WTI $91.16 -$3.41, Brent $94.67 -$2.53, Diff $3.51 +88c, NG $4.12 -3c

Oil price

So, the dismal quarter on many fronts came to an end with a bang, the crude prices finished around the lows and even the gasoline contract expired 4% down. The quarter had Brent down 16% and 19% off the highs from mid-June whilst WTI wasn’t far behind, it fell 12% in the three months. The economic data yesterday and this morning is, as ever, confusing with some US figures not backing up recent GDP excitement but the Chinese PMI coming in slightly better than expected. The API stats again confounded the teenage scribblers who had been forecasting a crude build, when the numbers showed a 460/- draw the oil bulls started to feel a bit better. The trouble is that the CFTC figures are showing that particularly in Brent, there aren’t many bulls around with a very low number of lots going long the market.

The trouble is  still obviously supply and the Reuters and Bloomberg polls of the market for September Opec production, which are usually pretty accurate, show that if there are any quotas they are so old to have been forgotten…Both numbers indicate, give or take a few barrels, that the cartel produced the best part of 31m b/d which would explain the price, that is sending crude oil into storage as demand doesn’t cover it. I have been saying since June that Saudi has been up at over 10m b/d and with the summer internal demand for power generation now diminishing the market is having difficulty absorbing it along with other increased production.

US Natural Gas

As the leaves fall from the trees and autumn starts to get a grip it usually means its time to have a look at the EIA Natural Gas Monthly, a riveting read if ever there was one. EIA stats show that July dry gas production was 70.4 bcf/d which sets a new record ‘the highest for any moth’. The trouble is that the EIA inconveniently also supply the demand number which was around 60 bcf/d, a cooler summer meant less air conditioning. The only thing to do is repair to a slightly more interesting read The Old Farmers Almanac which is predicting a ‘super-cold’ winter with above average snow, particularly in the East, there’s not much those old farmers don’t know about the weather I say…


It was rather fun to read the Lex Column in the FT this morning to find that they were reheating and old dish, namely a potential Exxon bid for BP. I am often asked, particularly since Macondo, whether BP is a bid target, to which the usual answer is very possibly. There are a number of regular caveats though, the biggest of which is the huge scale of liability facing the company should they lose badly in the US courts, buying a company with such baggage could be costly and open-ended. But what if the whole deal could be combined with a deal, both sides in the lawsuits would without doubt like a courtroom steps settlement and all of a sudden the shackles are freed, I’m sure Exxon’s lawyers could broker a deal like that in no time at all. Another caveat is the commitment to Russia which BP has entered by buying 20% of Rosneft, always a particularly schoolboy error. But hey, Exxon as we know from that recent discovery, has a penchant for the Russian Arctic and I can here the announcer from here saying to Mr Putin, ‘I have Rex Tillerson on the line for you Mr President’. Given the value to Russia of Arctic oil and gas there would be an incredible temptation to park Ukraine in return for ExxonMobil with 20% of Rosneft in its skyrocket…Oh well if it were all that simples….

Range Resources

Writing up the Range announcement from yesterday required some fairly heroic assumptions and some long conversations with people in the know. The share price has gone from 0.64p to 2.52p and back to 0.93p already this year which is no mean achievement especially given that it doesn’t seem that long ago that the shares were well over 20p a go. With a new CEO in February it was obvious that there was much to sort out but only yesterday did we find out quite how much. I have written a number of times this year on Range which was previously a bargepole stock and I am on the record as saying that RSR would be able to turn it round. What I certainly didn’t know and I am pretty sure neither did he, was the extent of the Augean stables he inherited. The Abraham money sorted several dreadful debt vehicles and with that tidied he did what is still a smart deal with LandOcean, something the company will still find very advantageous. Disposals never happen fast enough and when they are as disparate as these are they bleed the company and there are few easy solutions even as Oscar Wilde would say ‘even for ready money’.

Having said all that yesterdays huge write-offs and missed targets came as quite a shock, we get used to kitchen sinking, this was the Titanic almost taking down all hands. The easy bit first, any self-respecting CFO new to the job would get everything off the table but a hundred million dollars is bad however quickly you say it. The worst bit is missing the production target for Trinidad production which even the company are irritated with especially as this is the key, nay ‘world class’ asset. Actually the blame here is shared, it seems like the kit, like everything else in the company has been supplied and serviced by Arthur Daley but even so it was probably a hostage to fortune target that an experienced board would with hindsight not have committed to. So, where does Range go to from here?

