It was a case of one up and one down as Jefferies revised its views in the exploration and production sector, upgrading Tullow Oil plc (LON:TLW) and downgrading Cairn Energy PLC (LON:CNE) – although both are now rated ‘hold’.
Analyst Mark Wilson reckons the oiler’s recent refinancing of its reserves based lending facility has removed any additional dilution risk, which had been a concern for the broker.
Wilson highlighted that most of the material risks of the past few years are now behind the company.
“The stock theoretically now has a clear path to material deleverage via, we estimate, $791m of free cashflow in 2018 (above ~$320m capex) and has delivered a 3Q17 production rate of 60kbpd gross from the TEN field (47% WI) meaning a physical group production rate approaching 90kboepd through 2018 could be possible,” the analyst said.
Mitigating Jefferies positivity, however, the analyst also noted: “At the same time, overall longer term material growth prospects for the company are challenged partly through a lack of visible exploration prospects and, in our view, a less than certain path to commercialisation/development of Kenya.”
Jefferies’ ‘hold’ rating comes with a new price target of 180p, up from 175p.
At the same time, Cairn Energy is cut to ‘hold’ from ‘buy’ albeit Wilson described the change as “mechanical”.
“Our update on Cairn is mechanical; slightly increased oil price in 2018 sees an increase to core NAV due to an improvement in our FY18e net cash position (we now expect $55m),” he said.
“We use a year end 2018 NPV date hence there is the irony that Catcher asset valuation actually sees a slight reduction on higher oil price assumption for 2018 (positive effect captured is in net debt/cash).”
The analyst added: “Delivering at least the Phase 1 240mmb to expectations is now both the challenge and the opportunity.
“New Exploration outside of Senegal is focused in Norway where 2018 will see the first of up to ten exploration wells in the coming years.”