Sharehub Hotlist 2017 – Week 12 results

Spring is here and Q1 is almost over. It’s been a mixed bag thus far for the sharehub top ten. The year started well with a peak gain of 9% on more positive tones regarding OPEC’s cuts and PoO. By the time Feb was upon us, the market was already growing impatient. I’m not quite sure why the market expected to see such a rapid reduction in builds when every cat and dog knows there was an armada of oil tankers floating off the US coast just waiting to flood the market with crude when the time suited. OPEC’s cuts were never going to bite into the glut with immediate effect. It was always going to take time. Today, we are just 3 months into the cuts with a high level of compliance. In Jan the markets mantra or fear was that OPEC compliance would be low and that any deal would fall through within weeks. The opposite has happened. The OPEC deal has thus far exceeded expectations. Something the market has decided to ignore. Instead, the focus has been on US data / inventory numbers. These numbers are unreliable and not a true indication of what is really happening in the oil market. One weeks data can be skewed by Vitol or Glencore or any trader that decides to dock a few tankers to flood the Hubs. Secondly the rig count which has been cited as a sign of Shale investment returning is running at well below half what it was when PoO was $100pb. In 2014 the Rig count was 1900. Today it is just 810. 1100 rigs are missing in action, piled up and gathering dust. When US production was hitting record highs, all these rigs were operational. This is the most relevant fact of all. US production is not going to be ‘replaced’ and note the word ‘replaced’ when half the rigs out there are stacked up unused. Yes, production can increase as current wells get run dry but where’s the next wave of production coming from? There are US shale projects currently running wells dry to maximise income and pay down debt. Some are being drained simply to satisfy the creditors. Once run dry, no investment is planned. And it’s issues like this that seem to be clouding the real picture. The market seems to think that US production is going to rise and rise and rise – it isn’t. It’s going to dry up and when it does dry up, new wells are going to be slow to come online. The US shale story is not the only issue or key point to focus on. Iran has added almost 1mbopd since sanctions have been lifted. Iraq is pumping at record levels. Countries like Nigeria and Libya are running at all time lows. Hence, it’s not all about the US. Libya and Nigeria will come back to normal levels in the future. That’s adding more oil to the market. US shale production will drop off as wells run dry. And I have no doubt that Cuts will continue into H2. But what happens when production wells begin to run dry on a global basis? Where is the replacement oil coming from. Many development projects due to come online in 2016 or 17 were halted and parked up in 2015. It’s going to take 18months minimum before these projects eventually come online.

In summary, we’ve seen a period of ‘oil tankers’ offloading oil from storage combined with increased production from Iraq and Iran. This has effectively reduced the impact of OPEC’s cuts. But what happens when Vitol and co run out of storage tankers to offload? What happens when US shale wells begin to run dry (and they do run dry fast)? The market could be setting itself up for a massive swing in supply / demand. It does not surprise one bit that OPEC and Russia plan to wait until May 2017 before agreeing any extensions to the cut deal. The situation is very ‘liquid’ (excuse the pun) and as each week passes, the dynamics are changing. They might not be visible in the data numbers just yet but they are are there. And when thenumbers begin to show US draws, just watch PoO fly.

Not long now – April could be the most telling month of all.

Sharehub hotlist results – Week 12 below:

All top pick lists treaded water last week and thesharehub picks still suffering from the recent 15% sell off in PoO. That said, Hummingbird Resources is a shining light and is clearly doing well from the near 15% rise in Gold this year. Last week saw a number of full year results being reported and Faroe Petroleum was a stand out example of a company making great progress against a very tough market backdrop. For a company that has 16kboepd production, zero debt and 100m in cash, it’s the bargain of the sector at present.

