Oil price, Hunting, San Leon, And finally…
WTI $56.96 -$2.51, Brent $62.01 -$1.58, Diff $5.05 +93c, NG $2.78 -5c
The oil price had headed south way before the EIA stats came out but they were the final nail in the coffin, analysts who had been wrong-footed on Tuesday had the sign wrong again, their predictions of a 1.8m draw turned out to be a build of 2.4m barrels. With refinery runs at 95%, higher than the API number the product numbers were even more interesting as gasoline draw was an impressive 1.76m barrels and gasoline demand was up 100/- b/d.
The next few days will be interesting to say the least, in the US its Non-farm payrolls tomorrow after which traders will leave the Strasa and head home for Independence Day celebrations, so positions will likely be minimal. I say that because on Sunday Greece could be celebrating Independence from Europe Day, although the Yes camp is gaining ground as Marxism is starting to lose its appeal. Tspiras is starting to back down and there are even stories that the referendum will be postponed for ‘infrastructure’ reasons, the ever-informed Marcus Ashworth notes that technically the Greeks have to vote in the town of their birth…
A trading update from Hunting today and like other service companies, especially when so dependent on rig activity, it was laced with references to the decline in the number of wells drilled, particularly in the US. 2Q declines in oil and gas markets were due to a 34% fall in US wells and 33% worldwide compared to the first quarter. Figures for the year to date show the US down 56% and world wide lower at a 12% decline. Accordingly, profits were down 76% in the first five months y/y and for 2015 in total the guess is that the fall will be between 50-75% ‘if there is improved activity’. With headcount down 25% so far this year, giving an annualised saving of $41m, costs are indeed being trimmed and with most plants on one shift with the exception of the fully booked Subsea division and US Connections facility in Louisiana the outlook isnt so grim.
I was extremely fortunate to have fairly recently visited a number of Hunting facilities in Texas and managed to spend some quality time with senior management in all parts of the business. There was no doubt that the 2nd quarter would be bad but nowhere we visited was at less that one shift and some considerably busier. Although I have visited most of these plants at least once or twice before I was still very impressed with the quality of management on the ground and their desire to be positioned for an improvement in customer sentiment and a pick-up in the order book. For anyone who hasn’t been fortunate enough to visit these plants they are more like top-end speciality engineering plants, indeed at one visit the site MD told us that he had previously been in aerospace engineering and that oil service technology was more akin to that than he had imagined it might be.
The Hunting share price has been very strong this year as the market looks beyond the here and now and takes into account how well positioned the company is longer term. The capex programme that has seen a number of new operations start-up, most recently demonstrated by the opening of the South African plant in Cape Town, is mainly coming to an end and in a good position to add significant value. New Hunting operations normally go to full capacity pretty quickly and with a strong balance sheet, CFO Peter Rose has timed the cash flow situation very well. The other reason for the share price strength has been regular whispers that someone is looking at Hunting with an idea of a takeover, whilst this may be the case and should never be ruled out, its valuation would likely be a lot higher than this and is probably why the shares have fallen back a bit this morning. More likely the longer term attractions of a cracking engineering business, the rig count bottoming out with June being the nadir has meant that short-term punters have taken money off the table, those with slightly longer trousers are holding on for the longer term in a cracking business that is properly geared to an inevitable upturn, the timing is up to you but I for one wouldnt want to short this one…
Just a brief mention as San Leon has announced this morning that it has signed a rig contract for the drilling of a well on the El Aaiun licence onshore Morocco. The well should spud in the second half of August and will take around 30 days. With a number of companies looking at onshore Morocco at the moment it will be an interesting pointer and worth keeping an eye on.
World Cup agony for England’s women as they concede an own-goal in stoppage time to go out 2-1 to Japan. Despite the loss the team has promoted the womens game big time and losing in a semi final was no disgrace.
At Wimbledon Heather Watson won again and now takes on Serena in the next round whilst Muzza, Ward and Beden are all in action today.
West Ham begin their Europa League campaign this evening against Andorran side FC Lusitanos. Reece Oxford will become the youngest ever player to appear for the Hammers at 16 years old.