WTI $45.68 +93c, Brent $47.37 +$1.11, Diff -$1.69 +18c, NG $2.73 -1c
This week, as before has been an up down, up down week so today should be down and therefore I wont guess as to whether crude will be up on the week as it is too close to call. This has been made worse by the terrorist action in Nice overnight which has yet again increased volatility in the markets and added beta. The rise yesterday was down to some short covering, a weaker dollar (across the board but helped by the Bank of England holding pat on rates) and the Chinese GDP numbers beating the whisper at 6.7%.
The week has been characterised by the three reports which to my mind were bullish long term but with the caveat of continuing high stock levels in both crude and products which will ensure that the market is capped for the time being. My chartist followers are telling me that in the short term the momentum is on the upside…
Faroe Petroleum- Be-bop-a-Ula
Its all going on at Faroe with the Brasse sidetrack coming in on Monday and late yesterday they announced an acquisition from Dong Energy and placing to raise £62m. The deal looks very good to me and although we have been waiting a while for it, it certainly is worth waiting for. Adding production from these five Norwegian fields of 8/- b/d and increasing the liquids proportion is good, 2P reserves are now 19.8 mmboe the deal values the acquired barrels at $3.5 boe for 2P and $2.3 for 2P and 2C. It also gives them even more tax balances and an opportunity to consolidates a core hub area to include Butch and Blane. There is no doubt that this is a good strategic fit, it up-scales Faroe and unlocks value in their own and acquired assets whilst adding extra upside ‘for free’.
Financially it ticks all the boxes too, Faroe was already a favourite as it raised money before the crash and has kept its powder dry until now, yesterdays oversubscribed raise shows that the market appreciates that and was happy to stump up the £62m + for the privilege. Strongly financed leaving the capacity to now go and extend and amend RBL facilities, plenty of cash in the balance sheet to go ahead straight away with the Brasse development, whats not to like? This is indeed a transformational deal, well worth waiting for and makes FPM’s position in the bucket list copper bottomed.
I promised a bit more on Senegal after input from down under but in truth there is not much to add to what I mentioned yesterday. Although the timing caught the participants a bit by surprise the ‘give away’ price accepted by COP was equally odd. It doesnt surprise me too much as once a major has decided to ‘out’ something timing is usually more important than value. Where COP will look even more foolish is when commerciality is declared, fairly soon I think, and when one or more of the other parties increase their resource estimates, also fairly soon. For Cairn who have, how you say, been quite slow off the mark to appreciate value here, they will lose operatorship to WPL but gain as the development gets going much more quickly. For Far, still massively geared to the discovery, the upside despite being dented yesterday still looks huge. They are fully funded for anything that can be thrown at them, two wells this year perhaps and plenty of technical and administrative work to do into the bargain. Despite being caught by surprise I still think upside in Far can be well above 25c a share.
At last I think that in the figures due at the end of this month there will be a last substantial hit taken following the Macondo disaster. People laughed when I put $58bn as a target cost of the foul-up but yesterday the company revealed that the final number will be around $62bn after a $2.5bn charge in the 2Q figures. The recent rally has been totally justified and all the majors have got further to run, although the yield is now a paltry 6.6% the brexit effect is to favour dollar earners with an international twist and if the oil price helps so much the better.
The Open leader overnight was Phil Mickelson who showed the youths how to play a links course but in fine weather, today may be harder going as the elements are expected to even up the field although four shots is good at this point.
Believe it or not it’s another Davis Cup weekend, this time away to Serbia. No Muzza this time so lets see how these kids do…
And the test match got a full day in with Pakistan ending on 282-6 losing a couple of late wickets.