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Commentary: Oil price, Petrofac, Far, Touchstone

14/03/2019

WTI $58.26 +$1.39, Brent $67.55 +88c, Diff -$9.29 -51c, NG $2.82 +4c

Oil price

There is a gradual but very solid rise going on in the oil price and two of the reports on my desk this morning showed that on a technical basis both WTI and Brent are at important staging posts. With WTI closing above its recent high and Brent currently on its high any strength would make the chartists more bullish.

The EIA inventory stats also helped, a draw of 3.9m barrels was miles away from the scribblers guesstimates, they even got the sign wrong. With a draw in gasoline of 4.6m and other sundries the total draw of over 10m barrels pushed the market up. Add to that stricter rules on Iran waivers from Washington, more cuts from Venezuela and the EIA ‘trimming’ its US production numbers for this year and next (albeit to 12.3 and 13.03m b/d) and the market remains sweet.

Petrofac

Petrofac announced yesterday that they had won a $1bn contract for the Ain Tsila development project in Algeria. A 42 month lump sum contract, the EPC will include commissioning, start-up and performance testing. As I mentioned last week, at an operational level the company is performing very well indeed and this contract win is proof of the pudding. The shares remain under the SFA cloud but for those prepared to take a longer and more rounded view the shares are incredibly good value.

Far Ltd

Far has released its Annual Report this morning, such a document is normally a historical reference work for shareholders which I wouldnt normally comment on but it is always good to see an update from the company which is in such a chipper mood.

Last year was a very busy one and ended with the slightly unexpected disappointment in The Gambia. In the report Far say that the technical work is still going on but that it ‘is confident of progressing towards another well in early 2020’. The company repeat that they have strong evidence that the SNE field extends into The Gambia  and as such are refining the Soloo prospect at present.

Whilst The Gambia disappointed it is clearly not going away and the company are rightly persevering with it. Development at the SNE field continues and whatever the outcome of the arbitration will be a jewel in their crown in coming years. Apart from The Gambia, exploration work continues on its acreage in Guinea-Bissau and we can expect a well there in 2020 as well subject to usual approvals.

I know that shareholders in Far have been incredibly patient but the combination of the SNE field, significant exploration potential in The Gambia and Guinea-Bissau makes Far a genuinely serious player in the MSGBC basin in West Africa and one that is not recognised by the share price at present. It may be a long haul but I am still convinced that it will be rewarding.

Touchstone Exploration

An operational update from Touchstone this morning where current estimated production is a healthy 2,358 b/d of which 993 b/d came from wells drilled in 2018 having produced an average of 2087 b/d in January and February.

The company is kicking on with the work on the Ortoire block and expect all the CEC’s (environmental compliance certificates) to be approved within 30 days giving them 14 drilling locations on the property. Accordingly the company is in the process of ‘securing the required services’ to drill the Corosan exploration well. With a decent start to the year in production and an exciting prospect in Ortoire, TXP is exhibiting positive signs of cash flow and potential beta.

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