One to Watch: Risk balances reward

EXPLORATION in the resources sector is a balance between risk and reward – while millions of pounds can be invested with nothing to show for it, the reward can also be significant. Provided a company is drilling a number of wells, the risk is somewhat mitigated. In our view, Salamander Energy has the leading exploration portfolio in the FTSE250 peer group for 2010 and the share price offers an attractive entry point.

Salamander plans to drill 12 exploration and appraisal wells across its South-East Asian focused portfolio, with opportunities ranging from near field, targeting oil in Thailand, to high impact plays in Vietnam and Indonesia. The exploration blocks are vast, ranging from 3,000 to 19,000 square kilometres and offering extensive repeatability on success. Vietnam is a proven oil producing country based in part on the 1-2 billion barrel Bach Ho field in the Cuu Long Basin. Salamander has large blocks that cover the whole Mekong River Basin, which is geologically and structurally similar to the nearby Cuu Long Basin. Although it is undrilled, significant prospects have been mapped. In Indonesia, Salamander has picked up blocks inshore of the major discoveries made from the 1980s off the east coast of Kalimantan. The discoveries led to the construction of the Bontang LNG plant, the world's largest, which is now short of gas.

Production should grow from 14,000 to 19,000 boepd in 2010. This increasing cash flow provides the strength to fund the exploration portfolio.

If Salamander enjoys success, it has the large equity stakes that, combined with a major discovery, could interest a bigger player.

Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact nor should reliance be placed on these views when making investment decisions. Past performance is not a guide to the future.

Cadbury

776.5p +4.5p

Broker says REDUCE

CHARLES Stanley believes that Cadbury will, on balance, "do sufficient to maintain its independence" from Kraft.

The broker added: "The proximity of the Cadbury share price to the Kraft offer price leaves the position nicely in the balance, with everything to play for over the next couple of weeks."

Gartmore Group

225p +8.5p

Broker says HOLD

GARTMORE is the "purest play on a continued recovery in equity markets among our universe of UK asset managers", according to Canaccord Adams, which began coverage with a "hold" rating.

The broker said: "Investors are likely to remain on the sidelines until Gartmore demonstrates its ability to meet expectations."