Today’s Blog – Friday 31st July 2015

Introduction

What seems to be a second major round of job cuts in the oil and gas industry continues.  Yesterday Shell joined its Super-Major peers in announcing 6,500 job cuts.  Shell also noted that it expected oil prices to rebound in the medium term.  There is a strong causal link between the two.

Another international example of cuts came form British company Centrica, which announced it would reduce the size of its upstream operations and re-focus on its core downstream utility business.

As noted earlier this week, not all employees are equal in the eyes of the cost-cutters, with the “Cadillacs” somewhat more protected than the roughnecks.  Yesterday saw a good example of the phenomenon: a re-shuffle of senior ranks at Santos Ltd (STO), where a Vice President was shunted into a meaningless, but lucrative (~A$1.3M p.a.) “Manager Special Projects” role, rather than being made redundant.

Commodity prices

Oil prices were fairly flat yesterday, declining only a few cents to US$53.31 (Brent) and US$48.52 (WTI).  In the absence of either “numbers” or “events”, the main driver of the market was an increase in the US Dollar.  As and when the US leads the World later this year in increasing interest rates, the US Dollar should strengthen again, which all other things being equal, will weaken the oil price.

Henry Hub natural gas prices fell nearly 4% overnight to close at US$2.77.  Bloomberg has recently reported that various industry commentators expect greater volatility in US natural gas prices as LNG exports from the Gulf of Mexico (and eventually the Atlantic Coast) come nearer.  First cargoes should now only be ~4-6 months away.

LNG and international gas

Earlier this week a gas pipeline delivering Iranian gas to Eastern Turkey was blown up, presumably by Kurdish rebels who are somewhat annoyed by “Sultan” Erdogan’s efforts to destabilise the country following the recent Parliamentary election which hindered his plans to become Turkey’s Putin.

This example demonstrates that pipeline projects which go through actual or potential unruly territories makes themselves hostages to “events” in ways that the seaborne LNG business do not face.  The Pakistan to China, China to South Korea, Qatar to India, etc, etc, pipeline projects take note.

What this blog considers the “tortoise” (in the Aesopian sense) of the World’s LNG projects, the North Slope Alaska LNG project, continues to plod along.  Its latest move is a regulatory one – seeking permission from the Alaskan regulator to produce more daily gas quantities from the Prudhoe Bay field (where gas is currently recycled – making gas reserves there the most technically certain of all LNG projects).  Permission will no doubt be forthcoming and I expect North Slope gas to be supplied to Asian markets next decade, ahead of more publicity seeking projects.

Shell’s cost reduction plans noted above included statements about projects having to meet tougher investment hurdles.  That was noted as including the Woodside Petroleum Ltd (WPL) operated Browse LNG project, off Northern WA.  In my opinion, we will see North Slope LNG deliveries whilst Browse is still on the starting blocks.

Governments and fracking

To date the Northern Territory’s Government has been markedly more sensible than its peers in Victoria and New South Wales in dealing with the anti-fracking hysteria.  However, anti-frackers in the Territory seem to be gearing up for fights against matters as prosaic as STO’s sponsorship of various arts functions (no doubt writing emails on their lentil powered computers…).

Company news – STO

As noted above, STO yesterday announced some senior management changes.  The ASX announcement came out after market close – and it is one of my iron rules of ASX reporting that good news is never released in such a fashion.  The company has shunted its previous Vice President Eastern Australia into a manager special projects role (in charge of Corporate Development, etc – and the poison pill of the company’s New South Wales CBM assets).

The change seemed somewhat abrupt and unstructured – and follows the strange so-called “retirement” of the company’s Chairman earlier this year.

The company’s apparent mis-management of its Chairmanship, CEO-ship, etc, seems eerily similar to the recent debacle at Woolworths, which has been the focus of much market and media criticism in the last month or so.

Company news – Buru Energy Ltd (BRU)

BRU recently announced the effective termination of its ~8 year old deal with aluminium giant Alcoa, who had made a prepayment of $40M for potential gas supplies from BRU’s exploration acreage in remote Northern WA.  This sum will be repaid over the next few years.

This blog noted recently that downstream competition in WA’s isolated gas market was heating up as a result of the Government buying large quantities of gas from the Gorgon project in order to validate its domestic gas reservation policy.

The WA gas market has been marked by supply side tightness – and hence high prices – for around 10 years.  Alcoa’s actions with BRU are another sign that this market tightness could be reversing, as the resources boom on the demand side ends, and domestic gas reservation gas from new LNG projects competes with the likes of AWE’s Perth Basin gas discoveries.

Quote of the day

One more from classic Glengarry Glen Ross to finish the week (mild mannered readers should turn away now) – a Senior Manager rallies the troops:

“My watch costs more than your car. I made $970,000 last year. How much you make? You see pal, that’s who I am, and you’re nothing. Nice guy? I don’t give a sh*t. Good father? F**k you! Go home and play with your kids. You wanna work here – close! You think this is abuse? You think this is abuse, you c**sucker? You can’t take this, how can you take the abuse you get on a sit? You don’t like it, leave”.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s