Broker snap: Tullow find underpins premium valuation

21st Jan 2010 12:31

Brokers are holding fire on updating their net asset valuations on Tullow Oil until they have more information on the Irish oil company's 'significant' oil and gas find at its Tweneboa-2 exploratory appraisal well in Ghana.'Although further appraisal is needed, today's news is positive for Tullow as it highlights, yet again, the prospectivity of their acreage in Ghana which has yielded one major discovery (Jubilee) and now potentially a second (Tweneboa),' said Cazenove analyst Jessica Saadat.The broker has an 'outperform' rating on Tullow, noting that although the shares trade at a premium to Cazenove's core net asset value (NAV) estimate of 545p, the calculation does not include any value for Tweneboa. Analyst Phil Corbett at Tullow's house broker, Royal Bank of Scotland (RBS), said that 'given relatively little is known about the Tweneboa structure, we believe its right to be realistic at this point and refrain from making large NAV upgrades,' though Corbett adds that there is 'little doubt that this is a significantly positive result for Tullow.''The Tweneboa discovery could be one of Tullow's main assets going forward, although further appraisal work and any development process is likely to be more measured,' Corbett said.The company is scheduled to issue a trading statement next Wednesday (27 January) in which it will give an update on the drilling programme for the first half of 2010. The company has a strong track record in the exploration field which RBS thinks justifies the significant premium over 'risked NAV' at which the company's shares currently trade.