Posted by Malcolm Graham-Wood - Malcy's Blog
No blog yesterday, a hugely busy one running around catching up with companies with results as the end of September deadline approaches.
The oil price had an equally frenzied day, a number of factors pushed prices higher, indeed Brent closed at a two year peak although this morning prices have taken a breather retreating by around 30 cents. The main reason for the damage yesterday was the Kurdistan referendum which spooked markets, as I write it looks as if turnout was around 72% with a 90% yes vote which is no surprise. Iraq has its own problems this just adds to them and whilst this vote won't change much in the short term it concentrates the mind about longer term seccession issues. Fuel was added to the flames by the goon that runs Turkey who said that he would turn off the ‘petrol' taps of the pipeline to Ceyhan, I wonder if he is a stupid as he sounds, dangerous more like.
I think that other factors are influencing the oil price more and that maybe the short/medium term numbers are rather belatedly stacking up. Following the Vienna meeting last Friday the participants felt no immediate need to change the accord but will take another look at the full Opec meeting on November 30th where I suspect a resolution will be put to the Russians and other non-Opec members.
What all the industry analysts are seeing is a generally much more stable situation, as the last set of monthlies showed with world stocks slowly coming under control. The meeting last Friday showed that by hook or by crook supply is being reined in, hence no need for any change at the moment. More importantly is the demand picture, recent statements by central bankers around the world indicate that there is real heat getting into the bigger economies leading to interest rate hikes and the end of intervention. If you add to that a picture that shows no great increase, at least for the short term, of supply from US shale then stocks are definitely being whittled away. Finally, as we start looking at 2018 and beyond, my long held view about capex cutbacks, which will lead to a real shortage of major projects coming onstream in 2/3 years time is beginning to be taken on board, a loss of $2tn worth of investment in the industry cannot be overlooked. In the meantime my long held year end target of $60 Brent is now looking more achievable, something I wasnt that comfortable about until the last few days…
Victoria Oil & Gas
I'm not sure what it is going to take for the market to get quite how good a story VOG really is, news today from La-107 adds a bit of black type into the equation, ie if it were a horse it would be winning Group 1 races and adding significantly to its valuation. La-107 has flowed on test way better than expected at 54 mmscf/d on a 70/64ths choke with a stabilised flowing wellhead pressure of 2,951 psig. Also its AOF potential of 146 mmscf/d was considerably better that expected (La-105 was only 89) and is not only flowing through the processing plant but actually being sold to clients.
The rig has now skidded over to La-108 and started to sidetrack the well aiming at the 100m of pay discovered during the long, arduous and expensive drilling process that was. The good thing is that Ahmet Dik told me when I spoke to him this morning that ‘we have learnt our lessons' and now know where the sands are. Expect 4-6 weeks of arriving at TD and testing, and assuming any penetration of that pay then another huge discovery will be booked.
The key to all this is how much scope it gives the GDC operatives to get to work on long term contracts with ENEO and other big local customers. There will need to be some pipeline extensions etc but VOG are in an incredibly strong position in Douala as the area is extremely power short, expect these further installations in 2018 to be followed by potentially several hundred MW of extra sales. At 70p, up 9% on the day the shares are still significantly undervalued, the high earlier in the year was 80p and I said then that it should be valued ‘at a multiple of that figure', I have not changed my position.
Figures from FPM this morning which reinforce my positive stance as they report numbers ‘ahead of expectations'. Good news in the period included the Brasse appraisal well which upped recoverables there by 20% but I think it could a be a fair bit higher. The company received four new licenses in Norway and farmed-out in Ireland to Nexen whilst keeping a carried interest. Production in the 1st half was 14,800 with Njord and Hyme down for refurb and '17 guidance unchanged at 13-15/- b/d. with cash at £117.6m and a $250m undrawn RBL the company is in a very strong position.
Undoubtedly the poster boy of the sector as FPM announces strong figures yet again, with a good drilling programme and the results of its excellent exploration success over the years giving it an achievable production target of 40/- b/d. An example of this is Brasse which has been Graham Stewart's baby from licence application through working up, drilling, discovery and appraisal and will now move into highly profitable development. Graham and his team are out there as the team to beat in the sector, history tells me that they will take some catching…
Interims yesterday from AMER and whilst some were surprised by the guidance for the year of 5/- b/d I thought that this had been well telegraphed following the July social issues. More important was the end year target of 7/- b/d and increasing thereafter until a medium term target of 20/- b/d is achieved. With increased production and the opening and increased throughput in the OBA pipeline, costs are down sharply to give $30 of netbacks at $45 oil. Exploration success this year at Platanillo and of course in the Llanos Basin will add to that production, the latter should go on LTT and a likely second well.
