Star Energy is currently testing the Avington well in Southern England.
This will take about 4 weeks an RNS news feed said, it started on 25/06/06.

I hope it proves positive so we get a good share price rise!
We are 5% holders but i'm not sure how much in pence potential this is worth for the company.

Another good reason to hold on to this share.

Northern starts to deliver

BULL POINTS:

■ Growing production from substantial reserves

■ Operates in stable countries

■ Strong balance sheet

■ Proven deal doing ability

BEAR POINTS:

■ Previous project delays

■ Limited focus on exploration


Northern Petroleum operates in stable European countries - principally Holland and Italy - and has built up a portfolio of substantial reserves from which production should grow strongly over the next five years. To top that, it offers high-impact exploration potential.

Its current focus is Holland, where the group is already a gas producer and has been working to bring into production four further gas fields and two oil fields. The Grolloo gas field, the first of these six, started production last week at a rate of 7.4m cubic feet per day and the group plans to bring a second gas field, Geesbrug, into production before the end of 2009. The Wijk en Aalburg and Brakel gas fields should begin producing next March or April, and should lift daily production to 30m cubic feet next year. Including existing UK and Dutch production, aggregate group production could reach 2,300 barrels of oil equivalent per day (boepd) by the end of next year. This will go a long way towards dispelling memories of Nothern's previous project delays.

Northern's partner on the six-field development is Nederlandse Aardolie Maatschappij (NAM), Holland's largest gas producer, to whom Northern sells the gas it produces. NAM's gas processing facilities were designed for significantly higher volumes of gas than Northern's initial planned volumes, so it has demand for more gas. This gives Northern scope to increase production, particularly at Geesbrug and Brakel, by drilling additional wells. Furthermore, high flow rates from gas wells suggest that some depleting fields may offer longer term potential for gas storage, which would be a further source of revenues.

Developing its two Dutch oil fields, Northern will conduct long-term production testing on the Ottoland field in the first half of 2010 and on the Papekop field later in the year. Once all six oil and gas fields are onstream, aggregate daily production net to Northern is expected to reach 6,000 barrels of oil equivalent by 2013.


NORTHERN PETROLEUM (NOP)
ORD PRICE: 132p MARKET VALUE: 104m
TOUCH: 129-132p 12-MONTH HIGH: 163p LOW: 63p
DIVIDEND YIELD: nil PE RATIO: 20
NET ASSET VALUE: 87p NET CASH: 27.9m

Beta: 1.2

*Edison Investment Research estimates (Profits & earnings not comparable with historic figures) 1= 1.106

Northern's recent focus has been on developing its six-field project rather than on exploration. This means less risk, but also less long-term potential. Nevertheless, the group has been drilling exploration wells and has more planned. It enjoyed exploration success at its Tiendeveen prospect on the Dutch mainland. This could hold some 67bn cubic feet of gas plus condensates. Northern is currently appraising this discovery.

Northern's second major area of operation is Italy, where it holds substantial exploration acreage. These include prospects off western Sicily, in the Sicily Channel and the southern Adriatic. The group will be conducting a large seismic survey offshore Sicily in 2010 and has identified two high-potential prospects in the Sicily Channel that it plans to drill.

Northern has a strong balance sheet, with net cash of 28m at the end of June, which supports its high level of activity. The group has also demonstrated an ability to negotiate attractive asset deals to leverage existing resources and bring in strong industry partners. Last year, it sold its interests in a gas storage project application for 7m plus 3m of contingent payments. The group also farmed out to Shell interests in six offshore licences in the Sicily Channel that offer significant exploration upside. Northern will keep interest of between 30 and 45 per cent, while Shell carries out work estimated to cost in excess of 100m (90m).

Keep on buying NOP.

Northern Petroleum* Consistent Progress Builds Broad Portfolio and Attracts Industry Majors: www.uk-analyst.com

Not doing well, made profit of 9 million euros in 2008 but sink into losses of 2 million euros in 2009.

not following your jan advice then hlyeo ....

Bailed out at 140p in Jan with a loss.

Not one of TW's best tips....real crap performance by the sp.....

TW still thinks their sp should be north of 300p .....is he delusional? Remind him about NXS and many others.

Support at 90p is going to crumble very soon... TW is stupid!

The issue over sp is partly due to company valuation of reserves....ereserves are only "estimates" but those who know about Oil/Gas can be fairly confident based on experience. However, punters always fear they are being sold a pup and until NOP is paying a dividend (er, unlike BP, Ho-Ho), there is room for unrest.
The company claims their estimates are very conservative...that they expect all reserves will be greater (esp as tech improves, etc.).
If these areserves come on-stream soon -why wouldn't they? Then the NAV is the volume/price.
Their estimates of revenue are DYOR based on USD40/barrel, not the fluctuating $70 currently, so by this measure alone their reserves are of further greater value.

I guess that until they sell the big stuff, no-one will believe probabilities, however conservatively they are valued. It's still "a hole in the ground syndrome".

That makes it worthwhile to punt.
+ I guess my average is about 10p above current sp. If it falls a lot (eg on new Regulations, due to the BP worries, etc) then I might buy some more.

