Broker snap: Credit Suisse ups Tullow target after Wawa discovery

18th Jul 2012 15:42

While Tullow Oil's Wawa-1 exploration well offshore Ghana was smaller than expected, Credit Suisse has raised its target price on the stock from 1,803p to 1,796p.Tullow announced on Wednesday morning that it had made a discovery at Wawa-1, after the well encountered 13m of net oil pay with samples showing good quality oil (33-44 API) and 20m of gas-condensate in Turonian-aged reservoirs.Credit Suisse says that the discovery is smaller and more gassy than pre-drill estimates and has lowered its recoverable resource estimate to 60m barrels of oil equivalents (boe) from 150m boe. However, the 'de-risking' of Wawa adds seven pence per share to the broker's risked net asset value estimate.The broker also said that today's news is "helpful" to the TEN complex: "the discovery is a separate and distinct accumulation from the TEN complex - 10km north of Enyenra-3A - and tested the previously undrilled, updip portion of the license. "While the Plan of Development (PoD) for the TEN complex is likely already finalised for submission or already submitted, we think the TEN development has been designed to have capacity for tie-ins. This is how we expect Wawa to be treated."Credit Suisse says that the TEN complex is a candidate for a partial farm-out. Nevertheless, the group has not said that it is actively seeking to farm-out TEN; "it has funds to develop it and with that it will be a better seller, in our view, if it chooses the part of a partial sale," the broker said. "This strategy is important, in our view, to keep the gearing to the drill-bit high (and unlock value earlier) as typically oil companies tend to underperform during the development phase."Credit Suisse has maintained its 'outperform' rating on the stock.By 15:41, shares were trading 1.65% higher at 1,812.5p.BC