Week 26 ended with most market moving action taking place over the weekend at the G20 meeting. The usual rubbing of shoulders took place as Saudi’s shook hands with Russians, Chinese shook hands with Trump and Trump shook hands with North Korea. Lots of hand shaking but the truth is that’s all its been for months and months now. OPEC+ confirmed another 9 month extension which brings the cut in production levels towards its 3rd year. How many years need to pass before the ‘reduced quota’ becomes the norm? The reality is, the cuts have helped but they haven’t boosted Oil prices past $70pb which is where the Saudi’s desperately need pricing ahead of their planned Saudi Aramco IPO. The latter has been postponed several times now and keeps the likes of JPM and Goldman Sachs champing at the bit. But there is talk now that it’s back on the table.
Elsewhere in the world of US oil production (on another planet), data releases continue to defy belief. One week numbers are inline or as expected and the next a sudden 12m+ Draw arrives. It’s as if they thought they would fiddle around for a month delivering Build numbers week upon week before finally being forced to tidy up the book and slip all the Draws into one release. Investors would be wise to ignore the weekly reports and concentrate on the monthly data. Investors should also pay attention to the US production figures which were at 12.3mboepd a few weeks ago delivering significant growth from last years 10.9mboepd. But look a little closer and you’ll see that US Production has been falling. Last weeks data showed US Production falling to 12.1mboepd. This brings growth to a standstill. The last time US production was breaking 12.1mboepd was end of Feb 2019. A quarter of 2019 has past and US Production has gone no where fast. This may change, but after the significant growth phase through 2018, growth has become sluggish at best. This correlates with US rig count data which shows a significant drop in rigs over the last quarter. With OPEC+ Supply cuts set for another 9months, there’s not much room in the market for further drops in US Production. With Brent trading at $62.5pb, that’s asking for trouble if the market is net short. Do not be surprised if you see Oil prices head past $75pb (Brent) in Q3. There’s certainly not much of an argument for Oil prices to be lower than $60pb (Brent) especially with US Fed rate cuts anticipated around the corner.
Week 26 Review: The Independent and Guardian top picks continue to bat it out. Markets are at all time highs yet many stocks still seem sluggish especially across commodities. When the sun shines, risk assets become less attractive and money tends to flood to safer havens like Gold. That said, due to unattractive Bond yields, money is being forced into some riskier trades with crypto’s back in vogue. Crypto’s v Bonds? It’s like Nick Kyrgios v Tim Henman.
TheShareHUB picks are still flatlining awaiting key summer drill catalysts to get the juices flowing. Stocks like MATD, CERP and AMER are all expected to drill potentially transformational wells this summer. TheShareHUB’s recent heads up pick I3 Energy (I3E) is also another hot summer pick with 3 key drills planned over a busy 90 day period starting with the first well due to spud end of July or early August. Finally, watch out for PetraDiamonds Full year results due out in 3rd week of July. The stock has struggled to regain some impetus and momentum since completing their refinancing/rights issue last year at 41p a share. Trading today at 19.2p, the stock is a significant distance from Goldman’s Sach’s recent Buy rec and Target of 32p. In June, the CEO bought stock at 21p which was seen as a strong signal ahead of July results. The small sized diamond market has been under pressure from oversupply and lower pricing but Petra is a little different in that they have moved away from smaller diamonds and have targeted the larger sized stones and had recent success with some whoppers this year. Whilst largely historic, results will put a line under 2018/2019 trading year and the market will be keen to see guidance for 2019/2020 outlined from the new CEO with a view on reducing debt being top of the priority list.
A significant run on Gold prices has given many smallcaps and mid tier gold producers a bit of renewed interest after a period of neglect. Crypto’s are also back in demand which is unusual as many market pundits had written them off months ago. It seems a resurgence in the neglected is upon us. It sometimes pays to keep your head down avoid the limelight and hope all has been forgotten when it comes to past disasters or bubbles bursting. It tends to allow for the initial recovery phase to go unnoticed. A tactic equally beneficial and often used by ‘has-beens’ to relaunch careers? Certainly something Boris seems to be deploying of late. Every word that seems to come out of the man’s mouth forms some kind of overpromise or headline that you know will never be met. That’s the trend with Mr Johnson. He says a lot but actually delivers zero. Heathrow? Brexit bus adverts? Foreign policy? The very fact that the Conservative party have arrived at a situation whereby Mr Johnson is their leading prospect just about seals the deal and places the last heavy nail in a political party coffin that needed banging in a year ago. Brexit has exposed all that is wrong with UK politics. It’s a sad story and Boris is far from being a fresh face with new ideas. He’s just a continuation of the same old, same old establishment that has thus far got us no where fast. Not only did the Conservatives come up with the idea of Brexit, they then fumbled their way through delivering the basics. Remarkably, the Markets seem to have become punch drunk to risk events and seem to be complacent with what awaits around the corner. Brexit has more unknowns attached to it than an MP’s expense account.
