Today’s Blog – Wednesday 15th April 2015

Introduction

Crude continued to edge up overnight and oil and gas stocks on the ASX generally continued to follow the commodity price leader upwards.

Commodity prices

WTI saw a decent 3% move upwards to US$53.53, whilst Brent also edged up (but by a lesser amount) to US$58.43.  The primary driver was the release of a US Department of Energy EIA report on expected production from tight oil plays, which forecasted a ~50,000 bopd decline in May.  Some observers have criticised the methodology used by the EIA in this report, which is fairly “top-down” rather than “bottom-up” and which is only corrected many months after original publication.  For instance, reports at the State level from North Dakota show a decline in production in that State starting a few months ago, whilst the EIA concludes that the Bakken is only now starting to decline.

Henry Hub was flat at US$2.52.  The significant drought in Western USA, and in California in particular, is expected to see a stronger than normal demand for gas for electricity fired generation, as water stocks for hydro generation in the summer will be very low.

LNG

An intersting juxtaposition of LNG news stories emerged yesterday:

  • The BP operated Tangguh LNG facility in Indonesia’s West Papua province was reported as struggling to find a final buyer to underwrite capacity in a proposed third train at this plant.
  • Meanwhile in the US, Cheniere was reported as being 30 days away from FID on its greenfield Texan liquefaction project at Corpus Christi and futhermore may FID the adding of two more trains to its Louisianan Sabine Pass facility that is due to start production later this year.

This tells me that those buyers who are actually currently in the market are very much favouring the purchase of liquefaction capacity in the US and the taking of Henry Hub exposure on gas pricing, over entering into traditional long term oil-price linked contracts.  Tangguh is a strong traditional project: brownfield economics, good operator, established supplier, well located for Asian markets, etc.  If Tangguh can’t sign contracts, then I would expect an order or magnitude of difficulty for the likes of the Canadian and East African projects in doing so.

Pipelines

Gazprom continues to demonstrate that it is not just the NT to Eastern States pipeline project that has been developed on a post-it note.  Notwithstanding last week’s delay of 2 years on the Power of Siberia pipeline to China (a project with an actual customer) – basically for lack of money – Gazprom is currently strongly promoting its Turkish pipeline project, which will go to Greece and then somehow find customers thereafter.

Company news – Woodside Petroleum Ltd (ASX: WPL)

WPL put out its March quarterly this morning.  Amongst the more interesting snippets therein:

  • The Anhalt-1 well WPL has just drilled with Shell was a dry hole.  This was a >5,000M well, was the third in a string of 3 dry holes in the area, and was no doubt not cheap.  However, unlike last week’s small discovery in the Pyxis-1 well in the Carnarvon, its P&Aing did not merit a separate ASX release.  The iron rule of ASX reporting obviously applies for WPL as well as the smallest junior: “good news is always material, bad news is rarely so”.
  • An LNG joint marketing arrangement for Browse between WPL and the Japanese was terminated in the quarter.  As noted above, if Tangguh can’t sign contracts, then Browse will struggle to do so.

Company news – TAP Oil Ltd (ASX: TAP)

The lawyers are having the proverbial field day at TAP.  If I can get my facts straight, the situation is as follows:

  • TAP’s partner in the Manora project off Thailand, Northern Gulf Petroleum (NGP), has claimed TAP owes it cash right now for a reserves booking milestone.  TAP has counter-claimed that due process has not yet been followed and until it has a payment will not be made.
  • NGP is TAP’s largest shareholder and is seeking to change TAP’s Board.
  • NGP is allegedly in default in the Manora JV for non-payment of cash-calls.
  • TAP claims NGP owes it money under a farm-in provision.

Welcome to the Jungle! And, I’d rather be a lawyer than a Director trying to build a company here.

Quote of the day

A compliment (relatively speaking) on lawyers from Russian literary giant, Anton Chekhov:

“Doctors are just the same as lawyers; the only difference is that lawyers merely rob you, whereas doctors rob you and kill you too.”

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