Today’s Blog – Wednesday 27th January 2016

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Introduction

Overnight one of our followers in the US provided some us with some anecdotes about the ongoing gale sweeping the ranks of employees out of our industry.  Late last week US independent Southwestern Energy laid off 1,10o staff members – or an incredible 40% of its staff (next thing you know they might even reduce the number of Directors!). A similar story is being played out with Canadian focused Husky Energy, who is said to be planning a 30% staff reduction in the next few weeks.

Oil services giant Schlumberger announced a 15,000 personnel reduction last week.  Also as we noted last week, Shell is to reduce its staff (post the BG acquisition) by 10,000.

Anecdotally, the total work-force reduction in the Canadian province of Alberta is said to be touching 100,000.

And very anecdotally – my Aberdeen based and/or trained Facebook friends are much more nervous about job cuts in 2016 than they were in 2015.

As we have stated before, we think the World is effectively placing an awful lot of faith in the increasingly fewer remaining members of the oil and gas industry to deliver new supply once the tiny (in our view) current spare capacity is eroded by demand gains and depletion.

Commodity prices

Yesterday was a good day for a public holiday for the Australian oil and gas industry.  Monday’s falls in oil prices in London and New York could happily be ignored whilst today a good performance in crude overnight Tuesday provides some support.

Brent closed up ~5% to US$31.80 and WTI slightly less to US$31.45.  Yet again this high level of price volatility was not driven by any particular factor, although some commentators took heart from an OPEC representative who claimed to note a “change in tone from Russia” over possible supply cuts.

However, whilst there appears to be a button in the Kremlin labelled “deliver polonium tea to dissident“, there is not one that says “instruct complex mixture of private/public and foreign/domestic oil industry members to reduce oil supply“.

On the numbers side, ahead of the formal weekly stock report from the EIA, expectations are building in the US for a big build – which would likely cause prices to fall in the next day or so if delivered upon.

The Henry Hub gas price was stable to positive at U$2.18.

LNG and international gas

One of the few sectors of the LNG supply market which seems to have some life is mid-scale floating LNG projects (as evidenced by Perenco’s offshore African project which we noted reached FID last year).

This theme continued this week with London listed Ophir Energy announcing that it had farmed out its offshore African LNG project to Schlumberger, which is an interesting, but clearly deep-pocketed, partner.

Company news – AWE Ltd

The market has reacted very positively to an announcement by AWE this morning that it has sold its interest in its Eagle Ford shale assets for US190M.  Although this is just above its book value, it seems to be a pretty good (and unexpected – given the 30% share price rise so far today) outcome.

One of AWE’s smaller partners in the relevant joint venture – AIM listed Empyrean Energy – sold out to the same purchaser last week, which we observed at the time (but naturally we failed to turn our observation into a profit by buying AWE shares – that is typical of this market where the wounds from catching falling knives over the course of last year are very livid).

Company news – Oil Search (OSH)

OSH issued its quarterly report this morning.  The tone of it was far more up-beat than those issued last week by its peers such as Woodside Petroleum (WPL) and Santos.

Indeed, we could not find a single instance of the company’s “laser like” or “relentless” focus on cost cutting – instead it had a positive focus on its LNG projects in PNG.

On that front, we note that not one, but two, independent reserves auditors have been engaged by OSH to review the new extent of reserves in the Elk/Antelope field.  The outcome of their audit has major implications for partner InterOil, OSH, Total – and possible predator (for OSH or InterOil), WPL.

Company news – Inpex Corporation

Today’s Australian Financial Review (AFR) reported the leaking of a submission made by Japan’s leading E&P company, Inpex, to an Australian Parliamentary review of potential company tax changes.  Inpex had the not surprising view that any adverse changes to the write-off timing of large scale capital investments like LNG projects (and the interest on the project finance required to fund them) would reduce its investment appetite for Australia.

We wonder what Inpex’s current submissions are to the Indonesian Government over its assets in the country (in waters near to Australia) – which could well be effectively appropriated by the archipelago nation, given current impasses in the country over PSC terms and the desire from NOC Pertamina to take over older PSCs from international companies.

Quote of the day

Posted on my Facebook page by an engineer in our industry, noting a news story that Legoland is hiring model builders:

“That might be an alternative for the oil and gas industry at present.”

 

 

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