Touchstone Exploration Share Discussion Threads

[mount teide] 16/9/2018 16:32

As Iranian sanctions start to bite sending oil back to $80 - unabashed Trump has the front to call on the Russians to pump more while under sanctions themselves!


The U.S. Calls On Russia To Cap Soaring Oil Prices - OilPrice.com

As crucial mid-term congressional elections in November draw near, the Trump administration is feeling the heat over higher oil prices. London-traded global oil benchmark Brent breached the $80 per barrel price point on Wednesday, its highest level since May 2. NYMEX-traded U.S. oil benchmark West Texas Intermediate Crude (WTI) reached over $70 per barrel on Wednesday.

While both benchmarks pared gains on Thursday, moving back from four month highs, as investors focused on risk from the ongoing emerging market crises and trade disputes that could trim demand as supply tightens, high oil prices along with corresponding higher gasoline prices in the U.S. have the opportunity to play havoc with Republican hopes to hold onto key seats in November and retain control in Congress. Such a loss would ensure that Trump’s second half in office would face severe uphill battles with possible heightened calls from Democrats for impeachment.

Amid higher oil prices that could easily settle above $80 per, U.S. Energy Secretary Rick Perry is reaching out to Russia.

“The kingdom (Saudi Arabia), the members of OPEC that are opting their production to be able to make sure that the citizenry of the world does not see a spike in oil price ... are to be admired and appreciated, and Russia is one of them,” Perry said after meeting Russian Energy Minister Alexander Novak in Moscow on Wednesday.

The U.S., Russia and Saudi Arabia are also working together to make sure the world has access to affordable energy, Perry added.

Reaching out to Russia

In what can arguably be called an act of concession prompted by worries over spiking global oil prices, Perry said he proposed creating a joint investment fund to develop new projects with Russia, adding the Russian Direct Investment Fund (RDIF) could be part of such a fund. The RDIF said that it would support such a fund.

The RDIF is Russia’s sovereign wealth fund established in 2011 by Moscow to make equity investments in high-growth sectors of the Russian economy. According to the fund’s website, it has some $10bn of reserved capital management.

The complications in Perry’s overture are obvious. Washington, which has levied numerous crippling sanctions against Russia over a number of issues, ranging from its annexation of Crimea to Moscow’s meddling in U.S. elections, now needs Moscow’s help to reign in spiraling global oil prices. It’s a pivot from merely trying to pressure long-time ally Saudi Arabia over its oil production plans, particularly since the new OPEC, non-OPEC partnership, with Russia, has for all intent and purposes replaced what OPEC could do on its own in the past but has lost, the ability to sway and control global oil prices.

Dubious message

To those in Russia it could also appear to be a dubious message. Sanctions are still in place on Russian oil and gas exploration projects necessary to grow the country’s oil and gas production - the very assistance that Perry is asking for. Russia’s natural resources ministry has already admitted that sanctions have hampered the country’s oil and gas exploration ambitions.

"Sanctions against Russian oil and gas companies, which limit the inflow of foreign investment, new technologies and equipment in the industry complicate the development of new projects in Russia, especially offshore and those directed at hard-to-extract reserves development," the ministry said in the report on the state and use of Russian mineral resources in 2016-2017.

However, Moscow is fighting back by seeking funding for these projects in Chinese RNB or domestic funds, effectively bypassing the use of dollars and the U.S. financial system.

Mixed message

In spite of Perry’s acquiescence toward Russia’s ability to help the Trump administration’;s push to bring down global oil prices, he also came with a mixed message.

Perry also met with Russian Deputy Prime Minister and Minister of Finance Anton Siluanov. Perry told the officials that the Trump administration opposes Nord Stream 2 because it would concentrate a single route of Russian gas into Europe, “one vulnerable to disruption and risks of over reliance for European customers.”

Nord Stream 2 is a 759 mile (1,222 km) natural gas pipeline running on the bed of the Baltic Sea from Russian gas fields to Germany, bypassing existing land routes over Ukraine, Poland and Belarus. It would double the existing Nord Stream pipeline’s current annual capacity of 55 bcm and is expected to become operational by the end of next year.

The U.S. has long maintained that the pipeline presents security risks to much of Europe and even could even open ways for Russia to install undersea surveillance equipment in the Baltic Sea.

Ulterior motive allegations

Many EU members, particularly Germany as well as Moscow itself, see U.S. resistance to the Nord Stream 2 project as a way for Trump to push American LNG exports into Europe. However, at the end of the day Russian gas is far cheaper than imported U.S. LNG volumes going into Europe and will likely stay that way for decades.

Perry told the Russian officials that the Trump administration welcomes competition on energy from Russia, but “Moscow can no longer use energy as an economic weapon.”

Asked during a joint news conference with his Russian counterpart whether the U.S. might impose punitive measures against Nord Stream 2 and other projects, Perry said, "Yes."

Russia has long countered that the proposed gas pipeline is purely a “commercial project” and will proceed with without U.S. approval.'

[fardels bear] 14/9/2018 21:59

This very much smacks of somebody who is desperate to have the last word.

