Interactive Investor

The Oil Man: Gulf Keystone, Circle, Independent, Woodside

WTI $44.75 -$2.05, Brent $46.26 -$2.21, Diff $1.51 -16c, NG $2.74 +1c

Indifferent news dominated oil markets yesterday: Chinese trade data was poorer than expected, the inventory data was slightly worse than forecast and the International Energy Agency (IEA) produced a bullish report with a sting in the tail.

The Energy Information Administration inventory stats showed a draw of 2.5 million barrels, but the market had hoped for 3 million, added to which products built, particularly distillates.

The IEA report was the most bullish overall this week, with long-term call on OPEC increasing, but the sting in the tail was that they continued to warn about high stock levels.

This morning the price has rallied by about 50 cents, which indicates some resilience, I suspect.

Cairn/Far

Brief thoughts on the Woodside deal to acquire the ConocoPhillips 35% stake in the three Senegal blocks for $350 million (£264 million), plus $80 million on completion. I am waiting for a call with Far and will add more either today or in more detail tomorrow as time is short.

My initial take is that Woodside has done way the better side of this bargain, although COP had handled the sale badly and telegraphed the sale all round the market. Historically, it is not a good trader in these situations, but at least with a keen owner it means that development will probably kick on, as Woodside has said it will fast-track to near-term production and take over the operatorship.

Buying a class asset at $2.20 is outstanding and COP has given away an asset in order to pay the dividend; such things happen in these markets and Woodside will in due course be applauded for making a superb, counter-cyclical move.

With Woodside and Far using the same reserves data, one can be sure that Far considers its stake in the licences to be way higher than their current share price.

Gulf Keystone Petroleum

So, the balance sheet restructuring has happened and pretty much as one might have expected under the circumstances.

Debt will be reduced by converting $500 million into equity, which will amount to 5% before the equity issue. That issue, of $20-25 million, underwritten mostly by capital, will be the only way that current shareholders can participate in Shaikan going forward, but it should be seriously considered.

While there will be a temptation to look backwards and the mess that it has become, in the future there is a world-class asset in a country supported and on the mend - albeit slowly - which could be worth something.

The money raised will, apparently, be enough to keep Shaikan producing at 40/- barrels per day (b/d) and potentially 55/- b/d - not to be sneezed at, especially if you are bullish of the oil price next year. The balance sheet will be cleaned up, and the $32.5 million Debt Service Reserve Account will be removed.

If it were me, I would hang on in there, apply for some more stock in the likelihood of making something back and try to put the past behind me; I know that's not easy but in the here and now Gulf Keystone still has a future. Oh and by the way, it's got another new chairman…

Sundry

Circle Oil has announced that the International Finance Corporation has extended their support until 5 August while the strategic review is still going on.

Independent Oil & Gas says the Skipper well will likely spud around 22 July as per my recent thoughts.

And finally…

Two of the finest and most historic sporting occasions of the summer start today and, as I write, it is not raining for the first time for some time…

Up at Royal Troon, the Open Golf Championship is under way as Colin Montgomerie hit the first ball at 0635 hours this morning. Recent years have seen total domination by US players in this event, but in a Ryder Cup year - not to mention the Olympics - there is more than usual to play for.

Today sees the first test match against Pakistan at Lords and so we are bound to see plenty of no-balls - although, unfortunately, we won't know when they are coming…

England have brought back Ballance at four and pushed Root up to three, about which I am not convinced; he averages 29 at three and 50 at four.

With Anderson unfit, there's a spot for Jake Ball on debut; Pakistan won the toss and are batting.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.