RE: CNE23 Jul 2018 12:45
UBS fancies Cairn Energy as Catcher performance promises upgrade
11:18 23 Jul 2018
Catcher operator recently flagged that the new North Sea operation was now at plateau production - UBS reckons a strong performance suggests it will now yield more hydrocarbons than previous forecasts.
oil and gas operations
UBS has a new 300p price target and a 'buy' rating
UBS has upgraded Cairn Energy PLC (LON:CNE) as the Swiss bank initiating with a ‘buy’ rating, and lifting a prior price target to 300p from 280p.
The new target suggests some 20% upside to the current price of 233.2p per share.
It comes after UBS took a closer look at the Catcher field, a new start-up brought into production earlier this year by Premier Oil PLC (LON:PMO).
READ: Premier Oil says Catcher field has achieved plateau production rate
Cairn retains a 20% stake in Catcher which, according to Premier’s recent trading update, is now producing at a plateau rate of around 60,000 barrels oil per day.
“Our deep dive of Catcher follows 1-to-1 discussion with key management and subsurface staff,” UBS analyst Amy Wong said in a note.
She added: “The expected ultimate recoverable volumes (known as EUR) for Premier's Catcher field is 96mmboe.
“We think Premier is likely to increase Catcher EUR as the data from the first 8 production wells suggests that the reservoir is better than expected. They encountered >30% more net pay than expected and subsequent wells have been at or above prognosis.
“In addition, the EUR is based on a 30% recovery factor which seems conservative given the high quality reservoir.”
The analyst said that perceived Catcher upgrade could be confirmed by Premier as soon as this August’s first half results statement, though she also noted that its also possible for the confirmation to come as far out as March, when Premier reports on the full year.
UBS also considers the pending arbitration regarding Cairn India – the bank reckons a favourable outcome could be worth some 177p in the ‘upside scenario’, but, cautioned that the situation would presently be too uncertain to include that upside into its current price target.
The arbitration tribunal kicks off in August.
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