WTI $50.48 +$2.03, Brent $56.57 +$2.41, Diff $6.09 +38c, NG $2.60 -6c
Another nice, bouncy day from the oil market, it didn’t make up the losses from Wednesday but it is trying to this morning with WTI and Brent at $52.05 and $58.13 respectively as I write. However, I must disappoint oil bulls that there is still no fundamental reason for this recent strength but there are still a few straws in the wind. Firstly the refinery strikes in the US are being stepped up a bit, last night union leaders rejected a contract offer from Shell and accordingly the dispute continues. To put it into some perspective, at the moment only 9 plants are shut by the unions which accounts for 10% of all US refining capacity. The longer this goes on the more tempting it will be for refiners to bring forward seasonal maintenance.
Secondly on the bullish tack, the oil demand numbers from China continue to grow albeit modestly but without knowing quite how much is going into strategic reserves, is the central bank easing really working? Thirdly and not really that important is that the situation in Libya gets worse by the day and exports continue to fall. Finally on the good news front it’s non-farm payroll day today and with expectations set at around 237/- new jobs the US economy continues to strengthen. On the bad news front, Saudi Arabia yesterday announced its upcoming pricing to Asian customers for March which showed the biggest discount for over ten years for its crude oil.
Someone in New York has been reading the bucket list as reports are coming out that massive hedge fund Och-Ziff Capital Management has indicated that it may look to take advantage of the weak energy market. In an interview with Reuters apparently Daniel Och suggested that they might raise capital to exploit ‘dislocation’ in the energy sector. ( If you want to see my interview on TipTV yesterday where I run through the bucket list favourites go to http://www.tiptv.co.uk/archives/oil-bucket-list-with-malcolm-graham-wood/ )
Gulf Keystone/ KRG general
Gulf Keystone has announced this morning that due to lack of payments from the KRG, it has suspended exports in favour of recommencing crude oil sales to local refiners. This echoes what DNO said yesterday and if Tawke crude is being sold locally then it would be surprising if Taq Taq oil wasn’t being marketed in the same way putting all the oil companies in the same basket.
For GKP this actually makes a lot of sense, transporting crude 1,000 km costs around $22-23 a barrel, if sold locally the buyers just drive by and collect it from their production facilities. Expect an announcement of a significant contract soon but there are plenty of locals looking to buy the crude from the vendors and without the transport costs the company realises almost the same in revenues. What GKP has done is a stopgap solution to maintain cash flow and one which the MNR has been consulted on and is fully supportive of. I remain convinced that the situation regarding the KRG and the marketing of crude oil by the MNR is sorting itself out and that current difficulties are just that, once commitment crude has been sorted not only will payments restart but the backlog will be erased and forward oil sales satisfied. After that the ‘new era’ of the relationship between Erbil and Baghdad will lead to much better treatment of the oil companies producing in the area so good news for GKP as well as Genel and DNO.
A couple of weeks ago I attended the Petroceltic Capital Markets Day which had been delayed as it was originally scheduled around the time of the Dragon bid. A lot of water has passed under the bridge since then and the company is caught up in unnecessary shenanigans in which the future of the CEO is being questioned, more of that later.
The company wanted to update the market on progress made since the merger with Melrose in late 2012, a merger that personally I didn’t feel added to Petroceltic’s value but that’s neither here nor there. The main part of the meeting was spent looking at the Algerian business following completion of the second farm-out and here we saw all the key managers who will hopefully deliver this key and admittedly ‘world class’ project. There is no doubt that this is going to be a serious challenge as it is complicated, expensive and the timetable is as demanding as any I have seen, in addition as is always the case, in a remote, hostile environment. Assuming that it is successful and on time it will produce for the partners a solid base production and enough upside to make a genuinely substantial return over a long period of time. The project needs watching carefully and any signs of slippage or problems will cause significant drag on the Petroceltic share price.
Back to the future, so to speak as right now the company is facing an EGM on 25th February at which Worldview, a 25% odd shareholder is seeking to remove Brian O’Cathain as CEO. Readers will know that I have been strongly critical of this shareholders’ actions in nominating and removing board directors in recent months and have made it clear that corporate governance at PCI is unacceptable This would be made worse by unsatisfactory and inappropriate directors unbalancing the board with dubious quality and questionable reasons for being there. The only reasonable, sensible and rational way forward for Petroceltic is for holders to keep the CEO on, elect the two independent non-execs proposed by the board (Nicholas Gay and Neeve Billis) and to vote against two more Worldview nominees (Messrs Moskov and Dijols). If for any reason this was not to happen and Worldview were to succeed, Petroceltic would end up losing control of the board and the company for no premium and would be a travesty for shareholders of monumental proportions.
Statoil figures this morning and whilst earnings were obviously impacted by the oil price the strong underlying performance continues. The organic RRR of 96% remains top drawer and the company are proud of their high price efficiency and cash flow. They expect organic capex of $18bn this year and like others have trimmed some projects and have a $5bn cash improvement and cost savings. Although the presentation is not until lunchtime I have had a sneaky peek at the slides which are already on the website and Statoil remain very confident despite being aware of the trauma in oil markets.
The rugby 6 Nations Championship is back and in a RWC year takes on added importance. Kicking off proceedings tonight is the crunch Wales v England game in Cardiff, call me old-fashioned but I have yet to get to grips with a Friday night kick-off and would be happier settling into my chair on Saturday or Sunday! With home advantage and with England ravaged by injuries Wales are understandable favourites for this match in a tournament that is pretty open. Ireland go to Italy tomorrow with their fixtures playing into their hands and they are tournament favourites whilst a much stronger Scottish team go to Paris.
A few big matches in the footy this weekend headed up by two classic derbies, in Liverpool the Toffees host the HubCap Stealers whilst in North London there is no love lost between Spurs and the Gooners. Elsewhere the happy Hammers host Man U, Leicester v the Eagles might be close and manager-less Super Hoops entertain the Saints…
And Jack Wilshere is in the news again being photographed smoking at a Super Bowl party, manager Arsene Wenger who has already disciplined players for smoking this season said ‘ he is not a smoker’ despite pictorial evidence to the contrary…
The Afcon semi-final last night between Ghana and Equatorial Guinea went off big time with it being described as a ‘war zone’ as at one stage a helicopter hovered over the pitch, 3-0 to Ghana in the end but we havent heard the end of this one.
And as Poundland takes over the 99p stores do customers of the latter suffer instant inflation I wonder?
“For GKP this actually makes a lot of sense, transporting crude 1,000 km costs around $22-23 a barrel, if sold locally the buyers just drive by and collect it from their production facilities.”
That’s a nice gloss on something GKP has been forced into.
Fair comment I suppose and at least they are now actually producing what they promised and making important decisions. DNO are doing the same and expect Genel to announce that they will do so as well.