Oil price, SDX, Ophir, Premier, Rose Petroleum And finally…
WTI $51.59 -$1.00, Brent $60.48 -$1.20, Diff -$8.89 -20c, NG $3.10 +13c
The nine day oil price rally ended on Friday but not before smashing a few records en route. The price rallied around 18% in that time and last week alone WTI was up 7.6% while Brent rose 6%. As usual a combination of reasons cover the market movement, one was actual as the production reduction numbers are coming through thick and fast and may well be enough to settle the market for a little while.
Other reasons are more obscure, two bids in the UK sector indicate that companies with plenty of cash are seeing the stock market as a cheaper place to find oil than drilling for it themselves, it certainly looks that way for DNO and maybe PT Medco as well. With net long positions sharply down in recent months and increased shorts it is also possible that the last week has seen a fair bit of covering of these positions. Finally it only took a shake out like this to see a number of investment banks lose their bottle and G Sachs, Morgan Stanley, Soc Gen and Berenberg as usual, rang the bell and cut their oil price forecasts.
News from Egypt this morning although a fuller report is expected later in the month. The SRM-3 well at South Ramadan, is at TD and has encountered pay in the Matulla Section, its primary target, in the Brown Limestone formation and also net conventional pay in the Sudr section. The well will be completed in the Matulla section before testing to see if it will flow at a commercial rate.
It would probably be wise for investors to wait for the full results before getting too excited about the potential of this well as I have spoken to Paul about this area in the past and he has always been a bit cautious because of the tricky seismic interpretation and the faulted nature of the reservoir sections encountered. I know that he’s encouraged by the log results but as he puts in his quote, he awaits the well test results to determine what he has. I had a brief exchange with him this morning and he reiterated this point. Really waiting for the test to be completed before he can get a good understanding of the potential here.
Meanwhile at South Disouq all is in full swing, the development lease application has been approved by the authorities and construction of the pipeline and central facility has commenced. First production is still on track to commence towards the end of H1 and SDX is expecting to achieve a gross plateau of conventional natural gas of 50-60 MMscfd. Elsewhere the 3D seismic is 50% complete and expected to conclude in February when it will be processed and interpreted by the end of 3Q 2019 after which drilling on the licence can resume.
Encouraging signs then from Egypt and with an analysts visit scheduled there for April the spotlight will certainly be on it, I for one am very much looking forward to seeing South Disouq and the plans for drilling once the seismic has been interpreted. A very positive start to the year for SDX in all regards.
Ophir has received an indicated bid from PT Medco of 48.5p, this has been reduced twice presumably as a result of the company losing the Fortuna licence. Anyway, the board of Ophir has met and unsurprisingly dismissed the potential offer as undervaluing the company. PT Medco has until 28th of January to formalise the bid or walk away.
I fully agree with the board that the bid does not reflect the value in the company at the moment and should it be formally made can be dismissed reasonably readily. Unfortunately this bid defence, should it come down to it, will not be the easiest to write what with the disaster that Fortuna has been in the last two years. Clearly the former CEO is going to take plenty for the team but the board also carries much responsibility which goes with the territory as with the $300m impairment charge. The defence document should be able to put a reasonable value on the portfolio but given that it is 8 months since the former CEO was despatched the question of who will run the business must be a tricky one. The best answer would be if Alan Booth elected to remain in charge for a defined term which would certainly ease any worries, plan B is the announcement of a new CEO, well overdue but probably not possible in the circumstances.
Given that tomorrow sees the pre-close trading update from Ophir it would probably be wise to expect some sort of ‘shadow defence’ which will give shareholders an idea of what to expect on this front and may stimulate discussion re the above. Either way all is not lost yet for Ophir.
Yesterday’s Sunday Times had what looked like a well informed ‘scoop’ suggesting that Premier were looking to buy a package of North Sea assets from Chevron for around $1.5bn and to fund it in cash. Given that its market cap is only a shade north of £500m and it has a well publicised debt mountain, even selling all or part of its Latin American business, which I think they would be loathe to do, would not square the circle.
I’m sure that Premier have looked at this asset package, as they would anything in their back yard, but surely a combination of the difficulty of rationalising their existing asset base with financing such a huge package would be bordering on the impossible. However if you do see an advert for an oil company with assets in Mexico, South East Asia and the North Falklands Basin in the trade press you will know what it is…
Rose Petroleum- Erratum
On Friday I commented about Rose Petroleum which has successfully acquired additional acreage in the Paradox Basin in Utah. Unfortunately I got into a proper mess in the opening paragraph describing it as having ‘acquired the acquisition of additional acreage’ when I had planned to change it to ‘acquiring by way of lease sale’. My changes didn’t make it and I was quite correctly ticked off by the IR supremo. Either way, Rose has done a great job in picking up adjacent acreage for next to nothing and I look forward to the next few months with alacrity.
The top of the Premiership just got a bit more exclusive, and if the Noisy Neighbours don’t beat Wolves tonight it could be another big gap. Liverpool got over their bad week by beating the Seagulls but Spurs lost 0-1 at Wembley to the Red Devils. Chelski beat the Magpies keeping them above the Gooners who lost to the Hammers, at the bottom it is looking bad for the Terriers and the Cottagers for that matter.
And the Australian Open tennis started at Melbourne Park this morning and Andy Murray went out in a five set thriller to Roberto Bautista Agut, whether that is the end for him is not certain at this stage.