Today’s Blog – Friday 6th November 2015

Please pass this blog on to others who may want to read it

Apologies for what is a later – and shorter – blog than normal – I can only say that it is a beautiful day for golf

Introduction

Shell’s quarterly results last week contained two multi-billion dollar write-offs – the larger was the ~$US$7B cost of its failed offshore Alaskan exploration efforts.

In some ways, the smaller of the write-offs says something more significant about the current state of the industry.  This was the ~US$2B write-off of a Canadian tar-sands operation at Carman Creek. This was a project which had already received FID and had material (liquids) reserves booked on it.

It is one thing to write-off exploration – that is the game E&P companies are in.  It is another thing to conclude that one will walk away from substantial sunk capital and vital industry metrics in the form of a mature development asset.  All things being equal, this Canadian write-off is (in our view) the most tangible evidence to date of Super-Majors acting on a “lower for longer” strong conviction basis.

Commodity prices

Crude oil prices continued to fall overnight, with Brent closing at US$48.73 and WTI at US$46.54.  The fall appeared to be a continuation of the previous day’s decline rather than one driven by new factors.

Henry Hub closed up strongly at 5% at US$2.38.

LNG and international gas

Earlier this week the New York Times reported on the Shell/BG takeover, noting that a Bernstein piece of analysis had concluded that the enlarged group would be the largest LNG player in the world – bigger than either of the two Qatari NOCs.

With the premier position comes better opportunities and this blog has long believed that LNG is the key driver behind the merger.

On that front, this blog also considers that Santos’s (STO’s) takeover proposal from the Scepter group is driven by the company’s LNG assets.  Such assets are generally held by Super-Majors and NOCs, and notwithstanding STO’s debt and other problems, the opportunity to acquire LNG assets which could well have synergies with the other LNG assets held by Scepter’s sovereign owners, is a rare one.

Governments and fracking

Large US environmental group, the Sierra Club, has just jumped on the “induced earthquakes” issue that we have been reporting for some time.  News has just emerged that it is suing a number of US E&P companies in the centre of this phenomenon – Oklahoma.

Will the Australian green groups take a lead from this? (Not that there appears to be a problem here – but who cares about the facts if you are a true believer).

Over on the US East Coast – Exxon is now in the sites of New York prosecutors over its actions over the years with respect to global warming.  Clearly the lawyers can smell the sorts of money that they routinely extract from foreign banks.

A heavyweight contest!

Company news – STO

Nothing leaked from STO to the press today – what’s up?

Company news – Armour Energy (AJQ)

The take-over offer for Armour made by Chinese conglomerate Landbridge has been with-drawn.

Further rounds in the battle are feasible – but is the prize of a large but wild-cat exploration package in the Northern Territory worth it?

Company news – Shell

The Business Spectator stated this morning that Shell would sell its interests (via its Arrow Energy venture with PetroChina) in the Moranbah CBM field in Northern Queensland.  This blog has not been able to get confirmation of the story from other sources.  The sale was said to be induced to satisfy ACCC issues over the Shell-BG takeover.

Quote of the day

An old classic from the oil patch:

“All prospects look good until drilled”.

-Anadarko’s Motto

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