WTI $48.23 +16c, Brent $54.27 +43c, Diff -$6.04 +27c, NG $3.00 +5c
Another up day for crude yesterday with short term weather related problems still to the fore, refining in Houston and the Gulf is returning, in some cases slowly, but over in Florida significant power outages remain. We have had reports from Opec who are calling August production down a touch and also the ever important STEO from the EIA. In that document they revise down US production slightly, primarily due to Harvey and have taken 100/- b/d off this year’s forecast to 9.25m b/d and 70/- b/d from next year’s to 9.84m b/d. They cite ‘an uncertain return to normal operations for critical energy infrastructure’ in their report. Last night’s API numbers showed a 6.2m barrel build in stocks and a draw in gasoline, analysts are expecting a bigger build with the EIA stats tonight but all will be difficult to put into context post hurricanes.
BP have been in the news a bit in the last few days, they have apparently decided to go ahead with the IPO of their BP Midstream Partnership and realise value from the pipeline systems in the US. Sunday saw an article saying that the company are to ‘part company’ with Chairman Carl-Henric Svanberg after a ‘chequered’ seven year reign. Whilst a Chairman of such an organisation is normally a figurehead position, BP have had a number of major league problems on his watch and a change might easily have been made some time ago.
Finally and much more importantly it looks like the company is going to put its Argentine assets into a new JV with Axion, Bridas and thus also with CNOOC. BP claim that this would be the largest private energy company in the country and with its conventional and unconventional plays being amongst the most alluring in the industry, Argentina is very much back on the map. With many companies, amongst them a number of smaller UK quoteds showing interest in South America it is interesting to hear BP CEO Bob Dudley saying that it would a platform for ‘growth and development opportunities in Argentina, Uruguay, Paraguay and Mexico’, now where have I heard that recently…?
Range has announced that it has spudded the QUN 161 development well on the Morne Diablo field, the well is targeting the Lower Forest and Upper Cruse horizons and will be at TD in around two weeks. It is being drilled by RRDSL which is being acquired by RRL using one of their newest and most up to date units. Although Range is still suspended I can’t imagine that it will be too long before the listing returns…
Chariot Oil & Gas
Interims from CHAR this morning which are as meaningless as usual but much work is going on behind the scenes. The action as far as drilling is concerned will be next year with the big excitement around the carried Rabat Deep well in 1Q 2018. Data rooms have been opened for both Namibia and Morocco and in order to expedite drilling preparations are being made to be drill ready. With $21.7m of cash, no debt and few commitments Chariot is beginning to look exciting as a medium term prospect.
Production fell to 8,606 boe/d from 10,862 but guidance has remained at 8-9/- boe/d which I presume will eventually be made up by further investment at TGT. With cash of $132m and approvals received for the next stage of longer term investment in Vietnam all looks good. I’m not a big fan of their African assets but they might buy a little more production if necessary. Finally I wish Roger and Cynthia well after a long stretch at SOCO, Roger was instrumental in getting me into looking at the company which has been extremely worthwhile.
An operational update from BPC this morning which serves to remind us that they raised $3.5m at 1p back in July. They are continuing with the attempts to find a partner and have signed up numerous NDA’s some of which they are taking further. Accordingly the process for the company remains incredibly tortuous and at the moment provides little opportunity for turning more positive. They are also having to engage with the new Government and are ‘proactively meeting’ representatives, Ministers and officials.
In the last few weeks I have written a lot about EME after a conference call with Tom Kelly in which I updated myself about the new assets he has brought into the company. It has turned out to be a smart if fortuitous move as the news from their Dempsey well has been coming thick and fast. Today they have announced that the well has reached TD at 9,750′ which is very close to the original thought of it being around 10,000′, accordingly they have completed drilling after intersecting two further zones of ‘high’ gas shows. Wireline logs will now be run to fully evaluate these gas shows and reservoirs, after which a more detailed and accurate picture of the prospectivity of the well will be proven.
