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Chart of the Day: Borders & Southern crash hurts Ignis fund

(Update) Mark Holden, manager of the Ignis UK Focus fund, explains why he is buying more shares in Borders & Southern Petroleum (BSTH.L) after its crash on Monday.

 
Chart of the Day: Borders & Southern crash hurts Ignis fund

(Update) Fund manager Mark Holden (pictured below) has dimissed analysts' suggestions that the setback at Borders & Southern Petroleum (BSTH.L) raises doubts about oil exploration around the Falkland Islands.

Shares in the Falkland Islands oil exploration company crashed 70% on Monday after it announced it was abandoning its Stebbing well having not found commercial quantities of gas.

This was a blow for Holden’s Ignis UK Focus fund which holds Borders as a top 10 stock. According to the lastest Lipper data its unit price dropped over 8% to 140p yesterday, a very big fall for a fund in a single day.

Border shares have slipped another 4.7% or 0.75p today to 15.25p (see chart), valuing the company at just £65 million. The AIM-listed shares have fallen 76% so far this year.

Ignis and Borders & Southern: Click to enlarge

Analysts have downgraded their ratings on the stock with Merchant Securities saying the technical difficulties encountered by Borders ‘decreases the attractiveness of the South Falkland Island Basin because it increases exploration risks and developmental costs.’ Falkland Oil and Gas (FOGL.L) and Rockhopper Exploration (RKH.L) have fallen heavily too.

Holden, who runs a high risk portfolio with just 20 stocks, told Citywire this was 'rubbish'. He said the company was awaiting the results from test drilling in the nearby Darwin oil field. When these are published at the end of August they could transform the valuation of the company. Ironically, he said, the problems of high pressure that hindered the Stebbing well were a sign of the high level of hydrocarbons in the region. Morever, the company's discovery of a 'gas condensate' raised the chances that oil would eventually be found. He said he had bought more shares this week.

Holden took over the fund from Ralph Brook-Fox last October who switched to run the firm’s Balanced Growth fund. He has had a difficult start, with the fund down 9.7% in the last three months, placing it near the bottom of the 311 funds in the UK All Companies sector. In his latest update to investors Holden says the fund’s exposure to exploration stocks has hurt the fund as the oil price has fallen. However, he is a conviction manager and took advantage of the falling share prices to top up holdings in Rockhopper, Borders & Southern, Ophir Energy (OPHR.L), Randgold Resources (RRS.L)and Cove Energy (COVE.L), the subject of a recent bidding war between Shell and Thailand's PTT.

Over five years the Ignis UK Focus fund has underperformed its sector, losing 6.9% which is worse than the UK All Companies sector average loss of 1.1%, ranking it 176th out of 261 funds. The worst fund over that time, Manek Growth , has fallen 39%.

Other investors in Borders are hurting too. Lansdowne Partners, Europe’s largest hedge fund group, is the biggest external shareholder in Borders, owning 8.5% of the company. Henderson sold around 5 million shares on Monday, leaving its stake at just under 5%.
 

3 comments so far. Why not have your say?

Ian Giddings

Jul 18, 2012 at 21:28

I am sorry but it has to be said, any fund manager putting client money into S.Atlantic drillers is not acting responsibly. They are taking a 'political' position that is inappropriate.

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Stefan via mobile

Jul 19, 2012 at 20:47

A typical response from a lemming with no real insight! Continue to follow with opinion and investments!

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Steve H

Jul 20, 2012 at 10:29

Before drilling in the South Atlantic began, the "experts" were saying that there was about a 1-in-8 chance of an exploration company finding anything and so far EVERY single company to have drilled has found something, even Desire and Borders & Southern (which is still evaluating its Darwin field results).

Their immediate problem is that it's expensive to operate in the South Atlantic and these companies have very limited funds (DES.L is virtually bust, except for the value of its oil field licences).

I reckon the oil majors are hanging around like vultures, waiting to see what happens, while using the Argentine political situation as an excuse not to get involved (yet). Once the true asset situation down there is clearer, they'll pounce, when the exploration companies have run out of money and are prepared to sell-out for peanuts.

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