It’s time for change. And the biggest problem is that Labour under Corbyn are certainly not the answer. In fact, the answer is ‘no-party’. None of them are fit for purpose. Now is the time to look at a different model. A different electoral system would be a start. More ‘people voting’ processes now technology is advanced enough. Who knows, policy’s could be voted up or down and beamed live across the country in a Britains got talent style format? Sarcasm aside, we do need to relook at the electoral system and how the country is currently run. It’s been a shambles. Even as we head into the summer months, MP’s are booking their vacation breaks. It’s diabolical. I don’t think Mr Churchill went on a weeks jolly to Magaluf while the country was in dire straits.
Moving on… Week 25 was a record breaker for the DOW hitting new highs on rate cut optimism and better vibes from China trade talks.
The ShareHUB top picks were boosted from SOLG’s news that a peoples case seeking a referendum to ban mining in specific regions of Ecuador was struck out. SOLG rose from 28p to 37p before cooling off a little. Another fillip came via Hummingbird Resources which has bounced strongly with higher Gold prices moving from 13p to 18.75p. Heading in the opposite direction are SXX. The stock was 24p 3 months ago but is now trading at 14p after hefty fundraisers. Petra Diamonds continues to tip toe its way back to a recovery level in the mid 20’s. At present the stock is lacking in catalysts and requires a good results update and successful June sales tender to get new investors interested. At 20.4p, Goldman’s recent 32p price target is over 50% away. If or when the good news flows, PDL should be moving back to high 20’s / early 30’s. The second half of 2019 is expected to be especially strong for Petra, so the worst really should be behind them now. Another slow burner is CERP. Investors still await confirmation of the company’s summer drill plans. If or when this gets communicated properly, interest should grow and the share price will take care of itself. Finally, Amerisur Resources seems like it is stuck in quicksand. Despite the company making production gains, the exploration drillbit has been a let down. The market has virtually written off the Occidental deal as an event for next year. Success at Indico-2 (the next well in the drill plan) is much needed. It is an appraisal well, so the odds on finding oil are almost a given (although this still carries operational risks and mechanically, things can go wrong and they often do). The question the market wants to know is how large is the oil column, where is the OWC and at what rate does it flow? Gaining key data like this is essential to determining the resource size and agreeing the final field development plan which like many things operationally… requires significant capital expenditure. That said, AMER’s 30% stake means they should be able to pay their way providing their partner ONGC does not accelerate the infrastructure works (pipes/roads) and development plan too fast. Being onshore, each development well pays back on capex very quickly which is a bonus to a small player like AMER. However to an Indian national oil company like ONGC, they need not tread carefully on a financial basis and may step up the pace to a ‘oil major’ level if they like what they see from future drills over the next 6 months. That could place pressure on AMER’s cash resources and may explain the rather stagnant share price of late. Roll on week 26! Plenty of catalysts await in H2.
Week 24 and the DOW is nearing all time highs again. And that’s without a firm China Trade deal signed…. yet. The market is certainly getting excitable again. After several rinse and repeats from 26500 down to 24000 levels, the 10% DOW swing is becoming the new monthly bet. Go back a decade or two and you’ll find a 10% gain on the DOW would normally take or be expected to take, about 2 to 3 years. In this casino, it can happen in just a few days. The main contributor to the markets new verve has more to do with rate cuts and stimulus than China Trade solutions. A few weeks ago, the FED Reserve moved to a more dovish/rate cut friendly position and whilst that is by no means nailed on, the recent poor US job data combined with a global trend to cut rates, has now significantly raised the odds on a US rate cut happening possibly as early as October 2019. Super Mario has always said he will do whatever it takes to keep a solid base under EU financials. Repeating this message should not come as a surprise yet this market seems to react to old news like it was new news. Someone needs to recalibrate those algo bots!
The summer is almost upon us. You wouldn’t know it looking at the UK weather which resembles something like the African wet season. Some summer blockbuster drills are not far away from spudding now. PetroMatad, I3 Energy, Amerisur, SOLG and many more all have significant drill plans over the next 3 to 4 months. An exciting period for investors awaits. That said, very few exploration wells/drills are successful as proven by Amerisur of late. The last 2 wells drilled on CPO-5 licence block have been disappointing. However, AMER did have success on Plat-26 on their Platanillo licence, delivering an extra 700bopd and boosting full production towards the 7000bopd level. The next well on CPO-5 is expected to be an appraisal around the Indico-1 discovery. Chances of success should be much higher here but there is still no guarantee that they will be successful so risks still remain.
