Tullow Oil saw a surge in its share price last week on takeover speculation, following a fallow period after a number of drilling disappointments.
But after the surge, comes the profit taking, and the company is currently down 26p at 883.5p, the biggest faller in the FTSE 100.
The bid talk pointed to interest from Norway's Statoil, but not everyone was convinced. Bernstein analyst Oswald Clint said last week:
They [Statoil] aren't as in need of purchasing assets at this point as they were in the past decade, so it feels a little bit unlikely to me.
But ahead of a trading update on Wednesday, a number of analysts issued fairly upbeat notes on the company. Barclays said:
On 15 January, Tullow will release a trading and operational update. We believe the key areas of focus will be Mauritania and Kenya, where the company is drilling two important exploration wells. Mauritania is likely to be closely watched by investors as, if successful, it could open up another new play in West Africa that could have a material impact on our net asset value. We would also expect an update on the company's sell-down process of the Tweneboa-Enyenra-Ntomme complex in Ghana, together with the group 2014 production guidance.
As the stock trades at historically low valuations, we believe investors have an attractive opportunity to increase their exposure to a sector-leading exploration portfolio that includes several transformational opportunities and a dominant position onshore East Africa. With over 60% implied upside to our price target [of £14.90], we re-iterate our overweight on the shares.
Nomura cut its target price from £11.70 to £11.30 but kept its neutral rating and said:
At Tullow, we think risk-reward into the Frégate-1 well (Mauritania) is balanced and await further indications on progress towards a farm-down at [Ghana's] Tweneboa-Enyenra-Ntomme. Although the exploration business is not broken, a thorough review of remaining prospectivity in the portfolio is required to reassure that the drillbit can offer 200m barrels per annum on an ongoing basis to regain a premium net asset value.
