WTI $96.64 -68c, Brent $107.88 +30c, Differential $11.24 +98c, NG $5.18 +45c
Not much to report on the oil price this morning, Friday saw the WTI contract fall with the panic in emerging markets and some currencies whereas Brent was strangely unaffected. This morning has seen a reversal of those fortunes so we are back to a $10ish differential.
The big rise has been in the natural gas price after the latest in big freeze-ups where my spies tell me that snow even fell in Houston, Texas, can this be true? But with natural gas at $5.18 there is some money being made somewhere!
BG Group – Its a trust thing.
I have been a big supporter of BG for as long as I can remember and even when the company warned about production expectations in October 2012 I felt that the market had been overly harsh on the company under those circumstances. Today sees the company, under new management,(pretty grim start for new CFO) deliver an across the board profit warning which includes volume declines, profit impairments, a massive increase in costs and a resultant destruction of the share price of around 15%. Given the way that the earnings have been hit, the only crumb of comfort is that capex guidance is unchanged and will fall leaving the company cash flow positive in 2015.
When the new CEO took over the market happily gave him the benefit of the doubt, a new style of management was ushered in and transparency and more honest guidance was the order of the day, today that has been blown away with a statement that contains so much bad news that this time there can be few, if any, excuses. The 2013 numbers will be in line with expectations bar an impairment charge that will leave the number, at $2.2bn, some 33% down although at the operating level the numbers are as expected. For 2014 production guidance is down at 590/- to 630/- boe/d whilst costs are up all over the place. E&P unit operating costs are expected to be in the range $15.50-16.25 against a 2013 number apparently of $12.17… In Brazil and Australia higher royalties and fixed costs mean that things only get better at plateau production, now delayed in Brazil and teetering in Australia. Sundry problems in Norway and in the UK where Jasmine will produce less and Buzzard will be shut for longer add to the mess and I haven’t even dared look at the situation in Egypt and the knock on effect that will have on the LNG business.
All of this just doesn’t creep up on a management and it looks as if this business is just too big and too diverse for this management team to handle. I have a horrible feeling that even after todays mass junking of profits into the ether there is more than a good chance that this could happen again which makes owning the shares much more risky than it should do. I have said before that one of the reasons for holding BG is the asset value that is in the company and that if the management didn’t deliver then somebody else could and should, I suspect that time has now come. BG does have world class assets in its portfolio, at this stage they should immediately put these up for sale which is probably the main reason why the shares aren’t a sell right now. A sale of say, Brazil or Australia might leave the company in a better position but to do it on the back of higher costs and lower production volumes has stripped the company of a significant amount of value at a stroke, that takes some doing.
BP Buy back watch
Our regular look at what the treasurer has been up to, Friday saw the usual purchase of 7.5m shares making 125.02 million shares so far this year at a rough cost of around £600m to keep the share price hovering just below a fiver.
Shale and fraccing, the BBC stir the pot.
A bit of action this morning as one might have been led to believe that Cuadrilla had decided that fraccing was getting a bit to hot to handle and had walked away from the process. Talking to a number of industry participants, the storm has been very much been in a tea cup and that the BBC documentary spends a fair bit of time missing the point. The companies concerned are all doing everything by the book which is how it should be and that goes as much for waste water as anything else.
Another disappointment today as the Novus exploration well 6507/10-2S in the Norwegian Sea is announced as an oil and gas discovery but uncommercial on its own. The management has a fair point in saying that the well de-risks the structures and prospects in the licence but for the time being Faroe remains unlucky with the drill-bit.
Mediterranean Oil and Gas
A poor 4th quarter for MOG was always on the cards after the trauma they had with Guendalina, this has subsequently been remedied although production only returned on 11th January and appears still to be producing at a very low rate despite cleaning up. Away from here the company is planning wells offshore Malta and onshore Italy in the first half of 2014 which might cheer somewhat. Readers know that MOG creates mixed thoughts for me, my Italy aversion wants me to diversify as quickly as possible and I rate Bill Higgs very highly so I’m sure it will happen one day but time is not something that comes cheaply, at least not for the rating. One for the watch list and I hope to catch up with the company before long.
Problems at Bualuang continue to mount as further bad weather has meant that the restart now looks like early February. The company point out that development drilling is unaffected and work here continues and the production guidance for this year remains unchanged at 13-16/- boe/d. Another awful chart and I cant see anything which is going to change this for the better anytime soon.
With no interesting games in the FA Cup at the weekend the producers who had had a famine for the televised games this round were hoping for better fayre in the 5th. I’m sure I wasn’t the only one calling out for Noisy neighbours vs Chelski or even Gooners vs HubCap Stealers but what a massive result all round. It will be interesting to see who gets what game and something we’ve been watching is the progress of BT sport and this will be a big day for them whatever match they get…
Its the last week of the transfer window which is normally quiet in January but this time its a bit more exciting for big Jim White to call. Having locked up Mata, Moylesey is after Luke Shaw, Cabaye and a few others but Baines has signed a new contract at Everton poor lad. The best new signing for Man Who may be that of Wazza who looks like he is ready to commit for £300,000 a week…
Fantastic for Stan ‘the man’ Wawrinka at the Aussie Open, now another great player in a crowded men’s top ten, Muzza will come back at 6 in the rankings…
And thinking of poor old Jamie Dimon and wishing I had his board doing my pay..with profits down 16% and fines of $23bn he managed a 74% increase in his pay last year to $20m, no wonder people don’t get it sometimes!