viewGenel Energy PLC

Genel Energy downgraded by Goldman Sachs as it updates list for E&Ps

Kurdistan-focused Genel Energy has today been downgraded by Goldman Sachs due to the oil firm's recent strong performance.



Kurdistan-focused Genel Energy (LON: GENL) has today been downgraded by Goldman Sachs due to the oil firm's recent strong performance.

The group's share price now better reflects the performance in Kurdistan by the firm, which is led by former BP (LON:BP.) chief Tony Hayward, City heavyweight Goldman said.

Genel's downgrade comes in a review by Goldman of 50 exploration and production (E&P) companies following recent news flow.

Also moved to 'neutral' from 'buy' among the sector are Afren (LON:AFR), Borders & Southern (LON:BOR), Max Petroleum (LON:MXP) and JKX Oil & Gas (LON:JKX).

Conversely, upgraded to 'buy' from 'neutral' are Premier Oil (LON: PMO), Ophir Energy (LON:OPHR), Coastal Energy (LON:CEO), and Faroe Petroleum (LON:FPM).

Genel's outperformance has been driven by an increasing focus on the Kurdistan region of Iraq by investors following the entrance of TOTAL into the region along with reports of small scale export to Turkey, Goldman notes.

Earlier this month, Genel upped its stake in the Bina Bawi exploration licence to 44 per cent from 23 per cent. The field is believed to contain between 500 and 1 billion barrels of oil equivalent and provides the firm with a material interest in a third major oil and gas development - alongside the Taq Taq and Tawke fields.

Similarly, Afren is removed from Goldman's 'buy' list due to its good recent performance and positive exploration results in Kurdistan leading analysts to believe better upside is offered by other firms.

In July, Afren unveiled positive results from the Simrit-2 well in Kurdistan after testing produced oil at a rate of 13,584 barrels per day.

"Recent drilling in Kurdistan along with the entrance into the region of other major companies (ie, Total) has also highlighted the potential of this asset in our view," said Goldman.

Since being added to the 'buy' list on February 4, Max Petroleum's stock is down 75.8 per cent, notes Goldman, primarily due to the failure to reach the target depth at the Nur-1 well in Kazakhstan.

Goldman also sees better upside elsewhere in its coverage and notes the stock's recent weak performance following the failure of the company's Stebbing well in the Falklands, which was plugged and abandoned.

As well as assessing the potential of Kurdistan, Goldman takes a close look at the Falklands.  

Premier Oil offers a source of opportunity and re-rating potential, it says.

"We believe upcoming exploration catalysts and the value we estimate Premier accreted via the farm in deal with Rockhopper have helped offset the development risk within the investment story," it says.

In July, Premier revealed it was acquiring a 60 per cent stake and operatorship of Rockhopper’s Sea Lion field with an initial down-payment of US$231 million. It has also agreed to pay exploration and development costs running to US$770 million.

Goldman has a price target of 695 pence on Premier, and says it regards the deal with Rockhopper as potentially adding around 170 pence a share.

Meanwhile, Faroe Petroleum is focused on exploration in the Atlantic margin, the North Sea and Norway, notes Goldman. 

It believes the firm's upcoming exploration activity and cashflow are currently under-valued by the market.

Ophir Energy has also been upgraded by the broker.

Since announcing results at the Papa-1 well offshore Tanzania, where Ophir holds 40 per cent, the shares have gone down 12 per cent, noted Goldman.

"While volumes at the well disappointed relative to pre-drill expectations and despite the remaining drilling in 2012 not being as material as what has preceded it, we believe the pull-back represents a buying opportunity in a company with world-class assets."

Goldman has a new 12 month price target of 871 pence (from 965 pence previously) as a result of disappointing volumes found at the Papa prospect, along with some adjustments to risking.

Quick facts: Genel Energy PLC

Price: 138.4 GBX

Market: LSE
Market Cap: £383.74 m

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events


The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

In exchange for publishing services rendered by the Company on behalf of Genel Energy PLC named herein, including the promotion by the Company of Genel Energy PLC in any Content on the Site, the Company receives from...


4 min read