Today’s Blog – Friday 4th September 2015

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Introduction

The PRC had its big military parade yesterday to celebrate the 70th anniversary of Chiang Kai-Shek’s (oops, I mean the Communist Party’s) contribution towards defeating Japan in World War Two.  Although no doubt entertained by goose-stepping troops (as The Economist noted today, a funny way to commemorate the defeat of Fascism) and carrier-killing missiles, Russian President Putin came away from Beijing largely empty handed on the energy deal front.

As Reuters noted overnight, it was the deals that were not done that were more notable than the few that were (“The dog did nothing in the night-time.” Holmes: “That was the curious incident.”)

  • The troubled Yamal LNG project did not procure the Chinese finance it was seeking.
  • No announcements were made on the Altai (Power of Siberia 2) pipeline.
  • Even an MOU on gas from Vladivostok was not signed and stamped.

Russia’s fiscal troubles arguably provide market opening opportunities for others in the global gas market.

Commodity markets

Crude oil ticked up slightly overnight, with Brent closing at US$50.68 and WTI doing better at US$46.75.  No particular oil market “numbers” or “events” emerged yesterday to drive things, and accordingly the crude markets were influenced by broader asset market rises, European signals about monetary easing, good US economic data – and no troubles on the Shanghai stock exchange.

The Henry Hub natural gas price closed up at US$2.72, notwithstanding higher than normal inventory injection numbers.  Market commentary suggested the rise was “technical” – presumably translation for some obscure chartist rationale.

LNG

We noted recently that the large expected El Nino weather affect in the Pacific later this year could be bearish for US gas prices.  A recent report from Bernstein Research stated that El Nino should also bear down on Pacific LNG spot prices later this year, which it expected to fall further to US$6/mmbtu.

On a positive note for Pacific LNG, Reuters reported that the start-up schedule for Japan’s nuclear fleet was facing material difficulties, due to legal and technical challenges.

Company news – Woodside Petroleum Ltd (WPL) and Oil Search Ltd (OSH)

The Australian Financial Review (AFR) has reported yesterday and today that rumours continue to build over WPL making a takeover offer for OSH.  The latter’s share price seemed to react positively to the speculation yesterday.  WPL are said to have engaged Bank of America Merrill Lynch to assist it.  WPL would need to do a large equity raising if it offered only cash.

As noted in the AFR, the PNG Government has a ~10% stake in OSH.  They would need to be dealt with not only as a material shareholder – but also, more importantly as the sovereign in PNG.

Older readers will recall that WPL used to have a strategic stake in OSH.  It sold its last OSH shares in 2003 – for 83 cents per share – or around 10% of what it would need to pay for OSH now.

Your blogster shares the views of various parties quoted in the AFR that a better entry point for WPL into PNG would be through the acquisition of US listed company InterOil Corporation.

OSH released its monthly drilling report yesterday.   An interesting point from that was that its Taza well in Kurdistan had encountered a water-wet reservoir.  This asset has therefore become even more non-core for OSH.

Company news – Shell and BG Group

This blog recently mistakenly noted that Shell’s takeover of BG now only needed to deal with competition authorities in Australia and China.  The UK is still to address the deal as well.

The ACCC in Australia has just deferred a decision on the deal.  In my view, Shell/BG could easily divest some low quality assets in Queensland if the ACCC did have a problem, so I don’t see any big issue here.

Company news – Senex Energy Ltd (SXY)

SXY was the latest oil and gas company to have to undertake the ASX’s “walk of shame”, today announcing that it is no longer in the ASX 200.

This follows Santos falling out of the ASX 20 (and risking falling out of the ASX 50).  Origin Energy should also fall out of the ASX 20 on the next review thereof.

Quote of the day

The Donald’s helpful recent suggestion as to how to deal with Chinese militarism:

“If we step back they will protect themselves very well.  Remember when Japan used to beat China routinely in wars?”

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