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“Although shale producers generated their worst-ever net quarterly result – with collective losses reaching $26 billion (against a six-year average net loss of $2.9 billion) – the numbers would be far less ominous if impairments were excluded.“

The article on oilvoice was a positive slant, but I cannot get my head round those figures, For 6 years the average quarterly loss has been $2.9billion how can these companies survive much longer.

The lower oil price for WTI is killing them. To be honest it’s good to see it holding around these levels, I was concerned of a spike upwards then shale gets to breath a bit longer. At these prices PMO is above break even with its tightening of the reins, so later in the year as the ramifications of these lower prices and lower production kick in, we will be well placed to reap the rewards.

I see GS is predicting lower oil prices again, they must be loading up and going long as they bombard the media with their predictions.

Good luck, long, short or tall. I kinda like the retrace and consolidation ready for the next steps up.

LTT

Does anyone know if the production from the BP deal is hedged or even if any hedged production moves across with the sale?

Just be interesting to know as 18k barrels a day is a nice boost in production especially when PMO has really stripped back on capex and overheads to give a cash neutral at $35 a barrel. With extra production and $40+ (do we get a slight premium to brent also?) Seems like we will either be building a little safety net cash pile or paying down debt faster!

Will be an interesting 2nd half of the year. Of course a 2nd wave of Covid in the UK could be a spanner in the works, but things do seem to be opening up by July and Opec+ seems to be proactive and working together. If they can keep WTI in the $35-$45 range for the next 6 months it should keep the illusion of a shale rebound in check and kill it back for sure. Think is, spikes up and down see more likely due to the media; up $10 and headlines will be "Shale to bounce back" even without any data. Hopefully the gravy train or wall st money that funds Shale will be kept back as even at $50 a lot of shale doesn't make anything except bonuses for the exec's that run them.

Anyway interesting to see what the coming weeks bring.

LTT

Part of the deal is that ARCM will use the shares to close part of their short position, so they won't be dumping them as such so they can make the share price lower. Of course the dilution may have that effect, but as the total short position will reduce by around 8%, that must be a positive for the company going forward.

Seems like a blinder of a deal, ARCM have been incredibly lucky, just show though, they were objecting to the deal way back before Covid with only their own interests (their huge short) at heart. Still as mentioned, they will still have to close the other part of their short at some point and with the oil price heading north and this deal in the offing, a low price opportunity is gradually moving away from them.

Good luck all.

LTT

A broker got a sniff of a large quantity of shares being sought, unfortunately it’s just Moody and the board about to take some hefty share options! LOL

If it turns out to be a hefty wad of cash from Italy I hope our board go back to taking cash rather than diluting us shareholders.

LTT

I'm not so sure what ARCM are thinking, they kept their short up to £1+ and then tried to scupper the deal with BP as we know, but the Coronavirus has helped them no end.

What I am getting at is, they didn't close the short on the way up with the other lenders on our side, a Blue Moon event that couldn't be foreseen at that time saved them. As economies pick up, oil stays above $35 we are paying down debt, as positives return, Zama must be on the cards for sale, even with negative sentiment we should be looking at $300m to pay down debt.

I think it's been mentioned before, I wonder if BP might take on Zama as part payment for the NS assets. It would be easier for them to get shut of Zama later down the line than the NS stuff. This would be great for us too, producing assets into a rising oil price with less debt and a quicker way to pay it back.

Interesting times for sure. Looking to hold for a while, can see a very healthy return by Jan/Feb 2021. IMHO.

LTT

SK, it seems that ARCM want their bread buttered on both sides! I do understand the idea of the short as insurance but it must effect how they view things and skew it. Every choice they make will have to take in to account how it will effect their short position which at some point they will have to close and when they start buying back those shares the share price goes up which would put PMO in a better and stronger position to raise funds if needed.

