Today’s Blog – Monday 19th October 2015

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

Introduction

Last week OPEC formally advised Indonesia that it would accept that country’s application to re-join the organisation at its next meeting (due in early December).

Indonesia quit OPEC back in 2009 when it slipped from being an oil exporter to a net importer.  Since then the country’s net oil import position has widened and credible industry observers consider that there is effectively no chance that the position will be reversed.

So why is Indonesia re-joining OPEC and why is OPEC accepting its return?

With respect to the former, it seems likely that the Indonesian Government sees domestic political merit in re-joining – as possibly it will send signals to the uninformed masses that the country is “back” as an oil power, notwithstanding the reality.

From the latter’s point of view, it is possible that there are some Islamic-related solidarity politics at play, with Indonesia being the world’s largest Muslim nation.  Whether there any impilcations with respect to the internecine Sunni/Shia conflict between OPEC nations is unclear, but that also seems possible, given Indonesia is pre-dominantly Sunni, although not in the KSA’s absolutist manner.

All up, this blog’s view is that this move demonstrates that OPEC is much less of a force than it is commonly ascribed to be.  The real oil power is Saudi Arabia (and its allied Gulf nations) – the rest of OPEC does not have a lot of muscle on world oil markets.

Commodity prices

Crude finished up on the day last Friday, with Brent closing at US$50.46 and WTI at US$47.26.  However, the overall week was negative, with a decline of ~5%.  The good news on the day was another sustained fall in the US on-shore rig count from Baker Hughes.  The total count was down 8, with a fall in oil directed rigs of 10.

The Henry Hub natural gas price closed down at US$2.43 – measurably below what many hoped was a floor of US$2.50.  The key drivers were a larger than anticipated storage injection figure and ongoing fears of a El Nino induced mild winter.

LNG

News agency Interfax today reported that Exxon Mobil had joined the serried ranks of those companies who have chosen Singapore as an Asian hub for LNG marketing efforts.

Singapore’s positioning now seems unbeatable, given its location, rule of law, increasing clustering effects, emerging nodal pricing, etc.

Governments and fracking

UK based shale gas aspirants, Cuadrilla Resources, used a new weapon in the ongoing stakeholder war over the extraction of tight oil and gas through the application of the 70 year old technique of fracking. This was the referring of charity Friends of the Earth to the UK”s Advertising Standards Authority over the contents of a leaflet issued by that organisation.

The leaflet claims included:

“Help protect your community from Chemicals that could cause cancer. Air pollution and higher asthma risk. Water contamination. Plummeting house prices and bigger insurance bills.”

They must have forgotten Cuadrilla’s plans to cancel Christmas and abolish Motherhood.

It will be interesting to observe – from a global perspective as well as the UK – how a rules-based authority deals with such provably false claims.

Company news – Santos (STO)

The Australian Financial Review (AFR) continues to stream news from STO on its divestment program in a seamless fashion.

Today it provided an update on the sale of the company’s Western Australian gas assets to its joint venture partner, private equity owned Quadrant Energy.  Apparently the latter is currently procuring credit approval from its banks to put it in a position to close a purchase.

Given the dominant position of STO and Quadrant in the Western Australian gas market, this blog considers that the approval of the ACCC may also be required for such a deal – and that cannot be assumed to be granted.

On matters STO, the media also reported over the weekend that it had successfully acquired a new off-shore licence in the Great Australian Bight off South Australia.  Its partner in this successful gazettal round was said to be Japanese company JX Nippon – who STO is already in JV with offshore Malaysia.  STO already has Bight acreage in JV with US company Murphy Oil.

Fear-Mongering over BP’s planned drilling campaign in the Bight (due to start next year) is building up momentum.  Apparently drilling off the South of Australia might cause un-told damage to wild-life and the environment generally – though the 50 year history of offshore drilling to the East, West and North does not seem to have done so.

Company news – Armour Energy (AJQ)

The takeover battle for AJQ by Chinese conglomerate Landbridge seems to be entering its final stages.  A hefty 20c (cash) per share (a very large premium over its previous trading range) has now been recommended by the company’s Board.

A twist in the deal is that the company will shortly have an EGM to vote upon a farm-out deal with US PE company, AEP.  If that deal is approved, that would breach a condition of the take-over offer.  The Board has recommended that shareholders vote against and it should be in a good position to count the numbers.

Quote of the day

Ruminations on the politics of religion noted above brought to mind the following quote from Edward Gibbon’s Decline and Fall of the Roman Empire:

“The various modes of worship which prevailed in the Roman world were all considered by the people as equally true; by the philosopher as equally false; and by the magistrate as equally useful.”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s