WTI $46.70 +47c, Brent $48.08 +48c, Diff $1.38 +1c, NG $2.16 -2c
Looking at the tone rather than the specific numbers from the EIA in the last couple of days one could be forgiven for thinking that oil really can see the light at the end of the tunnel. ‘Staying on course’ towards the balance they see later this year and being likely to ‘increase demand forecasts’ due to booming gasoline demand in India is positive and 1H 2016 demand being 200/- b/d higher than forecast at +1.4m b/d is the beginnings of evidence. My number of a natural build of +1.6m b/d may be about right in the end. But with the EIA saying that supply and demand is coming more into balance by the end of this year, what happens when you add, or rather take away the $500bn worth of worldwide investment that the majors have withdrawn. These projects will not be able to be brought back at the click of fingers and some are lost forever. The EIA is right to look at gasoline demand, it is growing in India and China and the US is edging towards consumption of 9.65m b/d of gasoline, above my recent call of 9.5m b/d.
Now obviously the oil market isnt suddenly better, the vampire squids still think that storage tanks will overflow and they are certainly high but the recent supply outages have by any means been as responsible as anything else for avoiding the return to sub $30 oil. Indeed with as much as 1m b/d of Canadian oil still off the market, and Nigeria overnight adding to the shortfall, the 2.9m b/d outage figure for the end of April estimated by the EIA only on Wednesday now looks too low.
On an altogether different note I wish all the best to Marcus Ashworth, legendary bond expert and blogger, Haitong Securities have again changed direction and have discarded most of the team but I hope that he and his excellent blog reappears and soon…
Watching the weekly rig count tells you all you need to know about how business is going at the likes of Hunting and other providers of down hole kit, reading results from the major US oilfield service companies compounds that concern. The company announced yesterday afternoon (?) that weak trading was likely to persist over the next few months, the rate seems to be around 30-40% down on 2015 and given that the 1st four months EBITDA was a loss of $16.2m even with a late year pick up the annual number will still be in red. Discussions with its lenders should be ok although they will want their pound of flesh, but HTG is not in intensive care, nor is likely to be unless worse is to come.
With no respite yet in US onshore, or indeed in a number of international markets the word is clear, any recovery will take some time but if the oil price recovers even modestly, as per above, HTG will be well placed to take advantage. The Group balance sheet is remarkably strong and with net debt falling, gearing is ‘modest’ although the dividend will remain unpaid for sometime I suspect. Trying to catch the falling knife of buying Hunting remains in the too difficult drawer but it will probably be six months before tangible signs of market recovery are evident and that may not be far away…
I said that I would add to my earlier comments on PCI after having spoken to a few of the key players involved in the situation in the last few months, that appears to have been somewhat of a hostage to fortune as the more one digs, the nastier it gets. The Irish Examiner has decided that Worldview should take over the company, something that was probably never intended before it put $300m of debt and equity into the business. Along the way both HSBC and the IFC appeared to sell their debt at what might have been 30 cents in the dollar, which should serve as a warning to others to whom these eminent institutions claimed to be ‘supporters’.
The management of PCI are certainly not blameless, as even I said that some time ago they should have refinanced the Algerian asset at Ain Tsila but in financings they have done, they have raised money in good faith, supportive holders of both equity and debt have been well and truly, shall we say- let down, by the recent shenanigans.
It remains to be seen what will happen with regards Sonatrach and the Algerian Government, it is possible that this will trigger a clause in the agreement but probably not. Should Worldview refinance it and stay as owners they might be able to get it to the payback time in order to make the sort of money that PCI had always hoped to, in that case the $300m may not have been wasted after all…
Circle has announced that the IFC has extended its waiver by another two weeks or longer if the strategic review is continuing then. Sounds like the grounds for a really, really in-depth strategic review to me. Although the best assets of Circle are in Morocco, its biggest problem child is in Egypt where EGPC has not been paying its bills, at least not those denominated in dollars that is. COP maintain that more money is expected in May but still say that its ‘cash flow and financial position is under significant pressure and a sustained improvement by the EGPC is required’.