Also how do other larger investors view PMO, are their decisions to invest in PMO effected by said large short position.
You yourself (also many others, myself included) change tune depending on investment situation. Human nature says if we sold, then of course we have a negative stance, stands to reason as we have sold, so if we so choose we may post on here to that effect to re-enforce our decision, same if we bought too.

So I suppose what I am getting at is, it's impossible to not be conflicted in this situation as you will always gravitate to your best position. They went against PMO before this Virus and oil crash, all other debtors saw it as a good deal and approved, ARCM did not and it was purely due to their short position, there would be no other reason. IMHO

LTT

I know it's not classed as a conflict of interests, but I read this for the update;

· Liquidity retained with c.$160 million of unrestricted cash and $330m of undrawn facilities; addressing covenants and drawing profiles with creditors

So they will be speaking or are speaking with creditors and I'm not sure how ARCM can approach any conversation objectively holding a short of 16+%! I mean I don't understand their full position as a large holder of PMO debt, but if they purely had just the debt, then surely they would be like the other creditors and look at ways to support PMO through this so they are in a good position when oil recovers, which it will and ultimately get their money back and may even get involved with loans for other projects down the line giving a nice juicy interest return on a very low interest rate market. However as we know ARCM hold a massive short, to hedge against their position but how can they support anything mildly positive for the company when effectively it will mean shooting themselves in the foot or worse as they unravel their position.

So how can that not be a conflict of interests? They have a say in the direction of the company whilst being able to benefit from it's failure. What incentive is there to sign off on anything?

I just can't get my head around it and if were the other debt holders I'd be well annoyed at ARCM effectively having a strangle hold over the company.

Also how can forcing the selling of assets be beneficial or even on the cards in the current climate when Zama is going to bring in a wad of cash to pay down debt. The deals with BP need to be looked at again, but even there there addition of production and cost savings going forward as oil rises seems common sense to me, where else can you add production so easily and quickly. Even if oil is back in the $40 by August/Sept, projects are going to be kicked well down the line into 2021/22.

So many industries have and are being hit really hard by this current situation, so for PMO to actually MAKE MONEY with which to keep going and pay down debt is amazing, it shows the company has stepped up to the challenge and are all over it. We are not out of the woods yet but many reasons to be positive for the future.

Like many in the oil patch that can survive this, they will be super lean when the oil price turns, even modest increases over $35 from July will ad material amounts of cash. It all seems to be lining up for the next part of the oil cycle.
Things are going to take some time to get back to normal and the travel/hospitality industry even more so. We may not be flying overseas this Summer, but I read UK holiday homes and chalets, lets, hotels can't keep up with enquiries and demand! So once the restrictions reach the next phase things will start to pick up for sure.

As for the production cuts and production declines, shut ins, the scary thing is, the first signs will be quite extreme movements IMHO, there will be some big drops in the shale patch the longer WTI stays sub $30, not to mention the amount of production lost through capex cuts. PMO are continuing with some work to keep production steady for the year, but how many will just let the natural decline happen to save cash. This could be 4-7% declines on more traditional wells, but shale has a more extreme decline curve, anything form 20-50% if the drilling stops! Even SA are panning to cut another 1m barrels a day, which makes sense, they are in a tight spot for sure to balance their budgets, but if it works and increases WTI $5 in coming months, they will be better off than pumping regardless.

It's interesting times for sure, but those that weather this storm will be all the stronger without a doubt. Good luck whether you are buy, sell, hold or short.

LTT

So doesn’t that mean the AGM shouldn’t go ahead as nobody can be there! Why can’t they postpone ? Real cop out if you ask me, why hasn’t moody and all been furloughed? Taking money and even options in light of what is happening is shameful. They must be having a giggle that they dodged a bullet!

LTT

also I seem to recall they will need shareholder approval, so even if they are planning for dilution we still have to vote on it.

