Posted by Malcolm Graham-Wood - Malcy's Blog
I should go away more often, last week the oil price rallied further, WTI being up $1.64 and Brent +$1.71. The reasons are two-fold, obviously the US involvement in Syria stepped up the geo-political temperature but the fundamentals were also positive. High adhesion to the quotas and an increasingly likely rollover of the agreement meant that high US stocks and a further increase in the rig count was discounted. Asian demand remains mainly strong with Indian demand in March up 4.9% y/y although the rest of the continent is a bit mixed. This week will provide a number of key moments, G7 in Rome today after which Rex T flies off to Moscow, a place it seems that Boris is too scared to go….
Results today from AMER which as usual tell us little about the forward investment case. Key to everything is the OBA which came online last year and is now jacking up throughput. Volumes are key here, at 5/- b/d cash opex falls from $26 to $15 changing all the economics and that milestone is now within reach. Indeed a peak flow rate of 5,008 was achieved on the 6th April and should be par for the course from now on. Guidance for this year is now 6-7/- b/d, exiting 2017 at 7/- b/d rising to 20/- b/d by 2019.
The company has nine, fully funded wells planned in the next 18 months and are creating the much discussed ‘Putumayo Cluster' which should provide focus and economic strength. The company had $40.1m of cash at the year end and an undrawn RBL facility if needed so remain in a strong position on this front. I remain of the view that this potential good news is not reflected in the price and that upside is substantial particularly once the technical situation in the market is sorted out, more after con call which is at 2.30.
HUR had its long-awaited Capital Markets Day on Friday and there was a huge amount of data to take in. I guess that the headline was the Lancaster reserves base case of 593m bbls and the use of a 25% recovery rate which is conservatively comparable with similar developments. Opex is down to $20 per barrel, from $26 and every time one looks at this whole area it seems to grow. (Small finds get smaller, big ones get bigger) The company is evaluating the data from the most recent well, particularly as the DST was a bit awry with the drilling fluid compromised, we saw a picture of a lot of gunk rather spoiling the party. Having said that 1km of hydrocarbons is exceptional and will add considerably to the reserves in due course. The EPS is very much underway but the management stressed that this is very much a low risk way of developing what might turn into a full field development, ie a preliminary, money making, data gathering process towards much bigger potential.
As the FID is expected in 1H of this year it will likely go ahead before all data has been analysed but that is only as there is so much of it, also any CPR will be on a preliminary basis with, I imagine plenty of upside. Another good thing is that services have been procured early and cheaply,also around 75% of the capex is lump sum keeping costs under control and risks transferred back to service providers. The funding is also being worked on, whilst there will be an element of equity as one might expect, there are a number of debt options and of course farm-out possibilities. I understand that the data room has been full, with many re-entries and a phase one partner could easily emerge quite soon, this may not be one of the many circling super majors but possibly a service company or even an oil trader looking to balance some risk.
For a company with only 15 employees much has been going on lately but careful subcontracting should reduce risk and keep a control on costs. The main message I took from the conference was that this is a low-risk, high reward process over a very long timescale, there is no way the anything will be compromised for early bucks and reservoir management is key. With reserves eventually being likely north of 2 billion barrels Hurricane's value should now be way in excess of my current 100p target price. An upcoming interview with Dr Trice should be of significant interest to all.
Cape has announced that it has reached a litigation settlement with Aviva regarding its employer liability with all claims withdrawn and no admission of liability. Good news and means that the board can continue to carry on with its excellent work as proved by recent trading announcements.
Things are beginning to look up for Wentworth as production from Mnazi Bay delivers in line with guidance. With expectations of between 40-50 mmscf/d the outturn of 43 was fine. Payments from the TPDC are being made and new clients such as the Goodwill Tile factory are a bonus. Things are picking up for Wentworth and it is very much on my radar screen…
What a weekend of sport that was! Sergio broke his Major's duck, beating Rose in a play-of on what would have been Seve's 60th birthday.
In the F1 in China Lewis managed to pull off a piece of tactical genius as he discovered that he could change his tyres behind the safety car and not be overtaken. The Ferrari wasnt going to catch him but being stuck behind his own teammate must have annoyed Vettel.
The Brits shone again at the motorcycle Argentinian MotoGP. In the Moto3 race, Plucky Brit , John McPhee rode to another superb second place behind Joan Mir whilst in the top class the ever improving Cal Crutchlow managed a superb 3rd behind the factory Yamahas of ‘Wonder Kid' Maverick Vinales ( 40/1 to win the Championship before the season commenced with William Hill !) who was never challenged for the lead ahead of his team mate Valentino Rossi. Both works Hondas of Danny Pedrosa and Marc Marquez crashed out whilst Jorge Lorenzo's pay packet of a reported 12 million is beginning to look like a poor investment for Ducati as he got no further than the first bend.
Great Britain got trounced in the Davis Cup and not surprisingly as the team chose a player who by his own admission couldnt play on clay. Sometimes these managers need their heads knocking together eh?
In the Prem, Chelski, Spurs, the Noisy Neighbours, the HubCap Stealers, Red Devils and the Toffees all won so no pressure on the Gooners at the Eagles tonight then…
The Grand National ended with all 40 horses and jockeys coming home safely which is good and also good to see the British horse called One for Arthur bringing home the bacon…
Finally I was captivated by the Wasps v Saints game yesterday afternoon which could have gone either way…
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