• WTI $34.57 -9c, Brent $37.07 +14c, Diff $2.50 +23c, NG $1.64 -4c


Oil price

Apologies for the stop-start nature of the blog this week, so many results meetings and presentations that also make catching up with writing up company visits, being delayed, will get easier after this, a bit…

The oil price will end the week up a couple of dollars barring disasters and the jobs data shouldn’t cause grief at around 195/- nor will the rig count. The latter may fall through 500 overall and 400 in oil, both Jay Cheatham and Dennis Proctor reckon that those numbers will be down to lows not seen for 45 years.

The story in oil is the same, horrible fundamentals shown by a really awful set of inventory stats of +10m and loaded up pretty much everywhere especially at Cushing. This must get worse as March and with an early Easter refineries will be planning their Spring maintenance programmes.

On the positive side the Nigerian minister has taken over from the Venezuelan in terms of rhetoric and has announced that the Opec/Non-Opec meeting will take place on March 20th in Russia. I’m not quite sure whether they were listening at the CERA conference but in words of very much one syllable Naimi made it plain that cuts were just not coming…Some bulls are still hanging on to the straw that is current supply disruption, fair enough and it may total as much as 1m b/d but is only temporary. Finally the forecasts of some really bad weather in the North East of the States so far hasn’t prompted any real pick up in product or NG prices.

Amerisur Resources

One of those meetings I mentioned was to visit Amerisur for their updated presentation, after recent good news on the OBA it was good to have an update, primarily from John Wardle of whom we see not enough for understandable reasons. Final environmental approval for the OBA was the ‘last lap’ of this game-changing project and work is now proceeding and it should be commissioned in April. Pipeline capacity is a minimum of 5/- b/d but receiving capacity is at least 11/- b/d, ultimately a lot more. The pipeline transforms the company’s economics by saving up to $11 a barrel in transportation costs, existing use of trucks will effectively cease. Using Platanillo crude first, the company hope to get up to around 7,200 b/d at the end of the year giving an average of around 5,300, this number maybe lower than some earlier projections but given the current oil price shut-in oil will be selectively brought back on. The company intend to allow third party crude to use the pipeline giving other local operators the chance to share in the cost savings, this is unlikely to be a tariff system but probably one in which AMER buys the crude, blends it and sells at the other end. Ultimately this will be a strategic, profitable asset in its own right.With the company having cut back its drilling activity last year, combined with a years production and low oil prices it is inevitable that reserves will be impacted when the powers that be complete their study at the end of this month. With a very high resource figure, in Colombia only, and the OBA lifting volumes, I am optimistic that before long the reserves number will start to rise again.

The balance sheet is strong enough, zero debt and an $80m RBL undrawn, with positive operational cash flow capital discipline is adhered to and only this is used for this years drilling programme. Apart from the OBA costs expect two Platanillo infill wells which are relatively inexpensive and pay back quickly, the long term testing at Coati and of course one well in Paraguay. Whilst this is clearly higher risk than the others, not drilling it would likely mean that the companies portfolio in that country would be lost. This is all funded at $35 oil and the production rates mentioned above.

Overall AMER is in a relatively strong position having taken some difficult decisions this time last year. The likely signing of a peace accord with the FARC, scheduled for March 23rd will hopefully make life easier although to be fair recently it hasn’t been a problem. Using the balance sheet for a couple of smart deals has meant that the company has added Putamayo-8 block near Platanillo and the Coati in the Putumayo basin plus a number of attractive potential plays for the medium and longer term. Overall the company is well positioned for potential growth while maintaining capital discipline and balance sheet strength.

Link to video of the pipeline being laid:

http://we.tl/xboye086om

Petroceltic

Two announcements in the last 48 hours concerning PCI and the Worldview bid situation. This morning Skye Investments announced that it would not accept for its 19.2% the WV offer of 3p a share which it says ‘significantly undervalues’ the company. This is the vehicle of Robert Adair and they say that they won’t consider further offers unless they are ‘significantly increased’. As the WV offer needed 90% it can be placed in the bin where it deserves to rest.The company’s announcement yesterday said that shareholders should do nothing until the financing was completed, at the same time saying that every avenue etc etc was being investigated.

Madagascar Oil- Nothing short of a scandal…

With MOIL drawing down its announced Tranche 1 facility the next step is inevitable, its listing on Aim will be cancelled. I have followed this one for a while and feel sorry for the management, particularly Gordon Stein and more recently Robert Estill who have worked tirelessly to make the project work. Although the current environment is particularly brutal to a project like this, a bit more support from some of its backers should have got it over the line. Instead, management and independent shareholders have been hung out to dry. For a company boasting 1 Nomad and financial advisor, 1 ‘strategic’ advisor and 2 joint brokers you might have thought that the combined brains trust in that lot might have avoided this shambles…

Sundry

Its been a bad week for Genel where it wrote down a billion dollars worth of assets and then announced losses of $1.2bn attributable to that and the low oil price. My record on this one is very poor but with production of 60-70/- b/d, a gas business on the way and cash in the bank, some will give it another go.

Not much more to add on Hunting but like the other service companies the market gave them the benefit of the doubt. Whilst it is premature to say that the worst is behind them, the company are still using cash flow to pay down debt and avoiding slashing margins on sales. As and when the market picks up one needs to hope that there is something on the shelf to sell, in Hunting’s case the significant investments of recent years should mean that they are the go-to supplier of quality kit. Shares are up from 270p to 427p this year, so some, like in other cases are giving the benefit of the doubt.

Nostra Terra has raised £350/- to ‘strengthen the balance sheet and appears to have a new broker on board, the recent deal looked smart to me but I dont get this at all.

And finally…

There has been little chance to comment on the goings on at the top of the Prem this week although the Foxes wouldnt have expected everyone down to the Hammers and Man U to fall away so conveniently. This weekend they go to the Hornets but tomorrow’s North London derby where Spurs host the Gooners will be jumping. No Peter Czech for 6 weeks though wont help. The Noisy Neighbours should get back on track as they host Villa, the Hammers go to the Toffees and the baggies host the Red Devils. Elsewhere Chelsea host Stoke, the HubCap Stealers go to the Eagles and in the R zone the Magpies must beat the Cherries or its big trouble, the Canaries go to the Swans and the Maccams are at the Saints.

It seems only five minutes ago that team GB won the Davis Cup but this weekend it starts all over again as we take on Japan in Birmingham.



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
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