Energy: Oil & Gas - Bahamas Petroleum Company Plc

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November 5, 2010 Europe: Energy: Oil & Gas - E&P Norse Energy (NEC.OL): Political issues dampening potential value in New York; Neutral Investment Profile Low High Growth Growth Returns * Returns * Multiple Multiple Volatility Volatility Percentile 20th 40th 60th 80th 100th Norse Energy Corp (NEC.OL) Europe Oil & Gas Peer Group Average * Returns = Return on Capital For a complete description of the investment profile measures please refer to the disclosure section of this document. Key data Current Price (Nkr) 1.29 12 month price target (Nkr) 1.88 Upside/(downside) (%) 46 Market cap (Nkr mn) 687.8 Enterprise value ($ mn) 197.8 12/09 12/10E 12/11E 12/12E EBIT ($ mn) 2.4 (2.1) 5.1 13.4 EPS ($) 0.00 0.00 0.01 0.03 P/E (X) NM NM 21.1 8.3 EV/DACF (X) 32.6 37.2 12.9 7.3 Dividend yield (%) 0.0 0.0 0.0 0.0 FCF yield (%) (4.6) (7.1) (6.2) (1.5) CROCI (%) NM NM NM NM CROCI/WACC (X) -- -- -- -- EV/GCI (X) NM NM NM NM Price performance chart 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Nov-09 Feb-10 May-10 Aug-10 Norse Energy Corp (L) FTSE World Europe (GBP) (R) 320 310 Share price performance (%) 3 month 6 month 12 month Absolute (14.0) (46.1) (53.5) Rel. to FTSE World Europe (GBP) (19.6) (47.5) (57.8) Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 11/04/2010 close. Source: Company data, Goldman Sachs Research estimates, FactSet. 390 380 370 360 350 340 330 Investment view We initiate coverage of Norse Energy with a Neutral rating and a 12-month price target of Nkr1.9. The company has substantial acreage containing Marcellus and Utica shale in the US but is currently unable to monetize this as a result of the ban on hydraulic fracturing in New York state. However, it has more conventional assets which can be monetized through more standard drilling, and a gathering and transmission business which give the share price some support outside the shale plays. We are cautious on the prospects of allowing hydraulic fracturing in the short term and therefore apply a 50% discount to the company’s shale assets as a result of the ban on fracturing on top of development risk and assume a date for sanctioning of 2013. We note, however, that while health and safety concerns are a headwind to allowing fracturing in New York state, budgetary pressures could potentially provide a counterweight to this. In the event that drilling is allowed, we believe that the stock would benefit on two fronts – first the de-risking of assets, and also raising the company’s profile as an acquisition candidate given the large resources that it owns. De-risking the political situation would increase our valuation by over 70% and combining this with our M&A scenario would increase our valuation by c. 250%. We note that exploration of the Utica shale is still in its infancy and, as a result, apply a 40% development risk to the valuation of this play to account for development/commercialisation risk. While the potential upside is high in the event of fracturing being allowed in New York state, if the company’s shale plays cannot be monetised, we estimate downside from the current price and see better risk/reward elsewhere – resulting in our Neutral rating. As a result of the significant impact that New York state legislation will likely have on the stock, we include it in our High Risk Binary screen. Core drivers of growth The major catalyst for the stock will be a lifting of restrictions on hydraulic fracturing in New York state. Execution and continued development of the company’s Herkimer assets will also be a catalyst. Risks to the investment case An extension of the moratorium on hydraulic fracturing in New York state will likely be a negative. We also note that a potential full-scale development of Herkimer could require additional funding. The main upside risk is that hydraulic fracturing is allowed in New York state, thereby allowing development of the company’s shale plays. Valuation Our 12 month SOTP-based price target is based on a risked NAV with value being given for 2P and contingent resources. Some 20% of our valuation is based on the assumption of M&A in which we model a faster ramp-up for the company’s shale assets. Goldman Sachs Global Investment Research 246
November 5, 2010 Europe: Energy: Oil & Gas - E&P Exhibit 372: Company metrics vs. sector average Norse Energy Average % difference to average Potential upside from short term exploration 0% 133% -133% Potential upside from medium term exploration 0% 304% -304% % value supported by core value 174% 103% 71% Oil price leverage -19% 13% -32% % value in water depths over 1000m 0% 13% -13% Average WACC 10% 12% -2% Technical risk 0.75 0.27 48% Political risk 0.32 0.54 -22% % value in pre-sanction non-operated fields 0% 23% -23% Exhibit 374: Top five shareholders Sources: Bloomberg, Company data, Goldman Sachs Research estimates, FactSet. Exhibit 373: Value breakdown Exhibit 375: Map of operations Holder % held Goldman Sachs International 17.74 UBS 4.15 Morgan Stanley 2.89 Nordea Investment Management, Norge 2.06 Nordnet 1.71 Other 71.45 USA Goldman Sachs Global Investment Research 247 NOK/share 2.5 2.0 1.5 1.0 0.5 0.0 Exploration assets Discovered assets Development assets Producing assets Closing price: 03/11/2010
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Energy: Oil & Gas - Bahamas Petroleum Company Plc

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