Gulf Keystone- Mark Kleinman does it again, Shale tax and its winners, IGas, Alkane and Dart, Charts, EXXON and Chevron at 5 year highs, Shell and BP not so good, Lamprell, Petrofac, MOG, and Sound Oil

WTI $108.04 + 1.56, Brent $109.28 -3c; B/WTI Diff $1.14 – 1.54 , Natural Gas $3.81 +18c

Good morning

Back in the office today after a good day at Lords with Gilbert Ellacombe, top corporate broker over at Equity Development. Big Ben said about the same as he did on Wednesday and is back-tracking on taper situation, yesterday’s jobs data was better than expected as was the Philly Fed business survey which recorded its strongest growth since April

Oil Price

All of the above led to another good day for WTI which pushed on and at one stage was only 89 cents behind Brent crude, this morning it is 77 cents. Brent crude, although at a quarters high, is relatively stuck around these levels and isn’t affected by the drawdown of stocks in the US, modest this week after the last two big numbers but with a refinery utilisation rate of 94.6% is in demand.

Whatever the short-term technical situation we still feel that supplies in the US and elsewhere are plentiful and demand is increasing modestly at best.

Gulf Keystone

My main man Mark Kleinman does it again, this time breaking the story that GKP have agreed to accept the four M&G nominees in return for their own two choices and support for Simon Murray. Excellent news all round as this clears the air and means that the company can get on with the serious business of developing its Kurdistan portfolio. Also it means that we will not get a messy week of rumour and counter rumour and GKP should get more respect from institutions.

I expect that subject now only to the court case on 23rd August the shares can now look up to the 224p recent peak as an interim target.

Shale tax regime

The government has this morning proposed to cut tax on shale gas production from the current 62% for the oil and gas industry to around 30%. The new measure will be termed the shale gas “pad” allowance and will likely go into the finance bill next year.

This comes after several other positive UK shale developments; with the British Geological survey’s recent estimate that 1,300Tcf of shale gas lies in the Bowland Basin area in the north of England. In addition, plans have also been outlined for shale gas producers to provide at least £100,000 of community benefits per well and allocate communities up to 1% of production revenues.

While the market had been widely expecting tax breaks for the shale gas industry, we would agree with most consensus that this morning’s news is a very generous measure by the UK government and possibly better than expected. It should therefore be welcomed by the market along with companies who had been unwilling to be first movers until fiscal terms had been clarified. We would reiterate our prior views over the need to demonstrate appropriate recoveries to prove the commercial viability of UK shale gas, but this can only be tested with the drill bit from this point on.

There is predictable opposition from environmental groups this morning ,and some water firms are raising concerns over supply constraints and contamination of aquifers in the water intensive fraccing phase. These are of course important points which will require further clarification as the industry moves ahead.

Results from a Navigant Consulting report commissioned by the Energy Secretary yesterday stated that UK gas prices could fall 27% by 2020 in a high shale gas production scenario. We believe this potential will ultimately drive longer term developments in UK shale gas, despite the need for further dialogue over environmental concerns.

It’s very boring I know but we remain big bulls of the unconventional sector and think there are very few quoted plays in this sector which will for right or wrong be of huge interest over the next year or two. IGas will be the biggest gainer if it works and we target 250p for this one, also I am mad about Alkane with a target of 48p and also worth looking at Dart quoted in Australia.

Exxon, Chevron , Shell, BP

Worth a quick look at these supermajors charts as Exxon and Chevron hit new 5 year highs, making performance of Shell a bit pedestrian and BP awful.

Lamprell

Confirmation today that it has signed a definite agreement with the lenders regarding the new banking facility that it announced on 17th of June. Perfectly normal stuff and as expected, we remain very positive on Lamprell and await information about the analysts visit in the autumn as ‘kicking the tyres’ of company quite important after the shenanigans of the last year or so.

From yesterday

Petrofac

Petrofac announced that it was increasing its stake in the JV with Petrofac Emirates to 75% by buying a 25% stake from Mubadala Petroleum. This was on the cards for the company for some time and shouldn’t make a lot of difference to Petrofac. They will gain from being able to recognise 100% of the revenues and backlog and shouldn’t affect their ability to win contracts in the area. We remain very positive on PFC with a target price of 1850p.

Mediterranean Oil and Gas – From DFT – Joe Stokeld

MOG has released a Q2 operational update this morning. The company admits that progress in Italy remains slower than expected, but the emphasis on the second half of the year, particularly in Malta, remains. Net production for Q2 was in line with guidance, giving average H1 production of 611boe per day and H1 revenue of €5.4m. Production from the Guendalina Field was down quarter on quarter due to water influx at the GUE 2ss well (30% of field production), which is not expected to come back on-stream this year, but could be mitigated by increased production from the GUE 3ss well.

As recently announced, the Ombrina Mare concession award has been further delayed by the Italian Ministry of Environment and of Protection of Land and Sea (MEPLS). This comes despite initially positive environmental feedback and the company states that it is now unlikely to receive the concession award this year. Elsewhere in Italy, progress has been made at the Faseto onshore exploration well, targeting 0.35MMboe, which is on track to be drilled by the year-end.

In Malta, the Hagar Qim 1 exploration well in offshore Malta Area 4 remains on track to commence in Q4 this year. MOG has secured the Paul Romano drilling rig with partner Genel to drill the well. It is targeting 109MMboe (27MMboe net to MOG) at a depth of c2,500m (water depth: 450m). A well site seabed survey has been completed and support services and equipment have been procured.

We remain positive on MOG despite some pessimism over the Italian operating environment. It still feels very much like a company in transition with a strengthened portfolio and some significant catalysts on the horizon. At current prices we think the stock is attractive.

Sound Oil

The company has appointed Stuart Joyner as CFO which has put the kibosh on all the good work they have been doing lately! No, seriously it should be ok but will put a bit of a dent in the running costs of said organisation and another former city scribbler going over the wall, last person out of Investec please turn out the lights!

And finally…

A pretty awful display by England at Lords yesterday with three top batsmen getting out to woeful strokes of indiscipline and carelessness with the notable exception of Bell and Bairstow but even they got out to part-time bowler Steve Smith Eccles.

Unfortunately England’s women did the same as the under 21’s and went out at the first hurdle

South West Trains have announced that yet again due to the hot weather trains are disrupted, hot weather my wotsit, couldn’t organise a party in a brewery that lot.

Talking of grossly incompetent managements listen to the country’s water bosses on the subject of the shale revolution. They think that there will be water shortages and contamination, they don’t need fraccing to get water shortages, their gross incompetence does that all on its own and has anyone told them that the shale we are talking about is in Lancashire, shortage of water in Lancashire……………………..?

Plenty of criticism of the course at Muirfield for being too hard, aren’t these guys meant to be pro’s?

Kind regards and enjoy the hot weekend, next week it’s going to be 35⁰c in the UK……