Today’s Blog – Wednesday 22nd April 2015

Introduction

Oil markets feel like they will be choppy as we go through the mid part of 2015 – with the US providing data based news and the Middle East “events” that will drive sentiment on a day to day basis.

Commodity prices

Crude prices fell overnight, with Brent closing at US$62.08 and WTI at US$55.26.  The key US data point is the consensus emerging on this week’s US inventory numbers – for another build (>2mm bbls).

On the other hand, the Saudi Oil Minister, Ali Al-Naimi was reported as saying at a conference in Seoul in recent days that he expected KSA production to remain at its multi-decade record numbers of above 10mmbopd (although as this blog noted a few days ago, KSA summer electricity demand for crude should reduce exports by at leat 0.5mmbopd in the coming months).

Henry Hub was again flat at US$2.57.

LNG

Somewhat lost behind the recent news of very substantial (>US$40B) promised Chinese investment into Pakistan (roads, ports, etc) – as part of the PRC’s new “Silk Road Economic Belt” strategy, was news from the Pakistan oil minister of potential material Russian investment into the country’s infrastructure.

Apparently the Russian’s will invest US$2B into a new gas pipeline from the port of Karachi to Lahore – and supply LNG into it.  Like most pipeline stories, one should take this news with a pinch of salt (particularly given the straitened finances of Russia).  However, if correct it shows that capturing LNG markets in emerging demand centres in developing nations is often not simply a matter of mere commerce – geopolitics and ancillary downstream benefits can also come into play.

Company news – BHP Ltd (ASX: BHP)

BHP put out a corporate wide progress report this morning.  Some interesting snippets from an oil and gas perspective:

  • Operated rig count came down 35% in the March quarter.
  • BHP now has only one operated gas rig in the onshore US.
  • Petroleum production has switched (as foreshadowed by Management) quite substantially from gas to liquids.

Regular readers will know this blog is a bull on US gas prices – and this data encourages the view that supply could tighten just as demand increases (from Cheniere, etc, LNG plants) later this year.

Company news – AWE Ltd (ASX: AWE)

AWE reported progress on its Perth Basin Irwin-1 exploration well.  The well appears to be powering ahead of its estimated timing (its now at 3,850M with a TD of 4,064M due to be reached in 3 weeks time) – but naturally the drilling game ain’t over until its over.  AWE’s share price has fallen somewhat this morning, but that fall seems unlikely to be correlated with this news – unless more was expected since last week’s Irwin-1 report (which was promising).

Company news – Woodside Petroleum Ltd (ASX: WPL)

This news came from a junior JV partner, rather than the mighty WPL itself (the news was presumably immaterial, or bad, which is of course the same thing): London listed Chariot Oil and Gas Ltd (AIM: CHAR.L) advised the market yesterday that WPL would not exercise an option to drill a well in JV acreage offshore Morocco.  WPL’s much expanded global exploration portfolio still has quite a few shots left in the locker though.

Cooper Energy Ltd (ASX: COE)

COE yesterday afternoon reported promising results from its Bunian-3 ST-2 well in Sumatra, with the well coming in high on prognosis and production testing due next.  However, this asset is held under a contract called a “KSO” in Indonesia – which gives COE a share only of contractor profits under a head PSC (which itself would likely have fairly tough fiscal terms) – so the NPV effect and entitlement barrels will likely be less material than the physical merits of the well would otherwise suggest.

Quote of the day

Ex-Presidential candidate Donald Trump on one of the many areas in which he is a global expert, the KSA:

“I saw a report yesterday. There’s so much oil, all over the world, they don’t know where to dump it. And Saudi Arabia says, ‘Oh, there’s too much oil.’ They – they came back yesterday. Did you see the report? They want to reduce oil production. Do you think they’re our friends? They’re not our friends”.

My response – “you’re fired!”

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