Recent rallies mean most oil and gas companies are now trading close to fair value, according to Macquarie, but the broker still tips Hurricane Energy Plc (LON:HUR) and EnQuest Plc (LON:ENQ) for share price success in 2017.
Analyst Kate Sloan, in a note, today downgrades Cairn Energy Plc (LON:CNE), Premier Oil PLC (LON:PMO), Faroe Petroleum plc (LON:FPM), Ithaca Energy Inc (LON:IAE) and Tullow Oil plc (LON:TLW) - all of which are now seen as ‘neutral’.
The majority of downgrades are because of the recent share price strength, though for Premier the analyst is also factoring in lowered expectations for the Solan field.
Hurricane Energy has the clearest value creation opportunities
An ‘outperform’ rating and 90p price target suggests some 80% upside to Hurricane Energy’s current share price of 49.55p.
Hurricane is coming off a very successful 2016, but hopes are high for 2017 as well.
During the year it confirmed its portfolio of basement plays, with wells on the Lancaster and Lincoln discoveries unearthing very substantial resources – believed by some to measure as much as 1bn barrels – and drilling will next test Halifax, which is a further high impact exploration prospect.
At the same time the group is advancing Lancaster towards an early production phase, ahead of a much bigger field development.
Macquarie’s Sloan said: “Hurricane offers 82%+ upside to our target price from the current share price, and has the clearest near-term tangible value creation opportunities, in our view.
“Further exploratory drilling (ongoing) and progress on the Lancaster development could add significant value, building on the success the company enjoyed in 2016.”
EnQuest is the pick for oil price leverage
Sloan highlights that EnQuest, like the rest of the sector, is a beneficiary of rising oil prices though she also notes that the Kraken field, its major development project, is due ‘low risk progression’ before coming online later this year.
“We believe the valuation gap will be narrowed in the coming months once the market starts to believe in Kraken delivery,” she added.
Macquarie rates EnQuest as ‘outperform’ with a 79p target (current price:
Africa Oil offers attractive longer term upside
In Kenya’s Lokichar basin, where it is partnered in discoveries with Tullow Oil, the Toronto-listed oiler is working to de-risk and develop onshore projects with more than 750mln barrels of resources.
Africa Oil’s is seen to have a favourable position here, compared to partner Tullow, thanks to a massive farm-out deal with Maersk which delivers some US$350mln of cash and US$400mln of future spending commitments.
“We believe Africa Oil offers very attractive longer term upside through de-risking of the South Lokichar development in Kenya with significant progress expected over the next 12 months,” Sloan said.
“The cash position also provides a safety net for valuations and the current drilling programme should add further resource volumes, in our view.”
Africa Oil is rated ‘outperform’.