Oil price, Premier, Alkane Energy, Petrofac, Plexus, VOG, Sundry-Total-Statoil-Anadarko-Shell, And finally…
WTI $81.42 +42c, Brent $86.03 +20c, Diff $4.61 -22c, NG $3.65 +9c
The oil price has definitely settled down a little with some clarity creeping back into the market but it is by no means certain to bounce from here. Yesterday was encouraging as Brent closed a dollar off the bottom and near its high for the day and today both WTI and Brent are up around 80 cents. The API inventory stats come out after the market has closed so the stock build of 3.2m barrels, roughly in-line with expectations for once didn’t disappoint. For Brent every little counts and the next level to try and reach is $87.35, lets see what happens with the EIA numbers tonight, a positive number will give the bulls a shout.
And of course tonight is what it is all about, the minutes from the Fed meeting will be released at 6pm UK time and whilst everyone is expecting it to be RIP QE there is also expected to be decent guidance on rates. Economic stats from the US remain very mixed with good consumer confidence numbers offset by falling house prices and indifferent capital goods orders.
Last week I went to see the new CEO of Premier Oil, Tony Durrant to see how he was settling in and whether the view from the top is different from the CFO’s office. I guess the big question on everyone’s lips is how is Premier work in a new, possibly long-term lower oil price environment? Reading work from WoodMack and others lately, Premier seems to be viewed by the market as one of the stocks most likely to suffer if we have to endure crude at $85 or less for a long period of time, not totally accurate as I discovered.
But to recap on this year so far where operationally it has been good, with improved up-time at Balmoral and Chim Sáo meaning that production guidance has been met, not something that Premier has been famous for in recent years. I asked Tony if that meant that he was getting on top of guidance or whether it was more a question of setting easy targets to beat which was probably a bit cheap. The reality is that a number of scenarios are drawn up and whilst it is fair that the range does encompass most situations, the range is deemed to try and cover most options without the hostage to fortune the company has struggled with lately.
Elsewhere this year a number of key milestones have been reached with Solan facilities being installed pretty quickly by North Sea standards and Catcher sanctioned and now in execution mode. With a decent discovery in Indonesia and the portfolio re-organisation continuing to increase capital efficiency,(including a refinancing of existing loan facilities) the bread and butter work seems to be going fine. Longer term it is clear that Premier is not going to be abandoning the North Sea, mainly as it has around $3bn of tax losses and allowances which are valuable in their own right, and might even buy assets there but as he says ‘we would be choosy about which barrels to buy’. In Indonesia things are actually looking very positive, remember here the company sells its gas into Singapore where they get $16/mscf on contracts which run out as far as 2029.
So, back to my earlier hypothesis about the oil price and the threat to Premier at$85. Ironically Premier has always done its forward planning using $85 so at the moment it is as accurate as at any time and projects already sanctioned such as Solan and Catcher work at this price. The company make it clear that Catcher would still get the sanction at today’s price due to the aforementioned tax breaks and it has a cash break even of around $60 so it flies no problem. The two projects next on the block are Sea Lion and Bream both of which more than meet the company’s hurdle rate but if the worst happened and they were deferred as a result of a further significant fall in the oil price Premier would have more, not less cash flow. Hedging oil production for E&P companies is a bit of an old chestnut, i have investors who dont like it as it unnecessarily takes away risk inherent in buying the shares but sometimes it just makes sense. Premier has 53% of 2014 oil production at an average of just over $104 and 42% of 2015 at just over $101 so at the moment its not such a bad call.
Overall I came away thinking that Premier is in pretty good hands, during the interregnum the industry was buzzing with who might take over and what would happen to Premier as a result. Critics who said promoting TD would mean more of the same, and by implication not a good call will be proved wrong, he has a number of big ideas which will get into the company in due course. With the current oil price hitting all stocks in the sector and Premier is no different, it is not a risk free call to buy the shares. However, the shares are 100p off the top, at recent and long term lows and must be worth considerably more than this. As for timing i have been proved wrong lately but if you can finesse a purchase over the run up to the Opec meeting i think it will be worthwhile.