I hope this is one of the better AIM-prospects, although much of the good news is in the price, until they start selling more; this would demonstrate their figures.
I don't think it helps to have paid-for Reports that have been unreliable when other businesses are puffed-up, only to fail later on, with poor management, for example.

Support is crumbling now.

bombing today?

Support at 90p broken again... next week will have a better picture.

FWIW I think this partly a result of BP/Gulf - that any "new" drilling will have a huge mountain of Enviro Paperwork to process. Until it is made more certain I expect this will slip.
However, it makes no difference to the fundamentals - if the oil is there...it's still there and the Market in Oil isn't going away.

If it falls to sub-50p I shall be buying more, but not yet.

28th October 2010 Analyst: Dr Michael Green
Email:michael.green@gecr.co.uk
Tel: 0207 562 3371

Northern Petroleum* - Reinitiate Coverage at 88.75p: Strong Buy with a 134p target price


Key Data

EPIC
NOP
Share Price
88.75p
NMS
2,000
Spread
87.5p - 90.25p
Total no of Shares
91.987445 million
Market Cap
GBP 81.6 million
12 Month Range
81.75p - 170p

Market
AIM

Website
www.northpet.com

Sector
Oil & Gas Producers
Contact
Derek Musgrove
020 7469 2900




Northern Petroleum (Northern) has a series of potential half a billion plus barrel prospects to explore off the coast of Italy; where success could be transformational for the Company.

These exciting prospects lie within four core areas, one of which has already been snapped up by Shell, leaving three more core areas to trade. Northern has acquired a large number of key licences in prospective areas in offshore Italy, which is equivalent in size to more than 85 North Sea blocks. With applications pending, it could be that the Company ends up with a licence area about the same size as that of ENI, the Italian multinational oil and gas company. Northern is now beginning the process of unlocking value offshore in Italy with drilling. Its partner Shell is expected to make a drilling decision shortly on the West Sicily Thrust Belt for a well to be drilled in 2012 which could led to a strong rerating of the shares.

Over the past decade, Northern has consistently added shareholder value by growing its portfolio of good quality oil and gas prospects without paying high entry costs. The real focus has been on low priced assets where value can be added at a relatively low cost. At the heart of the strategy is the winning of valuable exploration licences which is followed by the Company undertaking the necessary geological, geophysical and engineering work to dramatically add value before inviting larger players to farmin into the projects at an exploration or development stage, or traded to acquire production. Not only has Northern an impressive track record in acquiring assets cheaply, but also has made 40m of trading profits from disposals of non-core interests.

Alongside the blue sky potential of Italy lies the strong growth in production in The Netherlands which underpins the share price. The board has its sights firmly set on a target producing 5,500 barrels of oil equivalent per day (boepd) in 2015. Northern has a firm platform for this with current production of 1,200 boepd which is expected to climb to 2,250 boepd in early 2011. In September, the Brakel field came on stream which is the third of six onshore oil and gas fields that Northern has brought into production. The Brakel field is part of the Company's first multi-field gas development which is expected to be completed early next year when the fourth field the Wijk en Aalburg commences production. Once that has been achieved, Northern will be turning its attention on getting the Ottoland and Papekop oil fields to come on stream.

The board has revised the growth strategy which involves speeding up the development of assets in Italy and The Netherlands by increased investment. At the AGM in June 2010, the Directors highlighted what was required to implement such a strategy. The appraisal and exploration projects in Italy are to be accelerated by acquiring more seismic data which will allow farmouts to be agreed at better terms. At the same time development of the North Ottoland and Everdingen South in the south of the Netherlands as well as the Oosterwolde and Zuid Frieslandin the north of the country are to be fast tracked to production.

In order to get a better understanding of these new core areas in Italy, the board is acquiring more data ahead of inviting in partners to help fund the drilling. Already a farmout deal has been agreed with Shell covering six permits on the Company's acreage off-shore Sicily. The team is also seeking to agree farmout deals on the other three core areas which are: Sicily Channel Basins, the Durres Basin in the South Adriatic Sea and the Crotone Basin in the Ionian Sea. The recent proposed ban of any oil production within 5 miles of the Italian shoreline will have little material effect on Northern as its most of its acreage is further away from the coastline.

The City does not appear to yet understand Northern's new focus on accelerating exploration activities in Italy whilst production is being ramped up in The Netherlands. Today, Northern share lie at a price that begs attention as it fails to reflect the obvious upside potential within the Company. Perhaps the share price has suffered unduly over the past twelve months as progress in The Netherlands was not as rapid as expected. Certainly there seems to be a buying opportunity as the stock is taking its time to recover from the 10 million placing at 85p which was raised at the deeply discounted level of 85p that may have smacked of desperation and damaged investor confidence.

Our analysis suggests that the share price of Northern is substantially undervalued. Peer comparisons allow us to place a target price on the shares of 134p. We reinitiate our coverage, at 88.75p, with a stance of strong buy.

