Today’s Blog – Monday 18th April 2016

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Introduction

The much anticipated meeting between OPEC members (and Russia) occurred in Doha, Qatar, yesterday – and…..drum roll…….delivered nothing.

This was hardly surprising in our view, given Iran’s position of increasing its production to pre-sanctions levels and Saudi Arabia’s position of seeking a freeze from Iran at current levels.  Indeed Iran did not even attend the meeting.

We therefore expect trading in oil later today to be pretty bearish.  That could well extend further into the week – particularly if the US has another inventory build announcement from the EIA on Wednesday.

ASX stocks that are highly correlated with oil prices, such as Santos (STO) and Senex Energy (SXY), have taken a beating this morning.

Commodity prices

Looking backwards rather than forward, Friday’s closing prices were US$43.10 in London and US$40.36 in New York (both up ~2-3% for the week in anticipation of a Doha that Didnot).  Expect some “3s” at the start of these in the next few days.

Henry Hub was down 5% for the week, closing at US$1.90.  US gas inventories had an unseasonal draw for the week – but are at record levels for the time of year.

LNG and international gas

Last week’s LNG conference in Perth delivered some further non-binding MOUs for Kogas in addition to the one signed with Woodside Petroleum (WPL) that we reported on – with Super-Majors Shell and Total.

Karaoke business owners in Seoul will be pleased with some new Dutch and French customers, but we would not expect much else to arise from such documents, whose principal purpose is usually to have something for leaders to sign at events when nothing of substance is on the table.

Governments, fracking, etc

The drum-beat of US news stories about Exxon and a global warming “cover-up” continues.  Ancient scientific reports that make the correlation between atmospheric CO2 and a potential greenhouse effect from as far back as the 1950s have been breathlessly mentioned in recent days.

Hardly a Watergate “smoking gun” – but does that matter if the cynical intent is to obtain some sort of off-the-record settlement for otherwise cash-strapped State Governments as has been the case for other industries such as banking.

Company news – STO, Origin Energy, etc

Australia’s competition regulator, the ACCC, has recently ruled that the various Gladstone based LNG projects can cooperate on maintenance contracts without breaching anti-competitive laws.

This is a genuine productivity saving, albeit one that is orders of magnitude lower than the same parties could have achieved by cooperating in the project consolidation and construction phases.

The other sort of so-called “productivity” improvement was also on display in the Australian media recently – claims that the failure of a Queensland based supplier to STO was induced by the latter’s late payment of invoices.

Company news – BP…and STO

At BP’s AGM last week shareholders voted down the remuneration package of the CEO (albeit the vote was non-binding).

We have long expected a similar vote to occur at STO’s AGM in a few week’s time and the recent appointment of some pretty lacklustre new Directors have not changed that expectation.

Company news – Beach Energy (BPT and Cooper Energy (COE)

On Friday the above companies announced that BPT had walked away from the offshore Victorian Basker-Manta-Gummy (BMG) field, leaving COE as 100% owner.  One of the more interesting, albeit very briefly stated, aspects of the deal was that BPT was still liable for its share of abandonment costs – but only for a 5 year period.

Dealing with such liabilities – and the regulators and Governments who ultimately are responsible for them – is in our view the key to dealing with such late life assets and it is pleasing to see Australian companies finding new ways to do so, as has been the case in the North Sea for some time.

Quote of the day

The substance from Doha:

“We concluded we all need time to consult further.” Qatar’s energy minister Mohammed al-Sada

Perhaps by the time of the World Cup in 2022.

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