"Meanwhile, offshore oil which suffered from slashed investments during the downturn is now coming back with projects that have improved economics, in some cases challenging those of U.S. shale. Thats due to the costs that major oil companies slashed after 2014, to simpler designs, and to the supermajors reshaping portfolios and projects to make as much money at $60 Brent as they were making at $100 Brent four years ago."
If that is so then it doesn't take much imagination to foresee effect of the Saudi cuts mentioned in my previous post on the oil industry, especially TLW which is OK at $50 Brent.
The Saudis look to be chasing a higher oil price pre the Aramco float. If the market predictions pan out it may not persuade the potential Aramco investors to pay a higher price in view of the longer term predictions here:
Haven't gone away, just bored with crude oil and the way it's price is being kept down. The market is starting to ignore the rig count with their big increases , remember we were told that wells can be drilled in half the time with new technology ...At least all the hype of electric vehicles has pulled back to a more realistic time frame. It will happen as oil shoots up..............Elon Musk flamethrower was a strange one........but you have to give him credit for Spacex Falcon launch..... Tesla still in big trouble.
Ready to bounce from this point
Has reached lower Band of the Bollinger Bands and today bounce back later on the day as the oil price is on the rise. Look well undervalued on a PE of 12. Indicators all at oversold and ready to go better from this point.
chart with Indicators
Good to see TLW getting busy after the border dispute delays. The main reason for the caution of the rating agencies has been TLW's dependence on Ghana but that also provides many synergies in the area that the company can now take advantage of. The reduction of risk, the reduction of debt, the increased geographical spread of production and prospects and the recovery of oil over the next year or so will return it to the high ratings it had previously. The agencies have never been critical of TLW's wider performance. A good recovery scenario all round.
I guessed at the possibility of oil dipping again in a previous post. If you subscribe to the economic war theory it makes sense in the lead up to the Aramco launch, especially following a period of hedging opportunity. The next IEA report is out next week but the current report says:
"The oil market is clearly tightening; in the three consecutive quarters 2Q17-4Q17 OECD crude stocks fell by an average of 630 kb/d; such a threesome has happened rarely in modern history: examples include 1999 (prices doubled), 2009 (prices increased by nearly $20/bbl), and 2013 (prices increased by $6/bbl). Since the nadir for Brent crude in June when the price was $45/bbl, the 2017 OECD crude draws have coincided with a price increase for Brent of nearly $25/bbl."
The latest drop is due to a claimed increase in the US rig count but the conundrum of US oil continues. All other things being equal, as US production increases then so its profitability decreases in that boom an bust cycle. The hope for US crude must be that both Saudi and Venezuelan oil output will collapse and that looks increasingly likely with a low oil price.
Meanwhile TLW is in an excellent position to ride out further storms,
Cash, I assume that you were addressing that to me. Do you know what a correction is?
Stocks have been in a bull market indeed and what we have now is a correction. That could develop into something more serious or it could become an over correction resulting in a subsequent upward swing etc. etc. but, at this point, it is not worth trying to second guess that. Why not just take it at face value until things develop, otherwise you might as well toss a coin. I'd say that descent into a bear market is the least likely outcome though, given healthy global growth. Look at it as the stock market trying to shake off competition from more secure forms of low risk low return investment.
As for oil, it is getting a knock on effect from that stock market correction. Interesting to see that the predicted rise in interest rates is due to very good news from industry. As earnings rise people will spend more money and inflation will have to be controlled by raising interest rates, encouraging them to save rather than taking on debt. Oil demand will continue to rise and then oil will be in a bull market, rather than a recovery. It has been impossible for oil to experience a bull market given the imbalance between oil supply and demand over the last few years. The end of that will be signalled by an oil market correction, which imho has started but been temporarily interrupted by tantrums in the stock market. At least that might provide an opportunity for the short positions in oil to be closed.
With regard to predictions, none of us has a crystal ball, all we can do is try to make sense of the vast amounts of data around the global economy and not pay too much attention to those who try to make sense of it for us in order to get our money. Dyor.
