Enquest delivers first oil from Kraken

That’s one massive project with massive risk delivered on time and under budget. It’s been a while since the North Sea has seen a development of this size brought online by a smaller mid tier player. Well done to all the Enquest team for not only delivering on this project but by also ensuring the company had a footing to surivive through the tough periods of lower PoO.

At 32p, this is a decent 20p off where most would have expected the share to be based on derisking a project of this size. Granted, PoO has wobbled and the glut has taken longer than expected and finally sentiment has dipped. But it’s events like these today that makes you marvel at the commitment of some of these companies. The unwavering confidence and determination to make tough projects work.

At full pelt, Kraken should be knocking out around 50kbopd. For the moment, I suspect it is more likely to be doing around 10kbopd. Enquest will bring all wells online in an orderly fashion and no doubt there will be some minor operational issues to iron out as the development builds into 2018.

This development is a lifesaver for Enquest and also for UK Oil &Gas. Later this year, Premier Oil is due to bring Catcher field online and hopefully Hurricance Energy will sign a deal soon to bring the EPS on the Lancaster Field into action in H2 2019. This is all against a very poor PoO backdrop and one would hope that as the Saudi’s head towards their own big event in the Aramco IPO, that PoO is nearer $60pb. If or when PoO does get back to $60pb or more, Enquest should be creaming it in.

Today is without a doubt ‘one in the eye’ for the doubters. And at 32p, Enquest is priced for the doubters and not for the believers.

Enquest is part of thesharehub top ten for 2017

Tullow – Cheap Cheap!

Tullow has certainly seen its fair share of shorting interest. The Stock is currently heavily shorted with over 11% of float being short. That’s a rather large number and all those involved are adding to shorts at a time when PoO is at yearly lows. However, it was larger some weeks ago at 15%+ and many have closed out.  Smart move if as many suggest PoO does strengthen in H2, as Tullow will surely rise with PoO leaving many shorters exposed to any spikes in the upside.  The company is set to issue a trading update on June 28th (next week) and this will hopefully provide investors with a better idea of the business rather than the shorters manufactured share price as an indicator.

As with many stocks that are heavily shorted, a sharp spike to the upside often occurs when stocks get oversold and shorters close out.

The share price has been shorted more heavily with more weight added over the last few days which suggests those involved are trying their best to lower price. Based on these weights you would normally expect the price to lower at a quicker pace but buyers are entering the market and making the shorters lives a little more tricky.

Assuming good news via Trading Update arrives next week and PoO has the oversold bounce that most expect, it could present a decent recovery bounce for the stock.

Currently broker recommendations are all in or around the 200p to 300p level. You’ll be hard pushed to find a broker target that is at 150p or below which begs the question… why is Tullow at 145p so cheap cheap?

Some Broker recs below, RBC have issued a note this morning with a 200p target.

Tullows current sp at time of writing… 145p.

It would not surprise me on bit if this did a u-turn back to 160p to 170p levels ahead of Trading Update on June 28th… based on short closing alone!

Short positions & Broker recs below:

Fund manager % short Change Date changed/created
AHL Partners LLP 1.20% ↑ 0.10% 2017-06-20
Capital Fund Management SA 0.71% ↑ 0.10% 2017-06-19
Citadel Advisors II LLC 0.75% ↓ -0.05% 2017-06-16
Key Group Holdings (Cayman), Ltd 2.03% ↑ 0.08% 2017-06-07
Marshall Wace LLP 1.87% ↓ -0.04% 2017-06-16
Millennium International Management LP 1.05% ↓ -0.11% 2017-06-16
ODEY ASSET MANAGEMENT LLP 1.71% ↑ 0.05% 2017-06-15
Oxford Asset Management 0.60% 2017-05-31
Systematica Investments Limited 0.69% ↓ -0.01% 2017-06-20
WorldQuant, LLC 0.71% ↑ 0.04% 2017-06-09
Total 11.32%
Broker Recommendations for Tullow Oil (TLW)
Date Broker Rating Old Target New Target Change
13-Jun-17 Barclays Overweight 220.00 Reiteration
07-Jun-17 Barclays Overweight 220.00 Restart Coverage
18-May-17 Canaccord Genuity Hold 210.00 200.00 Reiteration
18-May-17 Deutsche Buy 270.00 260.00 Reiteration
17-May-17 Jefferies Buy 270.00 250.00 Reiteration
17-May-17 JP Morgan Cazenove Overweight 270.00 245.00 Reiteration
07-Apr-17 UBS Neutral 222.00 205.00 Reiteration
27-Mar-17 Goldman Sachs Neutral 207.40 200.60 Upgrade
23-Mar-17 RBC Capital Markets sector perform 400.00 275.00 Downgrade
22-Mar-17 Canaccord Genuity Hold 275.00 210.00 Reiteration
22-Mar-17 Numis Securities Add 225.00 Reiteration
21-Mar-17 Deutsche Buy 330.00 270.00 Upgrade
10-Mar-17 Numis Securities Add 285.00 Upgrade
21-Feb-17 Canaccord Genuity Hold 265.00 275.00 Upgrade
20-Feb-17 Jefferies Buy 260.00 340.00 Upgrade

