Interactive Investor

The Oil Man: Rockhopper, Wood Group, Independent, Cairn

17th August 2016 14:36

Malcolm Graham-Wood from interactive investor

WTI $46.58 +84c, Brent $49.23 +88c, Diff -$2.65 +4c, NG $2.62 +3c

As promised, the participants in the "get the oil price up" story are toeing the line and yesterday Russian and OPEC "officials" met in Vienna to discuss the oil market. By adding almost another dollar, taking Brent close to the magical 50 bucks level and both crudes up nearly 20% so far this month, the job is working.

Elsewhere, normal influences on the oil price were decidedly complicated: the dollar fell until someone at the Fed suggested that September was still a possibility for a rate rise and, as for the American Petroleum Institute stats, well, "mixed" was not strong enough to explain why they were so odd.

With crude drawing against expectations of a build and gas and distillates adding over 2 million barrels each when expectations were for a draw in both categories, it was good that the market was closed; this morning both are down 40 cents. Let's see what the Energy Information Administration numbers bring tonight.

Independent Oil & Gas

Independent announces the results of its Skipper appraisal well this morning and the primary target, to ensure that oil already discovered was actually there, is deemed successful, indeed with better viscosity than expected.

It is now drilling down below Skipper to look at two exploration prospects whilst they are on site; watch this space…

Rockhopper Exploration

Yesterday Rockhopper announced the completion of the Beach Egypt acquisition already announced. The cost is $11.9 million (£9.1 million), all in cash, and it brings with it 1,100 barrels of oil equivalent per day (boe/d) taking group production up to 1,500-1,800 boe/d, thus substantially increasing revenues.

The recent exploration success adds around 2 million barrels of oil equivalent (boe) and brings the implied transaction multiple down from $2.7 boe to $2.4 boe, indeed that figure may already be lower than that.

With operating costs of <$8 boe the deal is smart and free cash flow positive at <$35 oil. For the group, guidance is that the balance sheet remains strong and by the year end there will be $60-70 million of cash and no debt.

For RKH, the establishment of a "Greater Mediterranean" strategy is being built diligently and I expect much more to come on this front. Accordingly, whilst there should be more news flow from this asset in coming months don't be surprised to see further deal flow as opportunities become available in North Africa, a very popular postcode at the moment.

Cairn/Far

I think I pretty much covered this one yesterday but the only thing that appeared to come out of the meeting Q&A was that management pretty much ruled out any raise at this time.

I am aware that with Catcher and Kraken coming onstream next year, bringing spare cash of around $100-150 million to the party, along with its strong cash and undrawn Reserves-based Lending, the company doesn't need any more, but I thought there might just be a temptation.

Cairn has been criticised for being conservative in terms of resource estimates, but it is aware that the risk of over-egging the pudding is a worse crime. It continues its policy of upward-only resources reviews, which I would imagine will be the case as long as it is the Operator - which itself depends on the completion of the Woodside transaction.

Meanwhile Far is strongly placed either way, if the Woodside deal completes it probably speeds up the process as alluded to by CNE yesterday as it announced a low cost development with swift move to Final Investment Decision and the glimpse of 120/- barrels per day - exciting times.

Wood Group - Pay up for quality, yes, but...

My invitation to the Wood analysts' presentation yesterday got lost in the post, but I got the message as the company elected to go for the "cautiously optimistic" stance at the presentation.

The day had started well with the announcement of a contract worth $700 million from Tengizchevroil in Kazakhstan and the order book being satisfactory. More important is the reorganisation, which is designed to take out costs by offering by service, not by brand, and for right or for wrong it means sustainable cost reductions.

I imagine that they will be ok with the guidance of only a 20% fall in earnings before interest, tax and amortisation, but there are signs of some margin erosion, which may be reversed especially as the rig count picks up.

The WG share price has defied gravity and is up 40% so far this year, putting the company on a fairly ritzy rating, which I can understand on the "pay up for quality" argument, and even the safe haven and guaranteed dividend front, but until there are firmer signs of an improvement in the marketplace, I think I would prefer others.

Sundry

I am waiting for a little message from Ithaca to say that the Eagle has landed, or at least that FPF-1 is safely moored at Stella, thus bringing the next stage of this process to an end - but so far nothing. Even my tracking device appears to have gone onto radio silence. I'm sure it is there, early this morning as expected…

And finally…

If you weren't absolutely certain, you might have dreamt it, as Team GB have another massive day at the Olympics. Yesterday was good in cycling as the last day in the velodrome yielded a hatful of medals - but also at the sailing, diving and again in the gymnastics.

With still more to come as a few brand names enter the stage, it looks good, although with so many empty seats…

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.