WTI $30.44 -97c, Brent $30.86 -69c, Diff -42c +28c, NG $2.26 -14c

Oil price

Yesterday saw WTI visit $29.93 in intra-day trading and crude certainly ended down on the day, again. As usual there were mixed messages humming around the oil market, the Nigerian Oil Minister said that there would be an emergency Opec meeting in March which the UAE Minister ruled out. The STEO report was actually quite good for the market as it increased non-Opec supply contraction to 640/- b/d thus increasing the call on Opec to 31.43m b/d in 2016 and 32.64m b/d in 2017. Dependent on the supply situation that is about the level at which Opec could start to turn the taps off and have the world by the short and curlies, and of course when the 300bn of capex cuts by the majors would kick in…is it just me that is taking this seriously?

The API stats, released as ever after the close, were also mixed, bulls read into the crude draw of 3.9m barrels, 300/- at Cushing as good news but gasoline build by 7m and distillates were up 3.7m. Again we will have to see what the EIA have for us tonight.

Tullow Oil

As I have been writing of late it seems that Tullow is slowly but surely getting its house in order and having accepted the lower for longer mantra is setting itself for current market conditions. Production guidance for this year is 78-87/- boe/d a healthy increase on last year and accommodates the TEN development coming onstream in August. Jubilee  is performing better than expected and with upside potential from the Kenyan acreage Aidan is slightly more bullish. With operational cash flow of $1bn and cash of $1.9bn, gross profit of $0.6bn is forecast. The company is well hedged and has cut capex significantly in the last year or so giving plenty of headroom on the $4bn of debt. If you are looking for stocks to come out of the downturn in a strong position you could do worse than keep an eye on Tullow.

Rockhopper Exploration

It has been a busy few weeks at Rockhopper what with the FOGL acquisition, the Isobel discovery and now the Sea Lion update. A lot has been going on at Sea Lion and with the Pre-FEED now completed and awarded to SBM offshore FID is targeted for mid 2017 and first oil in 2020. Premier appear to have done a great job on the contractors and the preferred companies have been selected and the remaining awards will be made in Q1 2016. There is no doubt that huge cost efficiencies have been made and materially enhanced the economics of the project. Having got to this stage of the development at this time in the cycle it is difficult to think of many international projects of this size that will be able to take such advantage of lower costs.

The Sea Lion Phase 1a development definition phase is complete and the numbers all look way better than I previously had envisaged. Production is up from 60/- b/d to 85/- b/d and will last for 20 years as opposed to 15 before. This means that 220m barrels of oil will be recovered, not the 160m expected before. Estimates of the pre-first oil capex requirement remains at $1.8bn or $8 per barrel, down 30% and still falling even with a significant increase in the scope of the work. After that phases 2 and 3 get bigger and better certainly on the economic front as the opex comes ‘tumbling down’. Each of those two phases are now expected to deliver 300m barrel recoverable and the Isobel discovery gives the company plenty of ‘running room’.

Of course, if you are a long term bear of the oil price none of this matters but I have a sneaky feeling that this could be wonderfully judged, producing this oil in 2020 might be perfect timing. Also the nature of the project is likely to appeal to a number of international players who might have been on the sidelines up until now, the better political situation in Argentina helps too. The timing also benefits RKH as it is guaranteed by Premier and will only pay that back post first oil and over five years. With a CPR expected 2Q 2016 the market may just be able to assess a project that up until now has been for many investors put on the back burner, 820m+ barrels of recoverable oil over 20 years and on decent economics is becoming highly compelling…

Independent Oil & Gas

It seems a shame that the IOG management who have worked so hard all over the winter to finance Skipper now see the project moved back. But all is not lost and as far as I can work out this way of doing it removes the worst case scenario whilst keeping the upside. Apart from weather considerations which is understandable, I think that there would have been a very small window between finishing the drilling and paying back the multifarious lenders on the project. Faced with losing it all, the board have turned to the London Group and borrowed £10m to keep the lights on. London is not that well known but seems to have an appetite to fund IOG which seems perfectly sensible, run by Simon Hume-Kendall I am assured that it may be Burren 2 based on previous experience. As I have repeatedly said I genuinely rate the IOG management and I hope that this draws a line under the chase for funds and that they can now develop Skipper as well as the rest of their portfolio and maybe more…

Aminex

I stuck my neck out a bit before Christmas as having seen Jay Bhattacherjee he seemed quietly confident that the Gas Sales Agreement would be signed and sealed in the new year. Now that the GSA has been executed with the TPDC Kiliwani North can move into the production phase on a take or pay contract and most importantly in US dollars. This is indeed a major milestone for Aminex for whom the future looks most interesting, more after I have had a further chat with Jay.

RockRose Energy

Andrew Austin is back and returns to the market with a vehicle intended to make acquisitions I suspect in the UK onshore area although anything is possible. Starting at a modest premium (4%) one should expect the deal process to get under way before too long and it is well worth watching to see what happens…

Sundry

I notice that the EU are looking into the Halliburton/Baker Hughes deal, is there nothing they wont poke their sordid little noses into? According to my sources, Halliburton had been tipped off that this might happen and is therefore  just another hurdle on the way to completion…the words dont hold and your breath come to mind.

Premier Oil has been suspended this morning pending some sort of asset deal which may be considered to be a reverse takeover. At least with the shares suspended they cant go down any more after a torrid few days of trading. I have clearly got this one wrong lately as I have been giving the company the benefit of the doubt and thought of them as survivors. It has been very quiet though and we must wait and see what is going on and not worth trying to guess!

Range Resources has updated the market and tells us that the Beach Marcelle waterflood project has been approved. With two development wells showing promise the target for 1,000 b/d looks like it is still in place, after my faux pas last time where I mistakenly said 1H not 1Q…Having said that the company have stated that due to the current level of the oil price that they are reviewing the 2016 work programme. I hope to speak to the company before long but these well results look good.

TipTV

I put this in last week but have been asked to add another link in addition to my website.

December 21st seems a long time ago but I recorded for TipTV a short piece, partly on why one should stay short oil and also to look at a few stocks at the year end. They included Sound, Pantheon, Rockhopper, President Andes Energia and Hurricane, the link is below and of course on www.malcysblog.com

http://www.tiptv.co.uk/finance/2015-review-what-has-happened-to-the-oil-price-recap-of-a-range-of-oil-stocks/

And finally…

Not much today, last night the Hammers came from one down to beat the Cherries 1-3, Villa produced something at last and beat the high flying Eagles. Man Yawnited as I am advised they should be called have yet again disappointed their fans by scoring all this months goals in one match…

Tonight sees another pack of games the picks of which are the HubCap Stealers host the Gooners and Spurs take on the Foxes…