Oil shares are being lifted by the rise in crude prices as global tensions rise, prompting talk of possible supply disruption from the Middle East.
But Tullow Oil and Premier Oil are also higher for other reasons.
Tullow has added 8.9p to 193.2p after recent weakness as analysts at UBS moved from neutral to buy and raised their target price from 230p to 240p. They said:
Tullow came into the downturn highly geared and with substantial capital expenditure ahead to bring T.E.N [a project in Ghana] to first oil in mid-2016. Strategy switched to survival mode: a hard-hitting $500m cost plan saw headcount cut 40%, exploration spend down 75% to $250m and the dividend suspended. But this did not frame a compelling investment case and a hefty debt pile left the equity vulnerable to ‘lower for longer’ oil price narratives. But mission is accomplished and perceptions of a debt problem misplaced. This is a well- financed company with quality assets and a proven development track-record, offering long-term oil price exposure at the bottom of the cycle, yet well hedged at the front end (around 50% of 2016 estimated production at $75 a barrel).
Meanwhile Premier has put on 3.4p or nearly 5% to 72.20p as the company agreed to sell its Norwegian assets for $120m in cash to Det Norske, one of its long term partners. The funds will be used to pay down debt. Chief executive Tony Durrant said:
Our team in Norway has done an excellent job in bringing the Vette project close to a sanction decision in a low oil price environment. The transaction will realise immediate value from the project as part of our strategy of active management of our portfolio.
Nathan Piper, an analyst at RBC Capital Markets, said:
The deal should complete before year end, bolsters the balance sheet and realises value (ahead of the $80m in our valuation) for a low profile part of the portfolio. It also removes any capital requirements for the Vette project that was progressing towards project sanction.
