Oil price, BP, Schlumberger, Gulf Keystone, Sundry-WoodMack-Tullow-Enteq- And finally…
WTI $46.25 -$2.23, Brent $47.67 -$1.02, Diff $1.42 +$1.21, NG $3.16 -8c
With no blog yesterday due to company meetings and an interview at IG Group, its always a bit of catch up although fortunately company news is relatively thin on the ground at the moment. On Wednesday the oil price had remained stable until right at the death when both WTI and Brent added $2 in no time at all, the rally was technically led by traders in Brent which expired yesterday leaving short punters buying the future.
The Opec monthly report showed a modest drop in the forecast for call on their crude of 140/- b/d down to 28.78m b/d for 2015, its the IEA’s turn today to come up with some numbers. Also in my absence the EIA inventory stats again fooled the scribblers by showing a stock build of some 5.4m barrels, over ten times the consensus forecast.
Maybe it’s time to dust off my copy of Twilight in the Desert, which if you havent already read is a must read, not quite like The Prize by Dan Yergin but somewhat more ‘fictional’ as it were.
The link to my interview at IG yesterday, where I discuss the oil price and have some strong views on BP can be found here https://www.malcysblog.com/2015/01/ig-interview-bp-ceo-should-go-immediately/
And of course on the interviews section of the website www.malcysblog.com where you can subscribe as well.
Two pieces of news from BP in the last day or so, yesterday they were in the press for an already announced cost cutting programme but this time as the media picked up on job losses in the oil industry. This morning the company announced that the judgement had been handed down in the Clean Water Act and that 3.19m barrels of oil had been deemed to have been discharged post Macondo and would be subject to penalties, these are to be announced on or after January 20th. The Court also ruled that BP was not grossly negligent in its source control efforts which BP hope will mitigate the fine.
BP will report results on the 3rd of February and these will not make pleasant reading, I expect a very poor 4th quarter and following the job losses some degree of ‘kitchen sinking’ can be expected. With increased provisions for Macondo and the Rouble putting paid to any meaningful dividend from the disastrous Rosneft investment only the downstream will provide solace. I said last year that the increase in the dividend was borderline irresponsible, now one can remove the ‘b’ word and prove it to be at the very least cavalier. BP has much to fund, it still has a commitment to sell assets to buy billions of shares back before 2016 a task that will be somewhat more difficult at sub $50 oil. The best thing to do would be a massive change at BP from the top down, it is hard not to blame the CEO for a lot of the mistakes made and he and the CFO should probably be replaced. The Board is in dire need of a major reshuffle to bring in people more in tune with current thinking, I am really hoping that Senior Independent Director Andrew Shilston will take this opportunity to shake things up as he is one of the best in the industry and now is a perfect time to make changes. I suspect though that nothing like this will happen and BP will remain weaker than its peers in the sector.
Results yesterday from Schlumberger which showed earnings of $1.50 up 11% and the dividend up 25% showing some confidence in a difficult environment. There is a restructuring that would make BP’s eyes water, 9,000 jobs are to go and a $1.77bn impairment charge in addition to a currency hit in Venezuela. Having said that the Chairman’s statement, whilst realistic suggests that Schlumberger is ‘well placed to outperform’ and with $6bn generated in free cash flow last year alone one can understand his moderate confidence.
Gulf Keystone Petroleum- Interview with John Gerstenlauer CEO
I was fortunate enough to be able to spend some considerable time earlier this week with John Gerstenlauer who took over as CEO of GKP last year. Some considered it to be a poisoned chalice but as an out and out oil man JG has taken all the hurdles in his stride and at the end of last year was able to announce that the company had finally hit the targets that had been missed previously.
Having said that, not everything is going to plan as one might expect and i’m sure that at the Genel trading statement next week some of the same difficulties will be addressed. On production, GKP are doing very well and PF-1 and 2 are at or above targets. On PF-1 it is above 20/- b/d and can increase with debottlenecking, PF-2 is also above target and will do more if Shaikan-11, which is drilling now, comes in. On that subject, SH-11 is targeting the Jurassic and drilling from the same pad as SH-10, with all the flow-lines etc in place and being adjacent to it one must hope that a similar result can be achieved and something like the 10-12/- b/d can be equalled. With a spud date of Christmas Day the result should be expected at the very end of the first quarter of this year.