SOLG has been hit hard by local opposition to mining and a hearing to decide on a referendum is expected to be held tomorrow (June 20th). Ecuador needs mining and is prolific as a region when it comes to resources. But the locals and communities want a fair say on how their villages get moved or cleared out and rightfully so. Some do not want any mining at all and fear pollution. On the other side of the argument, the large mining companies bring jobs, roads, infrastructure, schools… the list goes on. One would expect common sense to prevail and a referendum to be avoided.
Finally, stocks like Petra Diamonds and Premier Oil look heavily oversold against a recovering market backdrop. These kind of valuation gaps tend to get filled swiftly once risk reduces. Rate cuts tend to stimulate global growth which in turn can bolster interest for Diamonds. And with OPEC due to meet on July 1st (although they can’t seem to agree on a firm date yet) Oil should be heading back to the $70’s (brent). Concerns over MiddleEast stability are also a major factor for Oil prices and after recent tanker attacks things are certainly not cooling down. Quite the opposite. Yet looking at oil prices, you really wouldn’t guess that there is any risk there at all. A complacent market is a very dangerous market. If things worsen, Oil prices could be trading at $100pb again. That’s clearly bullish for many oil companies out there.
Week 24: Independent picks continue to top the chart without any real challenge from the Guardian or ShareHUB picks. A few good summer drilling results for the ShareHUB folio and things can change fast.
Back in the black for TheShareHUB picks. A good week for all stock picks as the DOW bounced 1500pts on hopes of a US rate cut and an end in sight to a China Trade deal. Mexico tariffs were also a concern but appear to have been avoided for the time being. All in all, weak US Job numbers is certainly nothing to be celebrated. Growth is slowing and the longer Trade wars go on the more damage is done. Growth fears have commodity stocks under pressure with Oil being effected more than most due to the US production data issued each week. The market has been expecting ‘DRAWS’ as supplies tighten under OPEC’s cut in supplies. But lately, the DRAWS have been replaced by huge unexpected BUILDS. And the frightening thing is, this is with Iranian Sanctions in place, historically low Venezuela supplies and Libya production at near zero. If it wasn’t for these three issues, the market would be awash with Oil and prices would be $40pb again (Brent). In short, something has gone wrong. Either US data numbers are incorrect or OPEC agreed cuts are not being executed as agreed. The last two months data is more notable suggesting that someone somewhere (could be Saudi’s or Russian’s) are pumping more than they should be. OPEC are due to meet up on July 4th to agree on a possible extension to production supplies for at least 6 months. If data continues to be poor, they might need to consider cutting supplies further or at the very least ensuring all involved stick to agreed quotas and are not allowed to pump more than they should. As for US data, trust it as far as you can throw it. US rig counts have been dropping month on month for the last quarter yet production continues to rise. That’s not symptomatic of US shale. Historically wells perform initially at peak rates and then tail off fast meaning that new wells are required to replace them and that involves rigs. So again, something doesn’t quite add up here. It’s a bit of a mystery. But that’s the Oil trading market for you. More barrels are traded that actually exist and speculative hedging/shorting is rife. The fact that it’s possible to either have $40pb next month or $100pb says it all. The Saudi’s can’t cater for the speculators. All they can do is try and rebalance the market and they failed to it last year and thus far, they have failed to do it this year too. Their credibility is certainly being tested.
Overall, the uncertainty over trade deals, global growth, OPEC… all mean commodity stocks are out of favour. There are some cheap stocks out there – that’s for sure. But a lot of unknowns need sorting out before the sector can see some bullish action. Small caps on the other hand trade in a cosmos of their own. Anything can happen on AIM. Stocks like MATD, I3E, PVR and many more drilling huge targets over the next few months are in favour as these are not effected by Oil prices near term and due to small market caps, they can multibag upon any significant discoveries. The Risk vs Reward ratios vary. From drilling wildcat wells to drilling almost ‘appraisal’ style wells. The latter generally have CoS of 60% to 70% or more. So you have to pick your AIM exploration stocks carefully. Some have a much better chance of success and in theory this should be reflected in their market caps… but often it isn’t, which presents opportunities for savvy investors.
Week 23 – Review:
A good recovery week for TheShareHUB picks as they climb back into the black. The two newspaper top picks tread water. H2 is approaching fast and the year is zipping by. It’s either going to be much of the same in H2 or with a US/China trade deal agreed, it could be new highs for all stocks and a terrific end to the year. With US elections around the corner, Trump will be keen to see markets do well.
A better week for TheShareHUB picks with PetroMatad notching up ‘2 x Multibagger status. The stock looks odds on to deliver a 3 bagger and possibly a 5 bagger should they deliver with the drill bit this summer. Plenty can go wrong so always huge risk with explorers. But the chance of success looks higher than previous wells so it’s fair to expect the market to build a little more into the pre TD pricing compared to last year.