It’s a Hatrick for Hurricane

Congratulations to all investors. It’s been an astonishing drill campaign for Dr Trice, his team and all investors. It started with above expectations success on the Lancaster licence, moved onto further success with 1 x well on Lincoln prospect and the hatrick finally completed days ago with further success on the Halifax prospect. The significance of the latter is huge as it effectively joins the dots (and several km’s) between Lancaster and Halifax. In fact, the likelihood is that the huge oil discovery extends further than that. It’s been a few years since the north sea has seen a sizable discovery like this. The recoverable oil total is expected to exceed 1 billion barrels. It’s mind blowing. As an example, Premier Oil sanctioned the Solan development project costing around $1.6bln with estimated recoverable reserves of circa 60mmboe. Premier Oil’s upcoming Catcher field is also very similar in spend and size. It’s these kind of fields that the North Sea is used too… not 1 billion barrel fields! Hurricane’s near term plan is to agree funding on their proposed early phase 1 production project on the Lancaster licence. They need approx $400m and are targeting 60mmboe+ recoverable. Wells drilled to date will feature in the development hence some hefty costs are already in there. But that aside, Hurricane are in effect capable of delivering the same sized project as Premier’s Catcher or Solan at just a fraction of the cost. This is very important in a low oil price environment. Hurricane is currently debt free which is another remarkable achievement.

The journey ahead to first oil in 2019 will need to commence very soon. The market will likely take a conservative view until funding plans for the $400m are announced. These could involve a mix of debt/rbl and equity raise or the entire funding could come via a farm out deal. That said, the lack of flow test on the Halifax propect is likley to be a bit of a niggle for some and opens the door a little for any farm in partner to play a slightly harder ball!

In light of the unknown’s regarding PoO it would be wise that HUR avoids any reliance on debt and instead opts for a cashed up partner to deliver the phase 1 production project. As poor old RKH holders have discovered, the importance in finding a ‘cashed’ up partner is vital. There is little point in doing a deal with a mid tier player if they cannot afford to see the project through. HUR should have their eyes set firmly on the likes of Nexen, Shell or BP.

No doubt there will be some fluff about aggressive takeovers coming out of the usual pi investor forums and that should be ignored. Major oil companies will want to see Lancaster producing without operational disruptions for at least 12 months before they would consider putting in a bid. To date, investors should be reminded that Hurricane’s assets have flowed oil over a short time frame and NOT delivered production (higher volumes) over an extended period eg; weeks, months and years. Basement reserviours are not common and the industry (especially in the north sea) will need to see performance expectations PROVEN. This is effectively the next stage for HUR. The plan is to get first oil flowing in 2019 and I would expect 12 months after that period, if all goes well, HUR will be snapped up lock stock and barrel for a price that makes today’s level look very cheap indeed. It’s going to take ‘years’ and some patience but the future is very bright for Dr Trice and team.

Hurricane Energy is part of thesharehub top ten for 2017.

Premier Oil – Fixes new CB conversion price at 74.71p

If anyone doubted the ability of hedge funds and other concerted parties to control ‘price’ then they best take a look at the share price action of Premier Oil over the last 3 weeks.

On March 1st Premier Oil announced plans to fix the CB conversion price (previously north of 150p+) to a new lower level as an incentive to CB holders in waiving debt repayment schedules and kicking the can down the road another 3 to 4 years.

Premier Oil set a default level of 62p + 20% as the base but then added a further VWAP measure based on 21 days from March 1st. The price on March 1st was 72p. Had it remained there or gone higher then the CB conversion price would have been 86p to 90p range.

As mentioned on thesharehub some weeks ago, this was like offering a red rag to a bull. What followed was pure market manipulation using heavy weights and order book tricks to lower the price to 62p and then below 60p to ensure the CB strike price was as close to the base as possible. As announced today, the hedge funds /shorters did an excellent job and managed to book in a new CB price of 74.71p, just 0.31p above the lowest price possible. Since achieving this goal, many hedge funds / shorters have already closed off their positions. Job done.

But … there are still some sizable shorts with exposure which in theory will need to be closed out. With the CB strike price agreed, there should be no more ‘share price’ tricks, although one would expect some ‘games’ to enable shorts to be closed out in an orderly fashion.

