WTI $40.20 +$1.74, Brent $41.54 +$1.21, Diff $1.34 -53c, NG $1.94 +7c
The market is clearly believing that next months meeting is not only going to happen but that it will deliver an agreement that will truly make a difference. To believe that you have to assume that an agreement will be made and that it will be adhered to and then that a freeze by 70% of the worlds producers will be enough to offset short term oversupply. Finally I am still not sure that it is in the interests of Saudi Arabia to have too much of a rally in oil prices, spigots will be turning on all over the US if they believe that todays $40.20 is more likely than the $26.55 of January 21st…
The longer I listened to the GKP conference call the more depressed I became, especially when the CFO was talking! To begin with we were reminded that the company has coupon payments of $26.4m to be paid in April and October this year and a debt repayment of $575m in 2017. The CFO had worse news, if the company remains on plateau production of 40/- b/d, break even prices will rise from the current $37 up to $40-45 by the end of this year. If production does ramp up to 55/- b/d then they will fall back to $36, but that needs more investment. The CEO put it starkly as thus ‘GKP faces material uncertainty regarding meeting its debt obligations’
It is clear that the company are attempting to strengthen the balance sheet by 1) Balance sheet restructuring, 2) Additional funding and 3)MNR payments, none of which will be easy. To make matters worse they have said that asset sales stand little chance of success in the current geopolitical situation in Iraq. Given that an equity raise is impossible at this price and that debt providers have shown little loyalty when recent chips were down it looks like the MNR is the only avenue unless a really left field investor can be found. In today’s Lombard column Jonathan Guthrie spells it out well and I concur, the KRG need these companies to pump the oil but the companies need funding too. Only an imaginative, maybe cross border, solution looks like it is going to get GKP out of this particular scrape.
Finals this morning from GPX but will there be another one next year? The company clings on to its long held hope that the Syrian assets will be a core part of the strategy but it looks as distant as ever and the rest of the portfolio is hanging on grimly. In Morocco all but one of its licences have expired with potential penalties for non-fulfillment of obligations, the remaining one needs seismic and reprocessing, by June. The Chorbane licence in Tunisia has been extended and that needs seismic and an exploration well and in Colombia they have two blocks which also need seismic and a well each into the bargain. No wonder that almost everything outside of Syria is up for farm-out, some needs to be done quite soon I suspect.
It was a busy year around the board table, February saw the ‘termination’ of the legal counsel whilst in April the CEO was ‘removed’ although he is claiming against the company for constructive and unfair dismissal. Also in April the Chairman left his office but remained a non-exec and the current Executive Chairman was appointed. A new non-exec was also appointed, Andrew Morris, Chairman of Madagascar for his ‘valuable’ experience…The Finance Director also left and the Technical Director also left the board but remained with the company, busy times indeed.
A brief mention again for Cape as I’m not sure that the market fully appreciated the results announced this week. The order book being up 18% was an impressive achievement in these markets and with over half of that being delivered this year and significant amounts in 2017 and 2018 there is excellent revenue visibility looking out. The key in my view is the way that the team is broadening the portfolio and that combined with their ‘customer intimacy’ and the operational excellence programme bodes well indeed.
Finally Genel who have announced the Tawke reserve update this morning by DNO. The market has concentrated on the 21% increase in 1P reserves to 387m barrels due to better primary recovery but the 2P looks a touch disappointing. There is also some housekeeping by the CFO this morning, buying back some debt.
A great week at Cheltenham and a superb Gold Cup to look at shortly, this blog has been a pain indeed today, good luck!
Last day in the 6 Nations tomorrow but thanks to Scotland England are already winners, they go to Paris whilst Wales host Italy. Scotland go to Dublin to play Ireland and they will be delighted to see Craig Joubert running the line…
Last night Spurs and Man Who went out of the Boropa Cup but more Thursday duties for the HubCap Stealers.
In the Prem there are a few derbies but the leaders go to the Eagles and the Gooners go to the Toffees. Spurs host the Cherries who look clear of danger and the HubCap Stealers go to the Saints. Now those derbies, The Noisy Neighbours welcome the Red Devils, the happy Hammers go to Stamford Bridge and probably the biggest one in the North East as the Magpies host the Maccams.
England could be on their way home from the T20 World Cup, difficult fixture against South Africa today.
And Formula 1 is back with the Australian GP on Sunday.