BP, Plexus, Premier, and Weir Group

‹ Glorious Goodwood

WTI $104.55 -15c, Brent $108.63 +30c, B/WTI Diff – $4.08 +43c , Natural Gas $3.46 -10c

Good morning/Afternoon

Very interesting to see the comments this morning by Prince Alwaleed bin Talal of Saudi Arabia who has warned that his country’s oil-dependent economy is ‘increasingly vulnerable to competition from the US shale revolution’. In a letter to Ali Naimi the Saudi oil minister he says, ‘our country is facing continuous threat because of its almost total dependency on oil’. We totally concur with this thought and have been suggesting for some time that there is an ever-increasing threat to Saudi oil dominance. Externally it does indeed come from the USA who will soon be producing 9m b/d and importing less from its former suppliers and thus lessening its dependence on the Middle East and others. Internally, changes also mean that as we reported in our January quarterly, domestic demand for crude, to cope with a surge in power generation means that, particularly in the summer when air-conditioning requirements are at their peak can reach 3m b/d and limit export opportunities. We expect to see an increase in its oil capacity which is possible but probably much more drilling for gas which can be used for domestic power generation, leaving oil for export.

Oil Price

No great change at the moment, Brent has this morning lost all of yesterday’s gain and some more as Opec announced that exports to Asia and Pacific countries reached 57.1% or 14.4m b/d. Traders are suggesting that having had a strong run recently the oil price looks a bit tired, I suggest that the physical aint as short as that and barring a big stock draw the despicable punters may take some money off the table…

BP

So after 90 minutes of listening to the team what have I learnt? The good news is that I still believe that the management below board level is producing some good work, exercising capital discipline and will have some good production to bring on in due course. The bad news is that this was a shocking set of figures that were over 30% light of expectations, admittedly at the post-tax level and there were so many bad points on tax, oil prices, margins and Rosneft numbers that the good points were somewhat lost.

This is before one takes into account the Macondo litigation and here the conference call brought significantly worse news. Bob Dudley made it perfectly clear that it is his intention to fight every step of the way and using all legal options to ensure that they only pay what is fair. Now that is understandable especially as there have been unnecessary claims but at the end of the call he made it quite clear that the company is likely to be involved in litigation for a long time to come and that will not help the rating or the perception of the company. One interesting point is that the company were clearly not expecting the EPA to say that it affirmed its suspension and debarment decisions on BP after a criminal conviction, it is their view that this only applies to any new application and that existing contracts etc are plenty to be going on with. This will all be massively costly in every way and will hinder BP’s ability to compete in the market place.

The buyback will continue and will last another year, this will to a certain degree protect the downside but the Rosneft situation is far from certain and the hard fact is that however much Dudley wants to keep the legal process away from the operating level, investors will not. BP is a much smaller, less well managed company than other majors and investors will likely prefer to be invested elsewhere.

Briefly elsewhere today…………………

Plexus Holdings announced in its Pre-Close Trading Update that the full year results will be ” well ahead of current market expectations. More tomorrow but you will know how much this will please me as it’s an old favourite and hasn’t deserved the recent under performance.

From the Daily Flow Test

Premier Oil

Premier has completed drilling of the 23/22b-6Z exploration well, which was targeting the Lacewing prospect on the Eastern margins of the UK Central North Sea. The well was drilled to a depth of 14,370ft, and encountered a gas column of greater than 100ft. Having achieved the initial objective of evaluating the reservoir-quality sands of the Triassic interval, the well is now being plugged and registered as a hydrocarbon discovery.

Analysis is now being undertaken as to whether commercial drilling in the area will prove possible. Premier has a 20.2% interest in Block 23/22b, on which the Lacewing prospect was drilled, with Conoco having 47.3%, and BG the remaining 32.5%.

Weir Group

Weir Group has today announced results for H1 2013. Order input is down 5% from the same period last year, while revenue has fallen 10% since H1 2012. There has, however, been 13% sequential order growth since H2 2012, and the company expects to see good sequential revenue and profit growth over the coming six months.

Revenue input from the minerals and power industrial divisions was down YoY, however the oil and gas division managed to meet targets, despite declines in the North American rig count. Overall, management indicated performance was in line with expectations, and Weir Group is on course to meet its full year targets.

And finally…

Glorious Goodwood starts today on the Sussex Downs and there could not be a better place to be….

The Gareth Bale talk goes on and on, how can Spurs not accept that sort of money, it’s unreal?

Sorry for two blogs today, one very late!