Today’s Blog – Friday 1st April 2016

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

Today’s blog is a shorter one due to other commitments – and also due to the lack of news from the cash strapped Australian E&P sector!

Introduction

Today’s Australian Financial Review (AFR) contains an article on the difficulties currently facing mining industry doyen Hugh Morgan (ex long time CEO of Western Mining) in establishing a PE fund to acquire “distressed” mining assets.

The story resonates for the oil and gas sector – Mr Morgan is seeking to raise up to $2B to acquire “cheap” assets, as are many in the oil patch as well.  However the AFR notes that he faces a typcial conundrum – sellers say “show me the money” whilst financiers say “show me the asset”.

In our view he (and the E&P sector) also faces another issue – in theory there should be cheap but high quality assets on the block – but in practice that is not necessarily the case as the current owners of such assets can typically find ways to keep them.

On the other hand, for those prepared to buy presumed “high risk” assets such as promising exploration blocks – there are opportunities aplenty (if very little willingness from financiers to invest there).  Those who have the fortitude and means to spend in this area will be the ones who make outsize returns in the coming “medium” term (whatever that is).

Commodity prices

Crude was again fairly flat yesterday. Brent rolled over into a new month’s contract, and finished up in the US$40s again at US$40.16.  WTI was down a tad at US$38.11.  Over the March quarter the change from start to finish was minor – but big swings down and then up were experienced.  Volatility appears rife at present – and we think a big down-leg could follow soon – and in the “medium ” term we think that upside surprises are also likely.

Bad news for the markets has recently emerged from Saudi Arabia and Kuwait, wh0 jointly own a large oil-field between the two countries, which has been shut-in for a year or two.  It is now planned to bring on ~400,000 bopd of supply from it in coming months.  A strange definition of a “freeze”?

Henry Hub slipped a few cents to close at US$1.96.

LNG and international gas

Yesterday we reported on increased demand for gas in China as a response to primarily lower gas prices.

India is experiencing the same phenomenon – a massive 64% year-on-year jump in LNG imports according to the Oil Ministry.  This demonstrates a classic case of the old commodity markets saw that the best cure for lower prices is lower prices.

Governments, fracking, etc

Don’t get between a US State Attorney General and a potential tobacco re-run gold-mine!

Around 20 States are now said to be investigating Exxon for a “cover up” over global warming and no doubt an opportunity to make a “settlement” with it and likely others.

We presume that the pots of gold recently raped from foreign banks must be almost at an end.

Company news – Santos (STO)

STO today announced a new management structure – changing back to a functional form and away from a geographic business unit basis.  In around 5 years time the next CEO can change back again.

Long time STO employees will have seen this cycle a few times and will be humming the hokey cokey today.

Quote of the day

From Saudi Oil MInister Al-Naimi:

“The Kingdom of Saudi Arabia would like to deeply apologise to the international oil and gas industry for utterly botching things over the last 18 months.  What what were we thinking?  A small cut in November 2014 and we could all still be rich. I blame the King and his favoured heir.”

Announced on April 1st.

 

 

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