We initiate coverage on IPB Petroleum with a BUY recommendation and target price of A$0.93 cents/share based on our DCF valuation. The company is set to drill its first exploration well at Pryderi-1 located in offshore NW Australia shortly with the Stena Clyde rig booked for mid October 2014. This could open up a new oil fairway across a shallow water area with a substantial number of leads and prospects being derisked in the event of initial success with this well. These additional leads and prospects could add an estimated (risked) A$0.81cents/share according to our analysis.
The Greater NW Shelf of Australia remains a prolific area for exploration companies with a success rate of 1:5 or 20% over the last 40+ years making this a better area for prospectors than traditional wildcat areas at 1:10 or 10% chance of success.
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