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Yesterday offshore Senegal successful explorer FAR Ltd (FAR) held its AGM. The media has noted that there was a degree of opposition to the Company’s Board expressed through fairly high negative votes on various fronts (but not enough for them to fail or to earn a “first strike”).
In the end of the day, whether a company’s share price is rising or falling will pretty much solely determine shareholder attitudes to remuneration. The problem with FAR is that it has a decent 15% share in a world class conventional crude discovery – and its share price is a measly 8c or so.
Why is this the case? In our view the prime suspect is certainly not excessive management pay – or much more importantly, the oil price.
Rather, it is market sentiment. In a bull market, investors want to follow a story – and finance it. In a bear market, a story that needs ongoing financing will be shied away from – leading to a self-fulfilling prophecy.
FAR illustrates this – the bear-ish investment community has known it needs to raise capital from time to time – and a low price follows. The company then raises at a discount.
And so it goes. Result – lots of shares on issue and a lowly share price. As a small shareholder, we still expect FAR to deliver some value – but nothing like the owners of much worse assets such as Pure Energy and Hardman Resources delivered to their shareholders in more optimistic times.
Crude prices performed strongly overnight, with Brent up nearly 3% to US$49.07 and WTI even better (3.3%) to US$47.72.
Ongoing supply side weakness from Nigeria and Venezuela, together with revised (much tighter) supply/demand imbalance numbers from the IEA, were the key drivers.
The key OPEC decision of recent years – November 2014’s non-move to not cut production in order to hit US producers – has in fact hit these OPEC members far harder than the damn Yanquis.
And on top of that, the recently ultra-bearish Goldman Sachs (“US$25 oil”) has turned 180 degrees and is now a bull (should that be a cause for concern?).
Henry Hub closed down 3% at US$2.03.
LNG and international gas
A glimmer of light in LNG markets – for the first time in well over a year, the key market of South Korea had a slight increase in LNG purchases year-on-year for the first quarter of 2016. Producers will hope this is a case of “lower prices fixing lower prices” through a demand boost.
Governments and fracking, etc
The Australian Federal offshore regulator, NOPSEMA, has handed BP back its Bight Basin homework with yet another “must try harder” sticker.
BP has stated it will fix things up and is still aiming for an end of 2016 commencement of its ultra-deepwater exploration program.
But would it be possible that BP would be happy with some further delays here if it can play a regulatory Force Majeure card? It has commissioned a very expensive drill-ship for this work – but that cost is sunk and there are presumably a lot of marginal costs avoided through delaying drilling by a year or so.
Company news – Sino Energy and Gas (SEH)
It was Chinese unconventional gas player SEH’s turn for an AGM today and its presentations thereto seem to have been well received by the market, with its share price materially on the up today. The recent takeover (as yet uncompleted) of its partner at a strong look-through price, together with the fixing of various problems such as non-payment for gas sales, seem to now be gaining the confidence of the market.
Quote of the day
Warren Buffett at Berkshire’s recent AGM on the consequences of OPEC’s 2014 move for the US (NB – the message in Nigeria, Venezuela, etc is not quite as optimistic):
“The fall in oil prices is good news for consumers but bad news for some businesses and workers. Net, it should be good for the United States overall to have low prices for oil because the U.S. is a net importer of crude. Oil is big enough and extends into enough areas that it also hurts when it falls. The drop does affect capital values, which can see a huge contraction that hits immediately as the value of an oilfield drops sharply as oil prices fall. You have this big impact on capital values immediately and you have the benefits move in over time.”