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Been adding a few more today at circa 83.5p.

Aside from the two days of high volume late last week generated by some large II to II mid trades, the s/p has been pulling back mostly on low volume - not altogether unexpected after a such a strong run up(+81%) in Q4.

Berenberg have controlled the offer this week and most of last - currently at 83.5p they're again way out of sync with the rest of the market - Peel is on 84.5p and the rest spread between 86p and 89p

Worth looking back occasionally at where the business was a few years ago to get a feel for what this management can achieve over that timeframe.

AIMHO/DYOR

"Australian crudes, light or heavy, are the sweetest grades you could ever find. They typically have a sulfur content of less than 0.3%-0.4%, which means [some of the country's] heavy grades could go straight into the low sulfur marine fuels blending pool," said a crude trading manager at Beijing-based Chinaoil, a trading arm of state-run PetroChina.

S&P Global Platts - Analysis: Australia's heavy sweet crudes reap rich rewards in IMO 2020 era

'Australia looks set to reap the benefits of the International Maritime Organization's global sulfur cap as the country's heavy sweet crude oil is widely considered one of the best feedstocks for making IMO-compliant marine fuels -- and many Asian refiners are willing to pay lofty spot premiums for it.

Multiple Australian heavy sweet crude grades have seen their spot price differentials spike to record highs in recent weeks, reflecting the boost in demand for low sulfur fuel oil after the IMO's sulfur cap on bunker fuels was imposed from January 1.

Australian oil and gas producer Santos recently sold a 550,000-barrel cargo of Pyrenees crude for loading over March 4-8 to a Japanese buyer at a premium of around $31/b to Platts Dated Brent crude assessments on an FOB basis, the highest premium on record for the heavy sweet Australian grade, S&P Global Platts reported last week.

With demand for LSFO outpacing supply in Singapore, the world's biggest bunkering hub, the price of Marine Fuel 0.5% has spiked by more than 185% month on month.

Singapore is expected to be short of low sulfur fuel oil with maximum 0.5% sulfur as supplies currently average around 2 million-2.5 million mt/month, short of the 4 million/month of demand for the fuel oil grade, Asian trade sources said.

That 2 million-2.5 million mt/month of supply includes about 200,000 mt/month of Australian heavy sweet crude oil, fuel oil traders in Singapore said.

Australia's Department of Industry said in the December edition of its Resources and Energy Quarterly that it expects ICE Brent crude futures to average $62.40/b in 2020, lowering its earlier forecast by 7%.

"Spot premiums in double-digit figures would comfortably cover a modest year-on-year drop in outright prices ... it's a relief as far as export earnings are concerned," a BHP marketing source said.

Australia may not be on par with giant OPEC producers in terms of output and export volumes, but it stands among the top-tier producers in terms of quality of the crude and condensate produced, making it a niche market for Asian buyers to tap into.

Australian heavy sweet crudes including Pyrenees and Van Gogh are widely seen as ideal for blending into low sulfur marine fuels due to the grades' rich fuel oil yield, very low sulfur content and unique specifications such as low pour point and high flash point, industry and Asian refinery sources have told Platts.

According to latest IMO 2020 research by S&P Global Platts the shipping industry is increasingly opting for LSFO over MGO.

Since September, MGO's $75 price premium over LSFO has disappeared - MGO is now trading at a small discount at some of the largest global ship bunkering hubs like Singapore.

This is good news for oil companies with heavy sweet crude and ultra low sulphur light sweet crude production, particularly those located close to the World's largest ship bunkering hubs in SE Asia, now oil tanker charter rates are on a rising trend from the tailwind of the shipping market cycle and impact of IMO 2020.

This is creating a perfect storm in the global shipping and oil industries for higher pricing, as once full implementation of IMO 2020 begins it will likely see the heavy and light sweet crude oil producers in the O&G basins of SE Asia and Pacific Rim emerge as the big winners in the global shipping industry's new low sulphur fuel oil world.

As predicted here, LSFO produced by blending heavy sweet crude with light sweet crude is clearly emerging as the optimum fuel for the shipping industry since it's closest to the fuel specification ship engines have been designed to use.

