Today’s Blog – Thursday 26th March 2015

Introduction

Still battling away against my virus – but still blogging too!

Commodity prices

Crude oil prices firmed somewhat overnight, with WTI at US$48.87 and Brent at $US56.48.  Again a weakening USD buttressed prices – overcoming ongoing inventory builds in the US.  The crisis du jour in the Middle East is now Yemen (“and soeth the smiting continued...”).

A very rare insight into Chinese crude storage levels emerged from a Reuters story yesterday, which reported a Sinopec executive as saying Chinese SPR and normal storage capacity levels were nearing full capacity.  This is in the context of a consensus in the market that the PRC has been building up SPR levels since Q4 last year – so part of the Chinese demand we have been seeing in recent months could diminish.

Another inventory related story – this time reported by Bloomberg – concerned Iranian storage levels.  The general view has been that in the event of a relaxing of sanctions it will take some months for Iranian spare production capacity of ~1mmbopd to come back to market.  However, Bloomberg reported that Iran has stockpiled in tanks and tankers up to 35mmbo which could hit markets straight away once sanctions were lifted.

Henry Hub was flat-tish again at US$2.73.

LNG

When it comes to floating LNG, we in Australia naturally focus on the Shell operate Prelude project.  However, news emerged recently confirming strong progress on Petronas’ own Malaysian FLNG project – ship-buildjer Daweoo announcing that it had completed topside installation on Petronas’ FLNG vessel, which was on track to be moved to the gas-field in September this year.

Victorian State Government – gas regulations

The Victorian Government has recently demonstrated its historic keen-ness to match it with its Northern neighbour in all things – including in regulatory ineptitude and rank populism over exploring for and developing on-shore gas resources.  The Parliamentary enquiry into this matter, recently estimated to take a year, is still having its terms of reference finalised.   Based on recent Government statements, intangible factors such as “community” are likely to be given equal weightings to such boring things as “science”, hence allowing both a substantial period in which nothing will happen – and also a very large degree of political discretion still left at the end of the process.

Meanwhile in the UK a Government task-force has recommended the creation of a new onshore focused regulator to deal with industry and community issues over unconventional gas exploration.  Sensible politics – but my view is that given the population density and wealth of the UK, it will prove very hard to drill any meaningful number of production wells, even if the geology proves positive.

Industry news – Santos Ltd (ASX: STO)

Santos announced yesterday the results of its recent underwritten dividend reinvestment plan – the traditional way to dilute existing shareholders without them really noticing.  However, buried at the bottom of the announcement, and far more interesting, was news on the company’s current Malaysian exploration drilling program.  One presumes the somewhat sheep-ish nature of the disclosure could be to do with joint venture and regulatory sensitivities and perhaps accordingly the information provided was relatively scant.

In a nutshell, STO has a 20% interest in a JX Nippon operated PSC offshore Malaysia in which the Bestari-1 exploration well recently encountered a net oil column of 67M (in a gross package of 842M).  Oil quality appeared reasonable.  Off the top of my head, this ranks as Santos’ most significant oil discovery since Chim Sao – nearly 10 years ago – so further wells, testing, etc, will bear watching closely.

Industry news – AWE Ltd (ASX: AWE) 

Yesterday afternoon AWE announced the spudding of the Irwin-1 well in its Perth Basin acreage (in joint venture with Origin Energy Ltd).  This is a significant, >4,000M well, which will test targets both unconventional and conventional.  Positive results on the latter in particular would add greatly to the Company’s resource base in an area which is very well located for markets, taxes, risks, etc – other than for the spectre of Frackman….

Quote of the day

Inspired by our Victorian neighbours, we recall Sir Humphrey Appleby:

“It’s clear that the Committee has agreed that your new policy is really an excellent plan. But in view of some of the doubts being expressed, may I propose that I recall that after careful consideration, the considered view of the Committee was that, while they considered that the proposal met with broad approval in principle, that some of the principles were sufficiently fundamental in principle, and some of the considerations so complex and finely balanced in practice that in principle it was proposed that the sensible and prudent practice would be to submit the proposal for more detailed consideration, laying stress on the essential continuity of the new proposal with existing principles, the principle of the principal arguments which the proposal proposes and propounds for their approval. In principle.”

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