Today’s Blog – Wednesday 6th May 2015

Introduction

“Events” have returned to the oil market since yesterday’s quiet day – with prices reacting to (inter alia, as always) a (presumed) material reduction in Libyan exports.

Libyan oil supplies have been “doing the hokey kokey” (“in out, in out, shake it all about“) for some time now, with large increases and decreases in supplies following military actions, captures of facilities by different factions, etc, etc.  The hokey kokey has been one conducted in a fog, with quotes over any particular numbers deserving a large pinch of salt.

Bizarrely, notwithstanding at least 2 separate parties claiming to be the Government of Libya, oil revenues are still paid to the independent Oil Ministry (no doubt with some ullage….) and then paid on to “civil servants” (much of the population), etc, on all sides.  How sustainable that is remains to be seen.

Commodity prices

As noted above, last night saw some material crude price gains (although it was WTI reacting to “events” more than Brent this time), with Brent up to US$67.52 and WTI smashing through the US$60 level to US$60.65.

US inventory numbers will come out tonight and the bulls will want to see last week’s slowing continuing this week.

Henry Hub was flat at US$2.79.  This has firmed in recent weeks as the shoulder period between winter and summer demand is now passing, with increased air conditioning demand for gas-fired electricity emerging.

Government news

The West Australian newspaper has reported that the State Government is looking at measures to improve supply reliability by potentially asking gas retailers to “hold gas supplies in reserve”.  What this practically means is unclear – storing methane in giant zeppelins perhaps?  The State has only one gas storage facility (owned by ASX listed APA Group), which does not appear to have substantial spare capacity.

A non untypical political move to protect political risk at the cost of shareholders rather than the voting public.  However, in my view this is unlikely to actually go anywhere.

LNG

Following comments made in this blog a week or so ago, Reuters has reported that Anadarko’s CEO has denied that the company is in talks over the sale of its Mozambique LNG project.  Naturally “he would say that, wouldn’t he“, but more specifically he said no bankers had been appointed (and he would not get caught out on something specific like that).

Readers will recall prior media speculation that Exxon was looking at this asset.  In my view, Exxon would see its LNG projects in PNG and Alaska as being higher priority and less risky than a greenfields project in East Africa.

Company news – Orca Energy Ltd (ASX: OGY)

OGY is basically a listed shell, with a small Texan exploration asset (it had some acreage in the Cooper Basin which it recently sold to Senex Energy Ltd).  OGY announced today that interests associated with well-known coal industry entrepreneur, Nathan Tinkler, would invest A$20M into the company.  Once shareholder approvals were dealt with, Tinkler would become Executive Chairman.

Although Tinkler is no billionaire anymore (if he ever was – and indeed the above money is not in OGY’s bank until it is), this story has echoes of the investments recently made in the oil patch by Kerry Stokes’ Seven Holdings.  That is, there is a perception that there are bargains to be had in the sector for those with money to deploy.

My view is that the holders of good assets in Australia are generally not distressed and I see few quality assets being available for purchase.  There are however, lots of exploration assets available at prices that will no doubt look very good in a few years time.  But these are unlikely to be the quick turn-around, lower risk, assets that these types of investors are looking for.

Company news – AWE Ltd (ASX: AWE)

News continues to bubble from the Perth Basin, with AWE and its tiddler partner Norwest Energy (ASX: NWE) announcing a 3D seismic program reaching a milestone today.  Not material news in and of itself, but this is an area which is likely to see more action following AWE’s high quality conventional discoveries made there in recent times.

Company news – Beach Energy Ltd (ASX: BPT)

BPT issued a conference presentation today.  Nothing particularly new was set out therein, but it is interesting to note the emphasis BPT is continuing to make (which I consider logical) over potential mid-stream asset monetisations\ in the Cooper Basin – particularly when operator Santos Ltd (ASX: STO) is much quieter on the topic.

Quote of the day

At the famous “Profumo” trial in the 1960s:

Barrister putting an assertion to Mandy Rick-Davies: “Lord Astor denies having an affair with you!”

Mandy Rice-Davies: “Well he would say that, wouldn’t he.”

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