An important point is that we are talking about a contingent resource, not a commercial reserve. It should be understood that contingent resources can change for several reasons and they are valued accordingly in the first place; changes should not have a dramatic impact. I suppose that begs the question as to whether professional analysts should stick to the fundamentals and value companies by the book or whether they should participate in rumours and market knee jerk reactions and therefore risk exaggerating them. Thereby hangs the judgement as to whether the analyst is acting professionally. The apparently unfounded insinuation that commerciality might be threatened is irresponsible and outrageous, especially considering that test production has reached volumes that justify trucking the oil out.
It is an underhand trick to pass on rumours from dubious sources and therefore try to dodge responsibility for them. A professional analysis should evaluate information and determine its credibility before publishing. The privilege of easy access to the press carries responsibility and those who disregard that do damage to their own reputation and that of their employer. In this case the analyst intimated that a rumour warranted a 12% drop in the valuation despite the fact that TLW has not yet made any announcement (which it is legally obliged to do promptly if price sensitive). That raises a further suspicion that the 250p target may have originally been published as an Aunt Sally to knock down just before the publication of the annual results.
I see that we are down again on very low volume. Normal for a Friday, possibly for the consumption of weekend investors. Bargain time. Dyor.
PS - couldn't we argue that the Canaccord "analysis" based on a press article itself discounted in the article by TLW's Kenya country manager as being false (in fact, it teased out the figure of TLW estimating 4 billion barrels of discovered resource of which circa 750million extractable....) has presented a MAJOR buying opp ahead of decent expected results? DYOR
On LSE (thanks Racise), the "press reports in Kenya" have been dismissed as journalistic misunderstanding....
Yesterday's Canaccord DowngradeToday 06:25Yesterday's Canaccord Downgrade, in the ShareCast News, citing a report in The Standard of Kenya, is presumably based on the following article, of January 30th:
The "lower" estimate, referred to by Canaccord, of 250m barrels recoverable, is, in the article, "informed by a silent rule in the oil exploration world which assumes that what can be recovered is usually between 20 and 30 per cent of the discovered amount".
Which is completely non-controversial. The argument is over what the "discovered amount" really is.
If you read the whole article, what it in fact says, is that a new assessment of both the total, and the recoverable reserves, has been commissioned by The Ministry of Energy and Petroleum, the results of which are planned to be announced in Tullow's Financial Statement, along with the Full Year Results on 7th February.
In addition, Tullow Country Manager Martin Mbogo is quoted as saying:
"The claim (of lower than reported recoverable oil) is not correct. The pmean (recoverable oil) resource guidance of 750 million barrels remains consistent with our latest analysis£ we will provide a more detailed update on the range of resources and development plans in February," said Tullow Country Manager Martin Mbogo.
"If the resources had changed to the degree that is being suggested, we would be bound by stock exchange rules to update this, which is not the case."
Mr Mbogo further noted: "When we state that we have pmean resources of 750 million barrels, these are discovered oil resources that we expect to recover."
According to Mbogo, the total oil reserves in the Lokichar Basin could be as high as four billion barrels of which 750 million barrels are recoverable. The four billion barrels as the total reserves is the new information that Tullow Oil has not published in the past, and only volunteered the information after a back and forth with Financial Standard.
The report on Canaccord's analysis makes no mention of that previous erroneous prediction, of any of the other previous bloomers.
The latest predictions of doom are based on "press reports in Kenya" which I have, so far, been unable to find. The Kenyan press has never been seen as a reliable source of information and there are always political wrangles there. Oil production is a favourite topic to stir up discontent with the Government. It does seem rather extreme to publish a financial analysis just before the results based on such flimsy evidence, particularly as Kenya is at an advanced stage of development and all previous credible news has been upbeat. Expectations have been that the only reduction in TLW's Kenyan resources would be due to profitable farm outs.
However, the analysis has been published (with a price recommendation of "hold" and a price target of £2.20). Dyor and if the Canaccord headline at this sensitive time, less than a week before the final results, proves to be wrong you'll know who to blame. No doubt echoes of the headline will appear until the results are published.
