Posted by Malcolm Graham-Wood - Malcy's Blog
WTI $67.73 +82c, Brent $72.81 +74c, Diff -$5.18 -8c, NG $2.94 -1c
Last week WTI fell a modest 76c and Brent 40c with the EIA inventory stats causing most grief. With a strong dollar and US/Sino and US/Turkish trade wars hotting up downward pressure was exerted but attacks by and on the Yemen kept geopolitics in the frame.
This morning oil is rallying somewhat as the EIA report puts upward pressure on prices with an increase in demand projections for this year and next. For 2H of this year they have added 250/- b/d to 99.9m b/d and for next year up 200/- b/d 100.68m b/d. This should be cause for concern as the market will remain very tight and the call on Opec crude would be higher than current supply levels causing further draws on stocks and leaving no room for manoeuvre.
The Baker Hughes rig count showed a rise in overall units by 13 to 1057 and in oil up by 10 units to 869, getting back to previous high levels.
Echo has announced the completion of well testing at ELM-1004 in Argentina and dry gas has been successfully been produced to the surface, the well has now been suspended in anticipation of subsequent hydraulic stimulation. The well did exhibit some difficulties due to breakdown of cement behind the production casing but with no more need for this rig on site it has moved to test the CSo-2001 (d) well.
The well will now be stimulated which was to be expected in this formation and when that is done I would hope to see a good commercial well with decent flow rates. The market has somewhat over reacted to the news this morning as if they had expected an immediate commercial well going straight onto production, this is rarely the case especially in the Tobífera formation and stimulation should do the trick. Accordingly a 15% fall in the shares is inappropriate…
Following the PPC announcement last week I took the opportunity to have a chat with Chairman Peter Levine to catch up on the news from Puesto Flores and Estancia Vieja in Argentina. With three fully funded wells expected in the autumn drilling campaign starting next month a base case of 600 b/d is expected with an upside considerably higher. Current production of 2,700 b/d, already way in excess of my forecasts only a few months ago, even with some natural decline could therefore see at least 3,700 boepd and more likely nearer 4,000 boepd.
At Estancia Vieja the gas is flowing pretty much as expected, the second well produced at 200 boepd but after a pressure buildup test is now likely to be looking at nearer 300 boepd. All the applications have been made for local generation and certification is expected within six months powering all their fields with their own gas. These cost savings go straight through to the bottom line and prove the absolute value in this gas. There is still a distinct possibility that the company will be able to monetise this resource as the amount required to power their own facilities is only around 15% of the gas the company could produce. Accordingly a route to market for EV gas of say 700 boepd is being investigated at the moment and would be another significant contributor to cash flow and profits.
President has moved on smartly in the last few months and whilst Puesto Flores and Estancia Vieja are the current play areas it would be wrong to forget about Puesto Guardian and other parts of the portfolio. PG still delivers quality, stable cash flow with longer term upside whilst PF and EV are more the ‘icing on the cake' as described by PL. Finally I suspect that although there is a lot going on at PPC there are still opportunities in the area and the company is extremely well financed and could handle an acquisition comfortably if appropriate.
The President share price is 10% lower than at the raise last November with production up 60% in the meantime and positive cash flow from operations running at over $2m per month. This is totally unfathomable given that significant value has been added and that the company is making real money and throwing off cash, something that should be recognised in the market.
Sound has announced the mobilisation of the Saipem rig used in all their previous operations in Morocco to the TE-9 well pad currently under construction. This rig will also be used for the TE-10 and TE-11 wells later in the campaign.
Sound has not announced when the well will spud yet but given what we know already it could be sometime early in the 4th quarter. There has been a lot of work going on behind the scenes at Sound in the last few months which has led to the start of this exciting campaign and worth looking again at my Core London interview with Exploration Director Brian Mitchener.
A detailed announcement from Zenith this morning who have clearly been very busy in recent months with completion of two comprehensive geological studies to optimise the selection of locations for drilling and workovers at the Muradkhanli, Jafarli and Zardab fields in Azerbaijan. This has enabled a new, more detailed structural interpretation to be performed which will give the company an enriched understanding of the fields and how best to take things on from here.
In the Muradkhanli and Jafarli oil fields the study also shows ‘new areas in previously under explored formations and three distinct structures whose structural highs are considered strong candidates for possible exploratory wells'. Here the primary workover opportunity is the MOC-1 well with its sidetrack MOC-1Z which were drilled in 2000 and that the sidetrack should now be drilled deeper.
Another team of geologists have made a geological study of the Zardab oilfield which has ‘confirmed the Company's belief in the significant untapped potential of the field, enabling the identification of several high-value drilling and workover opportunities'. As a result of this study an appraisal well will be drilled in the Zardab field situated in the area of stacked targets to evaluate all penetrated horizons to acquire as much data as possible.
Next month will see a substantial change at Zenith as the new operational management takes over and really proper drilling equipment is brought in to Azerbaijan. At this stage and with a new work programme with input from both the studies Zenith should be in a very strong position to deliver ‘the transformational potential of our Azerbaijan asset'. These will indeed be most exciting months ahead as Zenith moves down the road of unlocking what is potentially a massive asset value.
Reabold has announced this morning that it expects to spud the Venturini-Ginochio#3 well on the West Brentwood license this week. Wells being what they are in California means that drilling will be completed in 2 weeks and if successful bring ‘valuable production and cashflow'. The company also announce today that the Monroe Swell workover programme has seen further success and all four wells are ‘indicating production of good oil' and should be put on production in the next few days. The California campaign is clearly working very well for RBD with very quick cash flow and ‘extremely impressive financial return metrics and so early in the campaign too.
United Oil & Gas
A first step for United today as they announce that the seismic data from the Walton-Morant licence in Jamaica has arrived from Tullow. Whilst interpretation will take some time the initial quality is apparently excellent and this is an important key for United's future.
The first weekend of Premiership footy saw the Gooners lose 0-2 to the Noisy Neighbours, the HubCap Stealers cruised past the Hammers 4-0, the Red Devils saw off the Foxes 2-1, Spurs won at the Magpies and Chelsea beat the Terriers. Only Wolves of the promoted teams got a point and as usual the table looks interesting…
In the cricket England whilst having the best of the conditions easily beat India who are having a couple of off games. Next stop Trent Bridge on Saturday as the series is now 2-0 with three to play.
Brooks Koepka won the US PGA completing the US Open/PGA double, a most rare event although he saw off the Tiger, who has done the feat.
The MotoGP in Austria produced another thriller when Marquez on the Honda held off the Ducati pairing of Lorenzo and Dovizioso until the last few laps when Dovizioso's tyre choice left Lorenzo and Marquez swapping the lead with Lorenzo just holding on for his third win this year. Cal Crutchlow came a lonely but impressive 4th. Despite Rossi holding 2nd position in the Championship, Yamaha's problems persist with the bosses giving an unprecedented public apology for the performance of the bike but time's running out for an improvement this season and Marquez's 59 point lead is beginning to look like a done deal
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