WTI $103.19 +$1.99, Brent $105.96 +11c, Diff $2.77 -$1.88, NG $3.95 -16c
Its been a funny couple of days in oil markets, as you can see from the prices at last nights close, WTI narrowed significantly to Brent mainly due to the EIA inventory stats on Wednesday which showed a huge draw of 7.5m barrels much more than the market expected. A bigger level of refining activity in the US, possibly due to the recovering economy, is responsible for the draw. As for Brent, a number of things have changed in the last two days, the August contract expired on Wednesday and with the market in contango holders were at last able to roll over their exposure. The market was looking to tighten up a bit anyway, hedge funds and other punters had lost their very limited patience and the market professionals were more than happy to see them cutting and running, this time their gamble failed.
With the political situation in Gaza hotting up after the failure of the ceasefire yesterday markets were edgy anyway, the overnight news of the apparent shooting down of a Malaysian Airlines plane over Ukraine has put the market back into risk-on territory and Brent has climbed to $108.26 as I write. With the finger pointing at Pro-Russian activists it is likely that there will be a call for tighter sanctions, if that happens then I reiterate my warning about western companies’ exposure to Russia in general and Rosneft in particular, you know who you are… On the subject of BP, I was pleased to see that Bo Diddeley was seen at Buckingham Palace the other day having an audience with the Duke of York who I’m not sure has much sway in international oil and gas markets…
2Q results from the US service companies have started and Schlumberger reported yesterday a set of first rate numbers with pre-tax profits of $2.62bn, up 15% and earnings of $1.37 which beat the whisper by 2 cents. Most impressive was the margin number, at 21.7% it was up 39%, but having issued new guidance only recently the market shrugged off the good news. The international numbers were very good as expected but the North America figures actually came in better than I had thought and it was both offshore and on land where they did well. The statement is very powerful, ‘the -positive- outlook will be slow to change and co will stick to scenario of growth as recently guided, Schlumberger will continue to outperform’. My thought exactly…
Baker also beat the forecasts and came in with earnings of 92 cents, 2 cents above the whisper and with more good news at revenue and pre-tax levels.
Looking at service companies in general there is a bit of a mixed picture, warnings by Fugro and PGS of late have concerned parts of the business and it may be that say, seismic operations have been hit by capex cuts at some of the majors. But that is not what I am hearing from the above nor what I expect to hear next week as all the rest report, in addition, my anecdotal evidence from the likes of Hunting tells me that spending overall is not only up but up significantly more than it was six months ago.
Gulf Keystone’s ability to surprise never lessens and yesterdays AGM was made for such antics, Founder Todd Kozel eventually decided not to stay on the board but will remain acting for the company primarily with regard to the relationship with the KRG, or more importantly Dr Ashti. John Gerstenlauer takes over as CEO, I think on a permanent basis, and this will be very good for the company in the longer term. I have spent a lot of time with John, he is a rock solid oil man and knows Shaikan as well as anyone. I just hope that GKP going forward continue to make progress and more importantly don’t mislead the market in terms of size or timing of portfolio events. The opportunity exists to -how you say- reposition GKP in the market place now and I hope that it will be seized with both hands.
Whilst I was away I notice that Alkane Energy have made a number of acquisitions on the power response side of the business at a cost of £11.75m. As part of the funding for this they raised £8m at 36p which has been completed. I will not go into great detail here until I have had a chat with CEO Neil O’Brien but it looks a good deal on the face of it. I have been a big fan of Alkane for some time and see no reason to change that view right now. Whilst the placing of yet more stock at 36p somewhat takes the hunger out of the shares and limits short term appreciation, holders should not lose confidence and stick around for the long term if they can, more later I hope.
The Indian Government has announced that it to place another 5% of the equity in ONGC following the election. Given that the stock is up 40% so far this year this is no great surprise but I personally wouldn’t buy it until I see whether Mr Modi actually delivers on his policies made during his campaign.
I saw that Tullow had lost its tax ruling in Uganda on Wednesday. The Tax Appeals Tribunal ruled that the Minister of Energy did not have the legal authority to grant tax exemption. Tullow appear to have a very strong case in law on this and if not future investors should think twice about investing in the country as with any other jurisdiction whereby assets can be summarily stolen without appropriate reason.
Saw some action from Trinity yesterday as they have bought out Centrica in Trinidad. Much more on Trinity after I have seen them, I have a call in with the IR team and hope to meet senior management soon, meanwhile the stock appears far too cheap to me.
At the test match it was an excruciating but very warm day! English bowlers, faced with a green top of mesmeric proportions bowled mostly complete pony and could have had India all out for less that 150. As it was they bowled stuff that 60% was left and then started the short pitched rubbish and let India off the hook.
The Open is under way and Rory has taken the lead with a characteristically good first round, big question is, will he have a good or a freaky Friday? All to play for with Woods and Scott nearby as well as many other favourites.
The German Grand Prix is on Sunday which is always a highlight and with Mercedes winning at Silverstone with Lewis will Rosberg fight back or can Red Bull do something for Vettel who funnily enough isn’t doing so well now he isn’t in a car faster than anyone else…
The Europa Cup is also underway and last night Motherwell got a draw, Aberdeen also drew at home to FC Gronigen and the mighty Saint Johnstone drew away at FC Luzern, never an easy place to go..!
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