I suppose the biggest sticking point is with regard to payments and here there is no doubt that although all the local operators are confident of being paid in the end, at the moment that confidence is wearing a bit thin. The first payment was made on December 1st and there were high hopes that it would be followed by monthly payments, in GKP’s case, of $15m. With the national budget yet to be approved, a delay has set in already and the idea of regular, stable payments is already confused, allegedly this is whilst the finance function of the Government assess the fall in the oil price. What GKP and others need is to get regular payments for crude supplied now, as and when things improve back payments can be expected, these payments are ‘beyond Ashti’ as they are not in his remit any more.
Transport is another key factor and it is clear that a number of options are still available and all are significantly cheaper that trucking the 1,000 km to Fish Khabur. The link to the pipeline is only 20km and hopefully will be installed before too long, if so as I have always said, Shaikan and Taq Taq crude can be mixed to create ‘Kirkuk’ blend which is better than the two components. Another option would be the constructing of another separate pipeline adjacent to the existing one to carry heavy crude only, this is a realistic option but not quite yet.
What is clear is that certainly from GKP’s standpoint there are a number of things they can do to increase production and whilst they will do that at some stage, it wont happen until there is some sort of stability of payments from the Government. Elsewhere there are no plans for an up-to-date CPR and no real need, last year the move to the main market required it but now and with no need for funding it would be a waste of time and money. GKP will provide a trading update at some stage but all information ahead of the figures in April is already in the market and the well result will come during this period.
Finally the market is always expressing an interest in the sale process of Akri-Bijeel which seems to have been ongoing for a long time, this is partly because of drilling and partly as other parties in the process rather hindered activity, the company now say that exiting A-B is a ‘strategic priority’. Potential JV’s or farm-outs are sometimes mooted and whilst the company says they are often brought into discussions on these matters there is no specific plan to do such corporate moves at this stage.
Management changes are now almost completed, a new CFO is scheduled to start soon and as JG does the job of COO and CEO there is no need for another appointment. John Stafford is VP Operations and the London team is strong and about to move offices, after a long time with the company TK has no position at present. With the A-B sale under way for a long time and wells drilling etc the company is in close season a lot of the time but when a window does come available certain directors may well buy stock, JG it should be observed already has ‘a significant investment’ in the company.
This will do for the time being, I will comment more on specifics as and when they arise, I have pages of notes from the meeting. Whilst the current market is hardly friendly to investing in any E&P stock, not least one in which confidence in getting paid is so low, GKP looks a very interesting bet at the moment. For the first time for a long time I can genuinely see significant upside not just from production but from the value of the asset. The region is awash with companies that would see the acreage at Shaikan as a very solid and growing production and I wouldnt be at all surprised to see the company being the subject of a bid at some stage in the not too distant future.
I see from the trade press that Wood Mackenzie has been put up for sale by its latest owner Hellman & Friedman who are apparently ‘open to offers’ as to its strategic direction. As my first employer in the oil and gas business I have huge respect for WoodMack who have gone through several changes of major shareholder over the years and i’m sure they will continue to flourish under whatever ownership.
Tullow produced a trading statement yesterday in which they wrote off $2.7bn, easy come easy go I suppose but one couldnt help noticing the dig by Aidan at African countries who only take take take…
And over at Enteq Upstream yesterday I noticed a profit warning as the state of the service industry a bit below Schlumberger is under a bit more pressure.
England’s first competitive tour match this morning ahead of the cricket world cup led to the familiar expression, middle order batting collapse. Indeed it wasn’t so much middle order as after the first over it was 0-2 then 17-3 and 33-4 before skipper Eoin Morgan came to the rescue with a good hundred. But 238 was never enough against a strong Aussie team and they won with over ten overs to spare. Meanwhile it is good to see that Surrey have signed Sangakkara for this summer, imagine him and KP in the same side…
In the Premiership this week the big game is the Noisy Neighbours at home to the Gooners who are picking up a bit of form lately. Elsewhere Chelski visit Swansea, the Eagles go to Burnley which will be interesting and the Maccams go to Spurs. With the Hammers hosting the Hull City Tigers and Man U going to the Super Hoops there are some new managers out for points.
Andy Murray is seeded 6 for the Australian Open starting on Monday, Looking at the draw he will have to play virtually everybody if he is to win but his form recently has picked up a lot.
The Green Bay Packers will take on the Seattle Seahawks in the NFC Championship game at CenturyLink Field on Sunday. The Packers edged out the Cowboys last week but face a difficult task against the reigning Champions.
The AFC Championship game will feature the Colts after they beat the Broncos in Denver last week. They will be heavy underdogs against Tom Brady and the Patriots at Gillette Stadium.