MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY. 26th March This Week s Market Events. Trading Recommendations. Preferred US Equities

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1 Equities are at a risk of further pullback in the first half of this week nevertheless we recommend that clients use the weakness to allocate capital primarily towards large cap US equities. Caution has increased over the last week as renewed global growth concerns emerged in the wake of weak manufacturing data from both China and the Eurozone. This has prompted traders to reassess risk positions with attention also being directed to Spanish 10 year yields, which have pushed back above 5%. We prefer US based equities as economic data in the world s largest economy has continued to show signs of improvement with the potential for a weaker euro also providing support to dollar based assets. Moreover, tensions in oil markets eased marginally following Saudi Arabia s statement that it would work individually and with others to return oil prices to fair levels. The main economic events in the week ahead will include US Consumer Confidence, Manufacturing Surveys (Chicago & Richmond) and the final reading of Q4 GDP. In Europe, German IFO will be the focus at the start of the week, while Eurozone Consumer Confidence and March s Eurozone CPI will be also be watched closely by the market. Preferred US Equities Trading Recommendations As noted in our market comment, we continue to recommend US listed equities with a high exposure to the world s largest economy. Our chosen US based plays include Caterpillar (target $120), Coca Cola (target $75), McDonalds (target $105) and Exxon Mobil (target $100). These companies offer the large cap characteristics of revenue delivery and balance sheet strength which we believe will be critical as we move through We also continue to recommend US technology and are upgrading our price target on Apple to $700 to continued earnings momentum post the launch of the ipad3 and the company s decision to declare a quarterly dividend, which has opened its shares up to a new class of investor. Tullow Oil - Buy Previous Close 1473p Target 1720p Tullow Oil s full year results on the 14 th of March demonstrated the positive impact of the new production from its Jubilee field and what it will mean for the explorer going forward. Despite ramp up difficulties at the field, first oil has resulted in production rising 35% year on year and the generation of strong operating cashflow (up 132%), helped by higher oil prices. These operational dynamics, combined with the completion of its $2.9bn Ugandan farmdown earlier in the quarter, means that Tullow is now in a significantly stronger position to deploy capital to its exploration portfolio. Tullow will now work towards key development sanction decisions at its TEN project in Ghana (Q3 2012) and the basin wide development in Uganda (2013). Importantly though Tullow is expected to drill 42 exploration and appraisal wells in the next twelve months and this activity is where the explorer can add shareholder value through its best in class - drilling success rates and the depth of its licence portfolio. We consider the ongoing appraisal programmes in Uganda, Ghana and French Guiana, combined with the high impact exploration wells of Ngamia (Kenya), Mbawa (Kenya), Jaguar (Guyana) and Strontium (Liberia), as key catatlysts in the next 12 months. Therefore, due to the improved balance sheet position and impending drilling catalysts we are recommending purchasing Tullow on weakness with prefer entries in the low to mid 1400s. Smurfit Kappa - Buy Previous Close 6.92 Target 8.75 Following a presentation by Smurfit Kappa in Dolmen last week, we reiterate our Buy call on Europe s largest corrugated and containerboard manufacturer. The presentation served to reinforce the sectors improving dynamics in which industry players are operating in a disciplined manner, which is price supportive. Last week also saw the release of RISI pricing data from Germany in which some progress was made on the kraftliner grade (+ 20/tonne) and while there was no increase for testliner grades, further progress is expected in April for both grades. Overall despite the stock s 48% rally year to date, for those looking for cyclical exposure we still see upside potential in Smurfit Kappa tied to the improvement in economic fundamentals particularly in Europe (H212 weighted) and the improved industry dynamics. Our share price target of 8.75 has the stock trading on its historic average EV/EBITDA multiple of 5.5x. Vodafone - Buy Previous Close 174p Target 195p