New City Energy Limited New City Energy Ltd : Annual Financial Report
27 Janeiro 2017 - 2:42PM
UK Regulatory
TIDMNCE
NEW CITY ENERGY LIMITED
Date of Announcement: 27/01/2017
RELEASE OF REPORT AND FINANCIAL STATEMENTS
The Directors announce the release of the Annual Report and Financial
Statements for the year ended 30 September 2016.
CHAIRMAN'S STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2016
During the year to 30 September 2016 your Company's total return in net
asset value terms was 6.3% as we saw a modest recovery in energy shares
following the oil price collapse in 2015/16. The total return in
ordinary share price terms was 28.6%, with the share price ending the
year at a discount against net asset value of 14.7%.
The investment managers have coped well in a very volatile year but they
believe the US commercial shale producers have fundamentally changed the
shape of the energy market by replacing OPEC as the swing producer of
oil. The US producers have utilised technology to improve yields from
their acreage and at the same time reduce production costs. This dynamic
means they are very flexible and able to cope with fluctuating prices
and to pump oil even at levels that were thought uneconomic two or three
years ago. The investment management team believe this will curtail oil
price increases and makes a weak investment case for energy.
With the above in mind the Board of Directors has been reviewing, with
NCE's investment manager, the future prospects of the Company ahead of
the next continuation vote. Given the current market capitalisation of
the Company, the prevailing share price discount and the short to medium
term outlook for the oil price, your Board has decided that it would be
in the best interests of Shareholders to propose that the Company be
wound up and that the Company's surplus assets (after full provision for
liquidation costs) be distributed in cash to Shareholders.
A circular to Shareholders is being prepared to convene an extraordinary
general meeting of Shareholders to wind up the Company voluntarily. The
circular will set out in full detail the proposals. A further
announcement will be made in due course.
I would like to thank all Shareholders for your support for the Company
since it was launched in 2008.
David Norman
Chairman
January 2017
INVESTMENT ADVISER'S REPORT
FOR THE YEAR ENDED 30 SEPTEMBER 2016
It has been an extremely volatile year for oil markets following the
removal of a production quota by OPEC in November 2014, and the
resultant increase in production from most members which was swiftly
followed by a shift in US energy policy allowing crude exports from
December 2014. Oversupply extended into a second year with global
inventories rising 20% to 1.24Bn barrels, in turn dragging average oil
prices down. Prices averaged around $40 average per barrel for the 12
month period with prices dipping into the $20's per barrel at their
nadir. Capital expenditure has fallen dramatically and wellfield decline
rates take effect which should support prices and provide a floor above
the year lows.
It remains our belief that the oil market as we knew it has changed. We
believe oil prices will continue to trade within a $45-60/bbl range for
the foreseeable future with commercial shale producers resisting OPEC's
dominant status as the swing producer. We believe the improved
responsiveness of this segment will act to more rapidly balance
balancing markets and reduce volatility in oil pricing. The removal of
OPEC's quota mechanism in 2014 was in part a pre-emptive move to
discourage unconventional oil and gas production. However, US shale
production has proved impressively resilient, with production
efficiencies from increased sand usage within individual frack's and a
greater use of multi well drilling pads, driving significant cost
reductions. While not all shale producers have survived, with multiple
bankruptcies occurring on lower quality acreage, those that remain are
stronger and leaner with many making good returns at $50/ bbl oil.
We believe the Permian Basin to be the most prolific of all the US oil
shales, evidenced by the pick-up in land based rig deployment which has
increased 46% since the low in May. Testament to the favourable
economics of the Permian Basin, it remains the only US basin not to have
seen a fall in production. Producers with Permian acreage should
continue to benefit as unconventional technologies further improve costs
and shortening investment cycles improve productivity. Such low cost,
short production lead times provide a significant competitive advantage
when compared to capital intensive, long lead time proposition of
conventional offshore projects.
Reflecting this view the Fund's equity exposure remains focused on these
unconventional oil producers and suppliers of drill fluids or sand for
fracking, which are able to benefit from increasing production and
activity rather than rely on higher oil prices. Approximately half of
the fund's assets are focused on operators and suppliers in the US
Permian Basin or similarly low cost on-shore producers in other
geographies. Although all of these positions would undoubtedly benefit
from higher oil prices they do not require it and will be able to
tolerate crude prices at the lower end of our expectations.
At the time of writing OPEC has proposed a production cut of around
500-700k barrels per day. There is a lack of detail on which countries
will contribute to these cuts although it appears that Iran, Libya and
Nigeria will be granted exemption from the restriction. Iraq is also
requesting exclusion in order to fund their military campaign against
ISIS. Indeed the number of OPEC members exempted from discussions is
placing even greater onus on Saudi Arabia. These exemptions similarly
undermine the potential galvanising effect that the fiscal deficits
being run by many OPEC's member economies could engender towards an
agreement. It is hoped that greater clarity will be provided at OPEC's
November meeting. OPEC is also seeking participation from some non-OPEC
members. Putin has suggested that Russia, the world's largest oil
producing nation, may contribute though this would be reliant on OPEC
reaching a collective agreement to cut and even then Russia's track
record of honouring such commitments has been poor.
Supply shocks remain an important consideration though for the time
being threats of disruption appear to be easing. ISIS appears to be
losing position in Libya while the Nigerian government appears close to
agreeing terms with rebel groups which could reduce the risks of
sabotage on key infrastructure. Social unrest in Venezuela, whose
economy appears on the brink of collapse, could interrupt oil
production. However, it is noteworthy that debt funding provided by
China is structured for repayment in physical crude.
Oil Demand has been strong following the fall in pricing, with US miles
driven up around 3% year on year, though this demand effect may
conversely weaken with higher prices. Emerging market GDP growth remains
an important driver of demand, with the growing middle classes of China,
India and Indonesia key to increased demand. GDP growth in Asia ex-Japan
is forecast to remain healthy at approximately 5.7% pa over the next 3
years. We monitor the development of electric vehicles closely and
whilst the growth in usage is impressive, the low levels of penetration
will limit their materiality is are unlikely to alter oil demand in the
next 10 years. They will alter the rate with which demand grows which
importantly could lead current OPEC producers to view their oil reserves
as finite assets rather than multi-generational appreciating assets.
The Fund owns a few positions in shipping stocks, which have hindered
the Fund's capital performance over the last 12 months. They were held
due to what we had viewed as strong supply fundamentals, in the case of
BWLPG from increased US propane production as a shale by-product and
increased oil production from exporting regions in the case of Euronav.
Both of these themes played out over the period, especially with
increasing OPEC exports, although the stocks lagged as day rates were
weak following the delivery of new ships. We continue to hold these
positions as we believe the fundamentally supportive backdrop remains in
place and we anticipate improving day rates going forward. These stocks
are both leaders in their shipping subsectors and should be a key
provider of income going forward. While income within the energy sector
is increasingly scarce, as improving returns on investment and cash
flows continue to be directed towards servicing balance sheets we
believe the Fund's healthy income reserves leave it in a strong position
to manage income expectations.
Robert Crayfourd, Keith Watson and Ian Francis
New City Investment Managers
January 2017
For further information please contact:
Craig Cleland - New City Investment Managers - 0207 201 5368
Lisa Neil - R&H Fund Services (Jersey) Limited - 01534 825 336
Annual Financial Report for the year ended 30 September 2016:
http://hugin.info/140891/R/2074089/779697.pdf
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: New City Energy Ltd via Globenewswire
(END) Dow Jones Newswires
January 27, 2017 11:42 ET (16:42 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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