WTI $43.87 -79c, Brent $48.61 -91c, Diff $4.74 -12c, NG $2.80 -1c
Oil price
The oil price continues to make no headway against a tide of bad news that includes the Chinese trade stats, a strong dollar post the NFP numbers and the further increase in the rig count. Not to mention 32m barrels a day plus from Opec with more to come and the EIA saying on Friday that US refiners are running at record levels of 17m b/d +, not seen since 1990, good news for now but sure to end in tears as we approach Labor Day and the end of the driving season.
Friday’s figures from the CFTC showed a modest pick up in exposure by hedge funds etc in the crude market but it needs to be much more if the market is to believe that a wall of money thinks we are near the lows. Both crudes were off by 7% last week which ended as I mentioned with the rig count which in oil was up by 6 making an increase of 32 in only three weeks, so if US shale really was comfortable at $60 will we now see a fall again in the ensuing few weeks?
Rockhopper
Rockhopper has announced this morning that it has acquired a portfolio of non-operated production and exploration assets in Egypt from Beach Energy for $22m. The assets include a 22% interest in the Abu Sennan concession and a 25% interest in the El Qa’a Plain concession which adds 1,300 boe/d and 4.5 mboe of 2P/2C reserves and resources. The cost of $22m will be funded $11.5m in cash plus $10.5m worth of shares giving dilution of around 3.5% but capped at 5%.
There are a number of very positive points to mention with regard to this deal, not least the attractive terms which after adjustments comes in at under $4.5 per barrel of oil equivalent. The deal provides good cash generation with limited capital commitments and this and the Italian assets should cover group overheads going forward which we know is a big tick in the box. RKH estimates cash at the end of this year of $110-120m so is very strongly placed to take advantage of any other opportunities that this market throws up.
Rockhopper has identified the Greater Mediterranean and North African geographies for de-risking exposure to the North Falkland Basin, ironically at a time when that drilling campaign is showing signs of success but demonstrates a continuation of the strategy outlined at the time of the MOG acquisition. It is ironic that today also brings good news on that front with the EIA approval having been agreed for FDP on Ombrina Mare, a ‘significant milestone towards unlocking this project’.
As I have said this deal ticks a number of boxes, it is a value added proposition, it shows downside protection with costs being covered- important in this market- at a low capital cost and shows that management are maintaining momentum in pursuing the greater Mediterranean portfolio balancing. With more drilling expected in the NFB in early September to complement success earlier in the season, times are exciting at Rockhopper despite the prevailing market conditions.
Sound Energy
The newly renamed former Sound Oil has a ring to it, not just as it has much more gas in the portfolio but because the management team exude a high energy approach to running the business as seen by the number of deals either done or mooted in recent months, and that’s just the ones we know about. The most recent of these was Thursday’s announcement that they had signed a GSA with Shell Energy Italia for the Casa Tonetto production concession which includes the Nervesa gas field. Having this in place will allow Sound to manage the risk/reward balance and having Shell on the ticket can never be a bad thing. There are a number of high impact events expected in the next few months and knowing Sound quite possibly one or two unexpected, that high energy of the management keeps everyone on their toes and so far continues to grow shareholder value.
Afren
The fact that the administrators have launched a fire sale of the company’s assets will be a dagger blow to shareholders who in recent months have been totally abused at every level by the succession of incompetent and fraudulent management. Although the FT and the Sunday Times both exposed further claims at the weekend, including how the money was come by, how it was spent on school fees and flats for their children this is just the tip of the iceberg and should be investigated by criminal authorities who have appropriate teeth.
If you are on LinkedIn you should immediately befriend Simon Hawkins the former head of IR who has published ‘ How to cope when your CEO trashes your company’ and ‘ 10 shocking moments at Afren I never want to relive’. Here they are:
- Mixing business with pleasure – learning that Afren execs privately owned undisclosed stakes in FHN, one of the Company’s subsidiaries. I should have resigned there and then.
- Reality check – looking out over the sea at our beach house while conferencing in to Afren’s board room only to hear for the first time how our CEO and others had received unauthorised payments. And in the process betrayed so many people who had believed they were better than that.
