Shell, Gulf Keystone, Lekoil and Taipan Resources

WTI $96.30 -47c ; Brent $108.93 -1.13 ; B/WTI Diff – $12.63 -87c ; Natural Gas $3.57 -5c

Good morning

It’s a quiet morning after the mayhem of majors results week, Chevron today and they guided the numbers a few weeks ago.

Oil Price

Brent finally tipped over last night as news from Libya emerged whereby they announced that the Sharara field would ramp-up production over the next few days back to 600,000 b/d. It is difficult however, to take any announcements really seriously as production recently has been vacillating and exports aren’t adding up to much. I expect Libya to be a major source of disruption over the next few months.

This morning Brent and WTI have rallied a bit as the Chinese manufacturing growth numbers were better than expected showing fastest growth for 18 months.

Shell

A final point on Shell after yesterday’s figures. The press have all had their go this morning although it was noticeable that the Lex column didn’t even bother to write anything on the company (market cap £133bn) instead writing up a bunch of losers in failed media and technology. Lombard in the FT was good and appreciated at least the changing of the guard at Shell.

Much more important is to realise that Shell are having a ‘big’ year of investment even by their standards and this will even out over the long term which is what the company is all about. Simon Henry was justifiably indignant when hearing that the market was ‘rewarding cutting of capex’ and thus hiking dividends, in his view ‘getting cheap headlines by cutting investment’ and continued by saying that 15 years ago the industry cut capex which is why oil is $110 today. Funny that as I mentioned yesterday that Shell can still pay $11bn of dividends and $5bn of buy backs whilst maintaining sensible long term capital commitments………….

Gulf Keystone

The company has noted that MOL has declared the Akri-Bijeel Block (GKP 20%) commercial based on the Bakrman-1 and Bijell-1 discoveries. A field development plan is now expected to be submitted by the end of next year. Flow rates of 3,192 b/d of 40⁰ API oil and 10.19mmscf/d of sour gas were achieved on Bakrman.

Appraisal of Bijell continues with a view to maximising EWT production through 2014 with the aim of plateauing at 10,000 b/d by the end of 2014.

This is further good news for Gulf Keystone as they sensibly decided to take the risk of waiting for MOL to de-risk the block with recent drilling having made to call to sell Akri-Bijeel two years ago. To that extent the call has worked, these wells, particularly Bakrman, have come in well and will add to the GKP valuation, in addition, even though I suspect they will sell the block at some stage, there is no hurry as MOL progress, albeit slowly, to development. If there was to be serious interest, GKP would expect to gain a lump of back-costs repaid as well as a cash payment.

This week has seen three pieces of good news that the market has, rather typically, chosen to ignore. This is probably down to the short-term nature of many investors as none of the news items in themselves are enough to move the fuel gauge. Put together, the well-received bond raise, the great discovery by Total and Marathon and todays value-added news from MOL all contribute to GKP being a more valuable company than it was on Monday, as Elton John might say, it’s a strange, strange situation…………………..

Lekoil

Lekoil has announced that it has successfully completed a placing of shares at 55p to raise around $100m in the UK and the USA. Net proceeds of $97m will be used to fund the completion of drilling and testing of the Ogo-1 well and OGO-1 ST, as well as development of licence OML113 which contains the AJE Field. In addition the money will be used for general working capital purposes and to pay off the loan to Afren.

Having come to the market at 40p in April of this year, Lekoil has done well having raised £26m then and now this raise. It would be fair to say that this deal also pleases Afren as the well is now funded and a partner is now in a strong position, the existing shareholders, a small list, have been rewarded and new institutions are on the list as well.

Taipan Resources

From Daily Flow Test – Dougie Youngson

Afren discussed its operations in Kenya in its IMS yesterday, some of which are applicable to Taipan.

Drilling is ongoing at the El Kuran-3 well in blocks 7 & 8 in Ethiopia. This well will test the productivity of the Adigrat and Hamanlei zones and is targeting 100mmbbl of gross prospective resources. This well is important to Taipan as it is a similar prospect to those in block 1. A successful well should help de-risk the block 1 prospects.

In block 1 (TPN: 20%), Afren acquired 1,900km of 2D seismic data which has identified six leads and prospects as well as a number of new play concepts. The prospects have successful analogues on the Ethiopian side of the basin. The operator Afren is committed to drilling a well on the Khorof prospect in late 2014. This prospect is a large four-way dip closure down dip of an oil seep.

The farm in by Premier Oil was an extremely positive step for Taipan and the market’s response has been bewildering. We re-iterate that Premier will be spending US$29.5m on block 2B before Taipan has any financial commitments. The first well will be drilled next year. At these levels Taipan is extremely good value with lots of upside potential.

And finally…

In Australia the English bowlers continue to lure the Aussies into a false sense of security by bowling complete pies and letting a local joke team score 451-5

The Abu Dhabi Grand Prix this weekend and leading in first practise is Romain Grosjean in the Lotus, scene of fun and games this week by the sounds of it….

One day I will go to the Breeders Cup meeting which starts today and sees fantastic racing over two days at Santa Anita, California. The UK and Ireland are well represented and various battles particularly on the turf should be well fought.

A big weekend for footy over here with the big game being between the Gooners and the HubCap Stealers tomorrow afternoon whilst Chelski go to St James’s Park and Man Who go to the Michael Jackson Stadium in West London. Another key game will be Spurs at Everton………..

And of course the autumn rugby internationals start tomorrow with England v Australia at Twickenham and with the run in to the 2015 world cup under way these games have added significance.

Last night’s Halloween…………………………… There were so many vampires at my Halloween party I lost Count……………….