WTI $87.31 -$1.54, Brent $91.38 -73c, Diff $4.07 +81c, NG $3.86 -10c
The oil price had another bad day, this time it was the Iranian Oil Minister, Bijan Zanganeh who put the cat among the pigeons by changing his view and saying that he felt that there was no need for an emergency Opec meeting. Of course Iran is in an acutely difficult position, twas ever thus I suppose, but remember the deadline for a deal on their nuclear status expires on November 25th, just two days before the Opec meeting. The markets minds are thinking that the Opec meeting will be even more tricky if Iran arrives with the loosening of sanctions and another million or so b/d up their sleeve. Now the Saudi position starts to look a lot clearer and if any output reductions or quotas are to be re-imposed they want their fellow members to see quite how difficult the market is. The bottom line is very clear, call for Opec oil in the first quarter of 2015 is forecast to be 28.96m b/d whilst current production is nearly 31m b/d, Mr Mikawber would have something to say I’m sure…
Another reason for the weakness, particularly for WTI, came with the EIA inventory stats which echoed the numbers from the API on Tuesday by showing a build of just over five million barrels of crude oil, notably gasoline and distillates grew too. Finally it was interesting to see that the Fed Policy meeting minutes were more dovish than expected, indicating as they did, that interest rates were likely to stay ‘near zero’ for a considerable period. It transpires that the committee was actually more concerned about global economic weakness and the strength of the dollar than any problems at home.
It was time for the Wood Group IMS this morning and whilst I am writing this I am also watching the webcast of the WG Capital Markets day on PSN, anything particular from this I will comment tomorrow. The IMS itself reported pretty much business as usual with earnings expectations in line with guidance. As before WG PSN production services continue to show strong growth with US shale leading the way but the North Sea is ‘robust and big contract wins have come from Woodside (1) and Exxon (2). WG Engineering had a lower contribution from upstream partially offset by subsea pipelines and downstream and turbine activities are expected to show a ‘significant improvement’ in the second half. Wood Group shares have fallen back quite sharply in recent weeks as some commentators believe that the service sector will suffer due to capex cutbacks from the majors associated with the fall in the oil price. While this may be true in some parts of Wood’s business I don’t see a great deal of falling order activity and at the moment at least, no sign of margin erosion. The chart shows that resistance on the upside was found at just over 800p whilst it looks like the downside is 635p, I think that provided the oil price doesn’t tank much more we should revisit the high rather than test the lows again.
A trading update from IGas this morning where the company announce ‘good progress across the business’. IGas shares have almost exactly halved this calendar year but the slide really started in June which is not easy to account for, the long drawn out nature of the Dart acquisition may have something to do with it. The other thing to observe is that IGas has, whilst not being idle, not had anything going on in terms of drilling recently, something that is about to change at Ellesmere Port. Production numbers are in line with expectations and the company has $47.2m of cash on the balance sheet. The aforementioned Dart acquisition is in its final stages and will prove a fantastic acquisition and it is worth looking at the recent Ineos deal regarding Scottish CBM, I suspect that there is more to come both on CBM and with Ineos. IGas has also recently won, on appeal, planning permission on a Dart licence at Holt in Cheshire showing that much is going on behind the scenes and with some notable success.
The most important thing for IGas is of course the drilling of that Ellesmere vertical well and with the results from that, along with information from seismic and other drilling should mean that they are well set for next year which will be the determining time. The company intend to announce the initial gas in place numbers in the West Midlands as well as some of the results from the Barton Moss well after the closing of the 14th round on the 28th of October. It goes without saying that IGas will be involved in this licencing round and will submit with a number of partners. I still believe that we are about to enter the most exciting time for IGas as they start to drill out their prospects which could prove to be meaningful not just for the company but for the UK as a whole.
An operations update for Ithaca this morning and although reasonably well telegraphed the market never likes to see production guidance missed and the shares have fallen back to below 100p. Full year production will now be 12,500 against previous guidance of 13,500-15,500 due to kit failures at Causeway. Operationally the Stella B2 well has been completed and they have started operations on the 5th Stella development well.
Like so many E&P companies Ithaca has had a hard time of late and at 100p does look outstandingly cheap but the same goes for a number of stocks in the sector. What will make them become more expensive is difficult to call as the oil price remains weak and investor attitude to the sector is negative but Ithaca is like some other stocks worth significantly more than its current market cap of £337m.
Caza Oil & Gas
Having written about Caza recently I will be brief here as my views are strong, indeed when the Caza price went down first thing this morning I had reason to doubt my own sanity. The company has announced that it has acquired additional acreage in the prolific Bone Spring play by paying 100% of the well costs of the 60% vendor for a 30% working interest in the area. By drilling what will be called East Marathon Road immediately it holds the acreage and gives Caza more of this exciting play. In addition the news from the recently successful Broadcaster well is good, after nearly a month it is producing at 1,696 boe/d, a very strong result indeed after 25 days. With its shallow vertical wells doing a grand job of holding leases which may hold valuable Wolfcamp formations and wells being drilled all the time Caza is an exciting and very cheap play and also heading for the massive milestone of 2,000 barrels a day net to the company.
Given the time and the length of the blog today I will write up the Cape meeting tomorrow but I remain very bullish on Cape and am convinced that Joe Oatley and his team are turning the company round in key market sectors and geographies. I will also talk about FOGL, NTOG and some further thoughts on Velocys into the bargain.
The FA, who are probably a business school dream as they must provide much data for the courses on how not to manage a business, have decided that they might consider selling or leasing Wembley stadium to an NFL franchise.
At the white elephant, wrongly placed, expensive stadium tonight, you can go and watch England play San Marino if only to see what language Woy speaks to Wayne in…
And Scottish tennis player Andy Murray is struggling to justify his position on the advertising boards for the ATP season end finals at the O2 as he loses today 1-6, 6-1, 6-2 to David Ferrer in Shanghai….