WTI $102.07 -96c, Brent $107.07 -96c, Diff $5.00 +9c, NG $3.85 +8c
The oil price ends the week pretty much flat, WTI down 1 cent, Brent 17 cents so whatever the market can throw at it hasn’t changed much. Political instability in Iraq, Libya, Gaza/Israel and Ukraine to name a few cannot alter the hard fact that there is plenty of crude washing around and at present not destabilising crude oil prices. The EIA came out with some interesting statistics during the week about Russia and its dependence on energy and oil in particular. Oil and natural gas accounts for 68% of 2013 export revenues and oil and oil products are four times as much as natural gas. Finally crude oil alone is greater than all other non-oil energy exports so I think we know where to start on sanctions even if it were only limiting access to the dollar market in which all these assets are priced…
Talking of Russia, a communique has been issued in which a senior minister threatened to ‘seize assets of British companies in retaliation for David Cameron’s tough stance on sanctions’. I’m sure it wont happen as Bo Diddeley has real sway in Moscow and I’m sure that Putin and Igor Sechin listen to his every word especially knowing that he is best mates with no less that the Duke of York, the powerful international rainmaker that he is.
One other thing, I notice that US refineries have been processing record volumes of crude oil recently and every day for the last fortnight has cleared 16.8m barrels, a record sum. This may well explain the very high product build in the last two sets of inventory stats as well as the draw in crude but I cant see it continuing.
Talking of BP, they have announced that Iain Conn is leaving the group and that he is in discussions with Centrica about the top job there. He will be easily replaced at BP and if he goes to the utility he will face a baptism of fire for sure. Why on earth he would want to do such a thing is beyond me, he has a cushy number at his existing job, gets paid a fortune and has a grotesquely large pension pot, if Centrica have to pay a brass farthing to get him out of that it will be an utter scandal.
Chariot has been a major league headache to me recently with the share price in free fall and a loss of radio contact with the company at a crucial time. It turns out that the company has been working on a farm-out of some of its Brazilian acreage and also has a new venture in one of its areas of interest which will jointly need around $15m of cash not currently in the projections. Accordingly they announced on Monday that they would be raising this money and have done so at the rock-bottom price of 15p a share. Unsurprisingly shareholders and this column were particularly unimpressed as the loss market cap in recent weeks is roughly the same as what has been raised.
As you can imagine, given that following a meeting with the company back in March I turned bullish on a stock I had previously had on the black list, I needed to know if it was time to cut the position and run or to double the bet. Time to head off to Bond Street and see CEO Larry Bottomley and CFO Mark Reid to try to get to the bottom of all this. My first question was why the need to raise money given that I had been explicitly briefed back in March that with almost all commitments funded this would not be necessary. the answer turns out to be ‘portfolio evolution’ as since March the Brazilian situation has moved on and the new venture is too good not to take advantage of. The Brazil situation appears to revolve around the cost of seismic work, after the last licencing round in which the majors got a lot of acreage coming with it significant commitment to drilling but more importantly seismic work. The quote Chariot received for their seismic was $22m and was deemed to be ludicrous and thus until things changed it was put on the back burner. The fall in prices, combined with an unsolicited approach from someone wanting to farm-in by sharing seismic costs did change that equation and with prices likely to rise again after the next round Chariot felt strongly that it was wise to go with it. After all the costs had halved and ceding a 25% stake for a carry on the seismic leaves them after this funding with no money exposure. To finish on this, the company has now formally started the process to farm-out part of its remaining 50% stake although this could take between 6 and 18 months to complete. Time today prevents much more detail but I will elucidate more in coming blogs.
The other part of the money raised this week, $7.5m, is earmarked for a ‘new venture’ which understandably the company cannot detail as it is as yet, completed. Over the last few days I have heard every possibility under the sun as commentators try to guess what country it is in and what the nature of this might be. Clearly the company was not going to tell me but I gleaned enough from our conversation to make me think it is certainly worth pursuing and understand the need for confidentiality in this matter.
