Broker snap: Desire fall is overdone

6th Dec 2010 12:27

The plugging of the 14/15-2 Rachel North well by North Falklands oil explorer Desire Petroleum was a most unpleasant turn-up for the books and has predictably led to the share price being trashed, but Westhouse Securities thinks the fall has been overdone.On Thursday last week, Desire announced that preliminary data collected indicated that this well was an oil discovery, having encountered a 349 metre gross interval of sands and shales with hydrocarbons, of which 57 metres was net pay in multiple zones.Analysis of the wireline data, however, indicated that the hydrocarbons are residual and that the mobile fluid is water.Despite the "dramatic turn of events" Westhouse remains relatively upbeat, though it is slashing its price target for Desire from 142p to 96p. With the shares slumping more than 60p in the morning session on Monday to around 70p, that still justifies Westhouse sticking with its "accumulate" recommendation."The positives that can be taken are the thick sands that have been encountered, as well as oil that has passed through. Discovering where this oil has migrated to is clearly the challenge for Desire and other operators in the [North Falklands] basin," the broker said.One of those operators is Rockhopper, which has a 7.5% stake in the abandoned 14/15-2 Rachel North well. Westhouse has maintained its "buy" recommendation but has adjusted its price target to 489p.