WTI $98.29 +41c, Brent $105.41 +57c, Diff $7.12 +16c, NG $3.83 +4c
A modest bounce yesterday but traders say that it was a combination of technical factors and some buying after the fall. In July, WTI fell 6.8% and Brent fell 5.6% at a time of significant upheaval but last night the Iraqi Oil Ministry announced that exports were 2.442m b/d slightly up on June so no loss of production at all. There is still some discussion as to whether ISIS have taken oil fields west of Mosul but they don’t represent anything significant to Iraq or Kurdistan.
In the US, inventory stocks tonight and tomorrow are expected to show a draw in crude and gasoline, as for the latter I think we need to see signs of product demand especially as retail gasoline prices continue to fall. Also in the US I notice that the DOE has approved the first west coast LNG terminal at Warrenton, Oregon for exports of US and Canadian liquids. I was reading a spectacularly uninformed article by Tim Morgan in the Daily Telegraph whereby he said that shale gas was unrealistic and we should rely on solar energy, waste conversion and conservation for our future needs, oh and imports from the USA, Russia, Norway and Qatar I suppose for when the sun don’t shine…Good thing the failed gas business in the US can ramp up export facilities eh?
Genel Energy – From a trickle to a torrent…
Interim results today from Genel where the political situation in Iraq has kept a lid on the share price despite a continuing good performance. Although it seems odd to continue to say it but Kurdistan is still safe and secure, even the raids by ISIS in the last few days are well away from the Kurdish oilfields. In terms of production the first half came in in line with guidance, up 50% at 63/- b/d although revenue for the period suffered by $40m owed but not ‘recognised’. As I understand it this has now been paid but I suspect that these payments will indeed be lumpy, other operators in the area have suffered similar fates and over the longer term these should be smoothed. More importantly the mood for the second half is increasingly optimistic, not only will capacity grow, (the KRI-Turkey pipeline will increase from 125/- b/d to 400/- b/d by year end) but buyers and refiners will become more accustomed to the quality and reliability of KRI exports. Thus the trickle should indeed become a torrent and revenues will sort themselves out.
In exploration it has been a disappointing half for the company in Malta, Morocco and to a small extent at Tawke and at present I suspect some aspects of the international campaign are being reassessed. ‘A disciplined management team getting value for shareholders rather than pouring money into dry holes’ was Tony Hayward’s way of putting it which makes me think that the strategy may be under some scrutiny. Managing to get out of the rig contract was remarkably good news albeit assisted by incompetence by the operator.
Having said all that I still think that the real upside, certainly from here, is all about gas, ever since the GSA between Turkey and the KRG was finalised, the potential to massively monetise the Turkish demand for gas has signalled the start of the dash for Genel’s gas. Although the oil is flowing through the pipelines is doesn’t really advantage Turkey, but it has an insatiable demand for gas and this will transform life for both parties. During the quarter Summail came on-stream but the prize will be getting a GSOA finalised during the second half and developing Miran and Bina Bawi as soon as possible.
Genel is strongly financed following the $500m bond issuance and despite significant capex continuing for the time being in all areas it is well financed. Indeed Tony Hayward repeated the mantra again that in due course it is the company’s objective to start returning capital to shareholders, some of the boxes for that process to happen are starting to be ticked. On the subject of Tony Hayward the question I get asked the most is whether he is planning to leave Genel any time soon. Having know him for a very long time I know that he feels that he can handle these two positions easily, as he says the amount of work ‘is not even close to what I had to do at BP’, case closed.
It may be that the malaise in the oil sector is holding Genel back, it has understandable local difficulties and of course shareholders are taking a fair bit on trust but I still feel that in due course holding on to Genel will be a massively rewarding experience.
While on the subject of rewarding investments I have been genuinely surprised at the performance of Faroe in recent months. I know that it is not unusual for shares to drift post a money raise but the indigestion should have been cured by now. I decided to get in touch with CEO Graham Stewart yesterday to touch base following my recent meeting just to make sure I wasn’t barking up the wrong tree. Since that meeting the Bue well has been announced and whilst it was indeed a separate structure, is was always expected to be so. The company is carrying 80-200m barrels for Pil and Bue, mainly for the former which I still believe may be significantly exceeded and with further testing up to the fault and to the north east leaves plenty of scope. With such discoveries as Snilehorn in this highly prospective area the outlook for Faroe is very positive indeed. It is worth going to their website and looking at their most recent presentation which in my view endorses my optimism. Faroe is like a lot of good quality E&P companies at the moment totally being missed by the market, I understand that markets are bigger than most but this is another opportunity and at change from 110p a share ludicrously good value.
A lot of people also ask me why I tend not to get involved with E&P companies operating in Russia, Ukraine or the Stans, as a rule I find it difficult to justify, especially give so many opportunities elsewhere. Yesterday Ukraine increased its tax rate from 28% to 55% hitting the likes of JKX and Cadogan, last week it was Regal in the frame. Hit by local tax hikes, vulnerable to spurious price setting regimes and often done by wild currency depreciations there is much not to like about these investment opportunities. In addition, JKX looks like a corporate disaster zone with court battles and fighting oligarchs trying to oust the management. They are all in the too difficult box for me I’m afraid, they might be cheap but they are like that for a very good reason.
With the C Games now a piece of history (and apologies to all those who thought the medals table in yesterdays blog didn’t go down far enough, Scotland were indeed 4th) we look forward to the US PGA and more cricket both starting on Thursday.
In football the pre-season friendlies continue and last night Man United beat the HubCap Stealers 3-1 in the final of their tournament. These results are meaningless indeed but do contribute to some knowledge and Mr van Gaal will now be ready for the big clear out.
Andy Murray has finally declared himself fully fit and with a new coach is looking forward to an exciting autumn campaign, he has to start winning before his world ranking falls too far.
And Bernie Ecclestone has been offered a £60m opportunity to settle his current court case, you would do that wouldn’t you?