Broker snap: Jefferies downgrades Tower and Cove

25th Jun 2012 11:23

Jefferies has downgraded its ratings for both Tower Resources and Cove Energy as part of its review of the oil and gas exploration and production sector."We continue to favour E&Ps with high quality exploration with near-term exploration catalysts. We believe oil prices should stabilise as Saudi Arabia defends its $100/bbl target, providing a more supportive background for E&Ps."The broker has cut its recommendation for Tower from 'buy' to 'hold' due to a lack of near-term catalysts following the completion of drilling in block adjacent to it and the announcement that Repsol has farmed in.Jefferies has also reduced Cove from 'hold' to 'underperform', saying that the stock is trading 11% above PT Exploration and Production Public's (PTTEP's) current offer: "the risk is to the downside if Shell does not counter-bid again, which we believe is possible."In contrast, the broker's preferred exposures in the E&P sector are Tullow Oil, Ophir Energy, Falkland Oil & Gas, Chariot Oil & Gas and Bowleven. Value plays Premier Oil and Cairn Energy are expected to struggle to gain traction in this market, the broker said.BC