Today’s Blog – Monday 16th March 2015

Commodity prices

Crude oil prices continued to slide, with WTI being US$44.09 and Brent US$53.73 as at the time of this blog.  The primary cause behind the decline appeared to be the release of an International Energy Agency (IEA) report that warned that US production growth was still continuing, notwithstanding the ongoing decline in rig count.

However, contemporaneously with this report, a recent analysis of production figures in North Dakota (almost all from the Bakken) have in fact pointed to a month on month decline in January, so there are still grounds for optimism for the bulls.

Henry Hub has been stabler than crude over the last week, with a closing price of US$2.72.

LNG

Last Friday’s edition of The Economist included a story on LNG aspirant Mozambique, which provided a classic example of politicians counting their chickens before they hatched.  The political fissures which already exist in this country have been fractured further recently with the murder of a prominent lawyer who noted that the gas-rich North (home of the opposition party) had a case for devolution.

The Economist noted that the Mozambique polity is split over the proceeds “from gas revenues”.  Currently those proceeds are of course zero.

In my view, given the choice potential buyers and investors have from competing LNG projects around the world in countries such as the US, Canada and Australia, such actions will have moved East African LNG down the development merit order.  I therefore expect no FIDs on Mozambique LNG for some years, so the local politicians will be sharing precisely nothing.

Company news – Royal Dutch Shell 

Shell’s 2014 results, announced last week, had a very similar feel to those issued by BP a week or so ago in terms of reserves replacements.  Shell managed to replace only 47% of last year’s production – and of that figure, only 17% was derived from exploration (and much of the new reserves were gas rather than oil).  These sorts of trends seem typical amongst the super-majors and will certainly be seen as supportive of their world view by long term oil price bulls.

Company news – Woodside Petroleum Ltd (ASX: WPL)

Woodside once again showed that it is the most boring E&P company on the ASX, announcing a temporary shut-in of its main cash-flow producing asset in Pluto.  The shut-in appears likely to be short term in nature.

Company news – Real Energy Ltd (ASX: RLE)

Cooper Basin small-cap RLE today announced that it had flowed gas from a well in its 100% owned acreage in the Queensland Cooper.  Frackman will breathe a sigh of relief that the flow-rate (an uninspiring 0.5mmscfd) was achieved without stimulation.

Exploration and production companies in Queensland have yet to see what affect, if any, the new Labour Government might have on unconventional gas production in the State.  Hopefully the New South Wales insanity over coal seam gas “mining” (don’t you hate that word!) will not prove infectious over the border.

Company news – Rawson Resources Ltd (ASX: RAW)

Micro-cap RAW today announced that the purchase of a small contingent resource of crude oil (located in the South Australian Otway Basin) from Beach Energy had collapsed.  It appears that in current market conditions, it is hard for juniors to source capital for even lower risk projects.

Quote of the day

One can always bank on a quote from US baseball legend, Yogi Berra – here’s one of my favourites: “In theory there is no difference between theory and practice.  In practice there is.”

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