WTI $40.36 -$1.14, Brent $43.10 -74c, Diff $2.74 +40c, NG $1.90 -7c
Oil price – Doha bites the dust
It seems as if the Doha meeting was doomed from well before it started although the Saudis did go along with the process up to and including signing the draft communique at lunchtime yesterday. Then, apparently piqued by Iran on a number of levels, walked away, leaving no deal possible. This was no last minute decision and to a large extent takes the Saudi/Iran face-off to a new, more disturbing plane, make no mistake the Russians wont take kindly to it either. The above prices above are about two dollars too high as markets this morning absorbed the meeting and its result.
Having said that, and aware that fundamentals should keep the price down in the short term, on a geopolitical basis the behaviour of the Kingdom is not good for anyone and ironically may serve to underpin the oil price. The Saudis will have known that this behaviour would effectively push prices down, they have put pride before that fall.
Elsewhere things have been a bit mixed but marginally positive for oil prices. The Kuwaiti service sector strike appears to be biting with some commentators suggesting that as much as 2m b/d may be affected before long. Chinese data was better than expected and the EIA announced that US production was below 9m b/d and with the rig count falling again a deal in Doha must have looked good to the bulls, right now things are a looking a tad wobbly.
Hurricane Energy – What’s not to like?
Hurricane has announced a significant deal this morning which fundamentally changes the outlook for the company. It has conditionally raised £52m at 15p a share which is a 46.3% premium to Friday’s closing price. Kerogen Capital has subscribed for £44m which will leave them with a 29.9% holding and Crystal Amber, the company’s largest holder before this, has subscribed to £7m plus 23.3m warrants at 20p per share. Kerogen is an experienced, independent, specialist oil and gas investor with a number of major investments across the sector. I have been involved in a number of their deals and would say that they are a blue chip international equity investor and it is good to see them supporting the North Sea. Also Crystal Amber has been a solid backer of Hurricane for some time and it is good to see them adding to their stake and having both these investors on board validates the concept created by founder Dr Robert Trice.
The money will be used to fund two wells on Lancaster, one pilot well and one horizontal side track which will ‘refine’ the contingent resources range, currently 62(1C)-456(3C) mboe, and provide for a future production well. The farm-out discussions are ongoing with several parties and are at ‘an advanced state’ according to the company but this deal gives HUR some leeway in those talks. It should be borne in mind that any farm-out concluded in the next few months would almost certainly have meant that the company could not drill this summer, this raise has changed the game, increasing the value of the company and with such support from its backers given it a much stronger hand to play in the farm-out stakes.
With a FID being possible maybe as soon as 1H 2017, the likelihood of first oil in 1H 2019 is a serious probability and demonstrates that the fractured basement play in the West of Shetland is a reality, with the full backing of the OGA ‘a compelling play type and a leader in the UK’s growth basin’ which one could not argue with. The resource base described above means that at these prices, with serious backing and a potential farm-out in the pipeline the stock is ludicrously cheap, not to mention the upside from the drill bit and the rest of the portfolio.
Rockhopper Exploration – A good deal just got better…
Rockhopper has renegotiated the deal for the Beach Petroleum that it had announced last year and it just got a whole lot better. The deal had been to pay $22m in stock and cash, 50/50, for the 22% stake, it has now got 17% for $9.3m cash only. It is selling the other 5% to Dover Petroleum and Beach gets the $8.6m due from EGPC or 25% as a one-off in a years time. The Deal brings 1,000 b/d with 2P and 2C reserves and resources of 3.5m boe which are 85% 2P and 90% oil.
For Rockhopper this continues its Greater Med expansion and at current prices the G&A is covered by operational cash flow, ($7m pa revenue, operating cash flow of $5m), which is sensible housekeeping and good for the longer term with cash operating costs of $8 per barrel and break even at $18. The transaction multiple for this deal has fallen from $4.5/boe to $2.7/boe post the renegotiation and whilst I understand the risks associated with Egypt I think that this deal is structured well and adds considerable value.
Yesterday’s footie was interesting to say the least…At the King Power the Hammers were the visitors and they nearly upset the apple-cart until a last minute pen made it 2-2. The Gooners conceded late which probably does for them and Arsene and the Noisy Neighbours went to Stamford Bridge and came away with three goals and three points. The Red Devils dominated Villa who are now down but at the bottom it remains exciting with the Maccams winning 0-3 at the Canaries and the Magpies winning by the same margin against the Swans. Tonight Spurs go to the Potters and must win to stay in touch…
The first old firm derby for a while was an appetiser for next year and Rangers took it on pens and will play Hibs in the final.
In China all did not go well for Lewis who suffered many miseries ending up 7th, Rosberg won after all opposition crashed or had blow-outs but it makes for more fun later in the season…
And the snooker has started, two weeks and more of relentless grind but when the Gooners are on the other side….