Year to 30 December
Sales ( m)
(EUR000)
Pre-tax Profit ( m)
(EUR000)
Earnings per share (cents)
Price Earnings Ratio
Dividend (p)
Yield (%)

2008A
6.95
11.56
14.10
7.2
0
0.0

2009A
5.08
(3.12)
(2.90)
-
0
0.0

2010E
13.00
2.70
0.7
145.8
0
0.0

2011E
23.50
10.00
4.2
24.3
0
0.0


Source: Growth Equities & Company Research

* Northern Petroleum is a corporate client of Bishopsgate Communications which is owned by RSH the ultimate owner of GE&CR. Funds managed by another RSH subsidiary own shares in Northern Petroleum

Background

During the past ten years, Northern has been transformed from an explorer to a developer and producer; which has allowed the share price to increase more than six-fold. The process began in 2000, when the Company raised 1.25 million at 3.125p (15.625p in today's post consolidation terms) to fund exploration in Italy, Albania and southern England. Later that year Northern was successful in the UK 9th Round Landward Licensing and was awarded licences in the Isle of Wight and Portsdown, Hampshire area in a consortium where the Company held a 20% stake.

In 2002, Northern applied for seven licences in Italy and to add to the six UK licences that the Company already held. In 2004, there was farmin expansion in the licences in the UK and the first licence area was awarded in Italy. In 2005, Northern reached an agreement with NAM (The Netherland's largest gas producer which is a joint venture between Shell and ExxonMobil) to take five undeveloped discoveries and a number of exploration licences with no upfront payment. 2005 saw a 1-for-5 share consolidation that removed Northern's penny share status and brought the stock to the attention of institutional investors. In 2006, the Company raised 20 million at 130p primarily to fund the further development in Italy and UK interests. Last year, production continued to grow as in The Netherlands the Grolloo and Geesbrug gas fields came on stream as well as the Avington oil field in the UK.

Whilst at the same time, in Italy, having been awarded an increasing number of licences, the Company acquired all the outstanding shares in ATI Oil Plc. This is a company which Northern had spun off in 2004 as initially a 69% owned Italian-focused exploration play on the PLUS market. However ATI Oil had become a lot more significant to the Company as the management refocused growth strategy on development and production in Italy and The Netherlands. In June 2010, a further 10 million was raised at 85p per share to accelerate the development of assets in Italy and The Netherlands.

Overview of Operations

Northern targets exploration, development and production of oil and gas interests in countries of the world with low geopolitical risk. The Company has been nimble enough to assemble an impressive acreage which seems highly prospective for hydrocarbons in Italy which offers investors blue sky potential. This is backed by the development of assets in The Netherland where production is being ramped up. Below we investigate the Company's current operations.

Italy

Northern's involvement in the country began in 2002 and the Company is enjoying first mover advantage which has allowed the management team to assemble a very large licence area in offshore Italy. These licences cover a net 14,710 square kilometres which clearly contain a number of prospects that have the potential to be in excess of half billion barrel of oil. The first of these looks likely to be drilled in the West Sicily Thrust Belt in 2012, by Shell which the Company's farmin partner in that core area. The Company's work programme until 2012 includes an onshore exploration well at La Tosca in the Po Valley in 2011, where a farmout deal is expected to be agreed soon.

In the wake of BP's disaster with a deep water well in the Gulf of Mexico, the Italian Government rushed out legislation that restricts oil and gas production within 5 kilometres off the coast line and within 12 kilometres of a marine park. Other operators such as Mediterranean Oil & Gas and Petroceltic have received substantial press attention over this issue as these companies' exploration interests in offshore Italy which may have been decimated by this new law. It must be pointed out that Northern from the beginning has focused on the deeper water which is further offshore which means that its exploration licences have not be materially affected by this legislation.


Northern has 5 onshore exploration licences, 21 offshore exploration licences and 6 offshore applications in Italy. In the country, the Company has 2P reserves of 53.2 million barrels of oil equivalent (100% oil) and has already identified Prospective resources of 8.4 billion barrels of oil equivalent identified so date. Certainly Italy has attractive low royalties between 4%-7% and a 33% tax rate.

The board plans to acquire more data to better understand the newer core areas as well as bringing in partners to help fund drilling. In 2009, ATI Oil Plc was acquired which served to double Northern's reserves and licence area in Italy. The team is also seeking to agree farmout deals on the three core areas which are still available to trade, namely: Sicily Channel Basins, the Durres Basin in the South Adriatic Sea and the Crotone Basin in the Ionian Sea.

Offshore West of Sicily Thrust and Fold Belt - This is the area where Shell has farmed into six licences with an option to drill and test an exploration well in 2012 with Northern acting as the operator. Large 3D seismic data covering an area of 1,520 square kilometres has been acquired and is now being processed with a drill decision expected within the coming months. Prospective resources (P50) gross 2.75 billion barrels and net 1.05 billion barrels.

The 3D seismic targets are two prospects which have a Prospective Resource (P50) of 1.75 billion barrels gross. Shell have picked up all the past costs for the 2D and 3D seismic programme and to earn an interest will pay for the drilling and testing of the well. The management believe that these licences are the riskiest in the portfolio but this higher risk maybe comes with higher reward. The seismic data has just been acquired and the analysis of that looks likely to result in a drilling decision in early 2011.

