Today’s Blog – Wednesday 12th August 2015

Introduction

Yesterday this blog speculated that the recent ABC news about environmental damage from underground coal gasification (UCG) in Queensland could rebound negatively on the un-related process of CBM extraction.  So far (other than the ABC), the story seems quite muted (and the oil and gas industry will hope it stays that way).

Last night the ABC disclosed details from a 2006 report from the Qld Government Petroleum Department warning of the potential risks.  The (ex) Senior Government bureaucrat summarised the risk pithily:

“There’s significant international problem with coal fires, they’re not easy to control. They’re easy to start, not easy to put out”.

It was not only Govt regulators who were concerned about this issue 10 years ago – your blogster can recall pioneers of the Queensland CBM industry, such as QGC and Sunshine Gas, warning at the same time of the cross contamination (in a stakeholder sense) risks.

Unfortunately, I think the industry will need to continue to “watch this space” (and maybe even, shock horror, try to be pro-active in addressing it).

Commodity prices

Oil prices fell sharply overnight, with Brent closing at US$49/18 and WTI at US$43.08.   This was the lowest WTI price for six years – since the short/sharp GFC downwards spike.

The primary driver of the fall was China’s unexpected devaluation of the Yuan – which spooked asset markets globally.  The move seemed to provide further data to support those who do not believe official PRC economic information (“we’re growing at 7% for sure, forget the energy input data, move along please, nothing to see here”).

Unaffected by this move were US natural gas prices, which closed up a few cents at US$2.86.

LNG

For the second time in only a few months, Japan released no monthly LNG spot cargo pricing data – because only one cargo was received in the whole month of July (for what is still the world’s largest LNG market).

As flagged, the Japanese nuclear fleet did commence its slow re-start yesterday and the sentiment effect of that (rather than the volumetric implications) will likely weigh on LNG markets.  Indeed, this blog was intrigued by a data-point it encountered yesterday which indicated that a surprisingly large part of the Japanese energy market surrendered by nuclear power in the last few years had been captured by solar power.  Like the capitalist system in the US (or if you a soccer follower, the Germans in football), one should never under-estimate the Japanese.

The Japanese (Inpex) operated Ichthys LNG project offshore Northern Australia told Reuters a few days ago that it expected first cargoes by the end of next year.   Another reason to conclude that Japan as a demand node for spot LNG in the short/medium terms will not be material.

Company news – Beach Energy Ltd (BPT)

BPT’s new MD released the results of his strategic review today.  As expected, there were no surprises (cynics might say these things could be written on the first day, but “it is written” that processes have to be followed).  The company will:

  • Focus on the Cooper Basin (and the door is wide open for the mooted acquisition of Drillsearch Energy Ltd – at the right price of course).
  • Build an East Coast gas business (watch out Cooper Energy).
  • Continue to divest/de-risk non-core assets.
  • Build an organisation structure to support this.
  • The previous mention by BPT’s MD of the option to sell infrastructure assets was tempered by formal acknowledgement that its joint venture parties’ (that’s you Santos and Origin Energy) commitment would be required.

The company now has a new vision and values, etc, (otherwise known as statements of the bleeding obvious).  Recent media talk about the abandonment by many organisations of such HR driven processes as annual appraisal processes (apparently these are now a waste of time – who knew!), makes this blog query whether such things will also become redundant in a few years time

Company news – Origin Energy Ltd (ORG)

ORG today announced a $337M write-down of its upstream assets.  Around half of this is in connection with the Cooper Basin and the other half concerns the Otway and Bass Basins.

Whether BPT will also take a write-down on its Cooper Basin assets it holds in JV with ORG is not apparent (but if you are a new MD, now is the time to do it).

ORG also advised the market yesterday of a credit down-grade (which had been flagged previously).

Quote of the day

After a possible surfeit of contributions from The Donald, I promised some high-brow quotes – and here’s a quote from Edward Gibbon’s 18th Century masterpiece, The History of the Decline and Fall of the Roman Empire (which shows the origin of the current world-wide plague of beardy hipsters – the early Christians):

“In their censures of luxury the fathers are extremely minute and circumstantial; and among the various articles which excite their pious indignation, we may enumerate ……..the practice of shaving the beard, which, according to Tertullian, is a lie against our own faces, and am impious attempt to improve the works of the Creator.”

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