Imagination Technologies – One to watch

Prior to yesterday’s ‘up for sale’ announcement, Imagination Technologies was seeing a great deal of shorters interest via various hedge fund / basement style offices.

As seen below, (2 to 3 days old) positions were being added in the 100p to 110p range.

I doubt very much these ‘shorters’ were banking on IMG putting up the forsale sign and should apple or a large player step forward and swoop the entire business, my guess is that these shorters will be fried.

IMG is not a stock that has a huge amount of float. Apple own a large stake as do many II’s. Getting hold of stock is not easy when dealing in large orders.

Hence, it will be interesting to see the below shorts wind down or wind up as they seek to manage their exposure.

Arm Holdings went for £24bln and was seen very much the daddy of the chip world. Whilst IMG is some distance from ARM’s chip domination, the company does have IP which many Apple competitors would love to get their hands on.

Apple may just decide that taking IMG out and off the market is the best way to secure their product advantages/IP. May the game commence…

Based on previous valuations of the IMG business, an approach close to 250p to 300p might be acceptable. That’s double the current sp and potentially double or triple trouble ahead for the casino style shorters.

Not without risk of course, but with a short squeeze likely, I suspect this one will continue to soar higher. The question everyone should be asking is just how much does Apple really care about their IMG’s IP which their business has used for years?

Is a bidding war  inevitable or does Apple say enough is enough and nips this in a bud with an offer that cannot be trumped?

Current IMG share price 146.5p

0.5% short positions or above… (3 days old)

Algert Global LLC 0.71% ↑ 0.08% 2017-04-28
Caxton International Limited 0.53% ↓ -0.17% 2017-05-05
GSA Capital Partners LLP 1.58% ↓ -0.03% 2017-06-20
Garelick Capital Partners, LP 1.62% 2017-04-11
Marshall Wace LLP 0.74% ↑ 0.12% 2017-06-16
Numeric Investors LLC 0.74% ↑ 0.24% 2017-06-20

Faroe ops update

That’s a terrific ops update. Not many E&P’s out there in the small to mid caps that are making money let alone are debt free. Faroe is without a doubt one of the highest quality outfits out there today. The irony is… it’s loved by II’s but not by the Pi herds. Volume is often low and tends to come in higher when ii’s add. Delek recently bought an extra 5m share block bringing their total up to 15.1% of float. If they continue to add to their holding and make a bid for Faroe, it will be a crying shame in my opinion. Faroe are a company that are heading for 40kbopd within 5 years. They currently have roughly over a 3rd of that coming in at present (15kbopd). The portfolio is littered with resources both 2p and 2c. It woud not surprise me one bit to see Delek take Faroe out – possibly down the aggressive route which would be a change from their approach on Ithaca Deal. Some might point to the fact that Delek already have a decent staff base in tact with Ithaca and if FPM directors do not want to play ball, then they can be dispatched? Blending Ithaca’s business with Faroe’s business would certainly reduce staff costs and provide greater savings. One hopes that when an offer comes – II’s stand firm over any low ball offers. A benchmark of note would be the share placing done with II’s in July last year which was achieved at 70p. Delek will know that offers near 144p or 150p will look attractive particularly to those II’s. Delek’s 15% holding has been acquired to date at a price of 88p (approx). When they acquired Ithaca stock – it was at a price of 53p. Delek’s final purchase price of Ithaca was 120p or circa 110p taking exchange rates into account post Brexit.

