Deutsche Bank upgrades Cairn Energy to 'buy'

Deutsche Bank has upgraded Cairn Energy to ‘buy’ from ‘hold’ and nudged the price target up to 275p from 270p following a review of the company’s development portfolio and on its potential to outperform market expectations.

The bank said it sees upside potential on Kraken and is positive on the Catcher development, where the wells have so far responded well to water injection testing.

In addition, it reckons Cairn can de-risk its Senegal SNE discovery through well interference testing in the summer.

“Taken together with a robust balance sheet and an option on the Cairn India tax arbitration, we think Cairn offers investors several potential catalysts for valuation growth this year.”

Deutsche noted Cairn has made good progress on its UK developments over the last 12 months, with both projects below budget and on schedule for a 2017 start-up.

The Kraken floating production storage and offloading vessel is currently in Rotterdam for inspection and certification and start-up is still guided for the second quarter.

Meanwhile, the operator of the Catcher project is also highly incentivised to complete work on the FPSO at the yard ahead of sailing.

“Both vessels benefit from a less complex hook-up to the risers using the buoy method, which should limit time lost to bad weather.

“As our special report on reservoir performance outlines today, both projects will then rely on secondary recovery through water injection to maximize recovery. We think the risk/reward is attractive, particularly on the Catcher development.”

At 1028 GMT, the shares were up 3.7% to 239.40p.