Much more going on today than I had expected and having been at the IGas meeting first thing I will have to get a move on to get something written down.
All quiet in the last 24 hours as a generally more bullish tone is being set on low volumes. Inventory stats confirmed a large draw, at 9m barrels slightly more than twice the analysts’ consensus of 3.8m, tonight’s will be more telling, probably why traders are not short at the moment. WTI continues to catch up with Brent, as I have now started to put the differential in the prices line above the race will probably end but today it is $3.60.
The ‘loss of control event’ in the Gulf of Mexico by Energy Resources Technology is being played down as nothing like Macondo as it is mainly gas and in shallow water but keep an eye on it, especially as we are approaching the peak hurricane risk part of the season.
Ophir has announced that the Starfish-1 well offshore Accra, Ghana in which it holds a 20% participating interest and is the operator, is water wet in the primary and secondary targets. This is a blow but as Dougie keeps on reminding us, the 100% track record couldn’t last………………
Still a big fan of this one and the duster only takes 4p off our target price to put it at 610p so plenty of upside at 371p, down nearly 5% today.
Gulf Keystone Petroleum
The news just keeps on coming for GKP and I still haven’t caught up with the news when I was away. Today sees the spudding of the Shaikan-10 Development well which I visited last month. The site has been extensively cleared and even a road built to facilitate access in the mountainous region that it occupies, giving space for a three/four rig, multi development and production programme. The oil from here will go to the PF-2 production facility when it is complete, along with oil from Shaikan-2 and -5 which will be tied in to the facility. A word about the production facilities, PF-1 is ready and up and running, now with field development approval it should be able to produce its target of 20,000 b/d maybe more, before long, as for PF-2, I saw that too, and construction is well under way and its capacity is similar to the first one.
The next month or so is going to be pretty crucial for GKP, the AGM on the 25th of July may be lively with a slate of directors possibly changing the make-up of the board, proposed by M&G and supported by Capital. On the 23rd of August we should hear the result of the Excalibur court case which has held back the share price for some time now, interestingly although the shares have had a good run lately and there will be manic days to come, there is potential for much more upside should things go ok for the company.
Kentz has won a further contract in Mozambique, again with Vale, this time for a logistics solution for the transportation of coal mined at Moatize in Tete province to the marine terminal on the Indian Ocean. The contract is worth $38m but more importantly it cements the relationship with Vale, with the possibility of Moatize phase 2 down the line. I visited this site last year and the rail link is vital, getting it underway is good for all concerned so for Kentz to keep in there with an excellent client relationship makes it worth just that little bit more.
Kentz has had a bit of a bounce but even at 402p the stock is excellent value and remarkably cheap on any grounds.
The results from IGas are important but not the driving force behind the investment case for the company at the moment. However the company is a leading onshore hydrocarbon producer and operator and has significant potential from these assets. ‘Chasing the barrel’ is their way of incrementing such fields and introducing the use of water injection technology could dramatically increase returns, the cash flow from these assets is not to be ignored.
However it is the significant position in ‘unconventional’ assets that have taken the eye of investors, quite correctly. I would like to think that we have been at the forefront of people waving the flag for the fledgling industry and whilst we, like others in the industry believe, are not taking anything for granted, this is an opportunity not to be missed. Only when these companies actually drill some holes and see if the gas actually flows will we find out, but with drilling coming up in the next year time will tell. It is important also not to under estimate the arrival (predicted!) on the scene of Centrica who must have assessed the risks of committing to the shale bandwagon and climbed aboard, maybe they thought like me and felt that the risk was not being aboard. Total are next aboard….
The IGas chart is a funny old thing, anything if not predictable but for investors there aren’t many quoted ways to play the shale game and IGas has to be at the forefront. Not for every investor I agree but as I have said before if you do a read-through from the Centrica/Cuadrilla deal valuation I get to a target of 250p based on actual money paid for an almost identical asset, indeed there is a school of thought that says that IGas might be worth more.
Anyway, that’s enough, it was a very positive meeting without going mad and left me feeling that there is still plenty of upside for the IGas price.
I cannot let the President announcement go without a comment! I have been a big fan of this business run by Peter Levine and John Hamilton for a long time although I have had to accept that the idea of investing in Argentina has predictably not gone down well on the bourse.
Today’s operational update is positive in all areas and deserves a mention. The Louisiana assets are at a record level of production and generating $600,000 a month of net cash flow, that’s what they are there for. In Paraguay the seismic acquisition operation has been completed successfully ahead of schedule and provided 780 square kilometres of 3D and 100km of 2D. Initial results are ‘most encouraging’ and showing very prospective drilling targets.
In Argentina the stimulation programme is well under way, the first well is performing with good levels of production and the next two wells are being worked on, more to come on those soon I imagine.
The Chairman’s statement is upbeat and understandably he feels that the share price does not reflect the prospects of the company, I totally agree and whilst I cannot wave a magic wand or take away the political risk, this is genuinely cheap stock.
Of course it’s the start of the Ashes and over the next few weeks a lot of tense action will take place, today it all kicked off and England won the toss and batted first, a very nervous start and 98-2 at lunchtime.
The old boys in the Chelsea dressing room will have to get a few more candles for the birthday cakes as they sign 40 year old Mark Schwarzer from Fulham…
Luis Suarez says he has ‘two or three options’ as he tells his employers who they are………………..