (2.3%)

Tullow Oil TLW 1408p O SP AA 0.8x 1700p 13.3% 21% $1.67 (0.1%) $2.16 (8.0%) $2.50 1.3% $0.72 (0.4%) $0.86 (11.8%) $1.21 4.4% 1732p 10.1%

Average - Mid Cap (3.1%) 1.0% (12.7%) (4.5%) (15.4%) (0.5%)

Int E&P Small Cap

Amerisur Resources AMER 17p O O S 0.4x 43p (6.5%) 157% $0.01 2.3% $0.04 0.0% $0.11 0.0% $0.00 2.6% $0.03 0.0% $0.09 0.0% 43p (6.3%)

Antrim Energy AEN C$1.16 O O S 0.6x C$2.00 0.0% 72% $0.01 0.2% $0.08 (25.7%) $0.35 4.4% ($0.03) NM ($0.03) NM $0.07 (8.6%) C$1.99 2.4%

Chariot Oil & Gas CHAR 109p O O S 0.3x 350p 9.4% 220% ($0.02) NM ($0.02) NM ($0.03) NM ($0.02) NM ($0.02) NM ($0.03) NM 387p 11.7%

Encore Oil EO 77p *****Restricted*****

Faroe Petroleum FPM 156p O O S 0.6x 260p 0.0% 67% 22.9p 3.1% 43.3p 7.4% 39.4p (4.3%) (6.9p) NM 5.5p 10.1% 6.1p 0.0% 258p 0.1%

Gulfsands Petroleum GPX 183p SP SP S 0.7x 220p (38.9%) 21% $0.53 (30.6%) ($0.24) (120.7%) ($0.26) (119.5%) $0.20 (52.5%) ($0.32) (136.9%) ($0.34) (131.3%) 262p (36.9%)

Hardy Oil & Gas HDY 162p SP SP S 0.6x 260p 0.0% 60% $0.02 8.3% $0.03 0.1% $0.03 0.1% ($0.00) NM $0.01 0.2% $0.01 0.2% 269p 1.1%

Ithaca Energy IAE C$2.17 O O AA 0.6x C$3.50 7.7% 61% $0.32 (0.6%) $0.99 (8.8%) $1.36 47.9% $0.18 (1.0%) $0.39 (9.3%) $0.52 41.1% C$3.51 9.6%

Kea Petroleum KEA 5p SP SP S 0.5x 9p 0.0% 100% (0.7p) NM (0.6p) NM (0.6p) NM (0.7p) NM (0.6p) NM (0.5p) NM 9p 0.2%

Nautical Petroleum NPE 266p O O S 0.5x 500p (16.7%) 88% (3.0p) NM (3.6p) NM (4.4p) NM (4.3p) NM (5.1p) NM (5.9p) NM 502p (14.9%)

Parex Resources PXT C$7.76 O O S 0.7x C$11.00 0.0% 42% $0.68 3.8% $1.69 (0.9%) $1.65 (2.5%) $0.50 11.0% $1.78 (0.4%) $1.72 (1.2%) C$11.59 2.7%

PetroMagdalena Energy PMD C$1.17 SP SP S 0.7x C$1.65 3.1% 41% $0.11 23.7% $0.23 (8.6%) $0.39 (6.4%) ($0.28) NM ($0.03) NM $0.04 (34.0%) C$1.67 2.8%

Primeline Energy PEH C$0.24 O O S 0.2x C$0.75 0.0% 213% ($0.01) NM $0.08 0.0% $0.29 0.0% ($0.01) NM ($0.01) NM $0.07 0.0% C$1.10 (3.6%)

Rialto Energy RIA A$0.26 O O S 0.3x A$0.70 (46.2%) 175% (A$0.00) NM (A$0.02) NM (A$0.03) NM (A$0.03) NM (A$0.02) NM (A$0.03) NM A$0.82 (42.1%)

Rodinia Oil Corp. ROZ C$0.10 U U S 1.4x C$0.10 0.0% 0% (C$0.02) NM (C$0.03) NM (C$0.03) NM (C$0.06) NM (C$0.03) NM (C$0.03) NM C$0.07 (22.8%)

Serica Energy SQZ 21p SP SP S 0.8x 26p (13.3%) 27% $0.04 1.5% $0.03 0.0% $0.00 0.0% ($0.05) NM ($0.05) NM ($0.05) NM 26p (16.5%)

Sterling Resources SLG C$1.75 O O S 0.5x C$3.50 0.0% 100% (C$0.13) NM C$0.15 (6.4%) C$0.67 (0.0%) (C$0.17) NM C$0.08 (13.1%) C$0.19 5.9% C$3.51 (0.0%)

Valiant Petroleum VPP 437p SP O S 0.5x 600p (25.0%) 37% $5.47 (0.2%) $5.95 (11.7%) $5.99 3.1% $1.46 0.3% $1.40 (14.3%) $1.84 3.3% 832p (8.4%)

WesternZagros WZR C$0.63 SP SP S 0.4x C$1.00 11.1% 59% ($0.02) NM $0.08 0.0% $0.08 0.0% ($0.02) NM $0.07 0.0% $0.07 0.0% C$1.75 19.8%

Average - Small Cap (6.1%) 1.0% (12.5%) (7.9%) (16.4%) (5.3%)

Int E&P Group Average (4.6%) 1.0% (12.6%) (5.5%) (15.8%) (3.0%)1 Niko Resources reports to a 31 March year-end. 2011 year presented is year ending 31 March 2012.

