WTI $43.30 +22c, Brent $49.66 +48c, Diff $6.36 +26c, NG $2.93 +9c
Away for a couple of days in the North West and not much has changed on the oil price front. It is that time of the month that the agencies release their data and bulls and bears select random data to suit their book. No doubt that the bulls will find the IEA stats better reading than either the EIA or Opec numbers but to be honest none look dreamy for oil companies. Best news from the bunch is the IEA being upbeat about demand numbers increasing at their quickest pace in five years with the call on Opec next year of 30.88m b/d. The EIA number for that is 29.91 which pretty much what happens to demand and supply from Iran and Libya, means further misery. They run with 2015 price estimates of $54 for Brent and $49 for WTI and for next year go with $59 and $54 respectively. Lower prices will linger longer but 2H 2016 does look better than that to me, by that time the capex cuts by the majors will be kicking in quite hard.
Given that the greenback weakened yesterday as a September rate rise is now less than a 50/50 chance, the price rise looks even more miserly and the EIA inventory stats were only slightly bullish, at a draw of 1.7m barrels it was better than the API numbers indicated and the market clutched at straws. Two refineries are either out or working well below capacity making the demand for crude fall but increasing crack spreads even higher. Whiting will be down around 60% for at least a month and the Phillips 66 Linden refinery will lose 238/- b/d for at least a fortnight. Accordingly the aforementioned crack spreads have rocketed to over $30 p/b up over $5 on the week.
Ithaca is performing better than its industry peers but performance is nothing to write home about, unsurprising at $50 oil I hear you say. But the key point about Ithaca it should be remembered is its long term hedging policy which means that almost no other company in the sector can match its realisations at the moment. With two years of hedging giving Ithaca $70 crude until 2017, operating costs down 29% to $35 p/b coming down to $25 when Stella starts up and a Brent beak-even price of sub $10 with the benefit of hedges until then things are looking remarkably rosy. Cash flow in the first half therefore was $160m and production was 12,578 boe/d, with guidance for the full year remaining at 12,000 and hedges in place it will remain very strong.
I will listen in to the conference call later but I am unlikely to hear anything that will change my views, despite the huge under performance of the sector, with its hedging strength and imminence of Stella, Ithaca is up there with anything its peers can offer.
Ophir Energy- Hunkering down
The Ophir share price took another battering on the interim results this morning as if the market were not expecting to see so much red ink. Losses of $123m (+$589m) and production of 12,578 b/d came in as expected but despite revised upwards, full year guidance for production is a fall to around 12/- b/d. Net cash is £392m against last years equivalent of $1.2bn and the company is hunkering down with no wells drilled so far this year and few commitments, two inexpensive Thailand wells are expected in the second half. Like most of the sector costs are coming down, Ophir expect annualised savings of $60m pre tax and the seismic is about the only spend on hydrocarbons in the first half. The Fortuna FLNG is making progress with FID expected mid 2016 and have signed up Golar LNG as its midstream partner.
I am hoping to have a meeting with Bill Higgs before long and will update in more detail after that, in the meantime investors should follow the company’s policy of hunkering down until the long term is more visible.
Caza Oil & Gas
Second quarter results from Caza this morning unsurprisingly show a fall in revenues due to the oil price and reduced production volumes as the company cut back on capital expenditure until ‘operational costs adjust to appropriately reflect the current pricing environment’. The average price of oil in the 2nd quarter was up 24% on the first quarter but is down 46% year on year and this quarter will clearly be down again.
The company note the drilling activity on trend with and in close proximity to their own Bone Spring lease blocks, these have confirmed three of four potential horizontal Wolfcamp targets in addition to traditional Bone Spring targets. I have seen the maps and the drilling activity around here and it gives significant cause for optimism should things look up and it does have positive ramifications for Caza’s asset inventory in due course.
The market has been concerned about the debt situation at Caza and in this release the CEO explains that the board is currently ‘actively considering all available financing options’. They are in ‘advanced negotiations with a proposed financing partner to establish a funding strategy’ which if it goes ahead should provide more financial security and an ability to retire existing commitments and fund development of the Bone Spring assets. Obviously in current market conditions these discussions are difficult and constantly changing which is why the share price is so low, despite this I am of the view that if Caza can work out a financial restructuring then the asset base is significant and will deserve a market cap well in excess of the £3.9m afforded to them at the moment. I will comment more after I have spoken to the company direct.
Although the UK onshore exploration companies were understandably not prepared to suggest pre the UK General Election on possible outcomes, the Conservative majority has been a godsend to them. The announcement yesterday that Ministers will be allowed to override local councils when they defer planning decisions is a significant and meaningful step in the right direction and such applications will now be fast-tracked where appropriate. Ministers will be able to identify councils that repeatedly fail to assess these applications and if the 16 week statutory time-frame is not adhered to then they can be called in and judged upon. Good news for IGas, Egdon and Alkane Energy also the unquoted players who have a significant role in the development of the UK’s onshore gas reserves.
Independent Oil and Gas have announced that they have gained an extension to their deal with Alpha until 7th of September. Assuming that happens there will be a nominal completion payment followed by two staged payments, one of $3m at FDP approval and $15m on first oil.
Soco has announced that first oil from the H5 wellhead platform on the TGT field offshore Vietnam has been achieved early, this will be further good news that the market has been waiting for.
The US PGA tournament is underway at Whistling Straits with Rory apparently fit enough to play after his injury playing football with his mates…He is out with Jordan Spieth and Zach Johnson which will make for an exciting group to watch as between them they have won most of the recent majors…
The women’s Ashes were bad news for England yesterday ending up well behind on the first innings, today they had the Aussies at 2-2 before rain stopped play at 15-2.
In the SPL the leaders are…not Celtic who dropped points after only drawing at bottom of the table Killy but it’s the jam tarts who are continuing their amazing run of form to go top…
And the FA have done something good for once…they have told manager Woy that his contract will not be reassessed until after the European Championships. Given England normally qualify for these things easily and then are totally rubbish at the finals its good not to guaranty Mr Hodgson the next World Cup, especially after the disaster he presided over last year…
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