WTI $45.41 +8c, Brent $52.28 +8c, Diff -$6.87 n/c, NG $2.94 -36c
Oil trade is still thin and this week will be no exception, this morning is down after poor Chinese economic data but only by @50c a barrel. One of the key determinants of markets in coming months is the US/Sino dispute over tariffs, both countries will be as keen as possible to cut a deal without losing face.
Last year Brent fell by 19% and WTI by 25%, not a scenario that many expected especially as the awaited strong 2H eventually petered out as suppliers upped their game and waivers to Iranian customers proved more generous than had been expected. Right now it’s on a knife edge, expect production cuts from Opec+ but at only $45 for WTI some of the US production is getting more marginal again.
A very positive start to the new year for AMER as the update from CPO-5 is incredibly positive. Initial flow-rates from Indico-1 show that it is on short term test at 4,530 b/d of 35.9º API crude oil and with an application in will move to LTT shortly. This figure might even be conservative if one bears in mind the level of choke back involved. The oil column of 283′ gross and 209′ net is most encouraging in the LS3 formation with no OWC.
The immediate result is that the partnership is moving straight to a fully funded four well programme with all wells being drilled from the same pad starting with Calao-1 towards the south west targeting resources of 2-7 mmboe. This will be followed by the Pavo-Real-1 well immediately afterwards to the north east targeting 2-23 mmboe and the combined outcome could be ‘significantly higher’. These will be followed by two more wells from the same pad, administratively very efficient as it is fully permitted and ready to spud immediately. The Sol-1 well which is also on the cards, is drill ready and with civils completed just needs various permits before it too can get under way. The JV needs to decide whether to hire another rig or to run consecutively but it is a lovely problem to have, the discussions will be taking place with ONGC very soon I imagine.
This discovery is very valuable indeed for AMER on a number of fronts, firstly oil here produces very high netback barrels at a very high return. Trucked direct from the wellhead at Brent -$8 it is going to add significantly to the coffers. Indeed, CPO-5 might be producing half of the company’s in-country oil production before long as the 30% of Mariposa-1 and 30% of this discovery must mean somewhere north of 2,500 b/d.
There is little doubt now that the CPO-5 region with its huge producing oil fields now looks of significant value to AMER, what has not been mentioned so far is what must be an inevitable updating of resource numbers for the company which could come as early as the middle of this year. Finally there is now much excitement at the company with up to 8 wells at PUT’s 8,9 and 12 as well as plenty of seismic and ultimately drilling with Oxy. The shares are up 12.51% as I write, value added only this morning could dwarf that modest rise.
Victoria Oil & Gas
VOG has announced that it has completed the Matanda farm-in after receiving the Presidential decree. Now they own 75% and are operators VOG can get after the significant value in this huge block. There are substantial offshore prospects of gas and condensate and onshore prospects are up-valued by the fact that they are close to the VOG Logbaba gas pipeline, indeed the Matanda field will be able to service the Bonaberi area with gas supply to Douala with ease. The work programme consists of seismic reprocessing and at least one exploration well and fills out the longer term growth story for the company.
News from Faroe today on three fronts, on the drilling front the Brasse East well, targeting a separate structure was found to be water wet whilst the sidetrack well, chasing the northern part of the Brasse field encountered 40m of gross hydrocarbon bearing reservoir, in line with pre-drill expectations.
The company also responded to the DNO request for an independent current valuation report, as at end 3Q 2018 which show 2P reserves of 102m barrels with a NPV, at current oil prices, of between $879m-1.07bn. This equates to 186-225p per share, significantly above the DNO bid of 152p but doesnt include anything from the Equinor swap deal which hasn’t closed yet and also expected to add significantly. Shareholders should think very carefully before giving away such a large amount of value for what seems like a paltry cash sum. Remaining with a high value holding and what is one of the best management teams in the industry should far outweigh the current thirty pieces of silver on offer…
An update from RRE this morning which confirms many of the things that Chairman Andrew Austin and I spoke about at our recent interview. Production in December reached 11,200 b/d and guidance for this year is 10-12/- b/d. Cash is very strong at $121.4m of which only $53.8m is in DSA’s. With the company throwing of cash and increasing their chances of more deals the outlook is bright, with the Arran deal shoring up the medium to long term for RRE opportunities are significant. If you missed the interview it can be seen here.
How many times did I say last year that Ophir was in such a position that it was very likely that it would be bid for? With the hangman’s noose hanging over the company in the form of the Fortuna cock-up minds were distracted and this morning we have another bid in the sector, this time from Medco. Maybe they won’t need that new CEO after all…
In more general terms and with bids for Faroe and now Ophir in the sector you know that the oil price is too low when companies find that it is cheaper to buy oil reserves on the stock markets than to go out and drill for it themselves. A ready made package of assets built up by a skilled team is very tempting, especially if the bidder has a poor record of success but a boot full of cash…
It’s hard to keep up with the amount of footy played over the festive period but the outright winners were Liverpool as both the Noisy Neighbours and Spurs dropped points. A big card of games tonight, the Hammers play the Seagulls, Chelski host the Saints and the Red Devils go to St James’ Park. The Terriers v Burnley might be interesting into the bargain.