Oil price, President, SOCO, Echo, Columbus, Faroe And finally…
WTI $49.78 +$1.26, Brent $58.72 +$1.39, Diff -$8.94 +13c, NG $2.97 +2c
Brent creeps back towards $60 and WTI has already this morning taken the $50 target, whether it stays there is to a certain degree dependent on the trade talks which have entered a third day. Markets are tentatively positive but there are no prizes for bravery here.
After I mentioned the cuts in Opec+ production yesterday, 460/- b/d from Reuters and 530/- b/d from Bloomberg respectively, Platts then came out with their guess of 630/- b/d outdoing their rivals and stoking up the market a bit. The API stats, after the close of course mainly helped with a big draw of 6.1m barrels against analysts estimates of only 2.8m. What didn’t help, at least much was the product numbers with gasoline building by 5.5m and distillates by a huge 10.2m. But to be fair this is not a time to panic on products, apart from the year end stock build we have not seen a cold snap yet in the US and this is perfectly normal seasonal positioning.
Another blockbuster announcement from PPC who had been warming the market up for a comfortable beat of the year end targets with their latest drilling campaign. And so it was, production duly beat the 3/- b/d target at 3,300 b/d which is up 50% y/y and this excludes Las Bases and a limited contribution from the Puesto Prado and Estancia Vieja fields where commercial gas sales are expected by the end of Q1 2019. In the end the PFO 1005 well is delivering 250 b/d, again better than expectations along with the others in the campaign.
The main result of the successful drilling programme is expected to be seen when the next reserves report is published in March, shareholders can reasonably expect a significant increase in 1P reserves which the company correctly deem to be most important. During the conference call the Chairman said that the report would concentrate on the Rio Negro province and of reserves pretty much only as they are of paramount importance, rest assured the 2P and more are likely to add significant upside when calculated. Given how the market values anything outside P1 numbers I consider this a refreshing and workmanlike attitude to resource valuations.
For 2019 there will be a significant drilling campaign in Argentina which will ramp up into 2H and long lead planning will be underway for Paraguay. In order to maximise all possibilities the company will be doing workovers in Rio Negro in order to enhance economies of scale as well as increasing gas production to power its own fields and to create cash sales. In addition to this there will be a four well drilling campaign in Jefferson Island, Louisiana getting underway in 2Q 2019. Overall President remains ‘focused on costs and margins and creating greater economies of scale generated by significant production growth’ and if 2018 is anything to go by shareholders are in for an exciting and profitable ride.
An update from SOCO this morning which is fairly plain vanilla, indeed so run of the mill that there was no statement or comment from the CEO. Production from Vietnam was 7,274 b/d which neatly comes into guidance range of 7-7,400 b/d. Guidance for this year is 6,500-7500 b/d, the upper end is dependent on the timing of the 2 TGT wells. SOCO has a$125m RBL of which it has drawn $100m and in addition a $125m accordion and has $240m of cash which includes the drawn $100m.
We will wait until results on March 6th for further comment but what I like most about SOCO is the Merlon acquisition which brings diversity, scale and better economics to the company. This acquisition in Egypt brings a low cost resource base with plenty of exploration upside. My Core Finance interview with Ed Story was back in the summer but if you missed it then you can watch the link here.
Yesterday Echo Energy announced that with the arrival on site of the equipment needed for stimulation of the EMS-1001 well work has started on the fraccing process. This is positive news and with work proceeding elsewhere in Argentina 2019 promises to be an exciting year for Echo.
Columbus Energy Resources
A full update from CERP this morning including the achievement of the year end production target of 1,000 b/d in December. The average was 670 b/d which given the atrocious weather conditions was quite an achievement under the circumstances. The Steeldrum assets and personnel integration and the Icacos deal were completed in the quarter and are adding to the broader attraction of the company. Indeed the company are still looking for ‘value accretive’ acquisitions in both Trinidad and more broadly in South America.
Despite the dreadful on site conditions the company maintained its cash flow positive position and also completed a £2.5m raise in the period. This leaves them with cash of $2.6m and $0.48m restricted. With an exciting drilling campaign in the South West Peninsula scheduled plus the integration of wells acquired and a number of workovers and appraisals to assess the outlook is very positive. With six fields operating plus exploration upside the company is heading towards the transformation that many feel that management is more than capable of.
DNO has announced that following its increased bid of 160p it has had to buy 8.65% of the company in order to get across the line and now with 52.44% the bid will become unconditional. There is no doubt that DNO moved fast as the oil price fell and have got a bargain at this price and no amount of whingeing from people like me can change that! Ultimately shareholders decide the future of the company and this is what they have done, ie sold out to DNO at a price they consider to be fair, no ifs no buts, well except it was short term-ism of the most chronic nature and not one to look back on in years to come. Only time will tell whether DNO management are up to this but there is no doubt that they have been served up a ready made portfolio of assets on a plate…
In the Haribo Cup Spurs won the first leg of the semi-final 1-0 over Chelski after a dubious VAR decision. (How can that happen ed?) Spurs have also revealed that they won’t be back at White Hart Lane until ‘at least March’ which might be the end of the season. Tonight the Noisy Neighbours take on Burton.