It was an interesting day yesterday whilst viewing a house to buy, it got me thinking. The vendor was an oil worker and had not had his contract renewed (yet) by the company. He works in the North Sea and is looking to move to America where he's been offered a contract (his hedge I assume). Anyway, despite wishing him the best for his future, one has to wonder with the current oil swell in supply whether a hedge is essential.
Oil to Saudi Arabia et al, is iron ore to Rio and BLT (BHP Billiton). I'll explain my belief very quickly...Saudi need the market share, they have financial commitments and leverage in the global play of economics if they maintain this. As such, with shale gas/oil at all time highs, Saudi like Rio/BLT are betting the higher cost producers will go out of business, suspend production at those prices.
The best estimates are around $63pb all in costs for Shale O&G, Ian's savvy on this so lets give him some credit. Unlike Rio & BLT, Saudi's bet is unlikely to pay off, more so assisting the sanctions against Russia and forcing them to raise taxes and stall their economy. So we'll assume Ian's estimates of a decline in shale of around 2Mbopd is needed to support anything above $100pb. It doesn't bode well for the leveraged producers at all whose finance costs are eating into margins never mind the oil performance (or lack of).
When considering the above, the largest importers are likely to benefit, China and India. One would be wise to consider some sort of exposure to Indian and Indonesian Oil refiners. Their markets are tightly controlled (exc. fraud haha), so with prices down there are likely to be limited/reduced under-recoveries and as such greater potential for profit. One would be wise to look at the longer-term average on oil, when this price drops below $90 expect a bounce, as the result will be the leverage producer has two options increase production (often not that easy) or scale back (easier). So with the longer term average of oil below $90 there should be more stability, as the short-term price will be sub $80. So plenty of trading opportunities!
With global oil and gas prices being absolutely irrelevant to Victoria Oil & Gas (VOG) due to their supply prices, its positive that they are nearing an end with their RSM Settlement Update. With the decision being absolutely final, what tactics can certain parties use now. VOG has great potential, its a shame the management history shows a lack of understanding and "learning" at the expense of the shareholders. Having recently trading VOG, one is looking for another entry point.
There's so much oil news I don't have time to cover here today, with Egdon Resources (EDR) Europa Oil & Gas (EOG) and Union Jack Oil plc UKOG coming up post their September announcement with further positives at Wressle. SLE (San Leone) & Serica Energy (SQZ) may finally have some support with the SM-1 well in the Sidi Moussa coming in positively but the wisdom of Genel's RNS urges a little more caution.
President Energy (PPC) having a very good oil discovery in Paraguayan Chaco. Expect great noise about the this...and no doubt some pushing on PPC. There's a significant number of shareholders underwater sub 32 pence (last placing in February). Could there be another? PPC is undervalued, and if it was not for certain management would out perform significantly, as such only higher risks monies are given exposure to this stock. For myself anything +30 pence will demand the capital is removed with the profit left to run.
No time either for the impact on Wolf Minerals (WLFE) Tungsten prices uncertainty and slowing of demand...this stock is not to be confused with Woulfe Mining that was/is listed on the Chittagong Stock Exchange which has caused significant frustration for one company attempting to buy the stock. Perhaps utilising an EPIC & Name policy will save 5 months of anguish for a certain red faced trader last week! It beggars belief that it takes yours truly to point out the obvious issues, never mind why a certain individual is allowed to tie his own shoelaces!
Closing positions on Premier Foods (PFD) today, as the market appears to know more than I...currently.
Atb Fraser
Atb; do you think the decrease in oil prices is why Modi (Indian Gov) have removed the subsidy on Diesel ?
ReplyDeleteSull24
Hi Sull24,
ReplyDeleteAtb stands for All the Best. Name's Fraser.
The Indian, Indonesian and Thailand Governments have got the perfect storm in which to end (reduce) their subsidies, shrink deficits and encourage investment in oil/gas. There won't be a better time in which to remove the government assistance programmes and then blame the wider global economics than the government policies.
Initially the impact is unlikely to stall economies and potentially benefit them in the short term, as decline increase there could be further issues for countries such as France and Spain. America could have the biggest impact with small scale producers with low production that would become uneconomic at sub 75$/pb.
Atb Fraser
Fraser- Hi- busy morning but some nice updates overnight.
ReplyDeleteRe PPC- they are v highly geared to exploration success, with the existing prod business only worth around 8p in my books. So they did need to get oil or gas from one of their first three Paraguayan Pirity plays, which between them had a risked value of 98p between them, based on a CoS of close to 10% for each drill. The derisked values of P50 estimates are £6.55 here, so a lot to play for.
What does todays update say?-- its all very interesting, but too earlier for them or me to use the key word "commercial" in a definite form, but they used the term "expected to be commercial" which is v v positive on this type of first shows update imo. The finds so far don't match the original targets, which is again interesting, but a 4 way dip in a 25km2 area is v large so I can see the results being well ahead of expectation in due course. We havent seen them hit the Santa Rosa target level yet, so this is still 6 weeks or so away. And then they complete the Jacaranda well, going back and a few hundred metres or so deeper. At 30p they are back to where they were before the J spud a few months ago-- is that fair? Well $100/barrel oil is now $80/barrel oil so the value is eroded re any discovery, but its onshore, they own 64% and the production costs will be low and they should be able to sell it all in the local market as Paraguay has no oil production at present. They have talked about 2015 production, which is doable, and my fair value moved up to £1.03 today, based on reduced risk %s.
I haven't sold any yet, but it isn't in my top 20 holdings. The surge this am was mainly day trading, which will peter out and the share price will hinge on the Santa Rosa updates and the flow tests re todays discovery. Im patient and will wait for a fairer price. Lets see.
Cheers. The Leggie
Evening Leggie, a long day for me with a fair bit of travelling this PM! Alas the inconvenience of work! One thing president have an issue with is "cashflow" which needs rectifying. The SP will be suppressed (IMO) by any risks of a fundraiser. Personally PPC is an avoid until clarity on their financing. They raised recently to pay for all this, will the SP appreciate enough to raise more. I doubt it, PI's are getting savvy to it! For me there is now capital risk whatsoever, so patience and a longer-term game for me there! If it declines too much I'll revisit!
DeleteCheers! Fraser.