JP Morgan analyst James Thompson, in a note, said the sector has just seen a year of vindication for oil majors and the start of a more positive chapter the whole sector.
“E&Ps sit at the sharp end of oil beta and enjoy stronger balance sheets having effectively harvested cash in recent years, shielding them more effectively from downside price risk,” the analyst said in a note.
Upgrading JP Morgan’s rating for EnQuest, to ‘overweight’, Thompson said it may see the most dramatic positive impact.
He provided commentary around what he emphasises is a “catalyst driven” sector, saying: “Most dramatically, the improvements made by EnQuest now allow it increase drilling activity which underpins stronger NAV and CF outlook, this drives our u/g to OW.
“On the other foot Tullow Oil’s outlook deteriorated with its most recent update, and we suggest avoiding the shares in early 2020.
“The sector remains catalyst driven, and we see relatively lower activity year-on-year, which moderates our more bullish sector view.”
“From this perspective we see Cairn as best placed in this regard given imminent final investment decision (FID) in Senegal, conclusion of India and near-term Mexican drilling.”
Cairn is named “top pick”, and, for Middle East and North Africa exposure Genel Energy PLC (LON:GENL) is preferred over Pharos Energy Plc (LON:PHAR) due to perceived balance sheet strength and ‘option value’.
Premier Oil PLC (LON:PMO) doesn’t get a mention by the JP Morgan analyst though it has already made a splash in 2020 with Tuesday’s series of deals – including three North Sea acquisitions for over US$800mln, separate farm-outs in the Falklands and Indonesia, a production forecast upgrade and launched a US$500mln equity funding.