EnQuest boosted by UBS upgrade to 'buy'

Exploration and production group EnQuest got a boost on Monday as UBS upgraded the stock to ‘buy’ from ‘neutral’ and upped the price target to 65p from 60p.

The bank had downgraded its stance to ‘neutral’ in January, saying that although the company’s cash flow was impressive, a 113% jump in the share price since the placing had left the Kraken start-up risk fairly price.

Since then, UBS noted that three things have happened: January's trading statement saw near-term production guidance disappoint; the shares are down more than 20%; and EnQuest has announced a highly accretive deal with oil giant BP.

“We think the shares overreacted to the trading statement and don't yet reflect the deal value potential” it said.

On 24 January, EnQuest announced an agreement to buy a 25% operated stake in BP's Magnus field, with options to acquire the remaining 75% and/or manage some of BP's decommissioning liabilities.

UBS said the deal makes clear financial and strategic sense.

“The innovative 'cashless' structure makes it accretive to EnQuest at almost all oil prices; it plays to EnQuest's strengths as an operator of late-life assets; and it accelerates recovery of $2.5bn in UK tax losses.”

At 1040 GMT, EnQuest shares were up 3.3% to 50.36p.