New City Energy has published results for the year ended 30 September 2016. The total return in net asset value terms was 6.3%. 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 chairman says that the investment managers 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. It is this thinking that has driven the move to wind up the fund.
The investment managers say “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.”
NCE : New City Energy justifies wind up move