Today’s Blog – Tuesday 28th April 2015

Introduction

Industry insiders may remember a few years ago when the 1970s inter-office memos from the CEO of Houston based Tiger Oil were released on-line.  These recalled the halcyon days when HR was something that the MD did after coming back from a 5 Martini lunch and were a refreshing counter-point to today’s PC environment.  In order to keep up the good fight against the stultification of big business’ HR environment, this blog’s quote of the day feature will occasionally sample some memos from Tiger Oil’s President, Edward “Tiger Mike” Davis, starting today.

Interestingly, “Tiger Mike” provides a great example of how the oil patch is in reality a very small one in people terms.  After his Tiger Oil days, he later became a significant shareholder in a company called Delta Petroleum.  That company had interests in Queensland’s coal-bed methane patch – which were acquired by Santos Ltd in 2007.

Commodity prices

Crude oil prices slipped back overnight, with Brent finishing at US$64.83 and WTI at US$56.99.  The market seems to be nervous about another big inventory build in the US to be announced later this week.  On a more helicopter view, sentiment seems to have over-run the reality of as yet small-scale US production declines and in the absence of “events” in the Middle East, the price will likely be choppy until reality catches up.

Henry Hub was flat at US$2.48.

Governments and unconventional petroleum

Texas has now joined Oklahoma in expressing some concerns about man-made earthquake activity in the oil patch – possibly induced by the injection of large volumes of frack waste water into deep wells.

The Texas Railroad Commission (not known as a hotbed of hippies) said on Friday that it was considering shutting down a couple of injection wells near the town of Azle.  The Commission will hold hearings with the operator of the wells – Exxon – in June.

The environmental movement does not appear to have picked up on this issue – as yet.

LNG

The PRC hosted a LNG conference last week and a theme that emerged was that the pathway for Chinese LNG demand was a highly uncertain one.

Demand last year was less than estimated.  This may be because economic growth could have been much less than the public figure of 7%.  Electricity production figures (normally very well correlated with GDP growth) were around half what they”should” have been, based on the historical linkage.

An Australian related story supports this “demand weakness” theory – Platts recently reported that Sinopec has sought permission to divert cargoes it has contracted for from APLNG.

The Chinese NOCs are facing some turbulence at present – with recently reported massive falls in revenues and profits.  Additionally, they are the focus of anti-corrruption drives, which are part real and part proxies for battles at the top of the Communist party.  These factors are not conducive to them continuing to invest in this down cycle – possibly even more so than the Majors.

Company news – BP PLC (LSE: BP)

The British Government has recently told BP that it would prevent any foreign takeover of the company.  This statement would appear to preclude the Exxon (or even Chevron) runs at BP that the industry has been speculating over.  However, the statement has been delivered in a pre-election environment and could be revisited.  In my view, the next British Government is likely to be an unstable coalition, vulnerable to populist pressure, and that should protect BP’s independence.

Company news – Beach Energy Ltd (ASX: BPT)

BPT put out its quarterly report this morning.  Although not unexpected, it was fairly gloomy reading, with phrases which have not exactly been uncommon in the industry recently, including: “volumes down”, “revenues down”, “capex down”, “organisational review underway”, etc.

BPT has cash of A$165M and undrawn debt of A$150M – reasonable but not “barrels loaded” liquidity levels.

It looks like a fairly boring time for BPT in the year ahead, as it gets on with what is the daily grind of the Cooper Basin and pulls back from other areas.

Quote of the day

Edward “Tiger Mike” Davis in a memo to employees:

“Do not speak to me when you see me. If I want to to speak to you, I will do so. I want to save my throat. I don’t want to ruin it by saying hello to all of you sons-of-bitches.”

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