US LNG exports, Amec/Kentz, and Mediterranean Oil & Gas

‹ 2 New traders at the BGC Global Charity Day………………………

WTI $107. 75 +36c, Brent $111.33 +12c , B/WTI Diff – $3.58 -44c , Natural Gas $3.56 -2c

Good morning

President Putin has turned journo and has written an article in the New York Times, most interesting! If you want a real laugh take a look at a letter in the FT today headlined ” Brown not Osborne must take credit for upturn” …………………………

Oil Price

The oil price wanted to bounce off $111 and did so, this morning it has bounced a little more, Brent is just over $112. I have been commenting on Saudi production for a few days and now in a big interview the energy minister has confirmed that the Kingdom is happy to supply ‘whatever is needed’ to meet global demand. August production is confirmed at 10.25m b/d and as the autumn progresses the proportion of that being held back for domestic energy will lessen providing more for export.

LNG

The US Department of Energy yesterday approved a fourth LNG export terminal at Dominion Cove Point, which like Freeport and Lake Charles are awaiting construction approval. We have been of the view that it is not in the best interests of the US natural gas industry to sell cheap gas abroad as it should be better used for domestic industry, also the effect of flooding international markets and crashing the LNG price is hardly in the best interests of the US.

Amec/Kentz

Last month it was leaked that Amec had made an ‘indicated bid’ of 565-580p bid for Kentz, with a deadline of 16th September approaching to put up or shut up, Amec have walked away from the deal. We have said all the way through this process that the indicated offer was way too low to succeed and that Amec management was not likely to up the offer to an acceptable level, however we are surprised that they haven’t even gone to the next big figure.

So the process from Amec has wasted everybody’s time, it was naïve in the extreme to think that 580p would have got Kentz especially with its cash balances although maybe Samir thought he would get the Malaysian stake at that price.

With the M&W bid being lower than that of Kentz, one assumes that the only other players in town might be the ex-Amec renegades over at SNC Lavalin and whilst I am led to believe they have the cheque book out for acquisitions in Europe it may not be Kentz who they are looking at.

For Amec this probably means that the CFO will get his wish and there will be £500m in the kitty for a share buy-back later in the year, that way they can guaranty EPS growth and use the cash they are generating to boot. With some worries about margin we feel that the upside for Amec is a bit limited but on the flipside a share buy-back will provide a fair bit of support to the price.

For Kentz it should be noted that during this process the company has issued a strong set of Interim figures and confirmed that it is still looking at potential acquisitions of its own, failing which it plans to return cash back to its shareholders. The share price has fallen 11% today as the disappointment knocked the shares, I suspect that the market were expecting at least something from Amec even if at the lower end of expectations. At just below 500p we believe that the market is discounting the inherent value in the shares and that in due course through good figures, a possible acquisition and/or a return of cash to shareholders this discount will disappear, accordingly we remain very keen on the shares.

Mediterranean Oil & Gas

Yesterday saw an announcement that some problems at Guendalian-3 had shut down the well due to low pressure on the manifold. This is an important well and to have 50% shut in is not helpful. It is important that the engineers get to grips with this sooner rather than later, says he stating the b obvious so maybe an acid injection or similar might do the trick.

I have expressed a liking for MOG recently and feel, like my views on all other Italian plays, that the sooner they diversify the better, however this is probably too cheap for a well-run company like MOG.

And finally…

Andy Murray has been drawn against a 16- year-old in Britain’s opening Davis Cup tie tomorrow, Borna Coric may not be overawed, he won the boys title at Flushing Meadow this year…………………

Feels like dancing has been withdrawn from the St Leger on Saturday which is a shame but Aidan fancies his runners and Godolphin fancy theirs, particularly Secret Number…..

Cricket washed out again, whose idea was this pathetic series anyway?

And I’m with Lineker on this one…………………!