Today’s Blog – Wednesday 30th March 2016

Please pass this blog onto others who might like to read it

The blog is slightly shorter today due to other commitments

Introduction

Late last week news emerged in the US that the well endowed charity the Rockefeller Foundation was to sell its holdings in Exxon (as well as other fossil fuel companies involved in coal and tar sands).  A primary driver is the concern that global warming would mean that much of its oil and gas reserves would never be exploited.

The delicious irony of this is of course that Exxon is the most direct heir of John D Rockefeller’s Standard Oil – and hence the source of the Foundation’s original funding.  We are far from alone in pointing this out.

In our view the rationale of the Foundation’s Trustees (and one can imagine that they do not meet in a candle lit teepee to feast only on organic lentils and tap water after arriving by rickshaw) is flawed in a number of ways:

  1. Global reserves are unknown – the published figures by e.g. BP add up fictional numbers from OPEC with more genuine estimates from e.g. Exxon.
  2. Geo-engineering solutions could be found that would allow effectively unlimited fossil fuels to be exploited without climactic impact – e.g. – by seeding clouds with sun-reflecting elements.
  3. Exxon is a much more better corporate citizen than the majority of oil producers in the world – who are often corrupt Government owned entities.
  4. And taking a big picture view, an abrupt end to fossil fuel exploitation is arguably not compatible with sustaining the current human population on the planet.

Commodity prices

Crude prices fell over 2% overnight, with Brent closing at US$39.29 (the first time below US$40 for three weeks) and WTI at US$38.44.  The market is expecting the EIA’s weekly inventory report due out tomorrow to include a build of ~3 mmbbls.

Scepticism continues to build over the potential outcomes of the forthcoming OPEC/Russia meeting in Doha.  Iran’s Oil Minister has now said he would attend – but it seems vastly improbably that he would agree to a production freeze.

The alternative even less productive meeting he is now clearly ducking must be to spend a Friday afternoon being briefed by Iranian Government HR on the latest adjustments to their performance management system.

Henry Hub was more bullish – closing up 7% to US$1.98 (reflecting an end of month contract rollover as well).

LNG and international gas

Israel’s offshore Leviathan gas project (operated by US company Noble Energy) has hit another road-block recently – namely a ruling by the country’s Supreme Court that a long term fiscal stability agreement was illegal.

Readers will recall that our very own Woodside Petroleum Ltd (WPL) previously pulled out of a deal to enter into the Leviathan project over some previous political wranglings in Israel.

In our view, having a Supreme Court hold up the rule of law is in fact a positive sign for sovereign risk (we can think of many other petroleum bearing countries where the courts are not independent institutions).

In due course (especially as its other growth options vanish – pace Browse LNG) WPL might well rue its exit from this high class asset at the first whiff of trouble.  Aspiring mid-size IOCs need to learn that dealing with sovereign risk issues is what big oil does.

Quote of the day

More pearls of wisdom from the recently departed Johan Cruyff:

“Quality without results is pointless, results without quality is boring.”

“Playing football is very simple, but playing simple football is the hardest thing there is.”

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