08-09-2011minelifeupdate

8/4/2019 08-09-2011MineLifeUpdate

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ISSUE 38 7th September, 2011


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WHL Energy (WHN) Hold around $0.05

A grassroots petroleum explorer with highly prospective, multi-billion barrel potential oil acreage in the

Seychelle Islands, offshore East Africa. Full seismic interpretation will be complete during H2 2011.

Corporate Details

Status: Grassroots Explorer

Size: Small Cap

Commodity Exposure: Oil & Gas

Share Price: $0.05

12-month Range: 1.4c 5.2c

Shares: 1.2b, Options: 431m

Top 20: 30%

Net Cash: $10m

Market Value: $60m

Rating (out of 5)

Management Quality

Financial Security

Project Quality

Exploration / Resource Potential

Project Risk

WHL Energy has announced the achievement of a major milestone, with the announcement on Wednesday

of the commencement of the formal farm-out process with respect to its vast Seychelles oil and gas project.

Encouragingly, the company reports that it has been delighted with the significant interest that has been

shown for its project by a number of multinational oil and gas majors.

The company has established a virtual data room to enable interested groups to access data coveringprevious exploration, studies by previous operators, as well as new work completed by WHL.

The company has also established its own new physical data room at its new West Perth office, which will

allow ongoing interpretation of the preliminary seismic data. This office has been visited by a number of

major international oil and gas companies. Companies that have executed the confidentiality agreement are

now viewing the companys preliminary interpretation of the new seismic acquired during 2010/11.

The company has commissioned a group called Miro Advisors to assist with the overall coordination of

parties as they participate in the farm-out process during the coming months. Miro Advisors will also beproviding commercial assistance to the company as the farm-out negotiations proceed.


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Seismic interpretation by WHL Energys technical team has confirming high quality seismic data, with

multiple prospects and leads being mapped over WHL Energys Seychelles acreage. This work is nearing

completion, with volumetric analysis expected during September.

Importantly, the company advises that previous guidance with respect to expected un-risked meanprospective resources remains valid, with several multi-hundred million barrel targets. The Beau Vallon

area (the red outline area in the smaller map) contains a number of prospects of material volume, which are

illustrated below.

Once complete, the companys volumetric interpretation will be the subject of a detailed release towards the

end of September 2011.

As Ive previously discussed, the companys growth strategy bears strong resemblance to that of probably

the most successful Australian oil junior of the past two decades, Hardman Resources. Hardman is a

tremendous case-study for all aspiring oil explorers in the way that it went about appraising and ultimately

commercializing the potential of its vast offshore West African acreage back in the 1990s. From sub-$0.10

the stock was eventually taken over a couple of years later for $2.02 a share.

Whilst each situation is different, the principles remain the same. Hardman employed a sound strategyaimed at minimizing its own exploration expenditure, whilst simultaneously adding value as best it could.

The company funded relatively inexpensive 2D seismic to identify potential exploration targets, which led to


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the eventual interest of first Shell and then Woodside Petroleum, in its offshore project area. Woodside then

bore much of the heavy lifting in terms of funding the more expensive 3D seismic and the very expensive

offshore deepwater exploration drilling program.

WHL Energy is employing a similar grassroots strategy with the 35 offshore exploration permits that itmaintains in the Seychelle Islands off the East African coast. The permits cover a vast 20,700 sq km and

contain various multi-billion barrel prospects and leads that have been identified from historic 2D seismic.

The companys first step was to fund its own modern 2D seismic program that would allow it to better define

these possible drill prospects. As we mentioned earlier, interpretation of the results of this survey is

currently underway and generating strong interest. The final interpretation should be released by the end of

September and the company will aim to secure a farm-in partner shortly after.

A brief geography lesson is beneficial at this point in terms of fully appreciating the hydrocarbon potential ofthe Seychelles. In pre-rift times, the East African coast abutted the west coast of India, where more

than 6 billion barrels of oil

has so far been discovered.

Recent discoveries in East

Africa, including Tanzania and

Mozambique, have confirmed

this geologically-linked

prospectivity, which could also

extend to the area surrounding

the Seychelles. The

Seychelles micro-continent

was formed during this period

of rifting and is a remnant of

the Indian sub-continent. So in

theory the geology is right.

I anticipate heightened activity

right along the East African

coast and with more drilling,

there is greater likelihood of

more discoveries in this

underexplored location. WHL

is well positioned because its

permits are located in shallow

water depths, making drilling

somewhat cheaper and easier.


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The permits are also relatively advanced due to the historic work completed on them. Encouragingly,

hydrocarbon shows in three historic wells indicates the presence of an active petroleum system.

