Today’s Blog – Thursday 23rd April 2015


IHS CERA is hosting its annual conference in Houston this week – an occasion for oil-field royalty to assess where the industry is at – and further the agendas of their own organisations, naturally.   For instance, Rex Tillerson of XOM was quoted yesterday as saying that oil prices won’t recover any time soon.  There is a good arguable case to support that thesis – but also it is one which benefits XOM, with its great portfolio of assets that are robust at low oil prices – particularly if it is in predator mode and stalking weaker rivals.

Commodity prices

Brent strengthened overnight to US$62.73, whilst WTI dropped to US$56.23.  The EIA’s inventory numbers will come out overnight and WTI is naturally more skittish over these than the more geopolitically sensitive Brent price.  Overall all the crude price has increased 30% since its mid-March lows, and the actual price has arguably overtaken the media, who in general terms are still talking about US$50ish oil.

Even in this deep and liquid market, the views of someone like Tillerson can affect pricing, at least in the very short term.

A more bullish view on oil prices came from ex-BP MD (and now Glencore Chairman and Genel CEO) Tony Hayward at a London conference a couple of days ago.  He emphasised the obvious point that the current very material capex reductions being made by the oil industry will naturally flow onto lower production and hence higher prices in a few years time.  He also made the more subtle point that the dramatic cuts being made in the service sector will mean that turning back production on again – particularly in the new so-called new swing producer, the US – will not be a simple and quick matter of opening up the valves, Aramco-style.

Henry Hub ticked up a bit to US$2.60.


Speaking of talking up their own book, ENI’s CEO said at CERA this week that he aimed to FID Mozambique LNG this year.  Good luck!

Meanwhile in Japan, LNG demand has arguably just peaked – with a record being set for the fiscal year ended 31 March.  Japanese courts have recently given their blessing to the firing up of part of the shut-in nuclear fleet; demographic destiny continues to grind away; energy efficiency gains are still being made; Abenomics has arguably hit a wall in terms of inducing economic growth; renewable penetration is low and should increase; etc.

Reuters also reported yesterday some LNG optimism from Total – who are said to be aiming for first gas from their greenfield PNG LNG (with Interoil and Oil Search) project to be delivered in 2021.

Company news – Origin Energy Ltd (ASX: ORG)

Yesterday afternoon ORG announced that S&P had downgraded its credit rating to one notch above junk, to BBB-.

ORG was no doubt following the ASX tradition that good news is announced before lunch and bad news thereafter.  Naturally ORG said this would not affect its plans in any way – and certainly not in terms of any need for an equity capital raising.

Santos Ltd (ASX: STO) escaped any similar downgrade to its credit rating

Company news – Sino Gas & Energy Ltd (ASX: SEH)

SEH came out of a trading halt this morning, announcing that it had made an A$80M placement, at a 11% discount to its last traded price.  Raising equity capital for oil and gas companies is not exactly easy in the currently prevailing capital market conditions, so this seems a pretty good outcome for SEH.  The relative maturity of SEH’s Chinese gas project – and the attractive gas market characteristics prevailing in the PRC, appear to be the keys to this successful raise.

Company news – Cooper Energy Ltd (ASX: COE)

COE issued its March quarterly report this morning.  Not a lot of new news, but a few interesting snippets:

  • COE has gone some way to converting its “financial investments” into cash.  A prudent move no doubt, but if these “investments” were previously strategic ones (in terms of, for instance, holdings in potential takeover targets), then arguably a pulling up of the drawbridge – and preparation for the Great Game of Cooper consolidation.
  • It is not clear whether quoted production from Indonesia is in terms of entitlement or working interest barrels. In my view a good case can be made for using either – but it is an area where ASX guidance is lacking and company’s can push the reporting envelope.
  • Not surprisingly, the planned sale of the Company’s Tunisian asset has been delayed.

Quote of the day

Inspired by ORG, I’ve dragged out a classic from a special adviser to the British Labour Government, from September 11, 2001:

“It’s now a very good day to get out anything we want to bury.”

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