Contrarian Investor UK invests mainly in UK FTSE and AIM listed shares. Like famous contrarians, Warren Buffett and Anthony Bolton, he likes to take a different view to the crowd of investors. He prefers the short term, possibly speculative trade, to the long term hold and takes the view that it's about "buy and research" not "buy and hold"! This blog tracks Contrarian Investor UK's thoughts on the stockmarket and his portfolio's trades. Move against the herd with the Contrarian Investor UK!
Trades and observations from a British contrarian stock investor
This blog is not intended to give financial advice. Before investing, do your own research and consult your financial adviser if appropriate. The accuracy of any information included is not guaranteed and may be subject to conjecture or interpretation by Contrarian Investor. Therefore visitors should validate all facts using alternative sources where possible.
Big 7% or 26p move up on Xcite Energy (xel) as we await news from the company on rig or even more interesting matters.
The market makets have been moving XEL around in a range between 355p and 375p for several weeks and now we have a solid breakout. Its been a no brainer investment since the flow test in December. Just a little patience was required and this was always going to be coiled spring. Pity the guys who sold and moved into other AIM stocks like Nautical or Rockhopper which got blasted today (down 7% but fortunately a much smaler position in the Contrarian Investor portfolio than XEL).
Lots more to come in the remainder of the week for Xcite. Happy days indeed!!
Xcite Energy has had a good start today with the market makers moving the price up 3.5% on little volume. I can think of no other share with so much potential and news flow, with so little downside risk.
Rockhopper has other the hand moved down 3.5% as we await well 14/10-3 news. At 355p, looks very good with the fact they a full programme of well appraisal fully funded for 2011 following the 250 million placing last year (estimated 200 million left). Plus lets not forget 200 million barrels of reserves banked. Scary stuff with RKH, but forget stop losses, forget trading in and out and lets see if the rumours are right!
Saudi oil refinery. WikiLeaks cables suggest the amount of oil that can be retrieved has been overestimated. Photograph: George Steinmetz/Corbis
The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.
The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.
The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Many analysts expect that the Saudis and their Opec cartel partners would pump more oil if rising prices threatened to choke off demand.
However, Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.
According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as "peak oil".
Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.
One cable said: "According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray."
It went on: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.
"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output."
The US consul then told Washington: "While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered."
Seven months later, the US embassy in Riyadh went further in two more cables. "Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period."
A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. "Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018," it said.
It also reported major project delays and accidents as "evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production." While fears of premature "peak oil" and Saudi production problems had been expressed before, no US official has come close to saying this in public.
In the last two years, other senior energy analysts have backed Husseini. Fatih Birol, chief economist to the International Energy Agency, told the Guardian last year that conventional crude output could plateau in 2020, a development that was "not good news" for a world still heavily dependent on petroleum.
Jeremy Leggett, convenor of the UK Industry Taskforce on Peak Oil and Energy Security, said: "We are asleep at the wheel here: choosing to ignore a threat to the global economy that is quite as bad as the credit crunch, quite possibly worse."
The Dow Jones Industrials finished up 72 today at 12,233 and the FTSE 100 closed up 40 at 6,091 after a sluggish start.
The poor start on the FTSE was triggered by news that the Chinese central bank raised its one year lending rate to 6.06pc from 5.81pc and the deposit rate to 3pc from 2.75pc. It was the third increase in interest rates since October. Sentiment was not helped by the additional £800 million of bank levy announced by Chancellor, George Osborne, this morning.
But good results from miner Xstrata soon overcame any negative fallout from the Chinese news. It announced revenue increased from $22.7billion ito $30.5 billion between 2009 and 2010 and profit before tax rose to $7.11bn in 2010, excluding exceptional items, from $1.87bn, as a result of increasing prices, production and the benefits of restructuring. Net debt fell 38% to $7.6bn. The shares rose 1.7% to £14.92.
A quick trade on ARM Holdings (ARM) closed today with the 2.5% drop for a small profit. Need to deploy cash elsewhere in RKH and XEL. Xcite is the place to be with rig deadline 3 days away and rumours starting to build. Nice turnaround in the XEL share price in the last part of the day and reasonable volume as again we bounce of 355p. Let that be the bottom!!!
