The upturn in the oil price has allayed immediate fears about the future of North Sea oil companies, a broker said Thursday.
The recovery in Brent crude to about US$47.62 a barrel from below US$30 in February, together with cost cuts, has alleviated short-term balance sheet concerns, Barclays said in a note.
A gradually rising oil price and successful completion of field developments such as Solan, Stella, Catcher and Kraken should allow North Sea management teams to become less defensive, the broker said.
Development in and near existing fields could plug the likely global supply gap that Barclays expects in 2018-19 as the impact of reduced industry investment nears its end.
Barclays said it still believed the best exploration and production investment opportunities were elsewhere in Europe, rather than the North Sea.
But it said investors keen to put their money into the region could do worse than look at Ithaca Energy Inc (LON:IAE) and Cairn Energy PLC (LON:CNE).
Barclays said Ithaca, which it has equal weight with a new 40p price target, has the strongest net asset value growth and debt reduction credentials. Ithaca shares lifted 4.6% to 45.5p.
Cairn, which the broker also rates at equal weight with a new 230p price target, offers North Sea development exposure alongside its frontier exploration and appraisal activities. Cairn's share price rose 3.5% to 231.6p.
Barclays analysts added: “In the case of Enquest PLC (LON:ENQ) (underweight; new 40p price target) a path to addressing its balance sheet risks is emerging, but its core net asset value growth outlook is lower than its similarly indebted peers Ithaca and Premier Oil PLC (LON:PMO) (equal weight; new 75p price target).” EnQuest's share price gained 4% to 38.5p. Premier's stock advanced 3.9% to 74p.
The price of a barrel of US West Texas Intermediate lifted 0.176% to US$45.41.