Today’s Blog – Friday 5th June 2015

Introduction

In the lead up to today’s OPEC meeting in Vienna, the heads of the large privately owned oil companies have been gathering in Paris for a Gas Conference (and then headed to Vienna for a pre-OPEC seminar).  The key themes that have emerged from these gatherings have been:

  • Bullish views on gas and recognition that for it to grow significantly it needs to more aggressively displace coal as an electricity fuel source.  Total’s CEO caught the vibe with “Total is gas, and gas is good“.
  • The Super-Majors are treating the displacement of oil by gas in their portfolios as a virtue rather than a weakness.
  • The world of LNG is rapidly changing but major investments will be required on an ongoing basis (a Gorgon LNG equivalent according to Chevron).

Commodity prices

Oil prices fell over-night, with Brent closing at US$62.03 and WTI at US$58.00.  The gloom seemed to be derived from widespread acceptance that OPEC would keep its official quota of 30 mmbopd (and unofficial quota of 31 mmbopd) unchanged – with presumed resultant ongoing over-supply.

The great un-said likely to emerge from the OPEC meeting is likely to be what it might do to accommodate material additional production from Iran if the Islamic Republic actually closes a sanctions lifting nuclear deal.

Henry Hub was flat at US$2.63.  US gas prices are currently still waiting for summer air-conditioning demand to come on.

LNG

The OECD’s IEA has a somewhat less bullish view on gas than the oil companies – it has just announced that its forecast gas demand growth has been down-graded to only 2% per annum.

In Australia we have seen domestic gas demand actually fall, as it has been squeezed between renewables (wind and solar) and cheap coal.  The IEA expect a similar squeezing on an international scale (but still sees some demand growth. The Asian demand nodes in particular will reduce coal usage because of its massive particulate, etc, pollution problems in the likes of Beijing).

A consequence of this changed demand projection is less need for LNG to meet market needs.  For instance, the IEA therefore sees no LNG projects coming on-line in British Columbia in the medium term.

Governments

The incredibly incompetent and corrupt Government of Venezuela has joined the ranks of those concerned about the environmental consequences of fracking (which should, but won’t concern, those ranks).

The country’s oil minister, currently in Vienna, is clearly concerned about the current insolvency of his country and is thrashing around trying to think of ways to reduce US tight oil production.  Note: the production of heavy oil in Venezuela is of course environmentally benign!

Company news – Central Petroleum Ltd (CTP)

The market has reacted highly favourable to yesterday’s news about CTP acquiring a 50% interest in the Meerenie oil and gas field from Santos Ltd (STO) for A$45M up-front.  And no wonder – this is a good deal when measured from any long term perspective.

In my view, the price struck here by CTP is a strong signal of the very poor animal spirits in the oil sector at present. If I compare it to another Northern Territory sale that STO undertook in mid-2009 (when oil prices were the same as now) we can see the difference in sentiment.  This was the sale of a 60% interest in the stranded Petrel/Tern gas-fields for US$200M (plus kickers).

If the oil and gas gods were to ask me what asset I would prefer as a Christmas present, the on-shore, oily, producing, etc, etc, Meerenie field would rank above Petrel/Tern every time.

Company news – Oil Search Ltd (OSH)

OSH has put out a drilling report which contains the proverbial box of chocolates.  On the one hand, the Taza-3 ST1 well in Kurdistan is making very heavy weather, with a rate of penetration last month of only 6 metres per day.

Meanwhile, in the company’s PNG heartland, the Antelope-4 appraisal well has met problems and a new rig is being mobilised to drill a side-track well.  Antelope-5 has provided rather better news, with a constrained flow-rate of a very impressive 70 mmscfd being achieved.

Quote of the day

From yesterday’s Wall Street Journal:

“OPEC’s problem is that there is no Minister of Shale.”

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