WTI $44.66 +$1.22, Brent $45.52 +$1.89, Diff $0.86 +67c, NG $2.16 +6c
Crude oil rallied yesterday as Canadian outages, higher than first expected at around 1.5m b/d kept supplies short and despite a strong dollar pushed prices up. This is unlikely to last for long as a number of operations are already preparing to restart having closed only for the effects of smoke.
Also pushing prices down is the war of words between the KSA and Iran, the Aramco CEO has said that they will continue to increase production (11m b/d appears to be the target) whilst the NIOC has announced a $1.60 discount on June prices to encourage customers. There is a lot of smoke and mirrors here, Iran may be getting up to its short term capacity and of course during the summer months the Saudis may well increase production but not exports due to domestic demand. After the close, the API stats showed a build of 3.45m barrels and 1.5m at Cushing which wasnt expected and crude has fallen around 60 cents this morning.
The STEO from the EIA is out this morning and only the headlines are available as I write, however it does look to be a bit more bullish with particular reference to all these short term outages which they calculate as being as much as 2.9m b/d in April. They see global demand numbers growing, albeit slowly and the draw on Opec starts to become more meaningful by the third quarter…
A trading and operations update from Prems who have their AGM later this morning. Production is running at 57.3/- boepd and is on track to meet 2016 guidance of 65-70/-, the first well at Solan is on stream doing 14/- b/d and the second well is expected in mid year. Capex is down and opex and gross G&A is tracking at 10-20% below 2016 budget after continued cost cutting. The company claim significant liquidity with cash and bank facilities of $750m and that they are in ‘ongoing discussions with lenders to secure possible waivers to its covenants’ if required’. This last bit is a touch disconcerting and why the market has marked the shares down this morning, the article in the Sunday Telegraph was probably not what management wanted right now. Still in the bucket list provided ‘discussions’ go according to plan.
Confirmation this morning that Sound has received final Badile drilling permission from the Italian Ministry of Economic Development. Drilling of Badile is expected this year so I expect farm-out activity to be under way, this is one of the company’s most exciting prospects with a potential unrisked best estimate of 178 BCF which even at a lowish COS would be transformational. The company is in a very strong position at the moment, apart from Badile it is well under way at Tendrara, has its other Moroccan assets such as Sidi Moktar coming through and the strong and proactive management is always seeking new opportunities.
Announcements from Wood are coming thick and fast at the moment, today’s AGM statement is an update on current progress. With the market still ‘challenging’ as expected Wood expects full year EBITA to be down 20% in line with current analyst consensus. As I suggested recently the company is experiencing some margin pressure so the reasonably high level of current order book may be slightly flattering. Having said that the company is still prepared to forecast a 10% + increase in the divvi this year so it can’t be that bad.
Also an AGM trading statement, also mixed 1Q, also solid order and revenue intake and also lower than expected margins, such is life in the oilfield services business at the moment. Cape continues to deliver the goods and is cheaper than almost everything in the sector with management every bit as good. The order book at the end of the 1st quarter was £862m, almost the same as the year end and very creditable under the circumstances. The good news came from FX movements and Wheatstone and the bad from that margin drift leading to a slightly worse operating profit number. As I said, this management is up with the very best and on this rating has serious downside protection.
Watching the early evening coverage from London’s East End I thought at one stage that things might just get properly messy, but the determination of the Hammers on their last outing at Upton Park saw them over the line as they deserved to. Tonight the big game is the Maccams v the Toffees, if the Black Cats win then they are safe and the Magpies and the Canaries are relegated, the latter play the Hornets tonight hoping that a win and a slip up can take it all to the last day. The HubCap Stealers host Chelski but will likely be concentrating on the Boropa Cup final next week…
And it’s the start of the Dante meeting at York today, the flat season is fully underway with the Guineas past and the Derby and the Oaks to look forward to, a great card today though.