WTI $41.75 -15c, Brent $44.83 +17c, Diff $3.08 -5c, NG $2.21 +6c
The oil price was looking very sickly yesterday until news ‘leaked’ from Saudi Arabia of a cabinet meeting at which no less than the King himself had said that the Kingdom was ‘ready to cooperate with Opec and Non-Opec to achieve market stability’. Oh what powerful words that took crude from the danger zones back to normality, indeed this morning both WTI and Brent have traded nearly a dollar higher again, that is almost three bucks off yesterdays low.
Listen very carefully, I will say this only once, sure the market is overloaded with crude and the fundamentals are very poor, no doubting that. BUT, yesterday I mentioned volatility, mainly as with Thanksgiving, Black Friday, Cyber Monday and then the Opec meeting all coming up within ten days there is the opportunity for some pretty wild market moves. Add to that the fact that the hedgies are incredibly short the oil market at the moment and the conditions are in place, only in place, for some fun and games. PS The Opec meeting starts on a Friday, a holiday in the Middle East and if a decision doesnt come out on day one then it may come out when the Shermans are closed, pip pip, you have been warned!
So, after the expensive, late running and ultimately dry Humpback well, FOGL has fallen into the arms of RKH who know a smart deal when they see one. Although discussions have apparently been going on for some time it was only when aforementioned Humpback came in as a duster the combination made overwhelming common sense. There is no doubt that this is a deal worth doing, to a certain extent for both sides, FOGL shareholders, as mentioned here recently, would have faced an uncertain future with a cash call inevitable. Success in the North Basin would have offered jam some time down the line, now they can share in the fruits much sooner albeit under new management. For that is what it is, the ‘merged’ entity is just RKH 2 with no FOGL management or staff moving in permanent positions. For RKH this makes them the undisputed governors of the Falklands with a significant increase in the resource base, more possibilities for a farm-out of Sea Lion( including Premier) and much more upside potential into the bargain.
On the farm-out front Sam Moody went to great lengths to stress just how this deal improves their strategic positioning in future discussions. The simplification of Sea Lion and potential unitisation, as well as bringing in adjacent discoveries together with the large equity position in PL004 must be a key factor in getting industry interest in the area. Farminees will want access to all the potential acreage, this simplifies that in a stroke. With Pre-FEED work completed on Sea Lion and key contractors identified, the chances of delivering greater project economics are likely to be more tempting to potential partners. Add to that the likely substantial exploration upside and a new CPR for RKH after the current drilling programme and the equation looks much more interesting. Politically, despite the recent change in the Argentinian Presidency, nothing has changed but the underlying mood from Buenos Aires can only help matters.
The transaction details are relatively straight forward, it is an all share transaction and FOGL holders get 0.2993 RKH shares each, this values them at £57m an 11% premium to last nights close. Getting such acreage at a modest premium looks a good deal to me although some might argue that with FOGL being pretty stretched financially it may have come a bit cheaper but a faint heart never won a fair lady. Rockhopper has a strong balance sheet with $130m of cash and no debt, it has now issued 160m new shares but to people who should be fans of the fans you might say. To call such a deal a merger is probably being kind but whether it is that or a takeover it looks extremely interesting all round. The implied transaction metric is supposed to be around 75c per 2C barrel but that looks a touch high to me, adding in even modest numbers means they may have paid nearer 50c which seems very cheap to me.
Sound has announced a big reduction in the costs of the Badile well due to be drilled next year. Currently the estimates are €30m but this has already come down by €5m to €25m. The company are expecting final authority by the end of 2015 or early 2016 and of course are still seeking a farm-in partner for Badile. CEO James Parsons points out that ‘the company is sheltered from current low oil prices and also benefiting from reduced industry costs’ which is a very fair point, expect more good news regarding all company developments before long.
Below are some links to interviews I have recently done with Interactive Investors, all are also available on www.malcysblog.com
A bit quiet on the sporting front today although Mr Fury has opened his gob again, he had better win at the weekend, drugs or none…
Tonight its back to the Champions League with the Gooners hosting Dinamo Zagreb needing a win to stay in contention. Chelski are fine in their group and go to Israel to play Tel Aviv.
Last night proved a bit of an upset as the Maccams went to the Eagles and nicked all three points…
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