Global oil prices were up 30% for May and broker ABN Amro Craigs has increased its global oil price target forecast more than 60%, up from $US40 per barrel to $US65 per barrel.
ABN broker Chris Timms said because of the escalating prices, the 12-month target price for New Zealand Oil & Gas (NZOG) shares has been upgraded 14%, from $1.70 per share to $1.95.
"New Zealand Oil & Gas' Tui field continues to perform above expectations and there is potential for a reserves upside, with two exploration wells expected to be drilled within its permitted area later this year," Mr Timms said.
NZOG has a 12.5% stake in the offshore Taranaki Tui field, amassing a $NZ211 million war chest since production began last July, a 15% share in the Kupe development field, and in late 2008 it took a 40% majority stake in oil and gas exploration in the Canterbury Basin.
Although global oil has fallen slightly from seven-month highs reached earlier this week, oil prices in United Kingdom Brent futures yesterday were at $US67.49, Dubai was at $US64.49 and United States West Texas oil was at $US68.55.
The Organisation of Petroleum Exporting Countries has predicted oil could reach $US80-$US90 per barrel by early-2010, having last week decided to keep production targets unchanged.
Forsyth Barr broker Peter Young said the surge in NZOG's share price was partly driven by the oil price movement and partly by the rise in the share price of Pike River Coal, in which NZOG retains a 29% cornerstone stake.
"The oil price rally does not appear to have the fundamentals supporting it as oil demand forecasts are still falling, albeit at slower levels. I'd be a little cautious about whether the current oil price rally is sustainable over the medium term," Mr Young said.
Mr Timms said the $211 million cash-in-hand NZOG had built up since oil production began last year "positioned the company very well to capitalise on growth opportunities".
Mr Young said NZOG's share in the Tui field production would "comfortably achieve" its forecast 9 million barrels.
"With Kupe production less than six months away from being fully operational, its cash position will strengthen further," he said.
ABN Amro maintains a buy recommendation on the stock, and 12-month price target of $1.95, while broker Forsyth Barr also maintains a buy, with a valuation of about $1.82.
The Canterbury Basin permit, of which NZOG has a 40% stake, contains the Barque gas and light oil/condensate prospect, which has attracted much interest from oil explorers during the past three decades.
• The brokers' financial disclosure documents are available on request.
