Interactive Investor

The Oil Man: Amec Foster Wheeler, Sound, Ophir

WTI $38.29 +$1.79, Brent $41.07 +1.07, Diff $2.78 -37c, NG $1.75 +4c

The one thing about market bulls are that they are totally consistent, i.e. they can find a silver lining in almost any cloud. Yesterday's Energy Information Administration inventory stats were a perfect case in point; stocks built by another nearly 4 million barrels and were at all-time highs pretty much everywhere - well higher than the scribbling kids had been expecting.

But no, this is time to look at the product numbers - and why? Because gasoline drew 4.5 million barrels and distillates 1.1 million, which trumps the crude number convincingly on overall stock numbers. With demand for gasoline growing, despite pump prices rising in the last fortnight and refinery utilisation rates actually going up too, this was too good a straw to remain unclutched.

Today is "Draghi day", as Europe decides quite how much more money to pump into the system - as if that helped…

The meeting of Latin American oil producers scheduled for tomorrow has been postponed, as not all participants could make the date; must have something more important than oil on their minds, I suppose - not so if you take a quick shimmy at the balance of payments, I would have thought…

Amec Foster Wheeler

Amec has produced a pretty creditable set of numbers under the circumstances and 2015 came in in line with guidance given last November.

Some confidence in this year's earnings is shown by the order book; at £6.6 billion, it is higher than expected and covers revenue for a good part of this year, thereby enabling payment of a 14.2p dividend. It is also is not so concentrated on upstream oil and gas as it used to be.

In this market, an "old Amec" order book focusing on upstream is not as valuable as Foster Wheeler work, which is described by the company as being at the opposite end of the spectrum. This is downstream and petrochemicals, solar and government work; as a result guidance is for only a modest decline at this stage of the year - indeed, only one of the company's top ten orders is in upstream.

The debt position has been one of the biggest problems recently and the year end net debt figure of only £964 million was a very pleasant surprise; guidance was nearer £1.1 billion.

It's a shame Amec's acting CEO hasn't thrown his hat in the ring, but history will reflect very well on his leadershipThe target is to halve this number through a combination of free cash flow and disposals; the net debt/earnings before interest, tax, depreciation and amortisation ratio does not threaten covenants of 3.75x, last year was 2.4x.

The recent refinancing, in which the company set up a £1.7 billion facility, means an equity issue is effectively out of the question and gives "headroom and three years of stability". On the disposals front, the company has identified a number of non-core businesses, headed by GPG (I have a fairly modest expectation here of around £250 million, but the CEO told me that he would sell and have AMFW keep the asbestos liability to ensure a sale proceeds).

Overall, Amec is, rather like a number of oilfield service companies, hanging on in there better than expected. With net debt falling, fewer upstream contracts and reliance on long term framework agreements replaced by relationships built on performance, the outlook is looking better.

The company's "more for less" campaign, whereby more off-the-shelf, lower-cost solutions with "fewer fancy bits" are common, is paying off, particularly in areas such as the North Sea.

The shares, at almost 500p, have performed very strongly - as with their peer group - and are up almost exactly 50% from the 327p low of less than a month ago. This may limit much further strength in the short term, but recent activity certainly gives one confidence going forward. It's a shame, really, that the acting CEO hasn't thrown his hat in the ring, but history will reflect very well on his leadership.

Sound Energy

More activity to report from Sound Energy this morning, this time back in Morocco. The signature on a binding agreement with PetroMaroc for Sidi Moktar has been followed almost immediately by Heads of Agreement for a farm-out of part of their stake to Culebra Petroleum Ltd.

As a result, Sound will retain 25% of Sidi Moktar, with an $18 million (£13 million) work programme by Culebra, carry to Sound of up to $4.5 million and a $6 million cash payment to fund their "counter cyclical growth strategy".

Culebra is an established, Guernsey-based, privately owned oil and gas company advised by Comet and Lyndisfarne Partners. Comet's team are well known industry experts in North Africa, strong on technical expertise, and will be first-rate partners with Sound. I suspect that this will not be the only activity in North Africa; the region has many mergers and acquisitions going on, in a number of guises.

Sound management are getting a record for finding good quality assets and de-risking them with imaginative deals, of which this is a perfect example. In Culebra, or more particularly Comet, they have a highly regarded partner; this may not be the last deal these do together, either.

Over the next few months, Sound shareholders will have a number of interesting wells to watch out for in different geographies, without any of them risking what has already been built up.

Ophir Energy

Ophir has reported losses of $376 million after impairments of $169 million and exploration write-offs of $149 million; unfortunately, this is rather par for the course.

The company report a significantly reduced cost base after Salamander synergies are taken into account. The good news is that the Fortuna project is likely to go ahead, with Final Investment Decision expected in the middle of this year.

Last year was a bad year with the drill bit; it needs to get better soon, as production is falling; last year's number was 13/- barrels per day (b/d) but guidance for this year is 10.5-11/- b/d.

Operational expenditure is low, at $15 a barrel, and the company is financially sound, with net cash of $355 million.

And finally…

Chelski bowed out of the Champions League last night after losing both legs against PSG - just the FA Cup to concentrate on now, then…

Tonight it's the Boropa Cup; Spurs go to Borussia Dortmund, whilst the Red Devils go to Anfield to play the HubCap Stealers.

And the World T20 is well underway, with Scotland already at the airport waiting for a flight home after losing to the Zimmers…

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.