Tullow Oil drops as Investec reviews UK oil & gas stocks

Investec downgraded four UK oil and gas stocks and upgraded one as it took a look at the sector.

Investec downgraded Tullow Oil to ‘sell’ from ‘hold’ and slashed its price target to 170p from 385p. Put simply, it said you’d have to believe in significantly higher oil prices or M&A to own Tullow. It added that debt is expected to remain high until 2019, leaving little room to manoeuvre or react to new projects or oil prices.

It cut Amerisur Resources to ‘hold’ from ‘buy’ and nudged the target price down to 35p from 40p. “At current levels we believe the pipeline is already in the price with the benefits incorporated into our modelling. We suspect this is the same for consensus and therefore move to hold.”

It also cut its rating on Cairn Energy to ‘hold’ from ‘buy’, moving the target price down to 170p from 185p. While it is drawn to the Senegal narrative, it said recent Indian rhetoric leaves it with a more conservative view on the timing of return on its residual stake. “Ultimately though, this is a valuation call.”

Investec downgraded Wentworth Resources to ‘hold’ from ‘buy’ and cut the price target to 35p from 65p. It said the company has made good progress of late, bridging a funding gap and delivering a solid result at MB-4. The shares have reacted accordingly and the valuation is now up with events, hence the downgrade.

On the upside, though, Investec raised Ophir Energy to ‘buy’ from ‘hold’ and lifted its price target to 175p from 160p. “We admit we’re not huge fans of the lack of geographical focus or a long-term funding profile that only really works in the event of Equatorial Guinea and/or Tanzania farmdowns. Nevertheless, if you apply a 12.5% discount and some slack to project timelines/riskings, Ophir is still comfortably a buy.”

At 1057 BST, Tullow shares were down 3.3% at 286.30p, Amerisur Resources was up 0.7% at 36p, Cairn Energy was down 2.1% at 167.10p, Wentworth was 0.8% weaker at 31.75p and Ophir Energy was up 2.9% at 114.73p.