WTI $98.23 +8c, Brent $107.95 +10c, Differential $9.72 -77c, NG $5.01 -45c
Very thin trading yesterday and this morning as the WTI contract expires and China starts the New Year celebrations. Sentiment appears to be a touch better regarding economic news from the US and elsewhere things have gone quiet after the FOMC and inventory numbers.
Yesterdays figures from Exxon were very slightly disappointing as they reported $1.91 per share against the $1.93 whisper. Profits were down 16% and production continues to drift, now 4.22m b/d although there is some pick-up in domestic with a move towards liquids paying off. The big culprit was in downstream with overcapacity killing margins particularly outside the USA, in Europe and Asia there is still much to be done. The advantage still being reaped by US refiners, with a glut of crude and no limit to exporting product, remains. How many times do I and others have to say that the majors clinging on to downstream businesses is criminal and in this environment of enhanced capital efficiency, wasteful refineries make a mockery of top management?
Cairn has put out a statement this morning trying to stem the flow of investors making a dash for the door in IndiaGate. Since the announcement that they were under investigation the shares have dropped like a stone, falling nearly 30% from what wasn’t a particularly heady level anyway. Now, either the financial eye hasn’t been on the ball, or worse still, something hooky has been found in the books but I think it might be time to dig ones toes in.
At 215p and with the caveats above, I think one should start nibbling away at the stock, it wasn’t expensive before, now it is positively cheap and although the Indian cash isn’t available now it is hardly needed. Without being the most dynamic stock in the market there is value and a price for everything, Cairn has good assets and is financially as strong as anything and if you can assume IndiaGate is temporary I think it is worth a look.
I had a very interesting meeting with messrs Parsons and Joyner of Sound earlier in the week and whilst my general antipathy with Italy and having all ones eggs in one basket are not changed, the outlook here is potentially promising. Lets get the Italy thing out of the way first, from start to finish everything takes forever and to put it mildly the country would be in a stronger position today if it got its act together. Having said that, and partly because hardly any of Italy’s reserves ever get to the market, the gas price is high and demand strong a very favourable backdrop for Sound. They have plenty of other positives as well, they remain almost entirely onshore, the fiscal regime is good at present and the company have kept 100% interests in all their licences. The two year drilling programme has the chance to deliver decent upside and they have retained the flexibility to farm-out key prospects in due course.
Nervesa is expected to provide cash flow by next year and the company has options to farm-out or put in place reserve based lending to ensure they don’t have to fund anything here which is positive. At Badile the upside looks equally positive, if not more, as the company carries an NPV of 486m Euros and also plans to farm-out but retain exposure to the potentially huge upside. There are other prospects at Laura and Zibido next year and a further nine licences to drill further out, not including other acreage which the company is expected to package up and sell.
So where does this leave the shares? The finances aren’t exactly perfect but they are enough for the current work plans, a new director has provided a £1.5m loan and the offer proceeds are £1.6m although I bet the shareholders didn’t like that dilution much. The plans for Italy give plenty of encouragement and the upside is indeed very substantial, if Nervesa and Badile come off then this is not a £15m market cap stock, more like £100m but lets not try and run before we can walk. I still want to see concrete evidence of diversification away from Italy but agree that cant come until after a farm-out, that announcement should open the floodgates so it cant come soon enough. Also there are no institutions on the shareholder list at the moment which given the size of the company is fair enough but those able to invest in a £15m company might end up being amply rewarded. Sound is not without its risks and as always in Italy the timeline should be watched very carefully, if you want a bit of safety wait until the next announcement and see how it pans out but this stock might just be about to deliver…
Cape has announced two contracts this morning with a combined value of £20m. The contracts are in Saudi Arabia and one lasts until May 2014 and one continues until February 2015. Hardly knocking the lights out, Cape is taking a long time to deliver the recovery after a terrible series of misfortunes so one to watch only at the moment.
I note that Allistair Langlands is leaving as Chairman of Wood Group after only two years, that seems unusually hasty for such a top quality former CEO of the company…
Its transfer deadline day when huge mistakes like Torres and Carroll are made to amuse the rest of the fan base..
Decent fixtures at a premium this weekend, Monday night looks good though.
The best thing is the resumption of the 6 nations rugby championship where every fixture is exciting for a host of reasons, England must have shuddered when they saw their opening fixture, away to France…
In the T20 cricket in Australia I notice that whilst we are getting another hiding our best player remains on the bench. I hope that when ‘Nobby’ Downton gets the captain and management back home he tells them to pick the best players, not their best mates…
And away from sport, last night saw another fixture which is the annual dinner for those people who left Enterprise Oil and went on to be senior executives at other companies. I had a shufty at list of participants (readers will know that Enterprise spawned a host of top quality oil industry executives) and one name was markedly absent, the CEO of the Church of England, Justin Welby, former Group Treasurer didn’t appear to be breaking bread with the fraternity…
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