Today’s Blog – Tuesday 31 March 2015

Introduction

In the run-up to Easter things may be a bit quiet on the Australian corporate front – but in the Middle East there is still plenty of action weighing on the minds of oil price pundits.

Commodity prices

Crude oil has been flat-tish since yesterday, with WTI at US$48.48 and Brent at US$56.06.  The big known unknown that the market is very closely looking at this week is the outcome of the Iranian nuclear talks.  The worst case scenario for oil price bulls (if not the world generally and Iranians particularly) is that the Iranian Government would make moves to join the normal community of nations.  However, in my view we are more likely to see a kicking of the can down the road again with another deferral of the “final” negotiating date.  In any events, hawks in Washington, Israel and Iran will be sharpening their knives to try and stab any compromise with the hated enemy.

Henry Hub was again flat at US$2.64.  The forward curve for natural gas at Henry Hub remains one of a normal contango, with seasonal bumps for winter period futures contracts.  There is no discernible shape in this forward market to signal the upcoming commencement of US LNG exports by the end of this year, which therefore must be assumed to be taken in the normal stride of the market.

LNG

The incredible volumes of what appear to be high quality conventional contingent resources of natural gas off the coast of Tanzania and Mozambique were added to recently, with Statoil announcing its most recent Tanzanian well had added 1 to 1.8 tcf of gas resources (taking the total in its Block 2 alone to 22 tcf).  The main obstacle to these volumes taking an advantageous position in the merit order of future LNG developments remains sovereign risk, rather than geographical location (well placed for India and East Asia) or geological quality.

In comparison, the AFR reported today that Shell had delayed the drilling of a well in Australia’s Browse Basin – adding to well deferrals made by Santos and Inpex in the same Basin.  The variously owned Browse contingent resources, although benefiting from a good sovereign risk profile, appear to be slipping down the LNG league tables.

New South Wales election and CBM

Notwithstanding the Liberal win in last weekend’s NSW State Election, there still appears to be growing political opposition to CBM in the State, as evidenced by seats won by the Greens on the North Coast (where there is no CBM activity or genuine prospectivity – but still vocal opposition to its very possibility).

Indeed, the returned Premier noted that “we have heard the message, particularly up there and we will be responding“.  This sounds like he will focus on battles that will affect this parliamentary term (privatisation) and not the longer term (less and higher priced gas for the State – too far away and a different Premier’s problem!).

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

Yesterday was the last day of NZOG’s on-market takoever offer for CUE – it ended up with a strong (but not absolute majority) position of 48%.  I don’t expect that to be the end game – so watch this space, not only in the context of this particular transaction, but also for the lessons it might give for other possible M&A transactions in the sector.

Company news – New Standard Energy Ltd (ASX: NSE)

News from micro-cap NSE provided further evidence of behind the scenes M&A action in the oil patch.  NSE came out of a trading halt this morning, announcing that it had secured US$3M in additional debt from Credit Suisse (watch out shareholders) – and that it had recently had discussions over a corporate transaction which had not matured to a disclosable point.  One suspects that current share price and capital market privations are causing many such discussions – some of which may even overcome the usual “social” issues!

Company news – Chevron (CVX)

Yesterday I noted that CVX had walked from its Cooper Basin joint venture with Beach Energy and Icon Energy.  In CVX terms this was small beer – far more important for it was the sale of its 50% interest in ASX listed retail business Caltex.  This sale was done at a hefty PER of ~18 – very clearly showing that the market loves boring ex-growth stocks that at least have some yield over the potential excitement of growth stocks such as exploration companies.

Quote of the day

From the recent Weekend Australian (John Black):

The poor old Nationals here really are the poor old Nationals.  While the Greens represent the rich but think they represent the poor, the Nationals now represent the poor but think they still represent the rich.”

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