WTI $103.33 -$1.59, Brent $109.30 -$1.90, Diff $5.97 -34c, NG $4.67 +17c
As I mentioned, the fall back in the oil price early yesterday continued as the situation in the Ukraine eased a little and Ras Putin backed off to a degree. Plenty of talk about Gazprom upping their prices from next month (wasn’t the Russians attempt to cut a deal with Yanukovich what started all this off?) and the Shermans putting a billion greenbacks into their account for emergencies, of which this is one. In London, DC has enough problems with his aides already but who was the Richard Tete who pranced into Numero dix with his notes clearly visible to the paps over the road?
The API stats last night proved that the analysts can occasionally get it right, crude stocks rose 1.17m barrels although interestingly at Cushing they fell 2.63m, the oil is certainly moving and look at the differential, now at $5.97, the same big figure that I forecast a few months ago…
China’s PM has reiterated the 7.5% growth target and to be frank unless it was half that it doesn’t hit my oil demand numbers for the country, at anything above 6% the increase in crude oil usage is substantial, see my supply and demand numbers from earlier in the year. Libya’s Government has cut a deal with the protesters at Al Sharara so expect increased exports from there, its about 250/- at the moment.
I seem to have been writing about the law suit in Ecuador for much of my life so rather like the Exxon Valdez case, when it ends not only will the settlement be small beer but we will have forgotten how it all started. For the record, Chevron won the latest round in the litigation, the judge ruled that the environment judgement was “obtained by corrupt means” and threw out the $9.5bn claim.
I watched the webcast of the analysts meeting yesterday and came away not much the wiser. Bo Diddeley re-emphasised the ‘more of the same’ policy of disciplined capital allocation and active portfolio management whilst continuing the restructuring of the company to make it more ‘value’ than ‘volume’ which means more downsizing. Not that that is necessarily a bad thing especially in BP’s case where dismantling the house that Bob and John built has been taking place since Macondo. Interestingly, the involuntary downsizing of BP caused by the need to sell assets to pay for Macondo has led to it being at the forefront of the current desire for capital expenditure discipline and restructuring.
At the same time yesterday the company announced that its lower 48 onshore assets would be hived off and run as a separate business, owned by BP. I have no doubt whatsoever that this is a prelude to being sold off one way or another. Downstream, the intense surgery and investment over recent years has meant that whilst not being the poster boy of R&M, the division is beginning to look competitive and maybe even cash-flow positive. I still believe my long held view that BP should divest its downstream activities and whilst it may have been unprofitable in recent years it may now actually return something, accordingly my stance remains.
So the cash flow at BP looks ok but without further disposals it only just covers outgoings, including dividends and not including buy backs. (up to 2015 which is already funded) After that date, any cash for buy backs, settlement costs of litigation in the US Courts or cash calls from Rosneft will have to be funded by further disposals, hence my view that more activity in this space is a must.
As a result of all this activity BP is smaller with hopefully smaller costs and a leaner structure, the guaranteed buy back until 2015 gives some downside protection and the 5% yield likewise. This makes the shares a solid hold but not without risk, recent activity in the Ukraine cements my view that the exposure to Russia raises the beta and not forgetting a potential judicial problem in the USA.
I will cover Soco in more detail later, owing to a board meeting I was unable to attend the analysts presentation and I want to catch up with Roger Cagle this afternoon if possible. The results have not gone down well which is unusual for Soco and I have had a number of communications from investors asking if it was the short revenue number, FPSO commitments or lack of distribution clarity but rest assured as a long-term favourite I will either be taking advantage of the recent weakness or making a cut.
Galp Energia delivers a positive analysts presentation, I will be looking to cover this stock having recently met a member of senior management.
Also I am intending to start coverage of Thalassa Holdings after a number of suggestions to this effect and I am hoping to meet with the Chairman before too long. This morning the company has announced that through WGP it is working with TGS on ten survey blocks in the Barents Sea. This multi-client project is one where the operators (WGP and TGS) are able to sell on the data to multiple third party clients. More to come from Thalassa…
Will Amec leave Footsie at the meeting tonight?
How excited are football fans at the thought of a friendly between England and Denmark with about 50 players getting on the pitch during the process. As long as Cleverly isn’t one of them its ok with me…
Woy Hodgson has announced that psychiatrist Dr Steve Peters will accompany the England team at the World Cup in Brazil. There is no truth in the rumour that he has been hired for 3 matches only…
This afternoon sees the final one dayer between England and the West Indies, anything can happen believe me and no English Kev to blame it on either. In test cricket South Africa are on the back foot fighting to save the series…