Exploration was first conducted by Mobil (now ExxonMobil) with acquisition of 2D seismic data during the

early 1970s. Curiously and coincidentally, it was Mobil that first evaluated what later became HardmansMauritanian acreage at about the same time. During the late 1970s, additional seismic indicating a number

of stratigraphic and structural leads led to the drilling of three wells, all of which were subsequently plugged

and abandoned despite encouraging oil shows in each well. Significantly, follow-up analysis of each of

these wells has concluded that they were not valid tests.

Little follow-up exploration activity was undertaken during the 1980s, with the strong decline in the oil price

during the latter part of the decade resulting in acreage relinquishment. In 1990 one well was drilled by

Enterprise Oil, which was dry. Until recently, the acreage was held by Black Marlin Plc in the north and

PetroQuest in the south. Black Marlin was acquired during 2010/11 by Afren Plc, whilst PetroQuest was

acquired by Seyco Ltd, which

in turn was acquired by WHL

Energy.

In all, theres only been a

relatively small amount of

exploration in the

Seychelles; however, this

work has importantly proven

the existence of an active

petroleum system. Seismic

data indicates the potential for

both structural and

stratigraphic traps, although

none have been encountered

by the four wells drilled so far.

High quality reservoir sands

and a comprehensive regional

are known to exist.

The oil shows in the wells are

significant and provide geological evidence of oil sourced from lower Jurassic or upper Triassic source

rocks.

An independent model study by PDF Ltd indicates that up to 4 trillion barrels of oil may have been

generated from a single source rock unit, based on interpreted burial depth, time and total organic content.

Significantly, the analysis suggests that generation of the hydrocarbons occurred after the geological events

thought to have caused the formation of the regional traps.


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The company has just seen the completion of the largest seismic acquisition survey program ever

conducted in the Seychelles, comprising almost 20,000km of 2D seismic over 143 seismic lines. The survey

was completed in collaboration with the Seychelles government, with WHL commissioning almost 8,000km

of the survey.

As we mentioned at the outset, detailed analysis of the survey is underway to identify drilling targets for a

proposed farm-out during either H2 2011 or H1 2012. The Seychelles government is also commencing a

new licensing round that will encompass some of its deepwater areas. This is likely to coincide with WHLs

farm-out process and could well be of assistance in terms of helping WHL conclude a transaction.

Its not easy to value WHLs Seychelles acreage at this point, given its still very early days. But an

examination of the acreages recent corporate history does provide some guidance.

The northern Seychelles acreage was owned by a company called Black Marlin Energy Holdings. Sixweeks after Black Marlin listed on the Toronto Stock Exchange it was acquired by Afren Plc in a scrip deal

worth ~A$110 million.

It can be inferred from the other assets in the Black Marlin portfolio that the Seychelles value accounted for

30-40% of the transaction value, or between $33 million and $44 million. Importantly, WHL holds nearly

twice the Seychelles acreage as Black Marlin (20,700 sq km versus 11,249 sq km).

Black Marlin is scheduled to drill a well on its acreage in Q1 2012, with a commitment required by

November 2011. This should contribute to a substantial uplift in investor interest in the region.

Although WHLs acreage is not yet at drill-ready stage, the comparison is nevertheless interesting.

Applying similar acreage values, WHLs market value should be somewhere between $66 and $88

million, compared to its current valuation of $60 million.

Adding further interest is the fact that the Seychelles Petroleum Company Limited (SEYPEC) has recently

become a strategic cornerstone shareholder in WHL Energy, following its subscription for a $2.08 million

placement comprising 65 million shares at $0.032 each. Their involvement of SEYPEC is an obvious vote

of confidence, with the funds helping finance the 2D data interpretation.

Given WHLs modest market value, I continue to see little downside from current levels. Near-term events

such as volumetric estimates from seismic interpretation and potential farm-out announcements should

generate strong investor interest and prove the catalyst for further share price appreciation over the next 12

months.

I maintain a Hold Recommendation on WHL Energy.


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Disclaimer: Gavin Wendt, who is a Financial Services Representative of Summit Equities Ltd ACN 097 771 634, and is a director

of Mine Life Pty Ltd ACN 140 028 799, compiled this document. In preparing the general advice of this report, no account was taken

of the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision

on the basis of the advice in this report, investors and prospective investors need to consider, with or without the assistance of a

securities adviser, whether the advice is appropriate in light of the particular investment needs, objectives and financial

circumstances of the investor or the prospective investor. Although the information contained in this publication has been obtainedfrom sources considered and believed to be both reliable and accurate, no responsibility is accepted for any opinion expressed or

for any error or omission in that information.

MineLife Portfolio: Please refer to our Portfolio page for a full listing of all our stocks held, including initial

entry prices and purchase dates.

08-09-2011minelifeupdate

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