WTI $31.41 -$1.75, Brent $31.55 -$2.00, Diff -14c, -25c, NG $2.40 -8c

Oil price

I have worked it out, eventually. The worlds biggest investment banks are playing the ‘how low can our forecasts go’ game in order to have the bragging rights down the line. Up until yesterday those rights were firmly held by the vampire squids with their $20 estimate but with Standard Chartered going down to $10 yesterday all bets are off, who will be the hero with a zero forecast I wonder?

The EIA tried to make things better by coming out with a February fall of 116/- b/d from US shale to match their January guess, regrettably the market wanted more and the news was deemed bad. The CBOE  volatility index hit a 7 year high rising 13% to 63, indicating further worries, when Brent expires later in the week it may get worse, not better…

Finally, I knew it would happen, US retail gasoline prices have now fallen below 2 bucks a gallon although to be fair in some states it has been well below that for a while. Overall across the country the price is now $1.996 a gallon and I therefore expect the 9.3m b/d consumption figure to be beaten well before the driving season. (Is this the earliest ever mention?)

Ithaca Energy

Ithaca has released an operational update and 2016 outlook brimming with exciting production estimates and cost reductions. Unfortunately for what is undoubtedly one of the best companies in the sector, investors only had eyes for Stella, in this case another delay, this time of 6-12 weeks, clearly warming Petrofac’s wallet has not been enough but at least they wont have to pay it…

With production from Stella now a 2nd half affair the market appear to be concerned that targets will not be hit but the company have given guidance of 25/- b/d for 2016, at some stage one presumes. The Vorlich acquisition seems like common sense adding proven and probable barrels of 20-30m and good value barrels they will be. The deal also shows that the company are in a strong position to take advantage of any opportunities that the weak oil price turns up. Ithaca remains one of the strongest players in  an extremely difficult market, the balance sheet is ok and with the hedging process is even cash generating, barring accidents it is still the poster boy of the sector.

Pantheon Resources

The market takes no prisoners as Pantheon has found out this morning, as they release results from VOS#1 which are exceptionally good but with a down-hole blockage meaning that no flow rate can be given. Canny investors will take this as an opportunity to buy into the stock as they realise that this is a rare chance to buy the value that it offers.

VOS#1 is 70% bigger than VOBM#1 with 107 feet of net pay in the Eagle Ford sandstone, the well flowed high rates of natural gas and 39° API crude oil. This amount of pay, along with high flow rates give the company confidence to predict that the well will be ‘exceeding a PMean ultimate recovery of 3m boe. The bad news was obviously the mechanical problem which meant that there were no flow rates, hence the market reaction. To me this is merely a technical issue and even if the ensuing remedial action is unable to clarify matters it wont take away from the embedded value. The company has 160 odd wells to drill and I cant imagine financing them will be a problem, the amount needed is relatively modest and this stock should be appealing to the institutional market now. Finally it is worth noting that these wells pay back in no time at all, I am expecting both to be on production and giving cash flow by the end of the year.

My unrisked value of 200p a share for Pantheon now looks a bit light, depending on what the company say after the 7 days of remedial action it may have to be increased, either way with the stock over 20% down this morning it is an opportunity not to be missed…

Sundry

With the voting coming up in the Shell/BG bid situation one investment institution has come up with a novel way of dealing with it according to The Daily Telegraph. Standard Life, with its Shell hat on, has called the bid ‘value destroying’ and will likely therefore to be voting against it in a fortnights time, but with its BG hat on has decided that it will accept the offer…

Faroe has announced that it has spudded the Kvalross exploration well in the Norwegian Barents Sea. This rank wildcat will explore two targets and with a large stake it could be reasonably meaningful if it were to come in.

And Andes Energia has confirmed what President said a while ago, that the oil price in Argentina will be $67.50 and with the devaluation of the local currency increase value in country.

And finally…

The draw for the 4th round of the FA Cup threw up few exciting fixtures. Derby County will have been pleased with a home fixture against Man Bore and if the HubCap Stealers can finish off Exeter they will face the happy Hammers again…

Tonight in the Prem its Villa v the Eagles, the Cherries host those happy Hammers whilst the Magpies entertain the Red Devils.