Source: RBC Capital Markets Estimates & Company Reports Priced as of close 4/1/12


5

Exhibit 5 - International E&P Valuation Table

Ratings and Targets Current Capitalistion 2011E 2011E 2012E 2012E 2013E 2013E Net Asset Value Cash Flow Multiples

Net Debt Prod. Prod. Prod. Prem /

Price Target Implied Shrs O/S Mkt Cap (Cash) EV mboe/d mboe/d mboe/d NAV (Disc) 2011E 2012E 2013E

Company Ticker Exch Analyst Rec Risk 04-Jan Price Return MM US$m US$m US$m 2011 CFPS EPS 2012E CFPS EPS 2013E CFPS EPS /share to NAV P/CFPS P/CFPS P/CFPS

Int E&P - London Listed

Amerisur Resources AMER AIM NP O S 17p 43p 157% 916.0 $240m ($21m) $219m 0.4 $0.01 $0.00 1.8 $0.04 $0.03 5.1 $0.11 $0.09 43p (61%) 39.7x 7.2x 2.4x

Antrim Energy AEY AIM JH O S 75p 125p 67% 184.1 $216m ($68m) $148m 1.6 $0.01 ($0.03) 2.2 $0.08 ($0.03) 3.5 $0.35 $0.07 127p (41%) 89.1x 14.0x 3.4x

Bankers Petroleum BNK AIM AS SP AA 300p 443p 48% 247.5 $1,160m ($6m) $1,153m 13.2 $0.67 $0.21 18.0 $1.07 $0.41 21.5 $1.52 $0.62 615p (51%) 7.2x 4.4x 3.2x

Cairn Energy CNE LSE NP SP AA 267p 320p 20% 1,406.3 $5,859m ($403m) $5,456m 99.8 $0.89 $0.10 0.0 $0.01 ($0.01) 0.0 ($0.00) ($0.01) 320p (17%) 4.8x 711.7x n/a

Chariot Oil & Gas CHAR AIM AS O S 109p 350p 220% 182.1 $311m ($140m) $171m 0.0 ($0.02) ($0.02) 0.0 ($0.02) ($0.02) 0.0 ($0.03) ($0.03) 387p (72%) n/a n/a n/a

Encore Oil EO AIM JH 77p ***** Restricted ****

EnQuest ENQ LSE JH SP AA 98p 135p 37% 802.7 $1,232m ($266m) $966m 23.8 $0.76 $0.07 23.0 $0.82 $0.17 24.0 $0.85 $0.21 156p (37%) 2.1x 1.9x 1.8x

Faroe Petroleum FPM AIM JH O S 156p 260p 67% 212.4 $517m ($39m) $478m 3.3 22.9p (6.9p) 7.5 43.3p 5.5p 8.9 39.4p 6.1p 258p (39%) 6.8x 3.6x 4.0x

Gulfsands Petroleum GPX AIM AS SP S 183p 220p 21% 121.4 $346m ($80m) $266m 8.5 $0.53 $0.20 0.3 ($0.24) ($0.32) 0.3 ($0.26) ($0.34) 262p (30%) 5.6x n/a n/a

Hardy Oil & Gas HDY LSE NP SP S 162p 260p 60% 72.8 $184m ($37m) $148m 0.4 $0.02 ($0.00) 0.4 $0.03 $0.01 0.4 $0.03 $0.01 269p (40%) 129.7x 98.9x 98.0x

Heritage Oil HOIL LSE AS U S 197p 200p 2% 259.3 $797m ($592m) $204m 0.9 ($0.09) ($0.10) 1.9 ($0.06) ($0.13) 2.9 ($0.07) ($0.14) 203p (3%) n/a n/a n/a

Ithaca Energy IAE AIM JH O AA 139p 225p 62% 259.2 $561m ($99m) $462m 3.7 $0.32 $0.18 9.0 $0.99 $0.39 12.4 $1.36 $0.52 223p (38%) 6.9x 2.2x 1.6x

JKX Oil & Gas JKX LSE NP SP AA 140p 350p 151% 172.1 $375m ($62m) $313m 9.3 $0.49 $0.25 14.5 $0.54 $0.34 18.5 $0.63 $0.39 370p (62%) 4.5x 4.1x 3.6x

Kea Petroleum KEA AIM NP SP S 5p 9p 100% 509.4 $36m ($20m) $16m 0.0 (0.7p) (0.7p) 0.0 (0.6p) (0.6p) 0.0 (0.6p) (0.5p) 9p (52%) n/a n/a n/a

Nautical Petroleum NPE AIM JH O S 266p 500p 88% 87.7 $364m ($110m) $254m 0.0 (3.0p) (4.3p) 0.0 (3.6p) (5.1p) 0.0 (4.4p) (5.9p) 502p (47%) n/a n/a n/a

Ophir Energy OPHR LSE AS O S 299p 400p 34% 365.6 $1,704m ($353m) $1,351m 0.0 ($0.04) ($0.12) 0.0 ($0.04) ($0.21) 0.0 ($0.05) ($0.14) 414p (28%) n/a n/a n/a

Premier Oil PMO LSE NP 377p ***** Restricted ****

Salamander Energy SMDR LSE NP SP AA 215p 290p 35% 154.5 $519m $190m $709m 18.0 $1.08 $0.31 16.9 $1.37 $0.65 20.9 $1.77 $1.00 287p (25%) 3.2x 2.5x 1.9x

Serica Energy SQZ AIM JH SP S 21p 26p 27% 176.6 $57m ($18m) $43m 2.1 $0.04 ($0.05) 1.3 $0.03 ($0.05) 1.0 $0.00 ($0.05) 26p (20%) 7.8x 12.4x 121.7x

Soco International SIA LSE AS O S 298p 450p 51% 340.3 $1,585m ($162m) $1,423m 5.1 $0.41 $0.36 15.6 $1.68 $1.39 20.3 $1.05 $0.84 545p (45%) 11.7x 2.8x 4.5x

Tullow Oil TLW LSE AS O AA 1,408p 1,700p 21% 904.6 $19,889m $1,944m $21,833m 80.5 $1.67 $0.72 97.2 $2.16 $0.86 106.6 $2.50 $1.21 1,732p (19%) 13.5x 10.2x 9.0x

Valiant Petroleum VPP AIM JH SP S 437p 600p 37% 40.5 $276m $8m $285m 7.5 $5.47 $1.46 7.7 $5.95 $1.40 9.0 $5.99 $1.84 832p (47%) 1.3x 1.1x 1.2x

