Ophir Energy Plc (LON:OPHR) shares have been tipped by Macquarie to rise to 95p, from 74.68p currently, as the Fortuna project advances towards an anticipated final investment decision in the first half of 2017.
Analyst Kate Sloan explains that a recent deal – which saw existing partner Golar LNG establish a new tie-up bringing Schlumberger into the venture - has de-risked Ophir’s participation in the project.
“Ophir will now have an economic interest in both the upstream and midstream components of the project (previously just the upstream),” Sloan said in a note.
“This substantially removes the potential impact of the tariff structure on valuation, and, as such, the attractiveness of the project is now primarily driven by the gas price.
“Now that a financing solution is in place, there is a lower risk of Ophir needing to forward sell the gas into Europe on NBP-linked contracts, in our view.”
The analyst also highlights that Ophir continues to discuss Brent pricing in its announcements, and Macquarie is now factoring in greater influence of oil prices into the broker’s model.
“At our oil price assumptions (US$74 long term), Fortuna LNG is an attractive project, generating a 22% IRR. At US$60 long term, which appears to be the assumption under which Ophir is running its forecasts, we estimate a project IRR of 19.5%, which is still attractive,” she added.
Macquarie has now upgraded its rating of Ophir to ‘outperform’ from ‘neutral’.