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The Pay Zone: Oil price, San Leon Energy, Royal Dutch Shell, Tullow Oil anf Finally......

Last updated: 11:00 10 Oct 2014 BST, First published: 10:00 10 Oct 2014 BST

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WTI $85.77 -$1.54, Brent $90.05 -$1.33, Diff $4.28 +21c, NG $3.84 -1c

Oil price

I said in the blog, and on interview with IG Group* on the 2nd of October that there might be another $5 of downside in the oil price, 9 days later and that has already happened. On that day the Brent price was $94.16 and today Brent is trading at $88.91, not far above its long term support of $88.02. Economic news, particularly from Europe and specifically from Germany looks worse by the day, yesterday it was export stats, what next? Well if the economists are to be believed, a huge stretch of the imagination at any time, China is next and Reuters are suggesting soft domestic demand numbers next week.

Whilst all these figures are bleak and supply to the market continues to build we must be close to someone trying to draw a line in the sand at least on a temporary basis. Where that may come from is difficult to see, Saudi has made its position clear, the US and Russia have ne desire nor mechanism to curb production and unless the price falls another $10 say, production remains economic particularly for those only chasing cash flow. But in the $80’s it must be in the interests of Opec to come to some sort of agreement and I would also expect to see some evidence of China adding to its strategic reserves at some stage. This is hardly the recipe for a long term turnaround in the supply/demand relationship but remember that probably only two quarters of strong discipline from Opec would bring the position back into some sort of equilibrium. The end of the world for the oil price is not nigh but at least there are some benefits of cheap oil to struggling economies…

*https://www.malcysblog.com/2014/10/interview-on-ig-player-brent-to-drop-another-5/

Shell (LON:RDSA)

If you get the chance it is worth taking a look at the interview on CNBC with Ben van Beurden in which he plays down the effect of the oil price and as ever, takes the longer view. He suggests that Shell has been able to ‘inoculate’  against the current weakness and may indeed be able to take advantage from it. Discussing shale in North America he believes that they are a major player and have their business in the perfect position post rationalisation, particularly in Canada. He was not trying to suggest that the US gas market was anything other than very competitive but emphasised that his status there is assured.

Tullow (LON:TLW)

Perenco has announced that the Sputnik-1 well offshore Gabon has encountered ‘non-commercial hydrocarbons’ in  300m  of net sandstone reservoir. Tullow maintains a positive spin by saying that this is an ‘encouraging result from the pre-salt play having found a petroleum system’.

Faroe Petroleum (LON:FPN)

Still on the subject of Tullow, Faroe has announced the completion of the purchase of 53.1% of Schooner and 60% of Ketch from them. This is a smart deal for Faroe as it is a tax efficient increase to reserves and production and will pay off big time over the longer term. Faroe, like most other E&P stocks is having a rough time, particularly this morning but with a cortege of analysts going to Stavanger in a few days time further good news is inevitable even if it doesn’t materialise in the share price for a while.

San Leon- Spit and Polish or Moroccan spice? 

I have been asked if I am planning to write up my visit to San Leon last week where I had a very interesting meeting with Oisín Fanning and Joel Price. I will be assessing the situation in a number of their areas and in particular after further news from Conoco with the details of that well, made famous by 3Legs walking out during the process. The details on this may prove 3Legs to have been a bit hasty in that decision but they have never been, how you say, been overcommitted to the region in the way SL are. For SL Poland is a long term play but the good news, if any can be taken, is that we must be towards the dénouement of it and are probably in year four of a five year plan. With a number of wells to drill  at the end of this year and next in the Baltic Basin as well as interests in the Permian and Carpathian I suspect that it is too soon to write off San Leon (LON:SLE) yet.

Interestingly with acreage wheeling and dealing they have quite an interesting portfolio in Morocco, but then who doesn’t at the moment…With an exciting offshore well at Sidi Moussa due to announce this month, (there are three separate targets so it may come out piecemeal) as well as conventional and unconventional acreage onshore there is genuine exploration upside away from Poland. Whilst it would probably be premature to suggest that SL has got anything in the bag it would be equally pessimistic to say that it is game over, for the time being the jury is still out and I for one have not written San Leon off yet. BTW, I did indeed discuss with Oisín the Sunday Times article about his pay and having had discussions with his major shareholders some time ago it is primarily in stock now and well out of the money if that makes any difference.

And finally…

Last night England played against San Marino and unsurprisingly won 5-0 although it could and should have been more. Next up for England is Estonia on Sunday whilst  Wales get Bos/Herz, Scotland get Georgia, Ireland have Gibraltar (what…?) and Northern Ireland host the Faroe Islands.

The Grand Prix circuit goes to the new Russian circuit at Sochi where unsurprisingly Marussia will only run one car, a downbeat affair but point are key, its very tight at the top.

Rugby wise the Leicester v Quins game is on TV tonight and Sarries play Gloucester and its Wasps v Bath on Sunday.


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