Malcy’s Blog – Oil price, Reabold/Deltic, Echo, Trinity & finally

WTI $41.20 +91c, Brent $43.79 +89c, Diff -$2.59 -2c, NG $1.78 +3c

By Malcolm Graham-Wood

Oil price

The Opec+ JMMC came in almost exactly as I at least had expected with a confirmation of the unwind by 2m b/d from 9.7m b/d to 7.7m b/d  although this is slightly ameliorated by the addition of the ‘lax’ countries making that a realistic 8.1-8.3m b/d as we move through August and September. The KSA has made it perfectly clear that the 12m b/d 2H demand improvement should mean that this can be more than accommodated by the oil market.

Other news around the patch was good, Chinese economy growth of 3.2% helped as did the EIA inventory stats. They showed a crude draw of 7.5m barrels with gasoline stocks down 3.1m bbls on refinery capacity utilisation of 78.1% up 0.6%.

Reabold Resources/Deltic Energy

Yesterday Reabold announced that they were evaluating a possible all share offer for Deltic Energy worth 1.5 Reabold share for each Deltic share valuing them at £12.34m or 8p per share. This was a premium of 9.7% on the previous day and 16.8% over 3 months. Reabold stated in their statement that they were ‘only minded to proceed with the the offer’ if it was recommended by the Deltic board.

Interestingly Reabold said this ‘following initial conversations with a number of Deltic’s largest shareholders, Reabold had recently commenced preliminary discussions with Deltic to seek such a recommendation’. This clearly had little effect as Deltic returned and Reabold was disappointed to receive a letter from the Deltic Board in the afternoon unequivocally rejecting the Possible Offer.

The reason I say interestingly is that if you take a look at the Deltic shareholder list, with whom Reabold appears to have had conversations with, then they (Reabold) must have had some indication to give them hope.

Further comments by Deltic says all the usual stuff, an unsolicited and non-binding approach letter which they have ‘unequivocally’ rejected as it ‘does not place an appropriate value on Deltic’ ie no value on its significant non-cash assets ‘not least its share of two potentially high impact exploration wells with Shell’.

They also comment that the board does not believe there to be ‘strong rationale, common logic or sufficient operating synergies that would justify a combination of the two businesses’.

This is only the beginning of the jousting between two well managed companies in the sector and I look forward to hearing from both sides before assessing the situation. At first glance it looks insufficient to convince a Deltic shareholder that they should sell-out their management but Reabold must have had even a smidgen of incentive when they consulted them before going public. Let battle commence…

Echo Energy

Echo has announced that it has, with CGC, restructured at Tapi Aike ceasing pre-drill expenditure commitments with an option to re-enter the western cube of the licence at a later date. This saves $36,000 p.m. in operating costs whilst the cost of the option appears to be $339,000.

Martin Hull, CEO of Echo commented; ‘We are therefore delighted to have restructured our relationship with CGC which will enable us to sharpen our near term strategic focus on our low-risk production and substantial development and exploration opportunities at Santa Cruz Sur, while also streamlining our overall operational costs by eliminating immediate expenditure at Tapi Aike. It is important that we retain optionality and can, at the Company’s discretion, participate in the drilling of the next well at Tapi Aike should we elect to following assessment of the technical data and prevailing commercial circumstances.

Trinity Exploration & Production

A Q2 operating update from Trinity, production in 2Q was 3,272 bopd up 8.5% y/y and H1 was 3.282 up 9.1% y/y. With only 3 RCP’s and 17 workovers this is indeed as Chairman Bruce Dingwall says, ‘an incredible achievement, not to be underestimated’. Full year guidance is 3,100-3,300 bopd.

Cash is $19.7m and operating break-even of $21.60 is on target for the full year of $20.50 with Trinity’s ongoing war on costs.

Interestingly the company say that organic and inorganic growth is possible, their fcf means that the company is  ‘very well placed to grow our business both organically and via external opportunities’.

And finally…

The second test between England and the West Indies started at Old Trafford this morning and after a traditional Manchester rain delay the visitors won the toss and inserted England. As I write England are 95-3.

Last night in the Prem the Clarets drew 1-1 with Wolves, the Noisy Neighbours beat the Cherries 2-1, the Magpies lost 1-3 to Spurs and the Gooners beat the Champions 2-1.

Tonight the Toffees host Villa, the Blades go to the Foxes, the Eagles host the Red Devils and the Seagulls go to the Saints in the English Riviera derby.

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.

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