WTI $20.11 -$2.30, Brent $29.60 -$2.14, Diff -$9.49 +16c, NG $1.65 -7c
Having got the Opec+ meeting out of the way we now have to get through the next month or two as physical prices remain significantly subdued and will do as last vestiges of storage are taken up. Some of the storage is the topping up of SPR’s in the US, China and India plus a few others but the rest will create a medium term indigestion only to be cured in the second half of the year.
The EIA is knocking my US oil production figures out of the park and I will leave that to them now, suffice it to say that a fall in production across all the basins of 2m b/d for this year and going up will help somewhat. With a fall of 600,000 b/d in the last week alone and a May target of 8.5m b/d from all shale ironically the US will indeed do their bit and then some.
Finally Exxon returned to the bond market yesterday, I asked Bloomberg bond expert Marcus Ashworth how it went, here is his resume.
‘Exxon Mobil returned to U.S. debt capital markets for the third time in 8 months after being absent since early 2016, yes a success and spreads held in nicely.
- Likely capitalizing on the positive OPEC headlines, the oil behemoth was once again focused on size like it was last month when it brought $8.5 billion
- Exxon printed $9.5 billion on the back of a $25 billion order book after guiding toward $4 billion to $5 billion at announcement with room for growth, paying about 20-25bps in new issue concessions
- As we have seen across a number of deals, proceeds were expected to be used for commercial paper refinancing among other general corporate purposes, given the recent dislocations in the CP market.’
For what its worth the Gulf states have also been active in the bond markets today…I asked Marcus again,
Yes, Saudi in market today across maturities book at $35bln. UAE did 7bln and Qatar $10bln did v well both had books over $40bln.
In its Q1 2020 update Hurricane announce production of 1.4m bbls (Q4 2019 1.1m) @ 14,900 b/d (11,800) with water cut up to 17% from 14%. This is as a result of an increase in production in March from both the 205/21a-6 well which produced at 12,000 b/d and the 205/21a-7Z well which produced 8,000 b/d. With 6,000 b/d of water, predominately from the Z well, making overall W/C of approximately 17% this is well within the capacity of the Aoka Mizu.
These production rates are without the use of ESP’s and with wells choked back to less than 50% ‘confirming the extraordinary productivity of these wells and the reservoir’. Three cargoes were lifted from the Aoka Mizu in the quarter and on April 3rd the 11th successful lifting took place taking total oil sales from the Lancaster EPS to 4.4m barrels of oil.
Dr Robert Trice adds to the statement ‘Despite the significant scale of these produced oil volumes, the Lancaster EPS is still very much in a data gathering phase, as we continue to better our understanding of this unique basement reservoir. Further testing at the current rates will be required before any trends can be confirmed and conclusions made about the long-term behaviour of the reservoir. Once trends have been established, it is anticipated that alternative combinations of well rates may be tested in order to establish the optimum long-term production configuration for the two wells’.
And he goes on to talk about water cut
“Whilst water production rates have materially increased since start-up of the Lancaster EPS, Hurricane’s interpretation of water behaviour data has continued to support the Company’s perched water model. Although it is not possible to predict future changes in water cut at present, the combination of high productivity wells, potential for currently unused production support from ESPs, and water handling capacity of the Aoka Mizu FPSO give the Company sufficient confidence to maintain its forward guidance at 18,000 bopd, net of 10% assumed downtime.”
Until the Capital Markets Day Webcast on 27th April where we will get much more flesh on the bones of all this I would say that Hurricane is in very good nick and look forward to reporting back from that.
An update from Argentina today, at Santa Cruz Sur gas production continues as normal but the company are shutting-in the oil production with low associated gas, reducing production by c.130 b/d all of which can be brought back online within 5 days. They are also selling around half of their crude in storage around 13,200 barrels holding the remaining 12,613 bbls.
Cost reductions continue, monthly G&A is down by 50% on 2019 levels and are in ongoing operations and deferrals or cancellations of non-essential activities. They have successfully entered into a key customer contract at $4.2 per mmbtu and cash receipts already announced of $360,434 have been received. Finally the Campo Limite testing, having been delayed, has now been suspended and in favour of a programme of well interventions and workovers. Echo has worked fast to cut costs and effectively restructure the business and I am impressed with this significant progress.
Today’s AGM was the opportunity for a trading review but with the first quarter being in line with expectations the real ‘significant review of costs and curtailment of costs across the board’ is under way. Since the end of March the US onshore has declined (see above in oil price comment) and things are getting worse including the international business.
The Balance sheet is ‘robust’ but $100.8m of cash has left albeit justifiably as the remaining cash is $22.3m with the interim still to pay. Accordingly the company has withdrawn its 2020 FY guidance which is no surprise. Today Peter Rose, long time CFO leaves Hunting, I wish him well, to be replaced by the equally excellent Bruce Ferguson.
I only heard recently that Bob Catto has succumbed to his long fight with cancer. Bob was a very fine investment manager, at Williams de Broe when I met him but subsequently at other firms. Although he was an across the board finder of superb investments I knew him latterly in the oil sector but particularly as an avid believer in Pantheon Resources where he stayed loyal to the end. I always respected his advice, often delivered with caustic honestly but always with a smile and a glint in his eye, I will miss that and his left field ideas.