Today’s Blog – Wednesday 13th May 2015

Introduction

Last night saw the announcement of the Federal Government’s budget.  Other than the foreshadowed moves to try and pry more taxes from multinationals (such as Chevron) there was little of note for the oil and gas industry.  Seeking more money from big companies will no doubt play well politically, but whether it will actually raise any real money is open to question, given factors such as: existing international treaty obligations; the resources of the companies themselves; the question as to why dosen’t existing comprehensive anti-avoidance law work; etc.

Commodity prices

Last night we saw a sharpish rise in oil prices, with Brent closing at US$66.86 and WTI at US$60.75.  This was notwithstanding some head-winds from the likes of Goldman Sachs and Opec (2 unholy bed-fellows) both putting out bearish views on oil prices.  The fall in the US$ appears to have been the critical force behind the rise.  No “events” have occurred so far this week in the Middle East and now we will therefore wait for US inventory numbers tomorrow.

On the matter of numbers, it is interesting to note that the rig count in the Middle East has continued to rise in recent months as the US rig count has dramatically fallen.  Given the maturity of the producing fields in Saudi Arabia, etc, it appears to no longer be a case of just turning on the proverbial taps to boost production – and increased OPEC production in recent months shows that the countries need revenues – which presumably requires more drilling.

Governments

The Major of Seattle has recently taken it upon himself to single handedly save the planet from global warming by seeking to rip-up the contract Shell has with the Port of Seattle to use the Port as a base for its upcoming Arctic exploration program offshore Alaska.

Shell’s program in Alaska has to date been a fiscal disaster, with a spend of >$US6B to drill 2 top-holes.  Those working on the project must consider themselves cursed and this latest development as another kick in the teeth.  I expect the Major to lose, but damage the perception of his city business-wise – but no doubt be cheered from the large environmental movement in the State of Washington.

LNG news

Returning to one of my favoured topics – Russian pipeline gas projects into China – and their effect on that key LNG market for the likes of Australian LNG suppliers.  Some further details have emerged from Gazprom about the deal signed in Moscow last week with CNPC over the Eastern Altai pipeline project.

In a recent interview Alexei Miller has said that the parties have agreed key terms such as ACQs, TOP, MDQ, border crossing point, etc.  The small details of price and date of first gas are still to follow though…..

Speaking of price, the AFR reported today that the Woodside Petroleum Ltd (ASX: WPL) operated North West Shelf joint venture is going down a separate rather than joint marketing route.  Given all of their current gas reserves are contracted, this would appear to have no short term practical affect, although the AFR considered that this could give some leverage to re-open the world’s dumbest LNG sales contract with CNOOC that was struck by the JV in 2002.  How that could actually occur was not said.  I expect the PRC (and it would be the PRC, not just CNOOC) to hold pretty firm on its deal…..

Company news – FAR Ltd (ASX: FAR)

Yesterday afternoon FAR put out some news from the operator (Cairn Energy) of its Senegal oil discovery asset and was rewarded with a ~10% price slump.  The news in and of itself was arguably positive – it set out a measured approach for the appraisal and development of what at this stage seems a high quality asset.

However, the market here did not seem to like the fact that undertaking such a greenfields deep-water East African project would take longer than a couple of weeks.  Not only would gratification be delayed – but horror or horrors, the company might at some stage need to raise capital.

As I noted yesterday, when share-market winds are blowing behind you, the market welcomes the opportunity to deploy more capital (pace infrastructure at present).  But when the wind is blowing in your face, the market will hate you if there is a sniff of a capital raise coming.  Voting machine not weighing machine!

Quote of the day

Mixing up Russian literature and how the Shell arctic exploration team must feel, I have another gem from the almost bottomless well of witty P G Wodehouse quotes:

“Freddie experienced the sort of abysmal soul-sadness which afflicts one of Tolstoy’s Russian peasants when, after putting in a heavy day’s work strangling his father, beating his wife and dropping the baby into the city reservoir, he turns to the cupboard, only to find the vodka bottle empty”.

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