Today’s Blog – Wednesday 11th May 2016

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

Please note blogs will be intermittent over the next few days due to travel commitments

Introduction

Australian listed downstream chemicals (fertiliser, explosives, etc) company Incitec Pivot (IPL) has come out with its corporate begging bowl recently – including to East Coast Australian gas suppliers.

IPL operates an old fertiliser plant on Brisbane’s Gibson Island which has done well for many years off the back of low Australian domestic gas prices.  Those prices have risen substantially in recent years as the apparently crazy CEOs of various companies like Santos (STO), Origin Energy (ORG), etc, decided they wanted to bet their companies on a desire to own their very own big fridges in Gladstone.  Well, that worked out well.

IPL has sought Government assistance to keep Gibson Island open – and has also asked for gas suppliers to take a long term view and supply it with cheaper gas.  Said gas suppliers don’t have enough gas to meet their own LNG contract obligations, so the latter appears to be a forlorn request – unless Governments can be induced to help.

IPL arguably has a fantastic recent track record in obtaining aid from Governments – albeit rather indirectly.  Last year it procured a gas supply deal from the Northern Territory Government on good terms – to be delivered to it in Mt Isa through the NEGI pipeline, which itself is being underwritten by the good taxpayers of Singapore and China – who are therefore generously tipping some cash into IPL’s pockets.

The Chinese and Singaporean taxpayers might not know that – but that is the result of their ownership of enterprising gas company Jemena who is building NEGI with substantial spare capacity that, to be put it generously, it is taking a lot of merchant risk on.

Commodity prices

Crude prices bounced back last night, with Brent closing up ~4% to US$45.50 and WTI up ~3% to US$44.66.  The Canadian wild-fire induced production shortfall numbers now include a possible figure of 2.5 mmbopd (quoted by CNBC).  If sustained, that could really bite into inventories.

Over on the Brent side of the world, Nigerian production has fallen to its lowest for over 20 years, due to a combination of guerrilla attacks and general all-round corruption induced failures.

Henry Hub closed up 3% at US$2.16.

(Correction – yesterday we noted that last year’s total crude discoveries of 3B bbls would keep global oil markets supplied for 3 months – this was a blooper – it is actually one month and a R/P ratio of 8.3%).

LNG and international gas

Large gas discoveries continue to be made in bulk – with news last week of another major addition to offshore Senegal gas resources – of ~5 Tcf.  That country alone now hosts enough gas resources to feed at least 3-5 train LNG development.

However, news of FID’ed LNG projects is coming rather slower.

Personally, we’d rather be in ASX listed FAR (disclosure – we have a small shareholding) with its share of crude oil discoveries offshore Senegal – but the market does not seem to agree based on FAR’s sluggish share price.

Governments, fracking, etc

Government concerns have recently emerged about a new risk, that although only vaguely connected to oil and gas we think worth reporting – ISIS’ involvement in the emerging world of driverless cars (a move being pushed by its Union of Suicide Bombers).

We can see opportunities for a few laughs in The Internship II, as the black-clad Vince Vaughs and Owen Wilson join Google’s driverless car division and harmless mayhem ensues.

Company news – Cooper Energy (COE)

COE came out of its trading halt today with news of a pretty impressive capital raise for a junior E&P company in these troubled times.  COE has placed A$18.4M (and will offer another A$5M through a SPP).  The discount for the placed shares was only 12% – which is good going in our view.  On top of that, a rare word – “underwritten” – was even mentioned – the investment houses involved would not have done that if there was any actual risks involved.

The funds will largely be used to support its offshore Victoria Sole gas-field development.  Clearly the market likes the story of high East Coast gas prices of A$7-A$8 – i.e. around 300% of Henry Hub pricing – and a decent premium to Pacific LNG spot prices as well.

Company news – Oil Search (OSH)

OSH issued its monthly drilling report today – the same day that The Australian Financial Review (AFR) contained another article on the possible deals/consolidation/etc that may take place in PNG by parties such as OSH, Inter-Oil, etc.

In that context, the reporting on a recently P&A’ed appraisal well in the Elk-Antelope field did not exactly contain a lot of data.

Also in the report – and hang on to your seats geologists everywhere – the company has just spudded one of those almost forgotten things – a wild-cat exploration well.

Quote of the day

Rosneft’s Igor Sechin’s recent trenchant views on OPEC:

“At the moment a number of objective factors exclude the possibility for any cartels to dictate their will to the market. … As for OPEC, it has practically stopped existing as a united organisation.”

 

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