It’s been a tough 6 months+ in the markets across commodity focussed stocks. Miners have been shunned. Oil stocks ignored despite a stronger and more stable Oil price. Large debt weighted companies like Tullow, Premier Oil and Enquest are all making inroads into paying down debt whilst also maintaining capex. The latter is important as if you don’t invest in the future, you’ll end up with depleted reserves and falling production curves. The key for debt heavy plays is to strike a steady balance between, debt reduction and capex. Premier Oil and Tullow appear to be doing this faster than Enquest and have more depth in the folio’s when it comes to resources and exploration. M&A has gone a bit quiet since the last large deal involving Occidental and Anadarko. The acquisition ‘ink’ might remain dry until clearer signs can be seen on China/US talks. Talk of the Fed Reserve cutting rates should support equities near term but to make significant progress, trade talks really need to be settled.
With June upon us, the official ‘summer drill’ season is here. There are plenty of stocks out there drilling big targets in 2019. It’s a small window for north sea focussed companies as drilling in the winter is dangerous and can be expensive. Hence, any delays to drill plans can often push campaigns back by 12 months. So one lesson for keen investors to learn is never ‘assume’ the drill bit will be turning until the company finally confirms the official spudding event. In many instances, promised spud dates tend to be too optimistic and are often a few weeks delayed or in the case of PVR (announced this morning) delayed by up to 2 to 3 months+.
Elsewhere across the ShareHUB picks, SOLG were under heavy fire from shorters and nervous investors when news materialised last week suggesting that their licence blocks could be under threat. The share price fell from 36p to test 24p in just 2 days. Losing around £160m off your market cap based on nonsense news sums up the markets today. Too many Bots and Algo’s chasing price changes and paying zero attention to the validity of news. It’s more and more like a casino/bookies out there today. Currently the SOLG price is back to where it was at 34p/35p level but still some 10p off previous 2019 highs.
Week 22 Review:
The ShareHUB need a few summer drills to come up trumps if they are to catch the Independent top picks. With AMER, MATD and SOLG all with or about to kick off big drilling campaigns, the chances are one or two will deliver the goods… one hopes!
Finally, the second Heads up of the year was issued exclusively to email subscribers yesterday. The full note on ‘I3 Energy’ (i3E) will be issued next week to all readers. Target Price 120p.
And last of all… hot off the press this am, Goldman Sachs have issued an Upgrade to Petra Diamonds moving the stock to a BUY recommendation and price target of 32p. The stock was last trading at 21p. PDL is part of TheShareHUB 2019 top picks.
As with all stocks/information mentioned above. Please read the risk warnings in the sidebar.
A short update this week. Much of the same across markets with China/US still bashing each other with handbags. The idea of Boris Johnson taking over the country from Theresa May can only be entertained within what has become a madhouse of a conservative party. The country needs stability. It needs some ‘grown ups’ and thank goodness Mr Bercow is staying on for another period time. Without him, it would be like something from Lord of the flies. Any Conservative politician that has been directly involved with Brexit needs to remove themselves from the list of PM candidates pronto. A fresh face, one that has not shown a single level of self preservation over importance of Brexit deserves the premier post.
Week 21 – Review
The newspaper picks continue to stutter as the market continues to show signs of risk off sentiment and overall cooling of interest while US and China bat it out. TheShareHUB picks suffered a blow after a terrible update from Wishbone. The company began 2019 with plenty of optimism but now appears exhausted and ready to fold. A poor show and investors deserve more answers from management. More problems at Hummingbird’s Yanfolila means a more protracted and dragged out recovery phase ahead. Ops appear to have stabilised but costs have spiralled and with wet season approaching, the company cannot afford any further reduction in cash flows/production. Better news from PetroMatad on drill plans and permits ahead of a July spud. This may slip to late July or early August but when the spud finally arrives, the stock should be flavour of the month. Elsewhere, Petra Diamonds has had a choppy time of late as large institutional holders go through transition periods and that’s taken its toll on PDL’s share price. Based on valuations and broker targets, the stock looks every part a 45p share trading at 22.5p. The traditional summer ‘half price’ sale is already underway there. Not without risk of course, but the worst does seem to be over for PDL. Cash flows are expected to be stronger in the final quarter which ends June 30th. Broker consensus targets range is between 30p to 50p. Although, there is one broker sitting at 25p. Finally, CERP continues to drift lower as investors await some solid signs of a much promised SWP exploration well in 2019. TheShareHUB picks need some good news and hopefully that will come from Amerisur Resources which have two drills underway. Platanillo-26 is a minor exploration play and not of much significance or importance, however SOL-1 on the CPO-5 block is important and the market keenly awaits the results from this well which should be forthcoming in June.