Posted by Malcolm Graham-Wood - Malcy's Blog
WTI $65.95 +$1.22, Brent $77.32 +$1.96, Diff -$11.37 +74c, NG $2.93 +3c
Oil prices got back down to $65 and $75 so it was time to rally and apart from the strong greenback most of the news was positive. Firstly, news gets worse in Venezuela where PDVSA are apparently not meeting their contractual obligations leading to empty tankers queuing around the block and no sign of anything getting any better. The two Chevron workers have been released from jail but i'm sure that their tales will hardly inspire anyone to work there.
In the discussion about whether to increase production or not two countries yesterday helped the price spike by suggesting that there should be no increase in production. The Algerian Oil Minister wants to keep the market tight but balanced whilst the Iraqi minister went further by saying that no production increase is to be discussed at the June 22nd meeting. As I said earlier in the week, positions being taken for the meeting even earlier than ever and it also looks like $75 is the price to defend.
Sometimes there is just too much data around which can obfuscate the longer term message, in this case seeing monthly data from each well from AMER is fine but can create unnecessary panic. Today's news from the company is a case in point, we knew that there was a rolling programme of treatment and maintenance ongoing and also that it was being successful, that didnt stop the market from banging the shares as the raw data was assessed.
May production of 4,807 b/d was indeed down and a peak of 5,344 b/d didn't seem to help offset the gloom however well it was explained by the good Doctor. The 6 well had seen some increase in water cut which is being investigated but the treatment on both the 11 and 20 wells was effective. The 21, 22 and 24 wells are now being reviewed for intervention but this should come as no surprise, in his latest presentation JW stated that ‘some sleeve erosion' is inevitable but also treatable.
The excitement for AMER in coming months is the drilling campaign across three or more important areas of the acreage. There is a modest delay to the Pintadillo-1 well due to appalling weather conditions but a July spud date is expected, both the other wells at Indico-1 and Miraparriba-1 are still on schedule for Q3 2018.
Whilst I can understand that these monthly figures look disappointing, a 14% fall in the share price from an already remarkably low number is difficult to reconcile. If you combine this years substantial revenue with the ongoing and largely successful work on the wells, with the potential for one or all of the big prospect wells to come in then AMER looks like very attractive option money to me at this level.
If there is a y in the day it must mean an RNS from Sound who have now completed the full house of announcements this week. Today they announce that their application for a development concession relating to the Tendrara gas discovery has gone into the Moroccan Ministry of Energy in the hope of a successful result later this year. The company say that this will be a ‘significant step to both de-risk and commercialise this gas discovery' and also say that they are advancing discussions with regard to a GSA, not a bad week all round I would suggest.
Life has been tough for Ascent Resources, the highs of 2.75p last August have been forgotten as troubles pile up in all corners. News today is mixed but overall should bring some, modest comfort. The Pg-11A update is that it is up and running again after kit was brought in to stem the water production problem. Regarding the IPPC permit application I detect some infuriation from Colin Hutchinson with the seemingly never ending delay in a process that the Slovenian authorities should be fast tracking to enable further in-country investment. It is still a watch this space situation but a combination of an acceptable flow rate at Pg-11A and a decision re the permit should ameliorate things somewhat, and that's about the best of it…
Following the announcement earlier in the week regarding the new, bigger rig for the Zardab and Muradkhanli which I wrote up briefly on Wednesday I managed to spend some time with the CEO who talked me through the situation in the field. I have visited the operations within the last year and whilst the challenges have been significant there is little doubt that they are being met head on.
With the bringing in of a much bigger rig, which will in all likelihood start to clear up the most important wells at Z-21, Z-28, Z-3 and then at MOC-1, the chances of opening up even one of these wells would be transformational. The share price seems to reflect only the chance of operational failure whereas should any success occur it must be, with a market cap of less than £10m, at a huge discount to what it should be remembered are 2P reserves of 31.7 mmbo in Azerbaijan and 16.4 bcf in Italy. The 1/- b/d target in Azerbaijan is not unreasonable and with costs of $19 a barrel would be highly profitable and the company is worth watching.
As suggested in my report after recently chatting to Tom Kelly he snuck in some good news this week about his asset in China where the interpretation of the 3D seismic has now been completed. The Jade and Topaz prospects are both being described as ‘highly material opportunities' with best estimate prospective un-risked resources of 625 MMbbl with further prospect Pearl also adding to the total figure of 774 MMbbl.
As Tom Kelly put it himself ‘put simply the potential size of the prize in China just got materially bigger' and with Dempsey still offering substantial potential the portfolio is looking good. Indeed the prospects from Indonesia, which we havent heard from recently, may well also be looking interesting, all in all EME is beginning to look very attractive indeed…
England played their last friendly before next week's World Cup last night and the whole squad has had a few minutes to prepare themselves. Costa Rica weren't quite the side they were the last time we played them but neither were we… Certainly Marcus Rashford looked sharp enough and may get a slot.
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