WTI $99.70 +$1.62, Brent $106.79 +55c, Diff $7.09 -$3.37, NG $4.46 -8c
This mornings blog is being sent out again this evening as it went to twitter but some addresses didn’t receive it, my apologies.
A slightly topsy turvy oil price in last couple of days as Brent expired but there is apparently not much action in the market place. The API stats managed to spook the market/analysts again with a 5.9m barrel rise compared to expectations of 2.8m.
Kentz announced yesterday (during the day due to US partner) that the Foster Wheeler/Kentz JV had won a contract for the Shell Majnoon oil field commercial production project in Iraq. No value is attributed to the contract but I am thinking a bit north of $100m which makes it meaningful even nowadays as Kentz keeps coming in with additions to the order book. Shell is a long standing client of Kentz and this cements their strength in EPC work. Having made a big impact in its early days in the Middle East, Kentz is now reinforcing their clout in the region and Iraq is a very key part of their business in the area in the future. Ahead of results due next Monday this makes further positive reading and I expect to see a good increase in the order book and another good set of figures. Kentz remains my favourite in the sector which itself looks in very good nick, remember Hunting’s positive view on spend from last week which rather goes against the preaching of ‘capital discipline’ from BP and Shell…
This morning Kentz has announced a modest (£38m) contract win for Valerus in Venezuela which is more good news.
Much better figures from Cape which I recently turned bullish on, more after the meeting which I am dashing off to now.
Chariot Oil & Gas
I was pleased to be able to have a long one on one chat with Chariot CEO Larry Bottomley last week as having been bearish for so long I felt recently that things had changed round there and it was time to turn more positive on the stock.
Larry is not the only new kid on the block round at Chariot as, in a significant restructuring of the board, some very impressive faces have appeared at exec and non-exec level. With people like George Canjar, Bill Trojan and Dave Bodecott as non-execs advice will be plentiful.
The old guard having spent the last couple of years betting the farm on what turned out to be overly high risk opportunities in Namibia, the new management has expanded into other geographies whilst keeping the ‘elephant hunting’ mantra alive but with considered and hedged risk. The company are still looking for high quality, high potential opportunities and in their 8 licence regions they are operator in all but one. In order to be able to convert early stage risk taking into a disciplined approach to capital spend, the company has a firm view as to when in the phases of the exploration programme to invite partners to offset the costs, this is proved by the farm-out to Cairn last year. Thus the end 2012 cash position of $68.3m was depleted by $38m of exploration spend but added to by farm-out proceeds of $26m leaving the company with end 2013 cash of $58m. (Market cap $76m) Thus the exploration budget for 2014 of $33m before farm-outs is comfortably covered and all contractual commitments and planned work programme into 2015 are fully funded.
The geographical spread at Chariot is now, although high risk, also high quality and spread across four countries albeit displaying a penchant for the Atlantic margins. This portfolio theme is not new but clear as Morocco, Mauritania, Brazil and Namibia are the selected countries for new and emerging basins which Chariot have identified and have large positions in. The range of risk is broad but manageable and certainly not the bleeding edge as it was when Namibia only. It is also interesting that there are around 27 third party wells to be drilled on adjacent acreage before the next Chariot well, again demonstrating some de-risking of their own portfolio. Success in any of these areas should lead to successful partnering and creation of value as per the new model and in some cases play opening wells might be company making on their own. With a third of the portfolio drill ready and with few, if any remaining commitments outstanding, the company looks to have offset the risk pretty well, although the target of zero cost exploration is not possible over the whole portfolio, with successful partnering most bases are covered.
As for the recommendation I see Chariot as a most interesting play, it is less risky than it was but not without potential and with partners coming on board over the next year or so the upside is extremely visible. There are very few institutions on board as many were scared off by previous management and drill bit failure, I expect that to change once trust is regained. Also if you take away the company brokers there are only three buy recommendations in the market, this proves that as of yet most have not got round to doing any work on the company, when they do I suspect they will realise that they are living in the past. It can be argued that there is no great hurry for Chariot as quite a lot of the drilling excitement may be 2H 2014 or 2015 but the partnering process is already under way and don’t forget all those adjacent wells which will have a knock on effect for the home team. I think that with this new team at executive level, a strong geotechnical team and good non-execs the risks may well be not holding Chariot, so I make it a strong buy for a long term opportunity to benefit from a potential massive uplift in shareholder value.
Its budget day in the UK today although Gideon has little work with and must keep something up his sleeve for pre-election pleasers…
Two minor errors to report………….I said yesterday that it was Lamprell reporting today but that pleasure awaits next week, today I am off to Cape which will be very interesting, I think Joe Oatley is just beginning to fire on all cylinders…
Secondly there was a mistaken sending of an old blog yesterday, it was an accident for which I apologise and hope it didn’t fox you, my mistake!
Chelski cruised to victory against Galatasaray and Didier didn’t trouble the scorers, Man Who have it all to do tonight, if they play like Sunday they will be taken to bits.
Daniel Ricardo disqualified from Grand Prix on Sunday, the sign of things to come?