Providence Resources (LON:PVR) is about to embark on the most extensive campaign in Irish exploration and appraisal drilling history, according to broker Ambrian.
The City firm features Providence among its "favoured picks" of the UK-listed junior oil and gas firms.
In a note to clients today, Ambrian's Werner Riding issued a 'buy' recommendation for Providence - targetting 645 pence a share (current price: 275p).
He also picked out Dominion Petroleum (LON:DPL) , Northern Petroleum (LON:NOP), Oilex (LON:OEX), Petroneft Resources (LON:PTR), Cove Energy (LON:COV), Nautical Petroleum (LON:NPE) and Chariot Oil & Gas (LON:CHAR) as favoured stocks - all companies, Ambrian believes, "have above-average prospects of delivering positive risk-adjusted returns over the next 12-18 months".
On the sector itself, the broker said Exploration and Production (E&P) was benefiting from steadily rising oil prices as were the smaller companies within it.
"It (the sector ) has continued to generate impressive capital growth year to date. We see the trend of E&P capital allocations from institutional sources of equity continuing to be robust and appetite for natural resource sector risk remaining elevated," he said.
"For example, year to date, AIM E&Ps have raised a total of US$570m of primary capital. With a stubbornly high oil price, we expect this trend to continue and so, by extension, we also envisage that companies eager to exploit their asset base (on a selective basis) will carry on being fully supported."
Providence, said Ambrian, planned to spud up to ten wells over the next 18 months in its licences offshore Ireland.
"This active period with the drill bit will produce regular newsflow that, if everything goes to plan, has the potential to generate material capital growth for shareholders."
It added: "In addition to a number of potentially ‘game-changing’ exploration prospects, Providence holds high equity interests in a number of appraisal and pre-development stage assets spanning multiple geographies," added the broker.
Dominion (LON:DPL) is an established exploration company focused on East Africa and Ambirian reckon's it is well positioned to benefit from ongoing high levels of industry and market interest.
The broker changed its recommendation from buy to hold until further clarity was reached in regard to the farm-out in Tanzania but upgraded the target price from 6.5 pence to 8.7 pence (current share price: 6.31 pence).
On Northern Petroleum, Riding recommended a buy - with a price target of 155 pence (current price: 1.55 pence). "With a diversified portfolio both in terms of geographic spread of assets and stage in the E&P life cycle, we feel Northern represents a solid play on the sector and one that during a period of increased volatility should be well positioned to outperform on a relative basis."
Profiling India-focused Oilex, Ambrian recommended a 'buy' with a target price of 40p (current: 26.55 pence), the broker said: "Commencement of drilling operations at the upcoming high-impact Cambay 76-H well in Gujarat is due to take place within weeks.
"The 76-H well will be one of the first multi-stage, horizontally fractured stimulated wells in India. If proof of concept is successfully demonstrated and materially enhanced flow rates can be established, the 76-H well could be a transformational event not only for Oilex, but also for India, by opening up a potential new regional source of gas supply."
On Siberia-focused Petroneft, Riding gave a recommendation to 'buy' with a target price of 108 pence, as it initiated coverage.
"Having been out to site and seen the progress that was made in 2010 when only 9 wells were drilled, we are optimistic about the YoY reserves and production growth that will be achieved from the 17 development and 5 exploration wells to be drilled over 2011."
The broker also started coverage on East-Africa focused Cove Energy, which ought to book, by year-end around 170MMboe of net 2P reserves (8.5% of 12Tcf) on completion of the appraisal programme over its existing gas discoveries.
"This would make it one of the largest companies on AIM when ranked by reserves." It recommeds a 'buy' with a target price of 126p (current price: 91pence).
For Nautical Petroleum, which has had a a string of exploration and appraisal drilling successes, generating capital growth of over 1,000 percent, Ambrian maintained its 'buy' recommendation and increased the target price to 550 pence (371.75p).
The boker also recommended a 'buy' for Chariot Oil & Gas, an independent exploration company with interests in Namibia, and a target price of 421 pence (current price: 213.75p).