Opinion

Oil Price, Amerisur, President, Trinity, and Finally…


WTI $67.39 +32c, Brent $72.58 +56c, Diff -$5.19 +24c, NG $2.73 +5c

Oil Price

The week ended with a bang, especially if you were near any chemical factories near Damascus and ironically the thought that Saturday night's bombings were, at least for the time being, the end of the matter has taken the sting out of the oil price rally this morning. Last week's gains were +$5.33 for WTI and +$5.47 for Brent as all the fundamentals aligned with the geopolitics on Friday. Firstly, the IEA completed the trio of monthly reports by suggesting that oil stocks were at their lowest since April 2015 and therefore in line with Opec targets. With demand for Opec crude now expected to be around 32.5m b/d for the rest of the year, the technical picture is beginning to look quite tight and it is worth reminding those who say that US shale will fill the gap that it is not possible if Opec stick to their production targets.

Add to that reports that Chinese imports of crude oil in March were at 9.2m b/d the second highest on record and the situation starts to become self fulfilling. With all three forecasting agencies (and others) all reporting that Opec and Non-Opec production is lower than for some time for various reasons I suspect that the downside for the oil price is pretty limited for the time being.

Amerisur Resources

Full year results from AMER this morning and whilst they are inevitably backward looking they show that material progress was made last year which is being substantially being added to this year. With some downtime for remedial well operations the company still ticked most of the production boxes ending the year at around 7/- b/d. With the oil price above $60 and opex pb below $20 cash netbacks of over $40pb are indeed very pleasing.

Revenue growth was up 96% at $92.5m ($47.2) and EBITDA was $19.8m ($0.4m) and a welcome return to net profits was achieved. It is worth noting that post the period end the company entered into a $35m working capital facility with Shell which is effectively a pre-pay agreement that for a very modest fee avoids the need for an expensive and unused RBL.

Most exciting for AMER is the upcoming drilling programme which for the rest of the year amounts to some 14 wells including some potentially company making stuff. There are to be three back to back wells looking into the ‘N' sands anomaly in the central Platanillo block with a potential reward of P50 resources of 11.44 MMBO starting with Pintadillo-1. In the PUT-8 block a low risk U and T light oil structural target at Miraparriba-1 is looking for a new field of 4.4 MMBO whilst at Indico-1, the first new well at CPO-5 is looking for 10.3 MMBO. Any success at these and others will add significantly to the production targets going forward.

The Amerisur stock price is one of those that has not picked up with the oil price at all even though the gains it has made are there for all to see. The conclusion of a deal with Ecuador to complete the Chorizo pumping station is signed and AMER is helping the process along when needed, this will mean that for the foreseeable future OBA carriage with its low opex for the company's oil will be more than enough for their needs. With its sound financing ensuring that all well commitments are covered for this year Amerisur is in a very strong position indeed.

President Energy

An update this morning from the Puesto Flores concession where PPC has been encouraged by the success so far and a combination of good production and higher oil prices, leading to increased cash flow, means that the company can move ahead with a programme ‘substantially ahead both of our original plans and our commitments to the Rio Negro Province'.

This new programme of 6-8 wells starting in May follows a highly successful four well workover programme conducted at the end of last year which produced results ‘substantially ahead of management's expectations' and increased both production from new perforated zones and reserves. The total cost of the workover programme is expected to be $3m with payback expected in under one year.

In addition to this PPC has started an accelerated three development well programme, also at Puesto Flores, targeting proved undeveloped reserves in existing producing reservoirs. Each well here will cost around $3m and if successful  have a mid-case payback of under 24 months. Finally, longer term tests are being planned for 3-4 gas wells at Estancia Vieja in June of this year with the aim of ‘determining the best way to monetise its gas as well and the extent of its gas reserves in that field'.

President has come a long way very quickly with this portfolio in Argentina and should soon be able to have a significantly higher production earning decent money not long after initial investment. This is another play where the market has yet to match the share price with the continued recent success, let alone the increase in the oil price. With the shares still trading around the raise price of 10p there should be a significant move up before long.

Trinity Exploration & Production

In today's Q1 update Trinity shows that its low cost work programme continues to underpin the high margin production along with strengthening of the balance sheet. Production in the quarter was flat as expected, as the company reduced the number of RCP's in order to switch to drilling using their workover rig for the completion of two development wells which should lead to higher production from 2Q onwards.

Cash is $12.2m and liabilities reduce as debt is paid down at a faster rate than had been anticipated, some $3.6m ahead of the ratified payment plan. Trinity is lifting base production and is at pains to point out that its booked onshore reserves only reflect wells identified and budgeted as opposed to its full work inventory. From this position it can grow high margin, profitable production accompanied by substantial growth in its asset base.

As Trinity continues to concentrate on its existing programme, which has been highly successful in the last year or so, it has also got longer term considerable upside with such potentially substantial assets as in the Galeota licence. With this in mind I continue to believe that this excellently managed business has profitable progress in the short and longer term available to it and within its existing portfolio into the bargain.

And Finally...

The Noisy Neighbours duly won the Premiership yesterday although winning came as the Red Devils lost at home to the Baggies who's supporters wished they played Man U every week, or just played like that every week. Still relegated though and will have to go through promotion all over again.

At the bottom it is still very close, tonight the Hammers play the Potters and winning for both teams is vital.

Another great GP, with so much excitement it is worth watching again especially with spiky overtaking moves some successful, some not creating genuine entertainment. Good for Ricciardo who drinks from his shoes and treats it like it used to be treated.


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