Average - London Listed 65% (39%) 22.3x 62.6x 19.7x

Int E&P - Toronto Listed

Antrim Energy AEN TSX JH O S C$1.16 C$2.00 72% 184.1 $211m ($68m) $143m 1.6 $0.01 ($0.03) 2.2 $0.08 ($0.03) 3.5 $0.35 $0.07 C$1.99 (42%) 87.0x 13.9x 3.4x

Bankers Petroleum BNK TSX-V AS SP AA C$4.85 C$7.00 44% 247.5 $1,186m ($6m) $1,179m 13.2 $0.67 $0.21 18.0 $1.07 $0.41 21.5 $1.52 $0.62 C$9.65 (50%) 7.3x 4.5x 3.3x

Gran Tierra Energy GTE TSX NP O AA C$5.02 C$10.00 99% 261.1 $1,295m ($355m) $939m 24.3 $1.28 $0.47 28.1 $1.49 $0.66 37.5 $2.25 $1.20 C$9.86 (49%) 4.0x 3.4x 2.3x

Ithaca Energy IAE TSX-V JH O AA C$2.17 C$3.50 61% 259.2 $556m ($99m) $457m 3.7 $0.32 $0.18 9.0 $0.99 $0.39 12.4 $1.36 $0.52 C$3.51 (38%) 6.8x 2.2x 1.7x

Niko Resources NKO TSX NP O AA C$49.16 C$100.00 103% 51.6 $2,506m $205m $2,711m 49.1 $6.46 $2.60 39.4 $4.59 ($1.03) 36.8 $4.36 $1.69 C$101.20 (51%) 7.7x 10.7x 11.7x

Pacific Rubiales Energy PRE TSX NP SP AA C$19.41 C$36.00 85% 271.6 $5,208m $103m $5,311m 100.9 $4.16 $2.53 116.4 $6.68 $3.62 120.6 $7.61 $4.43 C$36.10 (46%) 4.7x 2.9x 2.7x

Parex Resources PXT TSX NP O S C$7.76 C$11.00 42% 77.2 $592m ($81m) $511m 5.3 $0.68 $0.50 17.0 $1.69 $1.78 17.0 $1.65 $1.72 C$11.59 (33%) 11.5x 4.6x 4.9x

PetroMagdalena Energy PMD TSX-V NP SP S C$1.17 C$1.65 41% 142.3 $164m $32m $196m 2.5 $0.11 ($0.28) 3.2 $0.23 ($0.03) 3.8 $0.39 $0.04 C$1.67 (30%) 10.3x 5.2x 3.1x

Petrominerales PMG TSX NP O AA C$17.58 C$40.00 128% 100.6 $1,748m ($285m) $1,462m 38.6 $7.87 $3.34 42.7 $8.71 $5.19 43.6 $9.43 $5.86 C$39.63 (56%) 2.3x 2.0x 1.9x

Primeline Energy PEH TSX-V NP O S C$0.24 C$0.75 213% 94.0 $22m ($2m) $20m 0.0 (C$0.01) (C$0.01) 0.0 C$0.08 (C$0.01) 1.2 C$0.29 C$0.07 C$1.10 (78%) n/a 3.1x 0.9x

Rodinia Oil Corp ROZ TSX-V NP U S C$0.10 C$0.10 0% 105.1 $10m ($51m) -$41m 0.0 (C$0.02) (C$0.06) 0.0 (C$0.03) (C$0.03) 0.0 (C$0.03) (C$0.03) C$0.07 40% n/a n/a n/a

Serica Energy SQZ TSX JH SP S C$0.35 C$0.42 20% 176.6 $61m ($18m) $43m 2.1 $0.04 ($0.05) 1.3 $0.03 ($0.05) 1.0 $0.00 ($0.05) C$0.42 (16%) 8.4x 13.5x 135.0x

Sterling Resources SLG TSX-V JH O S C$1.75 C$3.50 100% 222.6 $385m ($22m) $363m 0.1 ($0.13) ($0.17) 2.6 $0.15 $0.08 8.9 $0.67 $0.19 C$3.51 (50%) n/a 11.5x 2.7x

WesternZagros WZR TSX-V AS SP S C$0.63 C$1.00 59% 371.2 $231m ($46m) $185m 0.2 ($0.02) ($0.02) 2.5 $0.08 $0.07 6.0 $0.08 $0.07 C$1.75 (64%) n/a 8.3x 8.2x

Average - Toronto Listed 76% (40%) 15.0x 6.6x 14.0x

Int E&P - Sydney Listed

Rialto Energy RIA ASX AS O S A$0.26 A$0.70 175% 375.0 $99m ($59m) $40m 0.0 (A$0.00) (A$0.03) 0.0 (A$0.02) (A$0.02) 0.0 (A$0.03) (A$0.03) A$0.82 (69%) n/a n/a n/a

Average - Sydney Listed 175%

Int E&P - New York Listed

Ecopetrol S.A. EC NYSE NP SP A $46.02 $43.00 (7%) 2.1 $95m $2m $96m 681.2 $5.41 $4.19 736.5 $5.88 $4.69 852.4 $6.70 $5.52 $43.14 7% 8.5x 7.8x 6.9x

Kosmos Energy KOS LSE AS O AA $13.21 $17.00 29% 375.7 $4,963m $375m $5,338m 16.3 $1.18 ($0.02) 23.2 $1.49 $0.73 28.9 $1.96 $1.08 $16.84 (22%) 11.2x 8.9x 6.7x

Average - New York Listed 11% (7%) 8.5x 7.8x 6.9x

Int E&P - Oslo Listed

DNO International DNO OSLO AS SP AA Nk7.80 Nk10.00 28% 1,023.3 $1,344m $22m $1,366m 25.9 Nk0.81 Nk0.31 36.1 Nk1.11 Nk0.52 43.0 Nk4.10 Nk3.52 Nk14.23 (45%) 9.6x 7.0x 1.9x

Int E&P - Stockholm Listed

Lundin Petroleum LUPE OMX JH SP AA Sk175.30 Sk200.00 14% 311.0 $7,979m $124m $8,103m 33.1 $3.06 $0.58 38.2 $3.09 $0.59 37.4 $2.85 $2.85 Sk181.51 (3%) 8.9x 8.2x 9.5x

Int E&P Group Average 62% (34%) 10.7x 15.4x 8.7x1 Niko Resources reports to a 31 March year-end. 2011 year presented is year ending 31 March 2012.

