Oil price, Hurricane, Genel, VOG, Falcon, Empyrean And finally…
WTI $53.80 +$1.73, Brent $62.70 +$1.52, Diff -$8.90 -20c, NG $3.48 +7c
With the better than expected rise on Friday, oil had a better week than even I expected in Friday’s blog. As usual a combination of factors served up the conditions for the rally to continue. Firstly, better news on the US /Sino trade talks came by way of an offer by China to inject $1tn pa in US goods to reduce the trade surplus, secondly the Baker Hughes rig count showed a fall of 25 rigs overall to 1050 and by 21 in oil to 852, as if the 4Q fall in the oil price is just being felt in the US. Finally, December Opec production fell by 750/- a day, somewhat higher than expected and with more to come this month some degree of tightness may work its way into the market.
Lower than expected Chinese GDP numbers this morning has only taken matter of cents off the oil price from the above levels.
Tomorrow sees the start of Dav-oh, the nauseating knees up of politicians and business ‘leaders’ who spend millions of other peoples money pontificating to the world about stuff. A ticket for the event costs as much as $50,000 per person but many companies sponsor events and of course it’s not the cheapest place for CEO’s to stay…Watch this space as we spot oil companies who can afford to throw good money after bad…
The operation to hook up the Aoka Mizu FPSO to the Lancaster EPS system on Friday went awry as a rope being used to pull in a buoy snagged and the operation was not possible to be completed. Although the rope was freed and the buoy returned to its starting position, with deteriorating weather forecast, the Aoka Mizu returned to its temporary mooring in the Cromarty Firth to wait for the next opportunity for tie-up.
With a preference for less than two metres of swell and given that the entire process is well ahead of schedule it seems like a wise decision not to take any undue risks at this stage. Accordingly shareholders need not panic and any fall in the share-price should be treated as an opportunity.
Hot on the heels of a very satisfactory update last week Genel has announced that it is acquiring stakes in two Chevron operated blocks in the Kurdistan region of Iraq. The Sarta and Qara Dagh both offer the opportunity for GENL to participate in imminent production and appraisal respectively and with minimum risk associated.
Sarta has had two wells drilled recently, both of which tested at around 7,500 b/d and the first phase of the development will see these both on production. Genel are paying 50% of the development costs until a certain production level is reached followed by a success fee on reaching a production milestone, at which stage they will own a 30% in the licence, this work is anticipated to cost around $60m and leave Chevron with 50%.
The Qara Dagh licence has had a well drilled in 2011 which tested oil in two zones from the Shiranish formation and here Genel will earn a 40% stake, and operatorship through a carry arrangement leaving Chevron with 40% and the KRG with 20% as at Sarta.
This seems like an eminently sensible deal, certainly one that might have been put together by a COO who spent 23 years with Chevron. The capital profile of the acquisitions fits well with that of Genel and will bring extra cash flow when it is needed. Finally it brings to Genel commercially and technically expert partners on both sides, I agree with the Genel CEO who says ‘the additions to our portfolio are an important step in our diversification strategy, offering a further opportunity for near-term production and cash-generation’. Buying into these assets are exactly what Genel needs to be doing at this time and it looks like a smart move to me.
Victoria Oil & Gas
Life at VOG has been pretty tough in the last year and whilst I should have cut it from the bucket list the day of the contract loss, yet again I misjudged the time it would take to recover. Indeed, if I had known that it would continue to fall even after the resumption of the Logbaba gas contract with ENEO then I would have avoided another halving of the share price.
Today the company has announced that production has averaged 8.5 mmscfd in the month to date in January, taken at the 19th and that is 91% up on Q4 daily average production levels. Indeed in the seven days to January 19th the average was 9.9 mmscfd with a peak of 12.96 mmscfd reached on the 18th and consumption levels at the Logbaba Power Station have doubled since the contract has been resumed.
As I have said, 2018 was indeed a shocker for VOG but things do look significantly brighter from here on in. They have acknowledged that whilst sales to power generation are important, diversification of the customer base is important to reduce the dependence on any one customer. Accordingly, the relationships built up with industrial customers over the years has been crucial and that now their contribution is at record levels. In addition to that the company has opened up the possibility of sales to a number of other third parties which will hopefully diversify and enhance the margin of the company. Finally, with the recent completion of the Matanda transaction there will be vast scope within the company to build from here.
Falcon Oil & Gas
As Philip O’Quigley said to me this morning, ‘ I wouldnt normally put out an RNS just for a rig contract but this is more than just this’. Indeed after a two year moratorium into fraccing this announcement shows that FOG is back in business and how. The ‘significant’ contract is by JV partner and operator Origin who has signed up with Ensign for drilling operations for this year and an option on next.
As soon as the dry season starts, likely in June, the drill bit will start turning on two horizontal fracced wells targeting the Kyalla and Velkerri liquids rich gas fairways. Dont forget that for this year Falcon is carried by Origin to a cap of A$65m which comes down to A$48m in 2020 so few worries about funding on that front for FOG.
Whilst there are no preconditions about the order of drilling this year for the JV we do know that these results, and those from previous drilling, will determine the most commercially prospective play to be drilled in 2020. With the mess that is Australian domestic oil policy the wait for FOG may well prove to have been worth the while.
News from EME this morning continues to be good with GCA providing an independent resource audit of the Mako gas field in the West Natuna Basin, offshore Indonesia. Gross 2D (contingent) resources are deemed to be 276 Bcf of recoverable dry gas and gross 3C resources of 392 Bcf representing additional field upside. There are also substantial identified exploration targets beneath the field in the Tambak prospect, formerly called the Mako Deep.
The Duyung PSC has been converted to the new GOI contractor Gross Split PSC scheme which is deemed by operators to be more flexible and helpful to operators which apparently strengthens project economics by lessening the bureaucratic burden on the project. More after I next see or speak to Tom Kelly.
In the Premiership Liverpool, the Noisy Neighbours and Spurs all won to maintain their spots at the top of the league while the Gooners beat Chelski to make up some ground on them. The Red Devils won again putting them level with the Gooners.
For the first time in Superbowl history both semi-finals went to overtime, Tom Brady heads to his 9th final after the Patriots eventually saw off Kansas. In the other game the Saints, never behind in the game until overtime,when the LA Rams, who had never led the game won the tie.