Today’s Blog – Wednesday 20th May 2015

Introduction

Last week’s blog mentioned US based geologist Art Berman, a long time sceptic of the economics of shale gas/oil – and therefore not a natural oil price bear.  In his own blog this week, he produced a striking picture by likening the current oil market to the position of Wile E. Coyote having walked over a cliff – just before he looks down.

That is, in his view, there is little fundamentals based support for the current price and when that is realised we could see a material fall.  This analysis concurs with my view that the current market feels like it has over-run itself somewhat.

That Road-runner painting on the wall of a train tunnel could have a real train coming out of it any minute to smack the market in its face!

Commodity prices

Maybe Wile E. Coyote is already starting to look down, as crude prices fell by a few dollars overnight, with Brent closing at US$64.02 and WTI at US$57.99.

“Events” in the Middle East did not rattle the bears yesterday – even with all the current elevated smiting in Iraq, etc, OPEC production numbers are up.  Naturally that could change in unpredictable ways though.

Henry Hub also fell – albeit slightly – to US$2.96.

LNG

Over in Qatar the low oil price – and hence the low LNG price – must be hurting a bit.  Qatar Petroleum has announced a re-structure in which it will bring the previously separate Qatar Petroleum International in-house.  Asset sales could well ensue.

Bribes to FIFA, etc, (and that’s on the legitimate end of the Qatari disbursement scale in some people’s eyes), don’t pay for themselves you know!

Meanwhile back in Australia, Woodside Petroleum Ltd’s MD, Peter Coleman (yesterday’s Harry Shand) is reported to be currently promoting his company’s Browse LNG project to investors, emphasising the gas market opportunity in the early part of next decade, which this project is supposedly well placed to capture.

If his recently expressed views at APPEA about oil prices being “lower for longer” are correct, then one would think the economics of this high cost project would look challenging.

Company news – Beach Energy Ltd (ASX: BPT) and Drillsearch Energy Ltd (ASX: DLS)

The Great Cooper Caper continues.  Yesterday afternoon Seven Group announced that it had lifted its stakes in BPT and DLS to the maximum possible 19.9% levels.  There may be some interesting legal avenues here to think through in terms of the takeover provisions of the Corporations Act – e.g. if a Seven Director was to join the Board of BPT (and remembering BPT already has a stake in DLS) – would that breach the 20% rule?  What if it was merely to act in concert?

Seven is no doubt carefully managing this type of issue, but it is now highly unlikely that no further moves will be made.  I expect BPT to undertake an off-market takeover of DLS – thereby giving Seven more BPT shares – at a premium to what it paid for its DLS shares.

Company news – BP PLC

The Australian has reported that BP is looking for a farm-in partner for its upcoming Great Australian Bight exploration program.  BP has said that this was always its intention – which is not surprising given the ~$1B cost of what is a genuine high risk wild-cat play.

Given that even the likes of Qatar Petroleum are currently capital constrained, the list of potential farminees is not likely to be long nor any massive promote likely to be paid.

Company news – Chevron Corporation (CVX)

If the APPEA conference is on, then CVX must be moaning about the high costs of LNG in Australia.  Nothing to do with Management, of course.

Notwithstanding this regular bleating, an expansion of CVX’s Gorgon LNG plant, along with an expansion of Darwin LNG, seem the most likely Australian LNG investments to next be FIDed.

Company news – Santos Ltd (STO)

STO has been promoting its off-shore (including Darwin LNG expansion) and Asian projects to the media in this APPEA week – reminding investors that it is not just a Cooper Basin and GLNG company.  The latest story concerned the ever-wall-flower Petrel/Tern gas assets off the NT.  A new development concept was floated – a pipeline to a near-shore LNG barge.

In my view, STO’s partner in this project, France’s Engie (previously GDF Suez) is not likely to be enthusiastic about committing $Bs to the world’s first barged LNG development.

Quote of the day

Engie may feel like Michael Corleone in The Godfather 3, when trying to escape from its original dud deal (for it, not STO) to get into Petrel/Tern (rather than Michael trying to leave the mafia):

“Just when I thought I was out… they pull me back in”.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s