WTI $55.10 -$1.61, Brent $59.25 -$1.24, Diff -$5.33 +96c, NG $2.29 -1c
Last week oil prices were up, not much but even Brent which rolled into the November contract just kept its head above water, not that can be said about August which lost about three bucks on the month. Tariffs were the problem on Friday as they were implemented by both sides although the rhetoric remains hopeful, as ever was.
Today is Labor Day in the USA which traditionally marks the end of the driving season and with it a significant change during the autumn for demand in product mix. With Hurricane Dorian now a Category 5 but avoiding the GoM and heading for Florida there will also be knock-on effects in demand in the very short term. Finally the Baker Hughes rig count last week showed a fall of 12 units overall to 904 and the same number in oil to 742.
A Lancaster EPS and Lincoln Crestal well operational update from Hurricane this morning. Today’s announcement on Lancaster shows the availability and production since first oil is ‘above guidance’ with an average production rate from first oil to August 17th of 14,400 b/d which equates to 1.2m barrels of oil sold. Production has been constrained by use of only one of two subsea flowlines during a ‘significant’ portion of that time as a result of operational necessity, limiting maximum production capacity and the company’s ability to carry out activities to increase their understanding of the reservoir’s performance.
Operations have recommenced with two flowlines but despite recent constraints the system availability, production and cash flow have been above the company’s guidance. With the next phase of commissioning over the coming months production and availability will be constrained as expected but overall will stay within prior guidance of 45% for Q3 and 65% for Q4 indicating 2H production of 11/- b/d. At this time, with the company continuing to carry out operational and reservoir testing it is unwise to extrapolate any one specific period of production, as indicated at the company’s Capital Markets Day.
Water cut continues to indicate the presence within expected ranges of stranded or perched water, with no indications of aquifer water, with production from only one flowline water cut cannot be cannot be attributed between two wells. Forward commissioning for the Lancaster EPS over the coming months will include fuel gas compressor commissioning to reduce long-term flaring levels and operational expenditure as well as produced water system commissioning activities and a return to dual flowline operations.
Finally the company has given the market some up to date news about the Lincoln Crestal well currently being drilled with Spirit Energy in the Greater Warwick area. The well has reached total depth of 1,780m TVDSS including a 720m horizontal section of the fractured basement reservoir and operations have moved on to preparations for a DST.
Catching up from last week as I was on the move a bit, including the Petrofac analysts meeting. The figures were pretty creditable under the circumstances, revenue of $2,821 ($2,785) with EBITDA of $305m ($334) giving net profit of $154m ($191m). The backlog is $8.6bn with $1.6bn of new awards and a second half pipeline of some $13bn to go for.
As expected there was some margin erosion, at 5.1% it was down 1.2 points with both E&C and Engineering and Production Services recording similar margin declines. As always the CFO is working hard on cash conversion and optimising working capital which is having a decent effect.
The SFO enquiry remains live and no charges have been brought against Petrofac or any officers or current employees, it has had an effect on business with both Saudi Arabian and Iraqi but the company maintains ‘excellent relationships’ in all markets. With the dividend maintained at 12.7c the company is ‘well positioned’ for the remainder of the year despite challenging markets and the company remains optimistic for the medium term, as do I.
Hunting also had results and a meeting last week at which they too were rather upbeat, revenue of $508.9m ($442.8), EBITDA of $77.4m ($72.6m) giving profits from operations of $55.6m ($53.5m) and diluted EPS of 23.6c (25c) and an increase in the divvi from 4c to 5c. The tax rate is up from 21% to 24% with full year guidance of 25%.
Hunting has kept a strong balance sheet with net cash of $80.5m being ear-marked for a number of potential acquisitions currently being looked at. The RTIES deal looks very neat and complementary to Hunting’s own and I think will turn out to be a real diamond for the portfolio.
The company is doing well in what are still fairly challenging markets with its ‘technology based product portfolio’ and is geographically well positioned in the US and internationally. This solid set of results with associated strong cash flows is doing well and even offsetting some margin slippage at Titan which is still the engine room of a very solid hi-tech business.
In the Prem Liverpool and the Noisy Neighbours both cruised wins, the shape of things to come most likely. Spurs, Gooners, Chelski and the Red Devils also drew leaving the Eagles in the Champions League position after an ‘ahem’ win against Villa with the Happy Hammers right on their tale.
On todays transfer deadline day, again it seems to be offloading to the European clubs day as the Gooners don’t take long to dispatch Henrikh Mkhitaryan to Roma and Utd send Darmian to Parma.
For the Old Trafford Test on Wednesday England have switched around Joe Denley and Jason Roy in another must win game.
Charles LeClerc won his firs F1 GP at Spa yesterday but in subdued circumstances after Saturday’s tragedy.
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