Broker snap: Ophir Energy receives double upgrade by Nomura



LONDON (ShareCast) - Nomura has upgraded its rating for oil and gas group Ophir Energy (Other OTC: OPGYF - news) by two notches, from 'reduce' to 'buy', saying that highly-geared exploration and appraisal (E&A) drilling in 2013 could be a 'company maker'.

The broker said on Friday morning: "Our investment strategy for E&Ps [explorers and producers] is to either seek 'value' based on production or back names that offer 'company-changing' upside potential through the drill bit. Our upgrade of Ophir reflects the latter."

Analysts said that the upside of oil exploration in Pre-Salt Gabon is "underappreciated", while the scope for data in the first quarter to de-risk key wells in Tanzania and Gabon is "high and largely overlooked".

The broker said that Ophir has a leading exposure to pure exploration. "In a 'blue-sky' success scenario, 2013 drilling could be worth $17bn or c.500% of the current share price, the highest in our coverage universe."

While E&Ps rarely drill every well in their annual programme, even with a third of Ophir's wells being deferred beyond 2013, Nomura says that the stock's upside is still 200%, above the sector average of 110%.

Other reasons for the double ratings upgrade include "overdone" funding concerns and the potential for near-term updates on pre-drill estimates in Gabon and Tanzania to "unlock value".

Nomura said that with the stock down 19% from its 2012 highs of around 640p, it now trades at a 30% discount to its risked net asset value, versus the sector at 25%.

The target price has been raised from 683p to 750p.

Shares were up 3.32% at 544.5p by 10:44.