Today’s Blog – Thursday 1st October 2015

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Introduction

Following our reports in recent days, Glencore’s share price continued to recover overnight – albeit as part of a generally strong day on global stock-markets.

Glencore Director Peter Coates’ other main company, Santos (STO), did not fair as well, experiencing a ~7% share price fall – in reaction to Origin Energy’s (ORG) rights issue announcement.

And this was notwithstanding strong Directorial support for the purchase of STO shares disclosed a few days ago.  Almost half of STO’s Directors acquired some shares in the company’s recent dividend reinvestment plan, spending a hefty A$17k to acquire ~4,000 shares.  Peter Coates would only be human if he was somewhat more concerned with his A$2.5M of Glencore shares (which last Christmas were worth A$10M) than his A$225k of STO stock.

Readers may think this blog is kicking a man when he is down – but when a big “kick me” sign is put out there, it is hard to resist (especially when one has been sent a Shareholder Update from STO this morning trumpeting its achievements and including comments from both of the company’s highly paid Chief Executives….).

Commodity prices

Yesterday’s oil markets were somewhat confused, buffeted by “numbers” (the EIA’s weekly report), “events” (a Russian bombing campaign in Syria) and “technicals” (the end of a month and a quarter).

Brent closed at US$48.54 and WTI at US$45.36 – both down around 25% in the September quarter.  The EIA report showed an crude inventory build of a hefty 4 mmbbls (albeit with a drop in stocks at the all important Cushing pricing location) and a gasoline build of 3.4 mmbbls.

Diesel stocks build only marginally – no doubt aided by fuel efficiencies in diesel powered Volkswagens that were somewhat less than advertised…..

Henry Hub natural gas prices continued their weather-induced decline, closing at US$2.52.

LNG

In recent times the Indian Government has sought to increase incentives for domestic gas explorers and producers by mandating a domestic gas price linked to international markets (a blend of US, European, etc, indices).  However, given the recent falls in those markets, the Indian domestic gas price is now also falling – and materially.  The price for the next six months has now been set at US$3.82/mmbtu.

This is unlikely to stoke much exploration – nor encourage increased LNG penetration into the Indian market.  Although not without its political challenges, the adoption of a policy of introducing further market liberalisation might eventually be turned to (although we note that Indonesia has recently sought to increase Government controls in its domestic gas market – what could possibly go wrong?)

Governments and fracking

South Australia’s role as a beacon of Governmental sanity with respect to the regulation of oil-field activities continues.  The State’s Treasurer has recently slammed the Victorian Liberals’ new policy of seeking a “moratorium” until 2020 on unconventional gas exploration (which we reported on earlier this week).

We note that he was less keen to criticise a similar ALP policy during the last New South Wales election, but he effectively stated “that’s politics, what do you expect me to say?”

Company news – STO

Standard & Poors has overnight said that STO’s current active asset divestment program is sufficient for it to keep its current investment grade rating, notwithstanding ORG’s rights issue announcement yesterday.  STO has flagged a critical Board meeting next week and the market will be keen for an update post that.

Company news – APA Group

The ACCC has raised concerns about APA’s possible purchase of Energy Australia’s gas storage asset located at Iona in Victoria.  This is not surprising given APA’s national and regional market power.

APA has grown substantially through acquisitions over the last decade, but in future is likely to be increasingly constrained in doing so and will have to take a less familiar path to growth – developing its own assets.

Company news – Beach Energy (BPT)

BPT yesterday issued a corporate presentation with the title of “non-deal roadshow presentation“.   A conspiracy theorist would ask “what about the “deal” roadshow presentation?”  However, as usual, cock-up seems more likely than conspiracy.

ORG’s statement yesterday that it would look at selling its Cooper Basin assets has led to a media comment that that likes of BPT would be pushed to fund the acquisition of such given the current poor equity/debt markets for oil stocks.

However, BPT should have an effective pre-emptive right over this asset and it fits very well with its recently updated strategy.

Quote of the day

Reluctantly turning from Tiger Mike Davis back to the post-VW-disaster-in-vogue Elon Musk (who is said to have people management skills with some similarities to the Tiger’s):

“Yeah, well I think anyone who likes fast cars will love the Tesla. And it has fantastic handling by the way. I mean this car will crush a Porsche on the track, just crush it. So if you like fast cars, you’ll love this car. And then oh, by the way, it happens to be electric and it’s twice the efficiency of a Prius”.

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