Durres Basin in the South Adriatic Sea - To date seven wells have been drilled by others testing five prospects all of which have been successful; with the Rovesti and Giove discoveries had identified two oil fields with probable reserves of 53.16 million barrels. A third party report evaluates a mean 3 billion barrels of oil in place for 6 prospects in just two of seven licences. 2D seismic survey is planned for 2010/11 of both the oil and the gas prospects after which the farmout process will begin, as the Company does not want to give this away too early or too cheaply. Prospective resource (P50) has been estimated at gross 3.75 billion barrels and 9 trillion cubic feet. Gas prospects d71F.R-.NP and d72F.R-.NP are adjacent to the Cairn operated Albanian licence on which 3D seismic has been acquired and a well is planned for 2011.

Crotone Basin in the Ionian Sea - Gas discoveries and significant additional prospects close to existing infrastructure. The preliminary awarded licence d59FR-.NP includes three gas discoveries. The management intend to purchase or acquire 2D and 3D seismic following the full award of the licence. The farmout process will begin following the evaluation of the seismic data. Apparently applications offshore on trend with billion barrel Val d'Agri/Temp Rossa oil complex in Southern Apennines (Eni/Shell/ExxonMobil/Total). Shell has recently been awarded the neighbouring block.

Sicily Channel Basin - Two high impact oil prospects being farmed out.

Po Valley - Onshore - La Tosca prospect in the Longastrino Licence is planned for drilling 2011 after the farmout where there is a 38 billion standard cubic feet gross Prospective Resource (P50).

Netherlands

Although the Netherlands may have been written off by some in the oil and gas industry as a mature province with limited potential, Northern has managed to gain licences which have allowed the Company to produce oil and gas profitably from undeveloped discoveries within proven oil and gas producing areas. In adopting an innovative approach to operating, the team has taken technology and techniques used in the oil and gas industry elsewhere in the world and employed them in The Netherlands for the first time on over fifty undeveloped discoveries and many undrilled small to medium sized structures that have escaped attention as they were too small to interest the majors. After five years development work, production began in 2009 and now four fields are on stream producing revenue with two more fields that are due to come on stream in 2011. In the future, the existing fields and new development are likely to be subject to infill drilling following the reappraisal of existing we ll results and an expanded data base of information on the geology. There is little doubt that the Company has an impressive pipeline of new production projects.


In the Netherlands, Northern has 7 onshore production licences (6 onshore and 1 offshore), 3 onshore exploration licences and 4 gas fields in production. 2P reserves in the country total 42.7 million barrels of oil equivalent (25% oil, 75% gas). Whilst Contingent Resources (P50) for Kerkwijk, Willeskop, Meerkerk and North Ottoland discoveries are gross 81 billion scf and net 42.9 billion scf; and Prospective Resources (P50) for Everdingen South, Meerkerk South and North Ottoland prospects are gross 179 billion scf and net 107.4 billion scf.

Grolloo and Geesbrug gas fields - Came on stream in 2009 with gross gas reserves independently assessed at 178 and 152 billion cubic feet of Probable reserves respectively. Gas from these fields travels by pipeline to the NAM processing facilities. The second stage of the development of these projects will see Northern installing its own gas processing plants at the Wijk en Aalburg and Brakel gas fields. Initial production at Grolloo was 200,000 normal cubic metres, or 7.4 million cubic feet per day, with the Proven and Probable reserve net to Northern of 10.52 billion cubic feet. Geesbrug is the bigger of the two fields with Proven and Probable reserves of 137.85 billion cubic feet (23.8 million barrels of oil equivalent); and additional wells may be drilled to boost production but this would require a modification to the pipleline system designed to take 200,000 cubic metres per day to NAM. The combined production of net to Northern from Grolloo and Geesbrug gas fields is 6 .7 million cubic feet a day (1,150 barrels of oil per day). On the Drenthe III licence 3.8 kilometres from the pipeline tie-in at the Geesbrug gas field lies the Tiendeveen exploration well which if tests prove successful will increase the reserves and production at this licence area. Tiendeveen was part of the original deal with NAM in 2005 and a good return is expected here as the cost of drilling two dry wells will be refunded out of production.

Brakel and Wijk en Aalburg and gas fields - These fields are due to be brought onstream in 2010 using gas plants built in Canada employing superior technology that allows such plants to be less than a sixth of the size and under a quarter of the cost of those available locally. When Grolloo, Geesbrug, Wijk en Aalburg and Brakel gas fields are all onstream, combined daily production should be 800,000 cubic metres or 30 million cubic feet. Gas plants installed on site will allow production to be exported through its own pipeline into the gas network. These two fields are around the same size as Grolloo with net Northern 2P reserves being 10.25 and 5.49 billion cubic feet respectively for Brakel and Wijk en Aalburg. The Brakel field commenced production in September 2010 with forecasted contracted gross sales volume of 200,000 normal cubic meters per day (7.4mmscfd or 1,280 boepd) where Northern is the operator and has a 45% licence interest. Start-up for the Wijk en Aalburg dis covery in the same licence is scheduled for early 2011.

