WTI $16.50 +$2.72, Brent $21.33 +96c, Diff -$4.83 -$1.71, NG $1.82 -12c
By Malcolm Graham-Wood
Oil price- TWTWTW
Readers of a certain age will remember a radio show called That Was The Week That Was, if ever a week in the oil markets can be summed up in one phrase this is it. Much has been written about the week we are ending including me, after this run through of today’s news I am going to quote in full the EIA statement which might just help a bit.
Oil has rallied, surprise surprise, after my comments in the last two days, the only thing that was different was that it was Kuwait who came forward first, expect more to follow, both WTI and Brent will still be around $7 down on the week. The only other feature was an upgrade in the tension between the US and Iran, with President Trump, whilst not upgrading warfare status ‘reminded’ Iran of its firepower and in reply the Iranian Chief threatened to ‘blow the US warships out of the water’. Nuff said. Before leaving this to the EIA the other comment from them should be the US production data which shows that it fell by 900,000 b/d in the last month to 12.2m b/d so my forecast for the year is almost done…Here is the EIA on the week.
WTI crude oil futures prices fell below zero because of low liquidity and limited available storage
On Monday, April 20, 2020, New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) crude oil front-month futures prices fell below zero dollars per barrel (b)—at one point, trading at -$40.32/b and remained below zero for part of the following trading day. Monday marked the first time the price for the WTI futures contract fell below zero since trading began in 1983. Negative prices in commodity markets are very rare, but when they occur they typically indicate high transactions costs and significant infrastructure constraints. In this case, the WTI front-month futures contract was for May 2020 delivery, and the contract was set to expire on April 21, 2020. Market participants that hold WTI futures contracts to expiration must take physical delivery of WTI crude oil in Cushing, Oklahoma. Typically, most market participants close any futures contracts ahead of expiration through cash settlement in order to avoid taking physical delivery, and only about 1% of contracts are physically settled. The extreme market events of April 20 and April 21 were driven by several factors, including the inability of contract holders to find other market participants to sell the futures contracts. In addition, in this case, the scarcity of available crude oil storage meant several market participants could not take physical delivery at expiration and resorted to selling their futures contracts at negative prices, in effect paying a counterparty to take hold of the contracts.
Having heard so much lately, as with other companies, WRL has not had much to add to the finals announcement. Production averaged 70.3 MMscf/d in line with guidance with capacity increasing to 100 MMscf/d and 2020 guidance still at 65-75 MMscf/d and operational cost of production at $0.69/mcf.
Revenues were $18.6m underpinned by long term fixed price contracts with Adjusted EBITDAX of $8.8m (8.3) ex $1m non-recurring expenses. A second dividend (paid rather than a final to go before AGM) of 0.9p per share gives an annual yield of 7.2%.
Wentworth has a share of gross 2P reserves of 95.1 Bcf with a post tax NPV of $118.6m, it has cash of $14m and no debt and as for receivables TPDC receivables are now the lowest since first production, standing at two months at end of 2019 and one month at end of March 2020. Given its strong position in all these parameters WRL looks to be highly defensive in these markets but with the ability to move on pretty much any front, flexibility which will be envied around the market.
The Sobhi well discovery at South Disouq shows a likely flow rate of c. 10-12 MMscf/d and will be tied in in 2021 via a 5.8km pipeline to the Ibn Yunus-1X and thence a flow line to the Central Processing facility at South Disouq. The management of SDX should be given great credit for taking this on their own and now have the best of both worlds from its ‘partner’.
Apologies that comments on JSE didnt make yesterday’s blog, it was the day from hell with no inbound data until pm and after all the conference calls and dealing with Fasthosts….I was up and running.
I needn’t have worried about JSE though as they delivered the goods in line with most of the information already being in the market. Production of 13,531 b/d and guided down 10% to 12-14/- b/d for this year with realisations of $69.07 gave revenue of $325.4m with operating cash generation of $177m and capex down as already announced. Guidance for production this year is down 10% due to a deferred drilling programme, shows how conservative the company can be. This gives cash of $40.3m at year end and at end March of $72.1m and the company reported a creditable 20% reduction in unit operating costs.
Paul Blakeley, President and CEO quite rightly called 2019 a ‘transformational year overshadowed’ which it was and why comparatives are to a large extent meaningless. The ability to defer a full 80% of capital spending due to the delay opportunity offered in Vietnam was a fantastic break duly taken and might just be perfect a year later. The long term strategy for Jadestone leaves it well positioned for organic and inorganic growth and the management and operational teams are of a very high grade indeed.
This is proven by the way that the Stag and Montara fields were brought into the company and how the Maari project was taken on board late in 2019. The balance sheet remains strong and has grown significantly as seen in the $120m of cash in March, includes a $10m bank guarantee with remaining debt of $37m. I remain of the view that pretty much whatever happens in world oil markets Jadestone will be front and centre.
I watched as CEO Tony Durrant went on the TV last night at cocktail time to chat about the current state of affairs but to be frank he was unable to really open up, nor would you expect him to on Proactive Investors. It was a polished performance and the operational situation is still very good but the shares are dominated by the imminent court judgement in Edinburgh, the debt deal required to close the BP deal and what the short position is going to do to the company.
Expect something from the Court in the next few days which will make it easier to judge the next few months which are going to be vital. What is not going to happen at the moment is Sea Lion development which is ready to go and will undoubtedly happen at some stage but needs $40 oil to move the project although I expect costs to be falling sharply here. Mexico is also waiting and may be a while if you need to take a view on the sale process.
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