There is clearly a trend/pattern there to be watched. Faroe management can’t do much more than they have already. The business performance is incredible and production numbers maintained at the highest levels. Exploration has gone well and the DST results due in next few days. The exploration does not stop there. They have announced today a couple of new wells planned towards end of 2017/start of 2018. The question is… will Faroe still be in shareholders hands then?

I suspect, by the time the PI herd arrives, the price will be passed 120p+.

Faroe is part of thesharehub top ten for 2017. Current share price 89.5p.

Today’s update below:

2017 Annual General Meeting Operational Update

Faroe Petroleum, the independent oil and gas company focusing principally on exploration, appraisal and production opportunities in Norway, the UK and Atlantic Margin, is pleased to provide an operational update ahead of its Annual General Meeting later today.

HIGHLIGHTS

Production

  • Strong Production: averaged 15,100 boepd for the period from 1 January to 31 May 2017

Finances and balance sheet

  • Cash increased:  to £113.8 million (unaudited) at 19 June 2017 from £96.8 million 31 December 2016
  • Undrawn RBL facility:  Faroe has an undrawn reserves based lending  credit facility (“RBL”) of $250 million (plus $100 million accordion)

Development and projects

  • Oda PDO approved: Plan for the Development and Operation (“PDO”)  for Oda approved by the Norwegian Ministry of Petroleum triggering cash compensation payments to Faroe estimated to be £14 million net in 2017 and 2018
  • Njord Future and Bauge PDOs: PDO approval from the Norwegian Ministry of Petroleum expected shortly; projects progressing to plan
  • Tambar infill and gas lift project on track: in-fill drilling and gas lift installation project was approved in March; main contracts awarded and the project is underway to boost production from 2018 onwards
  • Brage infill drilling underway: the drilling of the first of two production wells has commenced

Exploration and appraisal

  • Brasse appraisal progressing well: drill stem production test underway and results expected shortly
  • Two additional E&A wells committed: drilling programme progressing / developing with two new E&A wells, both benefit from 78% Norwegian tax rebate
    • Goanna exploration well committed with full carry to Faroe at 30% WI (“Working Interest”): committed to drill the Goanna exploration well; spud expected Q4 2017
    • Fogelberg appraisal well committed: appraisal well to be drilled on Fogelberg with 33% WI; spud expected late 2017 or early 2018
  • East Corrib farm out for full carry at 20% WI:  Irish Ministerial approval granted for a farmout to Nexen of licence 16/23, West of Ireland

Production

Group production averaged approximately 15,100 boepd in the period from 1 January to 31 May 2017, with better than forecast performance from the main producing fields in the portfolio.  The average operating cost per barrel of oil equivalent for producing fields for the same period was approximately US$25.
Average production guidance for the year remains at 13,000 to 15,000 boepd reflecting various forecast shutdowns to enable production enhancing work to be undertaken.   A review of this guidance will be undertaken following the summer maintenance period.

Finances and balance sheet

Cash:  cash increased to £113.8 million (unaudited) at 19 June 2017 from £96.8 million at 31 December 2016.

Credit facilities: other than the revolving Norwegian credit facility, funded by the tax rebate, Faroe remains debt-free:  Faroe has an undrawn RBL credit facility of $250 million plus a $100 million accordion.

Committed projects financed: prudent financial management combined with strong production and improved commodity prices ensures that the Company remains fully financed for its committed projects.

Development and projects

Oda: in May 2017, the Partners in the Oda development received PDO approval of the Oda field (licence PL 405) from the Norwegian Ministry of Petroleum and Energy.  The Oda field (Faroe 15%) in the Norwegian North Sea, will be developed via a four-slot seabed template with two production wells, and one water injection well, which will tie back to the Ula platform (Faroe 20%), located approximately 13 kilometres to the east.

The Oda subsea tie-in will connect to the existing pipeline between Oselvar (Faroe 55% and operator) and Ula and reuse the existing Oselvar facilities at the Ula platform.  Production from Oselvar is scheduled to cease in 2018 to allow the Oda tie in works to be undertaken and the Oselvar owners will be financially compensated accordingly.  The net compensation payment to Faroe as an Oselvar and Ula joint venture partner, is estimated to be approximately £14 million due to Faroe in 2017 & 2018 (this takes into account the payment it makes as an Oda joint venture partner and the final tariff compensation payable to Ula).  An initial payment to Faroe of £7.4 million is due later this month.

