Daily Mail, Money, United Kingdom - Wed January 5, 2011

MARKET REPORT: Oil price sparks energy interest

With the price of a barrel of oil again closing in on $100, market watchers are starting to imagine which UK-listed energy firms would look good on the auction block.

Northern Petroleum may be one of the first independents against the wall – a target for supermajors such as BP and Shell, or state-backed oil giants from India and China.

London-listed but with operations in Italy and Holland, Northern Petroleum said in December it had started production at a new Dutch oil field earlier than expected. Its stock has had a turbulent week, spiking and falling as investors seek consensus on its price. It closed up 16p at 136.00p, after rising 11p the day before.

Another acquisition candidate as energy prices soar may be Gulf Keystone Petroleum, an AIM listed explorer drilling for oil in the craggy wilderness of northern Iraq. Or Nighthawk Energy, a Bristol-based driller specialising in extracting crude in the American Midwest.

Gulf ended the day 9p better at 172.50p while Nighthawk slipped 0.06p to 9.58p.

Analysts also tout Premier Oil, with reserves in the North Sea, Middle East and Southeast Asia, as both a potential buyer and an acquisition target.

‘Premier could go either way,’ said one analyst. ‘it could go the way of Dana Petroleum [bought last year by Korea’s KNOC] or it could be a biggish fish in the sea, gobbling up some minnows of its own.’ Premier closed 7p up at 2025p.

A few energy firms struggled, notably Hardy Oil and Gas, which saw its shares plummet by 38p to 178.50p, after plugging and abandoning a dry well in eastern India.

Despite the disappointing results from a key field, Arden Partners reiterated its buy rating on hardy, and retained its target price of 216p, citing positive drilling results elsewhere-in the region. The Footsie enjoyed an unusually sober day as spent investors recovered from a manic start to 2011.

After hitting its highest levels since June 2008 on Tuesday, the index struggled to gain momentum in the morning, but recovered losses in late trading thanks to strong US jobs data, ending 29.99 points higher at 6043.86p.

Analysts pointed to a strong year ahead for choosy buyers. David Buik, a partner at broker BGC Partners, advised retail investors to snap up corporates linked to the global economic rebound, notably energy firms BP, Essar Energy and BG, miner Anglo American, and pharmaceutical firm Smith and Nephew.

Buik tipped the Footsie to close out January at 6,150 points, rising to 7,000 by June 2011 before falling back to 6,400 as 2011 draws to a close.

Retailers suffered most on the day. With the likes of Next and HMV issuing Christmas sales figures varying from mediocre to unspeakably awful, analysts switched their attention to other retailers that might seek to blame poor holiday sales on the freezing December weather. Investors are digesting a flood of Christmas trading figures from the retail sector, and are busy predicting how various stores will have been affected by the big freeze.

Halfords is one stock that may struggle to impress when it issues Christmas sales figures on January 13 if its market performance is anything to go by. the bike-to-car tools retailer’s shares closed down 14.6p at 440.00p.

Nick Bubb at Arden Partners highlighted a few other retailers that likely struggled in the harsh December weather, notably Game Group, which closed down 1p at 70p, and Clinton Cards, which ended 50p higher at 28p.

One company that should post solid results following Britain’s third bad winter in a row is wetweather retailer Blacks, which closed 1.25p lower at 41.00p.

Supermarket retailers enjoyed a relatively solid day in line with the broader market. Tesco closed 3.55p higher at 436.65p, while Marks & Spencer, which saw its stock struggle in morning trading as investors linked the stock with wider retail concerns, regained lost ground later in the day to end 0.6p higher at 375p. Sainsbury’s closed 2.1p higher at 386p while Morrisons, which has been tentatively linked to a takeover of grocery delivery firm Ocado, ended 0.7p higher at 271.9p.

Miners suffered a poor day, blighted by concerns over the Chinese economy, falling copper prices and record flooding in the Australian state of Queensland.

Antofagasta led the sector lower, closing 36p off at 1586p, with Kazakhmys ending 25p lower at 1624p. Anglo American, which last week declared force majeure on its Queensland operations, ended 58.50p off at 3348.50p, while BHP Billiton, which also stands to lose much from the worst Australian floods in a generation, closing 19.50p lower at 2534p. Rio Tinto ended 25.50p lower at 4476.50p.

AIM-listed Latin America-focused miner Mariana Resources saw its stock rise 2.50p to 53.50p following glittering results from its flagship gold-and-silver exploration project in southern Argentina. Mariana expects to recover around 600,000 ounces of gold from its Calandria Sur field. FinnCap mining analyst Joe Lunn reacted to the news by retaining Mariana’s buy rating and raising the target price to 64p from 48p.

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