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Independent Oil & Gas upgraded by Charles Stanley

Last updated: 11:50 26 Mar 2014 GMT, First published: 12:50 26 Mar 2014 GMT

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City stockbroker Charles Stanley has upgraded its already punchy targets for North Sea junior Independent Oil & Gas (LON:IOG).

Analyst Brendan Long has factored in the newly acquired Cronx field, which he says could in a “full success case” add as much as 50p per share to IOG.

Discounting for risks, in the meantime, just 10% of this additional value is added to Long’s target which increases by just over 5p to 105.6p per share.

The price target reflects the sort of ‘blue sky’ potential the Charles Stanley analyst sees in the group’s asset portfolio. Even after IOG shares have risen some 50% since early February, the analyst’s target is still more than 200% higher than the current price of 30.5p.

Cronx is located just 14 kilometres from the Blythe field and, subject to appraisal success, will form part of a ‘hub’ field development.

Blythe is expected to achieve first gas by the end of 2015, and it is thought that Cronx could potentially be developed around six to nine months after that, meaning it could begin producing in 2016.

First, though, IOG plans to drill an appraisal well in the fourth quarter of the year. Appraisal drilling is one of the potential catalysts identified by Charles Stanley.

A more immediate catalyst will, according to Long, be the closing of the Cronx transaction. He expects this to come on or before April 30.

This in itself will unlock more of the 50p ‘upside’ into the analysts target price, Long said. “We believe Cronx’s contribution to our target price would increase by 2.5x upon securing title over the asset.

He adds: “we expect Cronx will provide multiple near-term and material catalysts for IOG.”

The primary caveat to Long’s recommendation and target price is the risk of dilution, should money be raised too cheaply in any future equity fundings.

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