The strength in share price over the week (up 4.4%) primarily reflected the Indian Supreme Court dismissal of its Government s appeal, which not only reaffirmed that the company was not liable for a $2.2bn tax levy but also ordered the return of a $500m deposit Vodafone had lodged prior to the case. Speculation over the week that Vodafone s US JV partner Verizon could be considering a bid for the company is considered highly speculative, given their relative size (VOD: 86.7bn and VZ c. 71bn) and the difficulty Verizon could have in raising capital (FY11 net debt of $41.8bn - c. 26.4bn). Thirdly, the potential bid for Cable & Wireless, which could deliver 1bn in tax windfalls, is still under consideration. Management has until the 29 th of March to announce its firm intention. Given the strength of its African business, the potential that the Indian market provides (including possible partial spin off of the business) and its global exposure to mobile broadband, we consider that despite recent strength the current price still provides an attractive buying opportunity (10.4x FY12 earnings) for a stock generating strong free cash flow (FCF yield of 8.8%) to support both organic/acquisitive growth and a well supported divi- 26th March 2012 This Week s Market Events N/A N/A MONDAY TUESDAY WEDNESDAY Glanbia EX Anglo American EX Prudential EX Imperial Tobacco IMS IFG Group FY Bank of China FY ICBC FY AIB FY THURSDAY FRIDAY US Pending Home GE IFO GE Import Dallas Fed Manf. UK GDP US Case Shiller US Richmond Fed US Consumer Conf. GE CPI US Durable Goods GE Employ EZ Consumer Conf. EZ Economic Conf. EZ Indust. Conf. EZ Service Conf. US GDP EZ CPI US PCE Core US Chicago PMI US U. Of Michigan China HSBC Manf. PMI

2 $ (AUD) Pancontinental Speculative Buy Making all the right shapes Analyst: Brian Gallagher Previous Close: 20c Price Target: 30c Monday March 26th 2012 Coverage initiation We are initiating coverage of Pancontinental with a Speculative Buy rating reflecting its risk level and a price target of 30c AUD. Despite its run we believe that the ASX listed explorer continues to offer upside as it approaches the Q3 drilling of the Mbawa oil prospect In Kenya. Figure 1.1 Asset overview strategy: Making all the right shapes In both Kenya and Namibia, Pancontinental has positioned itself in a way that will allow it to gain high exposure to two developing hydrocarbon plays that offer multi-billion barrel potential. We believe that this early mover strategy will also ensure that its assets are developed in a manner that optimises the opportunity for success, as Pancontinental can leverage the technological and operational competencies of larger partners through farm-ins as it has already done in Kenya. Mbawa: Multi billion barrel potential Pancontinental s Mbawa prospect which will be drilled in Q3 represents a company defining event, as success at this multibillion barrel target will significantly derisk the Kenyan offshore play (which Pancontinental has material exposure to) and result in what we estimate to be at least 3x times upside from current share price levels. Pre-drill volumetrics are estimated at 2.1bn barrels on a Pmean basis and we currently value this prospect at 27c a share (NPV 12.5%, $110 oil price and CoS 20%) East Africa: Activity on the rise Activity in East Africa is on the rise following commercial discoveries in Mozambique and a flurry of corporate activity over the last 12 months. This activity will ensure that Pancontinental s assets in East Africa continue to attract the attention of the market and industry participants as we move towards the drilling of Mbawa, with at least 18 offshore wells scheduled for this year. Latent Upside: The rest of Kenya and Namibia Figure 1.2 Company info Figure 1.3 Share price performance (12 months) Market Cap (AUD) 176.5mln Shares Outstanding 860.8mln 52 Week High 21c 52 Week Low 6c Cash Balance (End Feb) $14mln Listing ASX Management Henry Kennedy Barry Rushworth Ernest Myers Chairman CEO Finance Director Top Shareholders Sundowner International 15.35% Barry Rushworth 4.04% Quicksilver Asset 2.71% Blue Capital 1.55% P&L Capital 0.77% Source: Company Data & Bloomberg Excluding Mbawa, Pancontinental has built up substantial acreage in the rest of Kenya and Namibia. These assets, although in the early stages of development, represent latent upside that have the potential to deliver significant value as key catalysts approach. In Namibia, the drilling of Tapir South in April has the potential to derisk the Namibian oil play while in Kenya activity by both Anadarko and BG Group in H2 has the potential to unlock value Source: Bloomberg

