Westhouse highlights buying opportunity at Tullow despite mixed Kenyan update
Tullow Oil's share price dropped sharply on Thursday after the company reported a mixed exploration and appraisal update on Kenyan operations, though analysts at Westhouse Securities recommend investors to use this weakness as a buying opportunity.
FTSE 100
8,044.81
16:49 23/04/24
Tullow Oil
34.60p
16:40 23/04/24
The broker maintained an 'add' rating and 930p target price for the stock, which was down 4.8% at 502.32p by 10:45.
Hydrocarbons were found at the first well in Kenya's Kerio Basin, but Tullow said Kodos-1 had to be plugged and abandoned because the reservoirs were of mixed quality.
Tullow also reported mixed results from the nearby South Lokichar Basin, where another exploration well, the Ekosowan-1, was plugged and abadoned.
However, the Twiga-2A well test achieved production rates of between 150 and 3,270 barrels per day - the highest oil production rate seen to date in Kenya. Positive results were also reported from the Ngamie-4 appraisal well.
"Any negative impact from the disappointing exploration wells should be offset tlby the positive appraisal results," according to Westhouse analysts Mark Henderson and Jamal Orazbayeva.
They said that the stock has been among the worst performers in the sector over the past three to four months despite little newsflow. As such, the shares are now trading at a 25% discount to estimated core net asset value "with nothing factored in for exploration".
"While exploration success in the past 12-18 months hasn't matched prior success, it still stands at >50%, which is good in the context of the sector. We would be buying into any share price weakness on the back of this update," the analysts said.