The Oil Man: Ithaca, Ophir, Caza, Range
2nd November 2015 13:35
WTI $46.59 +53c, Brent $49.56 +76c, Diff $2.97 +23c, NG $2.32 +6c
Oil prices ended the week and the month up, without blowing the doors off. WTI was up $1.99 on the week and $1.50 for the month, Brent slightly less well at $1.57 and $1.15 respectively. Markets appear slightly more risk-on - without being over-comfortable - but equities are rarely good in October. On Friday the rig count showed another useful fall, down by 12 overall to 775 and by 16 in oil to 578 units, which is still meaningful.
Less good stats have set the market back a bit this morning; the latest Chinese manufacturing sector PMI contracted for the third straight month and the non-manufacturing number was weaker than expected as well.
Adding to the gloomy feel was the Russian data; October broke the post-Soviet era production record for the fourth month this year at 10.8 million barrels per day (b/d), exports were 5.42m b/d. Later in the week there is more data - Super Thursday in the UK and of course non-farm payrolls in the US on Friday.
Ithaca Energy
remains one of the strongest plays in the UK E&P sector and today's announcement that it has successfully completed its semi-annual RBL facilities review is positive, despite having had its capacity reduced to $515 million from $650 million.
The market has marked the stock down, which is probably a bit harsh, as although the banks' price deck is lower, Ithaca is in a stronger position than most competitors. Indeed, CFO Graham Forbes "reconfirms the solid funding head room" of the business of around $125 million and with de-leveraging continuing to bite, things can only get better.
Peak leverage of $800million in early 2015 is now already down to $690 million and, with production starting from the Greater Stella Area in 2Q 2016 - Petrofac willing - the balance sheet will improve.
Add to that the recent investment of $66 million by , the sale of the Norwegian interests and lower opex and capex costs and you can come up with a very robust state of affairs indeed. I recently met with Les Thomas and Graham Forbes and remain highly impressed by the management of the company and am confident that few competitors are so strongly placed, not just to weather the current storm but to emerge in a position of some strength.
Ophir Energy
announces that its exploration well G4/50-10 well on the Soy Siam prospect is dry and the rig moves to drill the Parichat, which will be in a different petroleum system. Here they are looking at a cluster of four fault blocks located 30km south of the Bualuang field with multiple stacked Miocene and Oligocene reservoir targets and a 32% chance of success.
Caza Oil & Gas
announces today that its forbearance agreement with continues as long as it continues to be in negotiation with a third party regarding its equity financing.
Whilst this hasn't effectively changed since the previous announcement, the market are clearly concerned that this funding is proving to be hard going and they are reminded today that funding is likely to involve "serious dilution" if it does go ahead.
Whilst this should be in the price, the time that this is taking is clearly distracting and until some resolution of the situation is forthcoming the jury will remain out - which is a shame as the assets are some of the best in the industry.
Range Resources - It's like déjà vu all over again…
has announced that last month's average oil production was 575 b/d down from 602 b/d in the previous quarter, mainly down to a lack of drilling. The irony of the situation will not be lost on the previous management, who were ousted for not making the 1/- b/d target, as the excuses remain the same.
Apparently the company are awaiting imminent approval of the water-flood project and a number of new rigs are due to be unloaded from ships any time now. I suspect that the new management will not be persecuted as the previous team were…
Majors results
and closed the majors results season on Friday and both beat the whisper and gave positive statements in the circumstances. What has been obvious over the week has been just how strong downstream earnings really are and by quite so much cost savings are being pushed through.
The mantra that dividends are safe is clearly now accepted, but some companies will find it harder than others to achieve and these last two want to preserve the record of dividend increases over the long haul.
And finally…
The RWC ended with a splendid final that was very good but clearly not the best final ever seen…The All Blacks were clearly better than the Wallabies and one fears what would have happened to the sweaties in the unlikely event that had they beaten them and the Springboks in the semi final. It was also nice to see Rupert Murdoch in attendance with his new carer…
The third test match is under way in Sharjah and England did well to take all Pakistan wickets yesterday, but with a man down and having to tough it out today, it looks like very slow progress. So far Cook, Bell and Taylor have acquitted themselves best, proving that the latter should have been in the side long ago…
In the Premier League, the Normal One saw off the Chosen One, who is now seriously in danger of not qualifying for the Champions League, probably the yardstick for job maintenance. Elsewhere the Toffees showed Big Sam quite how hard his task is by slotting half a dozen past the Maccams, the Eagles held the Red Devils 0-0 and the Noisy Neighbours beat the Canaries 2-1. The Gooners continued their good run with a 0-3 win at the Swans, the Baggies lost 2-3 to the Foxes, the Saints cruised past the Cherries and the Hornets beat in-form Hammers 2-0.
In Mexico, Rosberg won the Grand Prix with a pyrrhic victory over Lewis, who may have over-partied somewhat since Austin last weekend - still, a 1-2 for Mercedes…
The Kansas City Royals are the 2015 World Series Champions after beating the Mets 4-1. In game 5, the Royals bounced back in the 9th inning and then went on to win in 12th. Royals catcher Salvador Perez was named World Series MVP.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Malcolm is a Founding Partner of HydroCarbon Capital, which provides independent advisory services to the Oil and Gas sector. He is a Director of the Maven Income and Growth VCT 4 PLC, a venture capital trust listed on the Premium segment of the main market of the London Stock Exchange.
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