There’s a new ‘buy’ in the “notoriously volatile” exploration and production sector, according to UBS, which is now upbeat on Cairn Energy Plc (LON:CNE).
Cairn shares rose just over 8% on Friday to change hands at 196.3p.
Highlighting Cairn’s ‘option value’, analyst Daniel Ekstein said: “Following recent underperformance, several potential sources are emerging in Cairn.”
One potential catalyst identified by Ekstein is the resumption of drilling activity in Senegal where he sees “multi-hundred million barrels of upside” in a frontier exploration region.
Ekstein notes that well costs are presently low (between US$20mln and US$30mln) and that for investors in Cairn every 100mln barrels discovered would be worth about 27p per share.
The analyst also highlights field development catalysts, with North Sea projects due online in the second half of next year (the Catcher and Kraken projects will together deliver 25,000 bopd of production once ramped up).
Finally, Ekstein points to the long awaited resolution of arbitration for Cairn’s 10% stake in former spin-out Cairn India (the process is supposed to conclude next year) and the analyst notes that the market’s expectations are currently low.
UBS upgraded Cairn to ‘buy’ and a 220p price target suggests some 12% upside to the current price of 196p.