Interactive Investor

Share of the week: Oil mid-cap takes the crown

2nd December 2016 17:21

Lee Wild from interactive investor

It's fair to say, the meeting of oil industry bigwigs in Vienna on Wednesday was one of the most important this century. We knew a deal to cut production had been brewing since September, but few actually thought the Saudis could get this particular herd of cats to agree anything. They were wrong.

The actual terms of the proposed reduction in output, the first since 2008, are in line with those first made public three months earlier at a get-together in Algiers.

Production from the oil cartel will be cut by 1.2 million barrels a day from January to 32.5 million barrels, with Saudi Arabia cutting by 486,000 barrels. Crucially, Russia will also take part, taking responsibility for half the agreed 600,000 barrel cut by non-OPEC producers.

There's lots that can go wrong, of course - OPEC has a poor history of sticking to any production quotas. However, it is a start, and the price of Brent crude has surged above $54 a barrel, its highest in a year.

Predictably, oil stocks rocketed on the news and subsequent price hike. The top five FTSE All-Share performers this week all depend on oil for their living.

Pick of the bunch, however, was £400 million Enquest, up 24% in just a few days.

Enquest's reaction was understandable, coming just nine days after it announced first oil from the Scolty/Crathes North Sea development, ahead of schedule and under budget.

It also said the floating, production, storage and offloading (FPSO) vessel was now bound for the Kraken field development from Singapore, and would reach the North Sea mid-January.

A cut in full-year 2016 production guidance to below previous expectations of between 42,000 and 44,000 barrels of oil equivalent per day (boepd) was unwelcome. However, Enquest did get an £82 million fundraising away at 23p. In March 2014, the shares were worth almost 150p.

"The offsetting positives of first oil from Scolty/Crathes and good progress on Kraken point towards a business that is delivering on operations within its control," wrote Barclays.

"We continue to believe the stock offers an attractive opportunity for investors with a positive outlook on oil prices through 2017, and remain 'overweight' with an unchanged 40p price target."

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.