Tullow leads Africa oil sector lower as project hopes recede
African oil stocks were the sharpest fallers yesterday as hopes for its pipeline of projects were undermined by crude's slide to near a six-year low.
Tullow Oil fell 4.7 per cent to 368.9p, leading the blue-chip fallers. The sanctioning of its discoveries off Uganda and Kenya might slip beyond 2016, Jefferies argued, in part because of its debt burden.
“High-impact West African offshore exploration of recent years appears over for the time being, and east African onshore exploration does not give equivalent returns,” the broker said. “Current [debt] facilities, designed for West African high-margin oil, may not readily roll over to cover east African lowermargin developments and at much higher gearing.”
Glencore hit a 17-month low, down 3.8 per cent to 270p. Deutsche Bank said the commodity group was likely to shelve development of oil projects in Equatorial Guinea and Cameroon in response to oil's drop.
Nigeria-focused Afrenfell a further 5.2 per cent to 25.9p following its write-off of Kurdistan assets on Monday, and in spite of rumours about a possible counterbid.
Bert Cooper, the Liberian mining entrepreneur who co-founded Afren, was rumoured to be leading a group examining taking the explorer private. His potential buyout was said to have won backing from companies including Vitol, a commodity trader, and China's ZhenHua Oil.
Afren said in December it had received a “highly preliminary” approach from Nigerian peer Seplat over a possible merger. The shares have since halved.
Defensive sectors such as utilities led the wider market higher, lifting the FTSE 100 by 0.6 per cent, or 40.78 points, to 6,542.2.
Severn Trent rose 1.2 per cent to £20.95 after both Bernstein and Merrill Lynch upgraded. Severn had no need to cut its dividend and looked the UK water sector's most likely takeover target, Merrill told clients.
Centrica bounced 4.1 per cent to 271.8p on a Morgan Stanley upgrade. The market's fears of a dividend cut looked misplaced because, even in a bear case for energy prices, the electricity and gas supplier's payout was amply covered by cash.
Car insurer Admiral took on 4.7 per cent to £14.32, helped by UK data showing motor policy rates up 2 per cent sequentially in the fourth quarter.
Standard Chartered edged 1.3 per cent higher at 931.6p on a report that the bank rejected a bid for its African operations last year. The story broke shortly after UBS, StanChart's joint house broker, forecast a 50 per cent dividend cut from 2015.
“We question whether the group is doing enough to restructure its business for the realities of a postcrisis world,” said UBS, which cut StanChart off its “buy” list.
Talk of a contract setback and disappointing numbers from sector peer Temenos meant Monitise, the banking software maker, fell 13.1 per cent to a three-year low of 21.5p on about three times average volume.