Posted by Malcolm Graham-Wood - Malcy's Blog
The oil market was fast and furious yesterday and in heavy trading both WTI and the new front month of Brent crude for October struggled under a welter of mainly disappointing news. The first was the Bloomberg report that July output from Opec was again above quotas with an increase of 210/- b/d, to 33m b/d, no wonder St Petersburg was necessary. Traders tell me that there was a lot of technical closing in what had been an overbought market, the WTI $50 level was clearly a step too far and it retreated back off it.
The other piece of poor news was that the API inventory number showed a stock build in crude oil of 1.8m barrels against forecasts of a 1.2m draw, as this was after hours the effect was overnight and the oil price has only fallen a few cents since then. That will be for two reasons, firstly the market doesnt wholly trust the API stats as much as the EIA numbers, this afternoon will see if they validate last night's number. Secondly, yet again the numbers in products showed a different sign, gasoline drew 4.8m barrels and distillate fell by 1.2m, both more than expected. With Shell announcing that the Pernis refinery in Rotterdam will be off for a fortnight, international product markets will be tight, particularly at this time of the year.
Finally for no particular reason it is worth looking at the statement from Pioneer Natural Resources one of the leading players in the Permian Basin play. They had very good figures, eps of 21c way beat the 1c whisper but although production was up 11% they played down guidance, this year's increase will be at the lower end of the 15-18% range. Capex and costs are being ‘trimmed' and Wall St did not like the sound of that and petulantly marked the stock down 5%.
A general update from PPC today including the news from PG-19 which has been doing a workover on a well that had been shut-in for 19 years having already produced 450/- barrels of oil. After cleaning, perforating and doing an acid stimulation liquids flowed and the oil cut appears to be about 10% having been only 25% way back in the past. PPC should therefore get 50-75 b/d once a downhole pump is installed and it will be connected to the Puesto Guardian battery. After that the rig will move to PG-20 onto a well that has been shut-in for 15 years and produced 650/- barrels so far. Whilst this is occurring there are ‘significant' ongoing infrastructure works at PG, including installing five new surface pumps, lifting and cleaning of existing downhole pumps and laying of production lines for new producing wells and commissioning new water disposal wells. Finally in Louisiana, having had a shut down due to heavy rains production is back and the newly acquired Triche well is performing in-line with expectations.
As a result of all this production is currently constrained to 600 b/d but during September PPC will bring on an additional four producing wells, three more will be added that are being raised from sub-optimal to full volume and in addition a three well stimulation campaign will start. Clearly there is much going on in Argentina and Peter Levine makes the point that much is being learned in country which will enable the it, along with its contractors to “move on to actively consider acquisitions of producing assets in the core heartlands of hydrocarbon production in Argentina”. It is clear that with this solid base being provided by successful workover activity PL is now seriously considering the next stage of development for the company, already well undervalued the market will soon I suspect also come to realise it as PPC moves forward.
HUR has announced that it is no longer going ahead with the pre-emptive offer to shareholders to raise another $5m at 32p per share, provided the share price remains below that price for the next five days. It was not practical to do this offer at the time of the fund raise as it would have required a UKLA prospectus which couldnt be done in the timeframe for the Lancaster FID and now shareholders can buy shares more cheaply in the market. This makes common sense as it saves the company money, and management time that is being used for the build-up to the EPS for Lancaster for which it is fully funded. I am expecting a fair bit of important news from HUR in the coming months not least the FID for Lancaster and a new CPR on the assets. I am regularly asked whether I still feel that the company is good value after the recent fall and I can confidently say that I have rarely seen such significant upside potential and on any medium to long term view the stock is extraordinarily cheap.
Cabot has announced the start of the summer 2017 work programme in Canada. None of this is new news as far as I am aware but it is good to remind ourselves of what will be happening. The target is another 300 b/d of extra gross production with sidetracks and workovers at Rainbow and two recompletions at Virgo. This is three months work with a drilling rig and a workover rig and will cost $2.6m net. The work should lead to total gross production being between 800-1,000 b/d and will mean further significant progress for CAB. management at the company appears to be doing all the right things, particularly in Canada and is worth keeping on the radar screen.
Kosmos has announced this morning that it is to list on the LSE in the 3rd quarter of this year with no new money being raised. Kosmos has an outstanding position in West Africa having discovered the Jubilee field in Ghana and now with huge discoveries in Senegal and Mauritania of 40 TCF and into which BP farmed in recently. The area is extremely prolific and with activity further south and with Cairn and FAR having a world class oil discovery in Senegal investors can expect much more from the area.
I have to say that the extensive feedback from my piece on Genel yesterday indicated to me that although I thought I had been fairly positive I may have not given the company enough credit! I have been more positive lately as I genuinely feel that with the gas coming into the picture and the oil in for virtually nothing it is cheap once again despite some market concerns. So I will point out that the fcf of $78m was very good and which led to net debt reducing by a third was in addition to my positive points about Peshkabir, Miran and Bina Bawi. Whilst I am still concerned about Taq Taq it is worth noting that it still generated $32m. The good news is that it has led to me making not one but two meetings with the company so that I can get up to date!
Finally, Aminex has announced that it has appointed Aaron LeBlanc as its COO, I met him briefly recently when visiting Jay and it bodes well for the company to be beefing up the management team.
Glorious Goodwood continues on the Sussex Downs today although the weather isnt looking quite so splendid as it did yesterday.
I read that Neymar is leaving Barca for PSG who are paying £198m and £650/- a week wages, tax free for his services, never thought Barca would end up being a selling club….
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