image007WTI $93.90 +2c ; Brent $108.31 +4c; B/WTI Diff – $14.41 +12c ; Natural Gas $3.62 +5c

Good morning

Mrs Yellen stepped up to the Senate Banking committee yesterday and pointed out that she is aware of the costs and risks of QE but –for now- the benefits of QE outweigh the costs, come on you doves. This view is supported by the inflation figures which are soft and even Philly Fed hawk Plosser appears to be concentrating on price stability indicating that inflation, not jobs might be the target, if so my March/April call could be early…

Oil Price

The oil price has steadied, even WTI wasn’t hard hit by another inventory stock build. Clearly still hung-over from getting the figure right last week US analysts went low at 595/- barrels and the eventual build of 2.64m barrels foxed them again.

The one measure which has been out of kilter recently which I have highlighted is the differential between WTI and Brent, at these levels I would be thinking about devising a strategy for when the gap closes.

Exxon Mobil Corporation

Who is a clever boy then? The Sage of Omaha has been buying Exxon shares and if you look at the chart he has been remarkably nimble. He went from 0-40m shares between July and September which gives him 1% of the stock at a cost of $3.7bn and makes him the 6th largest shareholder. As the chart shows, since he bought them (although he may well still be buying them) the stock is already up $10 a share……………

Exxon Mobil Corp 1 Year chart

Exxon Mobil Corp 1 Year chart

EnQuest IMS

A fairly straight forward IMS from EnQuest today as production was up 7.2% on last year with a good performance from Thistle, including a new production well which came on in August. Guidance for 2013 remains at 22/- to 24.5/- boepd and the best news is that it has sanctioned the development of the Kraken field which will result in an almost 50% increase in total company reserves compared with the end of 2012.


– Things you don’t want to hear from Cape- ‘We’ve got a bit of a problem on one of our contracts’.

In the spring and summer of 2012 things went pretty badly for Cape, we even wrote a note entitled ‘four profit warnings and a funeral’ after the shares halved and the CEO was removed. In July the new CEO, Joe Oatley joined the board and the battle to revive Cape began. I suspect he now wonders what he’s got himself involved in as chickens, born before he arrived, are still coming home to roost.

Today’s movie is probably ‘The good, the bad and the ugly’ as in the good, being the winning of the Wheatstone contract, the bad being the order book, and the ugly being the Qatar contract.

In the UK & CIS the former is in line, albeit with higher revenue and lower margins but the volumes in Kazak are expectedly falling as the project there nears completion. Trading in MENA is mixed at best, KSA is good whilst work in the UEA is winding down, the problem is in Qatar where ‘operational difficulties’ on a specific project will impact the regions performance in the second half. The statement says that ‘second half margins for this region will be significantly below those delivered in the first half’.

Now we all know that these sort of things shouldn’t happen, despite managements proclamation that ‘we are in a project business, some go better than others’ I know that Joe won’t be happy, it’s not the ‘operational excellence’ the company is seeking.

The good news is that this happened before his watch and indeed I understand that it was the measures that he brought in that discovered the problem quite early which will have saved a much bigger problem from happening.

As for Asia Pacific we always knew that market conditions were hard, or ‘challenging’ as the company describes, but this segment had a better than expected 3Q which should make the area break even by the end of the year. The icing on the cake is todays contract announcement at Wheatstone which cements their position in the region and looks likely to be followed up by another contract any time now which will go a long way to helping bring the order book up.

So the net effect of it all can be summed up by the company’s outlook, ‘full year operating profit will be materially below previous expectations’ due to the project in Qatar whilst ‘earnings per share is expected to be slightly below previous expectations’ partly helped by a favourable tax rate.

So not exactly a laugh a minute being a shareholder in Cape but it’s not tragic. Having Joe Oatley is a massive plus, if he gave up on it I think it might be curtains but that’s not worth thinking about………………………

What is worth thinking about is how people can think of investing in this company when there are oil service companies around that don’t offer the contract risk that this does, that don’t have the low margin exposure that this does and do have much better order books and pipelines to tap into than this does.

It’s going to be a long haul here and holders are dependent on Joe who holds it all together.

Cape PLC 2 Year chart

Cape PLC 2 Year chart

Madagascar Oil

I have mentioned Madagascar Oil a few times lately, it is fully on my radar screen and if I were you I would watch very carefully. Yesterday the Chairman, interestingly “at the direction of Persistency Private Equity Limited” resigned from the board and as Non-Executive Chairman with immediate effect.

I don’t know what to make of all this but something is afoot and it’s not twelve inches as they say…………….

Madagascar Oil 1 Year chart

Madagascar Oil 1 Year chart

And finally…

The little master has scored 74 in what must be his last innings in test cricket, not sure how Darren Sammy will sleep after not spilling the catch!!

As far as England are concerned they scored 418 with Joe Root scoring 75 and Bairstow adding 48, it looks like Root will bat at 6 next week.

A feast of international rugby this weekend led by England v the All Blacks tomorrow afternoon. Last year’s turnover not to be repeated I suspect as the England side are hard hit by injury and not as good as New Zealand…

Also Italy v Fiji, Wales v Argentina, France v Tonga, Ireland v Australia and on Sunday, Scotland v South Africa………………..

There is football tonight but for the home sides they are merely friendlies, generally a waste of time, most good players are withdrawn by their clubs and don’t forget its Children in need tonight so those children not playing for England can watch the TV…………..Or alternatively watch Portugal v Sweden first leg tonight, that will be fun……………

The Football Association of Wales has given Chris Coleman a two year extension to his contract, obviously a reward for a fantastic performance after winning the four games out of his fourteen in charge.

And Michael Phelps is making a comeback after retiring from the pool after the London Olympics…