WTI $97.38 -91c, Brent $104.61 -80c, Diff $7.23 +11c, NG $3.90 +6c
Its difficult to know quite where to start, the oil price continues to fall entirely on fundamental supply being more than adequate but there are a whole host of other influences on the price, nevertheless it should be noted that Brent is now $11 below its June 20th level. Traders tell me that yesterday saw an abundance of West African crude cargoes hitting the market which knocked sweet prices at the front end whilst sour crude was very quiet. Rumours abounded that Mexico was about to announce its annual hedging programme which always spooks the market but usually is bonus time for option traders.
The news that Russia was trying to arrange a $20bn sanctions busting deal with Iran also didn’t help, firstly it would put more oil on the market (part of the deal involves Russia selling 500,000 b/d day of Iranian crude apparently) and secondly it would create another deal like the Sino one although these deals rarely work. News that more Russian troops are amassing on the border of Ukraine adds to the uncertainty but the market is not phased by this yet. Arch blogger Marcus Ashworth writes today that he cant understand why oil and gold haven’t risen more recently, well with oil it’s all about supply at the moment but I do notice a slight tick up in bullion.
Finally we have lots of data around, in Europe its almost all bad news, German industrial data was bad and Italian GDP just got a minus sign again, just think how good it could get if they used all that oil and gas they have… In the US the economic data was much better with factory orders at a recent high and the service sector data better too. Finally the API released its stock data last night, crude draw was much higher than the scribblers thought coming in at 5.5m barrels vs a guess of 1.5m barrels. Gasoline stocks however continued to fall as well and the 3.6m drop was at ling last showing signs of summer demand.
Europa Oil & Gas
I recently had the opportunity to sit down with Hugh Mackay, CEO of EOG, a £16m market cap European E&P company listed on Aim. EOG has assets in the UK, the Irish Atlantic margin and France and has a broad mix of production, appraisal and higher risk exploration assets in its portfolio. The company is profitable (pre write-offs and impairment) and the annual revenues of £4.5m from its UK onshore production covers overheads and exploration activity where it is not carried. With up to six wells to be drilled in the next two years EOG has an interesting mix of appeal and a varying risk profile.
In the UK the company has three producing fields in the East Midlands with 2014 target production of 165 boe/d from mean net risked reserves of 0.53m barrels. Next to join them might be Wressle which spudded on July 19th and where EOG has a 33% working interest. After that Kiln Lane-1 is expected to drill later this year. Apart from that the company has the infamous Holmwood prospect, infamous in that the company has spent a long time in court trying to get planning permission, at the last count they were winning.
The most high risk/high reward of EOG’s assets are in the Porcupine Basin , Irish Atlantic Margin acreage where it has secured a farm-out to Kosmos Energy in blocks FEL 2/13 and FEL3/13. The timeline of activity here is somewhat uncertain but with 3D seismic acquired last year Kosmos are likely to have that interpreted by the end of this year and a CPR will follow. After that Kosmos will compare all its international prospects and obviously drill the best ones first. The company has secured a rig, probably the Attwood Achiever on a three year contract so should the Irish well get the go-ahead it could drill ‘as early as Q2 2015.’ EOG has a carried interest in the work programme that may include two wells at ›$200m, and whilst this acreage has only a one in ten COS the company are confident that the 3D seismic and other de-risking factors may help to make it more generous. There is no doubt that this play is the most exciting for EOG with the company expected to clarify reserves soon but they are likely to be in the 100’s of millions of barrels. Although Dunquin was a disappointment last year there are many top oil companies operating in the area and have recently been joined by the likes of Woodside and Cairn farming-in to the basin. Although not drilling for at least a year this part of the portfolio is without doubt the company maker and success here would dwarf the current market cap.
Finally France, often the graveyard for E&P companies but where EOG has faith, it has renewed its Béarn des Gaves Permit until March 2017 with an exploration commitment of €2.5m. The company has started the process of farming-out this prospect and intend to drill a well within 18 months, with the licence located in very close proximity to ‘giant gas fields’ and infrastructure the geological risk is low-medium and in-house resource numbers remarkably high.
Europa raised £4m in January of this year so with current cash of £5m and the UK onshore revenues of £4.5m covering corporate overheads and exploration it is well enough funded. In the raise the company gained two new blue chip institutional shareholders which is helpful. Europa is now therefore fully funded to drill its 2/3 wells onshore UK, support Kosmos in the Irish wells and pay for well permitting in France.
Overall EOG is pretty well placed to offer an interesting panoply of varying risk and reward to investors over the next year or so. Whilst the high risk/high reward plays in the Porcupine basin will not happen for a year or so others will, starting with Wressle for example. I expect the company to participate in both the UK Onshore round recently announced as well as the next Irish round which is open but for some time yet. A steady increase in value should be expected as time passes and with so much activity 2015 could be quite a year. Investors should watch closely for the Kosmos announcement of preferred plays which will give an insight into the timing for EOG.
Shares in Tangiers Petroleum were suspended on the ASX and Aim this morning ‘pending the release of an announcement in relation to Tangiers’ funding obligation for the TAO-1 exploration well’. Cant wait to see what that says………
Lots of sport North of the Border and last night it seems that it was Darling 1 Salmon 0. It is interesting to note that in order to watch the debate(?) outside Scotland one had to follow it on the STV website but regrettably it was not up to it and crashed. And the Scots invented TV too I am told…
Big night for Celtic as they try to get back a 1-4 first leg deficit against Legia Warsaw at fortress er Murrayfield. Last night Rangers beat Hibs 2-1 in -wait for it- the Petrofac Training Cup………….Can I be the first to ask Ayman about it?
In the Women’s Rugby World Cup it should be noted that Ireland beat New Zealand 17-14, something that hardly ever happens to the Black Ferns as they are called…(OK JM?)
And with the US PGA starting tomorrow the Tiger has been told that he can wait until he tees off before deciding on whether to play or not, maybe its not as bad as we thought, hopefully he will yet make the Ryder Cup team. (Still nothing from my friends at Standard Life about that invitation though…)
Finally tomorrows blog is uncertain mainly due to the Amec meeting, I am hoping to get it out maybe as a flash blog if anything very exciting happens at the opening, watch this space…