WTI $56.71 +32c, Brent $63.98 +66c, Diff $7.27 +$3.34, NG $2.68 +7c
With the expiry of the May Brent contract on Wednesday the last 48 hours has seen quite a swing in prices, indeed at one stage yesterday it nearly reached $65 having been below $58 on Tuesday. Bulls were on the Twitter machine yesterday asking if I had changed my view that the oil price would test the lows before rising again long term and whilst the news is generally better I still think that we are not past the worst quite yet.
The week has given us the monthly reports from the agencies and as the brilliant David Hufton says, there are stories there for bulls and bears alike what with Opec exceeding expectations and the USA production falling, albeit modestly. I find it ironic that the highest cost producers in the USA are actually gushing flat out ready to pay the interest bills in June….what will happen after the hedges run out and the bank manager is on the doorstep?
Finally one thing that does worry me is the level of speculative interest in the oil price at the moment. I have mentioned this a bit recently and I notice that open interest in Brent futures is up another 30% this week to 2 million contracts, not only a level that gives some cause for concern but one that should it have to be reversed in a hurry could cause quite a panic, you have been warned!
Figure from Schlums yesterday and whilst the revenue missed the consensus by $210m the earnings actually easily beat the whisper coming in at $1.06 against expectations of 91c. No surprise to find out that the weak US drilling market is the main problem with revenue here falling 13% against only 8% on the international side. As the company say, ‘an extended period of price weakness as US land drilling was further pushed out in time’ and it looks like when it does recover it will not be to previous levels for some time. Another cut to the capex budget, this time to $2.5bn having been $3bn and $4bn last year mean another 9/- jobs go after 11/- announced last quarter. Like most other service companies the SLB price has traded sharply off the lows of January and has tracked the oil price quite well, cost cutting is fine but can only go so far, cutting into the muscle will be less pain-free but SLB is a survivor despite the bumpy ride.
Northern Petroleum- It’s all about M&A…
I made a brief comment yesterday about Northern and have since managed to have a lengthy chat with CEO Keith Bush with regard to how things are going at the company. The share price actually rose a bit yesterday as investors took on board the news that maybe things were not quite as bad as they might have been. One point I must tidy up is with regard to the impairment charge, the figure they refer to on French Guiana of $36m is for the entire 2.5% stake of which they only own just over half so their share is only $19m, not brilliant but better than the whole lot. The company had $12m of cash at the period end and given that they have slashed their G&A cost from $12m pa to $$3m pa and have few commitments the company is solvent until the end of next year notwithstanding any disasters. They will not therefore need to go into the market for cash per se but are hardly swimming in the stuff. The need for a deal is clearly of significant importance, carrying on as they are at the moment is not, in my opinion, an option.
In Canada things are beginning to look up after the recent disappointing drilling news, one well will be back on soon with 150, maybe 200 b/d and another with capacity of 50-100 b/d is scheduled after that. So 250 b/d with a six month payback will start to bring a cash surplus and if crude stays at over 60 bucks that helps too. In Italy things are also looking up but as usual in the country, and with Northern being exposed to offshore acreage nothing is going to happen in a hurry. The Shell farm-out is good news and being onshore will help sooner but the seismic EIA still has obstacles being put in its way, Renzi is working hard but it’s never easy.
Overall the reaction to yesterday’s statement appears to be that the bad news was all in the price and that with a number of caveats things can be turned around. The work on the G&A is highly creditable to the management and they are moving out of their expensive offices in the City of London, with new digs south of the River now only Barrack Obama, Johnny Sutton and Keith Bush can claim that they have an Oval office…
I dont comment on every contract that Plexus announces otherwise there would be no room in the blog for anything else but todays albeit modest order is worthy of note. The company has announced its first ever contract in South America with a $0.8m order from Eni and Repsol for mudline suspension equipment services for a well offshore Venezuela.
The Sound share price continues to power ahead, nearly reaching 20p in recent days but the news remains positive. Today the company announces final approval of the EIA for Nervesa with field production concession expected shortly. The first well on Nervesa is expected to generate 4m euros of cash pa which will add to the existing cash flow that already pays the bills of the whole company. With analyst and media visits to Nervesa scheduled early next month, expect Sound to remain firmly in the front and centre of market attention, still a significantly preferred stock to own.
Another bumper weekend of sport awaits as there is action across many fronts and many locations. In Bahrain the F1 caravan moves on and we shall see how Mr Rosberg copes with other drivers going too slowly despite being unable to overtake them.
In the West Indies England are virtually assured of victory in the First Test match and the attention shifts to Jimmy Anderson who should go past Beefy Botham’s record today.
The European Cup in rugby has arrived at the semi-final stage and Clermont Auvergne host Saracens so that’s France v South Africa then and on Sunday it’s Toulon v Leinster much easier to call…
Football turns also to semi-finals with the FA Cup matches being played, foolishly, at Wembley. Villa take on the HubCap Stealers while Reading face the Gooners. In the Premiership the outstanding match is Chelski v Man U who are rumoured to be playing a significantly weakened team. The Hammers go to Middle Eastlands where anything can now happen but its bad at the bottom as the Baggies face a daunting trip to the Eagles, Burnley host the Toffees and Leicester need to beat Swansea.
While we are on football I notice that concafaf delegates have voted for Sepp Blatter as God of FIFA by saying that he is on a level with Jesus, Winston Churchill, Moses, Nelson Mandela, Abraham Lincoln and Martin Luther King, if ever there was a reason for taking away the vote this is it…
And only one week to go until the marathon, Netty’s training is now almost complete and so many thanks to you who have been so kindly donating to her link which is still below.