WTI $94.55 +67c, Brent $102.46 -26c, Diff $7.91 -93c, NG $4.04 +4c
The market is quiet ahead of the Labor Day holiday on Monday, WTI went a bit better on the inventory data which showed a 2.1m barrel draw, higher than the analysts consensus of 900/-. Much is being made of the proximity to $100 for Brent and the chances of falling through that psychological level, I wouldn’t bet on it happening as next week we head into September with all that that brings in terms of the change in demand patterns and volumes. However, economic conditions particularly in Europe are not helping things and today we have inflation and employment data in the EU which are unlikely to boost demand at all, supply meantime remains stubbornly high.
WTI saw a 14% fall in net long positions at the last count and speculators are coming out of it as they have done recently in Brent. With every day almost revealing higher production numbers for domestic crude and refinery demand still a bit shaky the prognosis isn’t brilliant here either and Jackson Hole didn’t exactly fire up the demand bulls either.
In the next few paragraphs I will try to give a brief snapshot of what happened yesterday and while I will try and do the companies justice, most will be one liners as for most I wasn’t able to attend the meetings or join the conference calls. Yesterday there were 8 sets of company results in the sector and with a number of other announcements it is inevitable that a lot of interesting information went under the radar. With the end August deadline for reporting it seems that companies all vie to be as close to the end of the window as possible, other companies, notably those in Europe and the USA manage to report a lot earlier, why not these companies? When asked why this happens I normally get the response that its difficult to get the board together at such times which is a cop-out of historic proportions…Grouse over at least for now!
I turned more positive on Hunting earlier in the year, the 1Q figures were to be frank uninspiring but what was most interesting was the absence of capex spend reduction. We had been hearing a lot from the majors that spending had to be cut but the overwhelming evidence presented by the oil service companies refuted all that.
Interims yesterday from Hunting confirmed that, indeed the presentation was entitled ‘Global momentum’ and showed not only that the second quarter more than made up for the previous three months but that this ‘momentum’ has continued through July and august and shows no signs of abating. Time at present forbids much detail but what I like about Hunting at the moment is that they have put a lot of capital down in a number of key areas, all of which will, and in some cases already are, reaping benefits. With facility expansion in Texas, Louisiana and Maine in the US, as well as a completely new facility in South Africa to serve the massive expansion happening on the East coast and elsewhere such as in Kenya and Saudi Arabia, major projects are within sight of completion. It is interesting to note, for example that Hunting are supplying Anadarko in the East coast and that the sub Sahara is large enough to hold China, The USA, India and Mexico..
Hunting has the ability to take advantage of this growing demand and has committed capital to the process but still is only 16% geared, thus able to continue to expand via organic or inorganic growth. The shares have come up from around 750p to todays 906p but I still believe that Ebitda guidance is still very conservative and therefore the shares still have a long way to go yet.
To be frank there is not much to write about regarding Afren, yesterday they announced that two more senior executives had been suspended and that they had ‘received payments which are linked to the previously identified unauthorised payments for the benefit of the CEO and COO’. Results today are therefore as appropriate as an ashtray on a motor bike, it wouldn’t matter what they make the firm is at present uninvestable and will remain so until investigations are complete.
Another service company, this time in rig refurbishment and build which I have been very positive about lately. The new management team has done an excellent job operationally and financially and the company is now in good shape. Yesterdays figures were actually much better than had been expected as the management told us of the ‘sweet spot’ that they found themselves in during the first half. A number of boxes were ticked very nicely, the backlog is rising despite a bald patch appearing in 2015 from when they weren’t competitive and costs from Project Evolution are being brought down. Margins rose sharply in the first half although this will not continue, a lot of the growth was from writing back of contingencies although the lack of this next year will to a large degree be offset by efficiency gains. With the pipeline growing and the refinancing increasing the addressable audience as I have discussed before, the outlook for the next year or two is very promising. With more of a following amongst city analysts now I think that the company will feature once again on the research lists, what the company must do is to ensure that a visit to the facilities takes place to ensure that this performance is not illusory, still very good long term value though.
The rest of ‘Super Thursday’ in brief…. Tullow announced two exploration successes in Kenya and hold on to their view that it will be a big province for them, Gulf Keystone also had results but the market concentrated on the withdrawal of personnel from Kurdistan and marked them down. This was overdone in my view, not just because they have already announced some recommencement of work in the area but it is the KRG that is insisting on conservative accounting just when GKP is actually hitting its targets. As I mentioned yesterday I am very keen to have a call with JG in the not too distant future. SOCO was hit a bit too as one or two analysts though that production was a bit light but I thought it was fine and I liked the payback as well, another company I am overdue seeing and which clashed yesterday…Ophir also announced management changes which I talked about on Twitter, Bill Higgs coming in as COO is great news, I have a huge amount of time for Bill and I hope to speak to him about things when he is on board. Chariot, oh Chariot! Yesterdays announcement certainly surprised some people as it was a farm-out people expected in the central blocks not re-licensing in them and in the South. The company has ceded stakes to empowerment organisations such as Ignitus and Quiver in order to give themselves a ‘better negotiating position’ and to secure further optionality. It is fair to say that Larry Bottomley is a very tough negotiator and here he is taking that strength to the end! Elsewhere, Salamander continued to depress the market and at this rate the offers they might or might not have received recently are looking more attractive every day…
Andy Murray easily won in the US Open but more difficult tasks lie ahead…
Freddie Flintoff escaped a ban for driving his Bentley at 87 mph when the coppers said that there’s no way he can do that speed nowadays…
In the Boropa Cup, Spurs went through last night but the Hull City Tigers didn’t… This weekend the best fixture also involves Spurs who host the HubCap Stealers while winless Man U go to Burnley…Elsewhere Leeds sack manager Dave Hockaday who probably didn’t know why he was there either and Wazza got the Captains armband for the handful of fans to see next week when England play another useless friendly.
On a personal note I would like to say that it is 35 years to the day that I started in the oil and gas business. On this day in 1979 I was lucky enough to join Wood Mackenzie and appeared with all my worldly possessions at their office in Queen Street in Edinburgh. Wood Mack and their wonderful team are now legendary and they gave me a wonderful start in life in the sector I still love. Pip pip!!