LTT

Of course I want oil up and PMO back over 50p but would prefer oil to not knee jerk up and down. Ideally WTI topping out at $30 ish. For things to get to some normality Shale needs to be crushed. Too many shale companies with BILLIONS in debt still producing and drilling because of the debt treadmill it distorts everything. The natural order is survival of the fittest, leanest, best run companies, the shale dream has screwed that up. This rebalance is a good think for the future, because if shale was allowed to continue and deep water reserves are not developed, exploration curtailed, we would be in for one hell of an oil shock.

Be an interesting month end if WTI can stay below $30 I wonder how much production will be shut in in the shale patch.

Onwards and upwards for PMO fingers crossed. Hedging is serving us well at average $35 for the year we are fine, anything above starts paying down debt. Nice.

LTT

EmeraldCarrots,

if Brent drops to $10 and doesn't recover for 2 years, you would have far more to worry about whether you made the bet or not, patting oneself on the back having dodged a bullet would be crossing your mind as everything would be falling apart!

Venezuela, Saudi, Russia, Brazil, Mexico would have civil unrest as without oil revenue they would be dire straights. Shale would be gone 6m+ barrels a day would shut in. How much else production wise would shut in with long term oil at $10, never mind the projects cancelled or put on hold that would be replacing natural decline. Then there would be the collapse of companies like PMO and many more, but who would buy the assets in that environment, what would they be worth? Your scenario takes nothing else in to account, it's a bit like saying, "If an asteroid hits the planet, will gold drop or become a haven for cash?" it would be a crazy question as there would be no-one to buy or sell it!

As we can see Opec+ and more have already committed to production cuts, many say not enough, but as we see with Norway today, they have said they will cut and effectively that cut will increase as they put of development of further production till 2021. Many more will be doing this voluntarily or out of necessity. So my point is, if they have made such an effort to try and defend $20 (unsuccessfully), do you not think if there was more than 1 or 2 months around $10 they would not plan to cut further? You think they would just go "Oh well, that's not worked, lets just keep pumping and give away our product for free until we collapse!"

It seems the media and everyone in general look only as deep as suits their agenda. Yes more volatility going forward; but already things are opening up, I even noticed today on my weekly shop, more cars on the road. By June schools could be going back, other places in the world are further along the curve. So I'm looking to a more positive future but then I would as I hold shares of PMO and a few other oilies. That doesn't mean I'm blinded, there are many who make good points, it won't be plain sailing, but my investing strategy is different from a trader, he or she is in and out, weighing up risk and reward and rightly so, I'm looking at 6-12 months from now as I have not the time to watch this on a daily/hourly basis.

So let the traders do their thing and I will do mine, we are all here for the same think, make a few quid work harder and possibly do better than leaving it all in a bank account at 0.25%. Good luck.

LTT

Not sure what the big deal is with the payout, it's not like they will pay anything out to shareholders as their first payment would have to go to FIG as I believe we have a tax liability to be paid upon first oil, this would need to be paid first if they were to pay out anything to us. So not worth anyone buying RKH to take the cash as it would be spoken for.

On a positive note £50-£100m would mean there was no chance of going bust, Moody and co. would get their snouts back in the trough sharpish no doubt but it would mean we can keep the licence and pay running costs for a few years even if PMO walked away.

LTT

Hiya Fecm,

to be honest I have been surprised the share price hasn't gone a lot lower as the future for RKH is far from certain. Coupled with no update from PMO and Navitas, PMO share price being in a dire place with Brent at new lows and PMO talking of taking a deeper look at their strategy and future plans, it doesn't seem good at all! I realise I will be labelled a shorter, a deramper, etc etc, blah blah blah, but even the blind could see that in this current climate there is almost 0% chance of anything moving forward with SL.

If however RKH and PMO survive and the damage caused by these historically low oil prices take their toll, I see an oil spike in the not too distant future which would have the opposite effect with a scramble to move projects forward and add to production. SL being in the scheme of things a low-is cost per barrel to produce and in extremely good fiscal environment.

Maybe if the FIG also made the deal a bit sweeter with regards tax etc, it would make the project even more likely to move ahead at the earliest opportunity.

