WTI $36.50 -$1.40, Brent $39.65 -$1.19, Diff $3.15 +21c, NG $1.71 +2c
After yesterday’s paucity of company news, forcing an oil price only blog, today the tables are turned, there is oil price news but companies are doing all sorts of stuff today.
The vampire squid poured cold water on the crude price yesterday, the recent substantial rise is clearly not what G Sachs thought when it predicted $20 oil. It was sort of inevitable, the fall that is, not the lousy forecast and is what they say ‘makes a market’. Weak Chinese trade data also punished oil bulls who had got Brent up to $41.48 during the day. After the close the API stats showed a stock build of 4.4m barrels just north of the guess of 3.9m for tonight’s EIA numbers. Kuwait added to the gloom by saying that whilst it was happy to freeze production that it would only do so if everybody else did, and they mean Iran…
The EIA also published its STEO in full which was like the curates egg, demand forecasts were lowered again but so was production. US production this year is now expected to be 8.7m b/d falling to 8.2m b/d next year, this compares with 9.4m b/d in 2015. For Natural gas geeks there were many figures to absorb, current inventories are 46% higher than this time last year and at the end of the season (Match 31st) will be 54% above last year. Their Henry Hub forecasts are $2.25 for this year and $3.02 for next which might cheer people up as will another stat which shows that this year 33% of all electricity generation in the US will be gas fired, the first time ever that it overtakes coal, stuck on 32%.
AMER has announced this morning that it is to raise $35m by way of a placing to fund further drilling in Colombia and to take advantage of low industry costs. Last week in the updated presentation, the company foresaw a decline in reserves so this makes much sense, particularly as the CFO has an iron like discipline about spending only from cash flow. With the recent rise in the oil price and in some cases significant share price rises too I am not surprised to see those companies with supportive shareholders taking advantage of the massively reduced drilling costs, it is what should be done. If you combine this with the recent good news on the OBA due on stream next month all is beginning to justify what has been a very strong share price of late.
Cairn/Far- The best is yet to come…
Exceptionally good news from Senegal this morning and for one of the bucket list top favourites in Far, there is still significant upside. The SNE-3 well has way exceeded pre-drill expectations, by my reading, flow rates may be twice as good as had been expected. There appears to be excellent reservoir quality and correlation between all three SNE wells. This successful completion of the SNE-3 appraisal well showed two DST’s, a gross 15m zone flowed 5,400 b/d and a stabilised main flow rate of 4,000 b/d. An additional 5.5m zone was added to the first flow and produced at a combined stabilised rate of 4,500 b/d.
The key to this, as reported in my last Far note is that the ‘upper reservoir units have been demonstrated to flow at commercially viable rates’ and making a material contribution to oil volumes. The oil is 32º API and this result is certain to support a further upgrade in the field resources estimates. Indeed these flow rates not only make obsolete the numbers produced by Far only four weeks ago they will de-risk the 2C and 3C resources as published but should increase 1 and “c contingent resources as well. This well further confirms the overall scale and extent of the field’s size, it is clearly a good deal bigger than mapped, even pre the SNE-3 well. I would go as far to suggest that with the deliverability of the upper units any doubts about this being a hugely commercial discovery can be put to bed. The well has been p&a’d and now heads to BEL-1, the Bellatrix prospect on the Buried Hills play.
Whist this has clearly been good news for Cairn, reflected in the near 10% rise in the shares this morning, it is much more meaningful for Far where I will have to upgrade my expectations yet again. Although the shares are up 57% in the year to date they still only trade at 10.5c, my previous target was 30c and that is now embarrassingly low, the risk in Far is not being invested….
Pantheon has announced that the long awaited fund raising has been successfully completed. The company has raised $30m through the placement of 18.4m shares at 115p. The offer was, I understand, significantly oversubscribed and the company is now set fair to accelerate the pace of developing its recent discoveries whilst at the same time drilling more exploration wells. This is another company taking advantage of the current low cost environment by tapping shareholders who are happy to support successful managements. Few will have been more successful that Jay Cheatham and his team at Pantheon as well as Vision their partners. From the start Jay has said that this programme was as exciting as anything he had seen before and if they really have ‘cracked the code’ and I think they have, the value of Pantheon is way above the current level.
Falcon Oil & Gas
Falcon has announced that its programme for 2016 at Beetaloo is at an ‘advanced stage’. Locations have been finalised for two test wells to penetrate the condensate rich gas through to dry gas mature sections of the Middle Velkerri shale. The company will also re-enter and frac the NW-1 well on EP98 drilled in November 2015. Falcon is fully carried and has $12.7m of cash on the balance sheet. Given that they have a potentially transformational drilling and testing programme about to get underway 2016 should be an exciting year for shareholders. I am overdue a meeting with the company and will report back after that.
Production is underway at Gorgon, one of the most challenging, not to mention expensive gas projects in the oil industry’s history. Happy memories of Kentz getting involved and receiving company making contracts which eventually led to them being taken over! Chevron also announced in its analysts presentation in New York that it has further cut its capex plans but will maintain production growth at current levels. Talking about projects such as Gorgon, the CEO, John Watson said that there would be a shift away from mega projects towards smaller scale developments such as shale in the US, Canada and Argentina, so good for Andes Energia then…
Also a bit quiet but the Gooners got through their FA Cup replay at Hull City Tigers last night easily enough winning 0-4 in the end. Still in with a shout of the Prem, the Champions League (just) and the FA Cup and there were still Wenger must go banners…
Chelski host PSG tonight in the Champions League and although are 2-1 down from the first leg you can rule nothing out with them at the moment.