Malcy's Oil Report - GENL, HTG, SOU, NOP, GLEN

6th Mar '15 by Malcolm Graham Wood

4 comments 10416 reads

WTI $50.76 -77c, Brent $60.48 -7c, Diff $9.72 +70c, NG $2.84 +7c

Oil price

Out in Glasgow yesterday so its a bit of a catch up today and with very little in the way of company announcements the market is very quiet. Yesterday saw the news from China that GDP growth was to be 'about' 7% this year after missing last years target by 0.1%, taking no risks here I see. February Opec output was 30.568m b/d with Saudi adding the little extra on the top.

Oil prices remain in a fairly narrow range and listless, this week WTI is up on the week, Brent down with Libya back up and then off and the EIA inventory stats showing a build of 10.3m barrels against the schoolboys consensus of 3.9m, actually schoolboys could forecast better… There has been some military escalation in northeast Iraq as IS appear to be losing ground, yesterday reports had it that they were setting fire to oil wells in Tikrit as they retreated.

Technically, oil is 'inside the cloud' as they say with Brent having support at $60.32 and resistance at $63.42, that is a narrow range, not quite what Glencore et al wanted…This afternoon we have Non-Farm Payrolls where expectations are for around 240/- (just in- they were 295/-) and of course the BH rig count…

Catching up…

Yesterday saw figures from Hunting which are fairly meaningless as even the last quarter of 2014 and the first of this year still show momentum, 2Q will be critical. I am seeing the company next week so will write up that after the meeting but the statement yesterday was more optimistic than analysts were expecting.

Also yesterday Genel reported and whose figures were equally meaningless, in with guidance but for this year with production up and prices down revenue guidance is for $350-400m against the historic $520m. More importantly the company has reiterated the view that payment from the Government will happen but it will take time, the pool however is smaller at $50 and there are many mouths to feed…

Northern Petroleum announced a farm-out to Shell in Italy which came out of the blue but no less welcome for it. After a disappointing performance recently in Canada I wasn't expecting such a deal but it is a life saver for Northern even if it is pretty skinny and they cant afford any overspend of…

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marben100

8th Mar '15

Personally, I'm surprised how sanguine the market's reaction to Hunting (LON:HTG) 's outlook statement, in their preliminary results, has been. Some key points:

"Over the last few years, a quiet revolution in North America has taken place which has reshaped the supply of hydrocarbons. Hydraulic fracturing (fracking) initially transformed the US natural gas market from a concerning deficit to an exportable abundance. Further advances in fracking and horizontal drilling have now made a positive impact on US oil production and coupled with global supplies, have created a temporary imbalance to the world's supply/demand curve.

Accordingly, oil prices have declined dramatically, and the global oil and gas industry is quickly resetting its expenditure and profitability expectations. Rig counts continue to decline each week with varying estimates of future levels. Operators initially set modest targets of contraction, but have escalated those reductions depending on their geographic focus, debt position and cost structure.

This rapid decline in industry expenditure and activity will inevitably feed through to our revenue and profitability levels for 2015...

...We do not know the length or depth of the industry contraction. We will however endeavour to provide updates more often than required regarding the activity and developments we see in the markets and clients we serve."

To paraphrase, this statement says to me: "we know things are going to be bad, but we don't know how bad."

My view, as expressed in my oil price thread, is that oil prices are likely to be lower for longer than most analysts are currently expecting, and that the slowdown in US drilling activity in particular is likely to be deeper and more long lasting than is currently expected. The impact on Hunting is likely to be particularly severe. I expect profit warnings and analyst downgrades to follow.

I look forward to Malcy's report on his meeting with Hunting management.

As a footnote, I observe that the latest BH figures show another steep drop in North American rigs last week, both oil & gas. US Oil rigs fell by 64, now standing at 922, vs a high of 1,601 last September. The combined oil & gas rig count is down from 1,931 to 1,192 over the same period. ISTM that a halving of activity (which I expect we'll reach within the next few weeks), combined with an intense price squeeze is very bad news for oil service companies.

Regards,

Mark

janebolacha

Mark, spot on!

The company is unable to give any profits guidance at all!
Surely that is the biggest red flag of all?

Malcolm Graham Wood

23rd Mar '15

Hi Mark
Thanks for those comments and I hope that you saw my Hunting update on Friday, there is no doubt that the company is not as bearish as some, I have just read the Canacord note for example, he sways towards your view.
I am trying to arrange a visit to the company's US operations at the moment.

Kind regards

Malcy

Hi Malcy,

Thanks for your response and for drawing my attention to your report of Friday, which I found interesting. As you say, definitely worth keeping an eye on and I would be interested in your findings, if you manage to visit the company.

Best regards,
Mark

Malcy's Oil Report - GENL, HTG, SOU, NOP, GLEN

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Malcolm Graham Wood

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