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FTSE falls even as eurozone leaders promise growth

MARKET BLOG: Xcite Energy (XELL.L) climbs on loan agreement, but FTSE down after Moody's downgrade of 15 global banks.

FTSE falls even as eurozone leaders promise growth
  • Miners lead FTSE lower
  • Leaders of biggest eurozone economies push for growth package
  • US markets open up after Thursday's steep declines
  • Amid economic slowdown, oil struggles to re-gain $90 price; commodities in 'bear market'
  • Xcite Energy shares boosted by loan facility plans
  • Moody's downgrades 15 banks, but UK bank shares hold up

15.15: Leaders from the eurozone's stronger economies are attempting yet again to convince investors that they are fixing the bloc's crisis. Talking at a press conference in Rome, Mario Monti of Italy, Angela Merkel of German, Mariano Rajoy of Spain and Francois Hollande of France say they have agreed on a plan to ensure stability in the eurozone ahead of next week's leaders' summit.

Monti and Merkel both said that a deal should be reached to boost growth in the eurozone, to accompany the existing austerity measures. This would equal 1% of European Union GDP or €130 billion.

'We need more Europe', Merkel concluded by saying, repeatedly.

Hopes that leaders will in fact come up with a solution at the summit on Thursday and Friday have helped Spain's borrowing costs fall quite dramatically. Ten year government bond yields have fallen below 6.4% this afternoon having fallen all week.

US shares open higher as FTSE suffers

14.57: US markets have opened higher, rebounding after sharp losses yesterday. But Europe remains in negative territory with Britain’s FTSE 100 and the lower by 0.6% at 5529 and the FTSE All Share showing a similar decline.

The blue chip index is however on for a weekly gain, up 0.9%.

In the US, the Dow is up 0.5% and S&P 500 0.4% higher.

The oil price has climbed strongly back above $90, having earlier fallen to an 18 month low.

Miners drop in 'commodity bear market'

10.47: The FTSE 350 mining index has dropped 1.8% this morning, as London-listed mining companies drop in line with commodity prices which have now fallen into a ‘bear market’.

Commodities, including oil and gold, have sold off amid poor economic data from China, the US and Europe, showing that global manufacturing is showing. ‘Bear market’ headlines were sparked overnight in the US as the S&P GSCI commodities index had lost more than 20% of its value since a February peak.

Today Petrofac (PFC.L) leads the FTSE 100 lower, down 79p or 5.4% to 1359p.

Vedanta (VED.L) is 21p or 3.3% lower at 899p

Fresnillo (FRES.L) is off 48p or 2.2% to 1444p

Tullow Oil (TLW.L) is down 47p or 3.1% to 1434p

Oil has climbed back up to near the $90 mark, while gold is trading back up a notch at $1569 per ounce, having dropped sharply this week.

Bear market: Click to enlarge

Xcite funding boost helps shares

09.30: Shares in Xcite Energy (XELL.L), the popular AIM-listed stock, got a small boost this morning after the oil exploration company announced it had secured a $155 million loan facility from a consortium of banks.

The money, which comes with a string of conditions, will be used for the (Phase 1B) development of the Bentley field in the North Sea.

Xcite Energy is pleased to announce that it has signed a US$155 million secured reserves based loan facility agreement (the "Facility") for the Bentley field with a leading group of lending institutions. The Facility, with a term of five years, will be used to provide a substantial part of the funding required for the Phase 1B development of the Bentley heavy oil field in the UK North Sea.

The Facility has been arranged with Royal Bank of Scotland plc, Societe Generale Corporate & Investment Bank, GE unit GE Energy Financial Services, Nedbank Limited and Britannic Strategies Limited (a subsidiary of BP plc). Royal Bank of Scotland is acting as the Facility agent and security trustee, with Societe Generale acting as technical and modelling bank.

The draw down under the Facility is subject to conditions precedent, including the achievement of certain principal objectives in the Bentley Phase 1A work programme announced on 19 April 2012 as set out below, together with their current status:

v Drilling of a horizontal motherbore well in the geological formation immediately overlying the reservoir.

Current status: the drilling of this motherbore in excess of 1300ft has now been successfully completed.

v Drilling of the toe extension well (9/03b-7 well), a horizontal wellbore from the toe of the motherbore, with a reservoir section of up to 2,400ft in length. This well is be positioned approximately at mid-height in the reservoir at an elevation above the oil-water contact such that, when produced at an oil rate of at least 1,500 barrels of oil per day ("bopd"), it should initiate water breakthrough at the well and subsequently develop sufficient water cut (to approximately 50%) within the flow test period. This well will be plugged and abandoned at the end of the production test.

Current status: as announced on 29 May 2012, the drilling of this toe extension well has now been successfully completed, with a reservoir section in excess of 2,200ft having been penetrated with 100% net pay. Sand control screens have been successfully installed.

v The 9/03b-7 wellbore is planned to recover a minimum cumulative volume of 45,000 barrels of oil during the flow test period to help ensure that the data gathering will be as effective as possible. This flow test is planned to be up to 90 days in length and to be conducted at a range of different flow rates (specifically not 500 barrels per day for 90 days), again to assist in the data gathering programme, to achieve sufficient water cut to enable satisfactory calibration of the reservoir model and a revised, independent reserves assessment report.