Assumptions 2011A 2012E 2013E Long Term

Brent Crude $110.97 $109.00 $113.00 $102.00

*Covered by Royal Bank of Canada - U.S. Branch analyst Scott Hanold +1 (512) 708-6354 [email protected] UK Natural Gas 56.3p/therm 60.0p/therm 60.0p/therm 61.3p/therm

**Covered by Royal Bank of Canada - Sydney Branch analyst Andrew Williams (+61) 3 8688-6578 US$/£ Forex US$1.60/£ US$1.56/£ US$1.60/£ US$1.60/£

[email protected] C$/US$ Forex C$0.99/US$ C$1.00/US$ C$0.96/US$ C$0.98/US$

Source: Reuters, RBC Capital Markets Estimates & Company Reports NOK/US$ Forex Nk5.55/US$ Nk5.78/US$ Nk6.00/US$ Nk6.00/US$

A$/$ Forex A$1.05/US$ A$1.02/US$ A$1.00/US$ A$1.00/US$


6

Price Target Impediments

Amerisur Resources (LSE: AMER; Outperform, Speculative Risk, 43p/share Price Target)

Valuation

We value Amerisur Resources on a sum-of-the-parts basis at a risked post-tax NAV of 43p/share. Our NAV comprises a „core‟ value

of 7p/share and risked upside of 36p/share.

Core value includes the company‟s producing assets, fields under development, and financial assets and liabilities, minus its near-term

exploration commitments. Risked upside consists of the undeveloped discoveries plus the company‟s 2011 exploration drilling

program. Through the next 12 months, successful drilling should grow the core value of Amerisur rapidly.

Our 12-month price target of 43p/share is based on our risked NAV, which is consistent with its International E&P peers with the

potential for clear near-term catalysts. In 2012 we expect exploration/appraisal newsflow from the Putumayo Basin (Colombia) and

later in Paraguay to generate further investor interest.

Price Target Impediment

• Security Risk: Amerisur has its principal assets in Colombia and Paraguay, so investors are exposed to the security risks of these

countries. In particular, the Putumayo Basin in southern Colombia remains an area of low-level but consistent unrest.

• 100% Crude Oil Weighted: As production is entirely crude weighting, Amerisur's earnings and cashflows are sensitive to changes in

WTI benchmark oil prices.

• Political Risks: Amerisur is exposed to political risks that could include oil and gas fiscal regime changes in the areas where it

operates. These could include changes in taxes, royalties, or license tenure.

• Exploration/Appraisal Risk: A significant portion of the capital budget is devoted to exploration and appraisal drilling, exposing

investors to exploration risks such as dry holes where money is invested and no value is created

Bankers Petroleum (TSX: BNK, LSE: BNK; Sector Perform, Above Average Risk, C$7.00 Price Target)

Valuation

On a sum-of-the-parts basis we now value Bankers at C$9.65/share (615p). Our PV10% comprises a core value of C$6.35/share

(405p) and risked upside of C$3.30/share (211p/share).

Our target price is now set at a discount to our NAV, as investors take a “show me attitude” to production growth – management

trimmed its production targets through 2011, and the market remains concerned by slow growth in 2012-2013 guidance, in our view.

Our target price is set broadly in line with our value of the company‟s 2P reserves, our PV10% of the company‟s producing Patos

Marinza oilfield.


The risks to the upside and downside include the pace of production growth. The company is scheduled to operate five rigs in Albania

from year-end 2011; however, it is unclear how the drilling slots will be allocated (between production growth and appraisal drilling

activity).

Bankers' leverage to the oil price is significant, so any fluctuations in the oil price will have a significant impact on investor sentiment.

We calculate that a $10/bbl change in our long-term oil price could generate a 20% swing in our NAV.

Cairn Energy (LSE: CNE; Sector Perform, Above Average Risk, 320p Price Target)

Valuation

On a sum-of-the-parts basis we now value Cairn Energy at 320p/share. Our PV10% comprises a core value of 320p/share with no

risked upside.

Our target price reflects the remaining value of the company‟s 22% stake in Cairn India on a market to market basis and its cash

position.


As Cairn has no confirmed 2012 drilling plans, the risks the company faces are focused on complete a deal to rejuvenate the portfolio

and also the value of Cairn India, listed on the Bombay Stock Exchange.

The company has limited leverage to the oil price or exploration drilling.


7

Chariot Oil & Gas (LSE: CHAR; Outperform, Speculative Risk, 350p Price Target)

Valuation

We value Chariot at 387p/share. Our PV15% consists of a core value of 23p/share, which includes cash-in-hand of ~$155m minus

exploration spending commitments (excluding those that will be funded by farm-in partners) and G&A costs, and upside potential of

364p/share, which includes an EMV of multi-well exploration drilling campaign offshore Namibia.

We assume that Chariot continues to bring in additional partners ahead of any drilling, and as a result our valuations and costs are

based on post farm-out equity stakes. Our 350p price target is set broadly in line with our NAV; our best valuation of the company

today; however, the results of any exploration drilling campaigns would results in our valuation shifting marketing. In the meanwhile,

we will continue to review our valuation after the company announces farm-out deals.


Following a successful placing in Q1/11, Chariot‟s risk profile swung away from funding to newsflow and exploration risk. Drilling

delays have undermined interest in the stock, and we do not expect investor interest to pick-up until management confirm it has

secured a rig to drill (in the near-term). BP‟s farm-in deal provided a significant endorsement of Namibia potential; but Chariot is

exploring in a frontier exploration province and the proposed two-well campaign should be considered as high-risk.

