Posted by Malcolm Graham-Wood - Malcy's Blog
New best friends Russia and Saudi Arabia are underpinning the market, to a degree although longevity is always uncertain. The KSA after having surprisingly ‘unadhered' to its own quota in May has now accepted its punishment and will cut back more in August and September. The Russians are at their -300,000 b/d cut although longer term that may drift if temptation gets in the way or others don't adhere. The UAE have announced a further cut by reducing September customer allocations by 10% and others are having their collars felt. The market liked this a lot and moved up sharply and that was before the API stats came out after the close.
These figures showed a 10.2m barrel draw which was way bigger than the analyst's guesses of around -2.6m and showed yet higher refinery utilisation which in turn led to a build in gasoline stocks of 2.6m, again not forecast. Tonight's EIA numbers will give us a clearer view on the situation but anything like this draw will be good for sentiment and keep prices firm, with WTI edging towards $50 and Brent having held above it last night today's rise of about 30 cents as I write is helpful.
Faroe continue to display exploration success which is the envy of the market place, over a long period of time they have regularly delivered and have done so again with this sidetrack well on Brasse. The result of the 31/7-2S well has been announced and as expected it has franked the form of the original discovery and volumes have been increased. Resource range has increased from 43-80 mmboe to 56-92 mmboe in high quality reservoir sands of high grade crude similar to that of the Brage field, with 18m of oil and 4m of gas.
The result provides excellent field economics at low hydrocarbon prices and the development has fast track potential with both Brage and Oseberg fields only 13km away for tieback purposes. With this infrastructure advantage the company can realistically think of first oil in 2020/21 and at a higher rate of over 30/- boe/d the capex should come in at around the $550m currently anticipated. At a share price of 85p and a market cap of £303m this stock is ludicrously undervalued on any conceivable basis, the sector may be out of favour but be warned, it could go the way of Ithaca which at these prices would be a travesty.
Echo has just announced that it has signed, with Pluspetrol and YPFB the state company a Technical Evaluation Agreement (TEA) for the Rio Salado block, onshore Bolivia. Echo are out in Bolivia at the prestigious YPFB Gas & Oil congress in Santa Cruz where a number of agreements have been signed notably between Bolivia and Paraguay to collaborate on gas sales and pipelines. This TEA will enable the companies to progress a technical evaluation of the block over the next 12 months. When that is completed and if all is looking good, the parties will be able to propose a commercial agreement to YPFB to define a work programme and ‘is likely to include the drilling of an exploration well'.
The Rio Salado block surrounds the Huayco block where Echo has identified a structure and contains an extension of it, accordingly their seismic reprocessing programme will be extended for ‘ a minimal incremental cost' over the Greater Huayco area. It should be remembered that at present Echo has not confirmed commercial terms in Rio Salado and so doesnt have a firm right during the evaluation period. Having said that the company is clearly delighted with the signing of such an agreement in the area and is pleased to have got underway with the second of ‘many pre-identified strategic transactions in Bolivia' and indicates that there is much more to come.
Interims from Tullow this morning which are pretty much as predicted with revenues and production in line with guidance. The loss was worse than I expected due to an impairment charge of $642m mainly on TEN I hear which is a disappointment as production there seems to be going well. As expected following the $750m rights issue and trumpeted free cash flow, net debt is down and cost savings are now expected to be $650m rather than the earlier $500m in the market and further cash is being saved by the Ugandan farm-down. The excitement quotient will be delivered by the Suriname well, Araku-1 which is expected 4Q 2017 and aiming for in excess of 500m barrels of oil. With strong performance operationally, the weakness in the share price since the rights issue has probably been overdone but doubts remain over the early write-off at TEN, apart from that TLW is in good enough nick.
Still suspended, the quarterly update from Range is still important to ensure that operationally all is still going according to plan. Production was 531 b/d with revenue of $2.3m and the company has cash resources of $17.5m. With the RTO still underway holders will be pleased to know that the documentation should be out in this quarter and after that the suspension should be lifted. With so much going on it will be good to hear from the company about the operations and how the corporate activities will change the shape of Range which is looking most interesting.
Another couple of contract wins for PFC this time in Iraq where they have picked up $100m worth of business in one extended and one new one for construction management services. With a number of pieces of business won recently PFC are seemingly carrying on as normal and it is probably, if slightly with some schadenfreude, that they see other service companies being called in by the SFO.
This isn't really sport but I had to laugh when I saw that Matt Canavan has had to resign as the Australian Resources Minister after finding out that he is part-Italian. This is forbidden in OZ, not being part Italian, but to be holding office you have to be 100% Aussie, although there must be one or two other Ministers taking a quick look at the family tree as he is the third Senator to resign in as many weeks. Mr Canavan has nobly blamed his mother for the mix-up saying that she never told him of his roots, real or imaginary, so that's a nice thing to do! No wonder the Australian gas market is in such a state, it's rather like the Italian situation…
And Adam Peaty just can't stop breaking his own world records, twice in the end yesterday…
And football is back and tonight Celtic entertain Rosenborg in the Champions League…
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