RBC Capital starts coverage of Nostrum at 'outperform'

RBC Capital Markets has started coverage of Nostrum Oil & Gas at ‘outperform’ with a 700p price target.

It said Nostrum gives investors access to a material, well-defined reserves base onshore Kazakhstan with positive operational momentum.

RBC said management is working to unlock the long-term value by doubling current production, adding that this should be accomplished as construction of a third gas processing plant on the Chinarevskoye field is completed by end 2016.

In addition, the company is trying to establish longevity by growing proven reserves from 192 million barrels of oil equivalent to 700m barrels of oil equivalent through ongoing development/appraisal drilling.

“In our view the opportunity is the steady unwinding of the current deep discount to tangible NAV as infrastructure is completed and production increased,” said the bank.

It said this is similar to Cairn Energy’s share price performance from 2008 to late 2010 as the pipeline was completed onshore India that allowed production to start from their seminal Rajasthan discovery to over 100,000 barrels a day.

“We view the combination of deep discount, proven geology and experienced management team as an opportunity,” said RBC.

At 1450 BST, Nostrum shares were down 1.8% at 562p.