Harold Macmillan — British politician and prime minister of the mid-20th century — is reputed to have replied to a question about what most often blows governments off course, “Events, dear boy, events”. Whether he ever said it and, if so, to whom, is disputed but no matter — if he didn’t say it, he should have.
And it’s ‘events’ that make the oil industry so mesmeric for investors — the opportunity to coin in profit from far flung parts of the world, or watch as a solid bet evaporates before your very eyes.
Five years ago, the share price of Gulfsands Petroleum was around £3.50 as it cheerfully produced 19,000 b/d and progressed new facilities — in Syria. Today the same shares will cost you 5 pence and the firm is looking for farm-out partners for its modest assets in Morocco, and cautioned just last week that: “The Group has material work obligations that must be completed under its various exploration contracts/licences and if these obligations are not met the Group may be forced to forfeit both its interest in these contracts/licences and any sums of restricted cash lodged with host governments as guarantees for our performance of the minimum work obligations.”
A notional border away, companies operating in northern Iraq got a fillip as the Kurdistan Regional Government (KRG) pledged to use revenues from its independent sales of crude out of Ceyhan to resume regular payments to producers. In the wake of the news, the shares of London-listed Gulf Keystone rose by 17pc, with shares in Norway’s DNO jumping by 13pc, and those in London-listed independent Genel up by 12.5pc. Alas, the spike was just that, and the companies’ market capitalisations are still down by 50+pc on the year, presumably as investors remember that Baghdad regards the exports as illegal and as the pipeline becomes a pawn in Turkey’s renewed conflict with Kurdish rebels of the PKK. One thing you are never short of in relations between Iraq, Turkey, and the Kurds of various stripes is ‘events’.
In west Africa, Nigerian oil industry success story Afren went into administration after a series of ‘events’ that included a payments scandal and sacking of the chief executive and chief financial officer, slashing of reserve estimates, and bond interest payment default — all against the background of tumbling oil prices. Nigeria needs another hero. Let’s see if Oando can play the role with second-quarter production up at 57,000 boe/d from 4,500 boe/d a year before as it digested a slew of ConocoPhillips assets.
In central Asia, Tethys Petroleum saw the planned sale of half its Kazakh assets to a Chinese private equity buyer collapse in May, leaving it unable to finance its obligations for the next 12 months. Talks with a locally-owned consolidator look to have stalled. But one person’s misfortune is another’s opportunity and a takeover by London-listed Kazakhstan producer Nostrum is now a real possibility.
It’s only vendors of snake oil who offer guaranteed results. Bismarck’s advice to the powerful is more likely to ensure success: “A statesman… must wait until he hears the steps of God sounding through events, then leap up and grasp the hem of His garment.”
For more information, please contact OilBlog@argusmedia.com