Iran, Big Ben, Fed minutes, Shale, Power general Vitol, SSE and Alkane, Salamander, Lamprell, Kurdistan, and Agri monthly plug

WTI $96.16 -55c; Brent $103.44 -1.05, Natural Gas $4.20 +11c

Good morning

So, Rafsanjani and Mushaei have been banned from the elections in Iran so it’s all down to Jalili now, he’s the nuclear chief negotiator and still seen as a potential peacemaker. Our view still stands, the market has not yet priced in the possibility of a return to jaw, jaw.

In the US this afternoon Big Ben is speaking to the joint economic committee and we have the Federal Reserve minutes from the last FOMC in April. We don’t expect any lessening of QE.

Oil Price

A touch weak as the API inventory stats came out and yet again the teenage scribblers loused up, and another week where they got the sign wrong. Crude inventories rose by 532,000 barrels against consensus of a draw of 800,000 barrels. I bet they would notice if their salary was taken away not added to their checking account at the end of the month……In gasoline the prediction of unchanged was a mere 3m barrels out, as stocks rose by that amount and this with only 5 days to go until the driving season.

Shale

Pretty much any paper you picked up this morning had coverage of the report on shale gas by the Institute of Directors. Not only favourable comments on shale gas but in every case the positive effect on jobs, manufacturing and investment spending, let alone the supply of our own energy for power is correctly deemed compelling. Even the leader in The Times says that the environmental impact is ‘far less than renewable energy schemes, especially unsightly wind farms’. As with the rest of us, the paper, along with others, highlights the balance of payments benefits and the security of supply. As they say, getting more of that gas from under the British Isles (or Qatar or Norway) can only be a good thing. Finally, the Government must also put in place mechanisms to allow local communities to benefit financially from shale gas development.

Power – general

It is interesting to note that Vitol has agreed to buy out the Immingham combined heat and power plant in North Lincolnshire from Phillips 66 for an undisclosed sum. The power plant supplies over 2% of UK electricity demand and steam to the Humber and Lindsey oil refineries. Now one might ask why Vitol should do this, but if there had been a gas contract to the plant that might have changed the economics, then maybe outright purchase of the plant would be a ‘no brainer’ as they say……………………surely not a conspiracy theory?

Before I move onto Alkane I wanted to point out a quote from SSE in their statement today.

“SSE is concerned, however, that the speed and scale of the ‘capacity crunch’ facing Britain in the next few years is being under-estimated and that this could have implications for the security of electricity supplies”.

You will be aware that I am very bullish on Alkane (below) and that one of the key reasons is that any rise in electricity prices will feed through to their bottom line as well as Alkane being in the pole position to supply the grid in a number of capacities at this time.

Now, Alkane Energy, below is a comment on their acquisition announced this morning along with a very successful placing to pay for it. Usual rules apply, please ask for the full note if you haven’t already received it, as the blog goes to the US I can’t attach it.

Alkane Energy

Alkane has conditionally agreed to acquire CMM assets at the recently-closed Maltby colliery in Yorkshire, from Hargreaves Services plc (HSP LN), for a total consideration of up to £7.5m. This has been supported by a conditional £6m equity fundraise, issuing 22.2m new ordinary shares at 27p. The site is expected to provide 11.2MW of new installed capacity across eight existing engines, with first output this autumn.

This is a logical move given the location of the assets within Alkane’s existing operating area and the scale of the prior Maltby operation should provide decent CMM reserves for some years to come. The inherited engines are expected to ramp-up through 2014 as the mine’s current closure plan completes, at which point some could also be switched to Alkane’s power response business.

We have adjusted our model and see the transaction as value-enhancing; increasing our prior target price by 6p post-dilution to 48p. While the dilution from the raise has slightly reduced our 2013 EPS, our prior EPS estimates have increased from 2014 onwards. Our new output forecasts are 214GWh in 2013 (+4%) and 245GWh in 2014 (+10%).

The placing was heavily oversubscribed which validates both Alkane’s business model and attractiveness of the deal announced today.

Salamander Energy – From Daily Flow Test – DY

The company has submitted an insurance claim for US$20m relating to the drilling problems experienced at the North Kendang-1 well. During drilling a gas kick occurred which took considerable time to get under control. The claim aims to get restitution for drilling a new well and loss of downhole equipment. The claim is not expected to be settled before the end of 2013.

Given that Salamander is a well-capitalised company this insurance claim is not necessarily crucial, but a positive result would be beneficial and likely see the well being re-drilled more quickly.

Lamprell – Charge of the grey brigade….

I can’t help noticing that a couple of ‘mature’ brokers have downgraded Lamprell after its recent fine run. Now, I have no plans to do such a thing as I feel that there is a real recovery going on here and there is much to go for yet. Also, those analysts who may have rather hoped for a visit to Dubai early in the summer to get some tips pre Royal Ascot have had their hopes dashed, the trip to kick the tyres I am reliably informed is now due in the autumn! Hel hath no fury like an analyst denied a trip to the sun!

Kurdistan

A number of interesting articles on Kurdistan have come across the desk in the last few days, particularly with the state visit to the US by Turkish Prime Minister where Mr Erdogan commented that an agreement was in place for a Turkish company to become a partner with ExxonMobil and the KRG in Kurdistan.

Secondly, Energy Intelligence reports today that ‘Kurdistan crude finds foothold in European market’ as 3 Taq Taq shipments from Genel have been transhipped from the Mersin terminal on Turkey’s Mediterranean coast with more to come.

Thirdly, the Kurdistan region intends to build a second oil pipeline, capacity 500,000b/d, for exports to Turkey following the recent agreement with ExxonMobil for joint oil exploration. Interestingly it seems that the oil pipeline being constructed at present, with a capacity of 400,000 b/d is nearly completed and ‘has less than 20 kilometres to reach Turkey’.

Finally, after the Exxon announcement last week Turkey is now reportedly in talks with Chevron about activities in Kurdistan although the approach by Chevron is slightly different, maybe constructing and financing new pipelines.

All of this is good news for everyone concerned in Kurdistan and as I am visiting there next week I hope to find out, on the ground, how things are looking. I will be reporting back in detail for future blogs!

Agri Monthly

I would like to give a plug to our Agri monthly, if you don’t know VSA does all resources including a lively agriculture product. We cover all the palm oil stocks and the monthly includes updates on crop forecasts, our global agri index as well as featured stocks. I have attached the note, if you would like to see any more of our work in the agriculture sector please don’t hesitate to ask. Its attached…

And finally…

The Arsenal website reports a shock transfer request…..lady that polishes the trophies has asked for a move to Wigan..

Tony Pulis has been told that the club feels that the time is right for him to leave after seven years at the club. Will someone tell the fans who are asleep up in the stand that please…

A lot of manager vacancies around, the merry-go-round is truly under way now.

Also on the move is Carlton Cole who is leaving West Ham after only scoring twice last season, however the Hammers have agreed a deal worth £15m with the Mickey Mousers for Andy Carroll who is now thinking things over….

And Audley Harrison, who only retired last month has reversed his decision to retire and will step back into the ring. Picasso as he is known as he spends a lot of time on the canvas, must have felt that the 70 seconds he spent in the ring in his last fight he is ‘the best shape of his life’…….

In our village the greengrocer is still in business but the hardware shop has closed down so you can get an apple but no tacks……

Kind regards

Malcolm