Broker tips: Touchstone Exploration, Gulf Keystone Petroleum
Analysts at Canaccord Genuity lowered their rating on petroleum and natural gas investor Touchstone Exploration from 'buy' to 'speculative buy' on Tuesday, stating its Chinook well test had raised the group's risk profile.
Canaccord said the Chinook-1 well test result on the company's Ortoire licence in Trinidad was both "disappointing and confusing", with the result being a reminder that exploration was risky, even after "a good run", and that it also confirmed the "geological complexities" of this part of its licence.
"Understanding the reasons for the poor test outcome and any implications for the wider area prospectivity will take some time," Canaccord of the well, which only recovered very small volumes of oil.
The Canadian bank stated that Touchstone's initial working hypothesis is that the wellbore may have been damaged, inhibiting its ability to flow, something that may be fixable. However, the analysts stated that answering why it appeared initially to be "a highly promising gas discovery" but produced only a little oil on testing was "another matter" that still required more work.
"We think it prudent now to heavily risk Chinook and to reset our risk levels for nearby targets including Cascadura Deep (the next test) and the Royston exploration well," said Canaccord, which lowered its target price on the stock from 185.0p to 140.0p.
Analysts at Berenberg downgraded Gulf Keystone Petroleum from 'buy' to 'hold' on Tuesday, stating the group's current plans were already priced in.
Berenberg said it had chosen to lower Gulf Keystone following "a strong run" since late 2020, during which time the share price increased by over 150%.
The German bank pointed out the Gulf Keystone's Shaikan field in Kurdistan provided the firm with low-cost, cash-generative production and also highlighted that it has a differentiated, net cash balance sheet.
However, Berenberg feels that the value of Gulf's 55,000 barrel per day expansion was now reflected in the share price and stated that "more clarity" would be needed before credit can be given for follow-on development potential.
"Gulf Keystone retains an ambition to materially grow its production base beyond the near-term target of 55kbd. Confidence to begin reinvesting in the asset is a clear positive, confirmation of the FDP would provide clarity on the longer term," said the analysts, who also raised their target price on the stock from 180.0p to 190.0p.