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Today’s Australian Financial Review (AFR) contained a story on a large scale (coal) royalty dispute in Queensland.  The dispute is between Queensland Government owned electricity generation corporation Stanwell and Wesfarmers, and is for many $100Ms.

This follows a recent separate claim by the Queensland Government for many $100Ms of coal royalties that it claims BHP has under-paid it.

This news is relevant to the oil and gas industry in Queensland – particularly the massive CSG-to-LNG projects.  The Government’s expectations of royalties from these are likely to be much higher than is likely to be payable under current LNG prices.

Furthermore, the scope for disputes over calculating the royalties is high – given the range of net-back calculations possible and issues such as BG’s pipeline sale – for a very hefty price – which would arguably reduce those net-backs – possibly illegitimately from the Government’s point of view.

The recent disputes over coal royalties show that the Queensland Government is starting to play it tough.  We expect that will flow over into the oil and gas space.

The ultimate weapon available for the Government would be to demand royalties be paid in kind (which would likely require a small legislative change).  Such in-kind gas could be politically attractive for the Government to then supply to local industries – but would leave the LNG producers well short.

This weapon would be a nuclear one in Australia – but is common practice in North America.

Commodity prices

Crude prices firmed overnight, with Brent closing at US$46.28 and WTI performing even more strongly to close at US$43.20.

The BHI weekly rig count was bullish.  It came out early this week (due to the US Thanksgiving holiday).  It showed another material fall – 9 oil rigs and 4 gas rigs.

The EIA’s weekly report was less supportive however, with another inventory build of 1 mmbbls (and a product build of 2.5 mmbbls of gasoline and 1 mmbbls of distillate).

Middle Eastern “events” – seeing what Putin might do over the shooting down of a jet over Turkey – continued to hang over the market.

Henry Hub firmed nearly 5% to US$2.29.  The only “events” over this market are the meteorological kind.

LNG and international gas

The Russia-to-Turkey-to-Greece-to-rest-of-Europe “Turk Stream” pipeline concept that Russia has been promoting has not been mentioned in recent days.

It was already a challenged project – as “someone” would need to pay for it other than the Russians.  Now it is likely a dead project.

Ukraine is hotting up at the same time as Syria for Russia.  Electricity supplies into Russian controlled Crimea have been cut off by unauthorised elements in Ukraine.  Russian gas to Ukraine may be cut off in return.  And its winter up there.

Governments and fracking

Only days after the lock-the-gate crowd started to complain about fracking in the Northern Territory, its Government has moved to limit the potential for this multi-decade oilfield practice in new areas in its jurisdiction (possibly Ministers are not aware that this practice has occurred safely for many years at the Mereenie oil and gas field).

A NT representative has responded to recent media coverage over concerns about fracking in King’s Canyon by saying that the licence application over this area will not be granted.

If the NEGI pipeline is going to get filled (which we doubt – but the NT Government presumably wants that to happen) – then exploration for and production of gas, involving established industry practices, will presumably need to occur.

Company news – Oil Search (OSH)

Following Woodside Petroleum’s (WPL’s) recent briefing of analysts at a field trip over its plans for OSH, the latter has now responded during its own analyst field trip.

Not surprisingly, it has come out swinging, noting the comparatively poor performance WPL has delivered for its shareholders over recent years compared to that achieved by OSH.

Any deal here would seem to have to be hostile – and likely value destructive for WPL shareholders.

Company news – Cooper Energy (COE) and Santos (STO)

COE has announced today that is has upgraded the contingent resources for the Sole gas-field (offshore Victoria) it holds 50/50 with Santos (by 30 PJ gross).

More significantly, it has also advised the market that FID for this project remains on track for September next year.

The market will become more confident that this timeframe can be achieved if or when COE makes further announcements about gas off take (it seems to be somewhat behind where it would like to be) – and how this multi-$100Ms project will be financed.

Quote of the day

We have commented before on the strange development of large oil importing nation Indonesia re-joining OPEC.  Bloomberg recently quoted the following comment on this from well-known Citigroup analyst, Seth Karman:

“If you’re accepting net-oil importers into the organization, it speaks volumes about the marginalization of OPEC”.

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