‘Shipowners and operators, especially those with larger ships, strongly prefer LSFO over MGO because of technical issues related to running on distillate fuel as opposed to heavy fuels.
The biggest nightmare for a shipping company is having a large ship with engine failure drifting at sea in stormy weather’ Nordic shipping bank SEB said recently in a note to clients

The movement in pricing between LSFO and MGO at the major Ship Bunkering hubs over the last three months is highlighted well in the S&P Global Platts link below.

hTTps://fingfx.thomsonreuters.com/gfx/editorcharts/OIL-SHIPPING/0H001QXRHB2E/eikon.png

The shipping industry provisionally based its Marine Fuel Surcharge for IMO 2020 on the basis that LSFO will trade at a $50/bbl discount to MGO. As we approach 2020, LFSO trading at a premium to MGO was not in the script. This will likely mean that LSFO during 2020 will be priced much higher relative to the other marine fuels than previously expected - its already at an $8 premium as we enter 2020.

Current Oil Pricing or FOB Pricing at last lift
$67.0 - Brent ($38 discount to current Singapore LSFO Pricing)
$72.0 - Montara ($33.5 discount)
$78.0 - Stag ($27.0 discount)
$84.0 - Pyrenees ($21 discount)
$105.0 - LSFO at Singapore

The discounts to current Singapore LSFO pricing that Stag and Pyrenees heavy sweet crudes currently sit at suggests room for further upward movement in sales pricing, since this discount is the marine oil traders margin after accounting for the cost of tanker shipment to Singapore/SE Asia and blending with a light sweet crude to produce the IMO 2020 Compliant Specification Fuel Oil. (Which combined should be less than $5/bbl).

Jadestone shareholders should raise a glass this Xmas in hearty thanks to the investment bank arms of the Commonwealth Bank of Australia and Société Générale for insisting that the underwritten secured reserve-based loan facility of US$120 million must include the hedging of 50% of Montara's expected production for 2 years post completion of the acquisition.

And to the International Maritime Organisation(IMO) for taking the decision to move the global shipping fleet away from burning the cheap high sulphur fuel oil its used for the past 70 years to much more expensive low sulphur fuel oil.

Jadestone management and its shareholders were incredibly fortunate with the timing of the Montara deal completion/securing of the oil price hedge as it coincided perfectly with Brent very briefly spiking to its highest price since H2/2014, enabling circa 5,500 bopd to be hedged at an average of $78.5/bbl for H2/2018, $72/bbl for 2019 and $69 for the first three quarters of 2020.

The current benefit to JSE and throughout 2019:

5,500 bbs of Montara production hedged at $72/bbl

JSE's last oil sale generated a price of Brent plus $4.5

Therefore, at the current $63.5 Brent(also approx average 2019 price), JSE will receive $68/bbl for the oil sale and $72-63.5/bbl profit from the oil hedge($8.5/bbl)

Making a total realised price of $76.5/bbl for that 5,500 bopd element of daily Montara production / a total $13.0/bbl premium to Brent.

Hedge Benefit at $63.5 Brent:
5,550 bpod x $8.5/bbl = $46,760 a day, $1.42 million a month, $4.25 million a quarter, $17.01 million a year

IMO 2020 Benefit for SE Asian and Pacific RIM light and heavy sweet crude production:
Montara production of 12,000 bopd x $4.5 premium to Brent = $54,000 a day, $1.64m month, $4.92m a quarter and $19.7m a year.

Stag production of 3,850 bopd x $11.5 premium to Brent = $44,275 a day, $1.35m a month, $4.04m a quarter and $16.2m a year.

At $63.5 Brent, the benefit of the oil price hedge and IMO 2020 oil price premiums to Brent, currently total $13.92m a quarter($52.8m a year) - the loan was for $120 million.

AIMHO/DYOR

Australian heavy sweet and light sweet crude oils have surged to the top of their respective global league tables for the most expensive crude oil this year, principally because the product specification perfectly meets the requirements of the new IMO 2020 shipping fuel regulations, together with its ability to deliver optimum engine performance. On top of this, it's very close production location to the World's largest marine fuel oil market is providing an additional(circa $5) premium to Brent, over production from most competitors.

