City takes a view on Ophir

Ophir Energy's share price has sprung to life in the past few days and the announcement of a $100 million (£60 million) buyback alongside first-half results should underpin the shares. And there are some significant catalysts which could also dramatically improve the share price further. Unfortunately, this is unlikely to happen soon, and there are, perhaps, better opportunities elsewhere.

Analysts at UBS certainly think so. Commercialisation of the Equatorial Guinea exploration and appraisal (E&A) programme, which should upgrade resources to 3 trillion cubic feet (Tcf) from 2.5Tcf, "is the key value trigger over the next 12-18 months," they say.

An agreement for the leased vessel is expected soon, and UBS is currently modelling a floating liquefied natural gas (FLNG) solution at $2.98 per barrel of oil (boe) worth 53p-106p per share, risked at 50%. "With little in the price, if Ophir can pull off a deal it should be very positive for the shares," it says.

It does, however, admit that this "unusual project" is competing for capital in a competitive LNG marketplace. "Success is not guaranteed, visibility on negotiations low and a formal agreement unlikely much before mid-2015."

In conclusion, the broker reckons "downside seems limited but we see more compelling exploration (Africa Oil; Tullow Oil) and development (Lundin) stories elsewhere."

UBS reduces its target price from 250p to 230p (currently 215p), an 8% discount to risked net asset value (NAV).

Elsewhere, and after a chat with Ophir's management, Westhouse Securities says the chief executive has put paid to any speculation that the company is undergoing a re-evaluation of its strategy and core identity given the lack of exploration success outside Tanzania.

Thankfully, deepwater costs are coming down, too - from $600,000 a day to a more palatable $450,000.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.