WTI $27.56 +$2.27, Brent $31.13 +$1.94, Diff -$3.57 -33c, NG $1.68 +6c
With the reporting agencies this week bringing a little succour to the oil price, even the IEA were unusually bullish yesterday, as they forecast a rebound in demand that might be quicker and stronger than previously expected. They see world oil consumption of 91.23m b/d this year, no 100m bonanza but one the industry will take.
The other point, made here this week, is that with regard to supply the mantra seems to be lower for longer as Opec+ countries add to output reductions and push out to the year end the July agreement. We are less than a month away from the scheduled June 10th Opec meeting but, to a certain extent COVID-19 dependent, the signs are reasonably optimistic.
Today’s AGM statement from PFC is pretty predictable, as with most of the industry costs are being cut and business is being deferred. To preserve the strength of the balance sheet the company and now expect to reduce overhead and project support costs by at least US$125 million in 2020 and by up to US$200 million in 2021. In addition, suspension of the final 2019 dividend payment and a 40% reduction in capital investment has conserved an incremental US$145 million of cash flow.
COVID-19 has caused ‘significant destruction to E&C projects and inevitably resulted in material delays in construction activity which may not be recovered in 2020’. Operations and maintenance activity in the EPC business continues ‘in all regions’ albeit travel and and social distance restrictions are having a ‘modest’ impact on activity levels and the company’s training centres are closed.
The bottom line is that oil prices are a catalyst for clients reviewing/delaying investment plans in E&C such as the recent termination of the $1.5bn Dalma contract. The bidding pipeline remains ‘healthy’ but PFC expect the majority of 2020 tenders to be delayed until 2021. The one area that is going well is contract extensions in EPS that remain strong with $500m of new orders in the year to date. Overall despite current difficulties I consider PFC to be in a very strong position for the longer term and will weather these current ‘headwinds’ and come out stronger.
On Wednesday Lamprell released results that were negatively impacted by low revenues, impairment charges, one-off events, final settlement on the East Anglia One project and charges associated with operational restructuring and non-cash impairment to PP&E and intangibles.
Losses of $183.5m (-$70.7m) on lower revenues and non-cash impairment of $79.3m. Revenue guidance has been unsurprisingly been withdrawn especially as the company warn about going concern issues. The backlog is $470.1m ($540m) with year end cash of $42.5m and $31.6m at end of April. The company was debt free as at 11th March and ‘actively pursuing future funding arrangements’.
I remain confident that Lamprell will survive and with good orders from decent clients who are more than able to pay for the goods. There was some uncertainty in the statement which seemed to go from bad to good and then bad again…I’m happy that in its slimmed down situation Lamps will return stronger.
First quarter results and operational update from Touchstone yesterday where the company has changed somewhat since such incredible success at Ortoire. For example 1Q production was 1,589 b/d (2,121) and 1,690 in 4Q 2019 as the company concentrates on the bigger potential plays in its portfolio. COVID-19 has delayed timing of capital projects but apart from that has not materially impacted the company.
The company has invested $1,823,000 in exploration activities, completing two successful production tests on the Cascadura-1ST1 exploration well and completing lease preparations on the Chinook-1 exploration well site where TXP ‘currently anticipate drilling the well in July 2020. At present the plan is to then drill a deeper well at the Cascadura field where the company has an option and to complete that before the Royston location which would entail construction costs and potential delays.
Touchstone has done very well with its discoveries on the Ortoire block and it is clearly continuing to progress work there for the future, this will please shareholders and there should be further to go for the shares.