Heavy Sweet Crude oil - major factors influencing demand/sales pricing

* Very Low Sulphur Content - lower the better(Stag at 0.17% is the lowest heavy sweet crude I've come across to date)

* Flash Point - Crudes with a low flash point ignite easily and can cause potentially serious engine issues. (Globally, Australian heavy sweet grades have by far the highest flash points and so burn easily in modern engines, minimising the risk of breakdowns and delivering low maintenance costs. I expect their demand to increase further as shipboard experience of burning the new IMO 2020 standard refinery generated fuel increases - as ship's engines have historically been designed to burn heavy fuel oil, not light, low sulphur fuel oil).

* Distance from the globally important SE Asia Marine Fuel hubs (Atlantic basin and European Heavy and Light sweet crudes attract between 5-6 TIMES higher delivery costs to SE Asia(payable by the buyer), than Australian sourced crudes.

In conclusion: The primary reason Australian heavy sweet crude - Pyrenees, Van Gogh, Stag and Vincent are in such high demand and attracting world leading premiums to Brent is due to the fact they have the lowest sulphur content, the highest flash points and are located at least 7,000 nautical miles closer to SE Asia/China than more than 75% of the worlds circa 1.0 million bopd of heavy sweet crude production.

Woodside suspended production from the Vincent Oil field in NW Australia for a year in May 2018, in order to carry out a massive Capex programme to overhaul the FPSO and carry out infill drilling in order to significantly increase production from the field in the run up to implementation of the IMO 2020 Shipping Fuel Regs.

At the time, one clueless Singaporean-based oil trader was astonished at Woodside's move - expecting a decision to shut the field down as being more likely than one announcing its further development, considering Vincent's huge oil price discount to Brent and the field's low profitability:
“Vincent crude has always been the hardest to sell among all the heavy (crude) grades as there are limited outlets for it, as it’s far too heavy,”
When the Vincent field was suspended in May 2018 the last few oil sales achieved a $5-8 discount to Brent, following recommencement of production in August 2019, the first oil sale from the field achieved a $12/bbl premium to Brent - a $17-20 sales price increase to Brent.

Maari Oil Field Acquisition - Jadestone (69%)
FPSO - Roroa:

2006 - Conversion to FPSO carried out at Jurong Shipyard - Singapore (cost of hull and conversion similar to sister ship Montara Venture at circa $107m

2009 - Went into commercial operation on the Maari Field under a 10 year fixed price charter rate contract (with annual uplifts), containing an option to buy after 4 years.

2012/3 - Maari Field Consortium bought FPSO from the owner (price not disclosed - would estimate $85m-$100m)

2013 - FPSO underwent a US$40m upgrade programme of work in Nelson Shipyard NZ - this included the upgrade of the processing equipment and the installation of a new swivel so it could rotate on its mooring.

During this time construction activities at the Maari field continued in preparation for the tie-in of new wells. This included the upgrade of the wellhead platform and the replacement of several mooring lines of the anchor-buoy for the Raroa.

2016 - Carried out a further US$30 million upgrade on Roroa - including the upgrade of all eight of the ship's mooring lines to a higher strength specification, and the chain attachments and mooring line components to 'future-proof' the in-field operation of the FPSO for at least 10 years. "The replacement will mean that no major mooring works will be required for the next 10 years."

Considering the likely price paid by the Maari Consortium for FPSO Roroa and cost of improvements since carried out to the vessel - two fellow shipping industry professionals and myself believe Jadestone's 69% ownership share of the FPSO Roroa currently has a market value considerably in excess of the $50m gross paid by Jadestone for the purchase of the Maari Field INCLUSIVE of the FPSO Roroa.

Effectively, by the expected completion date of the deal in H2/2020 - Jadestone could well find itself in a position where they receive tax free cash from OMV (generated from the effective date of the deal in 1/1/2019 through to the H2/2020 completion date), around or greater than the $50m Maari acquisition purchase price payable on closing, with the 69% ownership shareholding of the significantly upgraded FPSO Roroa thrown in for free (similar to the Montara deal).

AIOHO/DYOR

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