WTI $37.04 +44c, Brent $37.28 +82c, Diff – 24c -38c, NG $2.34 +12c
The above prices will serve as the end year numbers for reference purposes and show that whilst a lot of the damage to the oil price was done ahead of the fateful Opec meeting in late 2014, 2015 was nothing to write home about. WTI ended the year down $16.23 and Brent fared worse, down $20.05. Indeed in the last few days WTI has been at a premium to Brent whose blushes were spared with a New Year’s Eve rally to nip into the lead.
Oil prices have rallied a little in early 2016 trading, not on fundamentals but as the rift between Saudi Arabia and Iran grows following the execution in the KSA of a prominent Shi’ite Muslim cleric. Elsewhere the White House has ‘delayed plans’ to impose new financial sanctions on Iran but admits to ‘growing tensions’ with Iran over the nuclear deal brokered last year. Whilst the moves so far have been positive to remove sanctions, it is clear that there is no hurry to wave these through and there may be a modicum of relief to the oil market which is expecting something quite soon.
On the numbers front there was a flurry of data at the end of last week, EIA inventory stats were poor, a build of 2.6m barrels of crude oil including a new record high at Cushing and gasoline and distillates built as well. The rig count showed a fall of two overall to 698 and oil also fell by two units to 536, hardly a new years gift. Finally Russia announced a new record of its own, producing 10.83m b/d.
The much awaited result from SNE-2, offshore Senegal has come in and it looks to validate this world class discovery. Oil flowed at commercially viable rates and was 32° API crude as before. The DST showed a flow of 8/- b/d at a maximum stabilised constrained rate with 1/- b/d in the shallower reservoir which should have the potential to make a material contribution and I would expect an upward revision of the resource estimates. With the rig moving around 6km south to drill SNE-3 it appears that there will be no changing of these numbers until at least after that well is tested and there appeared to be no meaningful comments from the operator this morning. Having said that it is clear that this well has delivered at the upper end of expectations, Far will be delighted and also as they raised money before the completion, all eyes will be on Conoco to see what they say. The London market has been a bit miserly with a very modest gain for CNE but they havent exactly shouted this from the rooftops, Far was in trading halt so tonight may show some activity there. This was indeed a ‘bumper’ result and with three different sized players involved, investors can select their degree of risk, to me Far looks like the geared way to play this and I will get back after a meaningful chat with the company later.
Sound announced last week the FMA with Schlumberger, a number of people who were away have asked me to reproduce what I wrote so it is reprinted below.
Sound Energy has this morning announced that it has entered into a Field Management Agreement with Schlumberger with regard to the Tendrara licence onshore Morocco. In the agreement SLB provides integrated technical services, equipment and personnel and will be granted an upside linked to production performance. SLB are also funding a significant portion of the capex on the first three Tendrara appraisal wells. (as previously announced, 80%,75%,75%)
This is an unusually good carry for SOU and of course with SLB on the team sheet gives significant technical de-risking. In addition it reduces Sound’s financial exposure to the drilling programme, they part with 37.5% whilst maximising a good deal of potential upside. Overall this is very positive for SOU shareholders, and as management say in the statement, the company hopes to become one of the leading Mediterranean and North African gas companies, this is another step in that direction for the company.
Down in South Africa England have made a promising start to the series, winning the first test was good and the amazing day yesterday was a joy to watch although it would have been more fun in person! The current situation seems to be that although it is only day three there is no obvious way of getting batsmen out and this might end up being a very high scoring draw…
Footy over the last few days has been interesting with few obviously predictable games. Chelski seem to have turned the corner, beating the Eagles comfortably yesterday, the Gooners were fortunate to beat the Magpies but maybe its their turn this year. The Red Devils at last got a win but life remains difficult especially with Spurs coming up, they drew with the Toffees yesterday but are worth a glance. The happy Hammers ended a run of draws by beating an odd looking HubCap Stealers side that has faded since the Klopp euphoria and the Foxes also appear to have trained off a touch. With the Canaries beating the Saints and the Noisy Neighbours steaming back late against the Hornets everything is still up for grabs. Except of course for Villa who lost to fellow strugglers the Maccams who themselves have much to do. And the Baggies beat Stoke, no pleasure for TP there then…..
Hi Malcy, from over here in Oz we really appreciate your coverage of FAR. It’s so refreshing and encouraging for a high-profile industry pro to be recognising the quite staggering things FAR has achieved and the prospects of the even greater things to come in Senegal. However, presumably you too are astonished by the poor showing of the SP on the ASX. There is an array of obvious factors – the oil price/sector sentiment and Cairn’s underwhelming approach to PR being chief among them, but it remains a mystery as to how the market can continue to ignore the slowly emerging facts. One begins to believe the conspiracy theorists and their market manipulation, FAR being Exhibit A thanks to its vast share register. Do you have any thoughts about what’s holding the SP down? Yesterday’s events would have sent the price rocketing in days of yore, yet somehow we find ourselves in the red today. Being a long-termer I’m not concerned about the end-game, but it is pretty infuriating and, being human, one can’t help but begin to doubt that anything will ever get this thing off the floor of the ASX. SNE-3 and Bellatrix will no doubt come in with the success of SNE-2; resource estimates will rise heartily; commerciality will be declared in 2016 (all in my opinion of course), but I’m seriously starting to question whether any of that will budge the SP one iota. With each event a month or two apart, will the price rise briefly only to die on its short-lived flight, then settle back at pre-announcement levels until…until what??? I guess the prospect of a takeover becomes the only sure-fire catalyst…
Hi Chris, thanks for getting in touch and I share your sympathies although never invest in shares i write about. I guess that in this sort of market it is somewhat inevitable that prices will be under pressure but this is ludicrous. I follow Far because it is by a long way the best way to play this but you are right about Cairn hiding its light under a bushel. They didnt even have a conference call yesterday, i suspect they will have to after SNE-3 when estimates will go up. You will get your money from Far but I hope that Cath doesnt sell out too cheaply, there will be a tendency to think that Conoco are the only game in town and they will know that. Bearing in mind that her team virtually got this discovery off the ground singlehandedly it would be a shame not to have it recognised. Must be worth 20c of anybody’s money….
All the best,
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