WTI $51.41 -$1.63, Brent $57.05 -$1.46, Diff $5.64 +57c, NG $2.92 +8c

Oil price

The see-saw oil market delivered a down day yesterday for a number of reasons. First up was Iran with the MD of NIOC saying that 500-600/- b/d was deliverable soon and that 4m b/d possible in 6-12 months. All very well but I suspect that those numbers will look optimistic both on timing and volumes. As I see it there are enough regulatory and political hurdles that mean that it may be at least into 2016 before meaningful increases in production and exports is achievable. It may be three months until UN ‘Adoption Day’ and another two months until ‘Implementation Day’, overall there is likely to be 4-6 months of compliance procedures to complete. So, if I am right, even the next Opec meeting, scheduled for December 4th of this year may not address details of Iranian export situation although it will certainly be on the agenda. Having said that the market is right to appreciate that floating stored Iranian crude will reach the market and there is little doubt that the current 1m b/d limit will be flouted even more than at present.

The EIA inventory stats duly appeared and after the 7.3m draw in the API numbers analysts had a hunch that their 1.2m estimate would be wide of the mark. It turned out to be a draw of only 4.34m  but the increase in stocks at Cushing was more than enough to hit the WTI price. Watch out for significant increases in product stocks as well as refiners are going flat to the boards with throughput at record levels. Do they agree with the IEA that the ‘golden era’ for refiners is about to come to an end I wonder? Finally, August Brent expires tonight and of course we have the rig count tomorrow.

Afren-Walking dead…

Those of you who had hoped to be reading yesterday the report of my meeting with Alan Linn on Tuesday, won’t have been surprised to know that the diary date was cancelled at 30 minutes notice, accordingly I was not surprised to hear about their most recent difficulties. Its hardly worth going through but the company announced that production was ‘materially lower’ than current guidance of 29-36/- b/d and that there is ‘significant uncertainty’ at this stage regarding the outcome of the current review. In addition ‘ given the material uncertainty of the results of the review, Afren is unable to assess accurately its financial position and inform the market accurately at this stage’.

Quite where things go from here is difficult to gauge but the easier analysis is that the company will never return from suspension and the bond holders will  pick up what is left of the pieces. There are however a number of unanswered questions that should be addressed. I note that The Times today is covering the Afren Legal Action group who have petitioned the FCA.  The shareholders have also asked the Financial Conduct Authority to investigate whether Afren operated in “potential collusion with certain bondholders”. Another nasty suggestion was made more than once yesterday of an even more unpleasant nature with regard to production being squeezed by partners in an attempt to ensure that Afren breached its PSA’s after which would indeed be a ‘clever ploy’, whatever it is a serious can of worms. I dont honestly expect my meeting with Alan Linn to be reinstated any time soon, I should have realised something was up, whilst I was doing my prep for the meeting the more I investigated the worse the situation looked, at the moment it looks terminal…

Ithaca Energy

Back to the more mundane but significantly more rewarding is the operational update from Ithaca which is a bucket list stock and will remain so. 1H production was 12,578 boe/d with guidance held at 1,200 b/d of which 95% is oil, the lower number being down to scheduled maintenance procedures. Stella is on target for sail away late 1Q 2016 with first hydrocarbons still on track for 2Q next year. One of the best things about Ithaca is their immaculate hedging policy which for the second quarter had them protected in 10,187 barrels at $96, if a better hedge has been in place it will indeed be equally impressive.

Sound Oil

Sound has been awarded the production concession for the Casa Tonetto licence which includes the Nervesa gas discovery. This is the final step in the permitting process to enable commercial production and first gas is expected later this year. Sound has been a very good performer for the last 18 months and with exciting prospects on the exploration front in Morocco and in Italy, as well as more production coming onstream is set fair. The recent funding means it has no worries on that front and the management team is strong and has been recently been augmented by a senior financial appointment to look after Morocco. Very much still up there with the favourites on the bucket list.

Tethys Petroleum

I met with John Bell, Executive Chairman of Tethys yesterday for an update, given that there is a ‘possible offer’ for the company I was only able to talk about operational matters but on that front things are improving markedly. Historically I have not covered Tethys for a number of reasons mainly to do with management which has now all gone so it is now worth having a look at the company. Having said that it still has some factors which might make it of limited interest to some investors depending on what happens in the immediate future.

The possible offer is from Nostrum which clearly agrees that the work being done by John Bell is making Tethys a more desirable entity and now is the time to make an approach before it is too late. The timing is also due to a fund raising and strategic collaboration that the company has announced with AGR Energy whereby the company will raise $47.7m. Since that announcement the company has announced that one of its leading shareholders, Pope Asset Management is now participating which will mean that after the raise AGR will own 36% of the company and Pope 26.6%. Clearly with these two holders and two other leading institutions owning over 75% of the shares free float will be at a premium and some investors will balk at the prospect of owning the stock.

Having said all that, operationally John Bell has clearly been getting to grips with what was clearly a badly run company with far too many offices around the world and a very high cost base. Indeed, G&A costs will have halved to just over $10m by the end of this year and in Bell’s words he will have ‘rightsized’ the operation losing 50% of leadership jobs and 25% of staff. The focus of hydrocarbons to Central Asia is front and centre and more specifically gas to China who will take gas from anywhere and there is a huge network of infrastructure and pipelines to enable it to happen. Once the funding is complete Tethys will have the opportunity to do what it hasn’t done for a long time and actually drill some wells, a ten well programme is ready to go (dont ask about the rigs, they are owned by Tethys, a big no no from me and I gather Mr Bell too) so the next phase can begin quite soon.

Overall the situation is improving rapidly, especially as the company was on the brink of insolvency last November and shareholders have much to thank John Bell for, assuming all goes well things bode pretty well for Tethys and I shall be watching closely, more to follow…


Schlumberger kick off the results season later today and the figures will be an important guide to how bad the second quarter has really been. UK service companies in their 1H trading updates have indicated that trading was poor but with the rig number fall being tempered recently I will watch the statements with interest.

ENOC has made a statement regarding Dragon and its proposals, it can be safely assumed that the message may have been directly aimed at Baillie Gifford who are holding out for more money which I would be surprised if they got, I consider it to be a full price.

Premier has announced that it has been awarded two blocks in the Mexico 1 licencing round. Trade press is indicating that the round hasn’t gone particularly well but Premier appear to have made an interesting move.

Pantheon has announced that site preparations are complete and that they expect to be ready to spud the well by the end of the month.

And Petroceltic has announced that Worldview has requested an EGM….

And finally…

One of the best days of the English summer today as the Lords test starts and its the first day of the Open, this year at St Andrews.

The cricket has started well for Australia, having dropped Watto and Nevill coming in for Haddin they won the toss and are 104-1 at lunch.

In the golf, as I write at the top of the leader board are Dustin Johnson, Paul Lawrie -7, Robert Greb, Retief Goosen and Paul Kinnear -6.