Natural Gas, BP, John Wood Group, Petrofac, and Dart Energy

WTI $102.95 -1.15 ; Brent $108.66 -27c ; B/WTI Diff – $5.71 +59c ; Natural Gas $3.51 -3c

Good morning

The debacle in Washington has attracted the attention of the IMF with the MD Christine Lagarde warning of dire consequences for the rest of the world if the stalemate was not resolved.
With banks loading up cashpoints in case of a run on the currency, surely a default is unthinkable but the performance of the politicians thus far is pretty unthinkable, more like a third world state.

Oil Price

Tropical Storm Karen is sweeping through the Gulf and is expected to make landfall on the Gulf coast this weekend. At sites in her path major oil companies in the Gulf such as ExxonMobil, Shell and Chevron have moved non-crucial staff and reduced production in anticipation.
As we come to the end of another fraught week the oil price seems to have settled down, the chart makes interesting reading.

Natural Gas

Although I said last week that after the beginning of October gas inventory injection stats became less important than the weather forecast, I notice that this week the injection was abnormally high, 101 bcf versus forecasts of 77 bcf. It’s a difficult few weeks, a cold spell would change things overnight.

BP

Following its court victory this week a number of people have asked if it means that the company are now ‘out of the woods’, so to speak with regard to US litigation. Far from it I’m afraid as the nightmare is set to continue for a long time to come, accordingly this is no time to buy, or even hold BP shares. There is no need for BP in the portfolio and I feel that chances of outperformance are pretty low.

The chart shows that the shares are significantly underperforming this market and that is after the effect of the share buy-back which involves the company buying around 3-5m shares every day in its $8bn campaign. Even the possibility of a lower oil price makes their cash flow sums stretched as asset sales may be needed if the Macondo settlement exceeds their expectations. This makes the decision to restore the dividend even more questionable and post the Rosneft deal, keeping the $8bn back for a rainy day might also have been a wise precaution, looking at the chart, what would it look like ‘sans’ buy-back.
International investors can buy Chevron or ExxonMobil, domestically although the chart doesn’t look too special Shell is headed for a 6% yield and BG is also good value.

John Wood Group

Nothing much to read into the Wood Group statement today, certainly no repeat of the jitters they inspired last time they got up on their hind legs. Good growth is expected and 2013 and 2014 will deliver in line with existing guidance made at the interim results. Engineering is unsurprisingly going well with 10-15% EBITA growth with Western Canada remaining subdued offset by subsea and pipelines and shale related onshore activity. In PSN shale again is delivering powerful growth as is the North Sea after a good bunch of contract wins and also the Exxon contract in Papua New Guinea is meaningful.
Overall group-wise in line with expectations.

Petrofac

The company has announced that it has successfully priced its debut bond offering, $750m senior notes due 2018. The coupon is 3.4%, paid semi-annually until maturity and the company is to use the proceeds ‘to reduce its revolver and for general corporate purposes’.

Dart Energy

Following the recent raise and rights issue the company have issued a statement regarding the issues. The rights issue was significantly over-subscribed, A$23.3m for the available A$8.8m thus having oversubscriptions of A$14m. The placing was also well subscribed with 45% going to investors in the UK and Asia thus broadening the shareholder base.

Following the deals, the company has total cash of A$49.5m of which free cash is over A$25m primarily ear-marked for unconventional in the UK, in addition the company is looking at farm-outs and various asset sales which would further strengthen the balance sheet.
Dart has expressed an interest in a dual listing in the recent past and therefore this might be due shortly, with an increasing exposure to the UK this would make sense, especially if the recent funding ‘internationalised’ the shareholder list.

And finally…

As the USA is shut signs go up all over America it can be revealed that there is only one person maintaining the 5,525 mile Canadian border, acting commissioner Kyle Hipsley from a field office in Montana said, everything is under control, I bet there are more guards on the Mexican border…….

Elsewhere it’s the Korean Grand Prix with the Mercedes’s and the Red Bulls fastest in second practice.

In the footy, good wins for all our sides in the Boropa Cup last night, the weekend brings some interesting fixtures before the international break. Best fixture probably Spurs v West Ham, although noisy neighbours won’t like hosting Everton, especially with Cinderella in goal. ( Hart doesn’t like crosses, is always late for the ball etc).

It’s the Arc de Triomphe on Sunday and Japanese favourite, Orfevre is favourite but filly Treve can do it as can Novellist.

It’s the rugby league Super Grand Final tomorrow evening at the Theatre of Dreams as the Wigan Warriors take on the Warrington Wolves and it could be an epic especially with the World Cup starting in three weeks’ time.

And for golfers it’s the Seve Trophy, regrettably without all those players from the Ryder Cup team that invoked his memory  not long ago and also the Presidents Cup in Ohio.