Today’s Blog – Wednesday 11th November 2015

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Further to yesterday’s story about a takeover approach made to large US independent Apache Corporation, Bloomberg has reported over-night that the approacher is apparently another large US independent – Anadarko Petroleum.  This revelation sent the latter’s share price down.

Anadarko is not of the scale of the parties we canvassed yesterday such as Exxon and Statoil – rather it is in many ways fairly similar to Apache.  As such, the approach would have likely been about a “merger of equals” (but recognising that takeover law requires a predator and prey).

Such bulking up should make a lot of sense in the current oil patch travails – but these types of deal are generally harder to do than ones involving a much larger organisation swallowing up a smaller one.

Have we ever mentioned “social issues”?!

This brings us back to one of our Australian hobby-horses – the natural fit between Santos (STO) and Origin Energy’s (ORG’s) Integrated Gas business.  Will STO’s recent changes increase the chances of this combination occurring?

Not obviously so.  STO’s new CEO appears to have been hired as a steady hand rather than a deal-maker and STO’s Board will likely be going through a “refreshment” in coming months.  However, ORG’s own likely need to change CEO’s could provide an opening.  But will anyone drive it? – we need animal spirits as well as logic.

Commodity prices

Crude prices ticked up slightly over-night, snapping a 4-day losing streak and swimming against the general tide of falling commodity prices.  Brent closed at US$47.40 and WTI at US$44.12.

The IEA issued a gloomy prediction on oil prices yesterday – that they would stay below US$80 for the rest of this decade.  In contrast, an OPEC representative said that they expected supply and demand to re-balance in 2016.

As noted in Tudor Pickering Holt’s daily email from the US overnight: “down-cycles take time to play out and we were all spoiled by the rapid recovery post-2008/2009 financial crisis…so it’s been a long time since we’ve all lived through a more traditional down-cycle”. 

Henry Hub closed up a couple of cents at US$2.33.

LNG and international gas

Anadarko has over the last decade arguably been one of the better international oil and gas explorers – exemplified by its multi tens of Tcfs of gas discovered offshore Mozambique.  Apache on the other hand has divested much of its overseas assets (e.g. in Australia) in order to focus on on-shore US plays.  Unlike in the likes of Mozambique, the lag between discovery and monetisation for these tends to be in months not decades, and this would presumably be a key strategic driver behind the merger proposal.

This was exemplified by recent news from Anadarko’s partner in Mozambique, Japan’s Mitsui, who recently advised that FID of their LNG project in the country would now be pushed out to next year (in our view this is still highly optimistic).


Increasing media chatter is building up around what will be Australia’s most exciting wild-cat exploration efforts for many years – the BP led drilling campaign in the Bight off South Australia, which should commence in around a year’s time.  Unfortunately that chatter is focusing on Macondo-type risks rather than rewards of a successful discovery.

The cynical view of this blog is that having a blow-out (albeit maybe of less than Macondo size) would be a great outcome for the region – it would certainly demonstrate a large, high-pressure and active petroleum system.

Company news – STO

The Australian Financial Review (AFR) revealed another STO code word today in connection with its recent strategic review and subsequent major changes – Project Merino.  This is the name for the placement to the Chinese PE group Hony Capital (which the company on the one hand is saying does not give rise to a blocking stake but on the other hand is saying look at the decent premium they paid).

Apparently Merino was chosen to refer to the high quality nature of the deal – like the Australian wool.  Others might say that the  project name suggests shareholders are being sheared like sheep…

In a separate story, the AFR today reported on limitations that would be imposed on Chinese State Owned Enterprise (SOE) investment into privatised electricity businesses in New South Wales.  Hony is not a SOE – but does have strong PRC Communist Party links.  However it appears unlikely that any FIRB or other issues will arise here.

But – if Hony representatives appear on the STO Board in the next six months, then we would expect other shareholders to be even more cynical about STO Board representations that Hony does not have a stake that limits potential takeover premiums.

Company news – Beach Energy (BPT)

BPT today announced that it has ticked off a regulatory issue in connection with its proposed takeover of Drillsearch Energy (DLS).  This was the obtaining of a waiver from the ASX over the possible need to get a BPT shareholder vote on one aspect of the deal – a related party transaction with major BPT/DLS shareholder, the Seven Group, in respect of acquiring Seven’s shares in DLS.

The related party issues are arguably what have driven this transaction and made it fairly simple – but they do give rise to legal issues to be danced around – which to date the parties have effectively managed.

Company news – 3D Oil (TDO)

Micro-cap TDO yesterday announced that its long awaited Sealion-1 well, targeting oil in the off-shore Gippsland Basin off Victoria, was a dry-hole.

Quote of the day

A quote from the head of Oman’s NOC,  Mohammed Bin Hamad Al Rumhy, whose country produces oil but isn’t a member of OPEC, which demonstrates less than universal support for OPEC’s apparent strategy over the last year of defending market share rather than price.

“We are hurting, we are feeling the pain and we’re taking it like a God-driven crisis. Sorry I don’t buy this, I think we’ve created it ourselves.”

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