3 strategy: Making all the right shapes Figure 2.1 Mbawa and adjoining prospects Operating in deepwater basins is both a technical and financial challenge that most junior explorers cannot realistically meet with their own resources. As a result we prefer to allocate capital to explorers who seek early entry to prospective basins and then farmdown to more technically advanced partners for free carries on both seismic and drilling operations. Over the longer term, this strategy creates greater value for shareholders as it provides leverage to both the logistical and technological competencies of larger partners who can access rigs more easily and drill wells with greater success. Pancontinental already has adopted this strategy in Kenya and we expect it to do the same in Namibia. This approach to the management of its assets is the one of the primary reasons why we are recommending the explorer. Mbawa: Multi-billion barrel potential Despite the stock s 150%+ move year to date, Pancontinental assets continue to offer upside. In Q3 2012, or before, Pancontinental and its partners are scheduled to drill the giant offshore Mbawa prospect, which is estimated to contain over 2 billion barrels gross on a Pmean basis. The pre-drill volumetrics, which were constructed using 3D seismic clearly demonstrate the scale of the prospect. Moreover, the potential of Mbawa has been underlined by farm-in activity over the last 36 months, which has seen Tullow, Origin and Apache all enter the L8 licence where the prospect is located. The geological environment surrounding Mbawa bears similar depositional characteristics to the large gas fields that have been recently discovered in Mozambique. It is however believed to be a liquids target due to the maturity of the source rocks and the proximity of multiple oil seeps. The Mbawa well will intersect multiple stacked targets with the bulk of the pay believed to be located in Tertiary and Cretaceous sands with secondary targets located in the lower Jurassic. The well will be drilled in approximately 800m of water and the total depth is estimated at 3400m. Apache is currently seeking a rig for the well and we estimate that it will take 4-6 weeks from spud date to target depth at a gross cost of $85mln to the partnership. To date only four wells have ever been drilled offshore Kenya and only one of these was in the last 24 years. A commercial discovery at the prospect would derisk the Kenya offshore play, open a new hydrocarbon basin and result in what we estimate at 3x times upside to Pancontinental s current share price. It is important to note that this uplift only reflects our valuation of Mbawa and therefore we believe that a success would unlock further value in the existing adjoining and adjacent acreage in which Pancontinental also participates. Figure 2.2 Mbawa pre drill & success case Pre Drill NPV 12.5% Brent Price $ Per Barrel P10 (mln barrels) P50 (mln barrels) P90 (mln barrels) P10 Estimate 5200 PCL Interest 15% No of Shares mln 874 Mbawa CoS 20.0% Recovery Rate 33% AUDUSD Rate 1.05 Success Case NPV 12.5% Brent Price $ Per Barrel P10 (mln barrels) P50 (mln barrels) P90 (mln barrels) P10 Estimate 5200 PCL Interest 10% No of Shares mln 874 Mbawa CoS 66.0% Recovery Rate 33% AUDUSD Rate 1.05 Source: Dolmen Estimates

4 As it stands Apache holds 50% of L8 and is the operator. Origin holds 20% and Pancontinental and Tullow both hold 15%, with the latter in possession of an option to increase its interest to 20% (out of PCL s 15%) in exchange for a $6mln carry on a second well. In our Mbawa valuation we have assumed that this option is exercised in the event of a commercial or technical discovery. East Africa: Activity on the rise Pancontinental s early mover advantage in Kenya (active in the country for over 10 years) has left it in a strong position as East Africa continues to attract attention from the industry s largest players following a succession of material gas finds to the south in both Tanzania and Mozambique. Since Q exploration and appraisal wells have been drilled offshore Mozambique and Tanzania, with 14 successful wells, two dry holes and one technical discovery. The major discoveries so far have been made by Anadarko and Eni lead partnerships in Mozambique, however the Tanzanian play continues to develop, with BG Group making three gas discoveries over the last 18 months. We count at least 17 wells that will be drilled in East Africa from now until the end of the year which will ensure that the interest from both the market s and industry's perspective remains high. The prolificacy and intensity of the drilling