Today’s Blog – Friday 19th June 2015

Introduction

It being Friday, today will be the last day that the blog examines some key points from BP’s annual energy report.

A perennial issue in the BP report is a question mark over its reported oil reserves.  This year’s report states that “total proved reserves of of fossil fuels were essentially unchanged last year.”

However, what BP does not say, but knows very well, is that some reserves are determined by geology and engineering and some are determined by politics – particularly in the OPEC countries.  Naturally BP does not want to offend such powerful stakeholders in international oil and gas by pointing this out.

This blog mentioned reported a month or so Saudi Aramoco’s oil discovery figure for last year.  This figure was very significantly less than the (implied) reserves additions in the KSA from the BP report.  Of course reserves could have been added from re-assessments of existing fields – but it would be unlikely that this amount every year would just happen to balance with that year’s production numbers.

Commodity prices

Crude prices rose yesterday, with Brent closing at US$64.26 and WTI at US$60.45 (familiar numbers – these seem to be around the current anchor point).  A weakening US dollar and some reports of inventory declines at Cushing seemed to be the main drivers of the day.

Hurricane Bill (more like zephyr Bill – but I’m not living in Houston) has been a complete damp squib.  Reflecting that, together with the arrival of cooler weather, Henry Hub natural gas prices fell to US$2.78.

LNG

The Wall Street Journal yesterday included a pithy quote form an analyst summarising the current state of LNG markets:

“Buyers have the curse of choice. They can buy at an oil-linked price, they can buy at a (U.S.) Henry Hub-linked price and they can buy on a European gas-based price.”

It is only a couple of years ago that Pacific LNG buyers faced the same choice as the purchasers of the Model T Ford – they could have any colour as long as it was black (or any LNG contract as long as it was linked to oil, was long term and had no destination flexibility).

Inpex and Shell’s pre-development floating LNG project in Indonesia – Abadi – was reported recently as facing economic challenges at current oil prices. The recently stated desire of Indonesia’s State Oil Company, Pertimina, to take a stake in the project, is no doubt also not particularly attractive to these two parties, although naturally they are too polite to say so.

The PSC in which Abadi is located requires an extension as well before any project can be sanctioned, and the Government of Indonesia is not renowned for dealing with such issues expeditiously.

Company news – Tap Oil Ltd (TAP)

An announcement was made today about the emergence of a new substantial shareholder in TAP – Indonesian private oil and gas investment company Risco Energy.

Regular readers of the blog will recall that TAP’s lawyers are having rather more fun than its Directors at the moment, in terms of dealing on multiple adversarial fronts with another substantial shareholder in the company.  No doubt Risco sees opportunity in the imbroglio.  We look forward to the next round of the game.

Company news – Orca Energy Ltd (OGY)

OGY announced last month that coal baron Nathan Tinkler was effectively taking control of the company – he was (supposedly) going to inject capital and use it as a vehicle to acquire oil and gas assets.

OGY announced yesterday that the ASX had issues with how this deal was structured and it would not go ahead in its previously announced form.

Company news – Origin Energy Ltd (ORG)

The AFR confirmed today that ORG had appointed advisers (Luminis Partners) to assist it in potentially divesting its majority stake in New Zealand listed Contact Energy.

Given liquidity, etc, issues on the small New Zealand exchange, it may be the case that the divestment strategy will involve Contact becoming dual-listed on the ASX.  However, no doubt the credit ratings agencies will be pleased to see that ORG is taking this action.

Quote of the day

Donald Trump has yet to cancel his run for the Republican nomination for the Presidential election, so the blog can continue to mine the rich veins of his profound thoughts.

We note his statement that he is worth nine billion dollars, but wonder whether that is in fact in Zimbabwean rather than US Dollars?

The Donald’s wisdom extends even to the oil patch:

“I’m only interested in Libya if we keep the oil. If we don’t keep the oil I’m not interested.”

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