The exploration and production sector is at a crossroads, according to analysts at Deutsche Bank, who reckon Tullow Oil plc (LON:TLW) and Cairn Energy PLC (LON:CNE) are on the right path.
With a ‘buy’ recommendation, analyst David Mirzai sees some 28% upside to Tullow (target price of 200p versus a share price of 156p), which he sees as “more than just a geared play on the oil price.”
“Tullow offers geared commodity exposure for investors with a constructive outlook on the oil price, as well as long-term optionality and growth in a deflationary international E&P cost environment,” he said.
A Cairn ‘buy’ recommendation, meanwhile, comes with a 232p target suggesting 31% of blue sky above the current price of 176p.
Cairn catalysts
“We upgraded Cairn to Buy at the start of the year, as we think the stock offers investors several potential catalysts for valuation growth this year.
“Next catalyst is the imminent results from Cairn's FAN-South exploration well.
“However, adding resource upside to the already commercial SNE discovery is less significant to us and we continue to see the progression from discovery towards sanction as the key driver of the Senegal investment case.
“We anticipate a positive resource update at its half-yearly results, as well as more colour on the ramp-up of production on the Kraken field.”
Mirzai also notes that Cairn is involved in a soon to drill wildcat well offshore Ireland, which would be another catalyst if successful.
Genel is still a ‘sell’
Mirzai doesn’t, however, see such a positive situation for Kurdistan based Genel Energy PLC (LON:GENL) which is rated as a ‘sell’ as the analyst still does not like the company’s risk profile.
“Even though the monthly export payments have normalised in the past few quarters, outstanding payments for unrecognised sales continue to cloud the investment case,” he added.