Rockhopper (RKH) got a bit of a battering today with a fall of nearly 5% to £3.67. No news from the company itself but as I posted earlier, AIM oil stock sentiment was hit by the North Sea Catcher field disappointment (http://contrarianinvestoruk.blogspot.com/2011/02/catcher-north-sea-failure-hits-aim-all.html).
A good excuse for the nervous to sell, for the market makers to mark the price down and for larger institutional buyers to fill their boots with cheaper stock. Some big late trades illustrate the point that a seller was in the background picking up shares and with a big budget:
£742,314 371.16p 200,000 16:43 Buy O
£559,500 373.00p 150,000 16:00 Buy O
£498,616 373.13p 133,630 16:22 Buy O
£373,468 373.47p 100,000 16:45 Buy O
£1,477,868 369p 400,000 16:54 Buy O
With buys of over £3.8 million after the market close, someone is clearly optimistic about the latest 14/10-3 well drill. The spud date of this well was 13th January with expected 38 days to reach target depth, making it 18th February but it would be surprising if news was that far away given the rumours circulating in the Falklands.
From CityAM.
Trading in small caps set to be volatile this Friday
Tuesday, 8th February 2011
Trading on London’s Alternative Investment Market (Aim) may be volatile on Friday because this is when CMC Markets will close out any Aim share bets made by its clients.
CMC delisted trading in the junior index with no new positions opened via its trading platform on Aim shares after 21 January .
Any Aim bets by CMC clients that remain open will be closed out at the closing price on 11 February.
CMC’s decision follows its move last year to stop trading in stocks below a certain market capitalisation and reflects the firm’s switch to a new technology platform and its focus on core liquid markets.
“It could be a very interesting day for the Aim market and Aim shares as the CFDs get closed out,” Atif Latif, director of trading at Guardian Stockbrokers, said.
The closing of CFD trades will have an influence on the physical Aim market as providers of the financial instruments have to hedge the trades by holding the actual stocks to protect their positions.
Latif said as much as 50 per cent of Aim market positions could be held via CFDs.
AIM oil stocks have been taking a beating this morning after Nautical Petreoleum (NPE) and Encore Oil (EO) announced a poor result from their Catcher North Sea field (majority owned by Premier Oil). Encore is currently down 17% and Nautical is down14.5% on the news that the well had encountered gas rather than oil with a poor reservoir quality making it borderline economic. Nautical and Encore both own 15% of the Catcher field.
The bad news in the North Sea was accompanied by a disappointing update fromNighthawk Energy (HAWK) ( a previous holding from 2010 which was fortunately dumped early on as poor data began to be announced) from their Jolly Ranch project in the U.S.where oil recovery had been weaker than expected due to maintenance and well optimisation work. HAWK is currently down 8% today.
So my holdings in Bowleven, Xcite and Rockhopper are all suffering as a result of this negative sentiment. The difference with all these holdings is that they have substantial proven resources, and with the exception of Rockhopper, are derisked (though it still has £200 million in the bank for further appraisal wells and proven reserves of 200 million barrels at Sea Lion). Xcite encountered a larger than expected oil column and top end flow rates in December and reserves are likely to be confirmed of 160-250 mm barrels when the full CPR is published in late February or early March. As they say, there are AIM stocks, and there are AIM stocks!! - not for Widows and Orphans.
Classic tree shake on Rockhopper this morning to tempt the weak to sell. Price recovered but still down. Similar on Xcite energy. Topped up a little on RKH, too good an opportunity to pass up. Naughty Market makers!! But how obvious it would happen, now it really makes me think good news is coming. Fingers crossed!!
RNS just released from Weatherley (WTI), I'll look at the new presentation at http://www.rns-pdf.londonstockexchange.com/rns/8296A_1-2011-2-7.pdf with great interest. Explains the 7.5% increase yesterday, clearly a leak. Looks like everything is progressing to plan.
