WTI $105.84 +2.60 ; Brent $121.66 +1.61 ; Natural Gas $2.63 -5c
Another exciting day at the Oil coal face if I can put it like that, reading the FT was a litany of oil stories from Lex being cautious on Amec (no surprise there, Lex has misunderstood the oil services business since god was a boy and I suspect still wants to be in banks and retail and other sectors which don’t have strong balance sheets, throw off cash, have huge order books, big profit increases leading to substantial dividend hikes and even share buy backs to name but a few) to Vitol and BP now only 5 days away from an appearance in court.
Having got that of my chest let’s look at the oil price outlook according to Ian Taylor, CEO of Vitol who reported excellent figures yesterday. He pretty much shares our view that the current main scenario is for prices to remain at current levels for this year although he predicts that ” geopolitical risk, especially in the Middle East, creates potential material risk to the upside”. I am still of the view that fundamentally supply should ensure that the price doesn’t run away but I take on his comments about the supply side of the equation being in a mess and as I have repeatedly said at least until the Iranian elections on March 2nd there are no brownie points for being short in this market. Vitol had revenues of $297bn last year up 44% so maybe I will defer to them in this case!
We regularly look at gasoline prices in the US retail market and as another indicator of the economy they can be a useful yardstick by which to judge the pace of any recovery. At this time of year there is always a steady build-up in gasoline and diesel prices but this year the pick-up is faster and earlier than usual, this week’s figures show gasoline is up 6.8 cents w/w at $3.59 a gallon, you have been warned. (See attached chart)
With oil prices at these levels it is surely only a matter of time before the IEA decide to step into the market and sell off what remains of their clients ‘strategic reserves’. (Although come to think of it if they are like last year they will wait for the price to fall $20 a barrel off the peak before doing it, either way oil traders around the world are waiting for their mid-year Christmas gift from the IEA.)
So there is lots of company news this morning so let’s rattle through it starting with the Chesapeake figures which actually beat market consensus at 63 cents. Although reporting a fall in gas from 88% to 82% they offset this by announcing a doubling of operated drilling capex in liquids which this year will represent 85% of total capex.
And so to Shell and Cove Energy where the super-major has tabled a bid of 195p a share or a cool £1bn for one of our African favourites. Fortunately after the Anadarko success yesterday we stepped in immediately and said that our existing takeout valuation of 175p was too low and that has proved to be the case, if you are a holder of Cove I would sit tight, my spies tell me that the fat lady hasn’t sung yet and with Shell underwriting the current price you have a free ride.
In the UK Central North Sea, Centrica has bought from Total a package of acreage for $388m with a 22mboe, although Centrica doesn’t fall within our remit (except of course that Sam Laidlaw is a top candidate to be the next CEO of BP) we take the view that they are doing the right thing and snapping up reserves here is very wise.
Afren is on the move with an international roadshow ahead of a bond placing, it has meant that they have had to publish ten month figures to 31 October which were more than satisfactory and expect a positive story when they are on the road over the next few days, and they have a position in Kurdistan…..
Madagascar Oil has announced a placing this morning to raise $26.5m to plough into the business. After its inauspicious debut the company has rebuilt its reputation but so far have not done any marketing to the city as far as I am aware and so until we see the whites of their eyes I will steer clear of the stock.
Tullow announced yesterday that they have finally completed the farm-out of their Ugandan asset with the $1.47bn sale to CNOOC. The only reason for mentioning this today is that it makes up one of the bigger bid targets with African assets and I haven’t mentioned that for a while.
Although not announced by the company, the publication MEED has run a story about Petrofac winning a $330m contract in Iraq. This is apparently for the Badra oilfield in Eastern Iraq and it is for a crude oil processing facility in a consortium led by Gazprom. Petrofac aren’t commenting formally on this but we believe that it is pretty accurate and is another useful addition to the order book. Whilst on PFC I have been hearing a number of stories about analysts downgrades and sell recommendations on the back of a perceived lack of current orders, apparently the $8bn of orders required to hit revenue targets is unlikely to be met. Although there is no guidance on this sort of thing as one might expect I feel that there might be a misunderstanding building up with regard to the size of the backlog needed, without ‘huge’ orders which are lower margin it seems to me that order intake may not need to be as much as $8bn at all, let’s see what the company say on March 5th.
Finally on company news and staying with the African theme I wanted to mention Longreach Oil and Gas which is a TSX listed company with an exciting portfolio of acreage in Morocco. Reading an article in Upstream Online a few days ago focussing on North Africa gave me a better insight into Longreach which has exciting onshore gas portfolio in a hungry market place and the company are also looking to farm-out some of its very large offshore prospects. With the significant increase in interest in North Africa ( Petroceltic is a big favourite of ours) in general and Morocco specifically, Longreach looks seriously undervalued especially compared with the recent IPO of Tangiers Petroleum. I would seriously take a look at Longreach even though it is TSX quoted although we are hoping for an Aim listing before long.
And finally…………..in the world of sport, following a suicidal team selection last night AVB wrote another few lines in his resignation letter although it won’t be accepted apparently. On a brighter note Kevin scored another century which lead to a whitewash and England’s women beat the Kiwis again after having been 12-4.
Even more finally the blog was disgusted by the behaviour of one James Corden who last night had the gall to interrupt Adele whilst giving a wonderful acceptance speech at the Brit awards. I would say that he should know better but even if he blames the suits with the stopwatches this was rank bad behaviour and totally out of order……and for Blur………..!