The Oil Man: Oil price, Onshore licences, Lamprell

WTI $34.95 -57c, Brent $37.18 -1c, Diff $2.23 +56c, NG $1.76 -4c

The last bit of data that came out of the inventory stats was the final nail in the coffin for oil prices, stocks at Cushing grew by 1.4 million barrels and what with the Gulf, stocks are just too high. In the next week or two any good news on inventories will be put down to refiners tax manipulation so if I were you I would take the Christmas break off, starting tonight.

With a strong dollar against almost anything there are few technicals to clutch at and the charts all look dreadful as well.

News in the natural gas market doesnt get any better either, last nights close was a 16 year low, remember back to March 1999 anybody?

Onshore licences

Yesterday the OGA awarded the second tranche of licences in the 14th round, the ultimate irony is that councils who are "facing billions of cuts" according to the FT are still planning to spend as much time and money as they can opposing something that ultimately could make them real money…

IGas won 10 new blocks and together with the first tranche now has 270/- acres, 162/- net. They will be in the East Midlands and Yorkshire with Total and Egdon, in the North West with GDF and have 100% of the conventional blocks awarded in the South East.

Egdon have 11 new blocks to add to the seven they got in the first tranche and now have 278/- acres in the East Midlands with various partners and in the Cleveland Basin.

Europa won three blocks in East Midlands one as operator which will complement their existing position.

The biggest winner, probably by dint of applying for almost everything, was Ineos who now claim to have rights over more than 1 million acres of land according to the FT.

Lamprell

A small group of analysts recently visited Lamprell at their Hamriyah and Jebel Ali facilities in the Gulf and were given presentations by the CEO, CFO, COO and CCO.

The first thing to notice is that the yards are full with work being done for a number of top level clients including NDC, ENSCO, Shelf, Noble and Chevron. Hamriyah is where the new build jackup rigs are constructed and there are two under way at present for delivery next year.

The first thing that one notices, having been here before, is just how the efficiency and productivity improvements have changed the yard. Operational excellence is to be seen in organisational streamlining and new kit such as semi-automatic welding and a 3D robotic cutting line. Engineers love cranes and there are new ones here and now even the power is coming in directly as opposed to by generators. In Jebel Ali Lamprell has a purpose built modern facility and is working for Exxon, Petrofac, Nexen, Conoco and Total in recent years.

Lamprell under Jim Moffat has come a long way and the company is concentrating on its key strengths of first class quality, reliability, highly skilled workforce and most importantly world class safety. Having got the finances under control the plan was to move up the quality ladder and concentrate on Tier 1 clients wherever possible and this has definitely paid off.

Lamprell is clearly aware of the competitive nature of the current market and has taken steps to diversify its product range as well as to operate in upstream, downstream and LNG markets which have significant total achievable global markets. This broadening of the addressable market is clear in the current order book as well as the current bidding pipeline and this extends over three years at present.

Despite the obvious slow-down in awards this year, and still being skewed towards jackups (40% of business but down from 60%) the company is doing well to moving from being just a fabricator to being properly into EPC. This is the strategy coming together and should reduce the risk profile and yet keep the order book healthy and the yards full. Geographically of course Lamprell has a very strong position in the Middle East, but this diversification in products, customers and new areas of operation will generate a better, diversified pipeline in the future.

Although it is by no means certain that the current oil price trauma will not create some order book problems for Lamprell they are approaching it from a position of strength. They continue to bid for large amounts of work in diversified parts of the global oil and gas market and with the recent operational performance going so well they will remain highly competitive, even at an advantage to most. This is demonstrated by the protection of margins and sound finances helped by project Evolution.

This was achieved by the rights issue and refinancing giving the company net cash of $316.3m at the interim stage, the $200m revolver may not even be used. Revenue coverage is also good, with the yards full, over 90% of 2015 and over 60% of 2016 is accounted for although 2016 may not be so 2nd half weighted.

There is no doubt that Lamprell is in a strong position but is not resting on its laurels, they are aware that if fewer orders or options are converted in the jackup market then they will have to find business elsewhere but it is clear from what I saw both in the yards and the boardrooms that they are fully aware of this potential problem. With the usual caveat about the market place I consider Lamprell to be in a very strong position and in the event of any pick up, particularly in the refurb or new build market the geared upside would be significant.

And finally…

So, the Special One finally becomes the Sacked One and Chels are on the lookout for a new manager, apparently a temp has been hired while they try to get Pep.

Chelski have the Maccams at home tomorrow, with or without a manager they would normally be banking those three points but should they not do so and with the Magpies playing Villa at home then the table will look most odd for Christmas. Elsewhere the big match is actually on Monday when the Gooners host the Noisy Neighbours, the other top of the table fixture sees the Foxes going to the Toffees. Man Who, still in fourth position despite all the LVG noise host the Canaries, the Saints entertain the Spurs, the HubCap Stealers are at the Hornets and the Eagles go to the Potteries. The Baggies have the Cherries round, and the happy Hammers are down at the Swans.

In rugby, Paul Gustard joins England as a coach, there are a lot of exciting stories about this guy… In the Euro Cup the best games look like the Saints v Racing, Bath v Wasps and Leicester v Munster.

And of course not to forget that its the Sports Personality of the Year on Sunday, only Muzza's to lose…

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.