Premier Oil has climbed 22p to £20.10 as UBS issued a buy note on the exploration and production group, and tipped it as a possible takeover target.
Ever since KNOC bought Dana Petroleum - and in truth, before that - punters have been suggesting predatory national oil corporations would be looking for prey in the sector. Premier would fit the bill nicely, according to UBS analyst Melanie Savage:
Premier stands out amongst the European exploration and production companies with a rapidly growing production profile, which could reach 135,000 barrels a day by 2015. We think this makes the company a particularly attractive M&A target.
We believe Premier offers a potential bidder the best value per producing barrel of the European [companies]. Its production growth is relatively low risk as it is backed by projects which are in development or pre-development - we view this as especially valuable to a potential bidder. We believe a de-risking case on drilling in Egypt may be a catalyst for a bid.
Premier said last month that a result from the Cherry project in Egypt was expected towards the end of the first quarter.
So what could a possible bidder pay? Back to UBS:
Our 'blue-sky' valuation on Premier is 4951p, taking into account unrisked upside on Premier's current drilling program plus 658p of further upside that we do not yet value in the company's Red Sea block in Egypt. This may be unlocked by a success on the Cherry prospect, clearly a potentially game-changing well.
Even without the prospect of a bid, UBS thinks the company looks good value, among the cheapest in the sector, and the bank has a £24.40 price target.
