WTI $61.26 +$1.06, Brent $65.49 +61c, Diff $4.23 -45c, NG $2.70 +5c
A modest rally in the crude price yesterday was mainly due to the weakening greenback as well as further comments from Mr al-Naimi suggesting that oil demand will definitely pick up in the second half of the year. It is certainly going to have to if the latest production numbers are to be believed. Following my comments about Opec production in May yesterday there are some more detailed numbers on a country by country basis around. With Saudi production staying at 10.25m b/d it was Iraq that upped its game with production of 3.87m b/d of which they exported 3.15m b/d apparently, this was nearly 200/- b/d up from the previous month. Add to that the USA production in the week ending 22/5 of 9.57m b/d which is the highest for 43 years (the fall last week was as I guessed, due to Alaskan maintenance) and further pressure is applied. Finally even Russia is squeezing more oil out, its production in the month was 10.71m b/d, up 1.6% y/y of which they exported 5.06m b/d. The good news is that US demand, particularly for gasoline is still strong. Figures for the first three weeks of May show oil demand of 20.289m b/d, up from 19.104m last year and 18.687m in 2013, no sign of reducing fossil fuel here then…
The API inventory figures, released after the close foxed the analysts community again coming in at a build of 1.8m barrels when the teenage scribblers had it down as a likely draw, never mind chaps, better luck next time. That was enough to drop the crude prices by around 50 cents in early trading today as the market worries that the expected draw in EIA stocks may come to an end with their numbers tonight.
Opec gossip is now at its peak and a number of investment banks have decided to veer towards an increase in the 30m b/d Opec production figure at Friday’s meeting. To be honest it matters not, as I wrote yesterday the cartel is over-producing by well over a million barrels a day so they can pretty much say what they want, why not say it like it really is and be done with it…
Readers will know that I have been very patient with Pantheon and I believe that that patience may well be about to be rewarded. Pantheon is well and truly in the bucket list and yesterday I managed to get an interview with highly experienced CEO Jay Cheatham on TipTV, the link is below. The Pantheon story is all about a two well programme in Texas where oil is targeted in the Eagleford and as a backstop one of the wells has an Austin Chalk target into the bargain. The company has had its fair share of weather problems as Texas has endured heavy rainfall and flooding as I can testify to from my recent visit. However Pantheon has teamed up with a third party and hired a rig which I can confirm has now spudded on its partners location. This is ideal as not only are the costs shared from mobilisation to mud’s but whilst the rig is in action elsewhere Pantheon can prepare the very wet location by building a new road to the site. The cost savings are worth bearing in mind, at the time of the raise the budget was $6.9m, it is now $4.9m, a saving of the order of 30%.
The weather has meant that the Polk County well will be drilled first followed by Tyler County which has the Austin Chalk as plan B, it is a pretty good plan B as it is rich in liquids and wet gas which make the hydrocarbons very saleable. The metrics for these wells are as good as pretty much I have ever seen in the States and with operating costs of under $1 a barrel the total costs are very low making any discovery highly profitable in the Eagleford or the Austin Chalk. Payback in the Eagleford with a discovery will be 4-5 months after which it will be self-financing and extremely valuable.
The above prognosis does make this whole process seem very exciting, which it is, but of course only success on plan A or B will deliver such a good result. For exploration wells the COS is pretty high at around 50% and along with very robust economics weighs the risk more than usually towards the explorer but never forget the old adage, ‘never ruin a good prospect by drilling it…’ Take a look at the interview and see why I am happy to keep the shares well and truly in the bucket list.
A brief word on Amerisur as I met with the company yesterday and all is progressing well as outlined in recent presentations by the senior management. With the market misreading the remedial action taken by the company a little while ago the buying opportunity was even then obvious and even at 30p or more I remain convinced about the company’s prospects. The company has positive cash flow at current oil prices and recent negotiations have led to reduced costs and reactivation of Pad 3N which is highly advantageous.
The icing on the cake of course will be when the Ecuadorian pipeline interconnector which will substantially reduce operating expenses and give potentially significant production growth optionality. At present the company are completing the necessary environmental permits and permissions but all being well they are on target for commissioning in the last quarter of this year. Amerisur is very strongly positioned with good cashflow, plenty of upside in Colombia and Paraguay and the potentially transformational pipeline on the horizon. With no debt, cash of $72m, capex fully funded and a perfectly timed, undrawn RBL awaiting I remain very happy to keep them in the bucket list.
I notice that Sterling Energy has bought into Tullow’s C-10 block offshore Mauritania, this is interesting as a number of companies have been either announcing or talking about plays in the area recently. The big one of course is Kosmos with their Tortue-1 discovery which I hope to hear more about when I meet with the company the week after next. Indeed Chariot still talk a good story about their strong position in-country and that should be watched for as well.
Talking of meetings I am seeing Cath Norman, MD of Far next week, I have noticed a number of major houses have upgraded on Cairn this week on Senegal prospects which as you know I am very positive on already.
Nice to see PetroBras back in the bond market and with a 100 year bond into the bargain, I look forward to seeing what bond wizard Marcus Ashworth has to say about that…
Dancing in the streets as $epp Blatter finally realises that he is not immortal and walks the plank. However FIFA planks are longer than any ordinary plank and he will likely remain in expensed splendour in Zurich until next spring unless Uncle Sam gets to him first….
The French Open tennis is really warming up, in the hard part of the draw today sees Muzza take on Ferrer and Rafa has an early meeting with Djokovic which certainly historically might be worthy of a final. In the easy side of the draw, Roger lost to fellow Swiss cheese Stan and Tsonga beat Nishikori.
The losing of a day to rain didnt stop the Kiwis overcoming the spineless English batsmen who managed to think of all sorts of ways of giving away their wickets. Leaving the straight one is never wise as is feeding short leg with dolly catches either, Mr Bayliss would be having kittens as to what he has taken on and checking his Rolodex under the initial ‘P’…..