(Reuters) - Jefferies downgraded Tower Resources Plc TOWR.L on a lack of near-term catalysts, particularly after drilling in a block adjacent to the company’s acreage in Namibia proved unsuccessful, and named Tullow Oil Plc (TLW.L) and Ophir Energy Plc (OPHR.L) among its top picks.
Jefferies cited Tullow’s diversified exploration program across Africa and South America and Ophir’s successful Tanzania exploration program for the inclusion.
“We continue to favor explorers and producers with high quality exploration with near-term exploration catalysts,” analysts led by Laura Loppacher said in a note to clients.
The brokerage also included Falkland Oil & Gas Ltd FOGL.L, Chariot Oil and Bowleven Plc (BLVN.L) in the list.
Jefferies said unsuccessful drilling near Tower’s block by Chariot Oil & Gas Ltd CHARC.L and the farm-out deal with Repsol SA (REP.MC) raise the possibility that drilling near the block may be a year or more away.
“Tower will struggle to get momentum behind it in the current market,” the brokerage said, cutting its rating on the company’s stock to “hold” from “buy”.
Jefferies also cut Cove Energy Plc COVE.L, caught in a bidding war between Shell (RDSa.L) and Thailand’s PTT Exploration and Production PTTE.BK, to “underperform” from “hold,” as it expects shares to slide if Shell does not make a counter bid.
“While we cannot eliminate the possibility of a Shell counterbid, we believe Shell’s strategic goal is to acquire additional interests in the area and continuing to bid up Cove could increase the cost of its later, more material acquisitions,” the brokerage said.
PTT on Monday extended the deadline to accept its $1.9 billion offer.
Shares in Cove have largely traded above PTT’s 240 pence per share offer since the Thai company’s bid in May, indicating that investors are holding out for a higher bid.
Reporting by Abhishek Takle in Bangalore; Editing by Sriraj Kalluvila