The Oil Man: Independent Oil & Gas

WTI $68.43 +50c, Brent $73.62 +26c, Diff -$5.19 -24c, NG $2.73 -3c

All is quiet in the oil market as the world waits to see what the Donald will do about the Iran nuclear agreement.

To me, the original deal was put together in a hurry and with too many diplomats trying to make a name for themselves and Trump could ironically be right this time.

Either way, it looks like sanctions are about to come which, whatever they say, harm Iran in the short term as they lose up to 1 million barrels of oil per day of production and the longer term as investment in fields and facilities suffer.

Yesterday, was a very mixed day with sessions varying and crude vacillating ending finally with modest gains.

Today, the complex has lost a few cents and may well end up flat on the week again. There are two issues, the recent strength of the dollar clearly hasn’t been helping commodities and the FOMC cleared things up on Tuesday by indicating that the economy was in great shape and that rates would rise next month.

Today is the employment report and assuming that the Fed had sight of it there should be few worries but you never know……

Independent Oil & Gas

In a fortnight full of exciting meetings I spent the morning last week with the board of Independent Oil & Gas (IOG) in order to get myself up to speed with their plans as I know that there is much going on.

IOG has a gas strategy based on a gas hub system in the Southern North Sea with a number of gas fields now made possible by the 100% owned Thames pipeline.

This pipeline runs from Bacton and will serve both the Blythe hub and Harvey to the north west via a spur and will carry on to take gas from the Vulcan satellites hub to the north east.

IOG has been and for the time being continue to be significantly funded by London Oil & Gas, who wholeheartedly back the strategy which has been a smart move up till now.

On Tuesday, they made an RNS which was an operational update of their current SNS activities and the Intelligent Pigging Programme (IPP).

On the IPP they have contracted a DSV from Subsea 7 which has been mobilised and commenced work.

The FEED contract has been awarded to Wood (WG.) for the subsea and pipeline work and which means that the company is on schedule for the FDP approvals for the Blythe and the Vulcan satellites hub by the end of August 2018 and first gas by Q4 2019.

This will all happen through a phased development plan which will start with Blythe, Southwark and Elgood, continue with Elland and Nailsworth and all being well finish with Harvey.

I say all being well as Harvey needs to have an updip well drilled to establish its size. According to the company, Harvey could be the largest of all the fields in the portfolio as the high estimate is 286 billion cubic feet of natural gas, but even at the low case of 45 billion cubic feet of natural gas it works.

In the high case, it would merit a platform of its own and should it be at the lower end it works as a tie-back to Blythe.

It comes as no surprise then with all these substantial activities that the needs of a corporate nature are significant and this is where some in the market harbour suspicions.

The development of the project, including the appraisal of Harvey, is the most imminent but the company does also have other plans.

Expansion of the portfolio has a great deal of merit either through local opportunities, after all IOG will have the best if not the only export route from the SNS soon, or via the current 30th licensing round.

Those local opportunities could be buying stranded assets locally, rescuing forced sellers of production or even transporting 3rd party gas through the huge Thames pipeline.

All these thoughts combine to give the same thought and it is one which has concerned the market for a long time, viz how will IOG pay for this ambitious but potentially enormously profitable plan?

The likelihood is that it will be done fairly traditionally though a mixture of Senior and Junior debt as well as equity and also contractor support.

The latter has been done for some time by IOG, not without problems but the industry is getting very used to contractors participating in the financing of the projects and I’m sure will do so here.

IOG looks to me like a very desirable play, I agree with the company in its demand and price projections and given that only recently the UK was only hours away from running out of gas, consider this to be not much short of a no-brainer.

Operationally and financially, it will need to be handled with the utmost care though and I think that recent management changes have been enough to give investors confidence in the future.

IOG has taken time to build this portfolio and it has not been without its challenges, London Oil & Gas deserves credit for sticking with it as do the management and, at least for the moment, I am sticking with my positive stance…

And finally…

So, Arsene was unable to end his career at the Gooners by winning the Boropa Cup and thus leaving a legacy in the Champions League after losing to Athletico last night. Gooners fans would tell you that their record in Europe is one reason why Wenger had to go but careful what you wish for…

In the Prem, now its pretty much what’s going on at the bottom of the league but the game of the weekend is still Chelski v the HubCap Stealers on Sunday which is always a good watch.

The weekend actually starts with the Seagulls hosting the Red Devils tonight and over the long weekend, we have some serious relegation issues. The Terriers have to go to the Etihad to play the Noisy Neighbours whilst the Hammers are at the Foxes and the Potters need points from the Eagles.

The Baggies realistically can’t survive but if they are to it has to start by beating Spurs tomorrow! The Gooners host Burnley but both should be in Europe next year and on Tuesday the Saints at the Swans should be tasty.

Watch out for the rematch between Antony Bellew and David Haye at the O2 tomorrow night, grudge is the word after Haye got turned over last time.

And on the flat it’s the start of the classics with the 2,000 and 1,000 Guineas at Newmarket and unsurprisingly Aiden O’Brien has the favourites in both with plenty of other live chances..

On Sunday the MotoGP circus travels to Jerez to start the European leg of the Championship. The partisan crowd will be hoping Marquez can avoid ramming anyone and Lorenzo can get on the podium for the first time this year, whilst the Union Jacks will be waving for Cal Crutchlow the leading satellite rider.

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

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