Oil price, Faroe, Circle Oil + catch up on Rockhopper-Nostrum/Tethys- And finally…
WTI $47.15 +$2.56, Brent $49.75 +$3.12, Diff $2.60 +54c, NG $2.66 -7c
Having been away on company visits for a couple of days and written no blogs I return to find the oil market in a slightly cheerier mood. Obviously world markets are looking to the Fed for the long awaited decision on interest rates, from what I can gather from the assorted experts such as Marcus Ashworth, (now Head of Fixed Income at Haitong) it would almost be better just to get a small rate rise into the market just to avoid this rather painful dithering. Anyway, 7pm tonight London time is when to be standing by I understand.
Crude markets have picked up by more than three dollars in the last two days, primarily due to the latest inventory stats from Genscape, API and yesterday the EIA. The EIA number is normally the most accurate and showed a crude draw of 2.1m barrels whereas the analysts consensus guess was for a build of 1.8m barrels. This was, believe it or not the biggest draw in seven months as refiners upped their runs for the first time since July but stocks are still at very high levels. The result was more interesting as it was the first ‘clean’ week since the driving season ended and at a time when refiners are starting to reduce capacity ahead of the autumn maintenance season, less gasoline and more heating oil will be the order of the day in a month or two. On the subject of gasoline the figures also showed a large, three million barrels, build in products which is slightly disturbing and will need to be watched. Finally while I was away from the desk October Brent expired, WTI had been creeping up towards parity as that market has been slightly firmer in recent days, that has picked up slightly again.
It is also worth noting that if you are a follower of technical analysis then WTI is beginning to look very interesting. I have mentioned this before recently but it does appear to be breaking out of a mature pattern, which means that should WTI break above $48 now it would be in the second stage rally of five legs. Now I am no expert so if you find it interesting it may be worth taking a look at those charts…
Faroe has this morning announced the results of its Boomerang well which is close to the Pil discovery and accordingly quite important to this development. The well is an oil discovery with the finding of a 26m gross Upper Jurassic intra-Spekk/Rogn sandstones with good reservoir properties and moveable oil. The company’s preliminary estimate is for an increase in recoverable volumes of 13-31m boe following the discovery. During the drilling the main Pil reservoir sandstone was encountered as planned and the company gained important appraisal information for the Pil development. The side-track was drilled into the southern section of the Boomerang prospect but the Jurassic sandstone had poor reservoir quality and despite an indications of hydrocarbons the presence of moveable hydrocarbons was not proven.
The market was not wild about the announcement and the shares have been marked down by around 5% as I write. I suspect that this is for two reasons, firstly the increase in recoverable volumes for Pil is relatively modest and secondly the side-track was unsuccessful. I understand that more data and analysis of the well will be discussed at the company’s results meeting next Tuesday. After P&A the rig moves on to drill the Blink prospect which the company describes as being ‘an exciting independent prospect targeted as a potentially large addition to the already significant Pil and Bue discoveries’.
I recently caught up with Mitch Flegg, CEO of Circle Oil and celebrating 101 days into the job so the obvious first question was regarding the state of the company that he found. He was at pains to point out that Chairman Steve Jenkins (of Nautical fame) and CFO Susan Prior had done much preliminary work before his arrival. Despite that there is little doubt that Circle had been badly run for some time, some might describe it as having been a ‘lifestyle’ company. With its technical centre and offices in Finchampstead, (hardly Dallas) and Ireland as well as country offices in Tunisia, Morocco and Egypt there is clearly still some tightening to be done.
Taking Morocco first, onshore activity is inexpensive and they have a bought and paid for pipeline that is only at 50% capacity so opportunities exist. With recent drilling results in the north being poor, 2 dusters and one modest discovery, it is not surprising that attention is being focused down south which will be more appraisal/development wells capable of adding reserves. I mentioned Gulfsands as a way of bulking up the operation a bit and it obviously appeals if the numbers were to add up. I suspect that this means a proper discussion with ONHYM about any commitments Gulfsands might have, if a reasonable deal can be struck it would be worthwhile but at least here Circle are in the driving seat.
In Egypt Circle has a non-operated declining oilfield which probably isnt ideal but actually stacks up quite nicely in terms of return over the long term. The key element here is to ensure that you get paid and importantly in dollars not pounds. Whilst Egypt has a poor reputation recently for paying its bills the company appear better off than most and has excellent relationships with EGPC who realise that they are important assets and they have to pay their bills particularly to the smaller companies in country. As for Tunisia it is hardly the poster boy of disciplined drilling. An unsuccessful well costing over $50m was not thought through and whilst being offshore avoids security issues my guess is that a fair bit of this acreage might well be farmed out which should be achievable even in this market. In Oman, Circle has agreed to shut up and leave the country and whilst it has been done on amicable terms I suspect they were quite costly, another example of poor financial control.
With a new management team, around $15-20m in the bank and being cash generative there is upside for Circle albeit probably quite slowly. The market cap is £28m which is quite a discount to a reasonable valuation of the assets in the portfolio and must make the company vulnerable at some stage. About 25% of the shares are to a large extent ‘locked up’ which makes getting things voted through a bit of a challenge but that is not so much of a problem at the moment. Whilst this is not an unqualified endorsement of the company there is little doubt that the management team is, pound for pound, as good as most in the sector.
One or two companies have reported since I last wrote so here are a few snippets from those announcements.
Rockhopper Interims were realistically an opportunity to pull together this years achievements which include two successful discoveries in the North Falklands Basin at Zebedee and Isobel Deep which may itself become a play opener. The company have developments in the Mediterranean, Ombrina Mare and Guendalina it Italy, licences in Croatia and acquisition of production and exploration in Egypt.
The Nostrum/Tethys situation continues, Nostrum has announced that no agreement has been reached on its C$0.147 bid and that the Tethys board has ‘unrealistic expectations’. They also indicate that the company will need further funding and that their financial position is deteriorating. Tethys meanwhile is still evaluating their position.
The Hammers beat the Magpies on Monday night consigning the Wally with the brolly to the bottom of the table. Champions League results this week have been poor for English clubs with both Manc clubs losing as well as the Gooners, ironically it was formless Chelski who won easy enough albeit against mediocre opposition. The Gooners at the Bridge at the weekend might be interesting. Tonight sees the Boropa Cup with Celtic, Spurs and the HubCap Stealers in action.