WTI $99.42 -32c, Brent $107.76 -31c, Diff $8.34 +1c, NG $4.72 -10c
As we come to the end of a busy week of figures from the Supermajors and head into a Bank Holiday weekend I would suggest that those results were not as bad as might have been feared although BG kicked off the week axing the CEO, even that has put the company into play. The higher gas prices in the bitterly cold US certainly helped most players and this will continue, albeit more modestly, as the process of stock rebuilding gets under way. I remain happy to be overweight in selected stocks with Shell probably still the nap although Statoil did look very impressive.
The oil price has lost around $2 over the week, shrugging off the worries of the Ukraine and taking more notice of increasing US domestic production, Libya coming back on-stream and Iraq and Iran exporting at ever higher rates. A notable point on US production is that Wednesday saw another train crash, the 6th since last July where over 800 barrels of crude leaked into the James River at Lynchburg, Virginia.
Today sees non-farm payrolls in the States where the consensus is for a 215/- print and despite no real signs of a pick-up in the US economy markets are at or around their peaks, I guess it is May!
BG Andrew Gould-Oh what a lonely boy…
Since the announcement that Chris Finlayson had left for ‘personal reasons’ on Monday BG has provided much discussion, and confirmed my view taken after the most recent profit warning that all was not well at board level. Despite the wording of the statement, it is abundantly clear that Chris was sacked by the board who were increasingly worried about the slow pace of progress and who could see at least another year before cash low parity and longer before being able to return money to ever weary shareholders. Apart from demeaning the term personal reasons, the company, who have totally lost the plot on Investor relations of late, then withdrew 2015 guidance saying that it was ‘not a material disclosure’ but this merely exacerbated the problem, taking away guidance does not give you carte blanche to miss non-existent targets.
So yesterday was results day which in themselves are now meaningless, we know that 2014 will be at the bottom end of expectations, mainly due to Egypt but cash flow is still below targets and will not be positive this year. The conference call led by interim CEO and now Executive Chairman was a random mix of statements and buck-passing of questions which in my view, left more questions than provided answers. The overriding statement made by the CEO was that “nothing is sacrosanct” in the process of what they describe as ‘optionality’ of what to do with the portfolio of assets. The good news is that Brazil appears to be progressing well and this has been very creditable in difficult circumstances with FPSO’s 4 and 5 nearly in place. First gas in Australia is also good although I am still concerned about the timetable here despite the cost environment in the country becoming more favourable. Elsewhere there are too many 4th and 5th tier assets and those such as Tanzania that would be company makers elsewhere are bordering on the back-burner as management appears woefully stretched. In LNG despite the competition making out like bandits in the quarter, BG fell behind, partly I understand due to Egypt but the idea that the company is the best arbitrager in the business is no longer the case.
So, where does that leave BG? The move on the former CEO tells you that all is not well, despite the numbers looking ok, this would not have happened if the strategy was ticketty-boo and it clearly isn’t. The question ‘why now’ was asked several times yesterday and not answered once. There is no doubt that despite being more of a buyers than a sellers market for assets everything at BG is up for sale, I would be interested to know if the board have any idea which should go first. The reason I say this is that in the press this week the question has been posed that at a £42bn market cap is it not too big a mouthful for all but Exxon and Chevron which is wrong on so many levels. A number of other companies are looking at BG but that is missing the point, the group has a number of divisions that could make easily digestible portions for buyers in the west but more interestingly in the east and middle east. If the company decided to stay in gas it could keep all gas assets and LNG and dispose of the rest, it has an admirable portfolio here and right through the spectrum from drill bit to delivery. This would provide more than enough across the board as a business in its own right and would, for example, push the excellent assets in Tanzania to the forefront.
The new CEO according to Mr Gould needs to ‘have an intimate knowledge of upstream, be able to run a big company, understand the complexity of the LNG business and…………be perfect’. When they find that person maybe they will be able to decide on remuneration as I haven’t seen one around although I’ve only been looking for 35 years.
This week has sounded the death knell for BG as we know it, as I said before, it is patently incapable of delivering to ever patient investors the returns that the management has repeatedly promised them and it has to change radically. The idea that 2015 might see a special dividend or a significant buy back of shares has now faded along with the guidance for that year and at the moment hopes rest on asset sales. Valuation of the group has therefore shifted a bit this week, the price has risen around 100p as the SOTP valuations of around 1800p appear consensus. The company’s advisors will, I assume, not be partaking of the May Bank Holiday but preparing documentation as if they were estate agents, I hope they don’t forget to print them in Chinese and Arabic as well as American…
Falcon Oil & Gas
On the watch list for some time, Falcon has done what seems to be a very clever farm-out in Australia this morning. To say that this deal is transformational would probably not be wrong as they have farmed out their Northern Territories acreage to Origin and Sasol giving them a 9 well carry and $A200m in cash. The company are therefore well set to participate in these permits with two of the best players in the space and funded to boot, full marks.
I missed a couple of things yesterday in my hurry to finish before the BG conference call, one of them was the Salamander bid situation. Whilst seeking to sell Bualuang and Kerendan assets it appears to have run into a possible buyer for the whole company. The shares immediately ran to around 150p which is about 50% off the bottom but around 40% off its peak, the market looks to be valuing it at near to exit prices at that level.
As I mentioned, more figures yesterday and Exxon managed to scream past the whisper producing 210 cents a share against consensus of 188c. The upstream mix helped a lot and the high gas prices fell neatly into their hands for once. Over at ConocoPhillips they made 181 cents clean against forecasts of 156 cents and their statement was equally upbeat.
A busy weekend coming up sports fans as football, snooker, racing and basketball plus much more will fill the screens.
In the Premiership the biggest game might be the Toffees against the Noisy Neighbours, mention it quietly but if Everton win they present the title to the HubCap Stealers….they would the go to the Eagles on Monday night with high hopes. The bottom clubs are in a mess, Norwich and Fulham go to Chelsea and Stoke respectively and Sunderland go to the Theatre of Dreams. Note that the Chelsea deputy has a 6 month stadium ban for grotesque behaviour in the Sunderland game.
Its the real start of the flat racing season and it will be a chilly day for the 2,000 guineas in which Kingman for John Gosden and Australia for Aiden O’Brien are warm favourites but it looks like one of the best races for a long time.
The snooker reaches its climax with all four semi-finalists capable of winning at the Crucible, might it be a late night on Monday as in previous years?
In the NBA,
The Spurs beat the Mavericks and go 3-2 up in the series.
Toronto blow a 26 point lead but manage to hold on against the Nets. Raptors lead 3-2.
The Rockets beat the Trail blazers in Houston to avoid elimination. They are still behind 3-2.
OKC level their series against Memphis with 36 points from Kevin Durant. A day after he was labelled ‘Mr Unreliable’ by the local paper…
The Wizards are through to the next round after they eliminate Chicago.
Golden State manage to hold on against the Clippers. Back to LA for game 7 on Saturday.
In the other games in the Eastern Conference, Miami Heat sweep the Bobcats and the Pacers are all square against Atlanta.
More news from LA, Mike D’Antoni has resigned as the head coach of the Lakers after they failed to reach the playoffs this year.
Enjoy your weekend’s…
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