Tullow Oil plc (LON:TLW) shares have beaten down in recent weeks triggered by unexpected findings when analysing its two high profile new discoveries offshore Guyana, but, somewhat counterintuitively, commentary attached to a City downgrade today paints a silver-lining for investors.
Stockbroker Peel Hunt in a note described the revelation that Tullow’s new Guyana discovery comprises heavy crude as “a major blow, but not a knockout”.
At the same time, the broker noted that Tullow’s separate but simultaneous downgrade of production guidance in Ghana had “added fuel to the fire”.
Nonetheless, Peel Hunt reckons the share sell-off – that saw the share fall 34% since mid-November - has been “overdone”.
At the same time the broker does reduce its target price for Tullow Oil to 211p per share, suggesting some 55% upside to the current price of 135.75p.
Peel Hunt, meanwhile, retains an ‘add’ recommendation for the oiler.
“Heavy oil is a major blow, but we think the share price reaction is overdone: stripping out Guyana gives a 211p/share Risked NAV,” analyst Matt Cooper said in a note.
“While heavy oil increases risking, for larger discoveries such as Jethro, we think the high quality/temperature/pressure reservoir means a good chance of development.”