WTI $97.99 -$2.04, Brent $108.02 -53c, Diff $10.03 +1.51, NG $4.49 -12c
You have to laugh as the US Energy department announced its ‘test sale’ of 5m barrels of crude from the Strategic Petroleum Reserve just five minutes before a huge increase in stocks was announced and had the gall to say that it was designed to have ‘minimal market impact’!! Although 5m barrels is indeed less than two hours of global consumption, I would say that it was intended to have maximum Russian impact bearing in mind that this is only the third time in history that SPR crude has been released…Accordingly, WTI took a pasting and the differential has yet again, bounced off $5.
Those EIA stocks came in at a build of 6.2m barrels, a mere 3x the scribblers expectations of 2m b’s and apparently were due to a fall to 86% in the refinery utilisation levels, the blog has been dealing with this in recent days…It seems as if US GDP for 2013 4Q may be revised upwards (after all that) and that the worries about this year are mainly weather related. Also yesterday saw Opec raising its prediction for world oil demand for the second month in a row and Chevron increasing its projected oil price assumption from $79 to $110 a barrel.
Its Shell’s management day and I will comment on anything that comes out of todays presentation tomorrow but from reading this morning’s announcements not much has changed from that intimated earlier. Capex is the main subject addressed and this will be down $9bn this year to $37bn, the cut will be $15bn at least over the next two years. The main thrust seems to be in the US where 20% is being lopped off with less investment going into onshore and in tight gas and liquids rich hydrocarbons being held ‘for the longer term’. Deep-water and heavy oil will remain with existing capex plans, elsewhere the strategy is to deliver cash flow and ‘healthy returns’. Elsewhere, the US and downstream are the naughty boys and as you know R&M is still badly run by most majors.
Gulf Keystone Petroleum
The long awaited CPR for GKP arrived this morning and I must admit that I was quite surprised at the reaction of the market place although I should give up ever being surprised at anything as far as the company is concerned! The reason for this is that I have been saying for some time that the CPR was always going to be to the right of the sheet for an asset of this complexity and so it proved. I found it interesting that Todd should suggest that as the company has a large retail base that they would address the CPR on a ‘basic level’, I would suggest that IMHO most of the retail base is better informed than some of the professional scribblers in attendance. This was proved when one analyst asked a question saying that why didn’t the company tell him that Shaikan was a complicated asset, only in almost all presentations has this been made perfectly clear.
The report can be seen in its entirety on the website but the big number is 12.5bn barrels with 1.2bn b’s of oil of combined gross 2P and 2C recoverable reserves and resources. The report is by its very nature, conservative and it should be borne in mind that less than 25% of all Shaikan wells are taken into consideration and only in phase 1.
As a baseline, as the company points out, and having monitored the company for many years as well as visiting the asset base, I believe that this CPR is not bad news, at least not as bad as the market has demonstrated. The report is part of the process of a main market listing due on the 24th March and today also sees an operational update in line with my expectations.
Valuing GKP has always been tricky operation, the underlying long term value in the company is not in doubt but the patience of the shareholder base can sometimes be called into doubt, thus taking the shares today to a two year low. The market cap of the company is over £1bn and even on a very conservative basis I believe the assets are worth significantly more than that and even if one allows a discount for over eager PR and expectations if the market doesn’t take that into account somebody else will. If there isn’t a recourse to equity to fund this development, as promised by the company, then equity valuations should not be destroyed any more, indeed I perceive they should go up from here. More in due course if I get some time with the management…
With final results today to go with the successful gas discovery at West Kerendan-1 announced yesterday things at Salamander appear to be looking up. Production last year was 14,200 boe/d and guidance for this year is for 13-16/- boe/d whilst long term targets are for production of 20/- b/d, based on the increase in contingent reserves this should be achievable. Strategy at Salamander looks to be coming good and although I wasn’t able to attend the meeting this morning I am feeling a bit more positive about the company from a low base.
As an Aim quoted vehicle I know that there are a number of holders of the stock over here but it is rarely covered by UK analysts. Indeed they are rarely seen around town although maybe they will be over after this deal. The company has acquired EPL Oil & Gas for $1.5bn and the deal makes the company the largest independent in the Gulf of Mexico.
I remain a big fan of Alkane who had results yesterday in line with my expectations. Revenue was up 40% and output was up 15% and there is 83 MW of installed capacity against 70 MW last year. In power response they have 36 MW (31) with a target of 50 MW in 1H 2015. This was a year of ‘substantial progress for Alkane’ as the company executed its strategy of growing organically and by acquisition and I expect it to continue. The company expects that it will ‘take advantage of increased risks of power shortages over coming years’ a point I have made many times in the past. In addition, with nothing in the price for its sizeable shale portfolio, Alkane still exhibits plenty of upside possibilities from its excellent base business as well as possible exploration in unconventionals and remains a solid BUY for me.
Its been a mad few days with meetings, conference calls and so on but I am trying to keep an eye on what’s going on, apologies for no blog yesterday but I will, in the next few days catch up with meetings etc not in today. Yesterday I met with Larry Bottomley, CEO of Chariot, a company I have been looking forward to seeing for a while. I will write up details of the meeting in a day or two but the change in the company is significant and I was much more impressed than I thought I would be, watch this space..
Also the MOG/Leni case has, I understand, gone to judgement so we should hear something before too long.
The last two nights have seen two English clubs depart the Champions League with some vitriol, the noisy neighbours actually attacked impressively early on and when the 18-1 to qualify then 25-1 came up it looked tempting. As it happens Messi must have seen the price too and delivered the coup de grace. As George Bush might say, if only the French had words for coup de grace..Spurs face Benfica tonight…
The English T20 cricket team have now lost the series against the West Indies and tonight play the dead rubber before heading to the World Cup where optimism may be wasted.
At Cheltenham today it will be Big Bucks vs Annie Power in a great World Hurdle.