TIDMWTI
RNS Number : 8296A
Weatherly International PLC
08 February 2011
Weatherly International Plc ("Weatherly" or the "Company")
Central Operations Update and Investor Relations Presentation
Central Operations
As previously announced on 12 January 2011, mining activities have resumed at both the Otjihase and Matchless mines with ore being blasted and stockpiled awaiting commissioning of the concentrator. The commissioning of the concentrator is progressing well and the plant will resume normal operation in accordance with the programme. Weatherly expects to have sufficient quantities of concentrate to commence transport to Walvis Bay in March with the first revenues to be realised from concentrate sales shortly thereafter.
Both the Matchless ore haulage and Otjihase concentrate haulage contracts have been awarded to local company, Kraft Holdings, which now completes the award of all outstanding major contracts.
Forward Sales of Copper
Further to the previous announcement on 14 January 2011, Weatherly announces that its wholly owned subsidiary, Ongopolo Mining Limited ('Ongopolo'), has entered into an additional forward sales contract with Louis Dreyfus Commodities Metals Suisse S.A. ('Louis Dreyfus Commodities').
Weatherly has contracted with Louis Dreyfus Commodities for an additional 950 tonnes of contained copper to be delivered progressively over a 17 month period commencing in May 2011 at a fixed price of US$9 750/tonne. In total, Weatherly has therefore contracted forward sales for a total of 1,925. This represents approximately 20% of anticipated production over the period covered by the two contracts.
Investor Relations Presentation
Weatherly is pleased to provide shareholders with the Company's latest presentation which is being made available today at the Mining Indaba conference in Cape Town, South Africa.
To view the full presentation, please paste the following link into your web browser:
February 11th is the latest rig signing deadline with British American Offshore for the Rowan Norway rig. A 1% decline today, I'm guessing because private investor are moving money around into Rockhopper etc.. I'm as disappointed as anyone that the share price is well below the intra day highs achieved after the flow test in December. At £3.58 Xcite is close to its resistance level, but with news so close I am surprised the share price is quite so low.
The rig signing deadline has been moved a couple of times so interest seems to have wained in this share. I am not sure why - it is one of the surest bets on AIM by a long way. With the CPR (Competent Persons Report) a few weeks away at worst which could fix reserves at a likely level of 200 million barrels plus (see my previous posts from oilbarrel etc. why this is the case). Lets not forget that pre Flow Test, Xcite's Bentley heavy oil field could have been a dudd - literally 150 million barrels of oil that could not be economically extracted. Now we know that oil is flowing at the upper end of expectations and the oil column is significantly higher than earlier estimate. Investors can argue, "well the price has gone up hugely in the last 12 months". Though that is true, prior to the flow test the share price deserved to be low because there was a good possibility that oil could not be extracted given its viscosity.
The reasons for the delays in the signing of the rig could be many, but just contractual bickering seems unlikely. Though I have Rockhopper and Bowleven in my portfolio, Xcite remains the safest and largest investment of them all. This share has been hugely derisked, now its not long to wait for news.
Took some profit on my March spread bets on Rockhopper (RKH) and bought some September positions instead following today's 3% rise. Though things look interesting for the current well 14/10-3, the next appraisal well looks to have a significantly higher probability of success so better to have a longer term outlook to make money. Lots and lots of rumours.....some respected posters on the bulletin boards sound convinced its a strike, but you never know in with this exploration game. But with say a 20% downside on a duster, and a 100% upside on a moderate find, its a risk worth taking. That's where the Desire Petroleum gamblers went wrong, it was always a binary bet on success or failure. With Rockhopper, Sea Lion and £200 million cash in the bank following the fund raising changes the game to make it a moderate risk rather than throwing a "dart at a board" and hoping. I hope Sam Moody puts us out our misery, just think of the impact on U.K.'s GDP with all those investors glued to their screens from 8am to 4.30pm!!
Good article from Telegraph on copper, very good news for portfolio holding Weatherly International (WTI). http://www.telegraph.co.uk/finance/markets/8307108/Copper-market-continues-to-soar.html
Copper market continues to soar
Extraordinary things are happening in the world of copper. Last month, the price broke through $10,000 (£6,200) a tonne for the first time. It has continued to soar.
