WTI $100.44 -70c, Brent $105.82 -90c, Diff $5.38 -20c, NG $4.48 +4c
A fairly short blog today as I am out doing presentations etc but that’s quite a good thing as at first glance there isn’t much going on! I have been able to finish my report on Fastnet so at least there is something to look at!
The oil price above is pretty much how it opened yesterday, down from Friday but with few influences after that, I see this morning that prices are up after a some disturbances in Eastern Ukraine where pro-Moscow demonstrators are trying to do a ‘Crimea’. Today sees the resumption of talks in Vienna between Iran and the six world powers regarding sanctions and the nuclear threat. It is hoped that this meeting will start drafting a full accord which may be ready for the next meeting in mid-May.
Tonight sees the API stats which famed economists expect to be a 1.9m build in crude stocks and a draw in products, we shall see… Overnight one or two snippets, Opec announced that the weekly reference basket price of their crude had fallen to $102.75, a recent low.
Fastnet Oil & Gas
Last week I met up with Cathal Friel and Paul Griffiths, Chairman and Managing Director of Fastnet Oil and Gas respectively. The third Executive Director, Carol Law, formerly exploration manager at Anadarko and Kerr McGee is based in Houston. Fastnet came to the market’s attention as an Irish explorer that was set up by Friel, having founded Merrion Capital , Griffiths who had been CEO of Island Oil & Gas (sold to San Leon in 2009) amongst other oil and gas companies and Michael Nolan who had been founder and Group Finance Director of Cove Energy.
Fastnet is an exploration company with acreage in offshore and onshore Morocco and the Celtic Sea where the portfolio contains the Deep Kinsale and Mizzen prospects amongst others. Whilst value is likely to be achieved in the slightly longer term from the Irish portfolio and probably through an initial farm-out process, in the shorter term I expect Morocco to be the main driver for the share price. Morocco has been ‘hot’ for a couple of years as interested parties build acreage positions, 2014 will re-start the process of drilling both onshore and offshore.
Offshore Morocco I think that Fastnet has, in a relatively short space of time, made significant progress with the announcement in December last year of the farm-out to SK Innovation being one of the best I have seen recently. The company got a two well carry in Foum Assaka which is operated by Kosmos Energy, capped at $100m each, plus significant back costs and retain 9.375% in the prospect. At about the same time last year, Fastnet secured their own financial position with a £10m placing leaving them fully funded for their 2014 programme onshore and offshore Morocco. The drilling on Foum Assaka has already got under way and as a result shareholders are in a potentially hugely rewarding situation should the well come in. Whilst as ever there is significant risk over the time of the well, the company does offer some mitigating hedges which range from the other prospects in Foum Assaka to the onshore prospect on the Tendrara Lakbir licence, not to mention the Celtic Sea.
The Tendrara Licence onshore offers an interesting change in risk stance as although not the potential huge offshore oil discovery, it does however open up Fastnet to a gas field which has already been discovered in the TAGI Triassic reservoir in 2006. Whilst that wasn’t deemed to flow enough, further surveys have indicated that this is a working hydrocarbon system and maybe redrilling the area may be worthwhile especially if the basin is analogous to the Meskala gas field in the west of the country. Finally, the economics of the country, already very attractive, would here be exacerbated by the fact that not only is Fastnet’s partner keen to finance local gas-to-power projects but the Maghreb-Europe pipeline is only 120km away and selling gas into Europe if you are not Russian just got a lot easier.
I have not gone into the Irish acreage in any great detail here; as they are further down the line and a farm-out process is under way I can cover that a different time. Nevertheless the Molly Malone and Mizzen basins look interesting as do the Shanagarry and Deep Kinsale licence which itself may be a Barryroe look alike – if that’s a good thing.
The market has been as harsh with Fastnet as it has been with most other E&P stocks recently and institutions and retail have adopted a ‘risk-off’ approach to the sector. It appears that the appetite for beta has deteriorated to such a level that I consider some of these prices to be option money, not just on a successful well but much more. For Fastnet this year looks very exciting, it has a fully carried two well programme in an industry hot spot, onshore Morocco could deliver a gas field and even if the FA-1 well was to be a duster it would not be the end of the world and is virtually in the price. Add to that genuine potential from the Irish portfolio and the extremely low overhead (we are dealing with entrepreneurs here) and I can easily get to a target price well in excess of 30p a share, possibly substantially more especially as the company’s strategy is to monetise for shareholders on an asset by asset basis depending on success. With three months to reach TD starting from 17th March, June could be a very interesting month, at 10p a share this is understandable risk but serious reward and should be considered very carefully.
Canadian pipeline company Enbridge is about to do something Americans cant do, export crude oil out of the USA. Using their re-export licence Enbridge is about to use US ports to export their Canadian oil which is likely to go down very badly in the states where they of course cannot export crude. We have been saying that this might change for a while and this action may well be the final straw.
A production warning from Dragon Oil this morning as delays and operational difficulties mean that they wont meet current expectations and production increases will be ‘back end of the year weighted’.
Slowly but surely the relegation candidates from the Premier League are identifying themselves and losing 5-1 to Spurs last night didn’t do Sunderland much good. Up in that part of the world the Hull City Tigers season ticket holders voted in favour of the name change although the FA may not approve, there were many abstentions who claim that this was a no vote but it doesn’t work like that!
Tonight sees Chelski try and turn over a 1-3 scoreline from Paris as thet have a must win match against PSG.
And I could have sworn that I saw a scoreline at the weekend that said Raith Rovers 1, Rangers 0 but I must have been imagining it….