Whilst this situation is slightly better than the last, unless the threat to EGPC becomes more than an idle one the situation looks pretty dire, and beware the IFC, at the moment all is sweetness and light but then it was at PFC as well…
AEN provided their Group production update for April this morning which showed 3,532 b/d in line with previous months. They also announced that with figures due shortly that gross profits and EBITDA where ‘in line with management expectations’.
With CEO Alejandro Jotayan in town I took the opportunity to meet with him yesterday to see how things were, particularly as I have long been optimistic about Argentina. He was able to say that indeed, things were going very well in the country, and the new Government has already done everything promised such as currency restrictions and reducing energy subsidies. In country the oil price remains at $60-67 and is likely to stay that high to encourage production.
The main production at present is the conventional Chachahuen operated by YPF where the bulk of the number reported above comes from and expansion here is under way. 90 wells are targeted this year and as many as 300 scheduled for the next three years after which the field is expected to reach its potential production rate of 25,000 b/d at very favourable economics. AEN has a strong position in the Vaca Muerta, the world’s third largest shale resource, indeed the only oil producing shale play outside the US. The only disappointment in this is that whilst YPF changes its management AEN has to wait for further progress as four out of its six licences are with them the other two are 100% AEN. It is possible that YPF will farm-out some of these positions as they have done recently but when you look at the recent buyers of acreage here that would be good news. Petronas, ExxonMobil, Chevron, Shell and Wintershall are amongst buyers at high costs per acre.
In Colombia AEN has a presence in country following the Interoil acquisition and whilst the oil price is linked to Brent economics here are sound too. The exploration permits in the Colombian portfolio are generally shared with Ecopetrol, Canacol through the Interoil deal or Integra Oil & Gas and are generally well located near existing prolific fields.
Overall with a strong position in the conventional and a developing, if slowly, world class one in the Vaca Muerta, Andes Energia is well placed in both Argentina and Colombia for the future.
Its been a great few days at York for the Dante meeting particularly if you are John Gosden or Frankie Dettori who now have live prospects for the Oaks and the Derby.
In European rugby tonight it’s Quins v Montpellier and then the main course of Racing 92 v Sarries who should win.
It’s the last day of the Premiership season and there are still a few things to iron out. If Spurs lose at relegated Magpies and the Gooners beat relegated Villa then they will switch round and Spurs will finish below their arch North London rivals. If the Noisy Neighbours lose at Swansea and the Red Devils beat the Cherries then they will take 4th place. Finally the happy Hammers really need to do better than either the Saints who play the Eagles or the HubCap Stealers who are at the Baggies.
The Spanish GP is on at the Circuit de Catalunya where the Ferrari’s have been very hot in early practice. Time for Lewis to shake off the holiday blues methinks, unless he is being deliberately held back…..!
And of course its the Eurovision song contest this weekend, if your having a party enjoy…
Finally, I could write much more about this young lady and can forward more details if needed but below is an appeal that I have gladly agreed to post from her friends and family and the advisors to the company she is attached to, I wish her all the best.
Laura Sylvester, 23, studying for a Masters in Petroleum Geoscience Imperial College London, is in urgent need of medical crowdfunding of £300,000 https://www.youcaring.com/laura-sylvester-483048. Since being diagnosed in August 2014 with a rare genetic disease called Ehlers Danlos Syndrome (EDS) with PoTS (Postural Orthostatic Tachycardia Syndrome) which causes the connective tissue throughout her body to be extremely stretchy and easily breakable Laura has undergone two life-saving neurosurgeries.
She was recently diagnosed with a rare blood clot in the brain which requires further surgery in the US and is in in critical need of your help and support to receive this lifesaving treatment. Please dig deep and consider helping Laura by donating via her ‘YouCaring’ medical crowdfunding site.