Yesterday I was fortunate to meet up with Tom Kelly along with fellow directors Gaz Bisht and Frank Brophy, both key to the development of EME. It has become clear that the Dempsey well has encountered enough gas to ‘at least pay for this well’ and if the wireline logging evaluation is as it seems may confirm the pre-well hopes of 1 TCF of gas. Indeed it seems that the deeper zone may alone contain 100-300 BCF and therefore only two zones may be tested, the shallower zones on the way down supported ongoing drilling but will now be left ‘for another time’ and the larger, deeper targets opened up. With the infrastructure almost on the doorstep, the gas metering station is literally 40m away and accordingly payback on this well will be remarkably short, indeed the company expect cash flow ‘within weeks’ of testing.
There are a number of Dempsey lookalikes (3) which are also cretaceous plays and I expect the company along with the operator to start drilling these soon. Equally, if not more exciting is the Alvares prospect (EME 25%) which is away from the lookalikes and is a separate and bigger accumulation and has a target of 2 TCF and already has logged gas shows. The operator may put a small workover rig onto Alvares just to test and see that the casing is satisfactory but then will be drilled in this programme. Further good news is that gas prices here are very strong and they will receive a premium of 20% to Henry Hub which further improves the economics of the area of mutual interest.
So, what to expect next, depending on the wireline logs and the setting of the cement it shouldnt be long before some more definitive numbers can be attributed to Dempsey and we can put a firmer valuation on the well. If that is as big as recently envisaged then the share price rise in the last few days will be more than justified, indeed I see considerable upside depending on the lookalikes and Alvares.
It should not be forgotten that Dempsey is only a part of the portfolio, Indonesia and China are already both showing very decent promise. The Mako South -1 well results exceeded pre-drill expectations and is a very large structure with permeability and flowability both excellent. Hoping for 50 Milli-Darcy’s the company instead got multi-Darcy’s and the flow rate will be significantly exceeded on production. The operator here is already looking to a development plan and the authorities, occasionally slow movers in this area, are keen to get under way as there is a shortage of gas in the area. In China they have recently announced a third prospect after 2D seismic and have run 3D after which raw data processing are now looking very interesting indeed. The three prospects in Jade, Pearl and Topaz have significant trap sizes for such a small company and should the new data prove to be accurate then this basin will add a lot more value to EME.
The shares have risen substantially in recent weeks and stopped at around 23.75p today, investors will be weighing up whether that is high enough and waiting for confirmation of the wireline logs, should they be confirmatory then the shares will be off to the races. Clearly the other risk may be another funding but given how well the shares have done and with the huge upside a I dont see a problem, all in all the shares show prospects of a multiple upwards valuation from here.
Columbus Energy Resources
MOre good news from CERP over the last couple of days as the new management headed up by the indefatigable Leo Koot continues to make progress in Trinidad. Figures here are therefore totally meaningless and holders are correctly looking forwards and hoping to see what the new strategy might bring. Yesterday they announced that the CEC had been issued for the water injection pilot programme on the Goudron field so the company now kick on and increase production, all funded from existing cash resources. CERP continues to provide the market with helpful updates and I suspect there are many more to come, watch this space.
News of changes at Board level at IOG come at regular intervals and today’s report is that Hywel John has left ‘with immediate effect’ to pursue other interests and will be replaced as CFO, but not a board position by James Chance. The share price increase of 24% as I write seems rather over the top, indeed relegating running finance to a non-board position always ups the risk profile of a company in my eyes.
Wood Group and AMFW yesterday announced that the CMA had accepts the ‘remedy’ that is the selling off of AMFW’s UK upstream oil and gas interests. Expect closure in October as this pretty much completes the jigsaw.
Faroe Petroleum announced yesterday that the Goanna well has proved to be a water bearing reservoir which is disappointing, costs were below budget so FPM are fully carried and they will learn much from this well. Still a very cheap stock on any long term valuation.
And Sound Energy confirmed that the previously announced deal with OGIF in Morocco has been completed. 272m shares will be issued to OGIF and first day of dealings will be 18th September.
Last night saw the return of the Champions League and the stirring music that starts every game. A solid win by the Red Devils and a big one by Chelski were to be expected as was the trashing dished out to Celtic by PSG…
Tonight we have the HubCap Stealers, Spurs and the Noisy Neighbours on parade, all of whom should win too…