Morgan Stanley tips Tullow Oil plc (LON:TLW) shares to break out, driven by production growth and better oil prices.
Analyst Martijn Rats says the Africa focussed oil producer is at an inflection point.
He notes that the firm, which has rallied just over 60% in the year to date, is highly geared to oil prices and the improving sentiment around the oil market.
Crude prices earlier this week marked a new of for 2016, rising to US$54 per barrel – it represents a substantial recovery from the lows below US$30.
Morgan Stanley’s Rats highlights that Tullow is now close to turning cash flow positive and its debt levels are falling.
Then, he also notes that the new operation at the TEN field is ramping up and there’s now clarity over the remedial work (and insurance cover) for the flagship Jubilee field where damaged equipment has impacted output.
Morgan Stanley today upgraded Tullow to ‘overweight’ from ‘equal weight’, while the price target is lifted to 372p from 312p.
The investment bank’s new target implies some 38% upside to the current price of 269p.
Tullow is targeting production of 74,000 barrels of oil per day for 2016, guiding for 85,000 bopd in the second half to lift the 63,000 bopd measured in the first six months of the year.
TEN, the operation offshore Ghana that achieved ‘first oil’ in August, is expected to yield an average of 23,000 bopd for Tullow in 2016.
It is operator and has a 47% stake in the field which is expected to ramp up gradually up to a rate of 80,000 bopd.
Tullow is due to release its next trading up in November.