Results due next week and no reason to expect that they will be anything other than very good
Brent still looking strong in the high $60's low $70's range
Recently plenty of hedging opportunity for security
Price down on low volume
Price down when current stats show 60% buys and 38% sells
80 million shares remaining to be bought back by just the declared shorts alone
I did Shuggie, but I re-entered around 217/218. I decided to drop that at 218/219 yesterday to see where we're going. I'm happy I did that to be fair. I also dropped Barc at 211/212, although that was only vaguely declared and on the PMO board I believe as the Barc board has no discussion really.
I still think that the drop is due to Brent plus short traders trading the price down while they have the opportunity to close within this price range.
The short positions were up to 5.77% in today's list from 5.33% on Friday . There were two changes. Marshall Wace were down from 1.39% to 1.27% dated 25/01/18, so declared a day late, and Black Rock popped back into the list at 0.56%, also declared a day late. I suspect that Black Rock dug in a little deeper while pushing the price down. The total would have been down to 5.21% but for Black rock popping up the declaration threshold by just 0.06%.
Good to trade against the short positions. Sooner or later they will take the decision to step up the closures. They will probably spring that early in the day and late declarations mean that we will probably not know about it until at least one day after the FCA's deadline. TLW's 2017 full year results announcement is due next week on Wednesday 7th February at 7.00am. It will be good to take a judgement on the results and be ready for the open. I expect that the results to be strong and to confirm TLW's debt reduction steps. They have already had a not widely publicised upgrade from Moody's:
The next big step for Moody's will be a reduction in dependence on Ghana, which was a necessary stage in TLW's longer term plan. I think that we are already seeing significant movement in that respect. A big recovery could be just a one or two deals away. Worth watching when the Jubilee repairs are completed and as the new Ten drilling advances. TLW was early into Africa and will have good opportunities to move on as the oil industry starts to plug that exploration gap.
Indeed, the total of declared shorts has declined dramatically and that should give confidence to those who have done their research. Shorting has become the exemplification of greed and greed distorts judgement.
Odey is now down to 0.66% after peaking at 4.8% on 04/08/2016 when TLW's share price closed at £1.67 after building his position through the extreme lows from his entry to the list on 24/11/2015, when he crossed the declaration threshold at 0.50% (closing price £1.73). Those prices are adjusted for rights.There is a difference to be seen in shorting tactics between those who got greedy and those who got it right and are now out (like Lansdown who dropped below the declaration threshold in May 2017).
Yesterday's list was down by 0.01% due to a reduction in Marshal Wace's position from 1.40% to 1.39%. The reduced rate of change at the moment is, I believe, due to the remaining half dozen short positions being traded within their current bands to achieve the best exit price. That becomes obvious during periods of slack news. The finals are due shortly and I expect them to be a confirmation of TLW's changed fortunes. Imho the lead up to that will be a time to get bargains courtesy of those shorts. There is still 5.35% of TLW's issued shares to be bought back and that is just over 74 million. The current situation still offers bargains for the longs imho.
TLW shorts aside, the wider picture is governed by the oil price. An interesting article here that may explain the recent collision between and Iranian and a Chinese tanker. It looks as though the sanction busters are sinking each other, saving the authorities a job:
But it could give Trump the excuse to reintroduce the Iran sanctions.
I think that there is the possibility of another drop in the oil price in the lead up to the Aramco float though. If so the recent highs have given oil producers the opportunity to hedge, so knee jerk reactions to a drop could be misplaced. The summary is that imho TLW is a great buy now whatever happens in the short term. It may or may not become an even better buy during that short term. As ever my horizon is 2020/2021.
I get the impression that there are a lot of people in high places who would like to suppress the news of past activities but, as the old saying goes, the truth will out. It will be interesting to see if there is any restitution, particularly to the Malaysian sovereign wealth fund.
Yes, I think that if you follow the chart of any oilie with decent fundamentals you are really following the shape of the crude oil chart with some exaggeration ("leverage"). The advantage of TLW is that it was depressed not just by the oil price but also because of its debt so it can be expected to recover strongly as it pays off that debt. PMO is in a similar position. I see that it announced yesterday that it is accelerating the exchange of its convertible bonds, reducing debt but incurring just a 1% dilution.
