BP declines, but Shell, BG Group, Cairn Energy and Tullow Oil climb as crude reaches four week highs
Oil prices declined largely due to movements in the currency markets following the release of the results of the stress test of 91 European banks. Even though the results met expectations with just 7 banks failing the test, including one Greek and five Spanish banks, the euro declined after rising against the US dollar immediately following the release of the results.
The American currency retreated earlier in the week after US jobless claims were shown to have risen by 37,000 to 464,000 after falling to 429,000 in the previous week. As the greenback was recovering from these losses, the euro was weighed on by Moody’s decision to place Hungary’s sovereign rating under review for a possible downgrade. Earlier this year, Hungary’s new government stated that the budget deficit was worse than thought and the country would most likely follow Greece, which had to accept a multi-billion bailout package from the EU and the International Monetary Fund (IMF) to avoid bankruptcy.
In addition to that, the stress results weren’t convincing enough to support Europe’s single currency with commentators questioning why all but one Greek banks were able to pass.
Pound sterling rose against both the euro and the US dollar after Q2 GDP data beat expectations with a 1.1% rise during the quarter, which also marked a 1.6% year on year improvement. However, the gains in the greenback proved enough to push down the dollar-denominated crude, hurting demand by making it more expensive for holders of other currencies.
US light, sweet crude for September delivery stood just below US$79/barrel, while September Brent Crude dropped to US$77.34/barrel on London’s ICE Exchange.
Oil price stated the week at US$76/barrel before climbing on concerns that this year’s hurricane season could disrupt oil production after tropical storm Bonnie was given a 15% chance of developing into a hurricane and projected to move in the Gulf. Oil companies operating in the area started evacuating personnel and equipment. Among them was BP (LON:BP), which is currently in the middle of drilling a relief well that is expected to permanently stop the disastrous leak from the company’s ruptured Macondo well, which has so far wiped out more than a third of BP’s share price.
The prices benefitted from the generally positive economic data that came out in the EU and the US this week following a decline in University of Michigan’s consumer sentiment index that was reported to have dropped from 76.0 to 66.5 on Friday, keeping oil futures down. UK retail sales were shown to have risen 0.7% in June, while the EU's services PMI (purchasing managers index) improved from 56.0 to 56.7 in July, while manufacturing PMI rose from 55.6 to 56.5. In additional to that, industrial orders in the euro zone climbed 3.8% in May.
This outweighed Fed Chairman Ben Bernanke’s bearish comments on the US economy after he called the outlook “unusually uncertain.” This week’s US jobless claims data turned out to be negative, showing a larger than expected increase to 464,000.
This week’s inventories reports were inconclusive. Wednesday’s data from Energy Information Administration (EIA) showed an unexpected increase of 400,000 barrels in US crude stockpiles. The report also revealed a 1.1 million barrel rise in gasoline stocks, while distillates, which include diesel and heating oil, added 3.9 million barrels. On Tuesday, the American Petroleum Institute (API) said that US crude stockpiles shed 241,000, while energy information agency Platts projected a decline of 1.6 million barrels.
Oil prices currently stand at four week highs.
BP (LON:BP) declined from 407 pence to 398 pence, while fellow supermajor Shell (LON:RDSB) improved from 1,726 pence to 1,749 pence. BG Group (LON:BG) followed, rising from 1,064 pence to 1,081 pence, while other FTSE 100 constituents Tullow Oil (LON:TLW) climbed from 1,139 pence to 1,179 pence and Cairn Energy (LON:CNE) advanced from 450 pence to 473 pence.
Oil and gas engineering firms also did well. Amec (LON:AMEC) rallied from 866 pence to 903 pence and Petrofac (LON:PFC) rose from 1,281 pence to 1,353 pence.
Small Cap News
Rockhopper Exploration (LON:RKH) has spudded the latest exploration well in the offshore Falkland Islands frontier oil and gas play. So far the closely followed Falklands exploration story has been rather hit and miss, however out of the four companies drilling in the area, Rockhopper has enjoyed the most success to date.
Faroe Petroleum (LON:FPM) has intersected a 64 metre gross oil column in a better-than-expected reservoir at its 30% owned Maria prospect in the Faroe islands, proving oil in the main target Garn formation in Jurassic sandstones and causing its shares to soar 26% by early afternoon trade.
