Interactive Investor

The Oil Man: Oil price, Amerisur, Lamprell, Tethys

12th October 2015 13:55

Malcolm Graham-Wood from interactive investor

WTI $49.63 +20c, Brent $52.65 -40c, Diff $3.02 -60c, NG $2.50 n/c

The oil price had a good week, WTI was up by $4.09 and Brent rose by $4.52 as conflicting stories on inventories and more positive noises from the conference in London boosted confidence. With Chinese holidays keeping some traders out of the markets the final hurrah for the week was another fall in the Baker Hughes rig count. The total number was down 14 to 795 and with oil units down 9 to 605 the rig market was at its lowest since 2010. The EIA were more positive in its STEO and later today we shall see what Opec is saying in its monthly, if it moves towards the bulls then the recent rally will have been justified.

Technically the crude charts are looking pretty positive as I have been talking about in the Brent breakout and at over $53 this morning that looks sound enough. If you want to look at some stock charts you should take a look at the US majors, XON, CVX and COP are all looking very interesting.

I wonder whether Jim Ratcliffe thinks that it may just be time to start picking up assets around these prices? It seems that he has relieved Mikhail Fridman of $750 million worth of gas fields in the North Sea and that despite saying that he thinks low oil prices "will be here for a while" has just scooped 8% of Britain's total gas output.

Finally the House voted 261-159 to overturn the crude export ban but I notice that guru Marcus Ashworth says today that ' the democrats will murder it in the Senate and Barry will veto it anyway'….

Amerisur Resources

Amerisur is in the bucket list and very much a preferred stock in the sector, I took some time out at the end of last week to hear the updated story from John Wardle and Nick Harrison. The background for AMER is of a very strong management team with a lot of focus on the ground, (JW doesnt spend very much time over here) and the way that they have built the business shows that. The company has strong positive operating cash flow and that was proved by the reorganisation earlier this year in the face of falling oil prices. I will talk later about the discipline of the company regarding spending guidance.

Operationally all eyes are obviously on the Ecuadorian pipeline interconnector (OBA) which is still expected to be up and running by the end of this year, when this happens it will cut OPEX substantially and diversifies export options significantly. The OBA is nearly finished, with just one environmental permit to come through on the Ecuadorian side, work has included upgrading the line for anti-corrosion with special coating thus extending the life of the pipe.

On the asset front CPO-5 is clearly "in the right neighbourhood" as the company says, with Loto-2 the most recent well at total depth (TD) despite having been hit by lightning on day 1 it made up the lost time. This asset was secured as part of the Petrodorado acquisition which is looking smarter every time I look at it. As part of that deal AMER have become operators, they have been proved to be able to drill wells more economically through very efficient operating procedures, previous costs of as much as $17m were brought down to an original estimate of $6m which now might be as low as $4m. Given that this well is at TD, logging and testing will be imminent and news before long I suspect.

When you look at the map in the presentation it shows just how prospective CPO-5 really might be, lying south of Llanos 34 it could easily be a new play type and if all connected up would keep the company busy for some time, I understand that there are as many as 19 prospects in 1,000km of modern data. If this well comes in, with so many such prospects the Petrodorado deal will indeed have been a 'no-brainer'.

On the financial side, as I said the moves the company made to offset the worst of the oil price fall earlier in the year have been a success, with lower production removing higher lifting and transfer costs and maintaining a year end cash position of $40-45m. Capex this year will have been around $43m which includes the OBA work, wells on CPO-5 and Platanillo and the seismic work on Put-12. On Platanillo it is worth remembering that cash operating and transportation costs fall from $27 p/b to approximately $$16 once the OBA is operational.On this front it is worth noting that other operators in the basin may also like to save $10 per barrel (p/b) not to have the hassle of trucking, bad weather security etc and may become customers, another 10,000 b/d at $10 p/b gives a nice annuity and thus serious added value to the OBA.

For 2016 the company guide that they will only spend free cash flow on subsurface risk, which is wise enough and with higher production guidance of around 8,000 b/d at say, $55 oil, gives capex of circa $45m. This covers at least nine wells targeting a billion barrels of reserves and is thus an exciting 2016 programme. Within that well programme are the Put 12 and Platanillo North wells, the CPO-5 drilling and one well in Paraguay which is potentially "transformational" acreage. Here there is the likelihood of a well on Jaguareté-1 where there is a resource estimate of 685m barrels. (Net unrisked management estimate)

This is only a part of what the company has planned and it is worth taking a look at the detailed presentation on the company's website. With cash in the bank, an undrawn RBL facility in place and careful conservation of cash, guidance about only spending free cash flow on drilling Amerisur looks well placed in current market conditions. Add to that upside on a number of fronts, things should turnout for the better again.

Lamprell

Whenever I see an RNS which starts with "Lamprell – Management changes" my blood runs cold, I am so used to seeing bad news that today was a pleasant surprise. It seems that Niall O'Connell has been promoted to COO having been VP Projects and VP and General Manager New build jackup rigs up until now. Niall has plenty of experience in the business with KBR and Cape in the Middle East so this looks like a sensible call. we may even be being warmed up for the new CEO, who knows? Still no signs of a visit to the 'new' Lamprell and the shares are steadfastly trying to get back to the highs of the summer.

Tethys Petroleum

Just the four announcements from Tethys this morning, pretty much par for the course as well. The news didnt look good as the company has not paid its bar bill at the Bokhtar PSC in either September or October and thus CNPC and Total have required Tethys to withdraw from the JOA. I am led to believe that this was of a 'procedural' nature only and that the a farm-down of its interests has been under discussion. Last week the Nostrum transaction didnt go through as 19.1% shareholder Pope AM had to and didnt agree, since then there have been overtures from Olisol and the return of AGR to the fray. As I understand it, despite the rather terminal wording of todays announcement abut bill paying, all is not completely lost. The board are apparently still in the "strategic process" and must be with two or even more interested parties one of which would mean a Papal conversion…

And finally…

And then there were 8, with the quarter final line up now concluded we wait until Saturday and Sunday for the next dose of action but it will be most exciting. Pool A was clearly going to be the group of death but few would have predicted that England would fold so spectacularly, leaving some difficult decisions about who to support…

A similar pattern has emerged with regard to the Euro 2016 football tournament but the names have been changed to protect the innocent. Through to the finals go England, Wales and Northern Ireland, the ROI lost to Poland last night and will have a two match play-off and Scotland can make alternative holiday arrangements. England play Lithuania in Vilnius tonight but with nothing resting on it a friendly it will be…

Domestically Big Sam has signed for the Maccams as predicted so the crowd will be looking up, not down for the ball in the rest of the season but still likely looking down the table. Elsewhere, word is that Brendan Rodgers is standing by to take over at the Villa where gilet boy is on a final warning…

In Sochi the race didnt turn out quite as expected, bar Lewis that is. Only lightly raced, the track was slippy and there were a number of crashes and Nico's accelerator failed, something we have suspected before but put down to Lewis being a better driver…Lots of chat about Red Bull and its engine supplier which adds spice to the team…

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.

 

 

Malcolm is a Founding Partner of HydroCarbon Capital, which provides independent advisory services to the Oil and Gas sector. He is a Director of the Maven Income and Growth VCT 4 PLC, a venture capital trust listed on the Premium segment of the main market of the London Stock Exchange.