Premier Oil PLC (LON:PMO) and Ophir Energy Plc (LON:OPHR) were both upgraded by Barclays Capital analyst James Hosie, also downgraded Faroe Petroleum plc (LON:FPM).
The rating for Premier moves to ‘equal weight’ from ‘underweight’ whereas Ophir is now seen as ‘overweight’ from ‘equal weight’.
Commenting on the sector, Hosie said: “A firmer oil price outlook, rising cash flows and increased access to capital markets have eroded balance sheet concerns.
“This in turn is allowing investors and sector management teams to focus on forward plans for new developments, rather than budget cuts and debt covenants.”
He added: “A continuation of $65-70/bbl oil should generate further upside to debt-levered producers.”
Upside?
Talking up the investment strategy, the analyst said there’ll be further upside to debt-levered producers - based on the continuation of US$65-US$70 per barrel oil - but, there’ll be greater value opportunities where asset-specific risks are causing investors to remain cautious. Examples here, include Cairn Energy PLC (LON:CNE) and Ophir Energy Plc (LON:OPHR).
Hosie also highlighted that there’ll be premium valuations for the larger, more liquid European exploration and production specialists with high-quality assets – with Tullow Oil plc (LON:TLW) named among a few examples.
“While we believe this is entirely rational, we feel relative outperformance for these names depends on the extent to which investors' risk appetite prompts a re-allocation from the European Integrated Oils in search of greater growth and commodity price leverage,” he added.