[mount teide] 14/9/2018 21:19

Oil and Copper's power to shield an investment portfolio from inflation is highly compelling according to recent research by Bloomberg Intelligence: for every 1% increase in US consumer prices since 1992 to 2017, oil and copper's gains have hugely outperformed every other asset class:

28% - Oil
18% - Copper
12% - Industrial Metals
7% - Agriculture
6% - Precious Metals
5% - Gold
2.5% - S&P
1.0% - CPI

Data Source: Bloomberg Intelligence

[mount teide] 14/9/2018 17:04

Fozzie - Last Autumn, in relation to the S&P500 the GSCI/Goldman Sachs Commodity Index (heavily weighted to oil and industrial metals ) started moving up off its lowest level in 50 years.

The GSCI still sits some 120% below its long-term median of 4.1. The highly reliable mathematical principal of mean reversion of markets, strongly suggests it continues to signal a highly attractive investment opportunity over the next 3-5 years.




The previous oil/copper bottom in 1999/2000 was just before a major main market crash, which saw the FTSE drop circa 50% and some 7 years later still remain in correction territory some 20% down.

What did copper and oil do during this 6/7 year period? Go up 498% and 275% respectively as a result of demand continuing at 2-3% a year, while the effects of a massive half decade collapse in production development investment between 1994 -1999 as a result of decade low copper and oil prices came home to roost.

The identical fundamentals are currently repeating themselves: 2013-2018 saw a collapse in copper and oil industry investment which has barely moved up off its 2017 bottom, and is still some 65% down from the 2013 peak. H1/2016 saw copper and oil prices finally bottom after falling for 6-8 years to decade lows.

Demand has continued to roll on at an average of 1.5-2.5% a year - much like it has for the last 50 years, apart from a 6 month lull during the global financial crash.

Future demand for oil and copper is being driven overwhelmingly by the circa 88%, and rising rapidly, of the worlds population not living in Europe or the USA, who don't have massive mortgages on highly overpriced property, credit cards maxed out and expensive car loans to service on incredibly fast depreciating vehicles.

Although oil and copper consumption has dropped significantly in the West over the last few decades, it has been overwhelmed by the increase in demand from the high population Nations - China, India and in SE Asia - which continue to experience massive growth.

Oil consumption has dropped in the USA, Europe and UK during the last 20 years - in the UK it has fallen by circa 10% while in China it has gone up 210% to nearly 13m bopd, some 14 times the TOTAL daily output of the North Sea. In fact, China now has to produce/import an additional 80% of the ENTIRE North Sea output EVERY YEAR just to meet its annual growth in consumption - it therefore comes as no surprise China has decided to rapidly accelerate the pace of electrification from renewables across its transport infrastructure.

Moral of the story? As the above chart shows, Oil and Copper sector investors have a very long history of enjoying main equity market crashes!


AIMHO/DYOR

[wheniamfree] 14/9/2018 16:46

Ross the problem is you also post valid information.

I don’t see the logic in repeatedly asking the same thing, we know your stance and others have also replied to give their view on why they disagree but that should be end of story.

At the end of the day they are two opinions, I personally disagree with you but I wouldn’t sit here and post the same remark constantly. If that is what you believe will happen fine, until it does then just give it a rest and you can perhaps come back and say “I told you so” after the event.

Otherwise you could be sitting here until 2019 posting the same thing over and over. Saying something repeatedly doesn’t mean it will happen.

[fozzie] 14/9/2018 14:30

Trin, Txp, Jse, Hur, I3e, Sqz, Dgoc i don't think i can hold any more oilers in my portfolio but if as you suggest MT we are looking at a special situation i will be delighted to let the tide lift all my boats.

[wheniamfree] 14/9/2018 14:21

I don’t post here but I hold, Ross - how many times can you word and ask the same question.

Every other post is the same thing, it’s boring. Your effectively voicing your opinion which is fine but we have read the same thing daily.

Change the record.

[mount teide] 14/9/2018 12:42

Paul Baay emphasised at a recent presentation to prospective investors - "the Ortoire exploration programme would not put the company at risk in the event of failure".

As someone who navigated Touchstone through the severe 2010-2016 oil market downturn much better than his T&T peers, many of whom like the Trinity management came within a whisker of losing everything - Touchstone certainly benefited from his background as a professional economist.

[mount teide] 14/9/2018 11:10

Spangle - thanks for your insights - i was looking at the situation from the view that since T&T Nat Gas is overwhelmingly exported as LNG to high price markets abroad, it should and does command a significantly higher price than US Nat Gas.

Qatar exports huge quantities of LNG to SE Asia under long term contracts(25 year) at prices in the $7-$10MMbtu range - while LNG spot market rates, particularly in summer has historically seen pricing in SE Asia in the $12-$15 range, some 4-5 times the US market rate(LNG processing and transport costs to export markets typically average $1.5-$2.0MMbtu). With the huge increase in demand for Natural Gas from China and SE Asia, its why the US is in the process of converting many of its former LNG import terminals into export terminals).

TXP drilled Well PS598 last June to 7,340ft for a total cost of circa US$1.2m and PS599 to 6,926ft for circa US$1.1m. So while the proposed 11,500ft wells in Balata and Ortoire Central will be in the $4m-$5m range, the indicated 7,500ft Terminal Depths of the Corosan wells suggest these could be very much cheaper to drill.