Current status: this flow test is expected to commence in the coming weeks.

v Drilling of a lateral well (9/03b-7z well) from the side of the motherbore, a horizontal wellbore with a reservoir section of approximately 2,450ft in length. This well is positioned as high in the reservoir as possible, being similar in design and completion to the successful 9/03b-6z well. This wellbore was drilled after the toe extension well, but will not be flowed until after the toe extension well has been flowed to achieve sufficient water cut. This lateral wellbore will be cleaned up and then flowed at a rate of at least 1,500 bopd for a minimum period of one day, prior to being suspended as the first full production well on the field in Phase 1B.

Current status: as announced on 13 June 2012, the drilling of this lateral well has now been successfully completed in the roof of the reservoir, a section in excess of 2,000ft has been penetrated, 100% net pay was encountered and the oil column was found to be thicker than expected. Sand control screens have been successfully installed. The flow test on this well is expected to be completed in the fourth quarter of 2012.

With the Facility now signed, the Company will continue its preparations for the development of the Bentley field in Phase 1B, including the inter-dependent completion of the funding programme and the DECC approval for the field development plan.

In line with the previously outlined funding strategy and with the Facility now signed, the Company intends to pursue its other options to provide the balance of the funding required to commence the Phase 1B development. Such funding could be provided by the potential farm-out of an appropriate interest in the Bentley field following the outcome of Phase 1A programme in the fourth quarter of 2012, other industry participation, convertible debt instruments, mezzanine debt and potentially equity financing.

Seymour Pierce put out a note welcoming the clarification of the company’s financing, maintaining an ‘add’ recommendation and 242p price target.

Analysts at FoxDavies though, said they remained ‘concerned of the field's long term commerciality’ in light of ‘the complexity of the reservoir and oil, and set against the backdrop of the declining oil price’. They recommend investors take some profits.

Xcite shares are trading up 1.7p or 2.2% to 80p

Brent crude price drops to lowest since 2010

08.10: The Brent crude oil price has sunk below $90, its lowest since the end of 2010, as oversupply and growing economic fears push the price ever lower.

Inventory data published by the US Department of Energy earlier this week showed that US crude oil stocks climbed by 2.9 million barrels last week to their highest level for nearly 22 years, in an unexpected rise.

This morning Brent crude futures were trading at $89.08

Analysts say it is now left to oil cartel OPEC to reduce the oversupply in order to halt the price slide.

Meanwhile, on equity markets, few UK shares are showing gains. The banks however are not suffering any more than the wider market despite yesterday's downgrade by Moody's, as the move was widely expected. The FTSE 100 is 1.17% lower to 5,502, with similar losses across Europe, and the FTSE All World index is 1.48% lower.

Please visit our full site to view this interactive chart

Mass bank downgrade adds to global woes

07.56: European markets will be greeted with the news that Moody’s has downgraded 15 global banks, a move that the banks and investors had been bracing for.

The ratings agency is concerned the banks could face substantial losses from their capital market businesses in the market turbulence and reflects the risks that creditors of firms with global capital markets operations face.

The following banks were downgraded by two notches: Barclays (BARC.L), Morgan Stanley, Citigroup, Goldman Sachs Group, JPMorgan Chase, Royal Bank of Canada, BNP Paribas, Credit Agricole an Deutsche Bank.

Meanwhile, UK-listed RBS (RBS.L) and HSBC (HSBA.L), along with Bank of America and Societe Generale, were downgraded by one mark.  

Lloyds (LLOY.L) was downgraded by one notch in a separate announcement from Moody's, a move 'principally driven by its sensitivity to an increasingly challenging operating environment in the UK and also in Europe'.

Meanwhile, also after London markets closed yesterday, an independent audit of Spain's banks was published, showing that they will need up to €62 billion in extra funding

Overnight, US and Asian markets fell hard after a string of downbeat economic numbers. See our overnight report here.

See our roundup of the day's papers here.

1 comment so far. Why not have your say?

joe stalin

Jun 22, 2012 at 12:31

It never ceases to amaze me when reasons are found for a move in commodity prices. It has NOTHING to do with fundementals. The dollar is rising so speculators are running for cover. They have been holding physical and synthetic positions in oil and other commodities but the prolonged strength of the dollar is kilingl them. Commodity stocks are being liquidated/dumped causing indigestion in an already well supplied market. Some of the nicer trading outfits such as Sucden or Gencore are probably aware of this and are putting on shorts causing further pain. get rid of speculators or make them put up a proper margin and stop the rolling contracts and you will reduce the amount of price volatility. Please stop joining the dots and put movements down to fundementals and or economic activity. Nobody is swapping their cars for a bicycle.

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