WTI $46.32 +98c, Brent $47.65 +82c, Diff -$1.33 -16c, NG $2.99 -7c
It’s good to be back after an incredibly exciting, informative and whirlwind visit to Colombia which I will write up in more detailed reports in the next few days. Apart from todays news I shall attempt to make brief comments on this weeks events and will expect admonition for what I may have missed.
The oil price has had a pretty good week without blowing the doors off, it is noticeable that WTI has had a better week than Brent, probably on the back of the inventory stats which showed good draws and still significant demand for gasoline. Combine that with the dovish news from the Fed which led to a weaker greenback and equities and commodities celebrated by going to a more risk-off stance.
Beware of such hedonism as next week we shall see the ‘Opec’ meeting as it is being called in all polite circles, the meeting in Algeria is unlikely to meet the bull’s expectations and is more likely to be a let down. At best expect a holding announcement ahead of the next real meeting of Opec on November 30th. At worst……..
This morning has seen some giving back of the strength as traders are appropriately cautious of going into said meeting overly long crude but having said that, after the Doha debacle the oil price actually went up…
Plenty going on at Sound as there have been three announcements this week from different but important parts of the portfolio. At Tendrara the third and final casing point has been reached and at the time the well was only 10 metres from the reservoir. Assuming that all has gone well, that would indicate that the bit has penetrated the reservoir and is on the final steps of its mission. Whilst final results aren’t expected for some time I would expect something from the company reasonably soon especially if news is good and they have to start flaring.
Elsewhere in Morocco, Sound has renegotiated the terms of the Sidi Moktar agreement in the light of recent events, primarily the move of the recent rise in the share price. Agreement has been reached to share the spoils of the share price hike by each side taking 50% of any share sale above 50p and they have agreed to extend the long stop date before closing the deal. Finally, after 3 and a half years, the ground works have started at Badile which proves nothing except working in Italy still requires the patience of a saint, of which they have many.
This week has been spent in Colombia with an in depth look at the operations of AMER and presentations from local management and executives. Over the next few days I intend to try and cover all the relevant issues as there is way more than enough for one blog. Today I am going to mention the facts and forecasts made in the RNS on Wednesday and follow that with more information from the presentations made on site.
The numbers given are in line with previous guidance and in some cases new guidance has been given. By the end of this year production will be 7,200 b/d and average output in 2017 is expected to be 7,500-8,500, longer term the plan is for the rate to rise to 20,000 b/d by the end of 2019. To get this under way capex will be $52m between now and the end of 2017 and will fund 11 wells, seismic activity and the long term testing on Coati.
The main area of activity will focus very much on the Putumayo Basin with the Llanos field as a non-operated hedge. AMER are targeting the Platanillo field where we spent most of out time on Tuesday but want to broaden their production base to at least three fields to achieve balance. To put the area into some context, it is worth noting that in South Colombia there has historically very little exploration whereas a look at the map over the border in Ecuador shows significant success on the other side of the river. That this has never been developed (and it is clear that it extends northwards) is down to a number of reasons, the long running war with the FARC which will hopefully end with the plebiscite on the 2nd of October, endangered security, isolated the community and deterred investment from outside. Now the peace process is underway and investment is increasing, as shown by Government spend on local infrastructure especially roads, the commitment by AMER is likely to prove farsighted.
The final, and game-changing move has been the international bilateral infrastructure project that is the OBA, a pipeline that connects AMER’s producing fields to the pipeline system in Ecuador. The high cost of trucking oil made its crude only marginally profitable and when onstream will save around $12 a barrel in costs and that is before potential third party contributions. I will go into more detail on the OBA in my next report, hopefully when the first shipment of crude has passed through the pipe but I can report that on this side of the border the kit from pipes to electrics is ready and is state of the art. The OBA has taken longer than expected to complete due to extended negotiations, technical difficulties and major flooding issues but I am led to believe that very early next week the ‘go’ button will be pressed. The company are rightfully going to concentrate on their acreage close to the OBA, known as the OBA ‘cluster’ of which more in my next report.
Results yesterday from Hurricane were, as normal in these circumstances, completely irrelevant. Cash of £57.4m means that they are fully funded until the end of next year and certainly cover the time by which they are expected to have made the FID. Hurricane has indeed been all about Lancaster after the recent success of the pilot well and the horizontal sidetrack is already underway. Following the pilot well it is conclusive that Lancaster is ‘significantly greater’ than the 200m barrels in the 2C case currently estimated by the company. Also the life of field opex has fallen to $26 pb which is pretty impressive stuff. Work on the EPS is fully under way and when that and the FID is complete the company can consider funding strategy going forwards, which given how the numbers stack up might suddenly have made a few more names on the list. The success at Lancaster has totally justified the work of Dr Trice and more importantly his confidence and belief in the project, I still think that it has many more barrels in it than are dared to be predicted and accordingly feel that the shares have considerable upside from here.
Results this week also from Lamprell which were hit hard by the Ensco settlement but the market took the profit warning quite well, it might have been much worse but for the Ensco news being already in the price. Lamps are being quite honest about the situation and have guided the full year revenue to ‘slightly below’ market expectations and FY 2017 revenue guidance is $400-500m. In addition they have said that the markets are still challenging and will remain so ‘through’ 2017 which makes the more than halving of the order book understanding. With a bid pipeline of $3.5bn the company must be confident of some upcoming successes and the new CEO comes with a good record from Petrofac. Jim Moffat must be pretty mad about the Cameron equipment that created the Ensco write-offs and is looking for vengeance, shame I couldnt make the meeting…
There isnt much to add to the Faroe results either really, numbers coming in in line with expectations or maybe a smidge better. The discovery at Brasse was an important plus and the acquisitions from Dong and concurrent raise of £66m equally important. The consequence of these have meant that production guidance has been raised to 16-18/- b/d. I couldnt make the call but looking forward to catching up with management shortly and with the shares performing well, up 65% from the low earlier in the year, they remain very much a bucket list favourite.
A good advertisement for the County cricket championship today as any one of three sides can win. Somerset won yesterday and will take the title only if the game at Lords between Middlesex and Yorkshire is a draw.
Million dollar Anthony Crolla puts his lightweight crown on the line tomorrow night against former champion Jorge Linares, wont be easy.
In the Prem, runaway leaders the Noisy Neighbours go to the Swans which should be three points sewn up by half time, the other shout out fixture is the Gooners hosting Chelski. The Toffees go to the Cherries and the Red Devils after a shaky start only have to go to the Champions…The HubCap Stealers have the Hull City Tigers and the Saints go to the Olympic stadium.
Finally in the rugby, the disappointing Quins host the hot Sarries, the Saints host Wasps and the Tigers take on Bath while no less hot will be the west country derby as Bristol take on the Exeter Chiefs…