May DayWTI $93.01 -1.49; Brent $101.64 -2.08; Natural Gas $4.34 -5c

Good morning

Saudi Oil Minister Ali Naimi said in a speech to the Center for Strategic and International Studies yesterday that his country did not plan to increase its oil production in the next 30 years based on information about new sources of supply coming on-stream to satisfy demand. This is a far cry from the time in spring 2011 and again last year when grand fromages from Halliburton and Schlumberger were despatched to Riyadh to establish the chances of increasing production to 15m b/d and more. With US shale and increasing Iraqi production rising, along with Brazil and the Caspian, Ali Naimi said that the role of swing producer on the upside was no longer likely to be required. Actual numbers for the Saudi capacity at present are difficult to get a handle on, the 15m b/d number comes from reserves and what the service companies predicted they could achieve, realistically Naimi said that 11.5m b/d is tops.

Finally my own concern in the last year or so is that internal demand in Saudi Arabia has been rising swiftly and at peak times can now be as much as 3m b/d, if this were to continue to rise it would limit Saudi exports and thus weaken its finances substantially should the ceiling be around 10-11m b/d.

Oil price

The oil price fell sharply overnight with the Chinese PMI number disappointing and the export orders number creating some concern about 2Q growth. The other thing that weakened the market was the API inventory stats which – you’ve guessed it- came out a country mile away from analysts forecasts. The build of 5.2m barrels was only marginally away from the 1m barrels the dunces on Wall Street had forecast, let’s hope they get the EIA number a bit closer tonight!

Yesterday I did an interview on CNBC which was about BP but also in it I have quite a chat with the Squawk box team about our cautious view on oil prices, I won’t put the link in here as it often causes bounce backs but if you go to our website it is on there and easy to view. Suffice it to say I believe that supplies are more than adequate at the moment and barring unforeseen circumstances risks in the oil price are on the downside.

Genel Energy – Daily Flow Test – DY

The company has secured a rig for its African offshore campaign which is targeting 3.3bnboe of net unrisked prospective resources across five to six wells. Drilling with start in Q4 2012 and the rig is contracted for two years.

Positive news today, and a good reminder that Genel is not just all about Kurdistan. The African part of the portfolio is also important and there is a lot of potentially high impact prospects which could add value. Interestingly, Tony Hayward, CEO of Genel is quoted in The Times today as saying that Chinese investors are cashing in on UK investments in Africa because Britons are too frightened to scale up their investments, instead they hand it over to Asian investors.

Genel has had good share price performance recently and more good news like this should push it higher.

BG/Ophir Energy -Daily Flow Test – DY

The Mzia-2 (OPHR: 40%, BG: 60% & operator) flow test has been completed with impressive results. Pre-test guidance for commerciality was given as 10-20mmcfd and the result came in at the maximum equipment rate of 57mmcfd (over 60 hours) suggesting it could have been higher. As a result mean recoverable resources for the field have been increased to 4.5tcf from 3.5tcf although more appraisal drilling will still be required.

The rig is now spudding the Ngisi-1 exploration well which is targeting 5.8tcf in the Chewa-Pweza-Ngisi hub.
This is an exceptional result, more akin to something you would see offshore Western Australia. We will be upgrading our Ophir  target price on the back of these results today but remain very positive on the shares.

Alkane Energy – Daily Flow Test – JS

A trading update ahead of the company’s AGM today is broadly in line with our estimates, stating that output in the first three months of the year was 51GWh (+70% 2012) with growth demonstrated across both coal mine methane generation and power response. Market selling prices are said to have remained relatively stable and 90% of 2013 output is now contracted at £53/MWh, while 15% of 2014 prices have been contracted at £54/MWh. The project pipeline is also said to be progressing well and a number of prospects are reaching the key drill stage to be brought online from 2014 onwards.

Our estimates are based on our 2013 output forecast of c206GWh at average prices of £53.5/MWh. Beyond this we see output increasing to 223Gwh at an average price of £54.5/MWh in 2014. We therefore view today’s announcement as positive confirmation of the growth profile and make no changes to our BUY recommendation and target price of 42p.

Alkane Energy 1 Year chart

Alkane Energy 1 Year chart



Kentz has announced this morning that it has been awarded a contract in Cartagena, Colombia worth around $58m. This contract is important as it is the first in this country and shows how the company is able to use existing client relationships, at which it excels, to expand into new regions. The client in this case is CB&I whom Kentz have worked with successfully in other parts of the world. It is worth noting that Kentz have an IMS due out on Friday of this week. We still view Kentz as being fundamentally cheap and our initial target price of 500p still stands.

Kentz Corp 1 Year chart

Kentz Corp 1 Year chart

Weir Group

Today’s IMS from Weir Group tells us only that full year guidance for margins and revenues remain unchanged and whilst there is a  bit of deck chair rearranging we expect things to carry on as per the last results comment.

And finally…

After losing last night’s Champions League Semi-final Real Madrid exit the competition but whither the Chosen one? He says he wants to go where will be ‘loved’ and apparently England fits the bill, he says that here he is loved by ‘some clubs, especially one’…. So it’s definitely Wolves then!

Audley Harrison has announced his retirement from professional boxing, how will we tell?
And I’m with Andy Murray who has asked whether the Spanish cycling authorities are presiding over the ‘biggest cover up in sports history’ by ordering blood bags to be destroyed in the infamous Dr Fuentes case….