WTI $50.79 +37c, Brent $56.57 +$1.02, Diff $5.78 +65c, NG $2.53 -9c
Yesterday the oil price staged a modest rally, it would have been better if it hadn’t been for a sharp fall at the death. Influences on the market came mainly from Iran where both the Supreme Leader and the President made it clear that nothing less than a full lifting of sanctions remains a pre-requisite to signing of any nuclear deal. With the US making it equally clear that sanctions would be lifted gradually it appears that we are back at square one.
Elsewhere, economic data from Germany was was good with a rise in exports and also good factory output figures whilst inflation in China remained slightly higher than estimates. At a conference in Riyadh a senior advisor to the Saudi Oil Ministry was upbeat on oil demand saying that he expects it to grow by at least 1m b/d every year for the next ten years.
Faroe has announced a small gas discovery this morning on the Shango or Skirne East well operated by Total. Despite only being in the range of 3-10mmboe against pre-drill estimates of several times that we must be grateful for small mercies and that it is still a discovery. Indeed in a better location it may have been significantly better apparently. It is also worth noting that with nearby infrastructure and much cheaper costs, smaller discoveries like this are most definitely viable and in some cases pay-back is achieved pretty quickly. Faroe now go on to two exciting prospects on Pil which will to a large extent determine their exploration year. I’m staying with Faroe as I feel that the company ticks a number of the right boxes, it is fully funded for this year, largely controls its own destiny and management is of good quality and pro-active enough to take advantages of appropriately good deals should they come up.
Trinity Exploration & Production
I promised to return to Trinity after the news on Wednesday that they too were planning a strategic review. Like Lansdowne they say nothing is sacred and all of the usual options will be explored. Accordingly they are in an offer period as the process will undoubtedly lead to some asset sales, farm-outs or similar corporate transactions such as bringing in a strategic investor. The company has received a number of approaches for different assets and from a number of different potential buyers, indeed I understand that there is no part of the portfolio that is not of interest to someone.
The main piece of bad news was the significant write-down of 2P reserves, from 47.7mmbbls at the end of 2013 to 16.4mmbbls at the end of 2014. This triggered an impairment review which showed that the company was clearly under-capitalised and needed refinancing. (Interestingly with the ability to transfer back reserves from 2C to 2P in due course some assets become more, not less appealing to potential buyers.) So with a moratorium on debt repayments and not enough cash in the bank to pay the $22.5m owed to Centrica for the acquisition of working interests in blocks 1a and 1b, something had to give. Whilst the liabilities are significant I dont believe that this means that the business needs to be wound up, more as someone said, the challenge is of configuration with the sale of some assets as soon as possible. (NB I am not aware that there has been a bid for the entire company due to the diversity of its asset base.)
There is no way that Trinity can be described as a lifestyle company however easy it sounds, management and staff have over 20% of the equity and I believe that some of the reserve downgrades go back to assets bequeathed by previous owners, made worse by current low oil prices. There is a lot of activity in Trinidad with a number of independents, actively encouraged by the Government, growing rapidly which should make the process somewhat simpler. Having said that it is just that, a process, which will involve data rooms and hopefully a competitive bidding situation to achieve the best possible outcome. Only when that happens will the company know the extent of any refinancing and recapitalisation, shareholders are rightly concerned but as I mentioned before this shouldn’t mean that the business is likely to be wound up, however I suspect that it is going to be a bumpy ride in the short term.
EnQuest has announced that it has launched a consent solicitation for the £155m of retail bonds to ‘bring covenants into line with the amended covenants in its revolving credit facility’. CEO Amjad Bseisu said that with indicative support of around 42% this was a ‘prudent and precautionary step’ to enable flexibility in its capital expenditure programme to significantly enhance production and cash flow. EnQuest has picked up recently after concerns about the covenants worried markets and it appears that the management are getting to grips with the perceived problems.
Its one of those weekends of sport that you never quite know where to watch with domestically some key football matches, the Grand National and the University Boat Race. With the Masters at Augusta and F1 in China its almost 24 hours a day…
So, Jordan Spieth nearly equalled the course record and is 8 under after the first round. Justin Rose is in touch at -5 and Rory possibly still in there at 1 under but Spieth is in form and was second last year so will be hard to edge past.
In China, Mercedes will be keen to prove that last weekend was merely a blip and certainly the way Lewis was driving this morning shows that he wants that top spot back and sharpish, race is 0630 on Sunday morning.
Aintree tomorrow sees the Grand National and of course all eyes will be on AP McCoy as he partners Shutthefrontdoor in his last attempt at winning the race. It will be massively too short in price and with six out of last years top seven in the race and plenty of live chances at better prices, punters will have a field day but if he does it bookies will be massacred.
Also tomorrow sees the boat race on the Thames with Oxford aiming to win it yet again, not much of a spectator sport lately but always remains up there in the sporting calendar for some reason.
Football wise there is one big game on Sunday which is the visit of the Noisy Neighbours to the Theatre of Dreams, the champions should have the edge but there is little doubt that recent form has been going the other way a touch. As has been the case lately it’s at the bottom of the table that is most interesting with the Maccams hoping for another win, this week they host the Eagles whilst Leicester surely need points against the Baggies who aren’t safe themselves yet. Finally Tim Sherwood takes his new club Villa back to White Hart Lane where he is assured of a warm welcome…
Finally it was very sad to hear that Richie Benaud had died last night at the age of 84. I am sure that cricket fans of all ages will remember him either as a player or a pre-eminent commentator over a long period of time.