Today’s Blog – Monday 20th July 2015

Introduction

Today’s AFR has some juicy gossip about representatives of large US independent oil company Occidental Petroleum visiting Australia.  Oxy has no Australian (or indeed Asian) assets at present and the AFR speculated that it could be interested in taking over PNG focused Oil Search Ltd (OSH).

As noted before in this blog, Australia’s oil and gas sector is unique in its hosting of four (excluding BHP) independent LNG companies – a sector that is normally the province of Super-Majors and NOCs.  As the takeover of BG Group by Shell demonstrates, there is considerable upside seen in consolidating LNG positions.

The Australian LNG companies are arguably too small at present to fully take part in the rapidly evolving LNG industry.  They are therefore ripe for acquisition by international companies who see the strategic opportunity better than either the Australian management of the companies or their ASX investors.

The Oxy story in the AFR is highly speculative – but the grounds exist for it to be true.

Commodity prices

Oil prices finished flat at the end of last week, with Brent closing at US$57.10 and WTI at US$50.89.

The BHI rig count numbers issued in the US on Friday reversed the trend of recent weeks, with a reduction in oil rigs of seven.  Prices close to US$50 (plus material negative differentials from that in the likes of the Bakken) don’t fit the theme enunciated by many tight oil company leaders of profitability at the recently seen prices of US$60.

In Iran, the Supreme Leader seems to have cautiously welcomed the nukes deal (while still striking a hardline pose against the Great Satan).  Republicans in the Great Satan itself have been less welcoming and have no such Supreme Leader (although I can think of at least one candidate who would love that capitalised title….).

Henry Hub closed flat at US$2.87.

LNG

The horror-show for its Super-Major investors that is the massive Gorgon LNG project off WA continues, with media reports of potential strike action by the likes of the militant union the CMFEU.  With few if any new Australian LNG projects likely to be developed in the medium term, it appears that the unions want to gouge the last few dollars that they can out of Gorgon as its construction phase draws to an end.

Governments and fracking

One of the rare locations of common sense in Europe when it comes to fracking – the United Kingdom – is being drawn into the continental (or New York State, or New South Wales, or Victoria, etc, etc) mind-set of thoughtless aversion to this 70 year old common oil-field practice.

The new leader of the country’s Liberal Democrats is an opponent and the current leadership campaign for the Labour Party could also deliver an enemy of fracking (who no doubt will still drive a car and heat their home, etc).  And in Scotland, the populist Scottish National Party opposes fracking whilst pretending to the public that the country’s offshore oil industry could fund its extensive redistributive policies.

Company news – Origin Energy Ltd (ORG)

ORG is one of the four small ASX listed LNG companies mentioned above.  Today it announced the appointment of a new Director – ex Deutsche Bank executive Scott Perkins.  ORG’s Chairman emphasised Perkins’ Asia Pacific experience, which is more relevant to its LNG operations than to the company’s traditional electricity and gas business.

The media is also speculating today that ORG is well advanced in selling down its stake in NZ based and listed electricity company Contact Energy.  Funds liberated from this are required to pay-down debt used to develop ORG’s Queensland LNG business.

Company news – Buru Energy Ltd (BRU)

BRU reported on Friday that commercial operations had commenced at its Ungani oil-field in the remote Canning Basin.  Initial production rates of 1,250 bopd are expected to ramp up to 3,000 bopd, which is a healthy rate for on-shore Australia.

Company news – AWE Ltd

AWE today issued a weekly update on its Waitsia-2 appraisal well in the onshore Perth Basin.  The well appears to be drilling well ahead of its forecast timetable and cores are now being taken from its primary target.

Quote of the day

From the legendary founder of Occidental Petroleum, Armand Hammer, who was long lived enough to deal with Lenin and still run the company when its Piper Alpha North Sea platform exploded in the late 1980s, a quote that is as relevant to Iran today as it was to Russia previously:

“People I meet today, especially journalists who interview me, are astonished to hear that Lenin told me, in effect, that Communism was not working and that the Revolution needed American capital and technical aid.”

 

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