Today’s Blog – Tuesday 27th October 2015

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

Readers – please note that blog services this week will be short and/or intermittent due to your blogster travelling

Introduction

Anecdotes picked up whilst travelling – whilst hardly conforming with a rigorous scientific method – can provide different insights into issues that are normally pondered from the comfort – possibly too much comfort – of the luxurious offices of Blogging HQ.   For instance:

  • A highly educated Singaporean taxi-driver (note – not his normal profession) suggested that it is not only resource orientated countries like Australia that are facing economic head-winds (largely blowing from China).
  • As closely observed from Singapore, the weak economy of Malaysia does not seem likely to support multi-billions of investment by NOC Petronas in ventures such as British Columbia’s Pacific Northwest LNG project.
  • I was challenged on the pretty universal view within the oil and gas industry that the medium term supply/demand of the former would be much tighter than the latter commodity through discussions about the potential game changers in the vehicle market. These could come not only from electric cars, but also from the somewhat forgotten hydrogen fuel-cell sector.  Discussions indicated that there are still parties in places like Japan who are prepared to invest not inconsiderable dollars in such ventures.

And there are the the parties like Tesla, Google, Apple, etc, who have even more dollars, confidence and skills to try and break-up old industry structures – see the quote of the day at the bottom of this blog.

Commodity prices

Crude prices fell almost 5% last week and Monday’s close continued the misery, with Brent at US$47.54 and WTI at US$43.98.

Friday’s rig count – one oil rig down and one gas rig up – might be showing the bottoming out of the rig count – but in any event did not send a bullish note to the market on the day.

We have noted before the affect of El Nino on US gas prices.  Now it is starting to influence US oil product markets as well, with concerns that heating oil demand will be well down.  Goldman Sachs consider that there is an overall glut in product inventories around the globe – diesel in particular (come on VW drivers, crank up those less efficient than imagined engines!).

If oil is suffering, natural gas in the US is being caned.  Yesterday it closed not much above the critical technical support level of US$2, at US$2.06.

New weather page headline: El Nino is wrecking havoc at Henry Hub! 

This is a 3 year low.  It is hard to imagine what gas ventures are profitable on a full life-cycle basis at this price.

LNG and international gas

Cheniere Energy has provided some more specific guidance as to when it expects first cargoes to leave its Louisianan liquefaction plant, with January now targeted.  Clearly US gas prices cannot wait for that to start.

Company news – Santos (STO)

The media war over the future of STO was lively over the weekend, with the Scepter (sovereign and other private equity fund) camp coming out way ahead on points.

The “Empire” attempted to strike back over the last couple of days through leaks to its favoured media arm, The Australian Financial Review (AFR).  It indicated that it should shortly close a deal to sell part of its interest in the PNG LNG project to Japan’s Marubeni for a price way above consensus.

Today it was also suggested that not only would the buyer be prepared to pay a premium, but also would accept an unattractive deal structure – taking stock in the STO controlled vehicle that holds its stake in PNG LNG rather than direct project equity (hence avoiding pre-emptive rights).  That must either be one very keen buyer or a three-bottle-off-the-record lunch.

One STO constituency that was not mentioned much in the extensive media coverage was the current employees.

Somewhat counter-intuitively compared to normal such take-over battles, in the view of this blog, this group should prefer the “barbarians at the gate” over business as usual.  The latter only promises a multi-year grind of debt repayments.  Scepter offers growth – which for STO’s explorationists, engineers and deal makers, must be a much more attractive option.

Employees not only have votes through share-holdings – they are also influence makers on others.

As and when the Scepter battle develops, the incumbent leaders will become very paranoid about leaks and internal opposition (and from their advisers as well as the employees).

The Game is afoot!

Company news – Armour Energy (AJQ)

Another twist in the take-over battle for AJQ has emerged – Aubrey McClendon’s AEP has made a proportionate take-over offer (for 14% of each shareholder’s existing shares) at 25c/share.  The Board has recommended this.

The next move is now in the court of Chinese conglomerate Landbridge.

This blog remains puzzled by the heat of this battle over what is a very immature (although large) exploration area in the Northern Territory.

Quote of the day

Apple’s CEO, Tim Cook, is amongst those who see the vehicle industry – and therefore also the oil and gas industry as the key current supplier of vehicle fields – as being wide open for disruption:

“I do think that industry is at an inflection point for massive change, not just evolutionary change.”

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