Much has been made of the impacts of the UK’s windfall tax on oil and gas profits, and, the recent easing of crude prices – nonetheless, analysts at Jefferies reckon there’s still some value for investors in the North Sea to tap into.
Harbour Energy PLC (LSE:HBR) and Ithaca Energy PLC (LSE:ITH) are each retained as ‘buy’ recommendations albeit with lowered target prices, whilst Serica Energy PLC (AIM:SQZ) has been added to the American investment bank’s ‘buy’ list following its recent acquisition.
Elsewhere, Enquest PLC (AIM:ENQ) is downgraded to ‘hold’ from ‘buy’ and Capricorn Energy PLC (LSE:CNE, OTC:CRNZF) (formerly Cairn) stays as a ‘hold’ according to Jefferies.
Here’s a breakdown of the bank’s North Sea views:
Harbour Energy: ‘buy’, target of 360p from 435p
Jefferies analysts cited higher declines in UK production, reducing 2023 production by 3% to 193,000 barrels oil equivalent per day and 2024 by 7% to 178,300 boe/d.
However, analysts remain optimistic about the company's strategic discipline and the progress of its organic growth assets, including the Zama development offshore Mexico and UK CCS Track 2 projects.
Ithaca Energy: ‘Buy’, target of 195p from 245p
The research note highlighted the potential upside for Greenfield development projects and the derisking of the 325mmboe Rosebank project following Equinor's farm into Suncor's 40% stake.
Jefferies also updated Ithaca's production numbers for FY23 and FY24, and factored in a new price deck and net debt position.
EnQuest: ‘Hold’ from ‘Buy’, target of 20p from 27p
Despite strong cash generation and deleveraging, Jefferies analysts noted the company's exposure to decommissioning and decarbonisation/new energy opportunities as a potential differentiator but applied a common valuation methodology across UK E&P coverage to normalise for such factors.
Capricorn Energy: ‘Hold’, target of 230p from 270p
Jefferies highlighted reduced Egypt production assumptions and a lower EV/EBITDA multiple to reflect a valuation close to UK North Sea peers with limited growth.
The bank’s analysts also noted CNE's net cash position growth and the strategic review underway by Capricorn's new board.
Serica Energy: upgraded to ‘Buy’, target of 340p
The bank’s upgrade follows Serica’s acquisition of private company Tailwind and the subsequent increase in group 2023e production by 46% to 44.6kboe/d.
Jefferies analysts also noted a 3% year-on-year growth in group production into 2024, supported by a 4-well infill drilling program.
The ratings changes were part of a wider update of Jefferies ratings and targets for London's E&P sector.