Recent note from Goodbody stockbrokers

In a report this morning we revisit our models and recommendations for the E&P’s under coverage, on the foot of recent pre-close statements and ahead of the release of FY06 results in March. The tone of those statements ranged from positive in the case of Dragon, to broadly in line in the case of Tullow, to disappointing with respect to Burren. FY06 earnings adjustments range from +12% for Tullow (largely due to one-off exceptional items), to -3% for Burren and +1% for Dragon. Variations for FY07 are more pronounced, particularly in the case of Tullow – down 22% (higher interest charges and share count as a consequence of the Hardman deal) and Dragon - up 15% (due to an increase in FY07 forecast average gross production from 24.0 kbopd to 27.5 kbopd). NAV revisions include 11% and 4% upgrades to total NAV for Tullow and Dragon, but a 13% decline in the case of Burren. Notwithstanding further positive news from Uganda this morning (see below), we are raising our recommendation on Tullow from ADD to BUY. Ongoing success in Uganda eases prior concerns associated with a high proportion of the NAV attributed to the region. The Hardman deal further expands the exploration portfolio and the pipeline of opportunities (20 wells scheduled for 2007) ensures a steady stream of newsflow with stand-outs in the shape of Uganda, India and Kudu. Applying a 10% premium to total NAV across the group results in a price target for Tullow of 460p (425p previously), a marginal uplift for Dragon, from 205p to 210p, but a significant reduction for Burren from 930p to 800p, on a re-assessment of the exploration portfolio. We maintain our BUYrecommendation on Dragon and ADD while our price target on Burren suggests it is currently trading at fair value. Tullow (Buy, Closing Price £4.00); Ugandan ‘good news’on tap. Following on from the discovery of oil at two higher levels, Heritage, the operator of the Kingfisher well in Block 3a in Uganda (Tullow 50% stake), has announced that it is to test three intervals with a gross pay of 44m between 2,260m and 2,367m in Kingfisher-1a. The reason stems from “encouraging indications of hydrocarbons” from wireline logs and pressure testing and the fact that the current rig, which has drilled to a depth of 3,195m has reached the limit of its operational capability. One of the intervals to be tested is 21m thick. Heritage has indicated that it expects testing of the zones to commence in 10 days time with the process to take up to three weeks to compete. While inconclusive as yet, the latest news continues to enhance the ultimate commerciality of the Lake Albert basin. The question remains as to ultimate prospect size, an answer to which is likely to take well over a year to ascertain.