There’s good news and bad news, well actually mainly bad news but its not terminal, I think… The disposals will continue to happen although Rome wasn’t destroyed in a day, expect more of a drip, drip approach than a torrent, remember there’s a lot of Augean muck to spread around. The loan financing announced with this statement is pretty grim whichever way you look at it, the lenders may still have Rory’s accoutrements in their pockets. The only way to make this work is to use the money, and the LandOcean finance to get to work on Trinidad very, very quickly and treat it like the bridging loan it really is. The little bit of good news is that Trinidad does throw off a bit of cash, its got to succeed and fast if survival is to be ensured.

To retain independence Range has got to make Trinidad work which should be possible, in addition the disposals have to continue at a decent clip so as not to bog things down and they must repay the Lind debt. Its a big ask and it takes a bit away from my rather over-optimistic expectations from a few months ago but it is possible. On these occasions one has to ask whether its a cut the position or a double the bet situation, I think its the latter. I understand that much more work than was ever thought has had to be done and I think we are almost back to where we started although the share price is still higher than then. A lot has been learned and the CEO needs his experienced non-execs like never before but is it worth the risk, I think so, nothing was ever easy but Trinidad must fly. With so much happening it might be wise to start making monthly announcements of progress without feeling the need to over-egg the pudding and of course there may be some exciting wells in Trinidad to report on…

Pantheon Resources

Having seen the placing in Pantheon and looking at the deal with Vision I wanted to get to the bottom of what is going on so I was lucky to be able to have a personal chat with CEO Jay Cheatham at what would have been an ungodly hour for him this morning and John Walmsley Chairman joined the call. Pantheon has had a mixed time over the longer haul with a problem well in the Austin Chalk which was then not followed up by further drilling. Over the last year or so the market has forgiven them and the JV with Vision looked very promising. Well, it all got a whole lot more promising after yesterdays news. Pantheon has raised £18.5m with the issue of 59mm shares at 20p in a deal which seems to have gone down well. With the proceeds Pantheon funds an increase in the JV from 25% to 50% and also takes them into another 50% stake with Vision in three areas and four defined prospects in the Tyler and Polk counties which look very exciting indeed. With the obligation to drill two back to back wells starting late this year probably the company is set to deliver on all those promises. With a lot of downside protection afforded by the fact that they will likely drill through Austin Chalk gas before reaching the Eagleford/Woodbine sandstone these may well be more than just exploration wells. In the 27,500 net acres there is a P50 prospective recoverable reserves of 150.5m boe which might just make Pantheons day. Early next year might just be celebration time for Pantheon and I wouldn’t bet against it.


Another ‘substantial’ order for Plexus although they wont tell us just quite how big it is which usually means bigger than normal. BG Group are the customer who have asked Bens boys to supply surface wellhead and mud line equipment services on an exploration well in the UKCS. Unusually the Plexus share price has had an indifferent time lately and this is usually the time to step in, this is a top notch company with genuinely premium kit and a strong order book from the bluest of blue chip companies.

Gulf Keystone

As is always the case, a news release from GKP asks more questions than it provides answers for. But at least todays update shows that the recent troubles have at least so far not hindered them from producing and selling oil from Shaikan. The questions are around quite when they will get paid for this production and exactly when will they achieve the twin targets of 40/- and 100/- barrels of oil a day, neither of which are obvious from the Statement. In the meantime I still think that the underlying value of the company is much higher than the market credits it with but at the moment I am very much in a minority, this may last for a while but although it too carries plenty of baggage I would astonishingly still hang on for the ride.


Another announcement that fell below the radar screen yesterday was the news from Gulfsands about Morocco. I have been keeping an eye on this one after the disaster that was Syria and it is making a reasonable job of a recovery. Yesterday they announced that they have received an extension from ONHYM for their Rharb licence and hope to get production on before too long. They also have 2D seismic planned on the Moulay Bouchta permit. I have always had my doubts about who is behind some of the shareholders here but its worth keeping on the watchlist.

And finally…

Not much and after writing up the above I have almost run out of puff. Last night saw Chelski win in Lisbon but the Noisy neighbours were held by Roma so 1 point from 6. Tonight sees the Gooners v Galatasaray and the HubCap Stealers go to Basel. Last night Charlton beat top of the Championship Norwich so a bad day was rescued for GVL…

And injury prone Alec Corbisiero just back from a bad knee has now done his shoulder and will be out until next year, with other injuries England’s preparation for the World Cup is not ideal.