Today’s Blog – Thursday 16th July 2015

Introduction

Yesterday’s UK based industry newsletter, Malcy’s Blog, commenting on the Iranian deal and the resultant likely raising of sanctions, noted that: “The arrivals lounge at Tehran airport will be full of Texans, Dutchmen, Chinese and the French to name but a few and inward investment should flourish”.

No mention of Australians, unfortunately.  This chimes with a prevailing view that our ~A$2 trillion of superannuation monies has little if any current appetite to invest in growth/higher risk ventures such as oil and gas companies.

Objectively, Australian oil and gas companies should have some competitive advantage in investing in the Iranian gas sector in particular – the ASX hosts four independent (five including BHP) LNG producers.  There is no equivalent anywhere else in the world, as LNG elsewhere is dominated by Super-Majors and NOCs.

However, I’m not holding my breath as these four companies are currently fixated on issues such as paying dividends (WPL), or delivering existing projects and not issuing more equity (STO).  Growth is arguably being left to the next round of management – by which time Iranian opportunities will have been seized by others.

Commodity prices

Crude oil prices fell overnight, with Brent closing at US$57.36 and WTI at US$51.62.  The full implications of the Iranian deal beared down on the “events” side, whilst on the “numbers” side, the weekly EIA report on inventories showed a large build in distillate stocks of 3.8 mmbbls.  Crude stocks were actually down 4.3 mmbbls, but the market read that as the result of reduced imports rather than increased demand or lower US production.

The Guardian (not normally an oil industry bible) recently noted that the current Iranian stocks held in floating storage, hence immediately available for sale post the lifting of sanctions, was in the region of 40-50 mmbbls, rather than the number of 30 mmbbls that has more often been quoted.  If released quickly, that sort of volume could really crunch markets.

The Algerian Oil Minister has come out to say that an emergency OPEC meeting is required to deal with the consequences of more Iranian production coming onto market.  However, unless the Saudis agree, there will be no OPEC meeting until the scheduled November one.

Henry Hub closed up at US$2.92.

LNG

A recent Bloomberg report has quoted the views of Jonathan Stern of the Oxford Institute of Energy Studies on the potential impact of a freed up Iran on world LNG markets.  He is sanguine on various fronts, both in timing and in the alternative calls on the country’s gas for its internal use.

In particular he notes that Iran’s oil-fields need massive gas injection pressure support and in his view that is a more profitable use of gas than being sold as LNG.

In my view, Iranian LNG will also be retarded by Russia issuing every encouragement to Iran to remain an impoverished Islamic Republic rather than a wealthy Persian trading nation.

Governments and fracking

The ABC reported yesterday that the WA Government has down-played the possibility of fracking being undertaken by the recent grantee of a petroleum exploration licence in the State’s South-West (south of Perth).

A representative of the Conservation Council said: “we’re against the development of a fracking industry in WA”.

Better not tell her about the multi-decade onshore oil and gas activities in the northern Perth Basin….

AWE Ltd (AWE) will no doubt be praying hard that the reservoirs it is currently intersecting in its Perth Basin drilling program will free-flow strongly – for stakeholder-management as well as economic reasons.

Company news – Beach Energy Ltd (BPT)

Today’s AFR reported that the BPT and Drillsearch Energy Ltd (DLS) mooted “merger” (= takeover) may be heating up, with BPT engaging boutique blue chip adviser Flagstaff Partners (following recent media stories about DLS engaging UBS and Goldmans – clearly the bulge bracket banks are short of work).

Today’s The Australian meanwhile reported that Horizon Oil Ltd (HZN) could be a takeover target.  As we noted last week, DLS was rumoured to be looking at HZN – and given the likely desire of its Directors to remain employed, this target would likely make for a great poison pill to put off BPT.

Company news – Woodside Energy Ltd (WPL)

We mistakenly noted yesterday that BHP appeared to be the only Australian company on the short list for Mexico’s current shallow off-shore acreage gazettal process.  WPL are also on the list.  The dart-board in WPL’s exploration department is showing an ever widening scatter.

Quote(s) of the day

Surprise, surprise, and the Repulicans are going all out to kill the Iran deal.  In addition to the pithy The Donald (“We Look So Desperate.  And It Is A Disgrace.”), we have the following statement from the Senate Majority Leader Mitch McConnell:

“If in fact it’s as bad a deal as I think it is at this moment, we’ll do everything we can to stop it.”

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