The Oil Man: Tullow Oil, Rockhopper, Independent, Aminex
13th January 2016 13:54
WTI $30.44 -97c, Brent $30.86 -69c, Diff -42c +28c, NG $2.26 -14c
Yesterday saw WTI visit $29.93 in intra-day trading and crude certainly ended down on the day, again. As usual there were mixed messages humming around the oil market; the Nigerian oil minister said that there would be an emergency OPEC meeting in March - which the UAE Minister ruled out.
The Short Term Energy Outlook (STEO) report was actually quite good for the market, as it increased non-OPEC supply contraction to 640/- barrels per day (b/d), thus increasing the call on OPEC to 31.43 million b/d in 2016 and 32.64 million b/d in 2017.
Dependent on the supply situation, that is about the level at which OPEC could start to turn the taps off and have the world by the short and curlies - and of course, when the 300 billion of capital expenditure (capex) cuts by the majors would kick in…is it just me that is taking this seriously?
The API stats, released, as ever, after the close, were also mixed; bulls read into the crude draw of 3.9 million barrels, 300/- at Cushing as good news, but gasoline built by 7 million and distillates were up 3.7 million.
Again, we will have to see what the EIA have for us tonight.
Tullow Oil
As I have been writing of late, it seems that is slowly but surely getting its house in order and, having accepted the lower for longer mantra, is setting itself for current market conditions.
Production guidance for this year is 78-87/- barrels of oil equivalent per day (boe/d) - a healthy increase on last year - and accommodates the TEN development coming onstream in August. Jubilee is performing better than expected and with upside potential from the Kenyan acreage, Aidan is slightly more bullish.
With operational cash flow of $1 billion (£693 million) and cash of $1.9 billion, gross profit of $0.6 billion is forecast. The company is well hedged and has cut capex significantly in the last year or so, giving plenty of headroom on the $4 billion of debt.
If you are looking for stocks to come out of the downturn in a strong position, you could do worse than to keep an eye on Tullow.
Rockhopper Exploration
It has been a busy few weeks at , what with the FOGL acquisition, the Isobel discovery and now the Sea Lion update.
A lot has been going on at Sea Lion and, with the Pre-FEED now completed and awarded to SBM offshore, FID is targeted for mid-2017 and first oil in 2020. appear to have done a great job on the contractors; the preferred companies have been selected and the remaining awards will be made in first-quarter 2016.
There is no doubt that huge cost efficiencies have been made and materially enhanced the economics of the project. Having got to this stage of the development at this time in the cycle, it is difficult to think of many international projects of this size that will be able to take such advantage of lower costs.
The Sea Lion Phase 1a development definition phase is complete and the numbers all look way better than I previously had envisaged. Production is up from 60/- b/d to 85/- b/d and will last for 20 years as opposed to 15 before. This means that 220 million barrels of oil will be recovered, not the 160 million expected before.
Estimates of the pre-first oil capex requirement remain at $1.8 billion or $8 per barrel, down 30% and still falling, even with a significant increase in the scope of the work. After that, phases 2 and 3 get bigger and better, certainly on the economic front, as the operational expenditure (opex) comes "tumbling down". Each of those two phases are now expected to deliver 300 million barrels recoverable and the Isobel discovery gives the company plenty of "running room".
Of course, if you are a long term bear of the oil price, none of this matters - but I have a sneaking feeling that this could be wonderfully judged; producing this oil in 2020 might be perfect timing.
Also, the nature of the project is likely to appeal to a number of international players who might have been on the sidelines up until now; the better political situation in Argentina helps too. The timing also benefits RKH, as it is guaranteed by Premier and will only pay that back post-first oil and over five years.
With a CPR expected second-quarter 2016, the market may just be able to assess a project that up until now has been for many investors put on the back burner; 820 million-plus barrels of recoverable oil over 20 years - and on decent economics - is becoming highly compelling…
Independent Oil & Gas
It seems a shame that the management, who have worked so hard all over the winter to finance Skipper, now see the project moved back. But all is not lost and, as far as I can work out, this way of doing it removes the worst case scenario whilst keeping the upside. Apart from weather considerations, which are understandable, I think that there would have been a very small window between finishing the drilling and paying back the multifarious lenders on the project.
Faced with losing it all, the board have turned to the London Group and borrowed £10 million to keep the lights on. London is not that well known, but seems to have an appetite to fund IOG, which seems perfectly sensible; run by Simon Hume-Kendall, I am assured that it may be Burren 2, based on previous experience.
As I have repeatedly said, I genuinely rate the IOG management and I hope that this draws a line under the chase for funds and that they can now develop Skipper as well as the rest of their portfolio and maybe more…
Aminex
I stuck my neck out a bit before Christmas as, having seen Jay Bhattacherjee, he seemed quietly confident that the Gas Sales Agreement would be signed and sealed in the new year.Now that the GSA has been executed with the TPDC, Kiliwani North can move into the production phase on a take or pay contract - and, most importantly, in US dollars.
This is indeed a major milestone for , for whom the future looks most interesting; more after I have had a further chat with Jay.
RockRose Energy
Andrew Austin is back and returns to the market with a vehicle intended to make acquisitions - I suspect in the UK onshore area, although anything is possible.
Starting at a modest premium (4%), one should expect the deal process to get under way before too long and it is well worth watching to see what happens…
Sundry
I notice that the EU are looking into the / deal, is there nothing they won't poke their sordid little noses into? According to my sources, Halliburton had been tipped off that this might happen and it is therefore just another hurdle on the way to completion…the words "don't hold and your breath" come to mind.
Premier Oil has been suspended this morning pending some sort of asset deal which may be considered to be a reverse takeover. At least with the shares suspended they can't go down any more after a torrid few days of trading.
I have clearly got this one wrong lately, as I have been giving the company the benefit of the doubt and thought of them as survivors. It has been very quiet, though, and we must wait and see what is going on; it is not worth trying to guess!
has updated the market and tells us that the Beach Marcelle waterflood project has been approved. With two development wells showing promise, the target for 1,000 b/d looks like it is still in place - after my faux pas last time when I mistakenly said first-half not first-quarter…
Having said that, the company have stated that, due to the current level of the oil price, they are reviewing the 2016 work programme. I hope to speak to the company before long - but these well results look good.
And finally…
Not much today; last night the Hammers came from one down to beat the Cherries 1-3, while Villa produced something at last and beat the high flying Eagles.
Man Yawnited - as I am advised they should be called - have yet again disappointed their fans by scoring all this month's goals in one match…
Tonight sees another pack of games, the picks of which are the HubCap Stealers hosting the Gooners and Spurs taking on the Foxes…
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.
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