WTI $48.87 -$2.56, Brent $56.41 -$2.78, Diff $7.54 -22c, NG $2.59 -8c
Almost all the pointers right now are downward arrows some of which are potentially have quite serious consequences. Last week WTI gained $3 but Friday’s fall meant that Brent was only flat, today both are weaker again. It is not wrong to suggest that a huge amount is riding on the Iran nuclear talks for which the deadline is tomorrow, word has it that Iran has ceded a lot, particularly on stockpiles, in return they are hoping that the sanctions will be lifted in total and with immediate effect. That would clearly have the most effect on the oil market as not only would production start to pick up but word is that they have 30m barrels of crude oil stockpiled for just such an event.
Add that to the significant oversupply worldwide, no sign of US production dropping much and any pick-up in demand in H2 being relatively modest and the outlook remains distinctly soft…Even the rig count on Friday didnt offer much for the bulls, showing as it did a fall of 21 rigs to 1048, of which only 12 were oil taking that number down to 813. Admittedly it is still falling, being almost exactly 50% off the October peak but the decline is slowing, last week was the smallest fall in 15 weeks of figures. Finally, there seems to be little disruption at present due to the Yemeni conflict, it would have to get much more serious to have a material effect on world supplies, but rule nothing out.
Statoil has made another cracking gas discovery in block 2 offshore Tanzania with the Mdalasini-1 adding 1-1.8 TCF of gas to the reserves. This means that block 2 now contains at least 22 TCF and there will be an intense programme of testing and analysis.
I covered Lamprell’s figures last week but since then I have been lucky enough to have a meeting with Jim Moffat, CEO and finance man Tony Wright. Readers know that I am very positive about Lamprell despite the ‘challenging market environment’ that they are operating in and that the area in which they exist is fundamentally strong and resilient. The company last week ticked pretty much all the boxes, underlying profits, EBITDA and margins all grew, the balance sheet has been strengthened by the rights issue and facilities are in place that mean that for the first time Lamprell can offer fully competitive pitching to Tier 1 clients. The order book at the year end was $1.2bn, covered 80% for 2015 and already 35% for 2016 which is most comforting. The pipeline remains strong, up half a billion dollars at $5.2bn and I am most impressed with how the sales force works, a combination of concentrating on the best and most profitable contracts which provide higher margin work and maintaining long term relationships.
Taking one area of expertise such as the jackup market, one can see the long term fundamentals of the new build and refurbishment market remaining strong, by 2017 over 30% of the global jackup fleet will be over 35 years old thus creating even more opportunities for the company. Not content with the jackup market, one of the biggest strengths of Lamprell is its potential ability to create even more work by refining its fabrication business streams adding new products with very little risk. Apart from what it does now in refurb and new build as well as land rigs, topsides and modules it should be able to add work on FPSO’s, LNG modules and in the renewables market as well as that sector continues to grow. The facilities have been made significantly more efficient and although the yards are not all full they can take more than before and there are local opportunities to expand should, say, the FPSO dream comes off.
Lamprell operates from the Middle East but as Jim Moffat is quick to point out, markets for their products could be anywhere around the world. Indeed the lucrative markets of East Africa are genuinely on their doorstep and as per Statoil above, discoveries continue to be made, to monetise all that gas there are plans for 10 LNG trains in Mozambique and 15 in Tanzania which at $5bn each is decent business by any standards. In addition and also a potentially as above another place on the doorstep is Iran and should there be lifting of sanctions there it could become a very big market for Lamprell. Having said all that one must keep ones feet on the ground, Lamprell will do exceedingly well just by efficiently dealing with its own market, well summed up by the company describing a new rig as having been ‘built in the UAE, for the UAE, operated in the UAE.
As I have mentioned there are many exciting opportunities for Lamprell, the recent financing means that they can compete on a level playing field with any competitor and now have orders from new clients such as Ensco and Shelf to prove it. I have real confidence that the strike rate for winning those pitches is getting better all the time meaning that although the market is tough, Lamprell is in a remarkably strong place, if you have not looked at this stock you should do.
Borders & Southern
Results today from B&S but its all in the statement regarding potential drilling in the Falklands. Without any new partners Borders are having to watch this season out from the sidelines as so far no one has farmed-in to its Darwin project which the company says is ‘very robust’ and economic even at below current oil prices. Whilst they try to fund drilling which they point out is significantly cheaper than before it is clear that without support, or an equity issue it is unlikely to happen. My guess would be that potential investors may wait to see how the six well programme goes before giving Borders a cheque, as would equity investors I would have thought…
So, England cruised through against Lithuania and Harry Kane was kept on the bench til it was safe, when he did come on he waited only the time it takes Stevie Gerrard to get sent off twice before scoring his debut goal for England… Scotland eventually won easily against…Gibraltar who scored their first goal, pity it was against Scotland… and Northern Ireland are doing well, beating Finland 2-1 whilst Ireland got a late draw against Poland.
The Grand Prix showed that Mercedes are getting soft and let Vettel sneak in behind the safety car, a few Germanic expletives there I would have thought…
And the Aussies went on to comfortably beat the Kiwis in the CWC final…