WTI $47.62 +$2.12, Brent $49.99 +$2.01, Diff -$2.37 -11c, NG $2.81 +13c
The EIA provided almost all the news yesterday and it was bullish across the board from the STEO to the gas consumption figures and finally the inventory stats. Taking the last first, even after the API number after hours on Wednesday the draw of 14.5m barrels was bigger than expected even after the Hermine shut-ins which also caused import delays around the gulf. As usual on these occasions it will be wise to keep ones feet firmly on the ground and wait until next week just to see if he numbers average out. The big draw in gasoline stocks also pepped up the marché and there is less weather excuse here, if anything it would be the Labor Day weekend that ‘drove’ that.
The STEO from the EIA also caught the bears on the hop a bit as it suggested that supply is falling and will be less than demand by the third quarter next year thus taking crude from inventory then. I can see the bears view, Opec crude is pumping at up to 34m b/d and showing no signs of falling and even Russia appears to have found some more and is up to 11m b/d. Finally those natural gas numbers, the EIA again, suggest that there has been record gas consumption this summer, indeed Wednesday’s number of 36.2 BCF was up with the best and the summers average was 35.2 BCF/d up 9% y/y and up 23% on the 5 year average. Thank goodness for all those stocks I say and remember that we actually had one week of draw in the summer build months!
Hurricane has announced that 205/21a-7, the pilot well, has completed its logging and testing phase and will now be abandoned in preparation for side-tracking the top hole to form the 7Z horizontal well. There can be little dispute that this has been a genuinely significant discovery which adds meaningful barrels to the company’s reservoir model exhibited at their Capital Markets Day back in June. The bare facts are that the company has announced a ‘very significant’ hydrocarbon column of at least 620m which extends well below the structural closure at 1,380m TVDSS. The provisional analysis indicates a minimum ODT at 1,620m TVDSS, 240m TVD below structural closure and wireline samples of Lancaster type oil at 1,640m. If that wasnt enough then the secondary target of the Victory sandstone reservoir flowed at 6,600 bopd up to 11,000 bopd with artificial lift and submersible pump which is way better than expectations.
What does this mean for the Lancaster resource range? Well the numbers immediately move up from the 200m barrel mark shown at the capital markets day which was then a 50% chance and is now more like a 90% chance and with such a discovery one should make the range at least 350m barrels and more likely 500m a realistic target if not significantly more. This confirms the discovery to be one of the largest in recent UKCS history and more than justifies the management decision to abandon the farm-out discussions and raise money from Kerogen, Crystal Amber and other institutions. With the company moving on to drill the horizontal well which is designed to provide a second future production well and be part of the well stock for the EPS things can move ahead fast. One of the big advantages of this is that first oil is likely as soon as 2019 from two wells with an FPSO, if this is much bigger than earlier thoughts these plans may yet change. The high case EPS number indicates that should all these numbers be vindicated then this truly is a ‘UK game changing field development’ and this will truly be only the first stage in such a development. With a probable farm-out on better terms and not forgetting other portfolio prospects such as Lincoln, Warwick and Whirlwind to assess, I consider the 50% rise in the stock this morning to be just the start for Hurricane, as if anyone ever doubted it…..
Just a quick word on EnQuest who produced results yesterday which again showed the company’s ability to reduce operating costs. In their case, costs have fallen from $46 to $23 per barrel echoing the move by Premier recently. For EnQuest who have Kraken coming on stream they also share the problem of high net debt but with some asset sales and some rejigging of the debt should enable them to weather the storm. Operationally the announcement was good, production up 43% pushing up ebitda and pleasing analysts, the storm is not weathered yet but EnQuest looks, like others to remain afloat….
Also yesterday Sound announced that it was flying along with the Tendrara TE-7 well onshore Morocco and that they have reached the second casing point. Sound continues to do well and the shares which touched 80p yesterday remain good value if those high TCF numbers are achievable.