Events like these are never pleasant to watch and lifts the curtain just a little on the dark side of the market where manipulation can be played out without any real contest from other players. Some will say it’s just delta hedging or arbitrage working. But that’s not the point nor the case. Premier Oil has been under pressure from manipulators for months now. Hopefully in a few weeks as key events/debt restructure meetings / court approvals take place the company will be allowed to return to a fair value.

The worst should be over for PMO now although the upcoming CB meeting is still an event that the market will want to see go through smoothly and it should gain approval all being well.

It looks like a year of two halves for Premier. Post debt restructure, the share price should reflect the rerisked nature of the stock and rerate into 100p+ levels. That’s a decent 50%+ away and presents new risk happy investors with an excellent late entry into the NS player.

Premier currently has several catalysts running alongside the debt restructure. Catcher development and other high impact exploration is already underway and nearering completion.

PoO’s direction near term looks under pressure but the likelihood of a rebalance in H2 is certainly a factor any shorter will want to bear in mind. OPEC are due to meet in MAY to discuss an extension and I can’t see PoO heading much lower than $43pb on WTI before then which not much of a dip from the current $48pb (MAY contract). There’s more money to be made from the next move up to $57pb last seen a few weeks ago. And the market tends to follow the direction which is going to make the most bucks!

Watch out for an PoO rebound in April with stocks like Premier, Enquest and Faroe all doing well after corrective phases over the last few weeks.

It should soon be time for OPEC to ‘verbal up’ and PoO to bounce back. No guarantees of course. Just an educated hunch! Roll on April.

Premier Oil, Enquest and Faroe are part of thesharehub top ten for 2017.

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PREMIER OIL PLC
23 March 2017

Revised conversion price for Premier’s convertible bonds

Further to the announcement on 1 March 2017 setting out the proposed changes to the terms of its $245m convertible bonds, Premier today confirms the amended conversion price will be 74.71p, a premium of 20% to the volume weighted average price of Premier’s shares over the period from 1 March to 22 March 2017 (inclusive). The exchange rate to be used on any future conversion of the bonds will be re-set to a fixed rate of $1.2280/GBP.

As previously announced, Premier will seek to implement the amendments to the terms of the convertible bonds by way of extraordinary resolution at a meeting of the convertible bondholders. The amendments will become effective on completion of Premier’s refinancing.

 

Faroe Petroleum – Increases 2017 production guidance

Whilst much of Faroe’s RNS/news today was very much based on 2016 performance and year end results, the stand out highlight that came in as a surprise was the update on 2017 Production forecasts. Previously, Faroe had guided on 2017 doing 12kboepd to 15kboepd. Today, after a better Q1 performance, the company upped the lower estimate to 13kboepd while maintaining the higher number of 15kboepd. Performance in March has been north of 16kboepd. Faroe reported cash of £97.8m with zero debt. That’s an unbelievable position to be in considering the recent 2 year rout across the industry. Faroe’s acquisition of DONG’s NS assets looks like a stunning bit of business which could pay itself back within just 12 months.

The next key catalyst for the company is the summer drill which is targeting a Brasse extension. It wasn’t that long ago that DELEK (israeli investment group) bought up DANA’s 13% stake in Faroe for a rumoured figure of 89p per share. If DELEK are successful with the current takeover plans for Ithaca Energy, then it would not surprise me one bit to see DELEK seek to take Faroe out too and merge the businesses. The combined business would have around 40kboepd and over 150mmboe in reserves with a further 200mmboe in potential 2c opportunities. Debt would be entirely based on IAE’s balance of £480m less Faroe’s £100m cash = £380m. A 40kboepd merged company based in the NS with huge tax credits and just £380m in debt would be worth £2bln+ using some basic and industry wide benchmarks. Of course, DELEK would have to pay a wedge to take Faroe over but with Faroe’s Market cap at just £280m less cash, any offer would need to begin with a £2 or £3 in my opinion and that’s still cheap.

