Today’s Blog – Tuesday 19th April 2016

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Whilst the fall-out from the OPEC/Others Doha meeting continues to be assessed by oil markets, other events in Libya are quietly developing in ways which could have greater short term consequences for those markets.

Keen students of North African politics will already know that a new unity Libyan Government has been established (taking the number of Libyan Governments to three or four depending on how they are defined) and seems to be gaining support from the various factions in the country (controlling the oil money helps).  Of course this is a very volatile area and cynics might say that Libya is not a real country and only existed as such under either colonial powers or a strong man like Gaddafi.

What does this mean for oil markets?  If the progress currently being made to bring some degree of peace and solidarity to the country continues, then fairly quickly ~1 mmbopd of good quality oil could be brought back onto world oil markets.  These barrels are already developed and as such can come on much more rapidly than the undeveloped spare capacity in Iran or even Saudi Arabia.

Commodity prices

Our predictions of yesterday as to an overnight rout in oil prices following Doha have not come to pass.  Brent closed flat at US$43.18 and WTI fell only slightly to US$39.78.

Falls of ~7% occurred earlier in the trading day, then good old Middle Eastern “events” came to the market’s rescue – strike action in Kuwait that has shut in 60% of that country’s oil production.

In our view this grasping of short term good news seems to tell us that the market is still looking for ways to go up (presumably in recognition of the nearly universal view that prices have to go up in the “medium” term).  This appeared to be validated even by previous Uber-bears, Goldman Sachs,  who are now calling the market as much more closely balanced.

Henry Hub gas prices rose ~2% to close at US$1.94.

LNG and international gas

At last week’s LNG 18 conference in Perth, Malaysian NOC Petronas called for buyers to give suppliers some pricing slack given the current low oil and hence low Pacific LNG prices.  Buyers however will be wracking their memories to recall Petronas offering them discounts when oil was at US$100/bbl.

The Petronas spokesman gave what was (at this stage anyway) a signal that its Pacific Northwest LNG project in Canada would not be FID’ed this year as previously flagged, with the following comment:

“However, if LNG prices continue to be depressed, there might be a possibility that some producers might pull the plug on LNG projects that have not gone through with their final investment decision.”

In today’s Australian Financial Review, an article on the problems facing the LNG industry was authored by some representatives of Big 4 accounting firm, Deloitte, which not surprisingly finished up with an invitation to engage their services to assist in dealing with said challenges.

Readers who might be interested in this offer should note that this Blog can do the same job far cheaper and much better than a Big 4 firm – if you are the CEO of an LNG company and need some help – don’t hesitate to contact us!

Company news – Woodside Petroleum (WPL)

Reuters has recently reported that Chevron (CVX) is likely to seek to sell its offshore Myanmar assets shortly – which are roughly estimated to be worth a few billion dollars.  Given its exploration acreage held nearby, WPL was mooted as a potential buyer.

Such a deal would give materiality to WPL in a very well located Asian country – but could challenge the company’s appetite for sovereign risk.

Company news – Beach Energy (BPT)

BPT announced today that it had resolved some key issues that had previously bedevilled its sale of its Egyptian assets to London listed Rockhopper Exploration.  The deal has now changed to be a cash only one – for a lesser price – but at least BPT is out and the pre-emption period which previously called problems has now passed.

Company news – FAR 

FAR raised $60M in a placement last week and is now well funded to drill the next delineation well in its offshore Senegal acreage.  The well (SNE-4) spudded over the weekend.

Small shareholders (ourselves included – FAR hopefully you are reading this!) will look forward to the company offering a similar deal to that given to the placees – especially if it can be taken up after the well results are known….

Quote of the day

The KSA’s unofficial – but increasingly obvious – leader, Prince Salman, last week:

“If all major producers don’t freeze production, we will not freeze production,.  If we don’t freeze, then we will sell at any opportunity we get.”

The Wall Street Journal on Saturday:

“[The KSA is] willing to sign a deal despite what they described as political statements from Prince Salman.”

They weren’t.

The Game of Thrones continues.


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