WTI $38.29 +$1.79, Brent $41.07 +1.07, Diff $2.78 -37c, NG $1.75 +4c
The one thing about market bulls are that they are totally consistent, ie they can find a silver lining in almost any cloud. Yesterday’s EIA inventory stats were a perfect case in point, stocks built by another nearly 4 million barrels and were at all time highs pretty much everywhere and well higher than the scribbling kids had been expecting. But no, this is time to look at the product numbers and why, because gasoline drew 4.5m barrels and distillates 1.1m which trumps the crude number convincingly on overall stock numbers. With demand for gasoline growing despite pump prices rising in the last fortnight and refinery utilisation rates actually going up too this was too good a straw to remain unclutched.
Today is Draghi day as Europe decides quite how much more money to pump into the system, as if that helped…The meeting of Latin American oil produces scheduled for tomorrow has been postponed as not all participants could make the date, must have something more important than oil on their mind I suppose, not so if you take a quick shimmy at the balance of payments I would have thought…
Amec has produced a pretty creditable set of numbers under the circumstances and 2015 came in in line with guidance given last November. Some confidence in this years earnings is shown by the order book, at £6.6bn it is higher than expected and covers revenue for a good part of this year thereby enabling payment of a 14.2p dividend, it is also is not so concentrated on upstream oil and gas as it used to be. In this market an ‘old Amec’ order book focusing on upstream is not as valuable as FW work which is described by the company as being at the opposite end of the spectrum. This is downstream and petrochemicals, solar and government work, as a result guidance is for only a modest decline at this stage of the year, indeed, only one of the company’s top ten orders is in upstream.
The debt position has been one of the biggest problems recently and the year end net debt figure of only £964m was a very pleasant surprise, guidance was nearer £1.1bn. The target is to halve this number through a combination of free cash flow and disposals, net debt:Ebitda ratio does not threaten covenants of 3.75x, last year was 2.4x. The recent refinancing in which the company set up a £1.7bn facility means an equity issue is effectively out of the question and gives ‘headroom and three years of stability’. On the disposals front the company has identified a number of non-core businesses headed by GPG, I have a fairly modest expectation here of around £250m but the CEO told me that he would sell and have AMFW keep the asbestos liability to ensure a sale proceeds.
Overall, Amec is, rather like a number of oilfield service companies, hanging on in there better than expected. With net debt falling, fewer upstream contracts and reliance on long term framework agreements replaced by relationships built on performance the outlook is looking better. The company’s ‘more for less’ campaign whereby more off the shelf, lower cost solutions with ‘fewer fancy bits’ are common, is paying off particularly in areas such as the North Sea. The shares at almost 500p have performed very strongly as with their peer group and are up almost exactly 50% from the 327p low of less than a month ago. This may limit much further strength in the short term but recent activity certainly gives one confidence going forward, it’s a shame really that the acting CEO hasn’t thrown his hat in the ring but history will reflect very well on his leadership.
More activity to report from Sound Energy this morning, this time back in Morocco. The signature on a binding agreement with PetroMaroc for Sidi Moktar has been followed almost immediately by HOA for a farm-out of part of their stake to Culebra Petroleum Ltd. As a result Sound will retain 25% of Sidi Moktar with an $18m work programme by Culebra and carry to Sound of up to $4.5m and a $6m cash payment to fund their ‘counter cyclical growth strategy’.
Culebra is an established Guernsey based privately owned oil and gas company advised by Comet and Lyndisfarne Partners. Comet’s team are well known industry experts in North Africa strong on technical expertise and will be first rate partners with Sound. I suspect that this will not be the only activity in North Africa, the region has much M&A going on in a number of guises.
Sound management are getting a record for finding good quality assets and de-risking them with imaginative deals, of which this is a perfect example. In Culebra, or more particularly Comet, they have a highly regarded partner, this may not be the last deal these do together either. Over the next few months Sound shareholders will have a number of interesting wells to watch out for in different geographies without any of them risking what has already been built up.
Ophir has reported losses of $376m after impairments of $169m and exploration write-offs of $149m, unfortunately this is rather par for the course. The company report a significantly reduced cost base after Salamander synergies are taken into account. The good news is that the Fortuna project is likely to go ahead with FID expected in the middle of this year. Last year was a bad year with the drill bit, it needs to get better soon as production is falling. Last years number was 13/- b/d but guidance for this year is 10.5-11/- b/d, opex is low at $15 a barrel and the company is financially sound with net cash of $355m.
Chelski bowed out of the Champions League last night after losing both legs against PSG, just the FA Cup to concentrate on now then…
Tonight it’s the Boropa Cup, Spurs go to Borussia Dortmund whilst the Red Devils go to Anfield to play the HubCap Stealers.
And the World T20 is well under way and Scotland are already at the airport waiting for a flight home after losing to the Zimmers…