Me, I have a small speculative holding, but not going to add now, I feel this could drift for sure and until PMO is in a much better position all bets are off as to RKH future as let's face it, if PMO go, we are toast. IMHO

LTT

the only thing keeping them alive must be hedges, but at these prices they cannot continue. I also don't see how Trump and bail them out to keep pumping when he has only just been talking about curbing production to assist the oil price on world markets!

Crazy times for sure. What price at the well head in the Shale belt I wonder? there has to be a point when they will start shutting in shale wells, even if they are well hedged, because nobody is going to take it, either by truck or pipeline because there will be no takers, no tankers to export it and nowhere to store it, that's got to happen soon if not already. Expecting massive builds in the weekly data and massive rig count drops. Then chapter 11 left right and centre.

I know they have talked about not much changing as bigger concerns will just buy up for pennies on the dollar and carry on without the debt, but at these prices of WTI, who would want the assets and production, you'd be buying something that would be costing you from day one with no light on the horizon.

Just shows how the nature of things is totally skewed, these shale companies should have gone bust years ago, now either a massive bale out will be needed or it will implode with massive debts and loss of jobs.

LTT

Hi MikeJe,

Makes a lot is sense and let’s face it, once things start relaxing, I won’t be staying indoors, I’ll be driving up north to see my Dad, thinking about a holiday, visit the countryside, meet friends, pub lunch, etc, etc........ will I be the exception? Will everyone else decided to stay indoors a few extra weeks, just in case?

Ok London and a few larger cities may extend the lockdown a bit longer or have a phased back to work system, but it won’t last for ever.

It is tragic and terrible for people losing loved ones, but the media and share pundits talk like this is going to go on for ever. It is not.

This lockdown is saving lives, once it’s manageable we will bounce back and so will the economy, it’s what we do, we get back up, dust ourselves off and carry on, we come back stronger. This won’t be any different.

LTT

Hi FECM, I have to agree, there will be some secret financial group behind closed doors doing the numbers and working out all the options and there will be a point when they say, "We have to open things up otherwise lost jobs, suicides, civil unrest, will do far more damage than the virus!".

USA will HAVE to go back to work soon, virus or no, shutting in people who have a right to bear arms is like a powder keg near a fireplace, if you don't move it, it's going to explode.

I think the oil price may stay around this price into May but after that things will kick off. Yes demand is massively down, yes the cuts are not enough, yes it will take some time to work through stored oil; but we seem to forget it works both ways. Once things start to open up and we start consuming again, the loss of production will start to be seen. Shut in and lost production will take it's toll for sure. The longer oil stays this low, the more damage is being done and it will be more difficult to fill the production gaps.

Shale I think will surprise everyone with it's downward spiral.
IMHO
LTT

Thanks Meerkat48,

I get it, it makes sense, so if PMO finds nobody taking their currently $27 oil then they would have to cut production and not get their insurance payment. Crazy times. I see what you mean, hedge fund will be hurting, but then, they most likely hedge their best elsewhere and made a killing shorting the very companies they sold the hedge to! LOL sounds familiar somehow!

Thanks for taking the time.

LTT

Cheers Quiggers52 so basically all the counterparties will be stuck with expensive oil they cannot sell and will have to store it somewhere till better times. Goodness me this is going to be interesting! If things don't change in May Oil companies will be dropping like flies and the survivors will reap rewards!

I still cannot get my head around how oil, the life blood of the world economy can be traded in such a way to risk it's very future as if they were trading another other commodity. Oil is special, our current society would crumble without it.

LTT

I realise PMO have some hedges in place as do many oil companies, shale included, but as things stand, consumption is massively down, cuts are yet to start in May and storage is filling up. Who is actually paying PMO $60+ for oil nobody apparently wants and nobody can store?

Excuse my ignorance but I just don’t see home these low oil prices can continue without serious damage to many producers. If nobody can take delivery surely the taps have to be turned off.

Oil spike coming next year for sure me thinks.

LTT