The fall in stock markets around the world is due to rising interest rates. Money is also coming out of the bond markets. It's hard to tell yet whether the stock market is just correcting or going in to a bear market. If the FED persists on increasing interest rates by much more after their latest tax cuts we will probably have seen the top of the 9 years bull market in stocks.
price doesn't close below 181. If it does, it brings 175 into play and that doesn't look like very strong support (in fact it's the kind of support that fails more often than it holds in my experience), if price got that low and 175 didn't hold then 162/163 looks easily possible on the rising trendline on the daily. I still think it's important not to lose sight fo the gap down to 129-131 area from January 2016.
Looks to me as though the next few days and the POO are very important here.
Kenya Operations Update
View News Release in PDF Format
VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb. 7, 2018) - Africa Oil Corp. ("Africa Oil", "AOC" or the "Company") (TSX:AOI) (OMX:AOI) is pleased to provide the following update on activities in the South Lokichar basin (Blocks 10BB and 13T in Kenya). AOC has a 25% working interest in Blocks 10BB and 13T with Tullow Oil plc (50% and Operator) and Maersk Olie og Gas A/S (25%) holding the remaining interests (collectively, the "Joint Venture Partners").
The Joint Venture Partners have proposed to the Government of Kenya that the Amosing and Ngamia fields be developed as the initial stage of the South Lokichar development. This phase of the development is planned to include a 60,000 to 80,000 barrels of oil per day (bopd) Central Processing Facility (CPF) and an export pipeline to Lamu, some 750 kilometers from the South Lokichar basin on the Kenyan coast. This approach is expected to bring significant benefits as it enables an early Final Investment Decision (FID) of the Amosing and Ngamia fields taking full advantage of the current low-cost environment for both the field and infrastructure development, as well as providing the best opportunity to deliver first oil in a timeline that meets the Government of Kenya expectations. The installed infrastructure can then be utilized for the optimization of the remaining and yet to be discovered South Lokichar oil fields, allowing the incremental development of these fields to be completed in an efficient and low cost manner post first oil.
The initial stage is planned to include 210 wells through 18 well pads at Ngamia and 70 wells through seven well pads at Amosing, with a planned plateau rate of 60,000 to 80,000 bopd. Additional stages of development are expected to increase plateau production to 100,000 bopd or greater. It is anticipated that Front End Engineering and Design (FEED) for the initial stage will commence in 2018, with FID targeted for 2019 and first oil in 2021/22.
A total of six appraisal wells have been drilled at the Amosing field, ten at Ngamia, three at Etom and two at Ekales. Additionally, extended well tests, water injection tests, well interference tests and water-flood trials have been undertaken, all of which have proved invaluable for planning the development of the oil fields. Tullow Oil plc has released (February 7, 2018) their updated assessment of resources in the South Lokichar basin. Details of Africa Oil's most recent independent assessment of contingent resources in the South Lokichar basin are contained in the Company's press release dated May 10, 2016. The Company intends to have an updated independent resource evaluation in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") completed following the completion of the water injectivity and associated production testing planned for the first half of 2018.
Early Oil Pilot Scheme (EOPS)
An agreement between the Joint Venture Partners and the Government of Kenya was signed on March 14, 2017 allowing all EOPS upstream contracts to be awarded. Initial injectivity testing has started at Ngamia-11 and oil production and water injection facilities are being constructed in the field, which are expected to be ready to commence production/injection in the first quarter of 2018. Oil produced is being initially stored until all necessary consents and approvals are granted and work is completed for the transfer of crude oil to Mombasa by road.
Africa Oil CEO Keith Hill commented, "We are pleased that the Joint Venture has now agreed on an optimized plan to move forward with the South Lokichar Basin development, which will allow acceleration of a crude export pipeline through Northern Kenya. This development wil
Tullow Oil (LSE: TLW) released its annual results today, with chief executive Paul McDade saying the FTSE 250 firm made excellent progress in 2017. As a result, it posted its first annual operating profit in three years.
The shares are up 2% at 187p, as Im writing, giving the company a market capitalisation of £2.6bn. This is still well below the valuation it once commanded. In an improved oil price environment and after todays results, is Tullow a top turnaround buy?
Improving performance and bright future
The Africa-focused groups revenue of $1.72bn was 36% ahead of 2016, as its working interest production surged 32% to an average of 94,700 barrels of oil equivalent per day (boepd).
Despite $682m of write-offs and impairments, it managed a small operating profit of $22m, although after net finance costs of $310m and a tax credit of $111m, the statutory bottom-line was a loss of $189m. However, with the write-offs and impairments being non-cash items, the cash flow picture was considerably better: the company generated free cash flow of $543m.
