Malcy’s Blog – Oil price, Petrofac, Victoria Oil & Gas & finally

WTI $41.94 +72c, Brent $44.99 +59c, Diff -$3.05 -13c, NG $2.15 -8c

By Malcolm Graham-Wood

Oil price

Oil is continuing to rise gently, often the best way to do it, even so with the rise this morning shale producers in the US will be delighted to see WTI at $42.61. (Brent $45.53)

The big news this morning is that Russia has announced a breakthrough in the hunt for a vaccine, President Putin has also announced that his daughter has already taken it. Other news was also better, the US aid package is back on the agenda and economic news from the factory gate in China also looked better in July.

Finally, the Saudi Energy Minister said that he sees growth in Asian demand which confirms the above and the comments from Aramco yesterday also looked better for their long term markets. US airline stocks are flying on data showing that flight numbers are increasing dramatically, after August this should see further gains as reality takes over from the work from home easy life.

Indeed, surely after August is done and the holiday season is well and truly despatched and reality starts to take effect going back to work will become something less optional. This is the theory of ‘wage arbitrage’ where those who continue to ‘work’ from home will not be such a mollycoddled fraternity as bosses realise that those who are in the office are likely to receive more respect and those at home could be working from anywhere and probably much cheaper in the Sub-Continent…You pays your money and takes your choice….


Interims for PFC today and whilst obviously impacted by COVID-19 and the subsequent oil price collapse shows delivery of significant structural cost savings of c. $125m this year and up to $200m next year. Net profit of $28m gives a reported net loss of $78m and net debt is $29m which reflects the anticipated reversal of temporary favourable working capital movements at the end of 2019.

Order intake was $1bn in the ytd and the order book at the 30th June was $6.2bn This provides near-term revenue visibility, with US$1.7 billion scheduled for execution in the second half of 2020.

The Group has a busy tendering pipeline with around US$46 billion of opportunities scheduled for award by the end of 2021. Petrofac are actively bidding on several large opportunities and are as usual maintaining strict bidding discipline, they add that they are prudently assuming that capital discipline by clients will delay the majority of awards until 2021. Interestingly, whilst client cash flow may be slightly delayed, the company are at pains to point out that there are no issues with bad debts.

The  SFO operation is still underway, seemingly taking an age to process but there are signs that as and when it is closed there is further work for Petrofac, particularly in Saudi Arabia. The company are also very positive about their opportunities in renewable energy and have a number of options and markets in which to operate.

CEO Ayman Asfari was in my view remarkably upbeat in his comments with the results:

“Furthermore, our longer-term strategy has transformed Petrofac into a more resilient, capital light business with a strengthened balance sheet and a clear commitment to sustainability.  I am confident that this strategy and our actions best position Petrofac for the recovery when it occurs.  In the meantime, I want to thank all our people and suppliers for their hard-work, commitment and support in continuing to deliver best-in-class execution for our clients.”

The company is very well placed to take advantage of its strength in key markets and its ability to deliver particularly in the Middle East. The shares look very sound value to me at the 175p level.

Victoria Oil & Gas

VOG has announced that Rob Collins is taking up the role of CFO. I don’t normally comment on individual board appointments but I know Rob very well and his experience, especially having been a non-exec of VOG will be very helpful. I’m sure that he and Roy Kelly will be able to kick on now and continue in the months to come at VOG.

And finally…

Last night in the Boropa Cup the Red Devils reached the Semi-Finals by beating FC Copenhagen 1-0 after extra time. Tonight the Wolves are facing Sevilla in their Quarter-Final.

Malcolm Graham-Wood

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Disclaimer: Malcy’s Blog is provided for general information about the international oil and gas industry and the companies that operate within it. It does not constitute investment advice and Malcy does not buy or sell shares, warrants or bonds in any company written about within the blog. Information is taken from publicly available sources and any comment is that of the author who does not take any third party comment in the publication.

(The opinions expressed here are those of the author, a columnist for Share Talk.)

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