Ottoland and Papekop oil fields - These represent the third stage of the Netherlands development project and initially a long term oil production test will be carried out in order to complete the design of the field facilities. Northern will be focusing its attention on getting the Ottoland and Papekop oil fields into production, once the multi-field gas development project (Grolloo, Geesburg, Wijk an Aalburg and Brakel) mentioned above has been completed. An appraisal well was drilled in 2007 at Ottoland with a long term production test planned next year and followed by production from Papekop which could commence in 2012.

Waalwijk and P12 fields - Work has been undertaken to extend the life of these fields. As well as a producing field, Waalwijk has dual role as it will act as a remote control centre for new fields that are coming onstream. P12 was acquired in 2007 and in 2009 had net production of 0.30 billion cubic feet of gas with gas sales revenue of 1.8 million.

Zuid-Friesland and Engeleen - Northern is acquiring the working interest and became the operator in the Zuid-Feiesland Production Licence that was awarded to NAM, Total PetroCanada and Dyas in 2010. The licence contains two gas fields, Oppenhuizen and Woudsend, which have a combined estimated Gas initially in Place of 107 billion cubic feet. Northern will develop the fields and be paid all back costs plus an uplift out of cash flow.

Utrecht, Drenthe III and Oosterwolde - Following the mapping of the exploration prospects in 2009 at these licences drilling is now planned. Within the Utrecht licence, a P50 gross prospective resource potential for the Meerkerk South and Everdingen South prospects is 106.2 billion cubic feet. The Drenthe III licence has 123.11 billion cubic feet of P50 gross prospective resource in the Lhee and Boterveen prospects. Mapping of the Oosterwold exploration licence, which lies adjacent to Drenthe III, has identified a low risk exploration prospect with the potential for a significant volume of gas. Wells are planned to be drilled in these licence areas in 2012 with Energie Beheer Nederlandse B.V. who will be the partner on these three exploration licences.

UK

The Company has 2 producing oil fields along with 12 onshore exploration licences and 1 offshore application in the UK. 2P reserves total 6.8 million barrels of oil equivalent (100% oil).

A 10% stake in the Horndean oil field in the Weald Basin in Southern England was acquired for 200,000 in 2003. This basin contains ten oil fields where the Company has interests in the Horndean and Avington fields. Since it was acquired, the Horndean field has had consistent production which is a characteristic of fields in this basin.

In the UK, Northern has little opportunity for expansion and so has contracted Envoi to sell two Northern subsidiaries which have 6.82 million of 2P reserves and 13 barrel of oil per day production. Such a move would leave within the Company exploration block PEDJ - 256/155 Havant along with existing discoveries at PEDL - 126 Markwells Wood, PEDL- 233 Baxters Copse and PEDL - 125 Hedge End.

At the time the interim results were announced the board reported that the sale of the non- core UK assets would only take place at a price which reflects the RPS valuation. At the present time such a deal does not seem to be on the table. These are attractive assets whose value is underpinned by the RPS report and to improve shareholder value Northern will now go ahead and drill. Already the drilling sites at both Havant and Markwells Wood have been built and an agreement is expected to be signed soon with the rig contractor.

Guyane

Northern has made a small investment with a large upside potential in French Guyane.

Tullow is the operator with a 39.5% interest in this play and following that company's exploration success in offshore Ghana, Shell and Total have joined the joint project taking a 33% and 25% stake respectively. The Company has a 50% stake in Northpet Investments Limited which has a 1.25% beneficial interest. Large 3D seismic survey is being processed over the eastern slope leads with the targets being on the shelf-edge which are seen to be similar to those targets that have proved to be successful for Tullow at the Jubilee Field in offshore Ghana. Tullow is planning to drill a well in the first quarter of 2011. There is also an additional billion barrel potential in the giant Matamata prospect supported by further modelling of the basin.

Spain

Ascent Resources acquired part of the producing Ayoluengo oilfield in onshore Spain from Northern in which the Company retains a 1.25% royalty interest in three Spanish licences. Although the oil field is owned by Ascent Resources it is operated by Leni Gas and Oil who are seeking to locate potential satellite discoveries.

Reserves

Reserves (30 December 2009) 70.84 million barrels of oil and 185.85 billion cubic feet of gas which equates to 102.88 million barrels of oil equivalent

Netherlands 10.66 million barrels of oil, 185.85 billion cubic feet of gas or 42.70 million barrels of oil equivalent

United Kingdom 7.02 million barrels of oil equivalent

Italy 53.16 million barrels of oil equivalent

Strategy for Growth

The board has revised the growth strategy which involves speeding up the development of assets in Italy and The Netherlands. At the AGM in June 2010, the Directors highlighted what was required to implement such a strategy. Firstly realising shareholder value in the non-core UK assets. Secondly, looking at raising reserve debt finance against production from the Netherlands. Lastly to raise 10 million in a placing at 85p which represented a big discount to the share price which seems to have served to undermined the stock. Northern is seen as a low cost oil and gas play operating in countries in low geopolitical risk, but this may be about to change. As scope for expansion in the UK looks limited, there is now space within the corporate structure for a new third leg to the business. It has been pointed out that the management has already scoured most of Europe looking for deals in recent years and so t emptingly it might well be that Northern considering a move into one of the new emerging oil areas of the world, a move that might be well received by investors.

