Today’s Blog – Monday 13 April 2015

Introduction

The initial excitement over the Shell/BG deal has died down a bit now in the media – but this is a long game (the takeover will not be finalised until next year – assuming no hiccups).  So its back to less material matters this week (unless Exxon choses the next few days to go for BP….).

Commodity prices

Crude finished up again at the end of last week, with Brent at US$57.86 and WTI at US$51.55.  Brent fared better than WTI over the week, with a weekly gain of 5%.  The BHI rig count favoured the bulls at the end of the week, with a weekly decline in oil rigs of 42 – quite a bit more than the previous week and seen as a positive sign that the decline rate has not yet plateaued.

The current excess of crude production over consumption is at least 1mmbopd (which by definition has to go into storage).  The key signs the market is waiting for are when this excess will start to be peeled back by increased demand (the Griswolds and their international brethren) and when decline in US tight oil production will be materially evident.  Geopolitic events in the Middle East can swing the market harder than these factors, both negatively and positively – but are naturally much harder to predict.

Henry Hub gas prices fell slightly to US$2.48, again driven by the weather.

LNG

The Wall Street Journal recently flagged an aspect of the Shell/BG deal that has received little other coverage: the potential role of the said-to-be increasingly assertive Chinese antitrust authorities.  The combination of the two parties would give an increased share of LNG imports to the PRC.  However, in the context of the PRC’s overall consumption of gas, this would hardly seem to be a particularly material position.  Politics rather than economics seem likely to prevail in dealing with this issue – and Shell is closely involved with the likes of the PRC Government controlled PetroChina on numerous fronts – and that relationship would appear to provide a forum for resolution of any issues.

Governments and fracking

The South Australian Parliament has recently joined its East Coast brethren in undertaking an enquiry into the seventy year old practice of fracking.  Why not have an enquiry as well into that other new fanged thing, the internal combustion engine?

The driver for this was arguably the very unfortunate siting last year of a well by Beach Petroleum beside the main Penola to Mount Gambier road-side.  Wells have been drilled in this region for decades, but were sensibly drilled a kilometre or two away from where the likes of Frackman supporters might drive by them.

The Australian reported over the weekend that Santos had made a forceful case to the relevant Committee that if fracking was banned in South Australia, then no more gas would flow from the Cooper Basin.  That should have put a cold shower on the discussion in more ways than one.  I expect this enquiry to go nowhere – it is just window dressing for local political reasons in the State’s South East – and a lesson for the industry that future drilling in the Otway should be more discrete.

Company news – Seven Group Holdings (ASX: SVW)

Seven today announced that Ryan Stokes, son of founder Kerry Stokes, will next month take over the CEO’s job from Don Voelte, who apparently wishes to “spend more time with his family”.  The Don will still exclusively advise Seven on its oil and gas business.  In my view, Seven are now more likely to treat its oil and gas investments (e.g. stakes in the likes of Beach Energy, etc) in opportunistic rather than strategic terms.

Company news – Pan Pacific Petroleum Ltd (ASX: PPP)

It was announced today PPP is the subject of an on-market takeover from ASX listed Zeta Resources.  As was the case recently with Cue Energy Resources Ltd (ASX: CUE) I expect this cash offer to allow Zeta to incrementally increase its current 17% stake in the company and will likely deliver control.  Cash is absolutely king in this current market and this to date little used form of takeover transaction is gaining increasing traction.

Quote of the day

“We promote family values here almost as often as we promote family members” – US author Larry Kersten on nepotism (why did this come up today?).

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