VOG 2005 New Thread

Looks like sector fatigue may be setting in:
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FT.com

News that an oil well in West Africa had been deemed uncommercial gave investors in London pause for thought on Tuesday.

Companies seeking out fresh sources of oil around the globe have been well received in the City in the wake of rising energy prices and raising money for the sector has provided plenty of business for investment bankers.

But news that the important Faucon-1 exploration well off the coast of Mauritania was uncommercial highlighted the sector’s unpredictability.

The well had been seen as ‘high risk, high reward’, with Numis Securities factoring in 90p per share valuation for Faucon into the share price of Dana Petroleum, which owns a 36 per cent stake in the project.

Dana slid 10.4 per cent to 914p on the disappointing news while Tullow Oil, which had a smaller stake, shed 0.4 per cent to 267p.

Despite the disappointment, Numis pointed out that presence of hydrocarbons was a positive for future exploration, although much depended on whether it proved to be oil or gas.

Bridgewell Securities analyst Al Stanton, who downgraded both Dana and Tullow, pointed out that exploration news in 2005 had largely been disappointing and the record highs of the share prices had been down to the surging price of crude.

He said there were signs of waning investor interest in the sector. In addition to the poor drilling results and high valuations, Mr Stanton cited the recent tax hike introduced by the UK government and a general fundraising fatigue in the City.

In his view, 2006 would be more about picking particular stocks rather than the sector. “The oil price change will be less significant than this year, it’ll be about companies going out there and delivering results,” he said.

To add to the disappointing news, Oilexco slipped 4.2 per cent to 170p as it said a well in the North Sea would be abandoned after results showed no commercial quantities of hydrocarbons.