Njord and Bauge: approval of the PDO for the Njord Future Project and Bauge field (Faroe 7.5%) is expected shortly from the Norwegian Ministry of Petroleum and Energy.  In the meantime the works on the Njord A Facility in the Stord dry dock are continuing on time and on budget, with the pre-fabrication of new pontoons progressing on schedule.  In parallel, the project to refurbish the Njord B storage tanker is also progressing to plan.  The planning for the Bauge subsea tie-back continues with the finalisation of the contract strategy for project execution.

Tambar infill and gas lift project: in-fill drilling and gas lift installation project, to boost production from 2018 onwards, is now underway and on track.  The main scope for this project is the installation of gas lift for up to five wells, and the drilling of two infill wells.  The installation of gas lift is expected to allow for long term robust flow rates as water cut starts to increase.  The Mærsk Interceptor rig will arrive on location between October and December 2017 to be used to drill the infill wells and provide accommodation.

Brage infill drilling: the Brage drilling rig has been remobilised as planned for the drilling of three wells, with one producer-injector pair in the Statfjord horizon and one producer in the Fensfjord. The first Statfjord producer is scheduled to come on stream in September.  Continued further infill drilling beyond the current three wells will be subject to the results from the ongoing drilling campaign.

Exploration and appraisal

Brasse: Licence PL740/B (Faroe 50% and operator) – following the successful appraisal well results announced last week,  the Drill Stem Test (“DST”) is now underway to provide further confirmation of well productivity, investigation of reservoir distribution and important additional information for development project planning.  The results are expected shortly together with a decision on the commitment of a side-track.

Goanna: Licence PL881 (Faroe 30%) was awarded in February 2017 as part of the APA16 licence round and is operated by Wellesley Petroleum (70%). The Goanna licence is located in the Northern North Sea, near the border with the UK and east of the very large producing Statfjord and Snorre fields, which offer the potential for alternative export routes upon success.  The Goanna prospect straddles the border between PL881 and PL037, the Statfjord group. The PL881 joint venture expects to drill a well on this licence in Q4 2017 targeting a structural and stratigraphic prospect of Upper Jurassic age sandstones, using the Deepsea Bergen rig on favourable market rates.  Faroe’s associated costs of drilling this well will be fully carried at 30% WI by its joint venture partner up to the budgeted dry hole cost.

Fogelberg: In February 2017, the PL422 joint venture was awarded a licence extension with a deadline to submit a PDO by July 2019.  To make sure a robust development plan can be proposed with a well justified 2P reserves base and production profile, and before committing to the Front End Engineering and Design (FEED) project, the licence group has committed to drill an appraisal well.  The well will be drilled in a down-dip location with the objective of adding additional 2P reserves, and dependent on the results, drill a side-track on the crest of the structure to conduct a production test on this 2010 discovery.  Faroe is increasing its working interest to 33.3% in this Centrica-operated (66.7%) licence.  The drilling operations, again utilising the Deep Sea Bergen rig, are expected to commence in late 2017 or early 2018, back-to-back after the Goanna well.  The objectives of the appraisal well are to increase reserves and reduce volume uncertainty by establishing the Free Water Level (FWL) or the Gas Down To (GDT) and verify reservoir quality and productivity by conducting a DST, which will allow optimisation of well count and design (and potential cost savings).

East Corrib:  Faroe recently executed a farm out of its Irish licence option 16/23 (Faroe 100%) to Nexen Petroleum UK. Under the terms of the farm-out agreement, which has received Ministerial approval, Nexen has taken over operatorship of this licence and an 80% working interest (Faroe 20%) and in return will meet the full costs of the associated work programme, including any acquisition of seismic data and the possible drilling of an exploration well, if a positive drilling decision is made after the seismic work phase has been completed.

Graham Stewart, Chief Executive of Faroe Petroleum commented:

“I am pleased to report that Faroe Petroleum is performing very well across its range of activities, with strong production performance in the first five months averaging 15,100 boepd, appraisal success on the Brasse discovery, a growing low cost exploration and appraisal programme and significant progress on our development projects.

“The Company has also delivered good financial performance with strong cash flow, improved cash reserves and an undrawn Reserve Based Lending facility of $250 million – this ensures we have significant financial flexibility going forward.

