RBC upgrades Cairn Energy to 'outperform'

Cairn Energy shares rose on Thursday as RBC Capital Markets raised its rating on the stock to ‘outperform’ from ‘sector perform’ and reiterated a target price of 260p.

“We view the recent share price weakness as an opportunity to take a position in Cairn ahead of the first half results, 16 August, RBC said.

“We anticipate management will increase the resource number for the SNE discovery (in Senegal) and, more importantly, provide revised (lower) cost guidance for development of the field (last provided based on 2014 costs)."

The broker highlighted news that Woodside Petroleum has agreed to pay $430m for ConocoPhillips’ 35% stake in a Senegal offshore oil joint venture, containing the SNE oil discovery. Cairn Energy holds a 40% working interest as operator in the joint venture.

“ In our view, although an unflattering read-through today, medium term, the deal provides another experienced offshore developer while removing the overhang/uncertainty associated with ConocoPhillips' well-known commitment to exit deepwater,” said RBC.

The analyst added: “The combination of a strong balance sheet, production base (from H2/17), and stated strategy to return value created by the drill bit to shareholders is increasingly making Cairn the 'go to' UK Main List exploration and production stock.”

Shares increased 1.84% to 183p at 1249 BST.