activity has resulted in commensurate deal activity both at a corporate and asset level. Kenya alone saw four major announcements in Apache and Tullow both entered the L8 licence (Mbawa), Total acquired a 40% interest in the L5, L7, L12, L11A and L11B licences, Ophir made an all share offer for Dominion and BG Group, Cove Energy, Premier, Dominion and Pancontinental were all awarded new acreage. However, the most significant corporate development to date in East Africa is the ongoing sale of Cove Energy. It is speculated over that 40 participants entered the AIM listed explorer s dataroom whose primary asset is an 8.5% stake in the Mozambique Area 1 offshore block. The bid process, which has recently stalled due to the clarification of a tax issue, has resulted in two proposed bids so far; one from Royal Dutch Shell at 195p ($1.5bn) and one from the Indonesian based PTTEP at 220p ($1.7bn). This process and the scale of the bids has validated the East African play and provided a benchmark price off which junior explorers can be valued against. We anticipate that corporate activity will continue to intensify and ultimately we do not see Pancontinental as a major long term player in East Africa. Therefore, Pancontinental in our view must be considered as a potential takeover target, particularly given its acreage position which is likely to have already caught the attention of late entrants. Figure 3.1 East Africa Drilling Activity Wells Drilled To Date Well Location Drilled Operator Result Windjammer Mozambique Q Anadarko Gas (169 net metres) Collier Mozambique Q Anadarko Abandoned Ironclad Mozambique Q Anadarko Oil in tight reservoir Pweza 1 Tanzania Q BG Group Gas Barquentine Mozambique Q Anadarko Gas (126 net metres) Chewa 1 Tanzania Q BG Group Gas Lagosta Mozambique Q Anadarko Gas (168 net metres) Tubarao Mozambique Q Anadarko Gas (34 net metres) Chaza 1 Tanzania Q BG Goup Gas Barquentine 2 Mozambique Q Anadarko Gas (70 net metres) Barquentine 3 Mozambique Q Anadarko Gas (202 net metres) Zeta Tanzania Q Petrobras Dry Mamba South Tanzania Q ENI Gas (210+ net metres) Lagosta 2 Mozambique Q Anadarko Gas (237 net metres) Lagosta 3 Mozambique Q Anadarko Gas (175 net metres) Mamba North Mozambique Q ENI Gas (186 net metres) Zafarani Tanzania Q Statoil Gas (120 net metres) Jodari 1 Tanzania Q BG Group Gas (124 net metres) 2012 Wells Well Location Result Estimate Operator Play Type Lavani Prospect Tanzania Q Statoil Gas Barquentine 4 Mozambique Q Anadarko Gas Ziwani 1 Tanzania Q M&P Gas Mzia Tanzania Q BG Group Gas Golfinho Mozambique Q Anadarko Gas Orca Mozambique Q Anadarko Gas Papa 1 Tanzania Q BG Group Gas ENI well 1 Mozambique Q ENI Gas Afren Well Tanzania Q Afren Oil/Gas ENI well 2 Mozambique Q ENI Gas Atum Mozambique Q Anadarko Gas Mbawa Kenya Q Apache Oil ENI well 3 Mozambique Q ENI Gas Afren Well Kenya Q Afren Oil/Gas Badejo Mozambique Q Anadarko Gas ENI well 4 Mozambique Q ENI Gas ENI well 5 Mozambique Q ENI Gas Source: Various & Dolmen Estimates Figure 3.2 Recent East Africa Discoveries Source: Anadarko

5 Latent Upside: The rest of Kenya and Nambia Figure 4.1 Kenyan Acreage Due to the fact that the market will only attribute value to assets that are close to being drilled, our valuation focuses primarily on Mbawa. Despite this we see potential for significant upside within our NAV as Pancontinental develops the rest of its portfolio in Kenya and Nambia. Kenya (ex Mbawa) Excluding the L8 licence where Mbawa is located, Pancontinental holds interests in three other licences; L6, L10A and L10B. In the short term these blocks are unlikely to receive much attention from the market, however we expect to see this change once drilling operations at Mbawa are started. Moreover activity on the outboard blocks where Anadarko, Cove and Total are holding acreage, looks set to ramp up, which will help to derisk Pancontinental s acreage. During an investor update on March 13th, Anadarko stated that its hopes to drill here before the end of the year and as a result it is currently assessing moving one of the rigs it is operating in Mozambique up to Kenya to begin a proposed two-well campaign. Figure 4.2 East Africa Licences & Participants L10A and L10B Pancontinental holds a 15% stake in these blocks with BG Group operating a 40% share of A and a 45% share of B. Like L8, an operator of BG Group s size brings credibility to the licence as it can drive development and provide better access to rigs. BG Group has already publically declared its intention to fast track plans to develop these blocks with 3D seismic already shot on a portion of the two blocks 10,000+ sqkm. The data acquired are currently being processed and interpreted with mapped prospects expected before the end of the year with a view to drilling a first well in early Existing 2D seismic analysis has produced over 10 leads. Figure 4.3 L10A and L10B existing 2D leads L6 This block is located to the north of L8 and is operated by FAR (60% interest). In the short term we can t see any material value being attributed to this licence given its early development. 