Oil stocks post weekly declines amid crude volatility on mixed data, demand outlook

Just like the key stock market indexes, oil prices remained at about the same level during the volatile week with US light, sweet crude for April delivery closing at US$79.61/barrel after reaching US$80/barrel on Monday amid strikes at Total’s (NYSE: TOT) refineries that at that time threatened to spread to its other facilities in France and the situation in the OPEC’s (Organisation of Petroleum Exporting Countries) second largest crude producer Iran, which advanced its uranium enrichment programme amid protests from the UN and threats of further sanctions from the US.
Crude futures got further support from China, which processed 29% more crude in the month of January than a year before, signalling an increase in demand from the world’s second largest energy consumer.
Later in the week prices weakened with US benchmark crude slipping down to US$77/barrel amid selloffs in global stock markets caused by bearish economic updates in Europe and the US. In Germany, the Ifo index from 95.8 to 95.2 in January instead of an expected increase to 96.4, reflecting a lower level of business confidence in the country, while American industry group Conference Board’s Consumer Confidence Index dropped from 56.5 to 46 in February, sparking demand concerns among investors.
Crude futures rose later in the week amid a recovery in the stock markets and inventory reports from API (American Petroleum Institute) and the Energy Information Administration (EIA). On Tuesday, API said that crude stockpiles fell by 3.1 million barrels last week instead of an expected increase. However, gasoline stocks added 1.7 million barrels, while distillate stocks including heating oil were down by 834,000 barrels, which was a lesser decline than projected. On Wednesday, the more closely watched report from the US Energy Information Administration (EIA) reported an unexpected increase of 3 million barrels in crude stockpiles last week, signalling weaker demand, which, however, failed to turn off investors. At the same time, gasoline and distillate stocks including heating oil declined by 900,000 barrels and 600,000 barrels respectively.
All major oil and gas stocks suffered losses this week. Supermajors BP (LSE: BP) and Shell (LSE: RDSB) ended the week at roughly the same levels, while fellow FTSE 100 constituents BG Group (LSE: BG), Cairn Energy (LSE: CNE) and Tullow Oil (LSE: TLW) declined. Amec (LSE: AMEC) followed BP and Shell, getting back to Monday’s level at the end of the week, while fellow engineering firm Petrofac (LSE: PFC) moved with the sector, posting a sharp decline at the start of the week before recouping part of its losses on Friday.
Crude’s gains were curbed by surging US dollar, which gained on the euro amid volatility in the markets, which increased its appeal as a safe haven for investors. A stronger US dollar makes crude more expensive for holders of other currencies.
Large and Mid Cap News
Asia focused oil and gas company Salamander Energy (LSE: SMDR) has spudded the Bang Nouan-1 exploration well in the Savannakhet area of Lao People’s Democratic Republic (PDR). Bang Nouan-1 will be drilled to approximately 3,700m true vertical depth. It is forecast to take approximately 75 days to complete on a dry-hole basis.
British Gas parent company Centrica PLC (LSE: CNA) said it has signed an agreement with Suncor Energy (TSX: SU, NYSE: SU), under which Centrica will acquire Suncor’s Trinidad and Tobago portfolio of gas assets for £246 million in cash.
Oil and gas producer and FTSE 250 constituent Dragon Oil (LSE: DGO) reported an average daily production rate increase of 9% in 2009 over 2008 and landmark production of 50,000 bopd (barrels of oil per day) achieved at the turn of 2009/2010. It is also offering a bullish outlook for the next three years amid a recovery in commodity prices and with a cash balance of more than US$1.1 billion.
Small Cap News
Petro Matad Ltd (AIM: MATD) has issued 13.7 million shares to the European Bank for Reconstruction and Development (EBRD), representing the first US$3 million tranche of the EBRD’s US$6 million subscription under the agreement announced in December last year.
Desire Petroleum (AIM: DES) and Rockhopper Exploration (AIM: RKH) announced the spudding of the Liz 14/19-A exploration well following the arrival of the Ocean Guardian rig in the Falklands.
Egdon Resources (AIM: EDR) has signed commercial agreements for the sale of the Kirkleatham Gas Field production to SembCorp’s (SINGAPORE SGX: U96) Utilities unit, which operates the Wilton International manufacturing site in Teesside.
Ascent Resources (AIM: AST) has stocked up its funds for ongoing work programmes at its projects through the sale of its 45% interest in Perazzoli Drilling for €1.85 million, while retaining the advantages that were provided by the ownership of the Italian drilling contractor through a five year service alliance.
Nighthawk Energy (AIM: HAWK) said that the operator of its 50% owned Jolly Ranch oil project in Colorado, Running Foxes Petroleum Inc, expects production to rise from 150 bopd (barrels of oil per day) to an initial target of 1,000 bopd during 2010. The update has been well received among a number of analysts in London. Westhouse Securities has reiterated its opinion that Nighthawk remains significantly undervalued, maintaining its ‘buy’ recommendation. Elsewhere Edison Investment Research said the company is making very encouraging progress in de-risking Jolly Ranch, which believes is evolving into a major shale-oil play.

