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SP Angel Morning Oil & Gas Chariot Oil and Gas and Nostrum Oil & Gas

Published: 08:35 20 Feb 2015 GMT

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Oil Price

With the oil price retreating back down towards $50/bbl, it is difficult to see how it could ever recover towards the $75/bbl that we have pencilled in for the end of 2015. However, rig rates continue to decline in the US onshore, which now appears, by proxy, to be taking on board Saudi Arabia’s traditional role as swing producer, albeit a price induced.

We believe that this will be further compounded by the fact that a significant proportion of the new production that come on stream requires significant levels of intervention to ensure that production rates remain at high levels, far more so than conventional wells.

Ordinarily, the market would wait to see the supply side post a series of continual declines in production before reacting and supporting higher oil prices. However, in this instance, we believe that such will be the aggressive fall away in production, that the market will respond to declining production quicker than before.

As a result we continue to believe that our $75/bbl exit price for 2015 is a fair reflection of this shift in the oil price market. Furthermore, the real impact of this low oil price environment will only be felt in 12 to 18 months’ time, when development and appraisal programmes that have been put on hold would have been coming onstream.

Furthermore, we believe that there will be a follow-on impact on the supply side in the 4 to 6 years’ time frame as exploration programmes which have been suspended would, had they been successful, have come on stream. Against this backdrop we continue to be optimistic about our estimate for not only a $90/bbl midcycle price, but also our $125/bbl peak price in 2019 to 2020.

The only potential fly in the ointment for all of this is the economy. In our scenario we have assumed that the economy doesn’t get appreciably better, but that it doesn’t get appreciably worse either. There are a number of indicators from the US which appear to show that its economy is slowing, and for the US, so to read Asia. Europe seems hellbent on wanting to force itself a period of deflation, and for once the geopolitical landscape appears to be more turbulent in Europe than it does in the Middle East.

With all of these competing influences our oil price estimate could look vulnerable, but then that’s the great thing about oil price estimates the one thing that you can be absolutely certain of is that given the variability in the factors that influence the oil price, that by the time you’ve published your outlook, it almost certainly going to be wrong. However, we believe that the general principle will hold fast.

News Items 

Nostrom Oil & Gas (LON:NOG) – Reserves Replacement Impressive

today’s reserves update from the company in which it disclosed 2P Reserves of 473mm boe 2014 (versus 483mm boe in 2013) is an impressive feat considering that the field has produced 21mm boe in the intervening period and liquids prices have declined significantly.

We must, however, temper caution as we have not yet seen the reserve report, and therefore cannot comment on the price deck that was used, and whether it fully reflects the extent to which the oil prices declined.

Nevertheless, this is still an impressive performance.

Chariot Oil & Gas (LON:CHAR) – Next Stage of Exploration Begins

Chariot has announced that it has started its 2D infill seismic survey on its 2312 and 2412A blocks offshore Namibia. The results of the 2D seismic survey will then be used to identify prospective areas that may benefit from a more detailed 3D survey.

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