WTI $47.26 +88c, Brent $50.46 +73c, Diff $3.20 +87c, NG $2.43 -2c
Although company news is at a bit of a premium at the moment there is much going on with regard to the oil price, last week WTI declined by $2.37 and Brent $2.45 although it didnt feel that bad as the damage was done at the beginning of the week. Indeed the poor inventory stats didnt hit the oil price as much as maybe they should have. On Friday the rig count came in at -8 to 787 overall and down by 10 oil rigs to 595, the eighth straight down week and -63% y/y.
Today the Chinese GDP number was what we were all meant to be watching and it was relatively ok, just beating the 6.8% whisper coming in at 6.9%. Its not my manor but I am hearing a few slightly better things not the least a continued rise in new car sales. Whilst we are talking China it seems that Xi is in London this week and the red carpet is being rolled out in no uncertain style. Now, when that happens the recipient of such grandeur usually finds it appropriate to throw a few fish so watch out for gratuitous orders etc. My spies tell me (as does Marcus Ashworth I note) that the head of CNPC is in the delegation and that one of the said fishes may be further collaboration with BP in Iraq and maybe elsewhere too.
And the FT front pages a hatchet job on the North Sea,ending up quoting an executive of a ‘large oil company’ saying “lots of companies do not realise it yet, but this is the beginning of the end” when referring to smaller industry participants mistakenly thinking that the North Sea can fully recover from this oil price rout. Correct me if I am wrong but small companies usually move faster and with more agility than the larger ones and it is they who have managed to cut costs a lot quicker into the bargain. Maybe this executive has short trousers and hasn’t been through a ‘commodity cycle’ before…
Europa Oil & Gas
I recently took the opportunity of meeting with Hugh Mackay, CEO of Europa to catch up on the state of affairs at the company. Readers will know that I have been for some time suggesting that Kosmos would delay drilling in the Irish Atlantic Margin for as long as possible, as it happened they have walked away from the area altogether. This has left EOG with 100% of FEL 2/13 and 3/13 in which they have very large prospective resources according to their CPR and 2,565 km² of 3D seismic acquired, processed and interpreted. Many companies would have found the walking away of a partner to be terminal but such is the confidence about the Porcupine basin that EOG are now starting over again in the hunt for a farm-in partner.
There is an added complication about this farm-out as it coincides with the recently concluded 2015 Irish Atlantic Margin Licensing Round in which EOG has ‘multiple’ applications. Decisions for this round are expected to be made fairly soon but still the company best estimate of award announcements is H1 2016. The reason for the complication here is that potential farm-inees may also be applying for licences in the round, it would be helpful to know what EOG had been awarded before farm-out and of course vice-versa. If the company are going to drill the prospect in 2017 which is still fairly optimistic, they really have to have a deal in place by next summer, as Mackay puts it, ‘flash to bang is going to be a year’.
The latest presentation shows a number of 1.5 billion boe audited gross mean un-risked prospective resources and risked of 235m boe meaning that, if carried, the value uplift should it be successful would be substantial. After all this company has a market cap of £8.9m, is currently funded (3.2m) for the short-medium term and expects revenues of £2.2m this year. In addition to the high risk acreage offshore Ireland the company has a UK onshore portfolio of which the Wressle oil and gas discovery is the most interesting. The work on Wressle-1 is continuing and whilst there are a number of issues to be ironed out not the least being the gas/water/oil nature of the tests. If Wressle could produce like the nearby Crosby Warren field did when it started (500 bopd) that would be ‘very helpful’ and it looks like early production is probable in 2016. EOG finally received final planning for Holmwood in the Weald Basin this year so, all being well, it will be made drill ready and ready to farm-out with an exploration well in 2016/17. I wont dither on France, a good farm-out was achieved at Tarbes val d’Adour and Béarn des Gaves where a farm-out is ‘in progress’.
EOG is one of the most high-risk, potentially high reward companies in the oil sector, it even has a chart in the presentation showing its ‘expectation curve’. This chart says that it has an 80% chance of exceeding 3.5p a share, a 50% chance of exceeding 20p a share and a 20% chance of exceeding 119p a share, given that they stand at 3.6p now that is tempting indeed but the words Corrib and Barryroe should rightly raise the alarm and the departure of Kosmos and Fastnet also signal a warning. The next few months, with the Irish licencing round and the data room open will without doubt prove crucial to EOG but investors shouldn’t stand on one leg waiting for the money to roll in.
Halliburton has come in with 31 cents a share which beats the whisper by 3 cents. The company say that they are pleased with the 3rd quarter, particularly the resilience of the international business and that they outperformed their largest peer on revenue and margins. It is clearly a ‘challenging market’ but their strategy remains the same to look through the cycle. They remain committed to the Baker Hughes acquisition and by my back of envelope calculations that is still a cheap way into HAL stock with BHI at $53.83 on Friday night.
So, RIP for Northern Hemisphere rugby as France, Ireland, Scotland and Wales joined England in front of the telly for the remaining fixtures. There was a mixture of excuses for defeats, one of the best was from Ireland who said that they had turned up at a gunfight with a knife owing to injuries and the Welsh pulled the injury card too. The Sweaties reverted to blaming the ref which to be fair was pretty accurate and having so nearly got over the line against a spasmodic Wallaby team were denied by Mr Joubert who had to run off the pitch a bit sharpish at the end, however Gavin Hastings was a trifle hasty in his comments perhaps…
In the Prem most of the form teams won, Noisy Neighbours 5-1, Gooners 0-3 at the Hornets, Red Devils 0-3 at the Toffees and the Hammers 1-3 at the Eagles. The Chosen one beat Villa which isnt saying much but the points are welcome whilst the Magpies finally came good putting half a dozen past the Canaries. On the new manager front the HubCap Stealers got a point at Spurs and Big Sam lost his first game with the Maccams going down by the only goal of the game at the Baggies.
And a different type of sport, if you havent seen the interview on Channel four news of the Shadow City minister Richard Burgon it is worth checking out on YouTube…..