"We believe Tap should walk away given its current offer is not likely to become unconditional. This tactic would mean that Arc directors would need to justify statements made in the Target document," Deutsche said.

"We believe Tap management should keep the "powder dry", as further opportunities are likely to eventuate."

Deutsche Bank said Arc management appears to be waiting until Hovea-2 well has been drilled even though there are significant inherent risks in this well. "Tap does not need Arc to continue its successful exploration strategy, in our view," Deutsche said. "While Arc does provide a complimentary fit with Tap's existing Carnarvon Basin assets, Arc needs Tap more than Tap needs Arc in our view."

Tap has extended its offer for Arc until the 13 May. Deutsche Bank recommends a buy for Tap Oil stock which has 12 month target price of $1.80. Currently Tap is trading at $1.66.