Today’s Blog – Friday 6th May 2016

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

Introduction

Today’s edition of The Economist contains an article titled “Not-so-Big Oil” which starts off with the statement “It has been a grim decade for investors in international oil firms“.

It then goes on to raise ongoing investor concerns about the combination of poor historical returns with future threats from greenhouse limits on reserve production, competition from renewables, etc.

A (slim) possible silver lining from this doom and gloom is its contrast with the widespread, but in our view complacent, view that somewhat higher oil prices will rapidly lead to ramped up US production and hence a medium term oil price of ~US$50-60/bbl.

We don’t think capital markets will forget their pain so easily (or the forward looking riks) and that the inevitable rise of oil prices in response to depletion and capex cuts will not be capped by the return of the shale oilers.

Commodity prices

Oil traded fairly flat overnight, with Brent up 0.2% to US$45.01 and WTI up 0.6% to US$44.32.

No material “numbers” or “events” emerged on the day to give the market any overall direction.  However, the media consensus does seem to indicate that a turn to the bear-ish side could come up again soon (but we point out our forecasting track record…..).

Henry Hub closed down 3% at US$2.08.

LNG and international gas

You apparently can’t keep certain types of irrepressible entrepreneurs down.  Only a few months after his ouster from US liquefaction plant pioneer Cheniere Energy, its founder Charif Souki has emerged as the founder of a rival business called Tellurian Investments.

Tellurian is promising to under-cut the likes of Cheniere, with liquefaction pricing of US$2.50/mmbtu (a figure which would make Australian LNG developers wonder why their plants cost more than double this) plus a 15% premium on Henry Hub.

Souki is working with BG’s ex-COO and his track record and chutzpah could in fact raise the measly US$12B he needs to take this dream forward.  His optimism is captured in his view that US gas prices will be low “forever”, which to us seems to ignore history (but we note again our predictive powers and that our wage packet is slightly less than Souki’s nearly US$200M p.a. at Cheniere).

Governments and fracking

In what was hopefully his last appearance in Parliament (don’t tell him I said that!), Senator Glen Lazarus has delivered his report into the evils of so-called gas “mining”.

Surprise-surprise, he does not like it and effectively wants to regulate it out of existence.

But presumably still benefit from a petroleum based economy presumably – as long as the stuff comes from “somewhere else”.

Company news – Santos (STO)

We promise that this is the last news item on STO’s AGM held on Wednesday this week, but we cannot resist the following snippet which a gleeful reader of this blog passed onto us.

STO’s shareholders and employees will be pleased to note that the relentless messages of sackcloths and ashes all round do not extend to the comfort of the Chairman when flying to and from Adelaide for the AGM, as his use of a corporate jet for this arduous trip was spotted.

Company news – Origin Energy (ORG)

ORG flagged some months ago a sale process for its Cooper Basin assets.  We understand that this process has recently been put on hold.  For some reason that news was not material enough for ORG to report it to the ASX.

The apparent reason for the delay was that ORG would now await the results of a new slimmed down Cooper Basin operation following the ascension of STO’s new CEO.  (What do you mean there are no credible buyers prepared to pay a high price – how absurd!).

Quote of the day

STO’s Chairman at this week’s AGM, no doubt feeling refreshed and hence much more productive after his short flight from Sydney:

“We have commenced a major transformation of the way Santos operates to drive down costs and improve productivity”.

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