Dana sings to a new tune

SCRUTINEER

Dana Petrol

1,629p +241p

Thorntons

142p -8.25p

AS ONE industry player is walking away from the North Sea, another is stepping up to the plate. Shell signalled the latest chapter in the evacuation of the supermajor oil companies from Aberdeen yesterday, with around 180 job losses, on the day that Scots firm Dana Petroleum revealed a "materially value-enhancing" discovery, thought to be at least 40 million barrels.

Analysts say there is nothing genuinely remarkable about Dana's discovery in itself – probably one of the top ten largest in the UK North Sea in the last couple of years – not transforming the business in the way Cairn was propelled into the FTSE100 on discoveries in India.

But there is the potential for significantly more. The discovery, in a reservoir in the West Rinnes structure, is near four other prospects owned as a whole or in part by Dana.

Should they all come in at the same level as yesterday's announcement, then perhaps the comparison with Cairn will not be so wide of the mark.

Dana represents the changing face of the North Sea. Whereas the super majors – companies such as Shell, BP and Total – all require massive discoveries and developments to sustain shareholders and thousands of staff, Dana has less than 50 people on its payroll, and is therefore able to leverage profit on a much smaller scale.

To the new breed of North Sea company, fields of a few thousand barrels here and there can sustain the business, and these are the more entrepreneurial types which will ensure that the most is squeezed out of the ageing plateau, as larger players turn their attention to Asia and Russia.

Yesterday, another Aberdeen group dedicated to North Sea consolidation, Venture Production, also stormed back as the market finally seemed to adjust to the fact that oil above $100 a barrel might just become the norm. It comes amid ongoing production problems in regions such as Nigeria, and as biofuels, once seen as the saviour of the environment, are now being blamed for causing starvation across the world.

The announcement by Shell is, of course, unwelcome in Europe's largest oil city, but it is simply the reality of an exploration region in decline. And while the North Sea infrastructure remains, the likes of Dana and Venture will ensure remaining potential is not squandered.

LET me start by declaring an interest in Thorntons, writes Scott Reid. Few weeks go by without a wee tub of "chocolate smothered vanilla fudge" making its way into the Reid family shopping basket.

In my own small way, I am contributing to the coffers of Britain's most famous chocolatier.

But on the evidence of the group's latest trading figures, published yesterday, I need to step up my confectionery intake to bring a smile to the faces of the Thorntons' board.

A 5.1 per cent hike in quarterly group sales may look sweet, but the like-for-like picture at the near-century-old retailer is a little less palatable.

Underlying sales growth at Thorntons-branded stores was pegged at just 0.5 per cent during the three months to last Saturday, less than half the rate in the previous quarter. Times are tough on the high street, of course – a point not lost on the group's management, which highlighted cost hikes "marginally ahead" of expectations.

Analysts at house broker Dresdner Kleinwort pointed out that additional production costs were needed to get products to the shelves during this year's unusually short Easter trading period.

The Thorntons factory is likely to have been a Willy Wonka-like hive of activity, with overtime and extra shifts the order of the day.

As a result of the lukewarm sales growth and short-term pressure on margins, the City has turned cool on the chocolate maker.

Dresdner cut its recommendation from "add" to "hold", reduced its price target on the stock from 175p to 155p and trimmed the 2007-8 underlying profit forecast from £9 million to £8.2m.

Numis Securities lowered its earnings forecast by a similar amount.

While there were positives in the latest numbers – strong sales to supermarkets and through the Thorntons Direct channel – shares crumbled yesterday, falling 5.5 per cent.

With six consecutive quarters of sales growth under its belt, Thorntons is maintaining its top-line progress – just.

However, concerns over raw material costs and tighter margins constitute an amber light to investors.