WTI $37.29 +48c, Brent $39.79 +22c, Diff -$2.50 -26c, NG $1.82 +4c
Oil has lost a little this morning but I think it might have been worse. Given that recent highs have been achieved by investors thinking that today’s virtual meeting was going to significantly extend the quotas maybe until the year-end, the actual is way less than that. Indeed the backstop was that the Russians and the Saudis would now agree to a rollover until the end of August and reassess then.
It appears that without having the virtual get-together, the cartel has decided to put off the decision until after data has been received in mid-July so that probably puts paid to the June 10th meeting as well. In fact this is just a way of publicly naming and shaming the errant, cheating nations such as Iraq and also seeing how markets are taking the current numbers.
The EIA stats were pretty good, especially if you take out the SPR shift and saw crude actually draw 2.1m barrels even some at Cushing. With refinery utilisation up to 71.8% product stocks grew, particularly in distillates so the market needs to see some increased demand from the gasoline and diesel users. Finally as the hurricane season is properly under way we now have the first danger to the oil industry as Tropical Storm Cristobal is heading towards the Gulf of Mexico and on to Louisiana.
Trafigura are taking an increased position in President and at the same time the company is raising money through a placing and Primary Bid offer. Trafigura are making a subscription of $6m at 1.85p and all money applied is fully repaying debt and leaving them with c.18% of the company’s equity. Concurrently, IYA Global (a PL company) will convert at least $4.1m of debt under its existing unsecured loan facility into new shares at 1.85p that will take Mr Levine up to 29.9% of President.
In addition to this the company has announced a placing of new ordinary shares to raise up to $3.1m and a retail offer on Primary Bid which raised a very creditable £2.24m put together they make a contribution of £4.73m. All these together will mean a reduction of net debt by a minimum of $10.1m resulting in a reduction of at least US$16 million in the calendar year to date with third party financial debt (excluding IYA) only US$3.7 million.
Trafigura will now be a major shareholder and with one board seat play an important part in the future of President, there are fewer more qualified than the trader to add to what is already a profitable, low cost, high-margin operating business. I genuinely expect President to react positively to this news and whilst they have had raises before this looks like a bargain to me and the company should be valued at a significant premium to this level and it won’t be going private any time soon either…
Cluff Natural Resources
An update from Cluff today and it looks like they and Shell are fully committed to drilling the Pensacola and Selene prospects in 2H 2021 where they are looking for 309 and 291 Bcf of P50 prospective resources respectively. With the company hoping to farm-out two more licences in 2H 2020 they are in good nick, fully funded for their share of the wells, cash of £13.2m and with significant cost savings as well as continuing to look to buy gas production.
Gulf Marine Services
Having thought that the Seafox/GMS saga had been put to bed for the time being, all of a sudden it is announced that Seafox has increased its stake in GMS to 26.41% and at 22p. This is more than twice the amount that they would have been able to bid and comes from left field somewhat especially as they can’t now bid for six months.
In that six months it is expected that GMS will launch the well heralded equity raise, assuming that all those that supported them in the bid come in, that is hardly going to be a problem. Indeed, if I was the one who sold at 22p I would not only be closing that bet by buying back in the market today at 13.75p but I might even get some discounted rights into the bargain.
As for GMS, apart from getting the raise done it has to prove that it will remain a strong player in this market, likely as it comes from a currently strong operating position albeit in a tricky oil price environment. As I expressed way back after my first chat with Tim Summers a substantial rise in EBITDA is to be expected in order to justify this confidence.
Not to put too fine a point on it the equity raise document is effectively an early draft of the defence document for a potential Seafox bid in December which of course doesnt have to be at 22p…Expect regular updates from GMS and of course what they really need is a few friends buying in on bad days, at 13.75p today would be a good time to start….