The Company is targeting output of 5,500 boepd by 2015 from existing developments in the Netherlands with approximately 800 boepd from the current producing fields (ie Waalwijk, P12, Geesburg 1 and Grolloo), 2,300 boepd from the proven gas reserves that are currently being developed at Brakel, Wijk en Aalburg and the Geesbrug in fill plus 2,300 boepd from the proven oil fields at Ottoland and Papekop which are under development. It would seem that the planned investment to accelerate bringing production assets on stream could allow the 5,500 boepd by 2015 target to be met.

Looking ahead, after a rather quiet spell it looks as though the newsflow should be improving. A farmout deal is expected to be agreed soon on the La Tosca 44bcf prospect in the Longastrino permit in the Po Valley in Italy ahead of drilling in 2011. The cash raised recently will allow not only the seismic reprocessing across The Netherlands portfolio; but also fund the testing and hydraulic fracturing of the Carboniferous at Tiendeveen which is timetabled for later this year or early 2011 as well as the drilling of Ottoland North prospect in late 2011 or early 2012. Added to the drilling of further well on Oosterwolde and Utrecht are planned for 2012. Whilst the drilling of an exploration well offshore Guyane where Northern is participating alongside Tullow, Shell and Total has a spud date of the first quarter of 2011.

Northern has done well to gain such an impressive portfolio of acreage offshore Italy. Already the most risky licences have been derisked with the farmout deal first with Shell on the Company's acreage off-shore Sicily; the plan is to attract farmin partners to the three other core areas in the Sicily Channel Basins, the Durres Basin and the Crotone Basin. Such a move will allow the first work on these licence areas at little cost to Northern. First drilling on the offshore Italy licences is expected to begin as early as 2012 and any success could have a transformational effect on the Company and its share price.

Risks and Opportunities

Risks

Limited focus on exploration - Northern is involved in oil and gas exploration in the Netherlands, Italy, UK and Guyane; however post the disposal of the non-core UK assets it expected that a third leg maybe added which would take the Company outside of Europe and broaden the exploration focus.

Geological risk - There are the obvious geological risks inherent in the oil and gas industry however Northern's partners in their various licences include some well-known large companies in the industry which lowers the risk as these are competent third parties with better insight into assets.

Italian offshore oil ban - The legislation prohibiting drilling within 5 kilometres of the Italian shoreline and 12 kilometres protected coastal areas, has probably undermined the share price. However, it must be pointed out that most of Northern's projects lie outside the exclusion zone and so the Company is not materially affected by this law.

Past project delays - There still seems to be some negative sentiment that stems from delays in gas projects in the Netherlands in past. Some brokers had pencilled in large improvements in revenue and profitability; and in hindsight Northern could probably have managed down these expectations better. It would seem that the management has learnt from previous mistakes and now promises less and delivers more.

Onshore drilling in the UK - The British Isles represent quite a small land mass that is quite heavily populated and there substantial public opposition to drilling onshore in the UK. For all these reasons, Northern does not have much in the way of expansion opportunities in the UK but there are attractive assets and to improve shareholder value two sites are to be drilled.

Opportunities

Operates in stable countries- The Company operates in countries in Europe by and large which have low geopolitical risk

Quality of partners - Northern is involved with a long list of major industry partners which includes: Shell, Total, Tullow, Petro-Canada and Star Energy. It does speak volumes that its partners Shell have allowed the Company to operate Shell-funded seismic surveys in offshore Italy.

Growing production - The board has its sights firmly set on a target producing 5,500 barrels of oil equivalent per day (boepd) production target in 2015. Certainly the work over the previous years has now put Northern on a firm footing with current production of 1,200 boepd which is expected to climb to 2,250 boepd in early 2011.

Growth in reserves - During the past decade, Northern has grown substantially from gaining high quality oil and gas prospects without paying high entry costs. The real focus has been on low priced assets where value can be added at a relatively low cost. At the heart of the strategy is been awarded or acquiring valuable licences which is followed by the Company undertaking the necessary geological, geophysical and engineering work to dramatically add value before inviting larger players to farmin into the projects at an exploration or development stage.

Portfolio of licences - The Company has assembled a growing portfolio of licences in highly prospective areas. In Italy alone, Northern has acquired a significant number of key licences in prospective areas which total a net 14,710 square kilometres.

Drilling programme - Northern has an active drilling programme the Longastrino permit in Italy to be drilled in 2011, the testing and hydraulic fracturing at Tindeveen in late 2010 or early 2011 with drilling of three wells (Geesbrug-2, Papekop-2 and North Ottoland) in second half 2011/ first quarter 2012, Tullow setting to drill an exploration well offshore Guyane in the first quarter 2011. Offshore drilling in Italy on the Company's licences could begin as early as 2012.