Tullow got through the oil rout with a millstone of debt, helped by supportive lenders. Net debt remains relatively high at $3.5bn but is falling and is now only just above managements target level of below 2.5 times EBITDAX (earnings before interest, taxes, depreciation, depletion, amortisation and exploration expenses).
Looking ahead to 2018, the company has guided on production of between 86,000 and 95,000 boepd. City analysts are forecasting earnings per share (EPS) of around $0.20 (14.4p at current exchange rates), giving a price-to-earnings (P/E) ratio of 13. This looks an undemanding rating to me as I see scope for production upgrades this year, while the companys valuable development and exploration assets bode well for the longer term. As such, I rate Tullow an attractive buy
WTI hit the target at 61.2 that I mentioned earlier this week. You could argue that means that the breakdown of the H&S pattern is complete. That doesn't mean the fall is over. My take on things is that the trend on the daily chart remains intact for the moment (i.e. bullish according to MA's), but that a lower high is in, a lower low will now be put in and that can be an indication of a trend change.
Lets hope the results compensate for where WTI appears to be.
Results look good, as expected, and confirm TLW's recovery.
With the further details on Kenyan contingent resources I trust that Canaccord will take note, apologise for misleading by repeating a rumour and revise their £2.20 price target upwards.
"Analysts at Davy Research say that Tullow Oil is in a much better position than a year ago. The analysts say that Tullow's 2017 performance points toward the company's next phase of growth--in a manner that is both sensible and controlled. Year-on-year revenue growth is due to a combination of improved production and tight cost control, Davy Research says. Additionally, Davy Research also notes Tullow's plans for a development in Kenya, saying the move will be accretive and positive for shareholders. Shares at 1000 GMT are up 2.5%, or 4.65 pence, at 188.15 pence. "
Cash. Really? Well if you think that was a bull market I think that you have a big surprise coming (pleasant or not depends on your position). As always bull or bear is a matter of opinion. IMHO we are in a period of normalisation following a bear market. I'd say that the weight of opinion disagrees with you.
In the mean time we are in the wider grip of whatever unknown factors caused the latest "flash crash" in the US which, again, looks suspiciously dishonest and has likely triggered a period of confusion and volatility all round.
Marshall Wace have been up and down lately. Another reduction of their short position in today's list, down from 0.97% on 01/02/18 to 0.88% on 02/02/18, yet another late declaration. Today's total is 5.48%.
So there you have it. If you really want to sell your shares on the cheap Marshall Wace is happy to buy them.
Now, now Cash. calm down, you're getting all over excited like those US bankers. Value is oil in the ground. The longer the low oil price persists the more exploration will drop behind and the more value those oil reserves will accumulate. Value doesn't come out of thin air but the share price often does. TLW took on debt, invested wisely in low cost production to repay it, carried on exploring and is storing up that value until the time is ripe. Production pays off the debt while hard exploration work will make the profit. Got it yet?
Those who think they can get rich overnight often get poor.
PS. In case you hadn't noticed, oil has not been in a bull market for a while, but the time is coming. You just need to be patient.
Seems to be a build in US oil production, predicition of the US becoming a net exporter of crude, builds in inventories through 2018/2019 and depressed pricing per barrel. WTI seems to breaking down as I type. A close below 6378 or so would suggest that POO is off to 61.2 or lower in the near future. I suspect that will hit oil shares in the short term at least.
I think that TLW has been under the takeover microscope for a long while. The majors couldn't justify a credible offer while the oil price was low and TLW was protected by its debt. The management has long said that it isn't for sale but the exploration cuts have left the majors very thirsty. Any predator would have to be ready to make an offer that TLWs shareholders couldn't refuse. Imho the action will begin when Brent is around $80 and TLW's debt is down.
Brent currently down a bit at $68.60, shorts still trading to reduce (down from 5.63% to 5.57% on today's figures as at Thursday 01/02/2018 because of the usual late declarations) and a much exaggerated general market tantrum because of suggested US interest rate hikes. If the suggested interest rate increase in the US small the fears on that may disappear. As usual TLW takes more than its fair share of pain because of that leverage (more pleasure to be expected on the way up though).
