Today’s Blog – Wednesday 14th October 2015

Please pass on this blog to others you think may like to read it

Introduction

Longer term readers of this blog will recall that we have identified a key measure of the industry’s health – whether BP is currently with-drawing or offering bowls of fruit to its employees.  In the UK the media reported that BP with-drew fruit bowls back in the GFC, re-introduced them, and then with-drew them again earlier this year.

(A cynic – not us! – might suggest that the associated circulars from HR (“laser like focus on costs, blah, blah, blah“) would have cost far more than keeping the offending fruit).

Well now we have a new measure – the size of the coffee cups offered up to the thirsty oil-field denizens of Aberdeen.  Bloomberg reported yesterday that Canadian Natural Resources Ltd’s office in the Silver City had not only cut out hot lunches – but also that the office coffee cups were now smaller.  What’s Aberdonian for “quelle horreur!”? (The answer I suspect is quite fruity).

Those denizens of our industry who look upon the Canadian oil patch is being quite “employee-friendly” will note the irony of this blog this morning emailing the above story to a contact working in that friendly patch – only to get an automatic email noting the intended recipient was on annual leave….

Commodity prices

Returning to the harsh world of oil prices, we saw another fall over-night, with Brent closing at US$49.18 and WTI at US$46.64. The fall appeared to be based on momentum from yesterday’s pull-back, fuelled by an IEA report which reduced its prediction for demand growth next year.

Also, on the “events” side of the crude ledger, the Iranian Parliament (not unexpectedly) yesterday passed legislation to implement its nuclear deal (and hence facilitate greater crude exports next year – although some speculation exists that Iran has been successfully quota busting recently by exporting through Iraq).

The Economist’s daily email asked today a horrible question for oil markets – “is US$50 a ceiling?”.  In the short term, that could well be the case, as US tight oil companies seem to be taking out hedges at or around that price.  In the long term that would seem very unlikely.   The real debate is on what is the gap between the short and long terms.

Henry Hub was flat at US$2.49.  This ~US$2.50 number is considered by some to be a floor for the US gas price.

LNG

Washington recently hosted an LNG focused conference where the over-arching themes were the ongoing drive towards material US exports and global gas market liberalisation.

The latter topic allows me to quote what 007 fans would consider the wonderfully named Svetlana Ikonnikova, an energy economist at the University of Texas at Austin, who said “Russia has learned its lesson and is offering better contract terms”.

The US and Russia will be going head-to-head in competition for European gas buyers – somewhat more preferable to doing so in Syria.

Company news – Central Petroleum (CTP)

Yesterday we reported on a story in The Australian Financial Review (AFR) on the proposed NEGI pipeline from the NT to Eastern Australian. It appears that “the ebullient” Richard Cottee (CTP’s CEO) was quite successful in persuading the readers of that august journal that this is a real project – CTP’s share price rose 15% yesterday and has almost doubled in a week.

Company news – Armour Energy (AJQ)

Readers may recall that AJQ is a small-cap explorer with a large – but immature – acreage package in the NT.  It is currently the subject of a hostile takeover offer from Chinese conglomerate, Landbridge.  It is also the subject of a farm-in deal from US PE shop, American Energy Partners.

Landbridge was yesterday annointed as the successful bidder for a controlling stake in Darwin’s harbour – at a cost of ~$500m (25 times earnings).

Some industry insiders had previously been scratching their heads as to why Landbridge would find AJQ a compelling takeover target.  Now it would seem reasonable to conclude that it represents an option play on exploration success and hydocarbon exports through Darwin.

Company news – AWE 

Analysis from London based industry blogger “Malcy’s Blog” concludes that AIM listed Eagle Ford shale specialist Empyrean Energy is currently trading very cheaply.   The interesting point about this from an Australian perspective is that Empyrean is a JV partner of AWE – who should therefore be a logical buyer if Malcy’s analysis is correct.

However, as noted last week, AWE’s CEO has recently moved into lame duck mode, as the company seeks a successor to appoint some time next year, which suggests that corporate take-overes are unlikely to be front of his mind.

Extended lame-duckery is arguably pretty shareholder value destructive, as opportunities are missed, etc.  The shareholders of other companies in a similar situation, such as Beach Energy and Santos, will be hoping that this is not the case.

Quote of the day

A quote from the original fruit-bowl swipe caper of 2008 – from a BP worker based at Sunbury-on-Thames, Middlesex:

“It just goes to show that the workers aren’t even worth an apple once a week to them.”

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