WTI $43.96 -70c, Brent $54.43 -$1.48, Diff $10.47 -78c, NG $2.81 -11c

Oil price

WTI expires today and is weaker into the bargain, currency apart there are no reasons to think that the next month will be any better. Yesterdays rebound in the greenback was about the only support for the oil price, even the falling rig count hasn’t pressaged any fall in production-yet…

Yesterday it was the turn of the Kuwaiti oil Minister to keep the lid on any expectations the market may have had regarding the June Opec meeting as he said that the cartel needs to maintain production to defend market share. With Iraq apparently heading back into the production record books after the recent weather disruptions and Libya back at 500/- b/d there is little good news for the bulls. The Israeli election result and the apparent breakdown in the Iran nuclear talks (11 days til deadline) are merely straws to be clutched at.

Tullow- Over the moon…

Whisper it quietly but things are starting to look a bit better for Tullow who today announce an expansion of its debt facilities by $450m. Its not the actual availability of the debt that counts, more the combination of the proactive actions of the management and the confidence being shown by its lending bankers in the company at current oil prices. The increase gives the company a buffer in case of any operational glitches or, heaven forfend, any further delay at TEN…Was being kicked out of FTSE the nadir for the shares, whatever happens Tullow is at long last playing to its strengths and realises its here for the duration.

Gulfsands-Total eclipse of the value… 

The bad news just keeps on coming for Gulfsands who have announced that they are in a dire state of affairs on the financial front, not that one needed an RNS to tell you that. Clinging on to Syria and with none of the asset sales yet made has left them with commitments in Morocco that they appear to to be unable to finance. With working capital of $3m to start with they have need for $11m in Morocco, most of which is needed in the next 3-6 months plus running costs and restructuring and corporate overheads of $8.5m including Tunisia and Colombia expenses. Overall the company needs at least $15m and that doesnt include the repayment of the Arawak loan and interest which has been called in amounting to around $11m. With a market cap of £28m Mr Micawber would have a word for it, misery.

My sources tell me that its major shareholders are underwriting the necessary issue to keep Gulfsands afloat, but in my view it would be madness to commit any more money to the company, it would be the ultimate in throwing good money after bad. Sometimes, like with Afren, the realisation sets in that it’s just not worth saving although I suspect that’s not what our Russian friends think…

Hunting-The sun will come out tomorrow…

Hunting recently had results for 2014 which were actually better than I or the market had expected, indeed it was a record year for the company. With profits and earnings up, margins grew and the balance sheet is strong with net debt down more than expected leaving gearing at a modest 9%. Accordingly the board were confident enough to raise the divvi by 5% which is covered three times, an interesting call which shows either a degree of confidence or reflecting historical numbers, probably a bit of both.

But as I have always said, results only reflect history and especially in current markets when not only is the oil price down but service companies are facing significant pressure from their customers. Having missed the results presentation I took the opportunity to go in and see the CEO, Dennis Proctor to try and get a grip on how Hunting are seeing the market place at the moment. The first thing is that whilst there is an appropriate appreciation of the scaling back of industry spending, and Hunting are reacting to that with their own cost saving measures, the philosophy remains to adjust locally to market conditions. Here it is worth saying that the company has good geographic diversity and is much less dependent than in the past on the US onshore, indeed the offshore and deep-water capabilities are not showing any real signs of slowdown and South East Asia sales are up from 4% to 20% in 5 years.

Hunting is towards the end of a significant capital investment programme which has not been curtailed at all by recent events, indeed it is likely that all new openings and expansion will be successful from the off. With new facilities at Houma, to service the Gulf of Mexico client base, at Houston for threading and testing and in Cape Town for the rapid expansion of sub Saharan exploration the investments continue to be made. In addition there is to be a radical reorganisation of the facilities in Singapore over the next two years where the company is to consolidate five plants into one state of the art facility. All this is in addition to the capital spend on new tools, rental equipment and expansion in Asia Pacific, EMEA and elsewhere in the USA. With 43 manufacturing facilities and 34 distribution locations Hunting keeps its ear to the ground and decision making is made at local levels in a decentralised framework aimed at adapting quickly to local market requirements.

Having said all that there is no way that Hunting is going to be exempt from the current wave of cost cutting by oil majors and the other service companies who are their biggest clients. Recent actions by the likes of Whiting show that the fall out will continue and that there will be casualties and that certain parts of the industry will suffer more than others. Highly indebted companies may fail and there will be bankruptcies and auctions but this was inevitable at some stage. In this case one is looking for signs of capitulation after which will be followed by rehab and a return fitter than before. I was reminded, not for the first time, that new kit is faster and more efficient, digital tools save time and money and service companies are more than ever before creating cost savings for their customers. Hunting equipment touches the well bore many times and the key is massive product diversity in which the technological advantages of its problem solving and cost saving kit become key, this is particularly the case in shale.

I have seen a number of broker reports on Hunting since the results and most are either sitting on the fence or have made the inevitable call to remain out of the stock. Whilst I am not surprised that this should be the case, after all there will be a substantial reduction in drilling volumes this year, primarily in the US onshore, I am also aware that there may be some degree of overreaction and that the contraction internationally may not be quite as severe. With over 500 operators in Sub Saharan Africa alone and growth continuing in the Middle East and South East Asia, writing the obituaries of Hunting and others may prove to be somewhat premature. The lag effect on the company and the sector will probably not be felt until the summer and the risk of going back in too early is clear, but investors should watch carefully for signs that the worst is behind them.

Sundry

Shell has announced that it has sold its OML 18 assets for $737m as part of its continuing disposals in the country.

Chariot has results today but nothing is new since the Capital Markets presentation last month. All is going according to plan and the next piece of information may be the decision by Woodside to stick or twist in Morocco…

And finally…

Last night the Toffees joined the long list of British clubs no longer in European football competitions, going out of the Boropa Cup to Chicken Kiev 5-2 or 6-4 on aggregate if that sounds better. The draw has been made without us and the two best ties in the Champions League are PSG v Barca and the two Madrid clubs meeting up in a repeat of last years final.

This weekend the standout match is Man Who at the HubCap Stealers whilst Richard Avocado takes his Maccams to play the Irons at Upton Park. Rather be in Spain where Real meet Barca…

The Aussies made slightly hard work of getting a low Pakistan score and will face India in the semi-final, tomorrow is that last QF between the Windies and New Zealand.

Muzza will meet Djoko in that semi final, wonder if the mind games from Australia will return…

And of course its the final weekend of the Six Nations rugby where any one of four teams can still win…