For power company E.On, the problem of copper theft has become so acute that it has hired former Gurkhas to guard electricity substationsPhoto: ALAMY
By Harry Wilson and Roland Gribben9:56AM GMT 07 Feb 2011
In London on Monday the price touched $10,122 a tonne. The effects of this astonishing rise have rippled across the world. In Britain trains have faced delays as rail companies have struggled to fix power lines that have been attacked by thieves determined to strip them of their valuable copper.
For E.On the problem of copper theft has become so acute that the power company has begun hiring former Gurkhas to guard electricity substations. Even the Church of England has been moved to decry the cost to it of fixing the damage caused when thieves target their buildings.
Behind the price rise are a variety of factors, but by far and away the leading driver is China's economic boom. In 2010, Chinese consumption of copper increased by 38pc, with the country now accounting for about one-third of total global demand.
Asian demand as a whole last year hit 10.7m tons and is expected to exceed 11m tones this year, compared to combined European and North American demand in 2011 of 5.6m tons.
Copper miners have been ramping up production to meet the growing demand, but the International Copper Study Group still expects a global supply deficit this year of 400,000 tones.
The deficit is party a result of industry cutbacks instituted in 2009 that are still limiting production capacity. At the start of 2009 the world's copper producing capacity was 19.5m tons, but by the end of the year this had dropped to 16.1m tons.
The situation has not been helped by an explosion in December at the Chilean port of Patache, one of the main sea terminals for the country's exports of copper.
As the world's largest supplier of copper - Chile produces nearly one-fifth of the global total – the disruption to the country's exports added to fears over the ability of copper supply to keep pace with demand.
Analysts point out that some of the copper demand can be replaced by aluminium, but the latter is far from a perfect substitute. Because of aluminium's lower conductivity, telephone lines made from it must be wider, making them more expensive and this is without taking into account the higher costs because of the larger amounts of the metal that are needed to make the line.
Commodities trader Religare forecasts the London Metal Exchange price of copper could reach $11,000 a ton this year and adds its value could even spike above these levels at points.
Like any booming market, copper has attracted more than its fair share of speculators as investors see the potential to make quick profits from the metal's rising value.
Exchange traded funds have been big buyers and copper-backed funds are now among the largest commodity ETFs in the market. ETFs have often been blamed by other investors for ramping up prices as retail investors chase the next big thing, adding to the upward pressure on the price.
Fears have grown that a bubble is developing in the copper market and Morningstar analyst Daniel Rohr wrote an outlook on the copper market for 2011 titled 'Memo to Copper Miners: Enjoy it while it lasts' in which he argued that the metal's price was unlikely to remain at such a high level for more than a couple of years.
Mr Rohr points out that the world's 10 largest copper miners will be producing an extra 8.2bn pounds of copper by 2015, which he thinks will lead to global supply exceeding demand, resulting in a fall in the metal's price.
"How much copper will be world need in 2015? In our view, not enough to absorb all the additional supply, which is why we expect copper prices to decline toward the marginal cost of production," he wrote.
Commuters, electricity suppliers and the Church will be hoping that Mr Rohr is right and the copper price does fall back to a more normal level in the near future, bringing an end to the copper-stripping epidemic.
If he is wrong, then they are likely to be in for several more years of disruption as thieves continue to try and profit from the metal's sky-high price and relative scarcity.
Bowleven (BLVN) shares had a rough ride first thing this morning, dropping 15p at the open and moving as much as 15p higher in the early afternoon before closing up 4p at the close. Several positive broker reports weren't enough to give any degree of positive momentum.
The presentation due to be given at the Credit Suisse Energy Summit (Vail, Colorado) has been posted on the Bowleven website which gives some insights to what was discussed at the analyst conference call this afternoon. The link for the presentation is: http://www.bowleven.com/uploads/Credit%20Suisse%20Energy%20Summit%20Vail%20Feb%202011%20PPT%20FINAL.pdf
There looks to be a packed schedule of activity during the coming months:
In Quarter 1 2011
A sidetrack will be drilled into the Tertiary at Sapele-1
New Tertiary exploration well MLHP-5 using the additional rig Vantage Sapphire driller which will be available from February 2011
Q3-Q4 2011
Additional Tertiary wells and a Cretaceous well at MLHP-5
MHLP-7 Appraisal well
