Oil price, Hurricane, RockRose, Lekoil, Block And finally…
WTI $58.47 -96c, Brent $64.74 -93c, Diff -$6.27 -85c, NG $2.31 -2c
The new half year has started with a bounce as WTI is up 1.57 at $60.04 and Brent has risen by $1.80 to $66.54 this morning. With the agreement between Putin and MbS at the G20 meeting over the weekend Opec+ doesnt really need to convene today and tomorrow. Admittedly coming after the 3/4Q fall last year, the oil price has had a good 1H 2019 with WTI being up 25.81% and Brent 22.81%.
If the Opec+ members stick tight, and there is no reason to believe that they won’t, inventories should now continue to fall keeping prices at the top of their recent range and the agreement is slated for 6-9 months taking them to the end of 1Q 2020. Other things helped from G20 such as the US and China agreeing to ‘pause’ tariff escalation and talks will continue.
Hurricane has announced an update on its Warwick Deep well this morning. The well is being plugged and abandoned after reaching TD of 1,964m and included a 712m horizontal section of fractured basement reservoir. Initial analysis indicates that the well intersected a poorly connected section of the fracture network within the oil column and did not flow at commercial rates.
The company are evaluating the DST and fluid samples and will provide an update at the Capital Markets Day on July 11th, in the meantime the rig will now move on to the second of the three well programme, the ‘Lincoln Crestal’ well.
Whilst the market will undoubtedly be disappointed by this result, it should be borne in mind that this is the first well in a three well programme and that much testing remains to be done. Also the well did find oil where oil was meant to be but hit a poorly connected part of the fracture network ‘within the oil column’. Poorly connected parts of the fracture network are more likely to be associated with trapped water and have lower permeability, which is covered in the company’s CPR.
The losing of a production well is a disappointment but I don’t believe that this is time to panic with regard to the Greater Warwick Area, interpretation may change with further checking and this could just be an unfortunate piece of well positioning. Furthermore, with two more wells to come on the GWA this year, and a further three next year, I would expect a lot more data to evaluate by the end of the year. The implications for the EPS and Lancaster are minimal, with the proof of the pudding being the Lincoln and Warwick West wells. One should remember quite how large the whole area is and that we will get more information on July 11th.
In the meantime the company continues to produce from the Lancaster EPS which is progressing according to plan.
Rockrose has announced the completion of the acquisition of 100% of Marathon Oil UK and Marathon Oil West of Shetlands and that the $95m payable was funded through existing resources and facilities. RRE acquires the Greater Brae area (26-40%) and Foinaven (28%) and its satellites as well as infrastructure including interests in the SAGE, Brae-Forties and WOSPS infrastructure, which provide additional tariff income.
The acquisition has added 28.4 million boe of 2P reserves, increasing the Company’s total 2P reserves to 62.9 million boe (as at 31 March 2019, as assessed by ERC Equipoise) and 2P reserves plus 2C contingent resources of 87.6 million boe (the 2C being an internal RockRose estimate). Production for the assets being acquired is circa 11,000 boepd in 2019 to date, taking RockRose’s total net production for 2019 to date to circa 22,000 boepd on a pro forma basis. This makes for an impressive size for RockRose from a pretty much standing start since it was first quoted in January 2016 and shareholders have done very well even more if you build in the buy-backs, dividends etc.
Finally cash etc, where RockRose remains very strong. With cash on the balance sheet of $370m of which $91m is restricted the company remains financially strong and extremely flexible, indeed with judicious use of leverage RRE will be easily able to get back on the acquisition trail before long. I expect the shares to be back in a fortnight, maybe around the 15th of July so shareholders won’t have to wait long for the prospectus or a quote on the stock. As for valuation, with the cash in the balance sheet making up for around £17 per share or £22 including the restricted cash, I wouldnt be surprised to see a considerable premium to the suspension level.
Block has agreed oil storage facilities with the GOGC, the state owned oil and gas company which will allow them to restart production in seven days at the West Rustavi field. Block can store up to 90,000 barrels on site and whilst they havent given a production rate expected from West Rustavi yet I’m sure they will notify the market that milestone. The sidetrack programme and 3D seismic work can now also begin.
Lekoil has signed an MOU with Schlumberger and an unnamed major for further development at Otakikpo in OML 11. The phased development will consist of 5 new wells and expanded processing infrastructure such as an onshore terminal and an export pipeline. The capex cost is $170m of which Lekoil’s share is $68m.
An exciting GP from Austria yesterday and Lewis was nowhere to be seen although finished 5th in a cloud of smoke. It is a very moot point whether Max should have been penalised, my rules man said that no way should he have kept the race but don’t forget Austria is the home of Red Bull…..
Wimbledon starts today, if that’s your bag, seeing Muzza in the doubles will be worth the while…
England clawed back a bit of their CWC status yesterday by beating India, they still have to beat the Kiwis on Wednesday to make sure of qualifying…
Today’s game is Sri Lanka v Windies, batting first after being put in Sri Lanka scored 338-6.