Today’s Blog – Wednesday 2nd December 2015

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

This blog will be intermittently delivered over this week due to your blogster travelling

Introduction

A number of months ago we reported the findings of a study by Edinburgh headquartered oil industry research company Wood Mackenzie as to the reduction in investment in the sector since last years’s oil price crash.  At that time Wood Mackenzie estimated that around US$200B of upstream projects had been cancelled or deferred as a result of the falling oil price.

This is a key data point to support the thesis (which we share) that the oil market will structurally have to recover – albeit in a difficult to measure “medium” term – as falling supply and rising demand forces converge.

Now Houston based advisory firm Tudor Pickering Holt (TPH) has effectively updated the Wood Mackenzie findings, albeit with a different methodology.

A key finding of TPH is that the cancelled/delayed projects will take > 10 million bopd out of the system over the next five years – a huge number in the context of current global daily demand of ~95 million bopd (and rising) – and one that cannot just be turned back on.

For those of us who look forward to some fun – and hopefully reward – coming back to the sector – TPH concludes that by the end of this decade the Super-Majors will be desperate for growth and will have to look for it by acquiring others and on/their assets.

Build your acreage positions and companies now if you can!

Commodity prices

Crude prices were fairly flat last night, with Brent closing down slightly at US$44.44 due to gloom over OPEC’s likely do nothing stance at this week’s meeting.  On the other hand, WTI closed up a tad at US$41.85, as analysts expected this week’s inventory “numbers” to be somewhat bullish.

The Henry Hub natural gas price was flat at US$2.23.  The EIA issued a report yesterday which indicated that US gas production is at an all time high.  This blog’s predictions of higher US gas prices by the end of this year due to upcoming demand pressure from LNG plants and Mexican exports have been embarrassed by the ongoing supply of gas at prices that do not seem to give the producers much in the way of a return on investment.

LNG and international gas

We reported yesterday on Gazprom taking all the off take from a recently FID’ed African FLNG project.  This may be a sign that that organisation is increasingly recognising the challenges it faces by growing through international pipeline sales.

The proposed expansion of the Nord Stream pipeline (from Russia to Germany – through the Baltic hence excluding pesky intervening nations like Poland) is facing protests from said pesky nations.

Russian media reported yesterday that the US may be supporting them.  typically paranoid one might say – but not that unlikely.

Russia is doing such a good job of falling out with its neighbours (now including Turkey) that finding sensible pipeline routes to continue to capture its desired global gas market share is increasingly tough.

Governments and fracking

A number of farmers, etc, have recently lobbied the Australian Federal Government to introduce national laws to effectively give them increased rights to control access to the sub-surface petroleum and minerals under their land that belong to the rest of Australia.

Less than eighty signatures were procured but the organisations involved remain impressive media tarts and have garnered the usual coverage – that fails to ask the question “why should everyone else give you their money”?

Company news – Santos (STO)

STO has gone into a trading halt today – before it announces the results of the retail component of its recent rights issue.  Media speculation suggests a nearly A$1B shortfall – and hence resulting very large overhang of the stock in the hands of unwilling underwriters.

If that overhang meets the “Goldman Sachs” short term case of US$20 oil then the stock will be slaughtered.

Company news – Beach Energy (BPT)

BPT put out one of its regular ASX monthly drilling announcements that served to remind us of what the E&P sector actually does (or at least should do if it has any money) – “explore and produce”.

Although there was not that much of the former, the latter appeared to be going reasonably well in terms of its Cooper Basin joint venture development drilling campaign.

Quote of the day

After last December’s seminal OPEC meeting the Kuwaiti Oil Minister delivered a pithy summary of its conclusions:

“No change.”

Expect more of the same this week.

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