Today’s Blog – Thursday 9th July 2015


Energy markets now seem completely wearied by whatever the latest news is from Greece and instead are taking their cues from the usual sources of (US) “numbers” and (Middle Eastern) “events”.

On matters Greek, the helpful Mr Putin has taken a cue from oil patch legend John Paul Getty by recently noting that:

“When Mr Tsipras spoke, he said the problem of Greece was not a Greek problem but a European one. Well, that’s right. If you owe someone a lot, then it is already not your problem but the problem of the one you owe – and that’s an absolutely correct approach.”

What’s the Russian for schadenfreude?

There will be no blog tomorrow – I’m travelling again (although avoiding the passport-stamping frenzy of Beijing airport this time, thankfully).

Commodity markets

Overnight the Brent crude price closed up slightly to US$57.05 – taking some comfort from the delays in the Iranian nukes negotiations.  On the other hand, WTI closed down at US$51.65 – with the hit deriving from a build in US crude inventories of 0.9 mmbbls and and even bigger product (gasoline and distillate) build of 2.8 mmbbls.

It is a very short time since the US tight oil companies were talking about (and acting on) bringing back rigs at US$60 WTI prices.  A price close to US$50 could therefore see some pull-back on the rig count again – likely within a week or so.

Henry Hub natural gas prices fell to US$2.68 on ongoing mild summer weather conditions.  Around one quarter of US gas production is associated gas, so as and when we see more material oil production declines, we should get a direct effect on the gas market as well.


It appears that it is not only the Greeks who owe money generally, or Ukrainians for gas specifically – the Russians are getting in on the act with large amounts owed to their gas supplier in Turkmenistan.  That nation’s oil ministry recently said they had not been paid since the start of the year.

The Turkmenis are already the largest gas supplier to China and no doubt the behaviour of the Russians will encourage them to seek an even larger market share there – to the detriment of competing LNG suppliers such as Australia’s Browse LNG project.


A Government story on walruses rather than fracking this time.  That sentence will make sense – bear with me.

Shell’s tortuous and incredibly expensive offshore Northern Alaska exploration program has just hit another glitch – a Federal environmental authority has banned its two rigs (that that are currently heading to the Arctic) from drilling within 15 miles of each other – because of the potential effect on walruses.  But the Govt still requires Shell to have two rigs in case a Macondo style intervention well is required in the event of a blow-out.

The Wall Street Journal article on this story mentions that Shell is the “lone” company undertaking Arctic exploration.  They need to consult a map that includes parts of the World outside the USA – there is this large Arctic country called Russia in which Exxon, Rosneft, etc, also have Arctic exploration programs.

Company news – AWE Ltd (AWE)

In a sign of the times for the lack of equity market industry in oil companies, AWE yesterday announced a material increase in reserves (2P up by ~20 mmbbls) in its Eagle Ford acreage – and the market just yawned.

In my view, this is not just a sector matter – also the market now seems to view tight oil plays in particular as being cash consuming rather than generating and also not particularly profitable at current oil prices.

Company news – Santos Ltd (STO)

Following on yesterday’s news about STO’s legal dispute with its Western Australian partner Quadrant Energy over pre-emptive rights, the Western Australian has provided some further colour.

Apparently STO is arguing that the price freely struck between Quadrant and seller Apache was not a “market value”.  Good luck to its lawyers and/or experts in arguing that!

On rather better news from STO, it appears that negotiations with its JV partners in the PNG LNG venture are being conducted in a more productive fashion over the purchase of an interest in the P’nyang field in PNG.  Media reports put the price at $300M – which given STO’s highly geared balance sheet would not leave much ammunition for buying WA assets from Apache if it wins the above Court case.

Company news – AGL Ltd (AGL)

As we noted earlier in the week, AGL is looking to sell its North Queensland CBM asset at Moranbah.  That process will not be assisted by recent news that the Moranbah JV has failed to meet its supply obligations to customer Incitec Pivot.  This puts question marks over both the sub-surface and potential liabilities to Incitec.

Quotes of the day

The Economist’s view on where Tsipras has led the Greeks over the last few months:

“Campaigning for election at the start of the year, and again during his referendum last week, Mr Tsipras promised the Greeks champagne. Instead, he can hope only to deliver them gruel”.

Rather than finishing the week on that note, a rather more timeless quote from ancient Greek philosopher Epicurus:

“Long time men lay oppressed with slavish fear.

Religious tyranny did domineer.

At length the mighty one of Greece

Began to assent the liberty of man.”

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