WTI $67.04 -16c, Brent $72.46 -15c, Diff -$5.42 +1c, NG $2.96 +3c
After a quiet start to the week which I’m told livened up on Monday it has been another up and down week. Yesterday as I reported the market started by rising then with dollar strength and further aggro from Turkey it gave back all the gains. This was made worse after hours when the API stats came out, a build in crude stocks of 3.7m bbls was higher than the 2.5m forecast but then gasoline stocks unexpectedly drew by 1.6m when a build was expected. Accordingly oil is down this morning and only when we see the EIA numbers can we make a realistic judgement.
Further to the Opec report from Monday, after I went through it in detail it does seem to be that much more bullish than the other two agencies, certainly for 2H of this year where is sees call on Opec of 33.39m b/d which would in my view tighten the price. But all of them agree that to keep the price around these levels some sort reduction in production will be needed then..
More good news this morning from SAVP as they announce that the Eridal-1 exploration well is their 4th consecutive discovery in the R3 portion of the R3/R4 PSC area in the ARB and the second best with regards to pay. The well encountered a total estimated 13.6m of net light oil bearing reservoir sandstones in the E1 reservoir unit within the primary Eocene Sokor Alternances objective with reservoir properties to be of ‘good quality’ and light oil consistent with discoveries to date.
The well took only 14 days to reach TD (exp 22 days) and completion is expected after 23 days (30-35 days) which means that this process is really making efficiency gains every drill and at least two of these wells will be tested for the EPS. The really interesting thing about this well is that it targeted a structure that had previously been drilled in a down-dip location by the previous operator and was thought to be dry, the SAVP technical team should be congratulated for going up-dip and achieving this result. CEO Andrew Knott has said that this well has ‘contributed meaningful oil resource additions for the development of the EPS’ again adding to in country economics.
SAVP has elected to exercise the 2nd of the 6 options it has with the Great Wall Drilling Company and the rig will now move to the Zomo-1 site 12km from here, more importantly it is south of the Amdigh discovery and could test the possibility of an Amdigh extension. This would be another significant step for the company as if they hadn’t already make such good progress. The combination of four excellent wildcat wells coming in and the ability to bring oil to market, maybe by the year end, has not only produced what could be at least 75m but de-risked the whole prospect and got rid of the ‘stranded oil’ brigade for once and for all. The shares remain in limbo, I presume waiting for the Seven completion but this surely adds to my confidence that the shares are worth double the current price. (See both links below on VoxMarkets Podcast and interview at IGTV yesterday)
I met with Dr Steve Staley, CEO of Upland Resources last week as I had spoken to him after the Wick farm-in and found the company strategy of considerable interest. He is a really inspiring industry veteran, if I may say so, and he and his team are oozing with experience from Cove and also North African experience plus elsewhere. The strategy is to take material stakes in oil and gas plays which display characteristics of attractive risk. They have a huge bank of technical expertise and a broad industry experience available to them.
So, they have taken a 40% stake in the Wick well where of course Corralian (40%) and vicariously Reabold through its stake in the company are involved. They are paying 53.33% of the well costs with a cap and it will drill in September and Steve is confident that there is a serious opportunity here.
Elsewhere, the company has recently announced its entrance into Tunisia, another area where the team has significant expertise and taken a huge licence (4004km²) at the Saouf permit where existing but old gas discoveries indicate that the possibility for further profitable finds might be made. These are potentially profitable as pipelines both big and small criss-cross the permit enabling local and international sales.
The company also has an interest developing in Sarawak, Malaysia where plans for greater independence have not changed after recent elections. Working with the Brooke Dockyard and Engineering works mean that a recent visit to the country led to a potentially large deal being completed. Finally they have an onshore UK licence in the East Midlands.
The company raised £3m at 2.5p back in June and has access to substantial funding where necessary giving me confidence in the ability to progress any of the above assets should moulah be required. Overall a very interesting meeting with Steve who is clearly a top industry executive.
I took the time to have a chat with Andrew Austin, Chairman of RRE on Monday following the recent announcement of an acquisition of an interest in the Arran field in the Central North Sea from Dana Petroleum for a nominal sum. RRE will fund its share of the upcoming development of the field from existing cash flow and it is probably reasonable to assume that Shell is the operator. This deal obviously came along quite quickly and gave a fast mover like RRE the chance to slip into what is a really exciting prospect. It will add 5.7 mmboe of 2P reserves and 3,500 boepd when up and running again adding to the fast growing RRE portfolio.
The consortium having already paid for back costs RRE is clearly coming in at an advantageous time and I am making a rough guess at a saving of around $20m. I’m sure that Andrew Austin will continue to do deals such as this which add good quality barrels and access to high class infrastructure in the North Sea which other exploration companies can only wish for. RRE has often been singled out for storing up decommissioning costs in the future but given the cash generation and tax credits that can be used I dont feel that the company is any different from others in the industry. I did ask AA if he would maybe give me an interview by way of explanation to which he agreed!
I met up with Eytan Uliel, Commercial Director of BPC yesterday as he is in London talking to investors about current events. Clearly almost all of what I wanted to discuss was off limits but he did give me some ideas about how things were going.
The name of the super-major who is in detailed and confidential discussions is clearly not going to be disclosed right now but a lot of work is being done. We have recently seen the rollover by one month of the initial three month agreement and this I suspect will be rolled over probably for another two months. I don’t think that there is anything bullish or bearish to read into this as some have suggested but just a lot of data to process.
It is my own thinking that it looks like any deal that might happen here would involve BPC farming down quite a large chunk of its stake in the project but that even a modest residual holding would result in a huge rise in the shares. It is worth saying that at this stage all of the options are still on the table and given my knowledge of these sorts of negotiations anything might happen. This makes BPC a most fascinating share at the moment and whilst the upside is huge there is undoubtedly a possibility of a major disappointment which should enter all calculations.
Two links today, firstly my weekly VoxMarkets Podcast which covers a few companies I have recently met with and some who have interesting outlooks.
The second link is to an interview I gave yesterday to Jeremy Naylor of IGTV who wanted to chat about a few stocks in the recent bucket list update. He asked me about Rockhopper, Hurricane, SDX Energy, Reabold Resources, Jersey Oil & Gas, Savannah Petroleum, President Energy, Sound Energy, Victoria Oil & Gas, Aminex and of course Pantheon and new boy Genel Energy.
Well Celtic did go out of the Champions League last night after having been ‘the best team over the two legs’ according to the manager…They will have the safety net of the Boropa cup to go into though.
And F1 will undoubtedly be worse off without Fernando Alonso next year and with challenges in the USA probably we have seen the last of him, I hope not. And of course that leaves a vacancy, albeit in an indifferent car but one that I would have thought Danny Ric might have enjoyed, oh well…