The short sellers may be temporarily emboldened by the general depressed atmosphere, or they may see it as an opportunity to close while they can. Not much credibility being given to that Canaccord scare story (or fairy tale) so Wednesday's results should contain enough good news to allow TLW to buck the trend (if the trend hasn't bucked itself by then).
I wouldn't be surprised to see TLW moving focus away from Kenya and Ghana (as it has from Uganda). The other side of the Atlantic is becoming more of a frontier hot spot right now and TLW already has footholds there, for example:
French oil firm Total SA has confirmed its commitment to the Lokichar-to-Lamu oil pipeline as the only evacuation route for Kenyas crude from the Lokichar fields, said a statement by Manoah Esipisu, State House Spokesperson. Following Total SAs commitment, the government has consented to a proposed acquisition of the issued and to-be-issued share capital of Maersk Oil Exploration International in respect of Blocks 10BA, 10BB and 13T. Total has a 25 per cent stake in the Lokichar blocks following acquisition of Maersk Oil globally, while Tullow Oil (the operator) has 50 per cent with the balance 25 per cent held by Canadas Africa Oil. And now, industry players and experts are pointing out that Total could be angling to be the key firm that will steer Kenya into being an oil producer, with possibility that it could buy some of Tullow Oils interests in the three Lokichar blocks and assume the role of an operator. The Lokichar-Lamu pipeline and an increased presence in Turkana oilfields would give the firm an alternative route for exporting Ugandan oil, where it became the operator following acquisition of a major stake from Tullow in a deal concluded in January 2017. Total bought a 21.6 per cent stake from Tullow in the Ugandan fields, increasing its interest to 54.9 per cent and emerging as an operator. ALSO READ: Kenya cuts local communities' share of oil revenue Vote of confidence The firm could also use the pipeline to Lamu as an alternative for oil from South Sudan, should it succeed in finding oil in a block where it is prospecting as well as sort out issues that it has been having with the South Sudanese government that keeps threatening to kick the firm out of the lucrative block. They (Total) may soon become the operator by buying some of Tullow Oils shares to become the majority shareholder. They may also be securing an export route for oil from South Sudan where they are exploring for oil, said an industry insider. Eng Patrick Obath, an oil and gas consultant, said the move by Total SA is a vote of confidence and may have come following the work done by Tullow that may show the potential for oil in Lokichar could be huge. It is a vote of confidence by Total that there is sufficient oil and it is commercially viable, he said. Decisions such as these are taken depending on the amount of data that they have. Over the last two years Tullow Oil has drilled exploratory wells and tried to determine the rate of recovery of oil, the actual amount there is and performance of different fields in the basin. Obath said the data is shared with the people that want to come and invest in the next phase and thats where a firm like Total comes in. They (Total) have seen the opportunity as investors and have the muscle and money to get into that kind of level, he said.
for 180-182 on this. I'll be looking very closely at it if it reaches those levels. Don't forget that gap that I spoke about a little while ago down to the 129-131 area. These kind of things always seem impossible until they happen.
At market cap of GBP 2.5 billion, that is 2 world class, deepwater fields, mucho cheapo - even assigning zero value to everything else Tullow is working on. It would cost the majors around GBP 6 - 10 billion CAPEX to develop anything similar. I'm guessing Bob Dudley and Ben van Beurden's calculators are working overtime crunching these tempting numbers. All IMHO. GLA.
Tullow Oil (full-year earnings 7 February)
Tullow is forecast to see a 90% rise in earnings for the year, but will still make a loss of 5.1 cents per share. Meanwhile, revenue is expected to be 28% higher at $1.7 billion. A recent trading statement indicated that cash flows were on the rise again, helped by the relentless surge in oil prices. Full-year production also rose to 94,700 barrels a day, from over 70,000 in 2016. Thus the firms position is becoming more secure, with debt being steadily reduced to $3.5 billion, down $1.3 billion. At 13.7 times forward forecast earnings, it is well below its two-year average of 26.5 times, while half the analysts covering the firm have upgraded their price targets in the past month.
Since July, the share price has seen a steady progression of higher highs and higher lows, so if the shares, now currently oversold on a daily chart, can create a new higher low above the November nadir at 160p then the uptrend is intact. A recovery would target 216p, and then run into the short-term descending trendline from the January highs, with the 2018 peak at 236p above this.
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
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