Today’s Blog – Friday 17th July 2015

Introduction

The results of Mexico’s first auction of petroleum rights to the private sector for nearly 80 years came out yesterday – and are as disappointing for the country as the spectacular escape (what do you mean a motorbike on rails) of drug lord, El Chapo.

Notwithstanding their prior qualification, neither Woodside nor BHP bid on blocks.  Indeed, only two blocks were awarded –  both to a consortium led by a PE funded Mexican company (which included London listed Premier Oil).

The fiscal terms that the Mexicans sought were onerous and the US$50/bbl oil price did not help either.  Further gazettal rounds of deepwater permits in the Gulf will follow – these should attract the Majors who have deep knowledge of the GOM and better fiscal terms should be offered.

The Mexicans are no doubt still highly sensitive about gringos coming in and making fortunes from its oil patch, as happened at the start of the twentieth century.  A tale from that era with numbers that modern day oilers would find staggering was the on-shore well Potrero del Llano-4, drilled by British entrepreneur Lord Cowdray, which flowed at 110,000 barrels per day!

Commodity prices

The two main benchmark crude prices diverged last night, with Brent closing up slightly at US$57.51 and WTI falling to US$50.91.  The latter was driven by fears over rising inventory builds at Cushing, Oklahoma, whilst Brent was affected by a field outage in the North Sea that contributes towards the Brent blend.

The natural gas price at Henry Hub fell a few cents to US$2.85.

LNG

The US liquefaction industry continues to move forward, with a recent development being the sale by Shell of its interest in an LNG project based in Georgia to its partner, Enron offshoot Kinder Morgan.

Shell retains off-take rights – another part of it (and BG Group’s) unrivalled global LNG trading portfolio.

This type of vertical disaggregation, where different asset classes (as assessed by risk) are owned by different investor types, is common in the US oil and gas industry, but is only just emerging in Australia (e.g. with BG’s sale last year of its Queensland pipeline).  Whether the Australian E&P companies would ever follow the Shell example and sell liquefaction assets seems a distant prospect at this point – but that should make sense given the desire for infrastructure funds to chase any sort of reliable yield.

Governments and fracking

A UK Government sponsored task-force has made some preliminary findings into fracking, finding that if it is done properly, then it is an acceptable practice.  Who knew!

Media attention from e.g. The Guardian was however diverted by a change in Govt policy in the UK to allow fracking in certain wildlife sites.  People don’t know what fracking is, but they don’t want it to harm their beloved wild animals!

Company news – Woodside Petroleum Ltd (WPL)

WPL issued its quarterly report for the June quarter yesterday.  Its revenue for that quarter was its lowest for nearly 7 years, as the full flow-through of falling oil prices hit its LNG sales revenues (added to an outage at its Pluto LNG plant).

Company news – Santos Ltd (STO)

STO issued its quarterly this morning.  Its revenue hit was nowhere near as marked as WPL’s – only 20% down.  The much higher mix of domestic gas production in STO’s portfolio compared to WPL’s, previously something STO was striving to move away from, is now a corporate virtue.

The quarterly also disclosed that the company’s recent Malaysian exploration program had come to an end with one discovery and three dry holes.

Intriguingly, the quarterly referred to a deep (depth not disclosed) CBM well that was flowing “wet” gas (rate and composition not disclosed).  This non-geologist is intrigued by how liquids might be produced from a CBM well – was the kitchen the coals?

Company news – Cooper Energy Ltd (COE)

COE provided the market yesterday with an update on its Manta gas project, located off Victoria.  An appraisal well may be drilled in around two years time to determine if the 2C contingent resources can be developed (at an estimated cost per GJ of around $6 it appears).

Quote of the day

The Economist on El Chapo’s escape:

“The stylishness of the escape route was almost as much of a humiliation as the escape itself”.

El Chapo himself has now joined the debate about Presidential candidate The Donald’s views on Mexicans, with the following Twitter post:

“Keep screwing around and I’m going to make you swallow your f**king words!”

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