Nomura starts European oil E&P sector with bullish view | Reuters

Watch out – A Broker house bullish on the E&P Sector? It must be time to sell!

Only kidding – but Nomura clearly took their time in getting this note out. Oil has been high since early Jan and E&P takeover fever kicked off weeks ago with Cove, Ithaca and Bowleven.

On reflection – there’s a theme occurring here. In 2010, the market was bullish after QE and the E&P sector was in great demand. Stocks were doubling and trebling and not just a handful – plenty of them. I recall Goldman Sachs issued a similar note in 3rd quarter of 2010 and then went oddly quiet in 2011.

2011 kicked off with a reduction in QE and a negative outlook. The frothy E&P sector has seen the hot money just weeks earlier and was a firm candidate for a correction. There’s no doubt about it… things got way overdone in 2011 especially when you account for the energy prices performing strongly. Valuation gaps widened and stocks became very cheap. In 2012, the benefits of QE (via ECB) and Federal Reserve commitment to low interest rates for 18months+ has provided the spark that the market needed. Thus it’s only natural to look at what was beaten up in 2011 and see the potential for strong reratings in 2012.

M&A activity has been ongoing through 2009 to today (notably Dana/KNOC and PMO/EO) – recently, the pricing is looking far less discounted and more towards ‘premiums’. That’s normally a strong sign that the ‘recovery’ or ‘correction wave’ is at its early stages. What looks like a premium today might look like a bargain in 6 months time. Iran issues are not likely to abate in the short term, nor is the far east’s desire for the black stuff.

It’s all looking better and nicely timed for a US elections year. Obama will be happy.

……………………………………………………………………..

Fri Mar 2, 2012 3:41am EST

* Starts Afren, Africa Oil, Cairn Energy, DNO with “buy”

* Begins coverage of Dragon, Faroe, Ophir,Soco with “buy”

* Starts Lundin, Premier, Tullow Oil with “reduce”

March 2 (Reuters) – Nomura began coverage of the European exploration and production industry with a “bullish” view as it expects high oil prices to persist through the year, but urged investors to exercise caution as the sector has outperformed over the last few months.

On Thursday, Brent topped $128 a barrel in late post-settlement trade, reaching levels not seen since July 2008, when the growing economic crisis drove oil to record peaks of more than $147 a barrel.

The current spot oil price of $121 per barrel is higher than last year’s average of $111 per barrel, the second-highest oil price since 1864, Nomura wrote in a note to clients.

The brokerage started Afren, Africa Oil, Cairn Energy, DNO International, Dragon Oil , Faroe Petroleum, Ophir Energy and Soco International with “buy” ratings, terming their stocks “underappreciated” and citing their funded, multi-well exploration campaigns.

Nomura also expects these mid-cap companies to engage in mergers and acquisitions to expand their resource base.

This could be either as an acquirer like Cairn — which could use acquisitions to rebuild its portfolio — or as an acquisition target like DNO, whose assets in Kurdistan make it an attractive target for major names like ExxonMobil which have recently entered the region, said Nomura.

In contrast, Nomura is more cautious on big names like Lundin Petroleum, Premier Oil and Tullow Oil as they have limited scope to add to their resource base this year.

The brokerage started coverage of Lundin, Premier and Tullow Oil with “reduce” ratings.

The European oil and gas index was up 0.45 percent at 363.35 points on Friday morning, after touching a year-high of 363.37 earlier in the day.

via UPDATE 1-Nomura starts European oil E&P sector with bullish view | Reuters.

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