WTI $50.09 +$2.49, Brent $57.10 +$1.99, Diff $7.01 -50c, NG $2.60 -4c

Oil price

The inevitable rally in the oil price as the chances of a deal with Iran on the nuclear front starts to recede. Although John Kerry and his team are apparently staying in Lausanne until tonight the market has assumed that a deal is not now imminent. This may be premature as I understand that all is not lost but it may just revert back to the framework option that can be firmed up with a June deadline reset.

Looking back at the quarter, oil prices fell again but not quite as sharply as last year. WTI was the worst performer falling 11.9% as stocks, imports and domestic production all rose and with no export route for crude oil the USA became an island awash with oil. As for Brent it had a better ride and was only down 4% in the period but it would have been worse but for the rally last week associated with the Saudi military action in Yemen.

Last night the EIA inventory data showed yet another rise in stocks with a build of 4.8m barrels of crude oil, slightly higher than the whisper. Its worth taking a look at the gasoline stock situation as that showed a draw of 4.3m barrels as product exports rose sharply and thanks to the economy, demand rose by 800/- b/d taking US consumption up to 9.4m b/d…The EIA also announced that US domestic production fell for the first time in a while but dont get too excited it was only down to 9.34m b/d!

Yesterday I spent some time with Jeremy Naylor at IG Group where he interviewed me for IG TV, it was a wide ranging and very general discussion about the oil and gas sector covering some of the basics as requested by his audience as well as talking about Opec and even Arctic drilling, it can be seen on the blog website www.malcysblog.com or on this link :

http://www.ig.com/uk/market-insight-videos?bctid=4147203830001&bclid=3671160850001

Falklands drilling- Premier-Rockhopper-FOGL

So, the first well in the latest campaign in the Falklands has been a success with the drilling on 14/15b-5 finding both oil and gas. In the Hector sands there was 18.5m of net gas pay from a gross reservoir package of 27.6m found at the crest of the structure, initial indications are of good reservoir properties. In addition it is possible that Hector may be oil bearing in a downdip location, adding more to the discovery than previously expected. As for Zebedee, the principal target of the well, there was a gross reservoir package of 29.3m with net oil pay of 25.3m which proves the presence of a further fan system to the South of Sea Lion and the previously discovered satellites. There was no oil water contact and the reservoir quality is amongst the best encountered to date apparently. Finally, a further F2 reservoir was encountered above the Zebedee fan which is also oil bearing and in a gross reservoir thickness of 6.4m provided net oil pay of 2.6m. This sand here appears to Rockhopper to form part of Ninky South was tagged in a very marginal position and therefore not included in the pre-drill stack prognosis. Good oil shows were also recorded at the deeper F3 targets but the sands were not well developed.

Taking all this into account we can therefore make a conservative stab at what sort of numbers in terms of barrels of recoverable oil might have been discovered. On a gross basis Zebedee might be looking at say, 50-60m barrels, whilst in Hector under the gas there may well be 20m barrels with a further 20m barrels in the additional F2 find in Ninky South. So I would suggest that this opening well might have contributed between 75-100m very valuable barrels as they are adjacent to Sea Lion, even Premier must be happy about this…

Seriously, although for Premier it is relatively small beer it will make decisions about Sea Lion easier to make, for Rockhopper it is further vindication of their faith in the basin and for FOGL it is the first step in the right direction. FOGL however is by far the riskiest play of the trio although many would argue they are the stock with the highest potential reward. With Humpback to be drilled in the South later in this campaign there is no doubt that there is a huge amount riding on that well being a success, in my opinion the risk seriously outweighs the potential reward, the shares having nearly doubled this year.  With Noble allegedly flip-flopping as to their long term commitment to the South, even if Humpback was a success it would bring with it the need to find partners and capital. The way to play this success appears to be through Rockhopper, although as is often the case, takes time to be appreciated by the market.

