Tullow Oil a 'buy' as meaningful exploration returns - Canaccord

With Tullow Oil showing "clear signs of a return to meaningful exploration", analysts at Canaccord Genuity raised their rating on the group to 'buy' on Monday.

After a long period where balance sheet constraints had limited Tullow's capex capacity, the firm has been exploring again, with a high impact well underway in Namibia and its more recent Exxon discovery off the coast of Guyana, which the Canadian broker believes could have "far more significant positive implications" for the group.

Canaccord pointed out that larger projects in Guyana would be valued at roughly $9 a barrel, but noted that, given the shallower water depth of Tullow's Orinduik/Kanuku development, it would be reasonable to expect a lower cost structure for the project.

The broker noted that, for the most part, it tended to steer clear of including exploration in its target prices for larger exploration and production firms, however, in this instance, given the combination of Tullow's exploration track record, the proximity to discoveries, and the scale of the potential, Canaccord thought it reasonable to include Guyana into its target price.

Canaccord said, as a result, it had added a conservative estimate of the offshore Guyana value of 15p/share, equivalent to $280m or risked 28 mmbbls net potential.

This saw it raise the target price to 270p per share from 250p and raise the rating from 'hold'.