Today’s Blog – Friday 14th August 2015

Please feel free to pass on this blog to others you think might like to read it

Introduction

This week has seen a number of signs of an emerging bi-polar world economically speaking – an increasingly stronger US economy in the West and in the East apparently desperate and flailing facts by the PRC Government to keep the Chinese economy on track.

In some ways this echoes the 1990s, when the US economy was undisputed king and which would no doubt be of comfort to those US Presidential candidates whose surname is “Clinton”.  However, for those of us in the oil patch, that was a decade to be forgotten, with its lengthy price depression and sustained cuts to jobs and investment.

There are a number of factors in the oil market at present which allow some to say “this time it is different” (e.g. much less – if any – Saudi spare capacity) – but that is a phrase which is usually very risky to utter.

Commodity prices

Crude oil prices fell overnight, with Brent closing at US$49.22 and WTI (which fell markedly more sharply) to US$42.23.  The primary drivers behind the fall were economic – good numbers on a number of fronts in the US (as noted above, contrasting with the fog over China’s economy).  The expected interest rate rise in the US due in the next month or so should have been boosted by this.  The US dollar was boosted – which all things being equal always hurts the oil price.

The Henry Hub natural gas price got smacked down to US$2.79 on news of inventory builds being higher than consensus.

LNG

As we noted recently, the appetite of Petronas to make a major FID decision (I know that’s two “decisions”, but it scans better!) over its Pacific Northwest LNG project in Western Canada is not exactly helped by the present political ructions in Malaysia (“that money was only resting in my account!“).

The Asia Pacific Post also recently reported on a slew of other concerns over the project in Kualu Lumpur: high costs; high taxes; aboriginal issues; environmental opposition; etc.  And on top of that, NOCs like Petronas are currently under strong political pressure to help subsidise their (Petro-) States – and allocate capital locally.

Yesterday’s story on Gulf of Mexico LNG company, Cheniere Energy, taking material cross-Atlantic gas pricing risk (and reward) shows that the bulls in the LNG world are currently hosted in the US, not in other green-field project locations.

Governments and fracking

The August publication that is the Adelaide Advertiser contained an article on fracking today which managed to capture much of the confusion around this ancient industry practice.  On the one hand it noted that the practice is “one of the most contentious and controversial..matters of our time” whilst on the other hand it noted fracking had been undertaken for over 70 years in millions of wells.

In South Australia itself, fracking has been undertaken since 1969 with no ill effects.

As if that was relevant to the antis.

Over in New South Wales, the unholy anti-CBM/fracking/etc alliance of the Greens, Alan Jones (who he?), Fred Nile (ditto), etc, actually suffered a set-back from the forces of reason, with a bill introduced into the NSW legislature which sought to sterilise vast parts of the State from petroleum exploration failing.

Company news – Beach Energy Ltd (BPT)

Today’s AFR has a story on BPT in its Street Talk section following the company’s strategy presentation of earlier in the week.  This speculated on possible corporate action in Australia (Drillsearch) and/or PNG (Horizon Oil).

This blog seems to have far better intelligence sources on BPT than the AFR and can report on a matter not known to that journal.  Yesterday a confidential informant followed up on our news item about corporate cost cutting at BPT by revealing that this had extended to the removal of newspapers from the company’s coffee room!  That 15% cost reduction target must just about have been reached already.

Company news – Senex Energy Ltd (SXY)

Today’s Business Spectator reported rumours that Seven Group (the largest shareholder in BPT and Drillsearch) may have taken a ~3.5% stake in fellow Cooper Basin mid-cap SXY.

May the games begin!

Company news – Origin Energy Ltd (ORG)

We recently reported ORG’s write-down of some of its oil and gas assets (by $337M).  A closer perusal of the small print of the announcement should have alerted your blogster to the fact that this was a post-tax number – i.e. the cash blown on poor investments was ~$0.5B.

Another iron rule of ASX reporting – when one sells an asset, one reports the headline maximum cash to be received – and would never dream of reporting a post-tax number.  However, it is clearly best practice to report write-downs in a post-tax fashion.

Quote of the day

With the weekend coming and a chance for hard working oil patch people to grab some R&R, it is galling to note how much more exciting entertainment was in Rome in the first century AD.  Suetonius (in The Twelve Caesars) reports on the following from short lived Emperor Galba:

“As praetor in charge of the Floral Games he introduced the spectacular novelty of tightrope walking elephants”.

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