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Recently we commented on a new bill hastily introduced by the Queensland Government that seeks to greatly spread liability in connection with environmental/abandonment/etc obligations. Today is the last day that comments can be lodged with the Government in connection with this.
The bill was a response to the likely imminent closure of Clive Palmer’s Yabulu Nickel refinery in Townsville and the probability that cleaning this up (at a cost estimated to be up to $1B) could fall back onto the Government.
However, the implications are widespread:
- The law is retrospective in its application in certain respects – never a good basis for any law.
- Even arm’s length passive investors (equity and debt) could themselves now be liable to criminal charges, penalties and jail terms.
- Senior managers as well as directors also face similar issues.
- In our view, no-one will be prepared to transact in oil and gas assets in Queensland until these issues become far clearer.
- If this law was introduced in a developing nation, the screams of sovereign risk from foreign investors would be very loud.
Crude traded pretty flat yesterday, with Brent closing at US$39.19 and WTI at US$38.28.
The weekly EIA report had a crude build of 2.3 mmbbls – better than expected – and a gasoline draw of 2.5 mmbbls (offset by a distillate build of 1.1 mmbbls).
A weakening US dollar supported the oil price somewhat in the face of the crude inventory build.
A widely commented on recent report from Barclays PLC, which concluded that oil and copper prices in particular (and commodity prices generally) had over-shot recently provided succour for the bears. Our view is that post the imminent Doha meeting is a time of maximum danger for the oil market to retreat down to US$30 again.
Henry Hub is sneaking up to the US$2 level (which used to be considered disastrous when looking down at it from above), with a closing price of US$1.99.
LNG and international gas
Some good news for the international gas market from Santos’ (STO) new strategic shareholder, large Chinese downstream gas company ENN, who recently reported that its gas sales in the PRC had dramatically increased by 15% in January/February.
This increase in gas demand was a response to Government policies encouraging a coal to gas switch, based on lower (but still very robust compared to e.g. Henry Hub) gas prices and stronger emissions controls.
Governments, fracking, etc
The international drum-beat of concerns about induced earthquake activity caused by oil-field practices continues to grow. Last week the US Geological Survey published a report which supported the thesis that waste-water injection (not fracking) seemed to be leading to greater seismic activity in States like Oklahoma.
Similarly reputable sources have also recently pointed to such a causal connection in Canada as well.
As we noted before, the industry should be preparing to deal with the consequences of this drum-beat before it potentially becomes deafening.
In our view this is more serious than for instance the current investigations by various US States into whether Exxon deliberately hid data on global warming over decades (every attorney general wants to spring the next tobacco damage cover-up). There will be no smoking gun on this – it is too complex.
Company news – Santos
An article in the Australian Financial Review today by respected columnist Matthew Stevens on coal projects located in New South Wales did not mention STO – but has direct relevance to it.
The article concluded that coal mining projects by the likes of BHP planned for the Liverpool plains area – which had already spent $100Ms before any dirt was moved – were now merely positioning for Government compensation cheques to walk away, not actually seeking to FID.
STO faces the same issue for its NSW coal-bed methane project – which includes permits covering the same area. Does it genuinely pursue an unpopular gas development – or pretend to do so in order to maximise Government compensation for walking? And how could one tell from the outside?
Quote of the day
Final words of wisdom from the much missed Johann Cruyff (who would no doubt have been pleased with the recent Dutch win over England):
“Players today can only shoot with their laces. I could shoot with the inside, laces, and outside of both feet. In other words, I was six times better than today’s players”.
“What is speed? The sports press often confuses speed with insight. See, if I start running slightly earlier than someone else, I seem faster.”