Today’s Blog – Tuesday 1st September 2015

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Introduction

As foreshadowed yesterday, the US’s EIA released an improved monthly production report, which included a new methodology for counting US crude production.  The result was a reduction in the previously reported figures for this calendar year, together with a reduction in production (like for like) from May to June (the latest month for which there are numbers) of 100,000 bopd.

This was a significant factor behind another stunning rise in oil prices overnight.

The EIA’s new methodology involves surveying large companies, rather than adding up numbers from the States.  The assumption is that the private sector is likely to have a closer eye on its production numbers than the public sector – a not unreasonably view (particularly when at present every barrel contributes to staving off debt providers for another day).

Commodity prices

Crude prices rose another ~6% overnight, with Brent closing at US$53.06 and WTI at US$48.16.  The rise in the last week has been around 30% in total – the highest rise in such a short period since the first Gulf War.

The EIA’s US production numbers – not material in themselves, but encouraging trend-wise – were a primary factor behind the ongoing rise.  Additionally, in the opaque world of OPEC (or should that be in the OPEC world of opaque), further signs seemed to emerge about at least the consideration of action to curb production – preferably in conjunction with large non-OPEC producers such as Russia.

Call me a pessimist, but the view of this blog is that the recent rise feels like a dead cat bounce.  The hopes of the poorer members of OPEC are likely insignificant compared to the machinations inside the House of Saud.  And US producers seem to be extra-ordinarily resilient (or foolish) in their keeping on keeping on.

The Henry Hub natural gas price closed down a couple of cents at US$2.69.

LNG

Yesterday’s news about ENI’s massive gas discovery in the Eastern Mediterranean (unfortunately noted by ENI as being “lean” – but with no public information on its acidity) follows last week’s news about Rosneft striking a LNG supply deal with Egypt.

Rosneft should still have short/medium term head-room to deliver cargoes before the ENI discovery comes on line – and could link itself to an over-night story about ENI seeking development partners.  Russia would like Mediterranean friends (Syria has its limitations!) and President el-Sisi would no doubt like competitive tension in his geo-political relationships (and arms suppliers).

Russia’s troubled Yamal LNG project could provide spot market opportunities for LNG suppliers and traders.  Media reports on its ongoing financing troubles have stated that spot purchases may need to be made by its joint venture members in order to meet supply obligations.

Putin will no doubt be pressing Chinese flesh this week in Beijing to procure more finance for Yamal.  Expect signatures (and furious stamping) on non-binding MOUs for Yamal and East Siberian gas (via Vladivostock).

Governments and fracking

The Labor Party in WA – slavishly following the East Coast for once – has adopted a policy at a weekend policy conference of imposing a “moratorium” on fracking in the Sandgroper State.  If followed through if/when the ALP win Government in the State, this would be a disaster for the parties pursuing gas developments in the onshore Perth Basin, such as AWE, Origin Energy, Transerv, etc.

Over on the East Coast, Metagasco Ltd (MEL) has today announced that its negotiations with the New South Wales Government, over compensation for the latter’s illegal shut-down of its drilling operations, have broken down.  A lawyer’s proverbial field-day will no doubt be re-opened.

Company news – Armour Energy Ltd (AJQ)

AJQ has today received an unsolicited off-market cash take-over offer from Chinese owned Westside Corporation (who readers may recollect has a CBM production business in Queensland).   The offer is a cash one, at a decent premium, with only a 50.1% minimum acceptance condition – all of which add up to a likely successful effort (subject to others coming in, which feels unlikely).

AJQ recently entered into a non-binding MOU with the Aubrey McClendon led PE Fund, AEP, over the potential to farm-out its Northern Territory exploration acreage.   A cash bid is arguably an order of magnitude higher validation of the value of this acreage.

Company news – Santos Ltd (STO)

The Business Spectator has today reported that STO is seeking to sell its interest in the offshore WA oil-field, Stag.  Potential bidders are said to include Fosun (the large Chinese company who bought Roc Oil), Vermillion Energy (the Canadian company who has an existing production asset in WA) and Carnarvon Petroleum (the ASX listed company who – unusually – has a healthy bank balance).

Late last week STO won a legal battle in the West with Quadrant Energy.  STO was awarded the right to depose Quadrant as the Operator of the Spar asset.  Operatorship of this would no doubt enhance its sale value if it was to be added to the list of assets STO might sell to help repair its stretched balance sheet.

Quote of the day

Something more cerebral on the potential for “numbers” to mislead, other than the usual “lies, damn lies and statistics”:

“Numbers are negations of truth”. Kierkegaard

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