I'm wondering about what might happen if WTI closed below 63.5, you could argue it would activate a H&S pattern on 4/2h charts which would predict around 62 dollars as a short term target. It's not happened, but it could. Longer term I'm comfortable with oil price and TLW SP and am waiting to buy back. From a chart perspective, I'd say longer term it looks to have much further to go to the upside, very much like PMO.
TLW following the oil price as usual I think. It's had a good run but taking profits is also good. Don't forget to keep an eye on it though. You should be able to get back in without losing many pennies when it continues the recovery. Personally I think that it is responding to minor resistance at £2.32 and could hit stronger resistance at around £2.38. All depends on the oil price of course but I expect TLW to move up a notch as a "leveraged play" with the annual report.
The latest BBC series on Saudi, "A House at War" is dragging up and fleshing out the detail on all of the corruption. It's difficult to see how they are going to get off the hook of previous sins. They may become carrion before the full recovery in oil, it's a bit late for repentance. Collapse could be sudden, which would give the oil price a boost.
I agree that there's lot's of potential for this to go much higher. The more oil rises beyond PMO's production cost the better the rises you might expect. If we get a pull back on it I'll reconsider. I've just started to worry about the wider market as I do from time to time.
Yep. Bitter Lake and Hypernormalisation should be on the national curriculum in my opinion.
If you can find it Adam Curtis did a 3 parter on the 2008 crash as well. It was for the BBC but I don't think it's on iPlayer. The opening episode was called All Watched Over By Machines Of Loving Grace. Greenspan comes out extremely badly.
Couldn't tear myself away from it once I started watching, although some of the complexity calls for at least one more viewing I think.
I've also got through the second episode which is of wider scope, covering economies and politics and the resurgence of the banks to deal with problems beyond the abilities of the politicians (and beyond the abilities of the banks). In retrospect the conclusions seem valid. They describes the failure of politicians to understand complexities so their strategies are based on simplified views of the issues that simply make matters worse. The description of the mishandling of Syria is pretty convincing. One specific and alarming claim is that the Lockerbie bombing was carried out by Syria, not Libya, although I have seen other claims that the culprit was Iran. The story is that Gaddafi accepted the blame because he wanted the importance that the notoriety brought. The story that the line of mistakes and mishandling led to the current dreadful situation in the region is convincing. Perhaps we need to be ruled by AI and robots!
The overall picture isn't one that supports conspiracy theories though. There are too many players involved. If correct it means that the new world order is a chaotic mess of conflicting conspiracies. We're all doomed Captain Mannering!
On Saudi, they are imposing some austerity but that is likely to lead to social unrest, especially in view of the privileged lifestyle of the idle rich. Remember the Arab Spring when they gave money to the people to placate them? Well they are now going to be taking more away from them.
There is also the secrecy around the true Saudi reserves, which have remained the same for decades, despite high production and no new discoveries. The Aramco financials are also opaque. How can any buyer be sure of the true value of the company?
It is telling that Trump is now predicting future US production at a level greater than Saudi or Russia as the Aramco float draws closer.
Well done for getting through in one sitting. Was two for me I think. I watched it such a long time ago that I can't recall a lot of the detail but the section on the founding of Saudi Arabia, deal with Roosevelt, Aramco and subsequent exporting of Wahabism fascinating. Shows how ruthless people really are.
Fully believe all the stuff on the finance industry after working in it for 20 years as well.
I think Saudi is actually moving away from that $100 number down to $60. It's a long term plan but they appear to be quite determined. Although there has been some push back. See the recent failure to implement new taxes.
An interesting development in the short selling declarations (if you find that sort of thing interesting). The total is up from 5.22% to 6.33% because of two new entries, Black Rock at 0.51% and Linden at 0.50%. Black Rock dropped off the list on 1st August and Linden on 21st June so I guess that they have both been lurking below the 0.50% declaration threshold. Possibly they have been trading to restrain the price and slipped onto the list.
Black Rock used to be a major shareholder of TLW but, if I remember correctly, fell out with the BoD over the decision to hang on to production interests to help to fund exploration, sold their shares and went short.
That policy has served TLW well during the crude crunch. It was also around the time that Shell was the operator of Zaedyus when they failed to find oil in 2013. That was after TLW found oil in 2011. The conspiracy theory at the time was that Shell would have preferred to take Tullow over to get its oil rather than just be a partner in French Guiana. Black Rock was, and still is, a major shareholder in Shell.
