Today’s Blog – Friday 27th March 2015

Introduction

The end of a week of rising oil prices, relatively slim company news – and an election in New South Wales due on the weekend which will hopefully allow a line to be drawn under the hysterical anti-CBM populism which has been running rampant in the State.  Or not as the case might be.

Commodity prices

The price of crude oil continued to respond to the new round of Yemen centred smiting in the Middle East. WTI closed at US$51.11 and Brent is nudging US$60 again, at US$59.19.  The escalating civil war in Yemen, with intervention from the two regional major powers, Sunni Saudi Arabia and Shia Iran, has focused the market’s mind on the risk of significant supply disruptions from the World’s major crude oil export zone.  My view is that these developments will provide succour to the Iranian hard-heads who want to maintain maximum nuclear weapon development capabilities and hence could stymie what appears to be current momentum towards a nuclear deal.

Gas prices at Henry Hub fell somewhat to US$2.66, as the first net injections into the US’s substantial gas storage system commenced this week.

LNG

Some progress appears to being made in Mozambique’s nascent LNG sector, with news announced of fiscal stability agreements reached between the Government and the Anadarko and ENI led joint ventures.  However, these agreements allow for “renegotiations” after 10 years, and operate under a new Petroleum Law which has a 25% domestic gas reservation, so they are not exactly ideal from a Producer point of view.

In my view they fall some considerable way from providing the level of investor confidence likely to be required to FID a greenfields East African LNG project in a world which appears long LNG.

New South Wales – coal bed methane (CBM)

The self-centred world of of the Premier State – and its fact-ignoring view of CBM – was underlined again in statements reported by The Australian from John Hewson (who appears to have seized Malcolm Fraser’s mantle as the ex-Liberal leader that has abandoned economics in return for lovey-ness).

Hewson said that “we don’t really need to have coal seam gas at all in this country, it is not necessarily a very good investment”.

Clearly he was not a shareholder in Pure Energy, QGC, Arrow Energy, Bow Energy, Roma Petroleum, Tri-Star Petroleum, Pangaea, etc, – which last time I looked at the simple arithmetic seemed to be more than “good” investments.  The first part of his comments seems to be a not untypical Sydney-sider perspective that does not seem to know or care that CBM is a mature industry in Queensland that has attracted many $10Bs of investment.

Company news – Santos Ltd (ASX: STO)

STO issued its Annual Report yesterday.  No comment on the executive remuneration section for a company that has just seen its market cap halfed……..

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

NZOG continues to creep up the CUE register – it now has ~46%.  The value of a cash deal in these straitened times cannot it seems be underestimated.

Company news – Drillsearch Energy Ltd (ASX: DLS)

The Seven/Stokes group has issued a substantial shareholder notice for DLS – it now has a ~8% stake.  We will watch with interest how Seven will seek to parlay its position in Beach, DLS (and likely others below the 5% level – e.g. Senex Energy) into a profit over the coming months and years.  One suspects there is no carefully mapped out grand plan – rather a foundation from which to profitably exercise options as events develop.

Quote of the day

From author Tom Quinn: “There is no great religion without a great schism. All of them have it. And that’s because you’re dealing with something called faith. And faith is not something you can prove; faith is personal opinion. Uh, when you’re dealing with something with certainty, like, y’know, science or logic, you don’t have the–there’s no wiggle room; that’s why history is not filled with warring math cults, y’know, because you can settle the issue; you can prove something to be right or wrong, and that’s the end of the argument: next case. Whereas, when you’re dealing with faith, you can foreverargue your point, or another point, because you’re dealing with intangibles. Personally, I think, faith is what you ask of somebody when you don’t have the goods to prove your point.

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