The Oil Man: Oil price, Ithaca, Falcon, Sound
16th May 2016 14:25
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WTI $46.21 -49c, Brent $47.83 -25c, Diff $1.62 +24c, NG $2.10 -6c
Friday ended oil's week slightly down, partly due to the strong dollar but also as the April OPEC production number was 32.44 million, fueled by the Saudis and Iran belting out crude ahead of the 2 June meeting.
On the more positive side, outages remain high (3.75 million barrels per day (b/d)), with all the usual suspects absent from the April and now May numbers - and, in many cases, likely to be so for some time. Indeed, today's news indicates that Venezuela gets worse and state-owned oil and gas firm PDVSA is allegedly close to default.
These outages have forced a huge volte face by the Vampire Squids, who say that "the market has gone from nearing storage saturation (brimming over indeed) to being in deficit much earlier than expected".
This must be the worst possible news for oil bulls, as they find they are now hampered by having on their back going on about "sustained strong demand and sharply declining production".
Elsewhere the fall in the rig count continues apace, with announcing on Friday that the overall number was down nine at 406, with oil units down 10 at 318; in percentage terms the numbers are still high.
Whilst the signs are that investors have been selling into the recent rally, the combination of short-term outages remaining high, longer-term help from demand pick-up and capital expenditure cuts taking forward oil off the market will likely mean that they will be in as buyers again soon - the risk for the oil price at the moment looks like being on the upside…
Ithaca Energy
First-quarter results from this morning and, to be fair, there is little to add to their last outing; I waited for the conference call but there were few questions. I meant to ask if the finances had been altered for the better by the huge compensation paid by Wizz Air but decided against it.
All is going well at the company and our recent visit to Gdansk confirmed that the FPF-1 is very much on track for a June sailaway. Production remains in line with guidance at 8,997 b/d and, ex Gas Supply Agreements (GSA), will stay like that for the rest of the year.
Costs continue to come down, operational expenditure is at $25, down $8 on first-quarter and, with hedging at around $60 to mid-2017, cash flow is $44 million (£30.6 million), beating first-quarter.
As previously reported, net debt is $630 million, which, despite Resource Based Lending redetermination, gives headroom of at least $100 million.
As I have said before: production in line, with GSA about to ramp up with plenty more options, the best hedging in the sector, strong cash flow, solid finances and balance sheet and amongst the best management in town - what's not to like?
Falcon Oil & Gas
With an exciting drilling season imminent, I took the opportunity to have a long chat to Philip O'Quigley, CEO of last week. Readers will know that I am a big fan of FOG and indeed think that it is one of the most undervalued plays in the sector; indeed, in terms of risk profile it is increasingly copper-bottomed, as its recent results and updates showed.
I am going to write today almost exclusively about Australia - which is not to denigrate the Karoo Basin play in South Africa, but that is going to be less interesting in the short term than the Beetaloo play.
To remind you, FOG was in the play with before they dropped out and were replaced with what can only be described as blue-chip partners in Origin and . Having done the farm-out, FOG just needs to enhance the acreage as per their mission statement and then sell the business, also in the plan.
With no production yet in either gas or liquids, FOG is neither a gainer a loser in commodity prices and works from a position of significant strength; it has no debt, no funding requirements, has cash in the balance sheet and is carried for its first five wells to the tune of A$64 with no cap and the next four wells to a cap of A$101 million (£51.2 million).
The analysis of last year's drilling has come in a very positive way and this year's programme is intended to combine re-entry, new spuds and of course fraccing in both horizontal and vertical wells.
Although risk is pretty low here, based on current information, the hydrocarbons exist across the entire acreage and the programme is intended to find gas and liquids where they are discovered. As and when the partners have gas to sell, they have export routes North to Darwin or East to Gladstone and, of course, the domestic market is also available to them.
Following my meeting with Philip O'Quigley I plan to catch up on Falcon as the drilling season gets underway, maybe with a more detailed analysis of the upcoming wells, the plans for each and the level of expectations. I will also analyse the prospects for change ahead of the elections in the Northern Territories which will be of interest.
In addition, I will be looking forward to the AGM which is on 21 June in Calgary - and why?
Because, the day before the AGM, the head honcho at Origin will be speaking at the American Association of Petroleum Geologists conference in the City, with the speech title Unconventional Gas Potential in the Northern Territory, Australia: Exploring the Beetaloo Sub-Basin.
The paper will be presented by Dr. David Close, Chief Geologist and Unconventional Exploration Manager, Origin Energy. How convenient is that?
Sound Energy
has announced that the Tendrara well in Morocco has reached the second casing point at 1,316 metres, directly above the salt cap, and is now drilling towards the third and final casing point directly above the reservoir.
It also says that, at Nervesa, the second static profile has indicated lower-than-expected reservoir pressure and that not all completed levels are producing. The idea is to shut in and plan a remedial re-perforation of selected layers of the reservoir in due course.
Further remedial action might involve the drilling of an up dip sidetrack well.
And finally…
In the rugby, Quins lost to Montpelier but the Sarries won convincingly against Racing 92; just the Prem left now…
The football season is almost ended, although, for Spurs, that was a couple of weeks ago.
Losing five-one at the Magpies would have been unthinkable then, but the second half at Stamford Bridge got to their heads…
With the Noisy Neighbours getting a draw with the Swans, Man Who need to win 19-nil in the rearranged fixture tomorrow night after the fiasco of the "bomb" - someone's head should roll…
Woy has announced the squad to win the Euros in the summer - it's Germany, boom boom. Mind you, with valuable spaces taken by the likes of Delph, Milner, Lallana, Sterling, Stones and Wilshire one, can't help thinking what the likes of Noble and Carrick are thinking…
Good to see Muzza beating Djoko on clay - and on his birthday too; this time next week it's the French Open, a tournament he has never been happy at. Not any more…
The Spanish Grand Prix was interesting for a number of reasons: firstly Nico is clearly that worried about Lewis that he will take him out whenever he gets the chance; preservation of that lead will be vital; Monaco next, where he has form and can make it look more like an accident…
Anyway, the second reason was that it made for a good race - and that the new kid on the block only went and took Kyvat's car and became the youngest ever winner…
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.