Today’s Blog – Thursday 12th November 2015

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

This blog will not be published tomorrow due to other commitments (who said it was great weather for golfing??)

Introduction

Following yesterday’s news about rumours over Anadarko Petroleum approaching Apache Corporation about a takeover (which – as is usually the cased – was spurned) – the proposed deal has been acknowledged – and withdrawn – by the suitor.

US media commentary noted that one reason for the proposed acquisition was to bulk up in order to protect Anadarko’s own independence from the Super-major sharks higher up the E&P company food-chain.  The US (and some Canadian) large independents like these two companies could be appetising prey to the likes of Exxon primarily due to their strong acreage positions in US tight oil and gas plays – i.e. areas from which petroleum can be swiftly monetised (subject to price), unlike most of the rest of the world.

This contrasts to the various corporate moves amongst the larger Australian independents (e.g. Woodside and Oil Search, Scepter and Santos) – which have all been driven by LNG factors.

One could argue that the US strategy is driven by NPVs and production metrics, whilst the Australian one is driven by a longer term strategic view that there will be a “golden age of gas” next decade.  Or – more prosaically – people covet what they can see next door – and then retro-fit strategy afterwards.

Commodity prices

Crude prices fell reasonably sharply overnight, with Brent closing down ~3% at US$45.93 and WTI down ~2.4% at US$43.05 (the Brent/WTI spread has been narrowing in recent times, as US tight oil production falls more and more materially, reducing the Gulf of Mexico light/sweet crude refining glut).

The US EIA’s weekly report did not come out overnight yesterday – due to a public holiday in the US (it will come out tomorrow).  However, private sector analysis suggested that this week would see yet another large inventory build in US crude – and this was the primary driver of the oil price fall.

Henry Hub continued yesterday’s fall, closing at US$2.27.

LNG and international gas

Korea’s Kogas has until recently been the world’s largest LNG buyer (this year it has been overtaken by Japan’s Jera – a Tepco and Chubu joint venture).  Reuters has recently reported that Kogas has sold up to 4 mtpa of LNG for 8 years from 2017 to France’s EDF.  This gas will be sourced from Australia and the US.

The sale presumably reflects an overestimation of Korean gas demand by Kogas – and it will assist in the globalisation of LNG pricing as it moves more Pacific LNG into Atlantic markets.

Governments

Yesterday saw another debate from the rivals to be the Republican candidate for US President.  Momentum appears to be building behind this blog’s expected winner – Florida Senator Marco Rubio.  If next year actually saw a Republican President be elected – together with likely control of the US Congress by the Grand Old Party – then there could be significant implications for US energy policy which would impact on global oil and gas markets.  We will have a look at some of these next week.

However, one should never forget that in the US power is fractured.  What happens in Washington would not have much effect on what is occurring in New York with respect to investigations into alleged cover-ups by Exxon (and now others) over global warming.

This is hardly a simple issue like companies covering up the health implications of smoking tobacco (and the world does not need tobacco – but it does need energy – and that means trade-offs).  However, it seems that every New York Attorney-General wants to be hero – and the US legal system unfortunately tends towards the making of out-of-court settlements of politically useful large sums.

Company news – Santos (STO)

Trading in STO shares resumed this morning following the halt called on Monday.  Its share price fell (which was expected given the large rights issue) – and fell hard (to A$4.36 at the time of writing – a figure well below the theoretical ex-rights price of A$5.15).

Meanwhile in the Australian Financial Review (AFR), STO executives appear to be trying to defend their recent record, with a particular focus on their response to the recent takeover approach from PE group Scepter.  As we have said before, we expect the STO Board and Executive team will change over coming months and accordingly this defensive effort in the media is unlikely to be fruitful.  The views of investors is presumably shown by the negative share price outcome seen this morning.

Company news – Central Petroleum (CTP)

As noted earlier in the week, CTP has just made a placement to fund a campaign to prove up Northern Territory reserves which it thinks will make their way to the East Coast through the mooted NEGI pipeline.

The company’s ASX announcement quoted its CEO, Richard Cottee, as saying the company considered this pipeline going ahead as being “practically close to certain“.  The ever-ebullient Richard has added to this in the media by saying it would take “World War Three to stop it“.

With all due respect to the un-matched marketing skills of Mr Cottee, this blog wants to see evidence of credit-worthy buyers undertaking long term purchase deals with sellers with existing reserves before it will start to be a NEGI believer of his fervour.

Quote of the day

From this week’s Washington Post (a paper whose political views would not normally pre-dispose it to Exxon sympathies):

“To crystallize this complex problem into a conspiracy controlled by Exxon Mobil is to engage in political make-believe”. Robert Samuelson

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