Today’s Blog – Tuesday 24th March 2015

Introduction

Hopefully I’m bit-by-bit recovering from my Ebola/Zombie plague/man-flu – but I’m not quite there yet.

Commodity prices

Crude oil prices (WTI – US$47.22 and Brent – US$55.75) went up overnight.  The consensus view is that this was driven by a fall in the USD (currently 0.7868 versus the AUD).  The other main driving factors – rig count (good), uncompleted wells (bad), US inventories (bad), Libya (who knows), Iran (bad today, who knows tomorrow) – seem to be cancelling each other out for just now.

On Brent itself, the media has recently noted that the once mighty Brent field itself now only produces ~1,000 bopd and in the not too distant future will go down to zero.  It seems the pricing name will outlive the field by many years.

Henry Hub was again flat at US$2.75.

LNG

Some news from Yamal LNG (located in the Russian Arctic) – the LNG project that makes Australian ones look highly profitable!

The Wall Street Journal reported yesterday that project partner Total was seeking Chinese project financing of the equivalent of US$15B for Yamal, as USD project financing was apparently falling afoul of sanctions related issues associated with the key Russian partner in the project, Novatek, and its controlling shareholder, Putin-buddy Gennady Timchenko.  If successful, this would be the largest non-USD oil and gas related financing deal outside of the PRC itself.  I would expect the Chinese financiers to be wary of the intrinsic risks facing this challenging project (iced in for much of the year, etc) so this story might have a while to play yet.

Elsewhere on the LNG front, Reuters posed a question that will make Aussie investors shudder – “is LNG the next iron ore or coal in terms of structural oversupply?”  The key negatives at present are: lots of new projects coming on line at the same time; spot price well below average contract price; US projects with Henry Hub links to start deliveries this year; Japanese demand “peaking”; weaker than expected Korean and PRC demand; etc.  The key positives are: Russian pipeline supplies to the PRC likely to be delayed (see yesterday’s blog); Henry Hub could spike up when exports commence (longer term players will remember this indice can be very volatile); gas reservoirs have to face production declines as pressure reduces, whereas iron ore production limits are more constrained by infrastructure; etc.

On balance, I think the comparison is over-done.

New South Wales – coal bed methane (extracted through wells not mined!)

The Australian Domestic Gas Outlook 2015 Conference starts in Sydney today and the AFR has reported that Martin Ferguson will voice strong words about the Labor party’s grossly irresponsible anti-CBM policies, rightly pointing out their economic irresponsibility and sovereign risk.  However, will Frackman and his numerous buddies on the right and left care about such adult concepts?

Company news – Woodside Petroleum Ltd (ASX: WPL)

WPL has now inked the four PSCs which expand its position offshore Myanmar (in partnership with BG Group).  Exploration is due to commence this year (WPL’s estimate – lets see whether Myanmar’s regulator can act that quickly).  WPL seems to be building up an “Indian Ocean” strategy which plays to its existing core asset position on Australia’s North West, with increments such as its increasing engagement with potential LNG customers in India, etc. If patient, my view is that opportunities will arise to supplement this in due course with deals on the East Coast of Africa at prices considerably less than ones done in recent years.

Company news – Cue Energy Resources Ltd (ASX: CUE)

As speculated yesterday, NZOG has taken another bit bite in the above, through its current on-market takeover offer.   NZOG now has a dominant 42% ownership position in CUE.

Company news – Horizon Oil Ltd (ASX: HZN)

HZN and CUE got a welcome fillip this morning from reporting the commencement of production from the Maari MR6 well in New Zealand, which is flowing at 7,400 barrels per day.  The parties have 10% and 5% respective shares in Maari, which has proved to be a great investment – conventional oil, decent reservoir, low fiscal take, good oil price, low sovereign risk – what’s not to like!

Quote of the day

“Brent is like democracy. It’s the worst option except for all the others”

Seth Kleinmann, Citigroup

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