Barclays names Ophir Energy 'top-pick', upgrades Premier Oil

Analysts at Barclays re-jigged their recommendations on European Exploration and Production companies in order to take into account the recent rise in crude oil prices and improved investor sentiment regarding companies´ ability to execute to plan operationally.

In the process they upgraded their recommendation on shares of Ophir Energy and Premier Oil while downgrading stock in Det Norske, Genel and Ithaca Energy.

"Those two points appear to have been enough to see many investors revisit the sector with more forward-looking optimism in recent months and increasingly ascribe value to delivery of 2016 operational goals," the analysts said in a research note sent to clients on 21 June.

With crude oil futures having recovered to $50 per barrel, equity analysts at Barclays opted to 'mark-to-market' their price assumptions, increasing their 2016 Brent forecast to $44 a barrel and nudging their 2017 estimate from $55 a barrel to $57.

The broker also continued to factor in a gradual recovery in oil to $70 per barrel from 2018 onwards.

On the basis of the above, it rollowed forward its net asset value estimates by one year to the end of 2016. As a result, Ophir Energy was now their 'top-pick' and not DNO, Premier Oil was upgraded from 'equal-weight' to 'overweight' and Tullow Oil kept at 'overweight'.

Det Norske was downgraded from 'equalweight' to 'underweight, Genel Energy from 'overweight' to 'underweight', Ithaca Energy from 'overweight' to 'equalweight' and Soco International kept at 'underweight'.

Ithaca Energy and Premier Oil saw the largest uplift to their estimates of tangible NAV - the primary driver of their target prices - while Ophir Energy and DNO continued to trade at the "deepest discounts" to tangible NAV (49% and 37%, respectively), which reflected stock-specific factors that Barclays believed both companies could continue to address over coming months.

In the case of Enquest, Barclays pointed out its investments in projects with "sub-optimal returns in the current oil price environments", whereas reduced levels of activity were weighing down on Bowleven, Faroe Petroleum and Soco International.

Barclays stuck to its 'neutral' stance on the European E&P sector.