Sound Oil

More good news today from Sound, this time in the form of a CPR which shows the substantial potential of the Dora and Dalla discovery and prospect respectively. These offshore gas projects, where the company intends to shoot seismic and then drill, add a lot to the contingent and prospective resources in the CPR as does old favourite Santa Maria Goretti. These are material assets which make the Sound story what it is, a combination of low risk developments which pay the bills and a portfolio of exciting exploration prospects with genuinely serious upside. With a trip to Nervesa coming up as drilling here is imminent and Badile on the horizon I maintain my very positive stance on the company, just think what Antrim holders might have made already if they had used their heads….

Gulf Keystone

A quick word on GKP as most has already been written about it this week. It is unsurprising with hindsight that the company have maintained radio silence for a while although it wasnt difficult to guess at what was going on. The placing which raised $41m was properly oversubscribed I understand although those unlucky enough to not get their full allocation dont appear to have been buying in the market since. The Chairman took one for the team, as many reports say that the raise was contingent on him leaving at this time. With this money in and recent payments from the Government also received things are looking a bit better for the company and word is that about $15m per month is the likely ongoing level of payment. As to the process of restructuring of the company also announced recently, I am sure that there are major players out there still contemplating bidding for the company or the assets, so holders should sit tight and enjoy what might be quite a ride in the not too distant future…

Afren

Well its April now and the interim funding proposals which I am sure were threatened for March have not yet arrived. Yesterday the company said that the announcement was ‘imminent’ and that it would be followed by the results and a new CEO. Well he had better be Paul Daniels then because its going to take some serious magic to get back any of the shareholder value that has been destroyed by the company in recent months.

Sundry

Shell have confirmed the worst kept secret in the industry as they have now received US Government approval to drill in the Alaskan Arctic and will proceed as originally planned.

Amerisur have fallen again this morning after yesterdays announcement which I mentioned in the flash blog, the market unhappy with the reserves reduction. I wont go into the reasons for that again but investors should be aware that it is the pipeline that is the most important thing here and that it will happen and it will be transformational. The review by the Ecuadorian Oil Ministry has delayed the process but it is just that, a delay and the pipeline will go ahead and significantly change the game for Amerisur, with much to come in the next few months the 20.25p stock price is plain wrong, even in this market the fall has been way overdone.

Range Resources which is still suspended, announced that the EGM approved all the requests and the company will proceed with the Core Capital funding, that is assuming they dont want to change the basis after all this time. It is interesting that they are entitled to board representation but have so far declined to take advantage of the offer, a hard one to reconcile. Obviously one cant comment until the shares a re-quoted but the outlook for ordinary shareholders is pretty grim I would have thought, appropriate for all this to come out on All Fools Day…

And finally…

Easter weekend is historically packed with sporting events and this one will be no different, there is even horse racing on Good Friday, perish the thought. Tomorrow sees a programme of football in the Championship where any number of clubs are attempting to join the Prem, maybe Ipswich v Bournemouth is the game to go to…

On Saturday the Prem sees  the key game between the Gooners and the HubCap Stealers who are without a couple of players due to stamping violations…Villa go to the Theatre of Dreams and other relegation places have still to be filled. On Sunday its the big derby in the North East as the Magpies go to the Maccams where Ricardo Avocado still wants a win.. Watching Raheem Sterling being interviewed where he says that he is ‘not a grumpy 20 year old’ as he turns down an offer of a hundred grand a week…………

Lots of racing and rugby too so enjoy the sport where you are, if it’s cold and wet it must be the cricket season, have a very Happy Easter.

And for Netty it has been hard training as with other marathon hopefuls, this week saw the 20 miler which must be torture, here is a plug and a few words from Stephen Fry…
https://www.myfundraisingfilm.com/view/389c5ef4-81d9-4dda-8264-253b75611178?utm_source=email&utm_medium=socialshare&utm_campaign=myfundraisingfilm