Today’s Blog – Monday 16th May 2016

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An array of stories on the plans to IPO Saudi Aramco continue to emerge in a confused fashion, suggesting that there is no shared and coherent plan on how the float should happen. For instance:

  • Deputy Crown Prince al-Salman seems to have said recently that the IPO will not include Aramco’s most valuable and interesting business – the upstream.  Rather the float will be of its downstream assets only.  Remind me to put the prospectus in the bin.  Five percent of a refining business is not going to send buyers into a frenzy.
  • Aramco’s Chairman has said that the Kingdom will still have the right to control a privatised Aramco’s production position (which seems to suggest it is an upstream company).  Remind me to take the prospectus out of the bin and put it in the shredder.
  • Some sources have spoken about multiple listings in London, New York and Hong Kong.  Al-Salman seems to have said Riyadh only.  Remind me to burn the shreds.
  • An Aramco spokesman has mentioned numbers for probable and possible reserves in addition to the official proven reserves.  However, there is a very wide gap between 1P and 2P reserves – which seems strange given the multi-decade maturity of the KSA’s largest oil fields.  Reminds me of an ASX junior.

This thing will run and run and a successful IPO seems a less than 50% proposition based on what we have been hearing to date.

Commodity prices

Crude closed down slightly on Friday, with Brent at US$47.83 and WTI at US$46.21.  This seems to reflect a bit of profit-taking after a good week, which saw a rise in Brent of ~5% and WTI of ~3%.

The BHI numbers on Friday were again good news for the bears – with an oil rig reduction of 10 (and a gain of one gas rig).  A near US$50 price does not seem to be encouraging increased drilling as some feared – not is it stemming the rising tide of US E&P company bankruptcies.

Henry Hub fell 2% on Friday to close at US$2.10 – it was flat for the week.

LNG and international gas

Japan’s METI published its monthly spot LNG data (delivered to Japan) on Friday.  Prices were the lowest yet – an average price of US$4.20/mmbtu for gas contracted and delivered in April.

Company news – AWE

The Australian Financial Review (AFR) today published a story on Origin Energy’s (ORG) sale process for its AWE operated Perth Basin assets with a number of named parties as potential bidders.  Their identities help make some generic points about the state of the Australian industry at present:

  • AWE and partner Mitsui.  The latter bought Santos’ interest in the offshore Victorian Kipper field last year for a fairly full price – reflecting its low risk nature.  Australia’s low sovereign risks and fiscal take continue to attract investors like Mitsui, notwithstanding its fairly humdrum geology for oil and gas.
  • Quadrant Energy.  This PE house is still investing when listed players are subject to financial constraints (e.g. Santos itself is not listed as a potential bidder, notwithstanding the good fit of the asset with its Western Australian business).
  • Lone Star.  Another PE house – who last week were outed as approaching the AWE Board with a takeover offer – presumably after assessing the confidential materials on the company’s Perth Basin assets in ORG’s data-room.  That’s not cricket, chaps.
  • Transerv.  This micro-cap has other Perth Basin assets – but no money nor any obvious ability to raise the likely sums required, which the AFR estimates as being around A$150-200M.

AWE also today announced the spud of an appraisal well in its offshore Indonesia Ande Ande Lumat asset (STO is its partner and operator).  The well – called AAL-4X has a TD of 1,232M – but will take 48 days to drill.  Come on STO – can’t you spin the drill bit faster than that!

Company news – ORG

On Friday the AFR reported that ORG had appointed its long time advisers, Macquarie Bank, to assist it in the possible separation of its upstream and downstream businesses – potentially in 2017.

Quote of the day

A refreshing comment from Professor Paul Younger of Glasgow University into the scientific rigour of a typical Government “study” into fracking:

“Nicola Sturgeon’s statement that ‘if there is any suggestion at all it harms our environment there will never be fracking allowed in Scotland’ is clear evidence of the ongoing flight from reason. Obviously there have already been plenty of suggestions to this effect, mainly by people who have no qualifications to comment on these technical matters – but the real issue, which was fully addressed in the 2014 report, is whether these ‘suggestions’ stand up to scientific scrutiny. They don’t.”


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