Today’s Blog – 2nd March 2016

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Introduction

The mighty Exxon-Mobil (XOM) has just raised US$15B through a bond issue – giving rise to industry speculation that it is building up a war-chest to make acquisitions in our currently troubled industry.  These views are supported by analysts pointing out that the company has few projects in its pipeline – and its reserves recently took a bit hit.

Could some Australian companies potentially fall into XOM’s cross-hairs?  Our quick thoughts:

  • BHP Petroleum is an interesting potential target for XOM.  BHP has long pointed to the diversity of risks that having an E&P arm gives it compared to its minerals only peers.   However that diversity is currently not working.  Could that lead to the potential for a sale of this arm?
  • The advantages to XOM are that: it would give assets that are almost solely in low sovereign risk countries; it is already in JV in some of them (e.g. Gippsland, Scarborough, etc); it is a deal big enough to move its large dial; etc.  However, BHP is not financially stressed and it is not apparent that its Board would want to re-evaluate such a core part of its strategy.
  • Woodside Petroleum (WPL) – in our view WPL’s portfolio of growth projects is weak and does not fit XOM’s needs.
  • Oil Search (OSH) – this would give XOM “more of the same” in PNG – but a good quality “same” and some new growth options.  However, XOM might see this as taking out its trusted “local” partner, which it might not want to do.  Plus OSH is not cheap.
  • Santos (STO) does not seem to have an asset base of sufficient quality or scale to be of interest to XOM – other than (again) more the of the same in PNG (but with less growth).
  • Origin Energy (ORG) – we have continually speculated that ORG is creating at least the option of selling off its upstream business (which is basically its interest in the APLNG venture in Queensland).  This is material enough for XOM, is low sovereign risk and has reasonable partners.  Initial concerns about a high production cost asset could be alleviated by these factors – especially if the price was right.
  • FAR – this would normally be far too small a target for XOM.  However, if combined with a purchase of equity from its partners in its Senegalese oil asset, could be of interest to XOM.  This asset seems to be of high enough quality and size to attract XOM.

All up – XOM has a lot of things to look at globally – but it is a long term and large player in Australia and there is at least the possibility it could make some moves in this country.

Commodity prices

Crude continued on its current up-trend overnight, with Brent up ~0.5% to US$36.84 and WTI up more (~1.7%) to US$34.36.  The oil market seemed to take a lead from a bouncy Wall Street, notwithstanding analyst views that tomorrow will see another big crude inventory build.

Some succour might also have been taken from the fact that President Putin held a meeting with various Russian oil companies (most of whom have private sector shareholders – caveat emptor!) and it was subsequently said that Russia would not increase production in 2016 (we very much doubt that it could do so even if it wanted to).

Meanwhile, US tight oil production continues to decline – it is now down ~600,000 bopd from last year’s highs.  However, this is being partially offset by offshore Gulf of Mexico new production from long dated projects.

Henry Hub had a minor rebound yesterday, closing up a few cents at US$1.74.

Governments and fracking, etc

Senator Glen Lazarus (who you will recall had his entry into Parliament funded by the CBM supplied QNI plant in Queensland) continues to harass the onshore gas industry in Australia.

He has recently claimed that an anti-the-modern-world-until-if-affects-our-personal-comforts group meeting (otherwise known as Please Shut the Gate and friends) due to be held at the Narribri Golf Course in New South Wales had been cancelled due to the nefarious doings of golf club sponsor, STO.

However, in our view, the current share price of the latter would suggest that nefarious schemings are a bit beyond its skill base.

LNG and international gas

STO’s partner in its GLNG project, Malaysian Government controlled Petronas, has just announced a management restructure and 1,000 job cuts.  This is happening whilst the company is borrowing money to pay dividends to the Government (who might look to the personal bank account of its leader for an alternative source of funds), recently delaying a FID’ed FLNG project, etc.

Given this context, we take the company’s announcements about a planned FID this year for its British Columbian Pacific Northwest LNG project with a pinch of curry powder.

Company news – Senex Energy (SXY)

An ASX announcement from SXY earlier today captures part of the dismal flavour of the E&P sector at present – a monthly drilling report announcing it did not do any drilling last month and it would not issue monthly drilling reports in future.

Quote of the day

The antics of Malaysia’s Prime Minister persistently bring to mind beloved Irish comedy character Father Ted Crilly (“that money was only resting in my account!”).

One of his fellow actors in the Father Ted series, who played the thirsty Father Jack, has just died.  Any quotes from this reprobate might not meet our family-friendly policies, so instead here is one from Ted’s boss, Bishop Leonard Brennan, which might equally be delivered to PM Najab Razik:

You went to Las Vegas, whilst that poor child was supposed to be in Lourdes!

 

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