3D seismic is currently being considered for this year however we do not anticipate any drilling until late Pancontinental holds 40% of L6. Namibia Pancontinental was awarded 17,295 sqkm of Namibian offshore acreage in June The high level geological play in Namibia is an extension of the West African Transform Margin and the Brazilian deepwater plays both of which have yielded multi-billion barrel discoveries in the

6 last decade. Pancontinental controls 85% of three blocks collectively in a licence called EL0037 and is targeting turbidite, ponded fans in graben and slope setting formations. No seismic has been shot on the acreage yet, however volumetric guidance from local operators is generally in the billion barrel region. An independent evaluation of two blocks directly to the south of Pancontinental s operated by HRT resulted in a Pmean estimate of 1.1billion barrels. In addition to this, ECO Atlantic Oil and Gas this month announced that it had received the results of an independent assessment of its acreage which showed a best estimate case P50 of 7.79bn barrels of prospective oil on its two licences to the south. Oil seeps are also present in the area with a study conducted by HRT demonstrating a high concentration of natural seepage on EL0037 (Figure 5.2). Neither HRT nor ECO Atlantic currently have immediate plans to drill, however HRT could deliver a near-term catalyst as it completes the processing of seismic shot in 2011 and opens a dataroom (expected Q2 2012). The closest operational catalyst in the area is the drilling of the Tapir South prospect by Chariot Oil and Gas. On the 6 th of March it announced that it had secured a rig from Maersk which will arrive in Namibia at the end of this month with the rig drilling the prospect shortly afterwards. Tapir South is located to the north of Pancontinental s acreage in the Namibe basin so a direct readthrough is not applicable, nevertheless a success at this 604mmbbl (gross, Pmean) prospect would still derisk the broader Namibian geological play. The well is expected to take two months to drill from spud date, which is currently estimated for early April. Figure 5.1 Pancontinental Namibian Acreage Figure 5.2 HRT Oil Seep Analysis Financials and Valuation Pancontinental has no debt and an estimated current cash balance of $14mln. In terms of capital expenditure, Pancontinental is carried for the first $9mln on the cost of Mbawa and as its stands its commitments on other licences are low, however this is subject to change. We estimate the cost of Mbawa at $85mln gross therefore Pancontinental is likely to contribute a further $4mln to the drill. As such Pancontinental is fully funded until the end of We value Pancontinental s shares at 30c (AUD). The majority of our valuation is reflected in Mbawa (27c) with the remainder accounted for by cash balances and its Namibian and other Kenyan licences. Our Mbawa valuation is derived using a proxy African oil development discounted cashflow model at a rate of 12.5%. We have adjusted for recovery factors, CoS and currency while also integrating favourable tax terms due to Pancontinental s early entry to the L8 licence. Investors should also note though that we see significant room for uplift in Pancontinental s other Figure 5.3 EL0037 Geological Plays Source: HRT

7 Regulatory Information Regulatory Information Dolmen Securities Limited is regulated by the Central Bank of Ireland. Dolmen Securities Limited is a member firm of the London Stock Exchange. Dolmen Stockbrokers is regulated by the Central Bank of Ireland. Dolmen Stockbrokers is a member firm of the Irish Stock Exchange and the London Stock Exchange. This report has been prepared by Dolmen Stockbrokers ( Dolmen ) for information purposes in order to assist investors to make their own investment decisions and is not intended to and does not constitute personal recommendations nor provide the sole basis for any evaluation of the securities discussed. Specifically the information contained in this report should not be taken as an offer or solicitation of investment advice or, encourage the purchase or sale of any particular security, option, future or other derivative