Lochard Energy price target upped to 25.3p at Merchant Securities
Broker Merchant Securities has increased its price target on Lochard Energy (LON:LHD) by 3.3 pence to 25.3 pence and reiterated its ‘buy' rating. Lochard was last trading at 13.5 pence.
Via its 100 percent owned subsidiary Zeus Petroleum, Lochard has a 10 percent stake un the Athena field in the North Sea, which is nearing completion and being operated by Ithaca Energy Inc (LON:IAE, CVE:IAE). Initial production rates net to Zeus are estimated at 2,200 barrels of oil per day.
Zeus was also awarded a 90 percent interest in nine new offshore blocks in the 26th bidding round, which gave the group interests in 11 North Sea blocks. The portfolio contains discoveries on blocks 14/26b (Thunderball), 16/8c (Moby) and 3/10c, and provides a large exploration upside over the remaining blocks.
Lochard has declared it will open a data room for the Thunderball discovery soon with a view to attracting farm in partners to drill the Thunderball and Moby discoveries in H2 2012.
Merchant Securities analyst Brendan Long said he is increasing the target price to reflect the belief that equity markets should begin to recognise the value of Thunderball due to the positive implications of new seismic shot over the prospect and the imminent opening of a data-room to farmout the prospect.
"The modest increase in our target price is only the beginning of a potentially rapid acceleration of value recognition, which fully-unrisked would equate to an uplift of 14.6 pence per share."
News that Lochard has successfully farmed out the Thunderball prospect would be a material and positive event because it would imply that a well will be drilled and that it will be funded entirely by another oil and gas company, Long said.
"The geological chance of success for Thunderball is quite high in our opinion. The next well is not an exploration well in the conventional sense, the prospect has already been drilled and flow tested at 34 million standard cubic feet per day with 200 barrels per day of condensate. The new seismic has greatly derisked the reservoir by showing that it is a relatively simple and volumous reservoir," he added.
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