Today’s Blog – Thursday 4th June 2015

Introduction

With the FIFA story now entering a fallow period (The Onion tells readers that “FIFA assures fans that 2022 Qatar slush fund still intact”), the oil market is experiencing a few jitters before Friday’s OPEC meeting.

Commodity prices

Oil prices fell overnight, with Brent closing at US$63.80 and WTI at US$59.64.  Inventory numbers from the States (a crude draw of 1.95 mmbbls on the plus side, but a distillate build of 3.8 mmbbls on the down side) didn’t quite seem sufficient in themselves to warrant the fall.  Consensus on OPEC is “no change” – but there is some possibility of agreeing to pump out even more (if one believes that official OPEC numbers are correct and that there is much material spare capacity in the system).

Henry Hub also fell, to US$2.63.

LNG

Woodside Petroleum Ltd (WPL) has entered into a non-binding MOU with a Gulf of Mexico LNG proponent – Sempra LNG – over the potential to work together on its Louisiana based project.  WPL has not made an ASX announcement to that effect, presumably because the deal is a non-binding one.

This deal makes strategic sense for WPL given its recent moves to purchase LNG from the US and otherwise position along the LNG value chain in multiple ways.

Meanwhile, WPL’s old pal, Shell, has been reported by the Russian Energy Minister as being willing to finance a third train in the Sakhalin-2 LNG project.  Whether Shell would in reality do that, particularly given its rather unpleasant history in Sakhalin at the hands of the Russian Government, remains to be seen.

Company news – Central Petroleum Ltd (CTP)

As speculated yesterday, CTP has acquired an interest in Santos Ltd’s (STO) Meerenie oil and gas field in the Northern Territory. The consideration is $45M in cash, plus a carry and some bonus payments.  CTP has obtained financing support from Macquarie Bank (although whether Macquarie will require any additional equity support from CTP shareholders is not clear at this stage).

The strategic upside for CTP in the deal is the potential for gas from Meerenie to be developed for East Coast markets through the mooted NT to East Coast pipeline (otherwise famously known as the Post-it Note pipeline project).  However, the price paid does not appear to be particularly high so that upside is arguably a no-cost option for CTP.

This sale may foreshadow other disposals of non-core assets by STO, although that company has typically held onto its assets fairly tightly.

Company news – Galilee Energy Ltd (GLL) and AGL Energy Ltd (AGL)

AGL has commenced the rationalisation of its upstream gas division by basically walking away from its 50% interest in a CBM prospective licence in Queensland’s Galilee Basin.  Its JV partner, GLL, has therefore picked up AGL’s interest for nothing – and in fact will even be paid ~$600k by AGL to do so.

I expect AGL to undertake further upstream divestments and it may seek to spin-off its whole upstream division on-market.  Arguably this would be easier than finding trade buyers for the likes of its Frackman troubled New South Wales CBM assets.

Company news – AWE Ltd (AWE)

AWE has put out a presentation today in connection with a site tour in the Perth Basin. The presentation emphasises stakeholder management issues as much as geology, which I think recognises the likely main challenge to a successful development in the area.  Unfortunately reason and science may not match Frackman and his cohorts – although the long history of oil-field activity in the region should help.  And Perth is not Sydney or Melbourne.

Quote of the day

Today’s The Economist Espresso on tomorrow’s OPEC meeting:

“Rigging a market is fun when it works.  When it doesn’t, grin and bear it.”

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