Faroe’s share price is currently 93.75p just a few pennies above DELEK’s entry level. Plenty of upside ahead assuming PoO rebalances. Faroe’s almost 50:50 Gas/Oil production ratio makes it well placed to ride the predominately volatile oil market. If the Ithaca Energy deal completes in the coming weeks, watch out Faroe, the predator could be on the prowl again.

Sharehub hotlist 2017 – Week 11 results

Another testing week for the impatient investor. Q1 has been a bit like treading water or in some cases – stuck in the mud especially when compared to the performance in Q4. And there lies the problem. The commodity (O&G) market got a little ahead of itself in early Jan. The new year energy and optimism was warranted but thus far the data to support OPEC’s cuts is lacking. That said, we are only into 2.75 months of the total 6. Almost halfway through and the chatter  already is about further cuts needed. It’s a little premature to talk of extra cuts but that’s what the market enjoys most – looking ahead. OPEC are due to hook up again in MAY to discuss the oil rebalance programme. It’s possible (in true OPEC style) that the chatter on what will be chattered… will be chattered in April. Call it the preamble or warm up. The Saudi’s have already hinted that they are not going to cut further or for longer without other OPEC members joining in and that significantly includes IRAN and IRAQ. Both have been pumping like mad over the last few months. Russia – the main sizable non OPEC player will also need to participate. I have no doubts that they will get there in the end, but some fun and games will be required before any extension comes along. It’s the way they work in the Middle East. Haggle on everything.

Results for week 11: After Tullow’s RI plans on Friday, thesharehub’s Tullow holding has been rebased to post RI status. Hummingbird Resources is the best performing stock with the rest needing some renewed PoO optimism to drive higher again. Hummingbird is on track with the Yanfolila Gold development and a new presentation is available via the company website. Well worth a read.

 

The ShareHub 2017 Results – Week 10

Week 10 delivered yet more woes for the Oil sector as another sizable BUILD came in via the weekly EIA data figures. As I warned last week, the market was showing signs of tiredness. The supporting data just wasn’t strong enough to offer the conviction to head higher and through $58pb. OPEC’s compliance has been good, in fact, better than many were expecting. But with US production remaining solid and tankers galore docking their pay loads, it’s not making much difference… just yet. The rebalance will come, but it’s likely that OPEC and Non OPEC players will need to extend the 6 month deal (ending in June) by at least 3 months+. The problem for the Saudi’s near term is that they cannot commit to these additional cuts or at least admit to them being required as it will only serve to strengthen PoO at a time when US shale most needs it. The danger is that the Saudi’s begin to play another short term squeeze game to hurt the US shale players – many of which may have already over committed in cash terms to new wells based on PoO being $55pb+. A drop to $45pb for a couple of months is not going to hurt the Saudi’s that much but certainly will refocus other OPEC players minds – including non OPEC players like Russia. The most likely play for the Saudi’s near term is to do just that. Play it cool and let the oil market feel a little pain again for a couple of months. This may see the likes of Venezuela, Iraq, Iran and Russia contribute to stronger cuts with the Saudi’s remaining at today’s levels. In short, other members will have to cut more deeply if they want PoO in the $60’s. It’s certainly a period of cat and mouse and unless US data comes out this week (tomorrow) to support the rebalance, then PoO is going to get pushed back into the $40’s (Brent). Another sizable BUILD and it could be heading for the $30’s if the Saudi’s remain quiet. With the Saudi’s treasured Aramco deal planned for an early IPO in 2018, time is clearly of the essence. The cat and mouse game is not likely to last too long on that basis. Unless of course, the Saudi’s shelve the Aramco IPO plans and put them back to 2019.

Week 10 Results below:

As expected the sharehub top ten are suffering the woes of a longer than expected rebalance. The telegraph leads the way with the Daily Mail catching up fast.