Management

Non-Executive Chairman - Richard Latham - Following the commencement of his career in the City as an Investment Manager, Latham went onto work for more than twenty six years with companies in the upstream oil and gas industry. Formerly, he was Deputy Chairman of Aberdeen Petroleum Plc, Chairman and Managing Director of Claremont Oil and Gas Limited as well as being a Non-Executive Director of Atlantis Resources Limited. Latham gained and MBA from Cranfield and is at present the Non-Executive Chairman of Strategic Natural Resources Plc. He was appointed Non-Executive Chairman of Northern Petroleum in 1999.

Managing Director - Derek Musgrove - After working in senior managerial or board positions with RTZ Oil & Gas Limited, Candecca Resources Plc, Plascom Plc, Anglo Scandinavian Petroleum Plc and Bass Resources Limited, Musgrove was appointed Managing Director in 1999. He was also a consultant to a number of oil and gas companies particularly in the area of new project management and trading of oil and gas properties, as well as pursuing personal interests in the natural resources sector.

Finance Director - Chris Foss - Foss is a member of the Institute of Chartered Accountants in England and Wales. Between 1998 to 2003, he held a number of financial positions and acted as consultant to the energy-related subsidiaries of GE Capital Corporation, Bechtel Group Inc, United Technologies Corporation and Centrica Plc. Since early 2003, Foss was the Group Financial Controller and Company Secretary, and was appointed Finance Director in 2005. He was also the Finance Director of PLUS-quoted ATI Oil Plc from 2004 until it was acquired by Northern Petroleum.

Exploration and Technical Director - Graham Heard - In all, Heard has more than thirty five years' experience as a petroleum geologist and started his career with Arco before moving on and gaining extensive international experience with independents Siebens Oil and Quintana Petroleum. He subsequently held a number of executive positions with Sovereign Oil & Gas Plc, Neste Production Limited and Sands Oil & Gas Plc. Heard was appointed Exploration and Technical Director in 2007 after having served as the Company's Exploration Manager for more than four years.

Non-Executive Director - Jeremy White - White is a Fellow of the Institute of Chartered Accountants in England and Wales and has worked in the oil industry for more than twenty five years and was the UK Group Tax Controller of PetroFina's UK operations, before joining Northern Petroleum where he served as Finance Director until 2005.

Non-Executive Director - Anthony Brewer - A City man with over forty years' experience of fund management and broking, in investment analysis, institutional sales and corporate finance, Brewer has a specialist knowledge of the oil and gas sector. He was appointed a Non-Executive Director in 2006.


Significant shareholders

Shareholder
Number of shares
Holding (%)

Barry Lonsdale (Italy-based British geologist) *1
6,029,661
6.56

The Royal Bank of Scotland Group Plc *1
5,300,054
5.77

TD Waterhouse Nominees (Europe) Limited
5,045,253
5.49

The Bank of New York (Nominees) Limited
4,611,413
5.02

ABN AMRO Bank NV London Branch
4,440,112
4.83

Barclays Share Nominees Limited
4,310,839
4.69

Chase Nominees Limited
4,215,568
4.59

Majedie Asset Management Limited
3,689,100
4.01

L R Nominees Limited
3,390,018
3.69

HSDL Nominees Limited
2,806,561
3.05

Cheviot Capital Nominees Limited
2,557,500
2.78

Nortrust Nominees Limited
2,494,720
2.71

Hugh and Kate Sloane
2,400,000
2.61

Cavendish Asset Management Limited
2,240,900
2.44


*1 - there might be some double counting in these holdings

Source: Northern Petroleum website

Financial Results

Northern is beginning to benefit from a strong growth in production in the Netherlands. Interim results announced on 29th September 2010 showed that revenue climbed by 150% to 7.0 million in the six months to 30 June 2010 as production volumes grew to 214,000 boe; this was despite production being restricted by the annual maintain programmes at both Grolloo and Geesburg in the second quarter.

The improvement in revenue allowed the pre-tax profit to grow to 2.29 million against a loss of 0.53 million in the first half of the previous year. Earnings per share came out at 1.1 cents compared to a loss of 0.1 cents at the interim stage in 2009. New gas production from Brakel which came on stream in late September 2010 and Wijk an Aalburg should help to improve revenues and cash flow substantially which will also receive a further boost from an improved gas price as since August the Company has achieved a selling price in excess of 5.60 per mcf.

At the time the interim results were announced Richard Latham, the Chairman pointed out that "The Board is committed to continue to delivering greater production and increase asset value within the strategy of operating in areas of low risk and obtaining and developing concentrated licence positions gaining high quality prospects without paying high entry costs. It is determined to accelerate growth and delivery of improved value for shareholders. I feel that Northern's strong asset base has, and will continue to be, steadily transformed into production and asset sales income."

Year to 31 December
'000
2009 2008 2007
Revenue 5,084 6,954 5,931
Gross profit 1,482 2,825 676
(Loss)/profit for the year (2,151) 9,914 20,957
Profit on disposal of tangible assets - 8,934 28,843
(Loss)/profit for the year adjusted for asset sales (2,151) 971 (7,886)
Basic(loss)/earnings per share (2.9) cents 14.1 cents 29.7 cents

Valuation and Conclusion

Northern offers investors the twin attractions of the upside potential that stems from being involved in the drilling of exploratory wells over a tremendous acreage in offshore Italy but backed by sustained well-planned growth in oil and gas production from The Netherlands. We have sought to value the Company's production and reserves by peer group analysis. Firstly, the relationship between Enterprise Value and 2P reserves has been explored, the results of which are shown in the table below; which clearly shows that Northern seems to be attracting a low valuation per 2P reserves well below the median ( 10.31)and the mean ( 10.83).

