Cairn Energy jumps 5% after Jefferies upgrade

Shares in Cairn Energy jumped 5% on Tuesday after Jefferies upgraded the stock to ‘buy’ from ‘hold’ and raised the target price to 222p from 175p, as it took a look at the European exploration and production sector.

Jefferies said the upgrade was based on Cairn’s “play-opening success offshore Senegal”.

Cairn Energy said last month that along with its joint partners, it had submitted a three-year evaluation work plan to the government of Senegal. The plan incorporates an initial program of three firm and three optional exploration and appraisal wells.

As far as peer Tullow Oil is concerned, Jefferies, which rates the stock at ‘underperform’, said the eternal M&A candidate is just too expensive.

“Deals continue to show that M&A only happens at real value for de-risked reserves,” said Jefferies.

“At $25 per barrel of oil equivalent 2P reserves (before any bidder premium) and with mainly East African 2C resources unlikely to convert to reserves anytime soon, the value argument does not stand up.”

The term 2P is used to denote the sum of proven and probable reserves while 2C is the best estimate of contingent resources.