Westhouse upgrades Tullow on 'substantial upside'

Westhouse Securities has lifted its stance on oil explorer Tullow Oil from 'add' to 'buy', hailing the potential of the company's portfolio of assets.

The broker said it now sees "substantial upside" to the stock, with shares now worth just over half of what they were six months ago.

However, it has slashed its target price from 930p to 770p on the back of a more modest exploration and macro outlook.

"The market has punished Tullow for a disappointing run in exploration and a concern about the impact of lower oil prices, but the reality is that Tullow possesses assets that could potentially deliver top-tier production and cash flow growth in coming years," Westhouse said.

The company on Wednesday substantially lowered its 2015 capital expenditure budget for 2015 on the back of the weaker oil price, reduced commercial success from offshore drilling, and failure to find a farm-out partner for the TEN development offshore Ghana.

Westhouse said Tullow's "re-orientation of strategy to focus more on nearer-term production and development opportunities and lower-risk exploration makes sense, in our opinion".

The change reflects the current oil-price environment but also the market's current "distaste" for high-risk deepwater frontier exploration, the broker said.

"Tullow can make this change as it has built a diversified portfolio of assets with plenty of projects at different stages of evolution."

Tullow's shares were down 1.5% at 485.4p by 10:57 on Thursday, pulling back slightly after strong gains made the previous session.