Edison Investment Research issued a note on Gulfsands Petroleum (AIM: GPX), upping its RENAV (risked exploration net asset value) to 301 pence from 263 pence, reflecting a higher near-term oil price assumption and de-risking of the Yousefieh field and the inclusion of five exploration prospects in the risked valuation.
Europa Oil & Gas (AIM: EOG) noted that the operator of its 28.75% interested Brodina block in Romania, Aurelian Oil & Gas (AIM: AUL), today upgraded the potential gas-in-place along the Voitinel-Solca trend from previous estimates of 50-100 bcf (billion cubic feet) to 400 bcf.
Aurelian Oil & Gas (AIM: AUL) announced an upgrade to the gas-in-place estimate for the Voitinel gas project in Romania today and recapped its progress in 2009, including increased production volumes and revenues and successful capital raisings to remove the financing risk that was weighing on the share price.
sland Oil & Gas (AIM: IOG) and San Leon Energy (AIM: SLE) have agreed the terms of a recommended share-based merger, which values Island at £13.74m.
Irish oil and gas exploration and production company Providence Resources PLC (AIM: PVR, IEX: PRR) said it has signed a strategic collaboration agreement with PGS Ventures A/S, a division of Petroleum Geo-Services (PGS), an industry leader in offshore seismic data acquisition and processing.
Dual-listed oil & gas explorer Range Resources (ASX: RRS, AIM: RRL) has encountered significantly better oil and gas production than expected following successful connection of the Smith #1 well to the sales line earlier this week.
SeaEnergy (AIM: SEA) has been named Company of the Year at the Rosenblatt New Energy Awards 2010. The award recognises the company which made the most meaningful progress or made the biggest impact in the renewable energy sector during the year. The company is currently participating in the large government-backed offshore wind-farm development in the North Sea.
Pan Andean Resources (AIM: PRE) provided investors with an update regarding the demerger of its North American and Bolivian operations, and the Petrominerales (TSX: PMG) acquisition of its Colombian and Peruvian assets. Pan Andean sent the relevant proposal documents to investors today, ahead of a shareholder vote at a general meeting which is scheduled for the 22 March 2010.

ViaLogy (LSE: VIY) has raised approximately £2.88m through the placing of 59.1m new shares with existing shareholders at a price of 4.875p per share. The proceeds will be used in to further expand ViaLogy's Energy business, which uses the proprietary QuantumRD seismic interpretation technology to location and analyse oil well sites.
Equatorial Palm Oil (AIM: PAL) joined London’s AIM market this morning following a £6.5m IPO. The newly listed, £14.3m market-cap company is developing sustainable palm oil plantations and a crude palm oil (CPO) processing operation in Liberia. According to EPO, palm oil is the most important and widely produced edible oil in the world, and demand is projected to grow at 5-6% per annum over the next five years.

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