Posted by Malcolm Graham-Wood - Malcy's Blog
A good day yesterday as the market was positive ahead of the Opec/non Opec meeting at which an extension of the deal looks likely. The EIA inventory stats showed a build of 4.6m barrels but although that was slightly ahead of forecasts given the hurricane damage is still pretty irrelevant. The same goes for the product numbers as only 15 of the 20 US refineries are substantially back on line meaning that around 76% is back onstream.
President has announced what looks like a transformational deal in Argentina this morning. By acquiring Chevron's 100% operating interest in the Neuquén Basin, at a stroke PPC has added 1,200 b/d net and at $55 oil has a netback of $27. This makes PPC's Argentina production over 2/- b/d in country and adds 5.46m MMboe net 2P reserves of which 3.6m is 1P. Totals in country are now 16m 1P and 25m 2P which takes PPC to a new level and makes this acquisition into a proper perspective. Costs of the deal are $400/- to Chevron and $15m to the Rio Negro province for a 10 year extension to the concession, after this there is a $7m payment in 2018. New partner Ediphsa will have 10% and PPC holding the remaining 90% with operatorship.
Expect this deal to grow the company's production ‘materially' as recompletions/workovers and new wells are drilled. The fact that this deal has been funded without the need for dilutive equity funding means that such an exceptional deal is substantially accretive and adds significantly to shareholder value. The deal is strongly cash flow positive, it generates $1m a month at present which should increase as production is expected to grow to 3/- b/d with some ease. At a price of around $4 a barrel this debt funded deal looks like a proper no-brainer and will make the shares highly attractive at these levels. The company sees this as a fantastic opportunity, a sentiment that it is hard to oppose, it will continue to press ahead with its programme in Puesto Guardian prospect where I also expect production increases. PPC has a number of former Chevron employees on board which will be extremely helpful as they spend time increasing production from this basin. It should be noted that Neuquén is deemed to be the most prolific basin in Argentina with substantial shale opportunities interesting majors from around the world.
South America in general in general and Argentina specifically are on fire at the moment as I have written about a number of times recently. The BP deal involving a number of international partners gives huge credibility to the country which is undergoing economic rehabilitation on a major scale. Accordingly I would expect more deals in Argentina and elsewhere in what is becoming a fast growing continent for hydrocarbon activity. For President the acquisition of a foothold in the Neuquén basin, seemingly the best post code in country looks like a very smart move indeed.
Interims from HUR this morning and at risk of repeating myself are of no significance to investors. The key points historically we already know and last week's announcement of FID for Lancaster with accompanying details of capital spend were well covered at the time. Upcoming information from the company should also be good, expect EPS progression and a CPR on Halifax, Lincoln and Warwick which will move the needle significantly in the right direction. The shares have suffered from indigestion post the raise but those capable of taking anything like a long term view at should ‘make out like bandits' as they say in most reputable saloons. I still think that the final number will be as much as 2bn barrels of oil and my target price of 100p + may eventually look conservative, the words pay your money and takes your choice come to mind…
There is even less to add to interims from PVR than others in this hectic results season. The figures are meaningless although good through very smart offsetting of risk via farm-outs of the Druid/Drombeg well. As it was dry they now have to move on and the plan is another well on Barryroe which I assume means that they think will bring more potential farminees into the data room. Long term readers will know that I have a long time ago lost all patience with this process and will believe it when I see it, in the meantime there is precious little to attract the shares. There is little doubt that PVR has an unbeatable portfolio in an upcoming postcode into which a number of majors have invested a little time and money, until something is discovered, say at Diablo, the basin remain full of western promise but just that.
Hardly an earth shattering announcement from FRR but handy to know that the ud-2 well on block 12 in Georgia is progressing as planned. Zaza tells us that they are about to test the three gas bearing intervals in early October and with success should be able monetise the gas quite quickly. Frontera is rapidly becoming an interesting play about which I think we are going to hear a lot more of, watch this space…
A quiet day unless you managed the England women's football team…
In the Haribo Cup there were wins for all the big sides (sorry Baggies fans) as the Red Devils, Chelski, Gooners Toffees and the Noisy Neighbours all won.
Match two today in the One day series against the Windies at Trent Bridge, so late in the season seems a bit of a struggle against the elements as the last game will almost be in October when the clocks go back…
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