Cairn Energy searches for new North Sea

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Sir Bill Gammell has always had a full-blooded approach to doing business perhaps its something to do with being a former Scottish international rugby player but launching a campaign to explore for oil in deep waters off the coast of Greenland could be the most extreme challenge yet for the chief executive of Cairn Energy.

For Cairn, a mid-cap oil explorer whose main producing asset is in the deserts of Rajasthan in India, Greenland seems an unlikely next stop. This is a frontier region where oil has never been found and where drilling will be vastly expensive.

Despite its success in India, Cairn is a small operator in the oil industry and Greenland has deterred much bigger explorers. It is telling that the only other companies to commit to Greenland so far are industry giants with far deeper pockets, such as Exxon Mobil and Chevron.

The Greenland programme will cost 800 million and require a new set of skills that Cairn will have to learn from scratch. But the company pleased the market yesterday when it revealed the size of the potential prize in Greenland, which was bigger than many analysts had expected. Cairn suspects that the deep waters of Disko Bay could conceal treasure of North Sea proportions, 4.1 billion barrels of untapped crude waiting to be discovered. Analysts at Numis had attributed 71p a share to the Greenland programme but that estimate should now move higher. Drilling will start this summer and last three years. The company says that its chances of success range from 7 per cent to 14 per cent. With oil trading at about $81 a barrel, compared with highs of nearly $150 in summer 2008, exploring the Arctic is fraught with financial risk. Investors will have to hold their nerve.

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While the stakes are high, the rewards could be immense. Analysts at Numis believe that the Greenland field could add more than $20 billion of value for the company.

Since founding his company in 1981, Sir Bill has scored enough big finds to win a loyal shareholder following. Cairns shares climbed almost 8 per cent yesterday to 408p (there was a ten-for-one stock split last December).

Certainly, Cairns most lucrative decision was to prospect in the Rajasthan region in northwestern India. That gamble, where Royal Dutch Shell had drawn a blank, now provides a firm foundation for the Greenland adventure. The company said yesterday that its Indian operations had the potential to pump significantly more oil than previously expected, raising its forecast for the field from 175,000 barrels of oil a day to 240,000.

The company also raised its estimates of oil and gas in place in Rajasthan to four billion barrels of oil equivalent, from 3.7 billion, and said there could be another 2.5 billion yet to be discovered.

With $600 million of cash on the balance sheet and undrawn loan facilities of $900 million, Cairn certainly has the firepower to pursue its Arctic adventure. The share price is likely to be driven higher by enthusiasm for Greenland, but it is the ongoing success of the Rajasthan discovery that will continue to underpin the companys performance. Hold.

Aberdeen

Aberdeen Asset Management has digested no fewer than three acquisitions in the past 18 months, two of them sizeable. There was the 250 million takeover of Credit Suisse Asset Management, the move on Bramdean late last year and, in January, the 84.7 million acquisition of Royal Bank of Scotlands asset manager.

Now comfortably the UKs largest independent fund manager, Aberdeen has 161.4 billion of assets under management. Outflows of 19.7 billion during the past five months, much of it from Aberdeens underperforming fixed-income and money market funds, were offset by higher-margin new business wins of 16.1 billion, to give net inflows of 3.6 billion. Currency movements and improved markets added a further 6.7 billion to the total.

Looking ahead, however, acquisitions will be on hold and organic growth will be the order of the day. Investors may be relieved, given the uncertainty that deals can bring. The good news for Aberdeen is that the new mandates that it has won bring higher fees worth an additional 18 million a year. A further 6.4 billion of mandates have also been won, but not yet booked.

Aberdeen has had a reasonable credit crisis. It suffered from its bonds exposure and has taken time to stem the exodus of client money, but it has also built itself up in other areas, including equity, property and, increasingly, alternative assets. Analysts have pencilled in annual pre-tax profits this year of 194 million, comfortably double last years 96 million. The shares, which yield 4.6 per cent, have not followed suit. Down 1.8 per cent at 126p yesterday, they look inexpensive. Hold for growth to resume.

Trafficmaster

Trafficmaster, the vehicle tracking company and one-time dot-com darling, now pitches itself as a tool to help the cost-conscious business to cut its fuel bill and carbon footprint.

It is a strategy that appears to be paying off for the groups business services division, which sells fleet management, vehicle tracking and navigation services. Its revenues rose by 23 per cent and its earnings more than doubled for the year to December 31.

Trafficmasters pitch is that it can cut customers operating costs by up to 30 per cent. This year it has had some success winning large fleet contracts and numbers Ryder, the logistics business, and the US Department of Homeland Security among its customers.

There are more than 100,000 vehicles using Trafficmasters Teletrac in the United States, 15 per cent of the potential market. An acquisition in January suggests that the company is keen to consolidate the sector.

Trafficmasters consumer business has performed less well. The division, which puts trackers on BMWs, Jaguars, Land Rovers and Aston Martins, is yet to make a recovery after last years slump in new car sales and there has been a downturn in demand for traffic services.

Project work, such as the road pricing that Trafficmaster is doing for the Department for Transport, means that the company is well placed in a sector where regulation can create winners and losers. Despite a recent rally, the shares still look reasonable given the huge potential of the business market. Buy.