Today’s Blog – Monday 1st June 2015

Introduction

The run-up to OPEC’s meeting on Friday has been completely over-shadowed by the machinations at FIFA, which are verging on the comical.

A letter of support from Putin is not enough Mr Blatter – why not reach out to Kim Jong-un, Abu Bakr al-Baghdadi, Bashar al-Assad, etc!

Commodity prices

Crude finished very strongly last week, with Brent closing at US$65.56 and WTI at US$60.30.  The combination of two bullish numbers from the US seemed to be the prime drivers – a high inventory draw on Thursday and then a rig count fall higher than expected on Friday.

The BHI rig count fell by 10 (a fall of 13 oil rigs counter-balanced by growth of 3 gas rigs).  This was higher than the previous couple of weeks, thereby confounding the consensus that a bottoming-out was occurring (that consensus was reinforced by bullish comments from public tight oil companies about starting drilling again at ~US$60 oil).  The rig count is now below its GFC lows.

The US gas price did not fare as well, with a fall to US$2.74.  Prices are now down ~12% in the last two weeks, reflecting ongoing inventory builds, untempered by air conditioning related demand kicking in yet.

LNG

Late last week the US Department of Energy provided the Alaska LNG Project (AKLNG – a joint venture comprising BP, Exxon, Conoco, TransCanada and the State of Alaska) with conditional export approval to sell LNG to effectively all LNG buying nations.

This approval was fast-tracked, recognising that the AKLNG project is not connected to US gas markets – and also reflecting the lobbying strength of its joint venture parties and political support (Alaska’s senior Senator, Lisa Murkowsi, is Chair of the Senate Energy Committee).

At an estimated ~$50B, the AKLNG project could be the most expensive in the world (although given Gorgon’s cost over-runs, it would give it a run for its money).  Unlike other US LNG projects, it is fully integrated from the sub-surface through a pipeline to the liquefaction plant, and uses otherwise stranded conventional gas (with liquids) with no reserves risk.

In my view, this brute of a project, although not without significant challenges, is well placed to compete for markets with other putative LNG projects in the likes of Western Canada, East Africa and Australia’s Browse Basin.

Government policies

Following on from recent presentations from the like of Santos Ltd (STO) which strongly opposed any domestic gas reservation policy for Eastern Australia, Oil Search Ltd’s (OSH’s) Managing Director, Peter Botten, was reported as supporting such a policy.

Coincidentally, STO has gas assets in Eastern Australia and OSH does not.

Company news – AWE Ltd (AWE) and Origin Energy Ltd (ORG)

After my Friday morning blog, AWE and ORG reported some preliminary results from the Waitsia-1 exploration/appraisal well in the on-shore Perth Basin.  Gas shows were recorded in a secondary target.  Intersection of the primary target is estimated to be some weeks away.

Company news – Pura Vida Energy Ltd (PVD)

Small-cap explorer PVD today announced the spud of a very high impact well off-shore Morococ, MZ-1.  PVD has a carried (through two wells) 23% working interest in the permit being drilled.  The well will drill through five or six stacked targets and on an unrisked basis could identify a multi-billion barrel of oil equivalent resource.

This is a deep well – nearly 6,000 metres, and will take two or three months to drill.

Quote of the day

Relishing his company’s role as the hard-nut in the oil and gas industry (and contrasting and comparing with the softies in his European peers), Exxon’s Rex Tillerson recently made his attitude clear to the renewable energy industry.  When asked at Exxon’s AGM last week why the firm did not invest in renewable energy, his response was:

“We chose not to lose money on purpose.”

In the US, there are clearly very different views held by the likes of Tesla’s Elon Musk, who is no slouch at making money. In broad terms we have a current battle for the energy industry’s soul – with the new money and  go-getting attitude of the West Coast’s IT industry versus the worldly cynicism (and even more money) of the Texas centred oil industry.

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