Company Code EV m 2P reserves
mmboe
EV/2P
/boe
Area of operations
Ascent Resources AST 33.9 - Hungary, Slovenia, Italy & the Netherlands
Aurelian Oil & Gas AUL 197.9 542.00 0.37 Romania, Bulgaria & Poland
Dana Petroleum DNX 2,299.0 223.00 10.31 North Europe, the Far East, Africa and Russia.
Egdon Resources EDR 15.7 1.01 15.55 Offshore UK and France.
Europa Oil & Gas EOG 18.6 0.80 23.25 UK, France, Romania, Poland and Egypt
Faroe Petroleum FPM 369.8 - - Faroe Islands & West of Shetlands
Gulfsands Petroleum GKP 1,060.4 50.7 20.92 Kurdistan and Algeria
Leni Gas & Oil LGO 20.6 4.2 4.90 US Gulf of Mexico, Spain, Trinidad, Malta & Hungary
Northern Petroleum NOP 65.9 102.88 0.64 Netherlands, Italy, UK and Guyane
Petroceltic International PCI 226.0 - - Algeria, Tunisia,
and Italy.

Providence Resources PVR 175.1 17.4 10.06 Ireland, UK, Nigeria, US Gulf of Mexico and Indonesia.
Stratic Energy Corporation SE. 165.8 14.44 11.48 North Sea, Italy and Black Sea (Turkey)


Secondly, the ratio between the Enterprise Value and sales analysed. Historic figures for 2009 were used with the consensus figure of analysts' forecast for 2010 and 2011 employed for the same companies; whilst using our own estimates for Northern.


Company EV m EV/2009 sales A EV/2010 sales E EV2011/sales E Area of operations
Ascent Resources 33.9 37.6 NA NA Hungary, Slovenia, Italy, Switzerland & the Netherlands
Aurelian Oil & Gas 197.9 66.4 78.5 33.3 Romania, Bulgaria & Poland
Dana Petroleum 2,299.0 5.8 4.0 3.4 North Europe, the Far East, Africa and Russia.
Egdon Resources 15.7 17.8 11.2 1.6 Offshore UK and France.
Europa Oil & Gas 18.6 6.0 NA NA UK, France, Romania, Poland and Egypt
Faroe Petroleum 369.8 52.8 23.2 32.1 Faroe Islands & West of Shetlands
Gulfsands Petroleum 1,060.4 0 103.4 39.1 Kurdistan and Algeria
Leni Gas & Oil 20.6 9.7 3.4 0.5 US Gulf of Mexico, Spain, Trinidad, Malta & Hungary
Northern Petroleum 65.9 14.9 5.8 3.2 Netherlands, Italy, UK and Guyane
Petroceltic International 226.0 1,076.2 1,412.5 1,506.7 Algeria, Tunisia,
and Italy.

Providence Resources 175.1 9.5 NA NA Ireland, UK, Nigeria, US Gulf of Mexico and Indonesia.
Stratic Energy Corporation 165.8 9.9 10.1 7.2 North Sea, Italy and Black Sea (Turkey)

This analysis gave the average Enterprise Value to sales ratio (the very high figures for Petroceltic were excluded from this analysis) of 23.04 in 2009, 29.95 in 2010 and 15.05 in 2011. Northern by comparison trades at an 80% and 78% discount to the average for the years 2010 and 2011 respectively.


Certainly corporate comparisons suggest that the share price on Northern seems substantially well-undervalued by either yardstick. Looking at the Enterprise Value to Sales ratios if Northern was to catch up a little on its peer group and gain a rating of say between 5 to 5.5 for EV2011/sales (which is half way between Northern's current ratio and that of Stratic Energy Corporation) would generate an Enterprise Value of 108m which equates to a market capitalisation of 123m and gives the stock an initial target price on the stock of 134p.


It has to be pointed out that this target price has been calculated not only using ratings that are less generous to those being awarded to others within the sector. In this light our price target has to be viewed as being fairly conservative. We reinitiate our coverage, at 88.75p, with a stance of strong buy and a 134p price target.


Forecast table


Year to 30 December Sales
( m)
Pre-tax Profit
( m)
Earnings per share (cents) Price Earnings Ratio Dividend (p) Yield (%)
2008A 6.95 11.56 14.10 7.2 0 0.0
2009A 5.08 (3.12) (2.90) - 0 0.0
2010E 13.00 2.70 0.7 145.8 0 0.0
2011E 23.50 10.00 4.2 24.3 0 0.0

Source: Growth Equities & Company Research

much higher volume today buyers 6:1 yet hardly moves upwards ???

Never does....been in for years...still at a loss....never gets going nowadays....

nice rise today perhaps getting past the 1 mark would be a start

Tipped by GS today

'Northern Petroleum started with buy rating at Goldman Sachs, price target 189p'