Goldman Sachs: Northern Petroleum Upgraded to Conviction Buy at 56p – target price 121p

PUBLISHED: Mar 03 2013 @ 10:31 | Comments (1) | More info about Tom Winnifrith

I just happen to have this note in my inbox. I agree with its conclusion. And so here goes mightly Goldman Sachs on tiny AIM listed oil stock Northern Petroleum (LSE:NOP).

We reiterate a Buy rating and following recent underperformance, we add Northern Petroleum to our Conviction List Buy. We believe that a combination of short-term catalysts combined with core value support from Dutch production and cash is highly attractive. On our estimates, production + cash (net of decomissioning and drilling costs) supports 60% of the share price and the stock is trading at c.40% discount to the value of core + discoveries. We feel that sentiment on the Dutch assets is factoring in a low case reserves scenario and that, despite recent disappointment at Zaedyus 2, the French Guiana campaign still offers attractive basin-led exploration upside.

My take on how to play Guyane is HERE

The major short term catalyst, in our view is the Priodontes well, currently drilling in French Guiana. We believe the prospect is worth c.18p/share on an unrisked basis, excluding any additional de-risking impact the discovery could have with a further well to follow in 2H13. We believe that with the market bearish on the company’s Dutch assets following recent downgrades, that a conclusion to the reserves audit process will be a positive, we risk our producing assets to account for further downside and believe that the market is already assuming additional downgrades.

The company is also in the process of attempting to farm out its Southern Adriatic acreage (c.13.5p/share on a risked basis on our estimates), an area we see as highly geologically attractive; despite the results of the Italian election, a farm out remains possible in 1H2013 in our view.

Our new 12-month SOTP target price of 118p/share (previously 121p) is based on US$100/bl oil and reflects minor modelling adjustments.

Ends

Tom Winnifrith writes for 10 US and UK websites. Links to all of his free to access content can be found at www.TomWinnifrith.com

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