WTI $104.07 +$1.74, Brent $110.55 +8c, Diff $6.48 -77c, NG $4.47 -8c
There is starting to be a bit more action in the oil market after a period of somnambulence, traders were telling me on Tuesday that it was difficult to call which way the market would go as the WTI June contract expired, now the bulls are very much in charge. That is mainly down to the inventory stats, I reported yesterday that the API numbers caught the brains trust half asleep, yesterday the EIA numbers did the same. Their numbers showed a crude draw of 7.2m barrels with crude stocks falling to 391.3m b’s with gasoline and distillate stocks rising. Refinery capacity is still only 88.7% but crude imports fell 658/- b/d to 6.5m b/d which is a 17 year low. The driving season starts on Monday and refineries are now primed for the summer as those SUV’s get going at 9mpg and remember, Americans drive 50 billion miles every month…
Elsewhere its Russia and China in the news after Putin finally caved in and gave the Chinese the deal they have been after for many years. This deal is far more important to Russia as they can see Europe working flat to the boards to source elsewhere but he will not be able to treat China like he has treated Ukraine, after all $400bn buys a lot of vodka. Elsewhere its ‘Davoski’ as I like to call the St Petersburg Economic Forum and despite ‘suggestions’ not to go, a number of high profile business grand fromages are in town. France of course have sent everyone after all there are grannies to sell, they also have senior warship vendor there and Christophe de Margerie wouldn’t miss it for the Monde. Bo Diddeley knows who the boss is and if Putin or Sechin say jump he knows how high to go and it is nice to see that Lord Mandelson is tagging along, its ages since he went to a decent forum with so much flesh to press, as it were.
Woodside is an interesting stock at the moment and the shares have been very strong, funny that when we know there is a big seller in the wings. Yesterday they announced that they wouldn’t be buying 25% of Leviathan for $2.7bn, some commentators have said its on price, I think its because its not going to be LNG, more likely gas will go out in pipelines to a number of Eastern Med buyers. However, Woodside have now passed on this, delayed Browse and failed with Pluto so I suspect the management have got to come up with something…
Sound Oil has had a very good run this year, running from just over 4p to a peak of 9.5p last week, in the last few days the stock has fallen back to 8p and investors should be looking very carefully at the shares at this level. Sound had results out yesterday but as ever they serve no purpose but it is a good opportunity to update investors on recent progress and that progress has been substantial. To recap, Sound is in Italy but in the most favourable position of all the eyetie explorers with an excellent portfolio of onshore gas including current production that will soon cover all of the Italy G&A costs. In addition they have a dynamic programme of drilling over several game changing prospects, these include Badile and Zibido as well as an eye-catching 5km horizontal well to a previous offshore discovery at Laura. This doesn’t include Nervesa which was successfully drilled last year and will drill again this summer and following a very rewarding farm-out deal will produce cash flows in 2015.
Badile is such a large prospect that owning 100% would be unwise and the data room is open for a potential farm-out, expect news this year, meanwhile success here would de-risk the Zibido prospect. Sound has really turned things round this year with a highly successful and ingenious funding by a new, local cornerstone investor, achieved at a 70%+ premium to the share price at the time, as well as the Nervesa farm-out leaving the company fully funded even before Badile is addressed. Time problems should always be addressed in Italy but the way that the management has slotted everything in mean that whilst there are inevitable delays they are modest in comparison with other projects.
Sound looks significantly undervalued at this level, it has current production, about to be increased and again next year, it has really achievable upside which would indeed be a company maker and comes from a position of strength with 100% interest and operatorship in all its licences. I think that the risk in Sound is not being invested, the story is solid and then some, the upside potentially significant and the risks by industry standards relatively low, a rare opportunity indeed.
Very interesting news from Exxon who’s Vaca Muerta well in Argentina came in yesterday, they called it a very special achievement. Now you know what comes next don’t you? Andes Energia has a significant position in the VM of 213,000 net acres with three discoveries all for potential development, three additional blocks to explore and is the only listed company in London with significant exposure to the VM shale which is ‘like the Eagle Ford but thicker’. If you haven’t looked at Andes yet you should do and if you are worried about Argentine politics I can understand but I think all will change at next years elections by which time everybody else will be in…
Shell has cancelled its scrip dividend as it wants to concentrate on the buy back, in its release it is very proud of finding a way to buy back the A shares which is of no use to UK holders at all…Meanwhile BP has decided to go to the US Supreme Court after losing at the Fifth Circuit on Tuesday, no surprise here partly as the vote wasn’t unanimous and partly as the company are determined to keep fighting regardless of the costs in a battle they genuinely feel they should win. Also sad to see Christof Ruhl leaving to take up a senior position at ADIA.
Seplat has had an IMS this morning and I listened in to the conference call for a company I think is very interesting indeed. Having raised north of $500m on its arrival in London and with a fine portfolio, albeit with a few typically Nigerian problems, this stock is one to watch.
Fastnet had an update this morning as the management are out on the road following the FA-1 disappointment, there is clearly much to remain excited about for Fastnet even offshore Morocco as looking at the drill location for the last well it is no surprise that they hit the salt. I understand that there is no shortage of petroleum or hydrocarbons down there and much analysis is to be done ahead of FA-2. Talking to the company about the Celtic Basin I understand the recent conference in Dublin which I had hoped to go to was a major success with almost all leading players represented. Part of the reason for lack of drilling lately has been the cost of rigs, this is about to change as in the next couple of years there are new rigs on the block which should push drilling costs down. While I am on Morocco Tangiers has announced that the rig for the Tarfaya well has been mobilised and should spud mid to late June, this is a most telling well for the company and only a massive success will vindicate sacking a perfectly respectable management team.
Finally I did an interview with Proactive Investors yesterday and we had a walk around the sector, I talked about IGas post Dart and Alkane and Egdon, all of which I like. I discussed Andes and also the Italian players such as Sound, Northern and MOG amongst others. The link will be on my website this afternoon (www.malcysblog.com) and is now on the Proactive site as well, (www.proactiveinvestors.co.uk) if you would like to watch it.
The one day series starts today against Sri Lanka and after a veritable heatwave the rain has come to ruin the parade…
Back to football where the England Under 17 team only went and won the European Championship and on penalties as well, beating Holland 4-1 in the shoot-out. News this morning from the World Cup preparations is that Luis Suarez may be out of the tournament after an injury in training necessitates a knee operation..
And in YaYaGate I have heard the following amusing comments…
The owner of Manchester City goes into the changing room to show Yaya Toure some love.
“I’m very sorry, Yaya,” he says. “It was disrepectful to forget your birthday. I’ve done my research, and I now know everything about you. Ask me anything…”
“OK,” shouts Yaya, from the other side of the room. “Why are you talking to Micah Richards?”
BREAKING NEWS: Manchester United have quietly Cancelled Marouane Fellaini’s Birthday Celebrations and crossed their fingers..
Oklahoma City Thunder are sliding towards a series defeat against the Spurs after they went down 2-0 in San Antonio. Danny Green made seven 3-pointers.