Luck plays a part for Lasmo

Lasmo, the oil explorer and developer, has lived a charmed life since its shares peaked at just under 480p in 1990. The following year, it massively overpaid for rival Ultramar, forking out pounds 1.2bn in shares just as the oil price hit $23 a barrel, a level it has never attained since.

Since then, Lasmo has survived writing off more than a quarter of its net assets, a dividend cut and last year's pounds 1.6bn takeover bid from Enterprise. But the shares, which have recovered strongly from a recent low of 137p last December, are at last starting to repay the patience of long-suffering investors. Yesterday's 1p fall to 177p owed more to fears that Enterprise was set to dump its 9.8 per cent residual stake - despite a denial from the company - than Lasmo's interim results.

Those showed a much bigger turnaround into the black than analysts were expecting. Net profits came in at pounds 13m, reversing a pounds 22m loss last time. As expected, there is no interim dividend, although the company remains on track to pay a promised 1.25p final.

The figures were flattered by the absence of last year's inflated bid defence costs of pounds 24m, while turnover - up from pounds 306m to pounds 330m - was boosted by higher production and a slightly firmer oil price. But Lasmo knows it cannot rely on the oil price to bail it out in future, and actions to reduce costs are now bearing fruit.

More flexible working practices, head count reductions and the dumping of high-cost fields have already helped reduce operating costs per barrel by 13 per cent to pounds 3.23 in the latest period.

The start-up of new low-cost fields like Birch and Andrew in the North Sea, the Liverpool Bay gas and condensate field and the recently started Kadanwari gas field in Pakistan will speed the process. They will also take current production of 170,000 barrels a day to the target of 200,000 by the end of next year.

But the real excitement lies in the Berkine and Hassi Berkine fields in Algeria, which could represent anything between 850m to 1.25bn barrels of oil - equivalent to a large North Sea field. That would help to keep output rising beyond the expected plateau in 1997-98. Meantime, the annual exploration budget is being stepped up to around pounds 64m after several years of decline.

Hovering just below NatWest Securities' net asset value estimate of 181p, the shares are worth tucking away.