Shore Capital E&P Conference
I was lucky enough to be invited to the annual Shore Capital thrash yesterday and as usual they provided a number of companies who shared their current thoughts. Opening remarks from Giles Clarke were positive and the thoughts from the perennial market expert Gervais Williams MD of Miton Asset Management highly informative. Ahmet Dik, CEO of Victoria Oil & Gas addressed ‘successfully monetising African gas’ which should be more appreciated by the market. With a huge well to drill with Exxon next year Arthur Millholland talked about Liberia as he has done before, its now down to the drill bit. Following a recent raise, Andrew Knott, CEO of Savannah Petroleum talked through his ‘early mover advantage’ in Niger’s Central African Rift system in good company with CNPC. Also having had a recent raise, Jay Bhattacherjee CEO of Aminex was clearly pleased to be receiving money from Kiliwani North as was Neil Ritson who was in the audience taking notes. The fund managers from CQS New City also spoke about the market and US shale and shared the views above from the EIA about the market moving into supply and demand balance next year. A new presentation from Nick Harrison of Amerisur finished proceedings and he was upbeat about building a long term proposition for the company in Latin America. AMER raised money earlier in the year and with the OBA due anytime now showed that drilling in Platanillo and the OBA ‘cluster’ strategy have the firepower to go after the significant resource potential. In the big audience it was good to see a number of old friends, Rob Arnot Hurricane Chairman, giving away nothing, Paul Welch CEO of SDX Energy, Brian O’Cathain relaxing a touch, Cathal Friel of Fastnet and many more.
My apologies to all those rugby fans to whom I did a massive disservice by not mentioning the start of the Premiership season last week. The big double header at Twickenham was quite a day and although Sarries were never going to lose the Quins nearly did. This weekend the best matches look like the Chiefs v Sarries and the Tigers v the Wasps with the small matter of Worcester v Gloucester thrown in…
With Muzza going out at Flushing Meadow it leaves brother Jamie holding the flag in the doubles…
And in the Prem its the first really big derby of the season as the Red Devils host their Noisy Neighbours tomorrow lunchtime. The other big game is the Foxes going to Anfield to play the HubCap Stealers, is it me or have they had a particularly difficult start to the season? The Hammers have Dimi back and host the Hornets and with Hull City Tigers at Burnley it leaves David Moyes and the Maccams to host his old team, the Toffees.
Over at the O2 we will watch Kell Brook go up two weights and try and take on Gennady Golovkin, a task rather too much you may think.
Adding to all this there is the St Leger at Doncaster, city types who dont know about racing know the date as the old adage goes, ‘sell in May and go away and dont come back ’til Leger day’……
And of course the Paralympics are under way and in the first day team GB picked up 5 golds which puts them straight into 2nd in the table.
I realize from today’s blog that you were indeed maxed out yesterday. You didn’t mention Pantheon but no doubt you will have, by now, found the time to digest Jay Cheatham’s recent audio with Vox Markets. Malcy I would really appreciate your comments on this broadcast. I am aware, like all holders, that you have taken the track-back in PANR’s SP since Monday’s RNS as a kick in the wedding tackle but please keep talking about Pantheon. The company has been, for a while now,the star of the bucket list: I for one would prefer to hear more from you on PANR matters whilst the SP is in tatters. Your thoughts on a rebound/timescales would be appreciated. I understand your target remains 200p and that there may be more attractive stocks just now but, having interviewed Jay several times would appreciate your personal take on yesterday’s interview. Thanks in advance. Have a relaxing weekend Malcy. Kind regards, G
Many thanks for your message about PANR which you are correctly suggested has been a bit of a kicking. I havent changed TP as although I spoke to Jay last week i was going to wait until i see him in person this week when he is over here. At the moment, and it is perfectly possible that i will change my mind if i think i am in the wrong, i still believe the story although the horrendous IR over this process has disturbed me. I am interviewing Jay on TipTV later in the week so if you have any questions just ask!