News Column

Daily Mail, London, market report column

June 14, 2014

By Jonathon Hopkins, Daily Mail, London



June 14--As crude prices jumped to nine-month highs on supply concerns with the terrorist insurgency continuing in Iraq, one oil explorer took a tumble after an African well it was drilling proved a disappointment.

Shares in AIM-listed Tower Resources slumped by more than 66pc after the firm failed to find any oil at the Welwitschia-1A well, offshore Namibia, leading it to stop drilling any deeper due to spiralling costs.

The UK company has a 30pc working interest in the Namibian site. Spain'sRepsol, the operator, has a 44 pc interest.

Tower said that late delivery of a rig and operational issues during drilling, including the onset of winter weather conditions, meant Repsol's expectations are that costs will now be around 10pc higher than the previously expected $91m well budget.

Tower Resources said the estimated cost of continuing to drill the well to test deeper, large potential targets, now appears to be as much as an additional $40m.

The company and its partners have agreed not to drill the site further, having plugged and abandoned the well, and are evaluating the implications for the block as a whole. Tower shares dropped 1.92p to 0.98p.

Selected blue chip energy stocks saw some support from the gain in Brent crude, with BG Group up 1.5p to 1266p, but overall the Footsie was hit badly as investors moved out of riskier assets on fears that the oil price spike could undermine global economic growth prospects.

The FTSE 100 index closed more than 1pc lower, down 65.26 points to 6777.85, sinking back to six week lows, with sentiment also knocked by expectations that UK interest rates may rise from their historic low levels sooner than the City had expected.

Bank of England governor Mark Carney raised the rate hike spectre in his speech at London's Mansion House and it led to a big sell-off in house building stocks.

That put intense pressure on the FTSE 250. with housebuilders a heavyweight sector for the mid caps, the index ended down almost 2pc, or 331.40 points at 15814.81.

Home improvement store chains were also hit with blue chip B&Q owner Kingfisher down 15.2p to 369p and mid cap Wickes' owner Travis Perkins off 42p to 1,628p.

Fears that consumers could cut back on spending as borrowing costs rise also spooked other high street retailers, with Next down 175p at 6250p and Marks & Spencer shedding 11.1p at 442.1p.

Travel stocks suffered on the twin concerns that a rate rise could quell consumer demand and that the oil price spike will mean rising fuel bills. Cruise operator Carnival fell 60p to 2354p, British Airways owner International Airlines Group lost 12.5p to 379.45p, and discount carrier easyJet was down 44p to 1457p. Airline stocks have been battered over the week by profit warnings from Germany'sLufthansa and Irish carrier Aer Lingus.

The same factors saw holiday firm Thomas Cook fall 9.7p to 140p, while recently listed over-50's travel and insurance specialist Saga shed 0.75p to 172.5p. Saga has had a rocky ride since its float at 185p a share last month as the appetite for new issues appeared to have been sated following a glut of stock market flotations this year.

Other recently listed stocks also came under pressure as the market sold off, even those which had seen a more upbeat debut. Discount stores group B&M was down 2p to 283p having registered a good premium to its 270p offer price on its flotation on Thursday.

There were just a handful of blue chip gainers as investors' appetite for risk took a dent, with United Utilities the top performer up 6.5p at 893p as broker Deutsche Bank raised its price targets for the firm along with water company peers Pennon and Severn Trent. In a sector review, Deutsche Bank said returns for the three companies of 7-8 pc per annum 'still look attractive in the current low yield environment' a and that it saw scope for bids after the completion of a current regulatory review.

Among the small cap gainers, confirmation of a bona fide oil discovery at its Cross Roads-1 well at the Petroleum Creek Project in New Zealand soon after it commenced drilling saw shares in Mosman Oil & Gas surge over 211pc higher, up 25.12p to 37p.

Having defined one drilling discovery, Mosman said it would continue to test other, deeper targets and added that more oil 'shows' have been observed.

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Jonathon Hopkins is news editor of thisismoney.co.uk

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(c)2014 Daily Mail (London, )

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Source: Daily Mail (London, England)


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