investment. Not all recommendations are necessarily suitable for all investors and Dolmen recommend that specific advice should always be sought prior to investment, based on the particular circumstances of the investor. Although the information in this report has been obtained from sources, which Dolmen believes to be reliable and all reasonable efforts are made to present accurate information Dolmen give no warranty or guarantee as to, and do not accept responsibility for, the correctness, completeness, timeliness or accuracy of the information provided or its transmission. Nor shall Dolmen, or any of its employees, directors or agents, be liable to for any losses, damages, costs, claims, demands or expenses of any kind whatsoever, whether direct or indirect, suffered or incurred in consequence of any use of, or reliance upon, the information. Any person acting on the information contained in this report does so entirely at his or her own risk. All estimates, views and opinions included in this report constitute Dolmen s judgment as of the date of the report but may be subject to change without notice. Changes to assumptions may have a material impact on any recommendations made herein. Unless specifically indicated to the contrary this report has not been disclosed to the covered issuer(s) in advance of publication. Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up. Investments denominated in foreign currencies are subject to fluctuations in exchange rates, which may have an adverse affect on the value of the investments, sale proceeds, and on dividend or interest income. The income you get from your investment may go down as well as up. Figures quoted are estimates only; they are not a reliable guide to the future performance of this investment. Investors should be aware that forwarding looking statements and forecasts may not be realised. This report is the property of Dolmen and may not be reproduced (in whole or in part) altered, transmitted or made available to any other person without the prior written permission of Dolmen. Conflicts of Interest & Share Ownership Policy Unless specifically stated to the contrary in this report, Dolmen, its employees, directors or related companies, do not hold shares in the stocks covered in this report. It is noted that research analysts' compensation is impacted upon by overall firm profitability and accordingly may be affected to some extent by revenues arising other Dolmen business units including Finance, Fund Management and Stockbroking. Revenues in these business units may derive in part from the recommendations or views in this report. Notwithstanding, Dolmen is satisfied that the objectivity of views and recommendations contained in this report has not been compromised. Dolmen permits research analysts to own shares and/ or derivative positions in the companies they publish research, views and recommendations on. Accordingly analysts involved in the production of this report may have positions in any securities herein. Dolmen ensures that all staff dealing is undertaken in strict compliance with Dolmen s internal staff dealing procedures. Therefore Dolmen is satisfied that the impartiality of research, views and recommendations remains assured. Our conflicts of interest management policy is available at the following link; Analyst Certification Each research analyst responsible for the content of this report, in whole or in part, certifies that: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. Ian Hunter, Brian Gallagher and John Mullane are responsible for the production of this report. Ian Hunter, Brian Gallagher and John Mullane are equity analysts. For US Persons Only This report is only provided in the US to major institutional investors as defined by s.15 a-6 of the Securities Exchange Act, 1934 as amended. A US recipient of this report shall not distribute or provide this report or any part thereof to any other person. Other important disclosures A description of Dolmen s basis of valuation or any other methodology used to evaluate a financial instrument or issuer or to set a price target and the meaning of any recommendation made such as buy, sell or hold is set out at: Prices quoted in this report, unless otherwise indicated, are as of close on the previous trading day. A summary of existing and prior price targets for each company under coverage is available at Dolmen Stockbrokers, 75 St. Stephen s Green, Dublin 2, Ireland. 75 St. Stephen s Green, Dublin 2, Ireland. Tel : / info@dsl.ie 45 South Mall, Cork, Ireland Tel : cork@dsl.ie Theatre Court, Mallow St, Limerick, Ireland. Tel : Limerick@dsl.ie