Africa and FSU operating oil and gas junior Victoria Oil & Gas (LON:VOG) has reduced the capex (capital expenditure) estimate for achieving first gas from its Logbaba project on Cameroon from US$30 million to US$7 million, while confirming it was on schedule for December 2010.
Dominion Petroleum (LON:DPL) told investors that the results from Ngaji-1, the first ever well in the Lake Edward Graben, in Uganda, were inconclusive. Ngaji-1 was designed to test the geology of the basin, which the company now confirmed “demonstrates key elements of a prospective basin,” however the well did not identify any significant hydrocarbons.
Leni Gas & Oil (LON:LGO) has raised £1.5 million in an institutional placing, issuing 75 million new shares at 2p each. The funds have been earmarked to fast-track new oil production in Spain, at Hontomin-2 and at the Ayoluengo Field.
Petroceltic International (LON:PCI) has spudded the first of a two wells in its exploration programme on the Ksar Hadada Permit in Tunisia. The Oryx-1 exploration well will be drilled to at least 1,165m to target the Ordovician Bir Ben Tartar Formation. According to independent consultants Blackwatch Petroleum Services, the Oryx target has 25 million barrels of (MMbbls) prospective oil resources, and the well has a 34% chance of success.
Xcite Energy (LON:XEL, TSX-V:XEL) has contracted the Ocean Nomad semi-submersible rig, to drill the 9/3b-R well on the Bentley field in the North Sea. The well is expected to spud in the middle of September, subject to the current rig programme, which will enable the company to complete the intended 9/3b-R well programme in 2010, as planned.
Baobab Resources (LON:BAO) has agreed a new joint venture with Southern Iron - an unlisted Australia-based southern Africa-focused mineral explorer - to advance Baobab’s Changara base metal and manganese project, in Mozambique. Through the staged joint venture agreement, Southern Iron can earn up to 80% in the project by undertaking a Definitive Feasibility Study within five years.
In a note on Leni Gas & Oil (LON:LGO) (‘LGO’), Edison Investment Research said that the company has the potential to transform itself into a mid-tier exploration and production (E&P) company over the next two or three years.
Iraq and Algeria operating Gulf Keystone Petroleum (LON:GKP) has said that the initial loads of production facility equipment to the Shaikan field location have arrived and that the AOS Discoverer-1 drilling rig has commenced the rig move to the Sheikh Adi-1 exploration well site.
Forte Energy (ASX:FTE, LON:FTE) has reported a maiden high-grade JORC Code compliant mineral resource estimate for its 100%-owned Bir En Nar Uranium Project, located in Mauritania, West Africa.
Large and Mid Cap News
The US government has ordered BP (LON:BP) to suspend the drilling of the relief well in the Gulf of Mexico as tropical storm Bonnie appears to be on course to enter the area and jeopardise the oil and gas supermajor’s operations.
In an update ahead of its H1 results, Turkmenistan-operating Dragon Oil (LON:DGO) told investors that it increased average daily production by 8% in the first six months of the financial year, to reach a production rate of 46,420bopd (barrels of oil per day). In the remainder of the year, the company expects to boost production further with its ongoing development programme, and for the full-year Dragon oil is targeting up to 10% production growth.
Oil and gas producer and FTSE 250 constituent Dana Petroleum (LON:DNX) has agreed to acquire a 50% interest in the El Manzala Offshore Area Concession in Egypt’s area of the Mediterranean Sea from BG Group (LON:BG) with drilling operations set to begin early next year.
Turkmenistan operating Dragon Oil (LON:DGO) announced the completion and initial testing of three wells, the Dzheitune (Lam) 13/144 & 28/146 development wells and the Dzheitune (Lam) A/129 sidetrack. Collectively, the three wells initially tested at over 5,000bopd (barrels of oil per day).
Asia focused oil and gas exploration and production company Salamander Energy PLC (LON:SMDR) said its subsidiary Salamander Bualuang has reached agreement with SOCO International (LON:SIA) to purchase SOCO Thailand LLC for US$105 million. The unit in turn owns SOCO Thailand which controls the 40 percent interest in the B8/38 licence in the Gulf of Thailand that Salamander does not already own.