- You’re fired! – witnessing the Chairman of a FTSE 250 company suspend the CEO and COO before their dismissal. Simply. Extraordinary.
- D-Day? – arriving at the office on too many mornings thinking “Surely Afren is going bust today”. And worried the money won’t be there for payroll at the end of the month.
- What a bogey – being told my boss had been dismissed for gross misconduct and realising just how much golf he had been playing after being granted full access to his Outlook Calendar.
- Broadsided – getting a call from our interim CEO to say we need to write off 1bln barrels from our Kurdistan assets, after having been told only a few months earlier by previous management that we were about to sell them for $1.2bn. Like we hadn’t been dealt enough blows.
- Wake up call – woken up at 2am by my iPhone buzzing only to find some bright spark had posted on Twitter the night before an announcement we were due to make later that day (7am) by figuring out the sequence numbers on our website and pressing refresh until it appeared. Not our finest hour.
- The real victims – taking the flood of calls from shareholders who had lost their life savings and more. Haunting and heartbreaking. Genuinely.
- We are watching you – being led from the head office back door by Head of Security following a credible and specific threat to my personal safety.
- Up in smoke – learning about the Company’s ultimate demise from a Bulletin Board post simply saying “Administration”
Tethys Petroleum
When I recently had the good fortune to meet with Tethys Chairman John Bell there was no doubt that he had done a magnificent job of rescuing the company from the mire that it had been properly inserted into, indeed with the AGR financing and the Nostrum bid in the background things definitely were looking up for patient shareholders. At the end of our meeting I pressed him about the merits of a refinancing at a lower level than the intended bid but he was dutifully inscrutable, i’m sure as he would be if I was talking to him again today.
But I suspect he would be feeling very let down by AGR who recently clearly moved the goal posts of the detail behind the refinancing probably expecting acquiescence but not knowing their man well enough. With the likelihood of the Nostrum bid in the background, Mr Bell found it easy and certainly better on the conscience, to put his foot down and make the call to the company explaining his predicament.
The outcome is more favourable to shareholders assuming all goes through. Nostrum has provided a $5m bridging loan to keep the company afloat and effectively re-tabled the C$0.2185 potential bid subject to due diligence. As a result, again assuming a successful examination of the books etc Tethys shareholders can expect a bid for their company that they will be able to take in cash or keep their exposure to the Caspian Basin and its environs. Tethys shareholders should be grateful to Mr Bell in more ways than one…
Sundry
At long last it looks like we are going to get the results of the UK Onshore round of licencing this week which may well even include some fast track fraccing into the bargain. Good news for IGas and Egdon and obviously Big Jim Ratcliffe who may have joined this party just at the right time…
After a recent explosion at the pipeline I see that the HPG has said that it will ‘not be hostile’ to Iraqi Kurdistan and that their will be no further attacks, whilst not completely watertight this is another piece of good news for the oil producers in-country.
And finally…
I was very fortunate to be in Nottingham for a couple of days last week and attended Trent Bridge to watch the test match. There won’t be many days like that and after winning the test and regaining The Ashes victory was particularly sweet after the last embarrassment…I enjoyed seeing the Notts police turning up as they had heard that 11 Aussies had been mugged in an hour an a half and of course that the whole Aussie innings could be texted as it contains less that 140 characters. To find your Australian name you just need to add B Broad at the end and to pretend to be an Aussie batsman just go out into a field and walk back again…
So, the Premiership started again at the weekend and pride of place should go to the Hammers who went to The Emirates and pilfered three points, interesting fact, Petr Cech has now lost as many home games under Arsene Wenger as he did under Jose Mourinho….When 16 year old Reece Oxford got home and turned out his pockets he had his keys, his wallet his phone and…Mesut Ozil…
Elsewhere there were wins for Man Who against Spurs, the HubCap Stealers beat Stoke, and Chelski got a draw against Swansea. Newer additions had mixed fortunes with Watford getting a 2-2 at Everton but Bournemouth lost 0-1 v Villa and the Canaries lost 1-3 to the Eagles. Not good news for the Black Cats as they went down 4-2 to Leicester, Richard Avocado may be regretting that about turn already…
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