Bass, I watched it last night. Very interesting and, if correct, supports a lot of conspiracy theories encompassing not just oil but the alternative energy claims that don't really stand up to scrutiny with current technologies. I haven't watched the second episode yet.
I've always thought that the oil price is an economic war. The price is far below what the Saudis need so what we may see is the price volatile around the current level, perhaps with a dip in the run up to the Aramco sale. I see that Trump had said that he is going to open up costal drilling for oil by issuing licences between 2019 and 2024 (except Florida; I wonder why that would be). He's predicting US production will outstrip that of Russia or Saudi Arabia. All good fodder for restraining the oil price but how will the US oil industry recover its costs at the resultant low oil price, how will the US transport the oil without major infrastructure investment and how will the policy get past the now international environmentalist lobby? Most of all will Trump survive this term let alone get a second?
This article makes the case for the "balanced" oil price being $60
but it assumes that the oil market obeys supply and demand. If "Bitter Lake" is correct the bankers will be wanting to make lots of money after the period of low oil prices has achieved its aims and they will do that in only one way, much higher oil prices.
Venezuela has already been taken out by that economic war. Perhaps that is just the start? Saudi is not the only country that has been economically weakened.
ec, yes that's how I see it. TMW says they have hedged a specific quantity against a floor price. The cost of doing that is already accounted for.
The buyers of oil might start to hedge against a ceiling price. That would help the forward curve into contango, which is where the Saudis etc want it, when the holders of oil stocks are incentivised to keep it in storage for a higher future price rather than selling it into the market now. Whether contango takes hold remains to be seen, there is more political interest in the oil price at the moment than there is supply or demand pressure imho. In the longer term though supply and demand must prevail. Demand will rise and supply will take a long time to catch up. The cutbacks in exploration have disrupted the supply chain, which has a long timescale, You can't just spirit oil up out of nowhere.
Did anyone watch "House of Saud: A Family at War" on BBC. Worth getting it on iPlayer if you missed it. Another two episodes to come.
When I sold my wife's Tullow at 194p, I invested all of it on Centamin at 138p-139p. So I did a very good job for her. You can not win everywhere unless you have a big massive equity pot. Your portfolio is probably looking good as well.
I have invested differently on my on account which is heavily weighted to Hummingbird Resources. I just sold Centamin on my side that had a higher average price for a profit to get more HR on any dip. I believe Hummingbird will go to 50-55p by year end. I am in profit there as well.
As for Tullow it will get a dip when they shut down production to deal with Turrets and so forth. It will be a great share to trade in and out of in 2018.
"They say they will have material participation in any upside, whether that is through the unhedged portion or whether they can wriggle out of their hedges to some extent?"
I noticed that comment about upside too. Gubu.
However, I don't see quite how they can wriggle out of these hedge positions. If the oil price remains higher than the hedge, then the other party stands to make a handsome profit on this. Buying out the hedges could be very costly.
"A future hedge at $70 is worth a lot more than $50 or $60. "
That is self evident TornadoTony. If only we had got the $60 that we got in 2017.
However, I would not describe 60% of this years output being hedged as minimal. The price that it is hedged at though, is minimal - $52.23 per bbl for 2018.
As Shugg1e points out this does not look like a good time to bet on oil falling.
The current mid price between WTI and Brent crude is about $65, yet we will be paid just $52.23, over $12.5 per barrel less, for 60% of 2018 production.
During the second half of 2017 we have increased the 2018 hedged volume by 66% and the 2019 hedged volume by 128%, at prices of around $50 per bbl.
Oil hedges (at 30 Jun 2017)
42,500......................27,000...............9,732 Oil Volume (bopd)
60.32.........................51.53.................46.33 Average floor price protected ($/bbl)
HEDGING POSITION (as at 31 Dec 2017)
45,000................22,232...............997 Oil Volume (bopd)
52.23...................48.87.................50.00 Average floor price protected ($/bbl)
"In 2018, the hedge volumes reflect approximately 60% of total Group net entitlement oil volumes hedged on a pre-tax basis. In 2019, approximately 30% of total Group net entitlement oil volumes are hedged on a pre-tax basis. "
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