Market Report: Stocks linked to Iraqi oil stuck in the political mire

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The Independent Online

Oil production may be booming in Iraq, but punters were being told yesterday not to get their hopes up. While its government announced that its daily output had moved above 3m barrels for the first time since the 1970s, City scribes were warning that the risks of operating in the country were not being taken seriously enough.

One of the major beneficiaries of the growing excitement around Iraq has been Gulf Keystone Petroleum (GKP), with the share price of the punters' favourite doubling since December thanks partly to hopes the AIM-listed explorer could be snapped up by one of the oil majors.

Yet HSBC claimed yesterday that the political situation in the country meant that if an offer did emerge, the price was unlikely to reflect the full value of its assets. GKP operates in the semi-autonomous region of Kurdistan, and the broker's scribblers said the ongoing dispute between the area's government and Baghdad "is likely to make it difficult to export crude and obtain payment for these exports".

As a result, they advised punters to sell up, setting a target price for the group – which closed 18p worse off at 339p – of 280p and saying "its multibillion-barrel discovery in Iraq has been more than discounted in the share price".

They were more positive on Genel Energy, giving the Tony Hayward-led firm a "neutral" recommendation. However it and mid-tier explorer Heritage Oil – which was rated as "overweight" – shifted down 29p to 796p and 8.6p to 166.9p respectively after the two admitted that drilling of their joint Miran West-3 well in Kurdistan was taking longer than first thought.

HSBC's analysts also warned that the Iraqi government was being strict over the deals it was striking, saying it "left oil companies with very slim margins".

Overall, the FTSE 100 fell for the second consecutive session, sliding 36.31 points to 5,874.82. The main focus of the day was the news that China had reduced its growth expectations for 2012 down to 7.5 per cent, which was not helping the miners.

One of those in the red was Kazakhmys, which was pegged back 48.5p to 951.5p, meaning it has now shed nearly 18 per cent in four trading days. Both Bank of America Merrill Lynch and HSBC removed their "buy" ratings following the copper producer's trading update last week, with the latter saying they could not see a disposal of either its stake in Eurasian Natural Resources (24p worse off at 675p) or its German MKM unit "materialising in the near future".

Weir Group dipped 95p to 1,939p after Citigroup's Mark Fielding warned the pump maker's oil and gas operations would see "limited growth" both this year and next, with the analyst downgrading his rating to "sell" as a result.

BP was one of the blue-chip stocks who did manage to rise, shooting up 8.1p to 504.6p in the wake of its settlement with victims of the Gulf of Mexico tragedy.

Ahead of tomorrow's announcement of the latest indices reshuffle, which will be based on today's closing prices, Essar Energy dipped 6.7p to 107.1p. The power group is on course to be relegated to the mid-tier index, with Cairn Energy (down 4.9p to 332p) and Hargreaves Lansdown (down 0.2p to 445.3p) set to move down as well.

Those expected to go the other way include Croda International and Aberdeen Asset Management, although this didn't stop them easing back 20p to 2,125p and 3.5p to 244.8p respectively on the FTSE 250.

Having enjoyed a remarkable run of form recently, the housebuilders were weaker after Halifax upped its interest rates for hundreds of thousands of mortgage holders. With RBS-NatWest already having done the same, the move sparked fears other lenders will follow suit.

The upcoming expiry of the stamp duty holiday for first-time buyers was also not helping sentiment as Barratt Developments – whose share price has more than doubled since October – was pushed back 4.1p to 143p while Persimmon and Taylor Wimpey retreated 11.5p to 643p and 2.25p to 47.39p.

The decision by the retailer's former boss and son of its founder Will Adderley, together with his wife, to sell 7.5m shares – netting them £36m – knocked Dunelm down 25.7p to 482.8p.

Meanwhile Misys climbed 18.9p – or 5.98 per cent – to 335p as major shareholder ValueAct and private equity Vista Partners announced they were teaming up to consider whether to make an approach, making them the third possible bidder for the software group.

Down on AIM, Oilex flew up 18.46 per cent to 19.25p after the explorer announced it had successfully removed equipment from its Cambay well in India.

Elsewhere, GCM Resources jumped 9.37 per cent to 89p amid vague speculation claiming a possible deal could be near.

FTSE 100 Risers

l Intertek 2,372p (up 58p, 2.51 per cent) Testing company advances to the top of the blue-chip index to set a new all-time high in the wake of the news that its full-year profits managed to increase by 23 per cent.

l Petrofac 1,595p (up 21p, 1.33 per cent) Oil services group jumps after announcing a forecast-beating 25 per cent increase in profits over 2011 while predicting it will manage another 15 per cent rise this year.

FTSE 250 Risers

l Serco 527p (down 33p, 5.89 per cent) Outsourcer retreats as analysts from Bank of America Merrill Lynch decide to downgrade their recommendation from "buy" to "neutral".

l Rio Tinto 3,422p (down 138p, 3.88 per cent) Heavyweight digger reveals it will spend $2bn on Orissa iron ore project in India with the aim of ramping up production to 15m tonnes a year.

FTSE 100 Fallers

l Chemring 428.4p (up 18.1p, 4.41 per cent) Military equipment maker finishes high up the mid-tier index's leaderboard after Arden Partners upgrades its rating from "neutral" to "add".

l JD Wetherspoon 405p (up 3.6p, 0.9 per cent) Pubs company given a boost by Numis Securities raising its recommendation from "reduce" to "hold" ahead of its first-half results on Friday.

FTSE 250 Fallers

l Kenmare Resources 54.85p (down 2.65p, 4.61 per cent) Miner finishes deep in the red after admitting production problems at its Moma mine in Mozambique meant January output missed forecasts.

l Amlin 336p (down 15.5p, 4.41 per cent) Lloyd's of London insurer knocked back despite announcing that it expects to return a profit in 2012 after revealing a £193.8m pre-tax loss for last year.