Today’s Blog – Wednesday 9th March 2016

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Introduction

We have previously been cynical about the NEGI pipeline project that is intended to link the Northern Territory with East Coast Australia – echoing the Grattan Institute’s dubbing of this as the “post-it note pipeline”.

However, industry insiders have assured us that this project is in fact a sanctioned one – notwithstanding an apparent lack of gas, political risks in the NT, current low LNG prices in the East, etc.

That view seems to have been affirmed by a formal ASX announcement from NT player Central Petroleum (CTP), who yesterday referred to the project as one that has been “FID’ed”. However, it seems that the diameter – and hence the cost – of the pipeline has still not been settled upon.  Accordingly this must have been a very relaxed FID – and not one requiring project financing.

A day or so ago we referred to the current extreme bullishness in the infrastructure sector – this is even more of the same.  The NEGI project proponent, China and Singapore owned Jemena, seems to be taking reserves, exploration and political risks that would typically be more akin to those that have made the E&P sector so profitable of late.

Commodity prices

Crude prices retrenched yesterday – presumably there was a combination of profit taking after the recent large rises – and some caution entering into the market that this was  potentially a sucker rally.

Brent closed down ~3% at US$39.46 and WTI fell ~4% to US$36.28.  Poor Chinese economic data (on exports) was the key “number” of the day.

The Vampire Squids reiterated the view that fundamentals on the supply/demand imbalance side did not warrant the recent rises.  And this was true across most commodities, not just oil.

Kuwait’s Oil Minister also added that they would not be freezing production unless Iran did as well.  Good luck!  This shows the fragility of the whole current freezing plans.

Henry Hub closed up again (~2%) at US$1.72.  However, unless one has one of the best wells in America, that still seems like a losing price.

LNG and international gas

Chevron (CVX) yesterday announced that at long last the mega Gorgon project had commenced LNG production and first cargoes should move out by next week.

This must be close to the project with the largest private sector over-run in history.  Original plans in 2004 were for 2 trains to cost US$10B and come on line in 2009.  Now we are here in 2016, the first train of three is coming on line at a cost of US$55B.

However, now the capital is sunk, this is a valuable and long term cash-flow generating machine that will provide massive cash-flows to CVX (and Shell and Exxon) for over four decades – in a low sovereign risk setting.

Governments, fracking, etc

Santos (STO) has received what is now an almost annual missive – a shareholder resolution asking it to cease CBM activities in New South Wales.

The resolution is not valid and will no doubt waste valuable time at the forthcoming AGM – which the vast majority of shareholders would rather spend throwing rotten fruit at the Board.

Over in the US, Hilary Clinton has recently alarmed some by talking up her reservations about fracking.  We take this with a pinch of salt – it is primary season, she needs to attract Sanders voters, she is a pragmatist, this is mostly a State issue, etc.

Maybe in response The Donald should adopt a new program – for the Saudis to send sand over to the US to be used for fracking – and for them to pay for it.

Company news – FAR Ltd (FAR)

FAR went into a trading halt this morning.  Results are due from its SNE-3 delineation well off Senegal.

After recent poor corporate governance from a certain large iron ore company that allowed trading to go on just before a major announcement, this seems prudent of FAR.

Company news – Sundance Energy (SEA)

SEA was given a speeding ticket by the ASX recently and claimed – as is de rigeur – that “we’ve done nuffink, guv“.

Today SEA released a reserves report with some excellent numbers – a rise – albeit small -but impressive at that given the oil price falls since last year.

Naturally we draw no connection between the two.

Company news – Senex Energy (SXY)

SXY demonstrated some recent nimbleness in the hedging department that its larger peers don’t seem to want to (or be able to?) emulate.  Using the cover of the recent bullish trading in crude, it has purchased some put options at US$45/bbl for the first half of 2017 – which puts a decent floor under its core revenues.

Company news – general

Telco Optus is said to be considering a name change – to “Yes”, said to be reflective of its brand experience.

We can all imagine the boardroom scene – trendy image/brand consultant types (perhaps with beards?) bamboozling some old directors and then presenting a large bill.

Rumours of similar moves in the larger ASX listed E&P companies are currently centred on a battle between Santos and Origin Energy over the names that are reflective of their shareholder’s experiences:  “Ouch!” and “WTF!”.

Quote of the day

Speaking of crusty old directors – of the type every company would love to have – Warren Buffett recently demonstrated in Berkshire Hathaway’s annual shareholder letter that he now “gets it” with respect to modern IT uses:

“I now spend ten hours a week playing bridge online. And, as I write this letter, “search” is invaluable to me. (I’m not ready for Tinder, however.)”

 

 

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