Liberum cuts targets on wide swathe of oil sector firms

Worries about demand conditions in China and Europe, together with the threat of growing supplies from Iraq, Iran and Libya, had seen the so-called [price] futures strip fall between $15 to $20, the broker said in a research note sent to clients.

The near-end of the strip had fallen from a trading range above $100 per barrel in 2014 to within touching distance of $35.

Futures prices for further out had dropped to just above $50 per barrel.

"The oil market appears concerned that, in the short term, supplies from OPEC and the US could outstrip demand but recognises that long–term oil prices above are required to bring forth the investment to replace natural decline."

However, while Liberum incorporated then current futures´ prices into its equity valuation models, from 2020 it forecast that a barrel of Brent would trade at an average price of $60, about $10 above market prices.

Despite all of the above, Liberum´s Andrew Whittock said he retained a 'neutral' stance on Big Oil.

Nonetheless, he was concerned that firms´ estimated free cash flows might not cover their dividend policies even if capital expenditures were reduced.

Exploration&production companies should offer more "obvious" value, but positive catalysts remained elusive, he said.

His enthusiasm for Tullow, Ithaca and Ophir Energy had thus dimmed, with Premier Oil and Genel being his preferred picks.

Although investors may have been put off from Premier Oil due to its levels of debt, the stock offered material appraisal upside and growth opportunities in the UK and Falklands, Whittock wrote in a research note sent to clients.

Genel, on the other hand, had volume potential and still held out the prospect of "proper distributions", Andrew Whittock said.

From among the majors, BG Group´s target was lowered from 1,185p to 1,008p, BP´s from 405p to 382p and that for Royal Dutch Shell from 1,850p to 1,758p.

Liberum also took down its 12-month price targets on Premier Oil (from 90p to 69p) and Genel (from 286p to 226p). The price target on Tullow Oil was lowered from 251p to 170p, on Ophir Energy from 102p to 80p and on Ithaca Energy from 45p to 19p.

Whittock also bumped down his view of BP shares to a 'hold' from a 'buy' and on BG Group to a 'sell' from a 'buy'.

His recommendation on Royal Dutch Shell on the other hand was upgraded to a 'buy' from a 'hold'.