Today’s blog – Friday 6 March 2015

Commodity prices

The premium of Brent over WTI narrowed slightly overnight, with the former closing at US$60.48 and the latter at US$50.98.

The EIA reported this week that US crude storage capacity is at 60% levels and some financial market commentators are speculating that it will become “full” within the next 2 months.  If that happened, one can only presume that the Brent premium will increase even further.  Then US politicians will be under greater pressure from the industry to allow crude oil exports.

Whether bi-partisan consensus over any such legislative change could be reached in Washington remains to be seen, particularly in the toxic environment in the city.  I ask what would be in it for Obama to sign off on a bill that could easily be argued will raise domestic gasoline prices and only benefit “big oil”?  Economic rationalist arguments to the contrary (which I support) will have less public resonance.

Henry Hub closed flat at US$2.83.  The DOE reported that gas storage withdrawals last week totalled 225 Bcf.  It is interesting to note that this figure is about 1/3 of Eastern Australia’s total annual consumption.

LNG

Various reports have emerged from a LNG conference held in Canada this week.  Naturally project proponents are bullish on Asian market demand growth and FIDs “later this year”.  However, until buyers start signing binding contracts, I expect the projects to remain in the concept stage.

CBM (or CSG) in New South Wales

A confusing news story emerged from New South Wales yesterday about the “cancellation” or “purchase” or “surrender” of a number of petroleum exploration licences held by the successful private company, Pangaea Resources.  My interpretation is that, in what is a pre-election environment, and in a State in which a person called Alan Jones for some reason appears to wield enormous political power, the Government has tried to spin a normal process of acreage surrender into something that it proactively has achieved.  That is, my guess is that Pangaea has concluded that some permits are not prospective, it has surrendered them, then the State has said that it has “bought” them.

Another NSW CBM story came out this morning: the purchase of interests in a number of petroleum licences by A J Lucas (ASX: AJL).  AJL has in the past successfully traded interests in petroleum licences with CBM resources therein, in Queensland and New South Wales.  The identity of the seller, or the names of the permits, were not disclosed by AJL.  My speculation is that the permits are ones held by private company Apex Energy.  If I am correct, these permits lie just south of Sydney – i.e. an area that is not conducive to exploration activity without likely large community issues arising.

Company news – Oil Search and Santos

Oil Search issued a drilling report yesterday which indicated that the Hides Deep well in PNG (in which Santos also has an interest) has drilled through the target formation and testing will follow.  Santos has made no disclosure about this and its website notes the status of the well as “drilling”.  Given the location of this field – i.e. immediately below the producing Hides field, a discovery there should be valuable to both companies.

Call me a cynic, but the low key nature of the disclosure to date does not seem to indicate a boom result.

Company news – Santos

Maybe I’m being too cynical about the Hides Deep well and Santos is distracted following its Board changes this week.  This story continues to run, with today’s AFR reporting that ex-MD (and large shareholder) John Ellice-Flint has been trying to find out more about the apparent Board rift from the company’s Directors.

Company news – Exxon (XOM)

The Daddy of the oil patch, Exxon-Mobil, held an analyst briefing day on Wednesday in the US.  As usual, the results impressed and made its super-major peers look shabby.  The key points that I took from the briefing were: a re-allocation of capital expenditure towards the downstream, which presumably indicates a XOM view that low commodity prices might last for some time; and, significant increases in US tight oil productivity measures.  When independent oilers talk about this, I wonder how selective their data is, but XOM announcements are much more bankable.

Quote of the day

Some cautionary words for those of us who believe that oil prices will inevitably rebound.  Very well known, but worth repeating J M Keynes’ wise words: “the market can stay irrational longer than you can stay solvent“.

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