Elsewhere I expect a solid trickle of news from most areas in which Chariot operate, in Morocco there is much 3D processing and interpretation to be done this year and it is this area that I am most excited about. Existing analysis has shown a number of big opportunities and with so much drilling by third parties notably Galp, Genel and others I think that activity here will be rewarded. In particular when the data interpretation is completed in December, Woodside will have three months to decide whether to farm-in for some more and take over operatorship or not, if that is the case Chariot can look to others within another 18 months. In Brazil there will also be trigger announcements, we shall of course find out who the farm-inee is but don’t expect a major industry name that will hopefully be kept for next farm-out. Elsewhere in Brazil BP and Petrobras are drilling the Guajuru prospect and BG will start seismic on the northern block, with the whole area being prospective. In Namibia and Mauritania the programme is unchanged and I hope to go into these areas in future blogs, time and space don’t permit that this morning.
So despite some hiccups, the strategy appears to be maintained albeit with some avoidable trip-ups en route. The position as a ‘fast follower’ (awful term!) is still in place, ‘closeology’ (similar!) to third party campaigns is intact and enables shareholders to be exposed to transformational sized finds. I was just about satisfied that the recent fund raising was unavoidable although it has been a trauma for shareholders but looking to the future I think prospects are good providing capital discipline is exemplary. The placing appears to have been successful, oversubscribed even and I understand that some high quality institutions from both sides of the Atlantic are now on board. They seem to like the fact that shareholders are not exposed too much to high risk exploration plays, a model they understand and putting up money here does release as working capital around $13m. The shares trade not far off cash and despite having been caught out myself in recent months I am inclined to believe the story, the management acquitted themselves well yesterday and so I am giving them the benefit of the doubt and doubling the bet down here and keeping Chariot as a buy.
Weatherford came out and beat the whisper with 24 cents of earnings against the markets forecasts of 21 cents. Like others in US service companies they report an increase in margins and in North America they also reflect others by reporting higher activity levels and a ‘strong recovery’.
Good figures from Statoil this morning as they conjured up profits from a lower base, still a favourite.
Seplat have announced figures and a update, took a look at this on float, came at 210p high of 267 and now 244p which is good and may take it up if I get to meet them, I liked what I saw at IPO.
Astar Minerals has come up on my radar screen a bit lately and I had a very interesting meeting with Chairman and CEO a few weeks ago. Now called MX Oil it is going to be one to watch as it is partnering in Mexico which readers know I have been monitoring very closely. Mexico is in the process of de-regulating which will see Pemex relinquishing acreage and the guys at MX are closely on the case.
Its the third test match starting on Sunday at the Rose Bowl in Southampton, masochists need only apply. The brains trust at the ECB have decided to keep Captain Cook on deck and I hope that this time it really works for him and for England. Its not just him though, a number of senior players have disappointed and maybe Broad for example should be dropped as he either doesn’t take instructions or use his brain as per day one at Lords. There may be no blog on Monday as I am lucky enough to be attending the match with the one and only Billy Clegg and a team of oil industry legends of which I will be the odd one out…
The Commonwealth games continue but Mo Farah has pulled out along with a number of others, shame about that but fairly inevitable I guess. Meanwhile Rhys Williams of Wales is out of the games following a doping charge. Good to see both men’s and women’s English Triathlon teams pick up two gold’s, a silver and a bronze between them yesterday.
In ‘Poppyseedgate’ two more horses have failed drug tests, they wanted to be in such regal company I guess, at the moment I think the bagels are getting the blame…
At the Hungarian Grand Prix Lewis is fastest in first practise, this is always a good race so keep an eye on it…
And in football Big Frank Lampard has signed for New York City which will give him a while before next football.. And Andy Carroll has been injured again and may miss another four months of football, others would have bitten your shoulder off for that…