From now on in there are 16 wells to drill in the next 18 months, all fully funded and some exciting prospects. I am particularly interested in the ‘N' anomaly and seeing how Pad-2N develops not to mention producing lovely 40° API crude from CPO-5. With a mix of appraisal, exploration and development, the programme should finance this and future drilling in what is a truly diversified portfolio.
With a strong local management team and operationally very sound AMER looks very well placed, capacity at the OBA is being proved to be very high assuming tweaking here and there, the future looks very bright. Indeed a sign of significant confidence in the business is seeing directors buying shares, something I spotted yesterday. After the results CEO John Wardle kindly gave me an interview on Core Finance, the link to that is here and in my humble opinion, worth a watch. Core Finance CEO interview: John Wardle, Amerisur Resources (http://www.malcysblog.com/2017/09/core-finance-ceo-interview-john-wardle-amerisur-resources/)
Trinity Exploration & Production
Trinity also had results yesterday and the turnaround story gathers pace, production which had stalled after the 2016 lull is picking up sharply as the 2017 work programme kicks in. To give an idea of its activity in the 1st half of the year there were 49 RCP's, workovers and reactivations, in the second half there will be 90 in total evenly split between the three. This means that the company's 2 rigs are at full capacity and additional rigs have had to be contracted. The success can be measured by the economic indicators per well, so far this year the NPV is $118/-, the IRR 332% and paybacks happens in 8 months, impressive or what?
Key metrics for the first half show EBITDA racing ahead of an admittedly difficult comparison by a multiple of nearly 4x, obviously prices are up but break even price is down again and of course post the refinancing net debt is relatively normal with a healthy cash balance of $11.5m. These numbers mean that margins are up and TRIN has aggressively trimmed costs putting them into a genuine position of increasing profitability, a rare situation for an Aim company.
This combination makes the outlook very bright for TRIN, with a solid balance sheet and sales up on the increased operating activities the assets are working hard under disciplined project management from the almost entirely local team. On that subject I met yesterday with Bruce Dingwall who I have known for some time but also CFO Jeremy Bridglalsingh who is very impressive. Looking forward expect a resumption of the drilling of new wells in Q1 2018 with a 4 well + programme whilst continuing with the hopper of workovers etc, all this from a fixed cost base onshore making increased profitability going down to the bottom line. Further out the prospects are exciting for the offshore Galeota Ridge which could be transformational for the company. Overall the chart looks good, the fundamentals are sound and the management are most impressive making the outlook for the share very promising indeed.
At last some good news from Tullow who heard over the weekend that the ITLOS report on Ghana and the Côted'Ivoire ruled that TLW's TEN fields were wholly in Ghanaian waters. Accordingly TLW can now resume drilling which had paused whilst the Special Chamber came to its decision and would hope to get up to around 80/- b/d by the end of the year.
The weekend and yesterday had a lot of football and the leaders showed that they have set a blistering pace. The Noisy Neighbours score another five goals, admittedly against hopeless Eagles whilst the Red Devils snuck by the Saints 0-1. Chelski won easily, 0-4 at the Potters and Spurs scraped past the Hammers 2-3 and the same score saw the HubCap Stealers beat the Foxes. Last night's fixture had it all, some bloke called Barry overtaking Gigg's record, the words boots and lace come to mind whilst, and again. I am no fan of the Baggies, yet again they had a true miscarriage of justice as they werent awarded a pen that would have put them in the lead…
Tonight it's the Champions League, all three sides should easily secure their 3 points, the HubCap Stealers are at Spartak Moscow, the Noisy Neighbours host Shakhtar Donetsk and Spurs go to Apoel Nicosia for an autumn break.
On Sunday, the MotoGP in Aragon saw Marc Marquez take a giant step towards his 4th World title with a stunning win. Valentino Rossi rode through the pain barrier only 24 days after breaking his right leg and was battling for the lead with a newly confident Lorenzo until they were both swallowed up by Marquez who was a man with only one aim on Sunday and is now 16 points ahead of his nearest rival Dovizioso, who could only manage 7th. Dani Pedrosa got quicker and quicker putting in the fastest lap at the end to snatch 2nd by passing Lorenzo whose 3rd. place is his best since May. Rossi finished in 5th.behind his teammate Vinales whilst Britain's Cal Crutchlow was heading for a top 6 until he crashed out, fortunately a rarity for him . In Moto3 John Mcphee rode well to 6th, the winner was Joan Mir whose 80 point lead in the Championship should be unassailable.
Finally with a swashbuckling century on Sunday Moen Ali ensured that England posted a high enough score to even defeat Chris Gayle who still managed 90 odd. 2-0 up in the series now with only two matches left will they beat the weather? It seems that it didnt end there, in Bristol in the early hours of Monday morning Ben Stokes was arrested and Alex Hales is ‘helping the police with their enquiries'…Neither available for tomorrow which is a shame.
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