I was going to mention Alkane yesterday but it was a brief blog, today i can mention why this must be the best play on possible snafu’s in the wonderful British power generation system. Yesterday the media was full of talk about ‘blackout Britain’ and how low the margin of capacity over demand might fall to over the winter. A combination of EU coal measures, years of incompetent Energy Ministers leaving us with inadequate policy, not enough nuclear and uncompetitive gas, topped of with the fire at Didcot B has left the situation looking a bit dodgy. Anyone though who has had me round with Neil O’Brien, CEO of Alkane would have had the gypsy’s warning a long time ago and the capacity chart is etched on my mind. Alkane is the best way of hedging your electricity bill and will provide short term power to the grid at mouth watering margins so it wins both ways.
The only thing that can put a fly in the ointment would be the issue of more shares, the company has a laudable desire to add to its capacity but i hope that when it next does this it doesn’t yet again come to the market with another placing. These are fine but hit demand for the shares and causes under-performance, assuming that temptation is avoided then Alkane is your banker for those cold nights when the grid comes calling to Alkane with its wallet wide open.
Slipped out yesterday Petrofac has announced a contract with the Government of Nova Scotia who want to exploit the ultra deep water oil potential. No size announced here but more work over the next 18 months for Petrofac.
Full year figures to the end of June for Plexus as records were broken all over the place. Post-tax profits were up 65% at £5.05m and EBITDA was £9.02m up 18.7%. Unsurprisingly EPS were 6.01p, up 62.9% and the divvi is up 12.7% into the bargain. The core POS-GRIP rentals business is going very well and with work in the North Sea good but not going gangbusters the ROW is showing exceptional growth. New clients and new geographies keep getting added and the JIP is getting to the good bit, the design is done and frozen and testing is under way with a prototype hopefully being built next year.
Readers know how much i like Plexus which normally looks very expensive, thanks to the recent market shakeout it doesn’t at the moment and buyers should look to tuck some stock away. Don’t forget that free float is only 33% and a lot of that has been tucked up in the same hands for as long as i can remember. Cost pressures in big oil have to be taken into account but with Plexus being involved in a rental business at the safety end of the market will get almost total protection.
Victoria Oil & Gas
Good news for VOG this morning as they announce that they have completed the Wouri River crossing which involved laying 678m of pipe successfully in Douala. This means that VOG can now serve a new hub and already has agreements in place to do so. I am waiting for a meeting with Kevin so will write more after that.
Results week grinds on and every time i look another company has reported somewhere. Total reported $3.6bn and said that upstream was resilient and downstream strong, especially in refining and chemicals. Statoil had earnings of NOK 30.9bn with lower oil prices and deferring gas sales but another strong operating performance and strong cash generation.
Anadarko beat the whisper with liquids sales up 35% y/y and guidance was raised upwards by 100/- b/d.
And Shell Midstream Partners MLP priced its IPO at $23, above the $19-21 range expected and raised $920m.
Lots more results from today and the rest of the week to come…
There was football last night but some of us were privileged to be invited to the Harvey Nash Oil & Gas Board Dinner with the great and the good, plus me. Many senior figures turned out to hear a great speech from Sam Laidlaw and a good Q&A as well.
Chelski just managed to get past Shrewsbury at the last minute and there were wins for the HubCap Stealers, the Rams and for Bournemouth who dispatched the Baggies.. Tonight, hapless Spurs play Brighton, the Magpies go to MiddleEastlands and the clash of the red and whites as Stoke play the Saints.
Jonathan Trott has been selected to play for England Lions on tour in South Africa so it wont really be a foreign tour for him…Next thing will be Swanny coming back…
And it doesn’t get much more exciting than this…
The Kansas City Royals have tied up the World Series 3-3 going into tonight’s decider against the Giants.