Ecopetrol (NYSE: EC; Sector Perform, Average Risk, $43 Price Target)

Valuation

We value Ecopetrol US$43/share based on a 80% weighting toward 1.0x our risked NAV and 20% toward our 10x average mid-cycle

cash flow multiple. We set our price target in-line with this valuation.


Risks to our target price specific to Ecopetrol include the following:

1) Delays in increasing pipeline capacity in Colombia hampering production growth;

2) Security risks in Colombia where the majority of the company's assets are located;

3) Lack of success in increasing the recovery factor from some of their large oil field onshore Colombia could impair critical reserves

replacement

EnQuest (LSE: ENQ; Sector Perform, Above Average Risk, 135p Price Target)

Valuation

On a sum-of-the-parts NAV basis, we value EnQuest at 156p/share. Our NAV includes a core NAV of 134p/share, which consists of

assets currently producing or approved for development and corporate adjustments including cash-in-hand and debt. A risked

valuation of the company‟s undeveloped discoveries and exploration portfolio totalling 22p/share is included as risked upside.

Our 12-month price target of 135p is set at 0.85x our NAV and in line with our valuation of our core NAV. EnQuest operates five

producing North Sea oilfields that generate significant operating cash flow, the company intends to reinvest this cash flow in further

development activity and business development opportunities. However, in our view, a lack of material exploration and appraisal

catalysts is likely to see the stock continue to trade at a discount to our full NAV and move in line with oil price sentiment during

periods of limited newsflow.


Consistent with other international E&P companies, our price target is exposed to material levels of commodity price risk, discount

rate risk, foreign exchange risk, and project execution risk.

EnQuest‟s portfolio is heavily weighted toward unhedged oil production, exposing the company‟s cash flow and valuation to a high

level of commodity price risk. The company is exposed to input cost inflation and field underperformance. Finally, with limited

internal reinvestment opportunities, EnQuest must attempt to acquire new assets at an attractive price, which may be challenging in a

high commodity price environment.


8

Gran Tierra Energy (TSX: GTE; Outperform, Above Average Risk, C$10/share Price Target)

Valuation

On a sum-of-the-parts basis, we value Gran Tierra at a post-tax NAV of $9.87/share. The NAV comprises a core value of $5.57/share,

which includes producing/near production assets and net financial position, and a risked upside of $4.30/share based on risked

development and exploration upside. Exploration upside potential is based on drilling in the next 12 months, where prospects have

been identified and where drilling is funded.

Our 12-month target price of $10.00/share is based on our NAV, which is consistent with Gran Tierra‟s international E&P peers that

have the potential for clear near-term catalysts. We expect high-impact drilling newsflow from the Putumayo Basin, Colombia and

Peru to continue to generate investor interest.


Security Risk: Gran Tierra has its principal assets in Colombia, Argentina and Peru, so investors are exposed to the security risks of

these countries.

100% Crude Oil Weighted: As production has significant crude weighting, Gran Tierra's earnings and cash flows are sensitive to

changes in WTI benchmark oil prices.

Political Risks: Gran Tierra is exposed to political risks which could include oil and gas fiscal regime changes in the areas it operates.

These could include changes in taxes, royalties or license tenure.

Exploration Risk: A significant portion of the capital budget is devoted to exploration drilling, exposing investors to exploration risks

such as dry holes where money is invested and no value is created.

Gulfsands Petroleum (LSE: GPX; Sector Perform, Speculative Risk, 220p Price Target)

Valuation

We value Gulfsands at 262p/share. Our PV20%, which reflects continued unrest in Syria, comprises a core value of 220p/share and

risked upside of 42p/share. Due to EU Sanctions the company has ceased production from Block 26 in Syria and in our NAV we

assume that the company does not recommence any activities in Syria until 2014. The outlook for Syria is not positive in the short-

term; but we do not believe that Gulfsands‟ title to the assets is being questioned and this stage; and despite assuming an extended

period of inactivity, we have calculated a valuation well above the current share price. Our 220p target price is set in line with our core

NAV.

Our target price is set well above the current share price, but due to the current unrest in Syria we do not expect the stock‟s discount to

NAV to unwind without an improving political situation in Syria, and as a result we remain neutral on the stock at this stage.


Risks to the downside are dominated by the political uncertainty in Syria, which may cause further delays recommencing production

from the Khurbet East field. Damage to the oilfield is also a possibility if the situation in Syrian worsens.

Risks to the upside include exploration successes in Tunisia and potential new ventures.


9

Heritage Oil (LSE: HOIL; Underperform, Speculative Risk, 200p Price Target)

Valuation

We value Heritage at 203p/share; our PV15% valuation includes a core value of 100p/share and risked upside of 103p/share. Cash (in

hand and restricted) comprises a significant portion of our NAV. We forecast that Heritage will end 2011 with ~$325m of cash-in-

hand and $405m of “restricted cash”, which has been set aside as collateral for a disputed CGT bill in Uganda. In our Heritage NAV

we include $283m (64p/share) held in escrow in London, but we have excluded/written off the $121m that management has paid to

the Uganda Revenue Authority (URA). In addition to this tax dispute woe would add that considerable uncertainty surrounds the value

of the company‟s Miran West gas discovery in Iraq. Our 200p target price is set in line with our NAV.


Risks to the upside include the injection of hard-to-anticipate new ventures and positive news from Kurdistan, Iraq. News from Iraq

could include a decision on oil exports from Kurdistan, which would have a significant bearing on investor sentiment towards all

companies active in the region. However, in early 2012 the political scene in Baghdad was becoming increasingly complex and any

decisions appear someway off. The outlook for Heritage is compounded by its gas-rich portfolio; if drilling at Miran West or Miran

East encounters light-oil-bearing reservoirs the outlook for the company would improve markedly.

The risk to the downside include a negative ruling on the tax dispute in Uganda. In the event that any arbitration goes against the

company, Heritage would have to release the $283m held in escrow and this would cut 64p/share from our NAV. Conversely a

successful appeal could possibly enable the company to recover the $121m paid to the URA.

