Posted by Malcolm Graham-Wood - Malcy's Blog
Crude continues to rise and my chartist friends are getting desperate as all markers are piling through resistance levels which makes them very nervous. Above $69 on Brent for example the next stop is $71 which is the 50% retracement level, this takes it into clear blue water, after the 2015 highs there is nothing until $100 or more…..
Yesterday's rise was a combination of geopolitics and statistics, the former as Yemeni terrorists threatened to shut the important Bab al-Mandab Strait, probably easier said than done but close enough to the Gulf of Aden to create local nervousness. The latter was a combination of the EIA publishing the monthly STEO, with first time forecasts for 2019 and the API stats which if reinforced tonight will show that the inventory position is falling significantly.
The STEO report, while showing 2018 non-Opec supply up at 2.03m b/d, also shows global oil demand increasing but by only 1.71m b/d which still gives a call on Opec of only 32.46m b/d, at current rates still giving stock draw. For 2019, first demand estimates are up another 1.65m b/d with global demand of 102.67m b/d by end year and higher than production growth, this is hardly the stuff of the demise of fossil fuels is it? These numbers are franked by the World Bank forecasts, also out yesterday that increased world GDP figures specifically for India and to a smaller extent China. Finally for those who insist on worrying about the implication of US shale production putting a ceiling on the oil price, the EIA happily share my view, ie, output only goes up if the oil price does and vice versa.
On Monday I attended the Savannah General Meeting which apart from doing the mandatory technical stuff, enabled us to listen to AK giving the first full presentation on the deal, my comments are below but I urge you to take a look at the full presentation which has some great graphics I just can't reproduce here.
Post the deal SAVP looks like the real McCoy as a full cycle, self funded E&P company. The existing acreage in the highly prospective Agadem Rift Basin in SE Niger is about to be tested as the three well drilling programme is iminent and will give us a good idea of the prospectivity there. The deal means that the company is about to acquire interests in the Uquo and Stubb Creek oil and gas fields as well as a 20% interest in the Accugas midstream business in SE Nigeria. As I said this will make Savannah into a ‘cash flow generative, full cycle E&P company capable self funding all operational activities and paying a dividend'.
The acquisition gives net 2P reserves of 92 mmboe, 2C resources of 44 mmboe and net production guidance for 2018 of >20/- b/d of hydrocarbons. Accugas comprises a 200 mmscfd gas processing facility and a 260 km gas pipeline network capable of supplying c.10% of Nigeria's power generation capacity. The process has led to the company raising $125m of equity capital from new and existing shareholders which is a testament to the deal that the management have brought to the table. The scale of this acquisition is significant and should not be underestimated, SAVP's management have taken advantage of limited competition in the area, seen Seven in distress and completed some deal. In paying $280m to acquire assets with a CPR valuation of $663m and ‘material' upside potential shareholders should be delighted, this is a ‘unique opportunity' to acquire a substantial asset package' There is no doubt that this is a transformational deal for SAVP and its shareholders both in terms of assets and production acquired at an incredibly low cost and comes with beefed up staffing including directors and investors and will be a welcome addition to the bucket list. I look forward to interviewing Andrew Knot on Core Finance before long.
Tullow has issued a trading statement today ahead of figures next month, there is little to add to existing knowledge, free cash flow is $0.5bn above expectations which it should be given almost perfect conditions (hardly challenging) with costs coming down into the bargain. Accordingly the balance sheet has ‘materially improved' and production guidance is increased slightly with operations, particularly in Ghana going very well.
There is little one can judge about today's statement from SOCO as the recently leaked potential merger with Kuwait Energy will likely change everything. Historically I have been a big fan of SOCO and indeed KE but the recent corporate bother has changed much, not least how much it is going to be valued at. I'm sure that in due course the SOCO management team will be out and about as and when that happens we will find out whether this is a wise decision or not, watch this space…
Yesterday I suggested that Bristol City might have a tricky time at the Etihad in the first leg of the Haribo Cup, however neither side ducked the issue, Pep played a strong side and the Robins did not park the bus like some Premier League clubs have. I mentioned that a number of blog reading City fans went up there, here is the account of just one I received this morning…
I'll admit my fear was losing by five or six but we certainly didn't disgrace ourselves. It was fantastic to be part of the huge (7,500+) travelling support, and even the last minute goal didn't dampen our spirits.
And despite being behind, I'm still quite quite optimistic: as Lee Johnson said, it is only half time. The Robins just need to win one-nil at Ashton Gate and survive the extra time without conceding and the Reds will go through on the away goal! Anyone got a spare ticket?
Tonight the other semi final is Chelski vs the Gooners, neither won in the FA Cup at the weekend so will be fearing either of the other semi finalists should they get through….
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