WTI $47.97 +27c, Brent $50.80 +24c, Diff -$2.83 -3c, NG $3.08 +2c
Last week saw a modest but continued fall in oil prices, WTI was down $1.34 and Brent 96 cents. Downward forces just exceeded upward ones and on Friday the rig count showed a rise of 20 overall to 809 and in oil of 21 to 652. The meeting of the Opec/Non-Opec monitoring committee took place at the weekend in Kuwait and they reported a high level of ‘conformity’ up from 87% to 94% and that the pact should be extended. After some behind the scenes activity it turned out that the committee didnt have the power to make such a recommendation and watered down the final wording to be subject to a risk assessment nearer the time.
Further justification, if any were needed this morning that HUR have a monster find on their hands in the West of Shetlands. The Halifax well has been completed and has concluded that Lancaster and Halifax are a single, very substantial hydrocarbon accumulation. Speaking to CEO Dr Robert Trice he said that he was ‘chuffed’ that the well had come in better than, although on the same lines as, the original licence application in the 23rd round where the company had expected a ‘basement prospect with a 700m oil column’. Several years later this has been totally justified, indeed the only difference is that the column, including the gas cap, exceeds 1km which is huge.
Reports that the DST failed due to technical factors should be treated with scepticism, likewise the chatter about overrunning on costs, true it was an expensive well as exploration wells are but here it was primarily down to a deeper than expected ODT to number which was even deeper than Lancaster. No oil/water contact was found and with no barrier or fault it was established that it was a tilted contact which simply put means more oil.
Life is very busy at HUR, they have already appointed subsea specialists and hired the FPSO that will be needed for the EPS, this result will mean more work again. The CPR, which will be the base for the FID will see an initial report within the next fortnight and a final one to include that data from this well and the Lincoln discovery should be out in the second half of the year. With the FID imminent-ish and so much progress on the FID the market has turned to questions of funding which are understandable but in no way bearish. Having made the, in hindsight, correct call to delay the farm-out process, the company has restarted the negotiations and I understand that the data room is brimming with high class oil companies most of whom mistakenly didnt believe that the good Doctor was going to be proved so right. Also it is inevitable that the company will be discussing financing needs as they move towards the development stage, this will likely be a combination of debt, consisting of regulation instruments as well as more contemporary ones and inevitably some equity portion, investors should consider this to be an opportunity rather than a threat and ensure that they are on the placing list for when it happens.
My target price ever since the first discovery on Lancaster has been 100p, in the early stages that was something that made me a laughing stock, to paraphrase the old gag , they are not laughing now. With such huge amounts of hydrocarbons discovered, now well in excess of my much scorned 1bn barrels, I think that a working number would be a conservative 150p but adding in bid premium could easily be well in excess of 200p. HUR has been a big favourite and is a bucket list stalwart, the drilling campaign hasn’t put a foot wrong and accordingly will remain at the top of my list of cheap stocks in the sector, the shares are up only 5% this morning which only proves the stupidity of some of those who should know better, still a massive long term buy.
One of the mysteries of the market at the moment is why AMER has had such a dramatic fall, dealers report a large seller but the news flow only gets better. Today that is confirmed as the company spud another well, this time on the CPO-5 block and away from the OBA region. A multi well programme later in the year should spice up AMER’s life and the shares are way too cheap.
Jersey Oil & Gas
A new CPR by ERCE on the Verbier and Cortina prospects has upped the gross mean prospective resources. For the former it goes from 118 to 162 and the latter 91 to 124m whilst the COS rates for Verbier rise from 26 to 29% and for Cortina to 19%. With a Capital Markets Day on wednesday I remain of the view that this is the most geared up play in the sector ahead of Statoil drilling in the summer. As close to a no-brainer as one can get, providing one is agile ahead of the drill bit spinning, JOG has a lot further to go.
Primeline Energy Holdings
In dispute for sometime, PEH has received full payment for the gas sales contract for LS36-1 from Zhejiang Gas. This represents RMB 256m or C$49m and it is in full and final settlement of the dispute with Zhejiang Gas . PEH are on the TSX Ventures exchange and this should be highly beneficial to them.
Wood Group announce the winning of a contract worth $50m with Premier Oil which extends and reviews their North Sea agreement..
Bowleven has announced that it strategically reviewing all its options including the COC poison pill one but that refuses to bite the bullet on a fire sale transaction…
Sirius Petroleum has signed a contract for a seabed survey that is needed as a preparation for rig positioning. This should enable the market to relax in the hope of a spud dare in the not too distant future…
And IOG has seen its Harvey licence extended by a year but an appraisal well is needed for any further extension. At the Elgood discovery where it has up to 22 BCF of gas it is preparing a submission for a tie-back to the Blythe hub.
In the football at the weekend there was a bad tempered match between the ROI and Wales which ended goalless whilst Northern Ireland beat Norway and Scotland just nosed past Slovenia. England made a bit of a meal getting past Lithuania 2-0 but they did park the bus making it difficult to break down the defence.
The F1 circus got under way and the Mercedes might have been the faster car but they were undone by a craftier Ferrari team who pitted more cannily thus keeping Lewis second, this may be a fun season….
In the Qatar MotoGP our British hope Cal Crutchlow unfortunately crashed out (twice!) but the improving Scott Redding finished an excellent 7th. The race was won by Yamaha newcomer Maverick Vinales from Andrea Dovizioso and ‘Old Man’ Valentino Rossi in 3rd. In the
Moto3 race the British rider John McPhee just missed out on the top step with a superb 2nd place. The circus moves on to Argentina in a fortnight…