Today’s Blog – Wednesday 8th July 2015

Introduction

The Greek “can” may finally have been kicked to the end of the road.  Further loans will only likely be made available to the country if it accepts more material economic changes than the ones rejected in its Sunday referendum.  Although it may be foolish to underestimate the EU’s ability to keep kicking that battered can, in my view Grexit is now highly likely.

From an oil market point of view, this feels like it has already been factored in, and as we have noted before, it is currently a less important factor than others such as Iranian nukes and the Chinese economy (and of course the always eagerly awaited weekly “numbers” on various US industry aspects).

Commodity prices

Crude markets took a breather over-night, with Brent settling a few cents up at US$56.85 and WTI down 20c at US$52.33.

The “deadline” for the Iranian nuclear deal was pushed out to the end of the week yesterday.  This particular can feels like it still has a few kicks left in it.

China’s stock-market turmoil is having a lesser effect on oil markets than on other commodities prices such as for iron ore – which is reasonable given the materially different level of dominance China plays in oil markets (~10% of world demand) versus iron ore markets (>50% of world demand).

Natural gas prices fell slightly to US$2.72.  The USA’s EIA recently published a report noting that gas had overtaken coal as an input fuel for electricity generation for the first time ever in April.  Over the year to this month, gas fired generation output grew by 20%.  It is worth noting that material discounts to Henry Hub pricing occur in parts of the country (particularly in the Marcellus) and as such the head-to-head competition with coal can be at prices ~US$1 less than Henry Hub.

LNG

A report recently released by consultancy group Energy Mining Advisory Partnership of London noted that US LNG suppliers should be able to compete to supply gas to Turkey.  The report was based on economic analysis, but the geo-political angle is clear as well – to compete with Russia’s Turk Stream project (which the Russians hope to take from Turkey into the vibrant Greek economy).

Also in the same Eastern Mediterranean region, Reuters has reported that Rosneft has signed an agreement with the Egyptian Government for the supply of LNG.  It will supply this either from its proposed Sakhalin Island based project with Exxon (which however faces major challenges before it can go ahead – not least the objections of Gazprom) or more likely from a trading portfolio of LNG supplies.  And did I mention a possible geo-political angle here as well?

Governments

The AFR reported yesterday that the New South Wales Energy Minister, Anthony Roberts, requires the companies who have petroleum exploration licences to “adopt world’s best practices”.  Also, he has put a gun to their heads by saying that if they do not accept a cash offer to buy their licences back by September, they will be forfeited.

The standard required by the Minister is clearly very different from the one adopted by his own Government, who the Courts recently found broke the law in denying Metgasco Ltd (MEL) the right to drill a well just before a State Election.

Company news – Santos Ltd (STO)

The West Australian has recently reported that STO is currently litigating with its Western Australian partner, Quadrant Energy (who acquired Apache’s WA assets earlier this year).  The issue seems to be whether Apache and Quadrant gave STO an appropriate opportunity to utilise pre-emptive rights on the transfer of certain assets in which STO was a JV partner with Apache.

Readers may recall Oil Search Ltd’s (OSH)  recent dispute with Total over a similar matter in the Elk/Antelope JV in PNG (which it lost).

Given the likely age of the relevant joint operating agreements (JOAs) covering the STO/Apache JVs, my guess is that STO is pursuing a highly technical legal strategy – with a less than 50% chance of success.  And even if it won – its funding capabilities to acquire assets under pre-emptive rights would have to be questionable.

Company news – APA Group (APA)

As foreshadowed in last week’s blog, APA is emerging as the front-runner to acquire Energy Australia’s gas storage assets in Western Victoria.  The AFR has today reported that APA has appointed Morgan Stanley to advise it on this transaction.  The AFR notes other contenders as being institutional investors such as QIC and IFM.

This blog speculated yesterday that AGL could also be a bidder – and in my view would be best placed to be competitive if it combined its operational skills with the financial firepower of the likes of a QIC.

Company news – Galilee Energy Ltd (GLL)

Micro-cap GLL’s share price fell materially yesterday following an announcement about a well it is participating in in Texas.

However, the news was more good than bad – good flow rates, liquids rich, multi-stacked pay (albeit with some mechanical problems in this, the first well).  Dare I say that engineering can be fixed, geology can’t.

Clearly the market at junior level is an unloving one (even hating one) at present.

Quotes of the day

In present day Greece we see the spirt of Alexander the Great:

“All the Hellenic peoples, join your fellow-soldiers and entrust yourselves to me, so that we can move against the barbarians and liberate ourselves from the Persian bondage, for as Greeks we should not be slaves to barbarians.”

Meeting the reality of Homeric fate (from The Illiad):

“And fate? No one alive has ever escaped it, neither brave man nor coward, I tell you – it’s born with us the day that we are born.”

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