BP; Round-up – Heritage, Tullow, Ophir, Genel and Fraccing

WTI $98.58 +73c ; Brent $109.50 +2.23 ; B/WTI Diff – $10.92 +1.50 ; Natural Gas $3.57 -14c

Good morning

Busy morning, lots of e-mails and some news to catch up on, some I will skim over today.

So, the FOMC starts today but given the recent statements there isn’t really any need to turn up, probably until April come to think of it.

In Argentina, President Kirchner and her allies took a mighty beating and her chances of securing a third term were ended as the losses piled up as unpopular policies rallied the opposition parties. The international oil sector appear keen to invest in the country and an end to the significant state involvement would surely be good for both investors and Argentina.

Oil Price

Brent has stayed roughly at the same level whilst I have been away mainly due to an increase in local difficulties in Libya, heightened strikes and protests have reduced exports sharply again. There is also a big resistance level being established at just below $110 with no immediate signs of that being broken. I just missed last week’s inventory numbers as I left for sunny Spain but they showed a build of another 5.3m barrels against consensus of 2.9m, API numbers tonight are forecast at a build of 3.2m barrels.

BP

BP has announced an interesting set of figures with dividend, capex and divestments making it a positive announcement, particularly if you are into downsizing. Upstream was good in the quarter with prices favourable but divestments bringing production down. Downstream was expected to be pretty grim and we weren’t disappointed, after Chevrons warning recently refining margins were always going to be awful and made worse by high gasoline stocks.

With capex remaining at around this year’s level of $24-25bn the company is clearly not chasing the other, now much bigger majors, indeed the announcement that another $10bn of assets are expected to be sold before the end of 2015 and the proceeds ‘predominantly’ for distribution to shareholders really does give a new meaning to ‘Beyond Petroleum’. The current share buy-back is using $8bn of the TNK spoils and so far $3.8bn has been used to buy-back and cancel shares, so that will last until next summer, one must assume from the company’s comments that the extra $10bn from asset sales will take over when the TNK money runs out to continue the downsizing until the end of 2015.

The legal situation hasn’t changed much, the company doesn’t know when the result of phases one and two will be announced and the next phase won’t happen until next year. Although BP has had a modest victory recently, the total cumulative charge is now $42.5bn and my expectation is that may well exceed my pencilled-in number of $52bn that I have been running with for a while.

BP shares rallied well on the news, and so they might, the Directors are selling off the assets to distribute to shareholders, anything left over will be used to maintain capital spend at a low-ish level or be added to the Macondo fund. At current levels of around 4m shares a day and likely to continue for another 2 years, the downside carries some considerable protection (the buy-back could take £5bn or more off the market cap every year) as does the yield which always attracts some natural income buyers.

The only risk is in court and the way it is going, by the time that the US judgements have been made and almost certainly appealed, the company will be too small to pay the fine………………..

Round-up:

Heritage Oil has increased its position in PNG after recently taking a position there. It was pretty inevitable that having dipped its toe in the water, further acreage add-ons would be forthcoming and this announcement seems both reasonably priced and with some upside. PNG is most interesting and I have followed New Guinea Energy for some time as they progress in this most difficult but high yielding area.

Tullow Oil has suspended operations in Northern Kenya after demonstrations by locals, apparently unhappy with the large amount of imported labour being used on both blocks 10BB and 13T. Tullow are used to operating in areas such as this and claim to be using 800 locals out of 1,400 employees in Kenya.

Ophir has picked up around 10% since stories swirled around about its possible sale of interests to GAIL of India, the company only admitted that blocks 1,3, and 4 in Tanzania were up for sale and that there was no certainty that any deal would be concluded.

Genel, CEO Tony Hayward announced that the export pipeline to Turkey from Kurdistan was completed and now being tied in and being commissioned. The pipeline, with a capacity of 300,000 b/d will be of significant help to Genel and DNO as well as other companies in due course.

Fraccing – The boss of the National Trust (impossible to explain if you are not British) has said that whilst there would be no wind farms on their land they were ‘open-minded’ about fraccing and that gas was preferred to coal from a carbon emissions standpoint.

And finally…

The storm of St Jude seemed to create a lie-in for many train drivers but didn’t unfortunately force me to stay in Spain an extra day or two…………..

Out there I caught a bit of the Barca- Real game and for Tottenham fans you may get Bale back sooner than you think. Booked, subdued and subbed, he hasn’t quite got with the programme yet…………..

Back at home the big win was Chelski over the noisy neighbours, practically gifted to them by Joe Hart………….. Also not a day to be a Newcastle fan…..

And it’s the return of the Clueless Cup tonight as hordes of kids wearing first team shirts fight it out,Goonersv v Chelski is the pick of the ties, hope the teams have told their mums they will be late home…

And Ross Brawn is leaving Mercedes at the end of this F1 season which is a shame……

For followers of the World Series the heat is on as the Red Sox won again to go 3-2 up and now have a natural advantage as they head home having won twice away at the Busch stadium, they just need one from two at fortress Fenway.