“I am particularly encouraged, that as we enter the second half of 2017, alongside the excellent progress made across our production and development portfolio, we have been able to increase further the level of low cost and high impact activity in our exploration and appraisal portfolio, with the addition of the Goanna and Fogelberg wells later this year, as well as the farm-out to Nexen, for a full cost carry, on the East Corrib licence west of Ireland.

“With our focused strategy, centered principally around realising value from both our considerable exploration success and M&A success, Faroe is now in position for a major growth phase as we take advantage of low industry costs and invest across our core assets in 2017 and beyond.  We believe that we now have the asset base to reach our stated goal of increasing production to over 40,000 boepd organically within the next five years, with robust economics even at low commodity prices.

“Looking ahead, while we actively pursue our organic programme, we will also continue to seek to capitalise on our strong strategic and financial position to pursue further consolidation opportunities on the Norwegian and UK continental shelves.”

Sharehub Hotlist 2017 – Week 24

The sun is shining, summer is here and Major indices are at all time highs. All is well in global markets which is a little strange when you actually start to look at the economic data that drives major indices. The US data has steadily turned from bullish to fast becoming bearish. The Fed Reserve seem desperate to get rates up as fast as possible simply so they can ‘perhaps’ reduce them in a year or two again. The UK is in one of the most uncertain periods in its history. Retail sales are shoddy, big ticket items gone missing on shoppers lists and all points to a tightening of belts based on uncertainty – not good for the economy and that’s ontop of the ‘limbo’ that British businesses face over the next 18 months of Brexit negotiations. Yet, as highlighted above, stock markets are at all time highs. Anyone remember 2007/2008? Has the market learned anything? Well, that’s the wider market environment covered – now what about commodities? Well, in uncertain times you would normally expect GOLD to be soaring. But with stock markets at highs, that uncertainty is not being felt just yet. But I suspect when the sell off comes (and it will) GOLD will indeed soar higher. That bodes well for gold producers and sharehub’s Hummingbird Resources is in the top ten for that precise reason. Call it a hedge against uncertainty. On to PoO… well, the Saudi’s and Russian’s clearly see no benefit in supporting PoO with the usual verbals at a time when PoO is in a down month. The end of Q2 is always a poor period for oil with Q3 onwards picking up considerably due to US driving/holiday season. I think the Saudi’s will prefer to wait until July is out to see what the API/EIA data is like before cutting deeper or extending beyond March 2018. The market is currently quite narrow sighted in terms of PoO. Concentrating on US production numbers as a key driver is a recipe for disaster. While the US bucks the trend with strong production numbers, other countries – mainly in South America are seeing production numbers fall off a cliff. This is the natural decline or loss of market share that the Saudi’s have fought for over the last 2 years. It’s not just US production that matters, it’s global production.

Finally, one data set that seesm to have been ignored is the US rig counts. The last time US production was over 9.3mbopd the rig count was close to 1850 rigs. Currently, rigs are running at approx 950, that’s almost half. That suggests that many of the fields are producing from Wells drilled sometime ago. These wells are likely to dry up soon and new wells will be required. That’s the costly part. And that’s where US shale begins to struggle with prices at $50pb. US shale is relatively new so it is a little tricky to define the phases whereby fields decline and new wells are required. For instance, a rise in the rig count could be an indicator of dropping supplies rather than a bullish market as field owners are forced to drill news wells to keep revenue running to pay off debt. US shale will take a decent 1 to 2 years to show the true signs of what is going on. It would not surprise me one bit to see US production numbers begin to drop as we head into Q3. That would bode well for PoO although don’t get too excited, I don’t think you’ll see $57pb broken for sometime yet. But a trip back to mid $50’s would be helpful to most producers.

Week 24 results below:

Telegraph stretches out a lead over Daily Mail and Sharehub picks waiting for a few catalysts to unfold incoming weeks before hopefully making a strong recovery. FUM looks back in favour and Delek’s top up on FPM is a reminder to all Oil focused investors that oil is still very much in demand. All eyes on PVR’s icemax stena rig which should be leaving Gran Canaria in the next couple of weeks or so.

DELEK increase stake in Faroe Petroleum

RNS just out on Delek moving from 13.8% to 15.01%.

As mentioned in earlier posts, Delek built a stake up in Ithaca before making a bid. They might not wait too long before making a bid on Faroe. Any bid would need to be double today’s price of 87p to be successful based on my estimates of fair value.

Watch this one very closely.