WTI $91.01 +28c, Brent $93.42 -74c, Diff $2.41 -$1.02, NG $3.93 -9c
Its been a long week in the oil markets, come to that its been a long few weeks since Brent peaked at $115.02 on the 20th of June. After my comments about Saudi Arabia yesterday its going to be a long 8 weeks until the Opec conference in November. Yesterday saw both WTI and Brent hit recent lows of $88 80 and $92.04 respectively but both rallied off those levels and this morning are around 50 cents higher than last nights close. There still wont be much respite though as production everywhere is swamping the market, we have a building Opec battle and even Iraqi Kurdistan have said overnight that they still expect production to be at 1m b/d by the end of next year.
A trading statement by Amec this morning where everything seems to be pretty much in line with expectations. A few ups and downs and there is some margin pressure as forecast to go with the predicted currency hit. The story on Amec is going to be all about FW and that is a story for next year, in the meantime I think that there are more rewarding, lower risk plays in this sector.
I have been asked a lot this week and in previous weeks, what my take on the situation at Afren is since the revelations. There is no doubt that they have hit the company hard in a number of areas not least its credibility to do business in its core geographies and whether its assets have the value that the market had been attributing to them. I believe that we are entering the final strait in terms of the various investigations and reviews and I expect some sort of closure on this within the next couple of weeks. In the meantime I am assured that it has been pretty much business as usual if that is at all possible and with a big capex budget still being spent life must go on.
A number of options are available to Afren’s management and shareholders but an asset sell-off or an auction of the company are not amongst them. If SA Petroleum or anybody else for that matter want to try and take Afren out on the cheap I think they had better think twice, there is no way that the company are planning to accept any cut price deal as a result of recent shenanigans. I expect to see something strong and combative from the company and this should include the immediate search for a new and industry focused CEO not a banker or dealmaker as has been the case in the past.
The bottom line for Afren is that whilst this has been a period of significant value destruction for shareholders it is neither terminal nor will it leave the patient in intensive care for long. The company still has a number of attractive assets it is developing and will continue to do so, the actions of past management did not involve taking money from the company but they were still disgraceful and deceitful and will be treated accordingly. Investors will I think, in due course find that there is still value in Afren although it is clearly going to take some time for that to manifest itself in a serious way especially in this market. Accordingly, whilst hardly a screaming buy, Afren should now be looked at as a recovery play in which the remaining executives are in no mood to give away the assets or the company.
A very decent contract award for Cape this morning as it wins business from BP to provide services to the Magnus Life Extension Project which will keep it busy into 2015 and maybe beyond. I am much keener on Cape nowadays as previously noted and as Joe Oatley gets stuck into the business for good and proper. Next week sees the company’s Capital Markets day and I expect to be writing much more after that.
It wouldn’t be Friday if BP hadn’t been back in court and this week is no exception. Yesterday in Louisiana they tried to suggest that the recent case against them should be reviewed or even re-trialled as they think it is unfair…
And Velocys, who won a recent patent infringement case against CompactGTL, have won a high court injunction restricting them from ‘infringing activities’ and also have had a £1.4m costs award with more to come.
Interesting to see Lex popping up again in the oil sector, this time suggesting that explorers should have lots of free cash flow and pay dividends. I’m not sure what bit they misunderstand as generally the companies raise equity for drilling which is extremely inefficient to pay back as dividends. Also to have a go at Cairn is also rather missing the point, underperformance there is primarily to do with the Indian tax investigation…
There are two links below, yesterday I did a long spell in the IG Index studio talking about the oil price and then its effect on oil stocks in which I mention BP, Shell, Faroe, Ithaca and Caza amongst a general discussion. They will all be on the website soon as well.
I have been asked to plug an industry even which is in a very worthy cause, running though a muddy assault course is not my bag but if the points below intrigue you please contact Ben Romney at Buchanan.
- What: 5k obstacle course through lots of mud and water
- When: afternoon of Thursday 30 October
- Where: Dorking, Surrey
- Who: E&P companies & Advisors (teams of 4 from each firm – last member across finish line clocks team time so choose wisely – multiple teams from each firm allowed)
- What’s it in aid of: The Hunger Project www.thehungerproject.org.uk a global, non-profit organization committed to the sustainable end of world hunger
- Why should you put a team forwards: to name but a few reasons…raising money for charity, networking, competition vs your peers, good fun, team bonding, love of mud and possibly pain
Last night Everton and Spurs both drew, Spurs conceding a last minute penalty by guess who. Dember Ba! This weekend in the Prem its another big derby as Chelski take on the Gooners and the Saints travel to White Hart Lane with lots to prove against their old manager. Will it be the last game for Pardew? I suspect if they lose at Swansea there is nowhere else to go.
The Japanese GP at Suzuka is always tight as is the position at the top of the leader board at the moment.
And I am off to Paris, we are celebrating top Investment Manager at PSigma, Tim Gregory’s Hawaii 5-0 by attending the Arc Du Triomphe so any tips gratefully received! There may not be a blog on Monday…