WTI $96.17 -1.84 ; Brent $107.23 -1.30 ; Natural Gas $3.46 +4c

Good morning

The oil price fell yesterday and although it has rallied a bit this morning I don’t expect any meaningful follow through tonight as the US markets are closed for Thanksgiving today and will be thin tomorrow. The fall was probably to do with the disastrous German bond auction or maybe the Chinese factory output numbers, although loosening is the order of the day we hear.

The inventory stats were a very muddled bag, the only thing which was constant was the amount by which the Wall Street oil analysts were out in their predictions! Anyway a crude draw of 6.2m bbls was vast compared with consensus which expected a rise of half a million barrels, there was no offsetting obvious change in imports so maybe there is just a bit of cash building going on. Any other day this sort of number would have put the oil price up sharply.

China’s CNPC has announced that it has increased the amount of gas that it is buying from Turkmenistan by 25bcm/pa to take the total to 65bcm/pa. This is particularly interesting as a follower of Petrofac who of course are in the process of delivering a massive contract in the country. The continued Chinese support for this relationship can only help the chances for Petrofac to be involved in any further work in the country and although it won’t be in the short term it will be something big to look forward to. Also we are expecting to see some profit recognition from the existing contract by the end of the year. The Petrofac price has had a serious wobble in recent days, probably to do with the Arab spring reappearing but this is an incorrect diversion and usually buyers are rewarded at times like these.

I wanted to have a more detached comment on the Weir Group acquisition from yesterday, I was unable to listen to the conference call so took the opportunity to have a good run through with the company to get my facts at least half right. Firstly there is no doubt that this is a very sensible deal to be doing, readers will know that I am incredibly positive on the growth that will come from this part of the drilling market and that Seaboard will complement SPM a business I have loved ever since Weir bought it. I definitely get the impression that this is an entirely sensible diversification into wellhead services and that they have very real customer synergies. The price does appear reasonably full but it is earnings enhancing year one and that is based on what are inevitably conservative forecasts we have got used to, longer term the synergies mentioned above must make the deal even more compelling. There has been some comparison with the Hunting acquisition of Titan which isn’t entirely fair but probably shows that Titan is also a good deal, arguably even more attractive but in both cases the acquiring company has the ability to grow substantially within its own operation. The Weir chart below gives some indication that at these levels the upside is still looking very interesting.

Weir 1 year chart

Shell has signed up with TPAO in Turkey for some acreage onshore and offshore which is bound to provoke controversy with regard to drilling around Cyprus and even more in that part of the Mediterranean. Readers will know that I have been very keen on Turkey as a potential oil and gas province for some time and having Shell arriving in the area can only generate much more interest in the area. ( And it’s near Kurdistan!!!)

It should come as no surprise that Heritage has lost its case in the Uganda tax appeal tribunal, if they had lost the case in the High Court in London then that would be a bit more disappointing.

Bowleven has announced that it has found another 6 metres of net pay in the Sapele-3 well in Cameroon, it is considered to be oil bearing and will be tested later when the well is re-entered.

Trap Oil has farmed out of 80% of its interest in block 9/24d which contains the Kew discovery in the North Sea. The company will get an immediate £2.75m and will be carried for the next appraisal well.

And finally, as promised yesterday a word on the English Rugby World Cup squad and their coaches after the revelations that have been leaked out of the RFU, it is a shambles of historic proportions and it appears that England were lucky to get anywhere near the progress that they made and were an embarrassment to all concerned. The revolver, Mr Andrew is in the desk drawer…………..

Kind regards and my very best wishes for Thanksgiving to you all