Ithaca Energy (TSX: IAE; Outperform, Above Average Risk, C$3.50 Price Target)

Valuation

On a sum-of-the-parts NAV basis, we value Ithaca Energy at C$3.51/share (or 223p). Our NAV includes a Core NAV of C$3.11/share

(or 198p), which consists of assets currently producing or approved for development and corporate adjustments including cash-in-

hand and debt. A risked valuation of the company‟s undeveloped discoveries and exploration portfolio totalling C$0.40/share (or 25p)

is included as risked upside.

Our 12-month price target of C$3.50 (or 225p) is set at a multiple of 1.0x our NAV, which is consistent with the company's

International E&P peers with the potential for clear near-term catalysts. Ithaca is due to complete the Athena development in March,

drill the Hurricane appraisal well in H1/12 and should also submit a development plan for the larger Stella development shortly.


Consistent with other International E&P companies, our price target is exposed to material levels of commodity price risk, discount


The current portfolio‟s weighting toward ongoing and future development activity means that Ithaca has above average levels of

execution risk: development delays or cost increases could have a material negative impact on the stock price and our valuation. With

a significant proportion of its development activity focused on U.K. gas assets, Ithaca is exposed to the outlook for U.K. gas prices.


10

Kosmos Energy (NYSE: KOS; Outperform, Above Average Risk, $17.00 Price Target)

Valuation

On a sum-of-the-parts basis we value Kosmos at $16.84/share; this PV10% comprises of a $6.87/share core valuation, which we

define as fields onstream and under development plus financials, plus risked upside of $9.96/share, which encompasses longer-term

development candidates and its near-term exploration drilling prospects. Our pay-for-what-you-want NAV, which is effectively the

company‟s tangible assets, is $13.27/share.

Our $17.00 Price Target is set in line with our NAV; we expect positive newsflow from the ongoing appraisal of the company‟s

discoveries, including Enyenra, Tweneboa, Teak and Mahogany East to help unwind the current share price discount.


Consistent with other International E&P companies, our price target is exposed to material levels of oil price, inflation, project

execution and exploration risk. As a producer and oilfield developer, Kosmos‟ leverage to the oil price is significant; we estimate that

a $10/bbl swing in the Brent oil price would result in a 13% change in our NAV.

In Ghana, Kosmos has four discoveries which we expect to be brought onstream in the period from 2014-17. Delays to these fields

would negatively impact our production and cashflow forecasts and therefore our asset valuations.

Kosmos‟ Boujdour Offshore license lies offshore SADR, and is currently subject to a sovereignty dispute between SADR and

Morocco. We currently include no value for its Moroccan assets in our PV10%.

Lundin Petroleum (OMX: LUPE; Sector Perform, Above Average Risk, SEK200 Price Target)

Valuation

On a sum-of-the-parts NAV basis, we value Lundin Petroleum at SEK181.49/share (C$27.36). Our NAV includes a Core NAV of

SEK55.52/share, which consists of assets currently producing or scheduled for development and corporate adjustments including

cash-in-hand and debt. A risked valuation of the company‟s undeveloped discoveries and exploration portfolio totalling

SEK125.97/share is included as risked upside.

Our price target of SEK200 is set at a multiple of 1.1x our NAV, a premium which reflects our view of the upside potential from the

upcoming Avaldsnes appraisal campaign that could substantially de-risk the P10 resource estimate of 3.3bnboe. In addition, planned

development activity has the potential to more than double net production to around 75,000b/d in 2017 from 33,100b/d in 2011.

Meanwhile, active multi-year exploration campaigns in Norway and Southeast Asia provide the potential for further material growth

through the drill-bit.




The current portfolio‟s weighting toward ongoing and future development activity means Lundin has above-average levels of

execution risk: development delays or cost increases could have a materially negative effect on the stock price and our valuation. An

active driller, exploration risk is also significant for the company. Disappointing well results can have a material and rapidly negative

effect on the stock price and our valuation.


11

Nautical Petroleum (AIM: NPE; Outperform, Speculative Risk, 500p Price Target)

Valuation

On a sum-of-the-parts NAV basis, we value Nautical Petroleum at 502p/share. Our NAV includes a Core NAV of 48p/share, which

consists of assets currently producing or approved for development and corporate adjustments including cash-in-hand and debt. A

risked valuation of the company‟s undeveloped discoveries and exploration portfolio totalling 454p/share is included as risked upside.

Our 12-month price target of 500p is set at a multiple of ~1.0x our NAV, which is consistent with our base methodology for

International E&P companies with an established asset base and clear potential catalysts. Nautical is expected to make significant

progress toward commercialising its heavy oil discoveries during 2012 and is expected to resume high profile exploration activity in

the Catcher Area during H1/12.



rate risk, foreign exchange risk and project execution risk.

More specifically to Nautical, the company is faced with significant funding risk: both Nautical and its existing partners in the Kraken

discovery will require further funding or a partial divestment to develop the field. The company‟s participation in high impact drilling

activity in the Catcher Area also exposes Nautical to significant exploration risk. Disappointing well results can have a material and

rapid negative impact on the stock price and our valuation.

Ophir Energy (LSE: OPHR; Outperform, Speculative Risk, 400p Price Target)

Valuation

On a sum-of-the-parts basis we value Ophir at 414p/share; this PV12.5% is dominated by risked upside, which encompasses Ophir‟s

five gas discoveries offshore Equatorial Guinea and Tanzania, and its near-term exploration drilling prospects. Our 400p Price Target

is set in line with our NAV, which is our best estimate of the company‟s current worth; we see the potential for an unwinding of the

share price discount and steady value accretion on the back of repeatable drilling success.


Ophir currently has no producing assets, and therefore does not have operating cash flows to sustain investment levels; management

therefore needs access to capital in the medium term. We believe that the company has the resources to finance drilling into 2013; a

farm-out deal in Equatorial Guinea could further improve its finances. Competition for exploration acreage across Africa is strong and

includes a number of competitors with access to significant funding, posing a risk to chances of success in licensing rounds.

