Today’s Blog – Monday 13th July 2015

Introduction

Your bloglster has now returned to Australia from his Asian travels (minus his bag…).  The second half of this year will see material volumes of gas from new Australian LNG projects start to hit world markets.  Shareholders in companies such as Santos Ltd (STO) and Origin Energy Ltd (ORG) will hope that these sales will make the markets look at them more favourably, particularly if oil prices can start to see some longer term support by year end.  However, those sales are likely to into a very tight LNG spot market, with more sellers than buyers, so the opportunities to disappoint are still high.

Also in this second half, we may finally see some action on consolidation in the mid-market oil and gas company sector, with various recent pointers (e.g. the sudden exit of Drillsearch Ltd’s CEO) to action in the not too distant future.

Commodity prices

Oil markets on Friday closed up a little from my last report, with Brent at US$58.73 and WTI at US$52.74.

Events over the weekend included another Iranian can-kick, but with reports of a deal being close.  However, the delay means the trigger of longer US Congressional review process – in the middle of the very public Republican Primaries.  Striking a deal amongst the negotiators is just the first step – arguably the next steps of gaining support for a deal within various countries (mainly the US and Iran) will be tougher.

And in Europe, it appears that Grexit may be averted – at least for just now.

In China, the stock-market rout has been halted.  For just now. Whether that is a Canute like victory remains to be seen.

In natural gas markets, Henry Hub closed up at US$2.77.

LNG

Last week the Tanzanian legislature settled upon a fiscal regime for its large off-shore gas-fields that it hopes will become feed-stock for LNG projects.

However, the PSC model adopted, with a 7.5% royalty and a Government share of profit “oil” of up to 85%, seems very onerous for a gas project, particularly given current LNG prices and much lighter fiscal regimes in competing LNG provinces (that also have lower sovereign risks) such as Alaska and British Columbia.

A not unusual instance of politicians trying to grab a large share of a cake that is not even baked yet – and now will have less chance of being so.

Governments

The current acute drought in California has turned political attention to the large volumes of oil-field produced water that are currently injected in the State.  There are 50,000 injection wells in California and environmental groups are currently targeting ~5% of these for shut-down over fears of fresh-water aquifer contamination.

Chevron in California currently processes 8 billion gallons of produced water into a usable form each year and there will be much more pressure in the State for other operators to do the same.

The much maligned Australian LNG producers in Queensland are actually ahead of this pack, with large volumes of saline water from CBM wells being cleansed into agricultural quality water.

Company news – Beach Energy Ltd (BPT)

As noted above, the “game is [nearly] afoot!” with respect to the consolidation of the mid-tier Cooper Basin companies.

Disclosed today was news that the James Packer controlled vehicle Ellerston Capital has upped its stake in BPT from 9% to 11%.

Company news – AWE Ltd (AWE)

AWE has put out a second progress report on its Waitsia-2 appraisal well in the Perth Basin.  Drilling appears to be going well, with 2,802 metres drilled (target depth is 3,803 metres) in the first 2 weeks.

Karoon Gas Ltd (KAR)

KAR’s partner in its offshore Brazilian acreage, Canadian listed Pacific Rubiales Corporation, has recently been the subject of a takeover action – which has now fallen over.

This has led to speculation from industry insiders (such as Tudor Pickering) that it may now seek to divest non-core assets – with its Brazilian acreage being deemed to be in this category.  A sale process (failed or successful) will likely tell the ASX market much about KAR’s main asset.

Quote of the day

The Donald (his Trumpness) has now opined on the Iranian negotiations:

“We are making a terrible deal. We have the wrong people negotiating for us.  The Persians are great negotiators.  They are laughing at the stupidity of the deal we’re making on nuclear. We should double up and triple up the sanctions and have them come to us. They are making an amazing deal.  This negotiation should have taken a week.”

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