Today’s Blog – Tuesday 2nd February 2016

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Introduction

He’s a billionaire, corporate raider, inspiration for Gordon Gekko – and one-time US Presidential candidate – but in our view T Boone Pickens is rather more worthy of listening to than The Donald (although we will find out shortly if the good people of Iowa share this view).

In a recent interview, his views on the oil price were:

“Once you hit bottom – US$26 – then you should double within 6 months.  I think we will see US$52 by the end of 2016.”

Naturally we in the oil patch would like this view to be correct and therefore bring a lot of bias to hearing it.  However, it is good to see an authoritative counter-view to the prevailing wisdom that we are “drowning” in oil.

Commodity prices

Crude prices retracted from recent gains overnight, with Brent closing down ~5% at US$34.03 and WTI down ~6% at US$31.47.  Weak economic news from China (followed up in the US) – and no miraculous deal from OPEC to cut production – were the primary drivers in the market.

As noted in The Wall Street Journal (WSJ) yesterday:

“The game being played in the global oil market today bears more than a passing resemblance to poker. Nobody wants to quit while they’re losing.”

A strategy that makes as much sense for countries as individual gamblers – but human nature trumps reason.

Henry Hub closed down ~6% at US$2.15.

LNG and international gas

Another recent story in the WSJ caught our eye.  This concerned a current turning down of thermostats in Beijing’s public buildings during a current cold snap – due to a lack of gas.

(I’ve been in Beijing airport in winter before in these conditions – take a coat is my advice).

And the reason for the recent lack of gas – a LNG ship could not dock at a re-gas facility due to visibility issues caused by coal induced smog.

We have right there a multiple layered advert for gas right in the centre of the Middle Kingdom.

Company news – Santos (STO)

STO was today again the subject of media speculation – in The Australian Financial Review (AFR) this time.  No doubt various stories are emerging at present given the imminent commencement of the company’s new MD, Kevin Gallagher next week.  Senior management and directors will be setting out their survivalist stalls – and the media is one place for them to do so.

The AFR pooh-poohed yesterdays’ speculation that the company would again seek to market its PNG LNG asset so soon after last year’s strategic review and rights issue.

However, it did not suggest what other alternatives the company had if it wanted to retain its credit rating and low oil prices persisted.

The story did flag that a number of STO NEDs would retire this year – but that the Chairman intended to hang around.  We still await the AGM (due in May) with interest – we don’t think a few retirements will be enough to fence off a “first strike” remuneration vote.

Company news – Shell and BHP

On the issue of credit ratings, we note that in the last couple of days both Shell and BHP have had their (admittedly strong) credit ratings down-graded, as the ratings agencies keep re-setting their oil price forecasts downwards.

Company news – Origin Energy (ORG)

ORG reported today that the sale of some late-life non-core assets in New Zealand (in the on-shore Taranaki Basin) had fallen over.  A Sale Agreement executed last year with AIM listed Mosman Oil and Gas had a re-opener if oil prices fell – as they did.  Result – no deal (and presumably Mosman would have found it difficult to raise capital at present).

Quote of the day

From T Boone Pickens’ corporate raiding heyday:

“Chief executives, who themselves own few shares of their companies, have no more feeling for the average stockholder than they do for baboons in Africa”.

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