image005WTI $106.09 +2.56, Brent $107.76 -13c, B/WTI Diff $1.67 -1.93, Natural Gas $3.67 +1c

Good morning

I write about our note on Petrofac below, we initiate coverage today. As usual I cannot attach the note as the blog reaches far and wide, into areas we are forbidden from sending it and accordingly if you haven’t already received it on our normal mailing list please just reply to me and if I can I will send it to you.

Oil Price

It’s all about inventories and last night the draw was predictably high ( 9.87m bbls) after the run in WTI and the API numbers on Tuesday. I say predictably but analysts’ consensus was for a draw of 3.1m bbls so they were foxed by a factor of three this time.

The other influence is of course Ben Bernanke who is making a point of confusing markets at the moment, one minute suggesting that the labour stats are very positive and the next saying that the stimulus programme will continue, the dollar fell after the Fed minutes were released pushing oil prices up but without fundamentals.

Finally, Opec put out its updated forecasts which show that they expect call on its crude to fall to a five year low in 2014 with supply growth coming primarily from the USA and Canada. This implies a fall in demand for Opec crude to 29.6m b/d which compares to current production of 30.4m b/d, within tolerance levels at the moment but any larger fall in demand, particularly from the US would require production cuts. In the bigger picture this does not bode well for the oil price which is already looking a bit out of kilter with supply and demand scenario.

Our prediction of the narrowing of the differential between WTI and Brent from way back when is coming even more right than we might have expected…..


We initiate coverage on Petrofac this morning and look at the opportunities presented in IES as well as looking at its higher than average margin businesses in engineering and construction, onshore and offshore. With the Middle East still core we look at Petrofac’s operations there and also investigate its customer base.

With regard to valuation and pricing, the report blends the results of our DCF model and peer group analysis which gives us a target price of 1850p and therefore we initiate coverage with a BUY recommendation. (Please reply if you would like to receive a copy of the PDF)

Petrofac 1 Year chart

Petrofac 1 Year chart

Premier Oil – From Daily Flow Test – DY

Today’s trading statement was in line with our expectations with much of it comprising already published news. Production averaged 58.7kboe/d slightly higher than 1H2012 and has reduced full year guidance from 65-70kboe/d to 63kboe/d

Exploration has been surprisingly good this year with four discoveries from four well. The company will drill another nine E&A wells in the remainder of 2013. The Catcher Area continues to make good progress with final FEED bids expected in August. An update at their Falkland Islands operations will be made at the interims.

Finally, the company has increased its interest in Bream from 10% to 50% and taken on operatorship of this field for a consideration of US$22.2m. Given that Premier have downgraded its production two years in arrow, development projects are crucial. Therefore, the Bream deal makes a huge amount of sense as Premier is now in the driving seat to move this field into production.

Premier Oil 1 Year chart

Premier Oil 1 Year chart


BG are the other side of the Bream deal, selling its 40% stake, 10% to Premier and 30% to KUFPEC from Kuwait for $22.2m and handing over operatorship to Premier.

Ophir Energy – From DFT – DY

Starfish was the smallest target (net risked 12mmboe) in the current drilling programme, so the fall in the share price looks overdone and will likely recover ahead of future drilling updates. The Kusini-1C (Q3) and Mlinzi wells (Q4) are crucial, targeting 187mmboe and 683mmboe of net risked recoverable resources respectively.

It is worth highlighting that the drilling programme is pushed back overall compared to guidance given at the start of the year. Following the completion of Mlinzi the remaining wells will be drilled in late Q4 and into Q1 2014. Consequently, the number of share price drivers for this year has reduced, but the overall potential resource base being targeted remains at 1.3bn boe.

In light of the Starfish-1 result yesterday we are reducing our target price from 714p to 710p and maintain our Buy recommendation.

Ophir 1 Year chart

Ophir 1 Year chart

And finally…

An amazing day at Trent Bridge as the combined nerves caused by the Ashes hysteria left 14 wickets down on the day for 290 runs, this morning will show how the next few days might go but tickets for Saturday……………………ooh errr

And bad boy David Warner has been sent to Zimbabwe and South Africa to join up with Australia A……………

Great day for Chris Froome yesterday as he put in a top shift in stage 11 to Mont St Michel giving him a lead over Valverde of 3 minutes and 25 seconds.

And the Aberdeen Asset Management Scottish Open started today at Castle Stuart, a very good introduction to The Open next week.