Pacific Rubiales Energy (TSX: PRE; Sector Perform, Above Average Risk, $36/share Price Target)

Valuation

On a sum-of-the-parts basis, we value Pacific Rubiales Energy at a post-tax NAV of $36.10/share. The NAV comprises a core value

of $19.88/share, which includes producing, near production assets and a net financial position and a risked upside of $16.22/share,

which we based on risked development and exploration upside potential. We base exploration upside on drilling in the next 12

months, where prospects have been identified and drilling has been funded.

Our 12-month target price of $36.00/share is based on our risked NAV which is consistent with Pacific Rubiales' international E&P

peers with the potential for clear near-term catalysts. We expect production and reserves growth from Block CPE6 and Quifa to

generate further investor interest.


Security risk: Pacific Rubiales has its principal asset in Colombia, so investors are exposed to the security risks of this country.

82% crude oil weighted: Because production has significant crude weighting, Pacific Rubiales' earnings and cash flows are sensitive

to changes in WTI/Brent benchmark oil prices.

Political risks: Pacific Rubiales is exposed to political risks, which could include oil and gas fiscal regime changes in areas where it

operates. These could include changes in taxes, royalties or license tenure.

Exploration risk: A significant portion of the capital budget is devoted to exploration drilling, which could expose investors to

exploration risks, such as dry holes where money is invested but no value is created.


12

PetroMagdalena (TSX-V: PMD; Sector Perform, Speculative Risk, $1.65/share Price Target)

Valuation

Our 12-month target price of C$1.65 is based on our NAV which is consistent with PetroMagdalena's international E&P peers with

the potential for clear near-term potential catalysts.

Our post-tax NAV of C$1.67/share comprises a core value of C$0.74/share, which includes producing/near production assets and net

financial position and a risked upside of C$0.93/share based on risked development and exploration upside. Exploration upside

potential is based on drilling in the next 12 months where prospects have been identified and a rig is secured.

We use a 12.5% discount rate in line with other small-cap international E&P companies


Production growth from exploration: PetroMagdalena's production growth is partly based on exploration success. Although relatively

low risk, discoveries are not guaranteed. If exploration drilling is unsuccessful it will impact the production targets.

Colombian Risk: PetroMagdalena has its principal assets in Colombia, so investors are exposed to the security risks of this country.

Debt Commitments: PetroMagdalena‟s previous management team burdened the modest producer with high debt levels, the focus in

2011 is meeting debt commitments, thus limiting exploration activity.

Petrominerales (TSX: PMG; Outperform, Above Average Risk, $40.00 Price Target)

Valuation

On a sum-of-the-parts basis, we value Petrominerales at a post-tax NAV of $39.63/share. Our NAV comprises a core value of $16.70,

which includes producing and near production assets and is net financials with a risked upside of $22.93/share, which is based on

risked development and exploration upside. Exploration upside potential is based on drilling in the next 12 months where prospects

have been identified and where drilling is funded. Our 12-month target price of $40/share is based on our risked NAV, which is

consistent with the company's international E&P peers with the potential for clear near-term catalysts. We expect production and

reserves growth from the Llanos Basin onshore Colombia along with extensive exploration news flow throughout 2012 to generate

investor interest.


Security Risk: Petrominerales has its principal assets in Colombia and Peru, so investors are exposed to the security risks of these

countries.

100% crude oil weighted: Because production has a significant crude weighting, Petrominerales' earnings and cash flows are sensitive

to changes in WTI benchmark oil prices.

Political Risks: Petrominerales is exposed to political risks, which could include oil and gas fiscal regime changes in the areas where it

operates. These could include changes in taxes, royalties or license tenure.

Exploration Risk: A significant portion of the capital budget is devoted to exploration drilling that exposes investors to exploration

risks such as dry holes where money is invested but no value is created.

Risk of High Decline: Production from the Corcel and Candelilla fields is characterised by high declines due to active water drive,

however the increasing well stock should mitigate this issue.


13

Rialto Energy (ASX: RIA; Outperform, Speculative Risk, A$0.70 Price Target)

Valuation

We value Rialto at A$0.82/share. The company is cash constrained and our PV15% is limited to our assessment of those projects that

can be financed from cash-in-hand and via a deal or a limited funded raising; at this stage we include no value for the company‟s

exploration assets in Ghana and Australia.

Our target price of A$0.70 is set well above the current share price because we believe Rialto‟s gas and oil accumulations on Block

CI-202 have significant potential. However, dilution remains a short-term key risk – a deal with a third-party may prove to be more

beneficial; nevertheless we anticipate our NAV to evolve materially in H1/12, probably falling before responding to any positive

organic newsflow and as a result we have set our target price at A$0.70, which is below our current NAV.


The company will also need additional capital to deliver its projects, so future equity fund raising are a possibility.

New field developments are inherently risky, and the resource estimates, development costs, timescales, production profiles, etc. could

vary markedly from our assumptions.

Looking further ahead the Cote d‟Ivoire‟s attractive gas sales terms may be renegotiated by the government, however, we have

already assumed some weakness in our NAV.

Salamander Energy (LSE: SMDR; Sector Perform, Above Average Risk, 290p Price Target)

Valuation

On a sum-of-the-parts basis, we value Salamander Energy at a post-tax NAV of 287p/share. The NAV comprises a core value of

82p/share and upside of 204p/share based on risked development and exploration upside potential. Our 12-month target price of 290p

is based on our NAV, which is consistent with Salamander's international E&P peers.


Exploration failure: The investment case for Salamander is weighted towards exploration so drilling failure would impact the value of

the company.

Production delays/interruptions: Salamander's production comes mostly from two small fields, so any interruptions to production

would have an impact on the company.

Serica Energy (AIM: SQZ; Sector Perform, Speculative Risk, 26p Price Target)

Valuation

On a sum-of-the-parts NAV basis, we value Serica Energy at 26p/share (or C$0.42). Our NAV includes a core NAV of 15p/share (or

C$0.26), which consists of assets currently producing or approved for development and corporate adjustments including cash-in-hand

and debt. A risked valuation of the company‟s undeveloped discoveries and exploration portfolio totalling 17p/share (or C$0.27) is

included as risked upside.

