Today’s Blog – Tuesday 1st March 2016

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Introduction

Its a late and short-ish blog today – some other tasks (unfortunately not on the golf course) distracted your blogster.  Something must be in the air – there are even some things happening in the ASX listed oil and gas sector!

Commodity prices

Overnight the bulls had a run again, with Brent closing up ~4% to US$36.61 and WTI was up ~3% to US$33.78.  The particular drivers on the day appeared weak – some anodyne comments from Saudi Arabia about its desire for a stable market (personally we would prefer a very unstable market – i.e. one that went up) and some economic news from China

That such weak news drives quite strong percentage gains (although with a weak denominator, small dollar gains obviously drive large percentage gains) suggests to us that that the market is desperately looking for reasons to buy.  When the fundamentals point to an almost inevitable rise in the “medium” term, no-one wants to be left behind.

Of course the bears might come out in force again as over-supply is still strong on a day-by-day basis and US storage levels continue to break unwelcome records.  That fear is currently demonstrated by the widening Brent/WTI premium.

Henry Hub fell ~4% to US$1.71 – a multi-year low.  A great recent anecdote quoted by Bloomberg illustrates the current over-supplied state of the US gas market – the fact that it would take 163 large LNG ships to clear the gas currently in US storage to normal levels.

LNG and international gas

As the first LNG cargoes start to leave the Gulf of Mexico, further North the many (circa 2 dozen) Canadian LNG projects are left in limbo – with FID for any of them appearing to be becoming ever more distant.

Recent comments from the IEA suggest market openings for the Canadian projects will arise post 2020.  A gloomier prognostication from IHS is to wait until after 2024.

Company news – Woodside Petroleum Ltd (WPL)

WPL has just announced the appointment of ex Shell executive Ann Pickard to its Board.

Ms Pickard’s recent career included Shell Arctic and before that Shell Australia.  She is obviously very well credentialled.

It is however unfortunate that those two previous postings presided over >US$10B in recent losses for Shell.  Not that we are suggesting that it is her fault – but we do remember Napoleon’s question about one of his generals: I know he’s a good general, but is he lucky?”

Company news – Origin Energy (ORG)

A fascinating ASX announcement from ORG today – that it has signed a non-binding agreement to sell 0.5 mtpa of LNG (over 5 years) to a Chinese gas importer.

Note, this announcement was not made in connection with ORG’s joint venture interests in the APLNG project in Queensland.  Rather the gas will be sourced from ORG’s upstream portfolio – or purchased (presumably from wherever in the world made the most sense) – and if it needed to be liquefied, it would be tolled through whatever liquefaction capacity it could do the best deal on (our words not theirs).

How this deal fits with ORG’s APLNG business, its capabilities to deliver it, the opportunities for others (e.g. GLNG to sell liquefaction capacity), etc, are all unknown at this point.

Company news – Senex Energy Ltd (SXY)

SXY received a “speeding ticket” from the ASX today asking why its share price had recently spiked up.  The company’s answer came from the usual “don’t ask me, guv” script.  It therefore failed to note that the obvious cause was the view of this blog last week that the company appeared to be cheap.

Company news – Beach Energy Ltd (BPT)

The BPT takeover of Drillsearch Energy was finally closed today.  The BPT Board now has 2 new additions from the DLS Board (and farewells two existing Directors).  With a new CEO (but not a Managing Director) due to start in ~2 months, the company will have a fresh-ish start after a very long changeover interregnum.

Quote of the day

Last week we noted our scepticism about the IEA’s “shale cap” on future oil prices, given the likelihood that capital markets will take a long time to forget the pain the oil shale sector is currently giving it. This was echoed by Total’s E&P President recently:

“The problem is going to be the money. Where is the money going to come from? A lot of people who have burned their fingers on (U.S. shale) are going to be reluctant to reinvest.”

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