WTI $46.38 -26c, Brent $48.71 -44c, Diff $2.33 -18c, NG $2.45 -6c
The oil price fluctuated quite a lot yesterday, WTI was down by $1.41 during the day but a good late rally as equities took a risk on approach to commodities left it actually up 36c on the post close board. Brent moved around a bit too, the November contract expired down 44c but the December contract closed up four cents and today is over $50. Those inventory numbers confirmed the API stats and showed a build of 7.6m barrels, seasonal maintenance I have been talking about brought refinery utilisation down to 86% but the gasoline and distillate draws were bigger than expected.
I suspect on Monday all might change when we see the China GDP number but in the meantime the last numbers I saw on how the Chinese were spending their money was tilted towards travel, building 100 new airports assumes some degree of fuel usage!
3Q results from SLB yesterday proved that the period was worse than expected but that the company’s steps to adapt to the situation are also working to a great extent. Beating the whisper by just one cent, coming in with 78c was fine and the revenue at $8.5bn appeared about in line, free cash flow was up at $1.7bn showing some strength in this market. The business environment ‘deteriorated’ in the quarter but the cost reductions and business transformation programme meant that operating margins were ‘well above’ those seen in any previous downturn. Generating significant liquidity as shown by the free cash flow number is impressive in what the company describe as being an ‘increasingly challenging’ time for oilfield services companies as clients cut costs and take a conservative view on 2016 spending. So clearly not out of the woods yet but SLB is demonstrating significant resilience and an ability to adapt to the current circumstances.
Falkland Oil & Gas
FOGL has announced an operational update on its Humpback exploration well, 53/02-01 in the Southern Basin offshore the Falklands. They announce oil and gas shows with the possible presence of hydrocarbon bearing sandstones within the main target horizon and are now drilling deeper to evaluate additional targets. The well has taken an inordinate amount of time to drill and must be increasingly expensive which must be behind FOGL’s decision to be carried by Noble in the lower exploration for which they have ceded a 32.5% interest to them. FOGL say that despite the increase in costs as a result of the delays they have sufficient funds and contingency to complete the well.
It would seem that the main target is sub commercial at current oil prices and, bearing in mind the location of the well I would want to see a much more strongly worded description of the pay encountered. Better news is that Noble want to drill deeper although a cynic might say that this is the cheapest way of gaining actual geological and geo-technical knowledge of the play. More importantly I suspect that whilst they were down there, Noble thought it worthwhile to make certain that they hadnt missed anything.
The next ten days will be hard going for the partners but at least for FOGL they are not spending money any more, they have used up pretty much all the cash they had and unless the well does deliver significant promise are back to square one. They have a position in the North Falklands basin but a lot of the recent froth in the share price has been on the back of a success at Humpback, if it turns out that it is not commercial then the shares will head south as interest heads north, in that situation Rockhopper will be the best way to play those discoveries.
It never rains but it pours for Gulfsands although by recent standards being refused a licence extension request is pretty small beer. With no chance to extend it ONHYM has called the $5m held for the minimum work programme in the Fes agreement. GPX has been limping along for some time now and readers know of my views on the value of the business. Morocco may be the part of the portfolio with at least some signs of value and apparently there are suitors, Circle may be circling and others too but GPX is not playing this hand from a position of strength, buyers may be able to stand back just now…
The RWC kicks back into action with the quarter finals over the weekend, tomorrow sees the Springboks take on Wales and the All Blacks meet France. On Sunday it is Ireland against the Pumas then the Wallabies play the sweaties.
After the international break there is a full programme in the Premier League where Jurgen Klopp or ‘The normal one’ as he has called himself makes his debut as manager of the HubCap Stealers who visit Spurs. The other new manager is Big Sam Allardyce who takes charge of the Maccams who visit the Baggies. The Toffees take on the Red Devils, the Eagles host the Hammers, Chelski need points against the Villa and the Magpies play the Canaries. Elsewhere its the Saints vs the Foxes, the Noisy Neighbours take on the Cherries and the Hornets host the Gooners.
One of the best days in the racing year is Champions Day at Ascot and tomorrow is no exception, a great card and most of the stars of the summer are on display, no Golden Horn though which is a shame.
And the cricket continues on the flattest of tracks, as I write England are 467-5 with Captain Cook 236*, Root just missed out on a century and Bairstow went cheaply, I still cant understand having two keepers in the team but no Taylor…