ASX oil juniors are optimistic despite price wobbles over the past week
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Optimism among ASX-listed oil juniors is growing despite a few price wobbles this week.
One has even picked July as the month when the tide turns and rivers of capital will run back into a sector that’s been on hold for five years.
But it all depends on oil prices, which have lost about 6 per cent since Friday after Saudi and Russian oil ministers met to discuss moderating OPEC’s production curbs.
OPEC and Russia together account for half of global oil volumes.
Among Australia’s oil small caps the atmosphere is buoyant as capital seeps back into juniors and a structural shortage in global oil supply is beginning to appear.
>> Scroll down for a table of ASX-listed oil juniors and their recent share price performance
Key Petroleum (ASX:KEY) managing director Kane Marshall told Stockhead last week he thinks the sector may bounce as soon as July — once the new financial year starts and as junior explorers’ investment credentials are re-rated.
His optimism is matched by Triangle Energy (ASX:TEG) boss Rob Towner, who says a shift back into Aussie oil has already started.
“The whole tide is changing and ultimately I couldn’t agree more,” he told Stockhead.
“The deal that Buru Energy (ASX:BRU) did last week… it’s a sign that there’s money out there if the project is right.”
Habour Energy’s $US14.4 billion bid for Santos (ASX:STO), even if the target is playing hard to get, shows there is interest for oil again.
Mr Towner says interest will begin to trickle down to smaller companies until people decide to stop investing and start looking for oil themselves.
“People are sniffing around.”
The structure of the industry will have an impact on who gets what.
Majors like Woodside (ASX:WPL) are still repairing their balance sheets, while most mid-tier Australian companies didn’t survive the five year valley of death since oil prices fell in 2014.
But while many believe funding for oil juniors is coming back, Carnarvon Petroleum managing director Adrian Cook says he raised money two weeks ago and investors are still leery of pre-revenue explorers.
They are keen on producers and explorers with projects that are close to production, though.
The million dollar question
The million dollar question is what will the oil price do.
If it drops back again, local oil companies can kiss dreams of a return to long liquid lunches goodbye.
But in spite of the Saudi-Russia meeting-inspired correction over the weekend, down to $US75.17 for Brent and $US66.24 for WTI, Australian oil execs are bullish prices will stay high.
Here’s a graph showing the price of West Texas (the US oil benchmark) over the past three months:
And here’s a graph of price of Brent (the US oil benchmark) over the past three months:
Last week’s meeting was to discuss proposals that OPEC raises production to replace declining volumes from Venezuela and a potential halt in supply from Iran.
Mr Cook believes that with OECD oil storage at 61 days of supply or a three year low, according to the EIA, the correction over the weekend was an overreaction.
“It probably made sense for those two oil super powers to come together, the way that inventory levels are dropping, a coordinated increase in supply makes sense to stop us getting into a demand side bubble,” Mr Cook said.
Blue Energy boss John Phillips agrees, saying a structural oil shortage has already started to appear.
Demand is rising at 1.3 per cent a year, but reserves are not being replaced: consultancy Rystad said last year the number of oil discoveries in 2017 was the lowest since the 1940s.
OECD oil storage is now at, or slightly below the five-year average, Mr Phillips said in the last Blue Energy quarterly report.
“There will be a price response as supply lags consumption, and that has started happening, we’re in balance,” he told Stockhead.
As such, conditions may be right to flush some blood back into Australia’s desiccated oil sector.
Here’s a table of ASX-listed oil juniors and their recent share price performance:
|ASX code||Company||One-year price change||Price May 28||Market Cap|
|FDM||FREEDOM OIL AND||1.25||0.27||259.5M|
|ATS||AUSTRALIS OIL &||0.702127659574||0.4||375.4M|
|EOR||ENHANCED OIL & G||0.333333333333||0.008||7.9M|
|AVD||ANTILLES OIL AND||0.235294117647||0.021||3.4M|
|LKO||LAKES OIL NL||0||0.002||82.9M|
|BUY||BOUNTY OIL & GAS||-0.142857142857||0.006||5.7M|
|ABL||ABILENE OIL AND||-0.222222222222||0.007||2.4M|
|TMK||TAMASKA OIL & GA||-0.333333333333||0.002||3.9M|