The Oil Man: Cairn, Chariot, Touchstone, Falcon Oil & Gas

WTI $65.55 -33c, Brent $70.12 -33c, Diff -$4.57 n/c, NG $2.62 +3c

The market is quiet, unsurprisingly, as we come to the month and quarter end, this year also coinciding with the Easter break. Crude though is holding levels that the bears can’t understand, although seems quite natural to me at the moment given stock levels and geopolitical risk in the market.

In the US ahead of the first real driving time of the year, it is noticeable that retail gasoline and diesel prices are rising, at $2.64 per gallon gasoline is up 5c on the week and 33c on the year, and diesel has tripped the $3 barrier, at $3.01, up 4c on the week and 48c on the year.

What wasn’t quiet yesterday was the opening of the Chinese renminbi-denominated oil futures contract, designed to establish a benchmark high-sulphur crude primarily used in domestic refineries.

This contract is available to be traded by international, non-Chinese based corporations, and there were plenty of signs yesterday of all the big boys participating and giving a total of nearly 40,000 contracts traded. Whether this will last is difficult to tell as the currency for one will distract non-domestic players, and I don’t think that other international exchanges will be quaking in their boots just now.

Cairn Energy

Results from Cairn's (CNE) Tethys well came in yesterday afternoon and they were rather disappointing. Starting with the 35/9-13 well which encountered temporary problems, the well was p&a’d and a new well, 35/9-14 was spudded 35 metres to the southeast which found a 20 metre oil column of which 10 metres was ‘poor quality’ reservoir. The 35/9-14A delineation well was dry making it an unprofitable discovery.

Chariot Oil & Gas

Chariot (CHAR) has announced the results of the Open Offer which runs alongside the raise of $15 million at 13p completed last month. Hoping to raise $5 million, the offer was 41% taken up giving according to the company another $2.5m plus a small contribution at this stage from director Larry Bottomly. A slight disappointment given the company is drilling the Rabat Deep well as we speak in Morocco. I am visiting with the management on Thursday and will come back with my thoughts after that.

Touchstone Exploration

Results today from Touchstone (TXP) which, as per any company, are meaningless in the sense that all information has already been made public before now. The company operates in Trinidad which readers will know that I am very positive about and is a significant oil and gas province for both majors and smaller players who are primarily onshore.

Touchstone is fairly new to London but has good production at year end, 1,375 b/d up 6% but now already producing 1,654 b/d and with a healthy target of 2,000 b/d. Cash of $13.9 million at year end after a raise of $5.3 million gives them a strong position to grow with a strong drilling programme. (It is worth noting that in the statements don’t be confused by some dollar numbers in US and some Canadian)

Falcon Oil & Gas

The final report from the scientific enquiry into hydraulic fracturing in the Northern Territories has been released and, much to the relief of Origin and Falcon (FOG), it is largely unchanged from the previous, interim report.

It states that no industry is without risk but that challenges and risks associated with any onshore shale gas industry in the NT can be mitigated, reduced or even eliminated in some cases. The key studies and assessments such as the SREBA can be done in tandem with exploration and production, crucially before production thus saving time and money.

What happens now is clearly up to the government who commissioned the report but with such an array of green lights and, more importantly, the fact that such an independent enquiry has reported with such clarity, it would be odd not to accept it and sooner rather than later.

Even if this was just in the Beetaloo sub-basin to begin with it would give Falcon and Origin the chance to complete phase 1 and get on with planning for phases 2 and 3 straight away. In my view, although the drilling season could start as early as May this year, investors should expect a detailed plan for 2018 and 2019 to be hammered out by the partners before long.

Even up by 12% or more this morning, the long term value for Falcon is way higher than 20p, once the green light is given I would expect it to travel much, much higher over time.

And finally…

The international break for ‘friendly’ internationals is always a waste of time but occasionally throws up some interesting matches. Tonight is one such occasion as England host Italy, always a spectacle (!), Spain play Argentina and there is a World Cup rematch between Germany and Brazil to whet the appetite. Don’t also forget that Scotland travel to Hungary, a match for what you might call the ‘specialist’ audience…

And tapegate continues as pictures of Cameron Bancroft shovelling sugar into his pockets during the Ashes have come to light, shame he didn’t have a teapot, mug and milk out there with him as well…

Malcolm Graham-Wood is an independent oil industry expert and freelance contributor, not a direct employee of Interactive Investor.

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