Our 12-month price target of 26p (or C$0.42) is set in line with our NAV, which includes only tangible assets and funded exploration

activity . The target reflects our valuation of the company‟s assets in the North Sea and Indonesia plus net financials.




More specific to Serica, the company faces significant divestment risk: management is actively seeking to divest the company‟s

Southeast Asian portfolio. It is also seeking to farm out exploration opportunities offshore Ireland before committing to drilling a well.

The timing and price of any deals will impact our valuation and the outlook for future activity.


14

SOCO International (LSE: SIA; Outperform, Speculative Risk, 450p Price Target)

Valuation

On a sum-of-the-parts basis we value SOCO at 545p/share. Our PV10% comprises a core value of 442p/share, and risked upside of

103p/share.

We expect progress with the TGT development offshore Vietnam to drive step change production and cash flow growth. Clear

progress should help unwind the current discount to our core NAV and subsequent growth and/or exploration success could help

unwind the discount to our total NAV. Therefore we have set our target price in line with our core NAV at 450p/share.


Production from TGT in Q4/11 increased more slower than the participants anticipated and further underperformance remains a risk

for SOCO - the performance of TGT significantly impacts SOCO‟s value and cash flow.

Although a developer and producer, SOCO‟s leverage to the oil price is relatively limited; this is due to the PSC terms in Vietnam; we

calculate that a $10bbl swing in the long-term oil price could generate a 9% swing in our NAV.

Tullow Oil (LSE: TLW; Outperform, Above Average Risk, 1700p Price Target)

Valuation

On a sum-of-the-parts basis we value Tullow at 1732p/share; our PV8% comprises a 532p/share core NAV (defined as fields onstream

and under development plus financials), and risked upside of 1200p/share. Tullow is arguably the “quality” name in our sector - its

portfolio encompasses world-class oil exploration and development opportunities. In 2012 we expect the company to submit field

development plans for the large Enyenra and Tweneboa fields, in Ghana, and undertake high-impact exploration drilling campaigns in

French Guinea, Guyana and onshore Kenya. We believe that drilling in Kenya (and Ethiopia) offers long-term potential, similar to

Uganda, where the conclusion, finally, of Tullow‟s ~$2.7billion divestment could help rewrite the company‟s balance sheet.

In our opinion Tullow warrants a premium rating relative to its peers – and this is reflected in the use of an 8% WACC; we have set

our 12-month target price at 1700p, which is in line with our PV8%.


The delayed sale of Tullow‟s Ugandan assets reverberates through the company‟s investment and business cases; but the strongest

impact is felt on its balance sheet. A ~$2.7billion cash injection would rewrite Tullow‟s balance sheet – net debt would fall to zero –

and enable management to embark with confidence on substantial exploration and development campaigns in the period to 2015.

The company‟s exposure to geographical/political risk is significant – assets in Ghana and Uganda account for ~75% of our gross

asset value (GAV). We would also note that future developments and exploration/appraisal drilling account for 70% of our GAV;

which indicates that the company‟s exposure to execution risk remains substantial.

Valiant Petroleum (AIM: VPP; Sector Perform, Speculative Risk, 600p Price Target)

Valuation

On a sum-of-the-parts NAV basis, we value Valiant Petroleum at 832p/share. Our NAV includes a Core NAV of 475p/share, which

consists of assets currently producing or approved for development and corporate adjustments including cash-in-hand and debt. A

risked valuation of the company‟s undeveloped discoveries and exploration portfolio totalling 357p/share is included as Risked

Upside.

Our 12-month price target of 600p is set at a multiple of ~0.7x, reflecting our view that Valiant needs to achieve another commercial

exploration success before the stock price will reflect the potential of its exploration inventory.



rate risk, foreign exchange risk and project execution risk.

More specifically to Valiant, the company is faced with significant exploration risk: the company is scheduled to drill a high impact

well on its Handcross prospect in 2012-13. Disappointing well results can have a material and rapid negative impact on the stock price

and our valuation. We also believe the company faces divestment risk as it seeks a farm in partner to reduce its costs in the deepwater

well.


15

WesternZagros Resources (TSX-V: WZR; Sector Perform, Speculative Risk, C$1.00 Price Target)

Valuation

Our WesternZagros NAV is C$1.75/share. Our PV15% valuation is dominated by risked upside of C$1.65/share, which includes our

valuation of the Kurdamir and Sarqala discoveries and an ongoing well on the Mil Qasim prospect, plus a core commercial value of

C$0.09/share (cash minus commitments).

Considerable uncertainty surrounds oil exports from Kurdistan, and we have tried to reflect this risk through field models that assume

a slower pace of development. Our 12-month target price is, however, set at a discount to our NAV at C$1.00/share to reflect the risks

faced ahead of the Mil Qasim well test result.


The result of the Mil Qasim production test could determine the near-term outlook for WesternZagros. In addition to the direct benefit

a positive result would open up a new play and could accelerate the arrival of a new partner. In our view, the allocation of the Garmian

Block‟s, 40%, Third-Party Participating Interest (PTTI) would result in a cash injection and a reduction in WesternZagros'

commitments on a go-forward basis; the company currently shoulders all the costs. The arrival of a credible partner should also be

seen as an endorsement.

The outcome of the current (licensing and oil export) disputes between the federal government in Baghdad and the Kurdistan Regional

Government in Erbil could have a marked impact on oil exploration and production activity in Kurdistan, including WesternZagros'

claim to the PSC and its ability to export crude from any future developments.


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Al Stanton, Nathan Piper, James Hosie and Theresa Pfab (i) are not registered/qualified as research analysts with the NYSE and/orFINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by aresearch analyst account.

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Distribution of RatingsRBC Capital Markets, Equity Research

Investment BankingServ./Past 12 Mos.

Rating Count Percent Count Percent

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