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FTSE 100 falls more than 2% on Greek woes, but oil discovery lifts Tullow 15%

As markets suffered yet another sell-off on the growing European debt crisis, a notable exception was Tullow Oil.

The exploration group jumped 186p to £14.13 – a 15% rise – after it confirmed expectations of an oil find offshore French Guiana. The discovery of 72 metres of net oil at the Zaedyus well raises the prospect of a major new oil producing site in South America. The object of the well was to test whether the Jubilee field, successfully established in West Africa, was mirrored on the other side of the Atlantic.

Analyst Phil Corbett at RBS said the potential size of the find could be 700m barrels and was “a game-changing success” for Tullow. He said:

The result is likely to surpass most market expectations, de-risks the Guyanas Trend acreage position and is a significant validation of the overall exploration strategy. Our target price is raised from 1375p to 1505p.
Tullow has also excited the speculators in recent days, with talk of China National Offshore Oil Corporation possibly being interested in the company.

The major partners in the Guyane Maritime licence are Tullow, Royal Dutch Shell and Total. Smaller operators Wessex Exploration and Northern Petroleum each have a 1.25% beneficial interest in the licence. News of the discovery pushed Wessex 52% higher to 7.375p and Northern 21p better to 93p.

Despite Tullow’s rise, the FTSE 100 ended a volatile week on a negative note, down 125.73 points to 5214.65. As the G7 met to discuss the latest in the global financial crisis, unsubstantiated talk of a possible Greek default unnerved investors, while the surprise resignation of Jürgen Stark from the European Central Bank exposed more discord among EU officials. Joshua Raymond, chief market strategist at City Index, said:

[Stark's] resignation sends a message of deep divide within the ECB itself, and the problem is this comes at a time when the ECB’s credibility was already being questioned after [Thursday's] rate decision highlighted that they are likely to do a complete reversal from hiking rates to cutting rates before the end of the year.

The [Stark] news escalates investor fears that Europe’s leaders and central bankers are far from united in ideology at a time when the markets need to see credible and definitive action to prevent the sovereign debt crisis from sending European economies back into recession.

Concern that President Obama’s ambitious jobs plan might not be passed by Congress also hit sentiment, with Wall Street down 230 points by the time London closed.

Banks were among the leading fallers on worries about their exposure to European sovereign debt, as well as the outcome of the Independent Commission on Banking’s report due on Monday.

Barclays dropped 15p to 144p despite Ian Gordon of Evolution Securities saying the bank’s shares looked cheap on any normal measure. He said:

The explanation [for the weakness] lies not within its balance sheet but in a fearful market’s aversion to the perceived threat to valuation posed by the Secretary of State for Business, Innovation and Skills.

Lloyds Banking Group lost 1.86p to 31.04p while Royal Bank of Scotland fell 1.24p to 21.5p. Gordon issued a buy note on RBS, saying some of the worst of the government’s anti-bank rhetoric seemed to have been tempered by the need to (eventually) extricate the taxpayer from its investment in the bank. But he said this was unlikely to be imminent:

Talk of exit strategies for the UK government in relation to its £45.8bn stake has gone exceedingly quiet. Trading below half the average in-price of 50.53p the prospects of a “clean” exit within any reasonable timeframe are remote. The UK government is a hostage to a situation of Gordon Brown and Alistair Darling’s creation, and it knows it.

Many strange events have taken place during the credit crisis, though long after the chaotic times of Autumn 2008 and the early months of 2009, it remains a mystery to us as to why it was deemed appropriate for the UK government to acquire 51bn B shares on 31 December 2009 at 50p each – representing a 71% premium to the price at which RBS ordinary shares closed that day. A very generous gesture indeed.

Among the other fallers, International Consolidated Airlines Group – the merged British Airways and Iberia – lost 10.2p to 152p after a sell note by Espirito Santo with a 130p price target as it began coverage of European airlines. It said:

Although we see interesting opportunities to improve financial performance in the medium term, we see macroeconomic concerns driving the share price in the short-term. Given the uncertain economic outlook we are starting with a cautious stance.

But Imperial Tobacco rose 16p to £20.76 after a buy note from RBS following the apparent ending of a price war in Spain. The bank’s analysts said:

It appears Imperial will shortly increase its prices in Spain by 25c across its portfolio, effective September 10. The impact on 2011 consensus is negligible, however all else being equal we expect that consensus earnings per share forecasts will increase by around 1% for 2012.

Finally there was some good news for Ocado, the online shopping group, which has been under pressure recently on worries about its growth prospects and increased competition, not least from its partner Waitrose.

Ahead of a trading update due on September 19, analysts at UBS raised their rating on the business from neutral to buy, although they have trimmed their price target from 195p to 170p. Still, that was enough to lift Ocado’s shares 5.1p higher to 113.6p. UBS analyst Mike Tattersall said:

Some recent commentary has focused on Ocado’s balance sheet and the mooted risk of further equity issuance. Our analysis suggests that Ocado has considerable headroom under its current facilities and substantial flexibility to raise further funds without recourse to equity markets. A re-financing of the main debt facility, providing more headroom and/or improved terms would allay balance sheet fears. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds