The Oil Man: Rockhopper, Falkland Oil, Sound Energy
24th November 2015 12:30
Share on
WTI $41.75 -15c, Brent $44.83 +17c, Diff $3.08 -5c, NG $2.21 +6c
The oil price was looking very sickly yesterday until news "leaked" from Saudi Arabia of a cabinet meeting at which no less than the King himself had said that the Kingdom was "ready to cooperate with OPEC and Non-OPEC to achieve market stability".
Oh, what powerful words, that took crude from the danger zones back to normality. Indeed, this morning both WTI and Brent have traded nearly a dollar higher again - that is almost three bucks off yesterday's low.
Listen very carefully; I will say this only once:
Sure - the market is overloaded with crude and the fundamentals are very poor, no doubting that. BUT, yesterday I mentioned volatility, mainly as with Thanksgiving, Black Friday, Cyber Monday and then the OPEC meeting all coming up within ten days, there is the opportunity for some pretty wild market moves.
Add to that the fact that the hedgies are incredibly short the oil market at the moment and the conditions are in place - only in place - for some fun and games.
P.S. - The OPEC meeting starts on a Friday, a holiday in the Middle East, and if a decision doesn't come out on day one then it may come out when the Shermans are closed, pip pip, you have been warned!
Rockhopper/FOGL
So, after the expensive, late running and ultimately dry Humpback well, has fallen into the arms of , who know a smart deal when they see one.
Although discussions have apparently been going on for some time, it was only when the aforementioned Humpback came in as a duster that the combination made overwhelming common sense.
There is no doubt that this is a deal worth doing, to a certain extent for both sides; FOGL shareholders, as mentioned here recently, would have faced an uncertain future, with a cash call inevitable. Success in the North Basin would have offered jam some time down the line; now they can share in the fruits much sooner - albeit under new management.
For that is what it is - the "merged" entity is just RKH 2, with no FOGL management or staff moving in permanent positions. For RKH, this makes them the undisputed governors of the Falklands, with a significant increase in the resource base, more possibilities for a farm-out of Sea Lion (including ) and much more upside potential into the bargain.
On the farm-out front, Sam Moody went to great lengths to stress just how this deal improves their strategic positioning in future discussions. The simplification of Sea Lion and potential unitisation, as well as bringing in adjacent discoveries together with the large equity position in PL004, must be a key factor in getting industry interest in the area.
Farminees will want access to all the potential acreage; this simplifies that in a stroke. With Pre-FEED work completed on Sea Lion and key contractors identified, the chances of delivering greater project economics are likely to be more tempting to potential partners.
Add to that the likely substantial exploration upside and a new CPR for RKH after the current drilling programme and the equation looks much more interesting. Politically, despite the recent change in the Argentinian Presidency, nothing has changed, but the underlying mood from Buenos Aires can only help matters.
The transaction details are relatively straightforward: it is an all share transaction and FOGL holders get 0.2993 RKH shares each. This values them at £57 million, an 11% premium to last night's close.
Getting such acreage at a modest premium looks a good deal to me, although some may argue that, with FOGL being pretty stretched financially, it might have come a bit cheaper - but a faint heart never won a fair lady.
Rockhopper has a strong balance sheet with, $130 million of cash and no debt; it has now issued 160 million new shares, but to people who should be fans of the fans, you might say.
To call such a deal a merger is probably being kind, but whether it is that or a takeover, it looks extremely interesting all round. The implied transaction metric is supposed to be around 75 cents per 2C barrel, but that looks a touch high to me; adding in even modest numbers means they may have paid nearer 50 cents, which seems very cheap to me.
Sound Energy
has announced a big reduction in the costs of the Badile well due to be drilled next year. Currently the estimates are €30 million (£21 million), but this has already come down by €5 million to €25 million (£17.6 million).
The company are expecting final authority by the end of 2015, or early 2016, and of course are still seeking a farm-in partner for Badile. CEO James Parsons points out that "the company is sheltered from current low oil prices and also benefiting from reduced industry costs" which is a very fair point; expect more good news regarding all company developments before long.
Malcy interviews
Below are some links to interviews I have recently done with Interactive Investor.
Could Gulf Keystone shine in 2016?
How safe are oil industry dividends?
Hot gossip at World Oil & Gas Week
And finally…
A bit quiet on the sporting front today, although Mr Fury has opened his gob again - he had better win at the weekend, drugs or none…
Tonight it's back to the Champions League, with the Gooners hosting Dinamo Zagreb needing a win to stay in contention. Chelski are fine in their group and go to Israel to play Tel Aviv.
Last night proved a bit of an upset as the Maccams went to the Eagles and nicked all three points…
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.