There could be good reason to believe the Corosan prospects may also have the potential for a valuable liquid yield - going by the discoveries on the nearby Central Block:

In 2000, Carapal Ridge became the largest onshore discovery made in Trinidad and Tobago in the last 40 years when it tested at 62 million standard cubic feet of gas per day (mmscfd) and 1,625 barrels of condensate per day (bcpd). The discovery well on extended production test produced approximately 20 mmscfd and about 500 bcpd. The nearby Baraka-1 well, in July 2003 tested at 22 mmscfd and 660 bcpd.

[spangle93] 14/9/2018 10:04

@Rossannan - I think it's very important that at least 2 Ortoire wells are drilled in 2019, probably not 4 because TXP will gain a lot of insights from the first two that will need to be processed in order to shape the understanding of the Ortoire block before drilling further

I think the cost of the Exploration wells will vary due to their depth targets, e.g. Corotan is 7500ft TD, Balata is 11500ft TD. I don't know the depth of a typical oil production well from memory, but I think it's about 4500ft (cost/well / cost/ft). Cost/producer is around US$800k. Maybe Corotan can be done for $3MM?

Anyway, even if we speculate on cost, it will be a goodly outlay.

I don't want this to sound like I'm not answering your question, but I suspect Paul Baay is smart enough to cut his drilling cloth according to the cash he has available, rather than risk running out of money. That's how I'm seeing it.

MT indicated the available capital and the current netback and cash flow, which appears with every month like it will cover the planned program.

But, if it doesn't cover both the exploration and development campaigns, he and his board have two options - scale back development drilling, or raise funds. My guess is that they have a lot more information and insight than people on this BB do as to which course of action is in the best long term interests of the company.

[spangle93] 14/9/2018 09:21

@Lord Gnome - The US is an extreme case, just for illustration (ramming home the point!).

Some companies, like the former NOP, always quoted BOE to make their assets sound better than they were

In some cases, e.g. if the country is gas short and needs to import, the price per MMBtu could be US$ 7-8 per MMbtu, and then the equivalence would be much closer.

As MT has alluded to, Trinidad would appear to be a place that would command a good price for gas, though of course, there would be a tariff for tranportation and processing which oil doesn't have to the same degree. And we don't know if the gas (if discovered) has a valuable liquid yield that would enhance its value, or a high impurities (CO2, H2S) that would make it less attractive to clients.

In any case, I think it's great to have these prospects, because my perception is that they have potential deliver a significant, steady revenue stream.

[lord gnome] 14/9/2018 09:00

I agree Spangle. Gas is gas and Oil is oil. Don't mix the two. I have made that mistake in the past and come up with some 'over the moon' valuations for companies with BoOE in gas. Until I realised my mistake I was sitting there thinking I had hit the undervalued investments of all times.

[spangle93] 14/9/2018 05:52

"8.2mmcfd is equivalent to 1,400 boepd"

Sorry MT, I know you know this, cos you've been schooled by JT Cod on his thread.

But for others who are new to the sector, this barrel of oil equivalence relates only to calorie value.

For instance in the US, Henry Hub is about $2.9/MMBtu (roughly per kscf), so 5.8 kscf = $16.82 = 1 BOE. WTI by contrast is about $68/bbl.

Flipping this around, instead of the conventional 5.8 kscf = 1 BOE, the value equivalence factor for some years in the US has been 20-24x.

I'm sure gas has more value in Trinidad than in the Lower 48 for reasons often articulated, but nonetheless, it's best to think of them separately when considering revenue streams, rather than pooling everything as BOE.

Though point taken - from what we've been presented with, 1 find anywhere on Ortoire would be of a similar magnitude to the company's hydrocarbon assets thus far.

[mount teide] 14/9/2018 01:04

The Corosan gas prospect has been selected as the location for the first Ortoire well since it is considered low risk and can be quickly and cheaply tied into Shell's nearby gas pipeline infrastructure running to the Point Fordtin LNG terminal.

The Corosan well will twin a well(Corosan 1) drilled at the location in 2001 to a depth of circa 5,800ft which tested at 8.2mmcfd from an upper zone on the prospect, before being abandoned since there was no gas processing facilities/infrastructure on the Island at the time. There is a potentially much larger lower zone on the prospect which will be fully evaluated with this first well by drilling to a terminal depth of at least 7,500ft.

8.2mmcfd is equivalent to 1,400 boepd.

The potential reserves being targeted with the Corosan well is at least equivalent to the total current reserves of the company.

The next two prospects - Ortoire West (Oil) and Ortoire Central have estimated volumetric hydrocarbons in place potentially 10 times larger than the Corosan prospect.

Data Source: TXP's Oil Capital Presentation and Aventura Energy's Corosan 1 Drill and Test Data

AIMHO/DYOR

[che7win] 13/9/2018 15:37

agreed tektonik.

Due a sharp move up imho.

[tektonik] 13/9/2018 15:11

Thanks for sharing Che7win, good time to get in me thinks