Today’s Blog – Friday 20th May 2016

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Editorial

Yesterday’s story about Occidental Petroleum (OXY) taking over Apache Corporation (APA) has been denied by the former.  However, there is some interesting other action on the takeover front (and we still think OXY and APA would be a good fit).

French service company Technip and US service company FMC Technologies have announced a merger of equals to create a US$15B company.  When a cross-border deal involving a US company like this is announced we wonder whether a tax inversion strategy is involved – and if so, might it be blocked in Washington (and that’s before The Donald tries to introduces communist level regulations over the US commercial sector’s ability to do such deals in the future).

Much more interesting here in Australia is Oil Search’s (OSH) announcement this morning of a friendly scrip based takeover deal with NYSE listed InterOil (IOC).  Our instant reactions:

  • This is a very well constructed and smart deal for OSH and IOC.  Payment in scrip, performance payments for IOC shareholders, an agreed sell-down to Total, cooperation between potential rivals over future LNG developments, social issues all dealt with – there are a lot of ticked boxes.
  • An interloper coming in over the top seems unlikely.  A key potential rival in Total is inside the tent.
  • The deal glaringly compares to the ham-fisted efforts made by Woodside Petroleum (WPL) last year to seek the agreement of the OSH Board to a takeover approach.
  • OSH is clearly the “best” large oil and gas company on the ASX, based on share price performance, growth options, execution ability, etc.  Will there be reactive strategic responses from its ASX peers in terms of bulking up, etc, etc?
  • The deal shores up OSH’s position in the “5 out of 100” pre-FID LNG projects that are expected to proceed in the next few years – the deal therefore has global consequences for all LNG players.
  • One IOC Director will join the OSH Board.  What has not been said – but speculated about before – is whether IOC’s CEO could be a successor to OSH’s Peter Botten – who himself might ascend to Chairman-ship (which would not be good normal corporate governance practice – but he can probably write his own script after pulling this off).

Commodity prices

Crude traded flat overnight, with Brent up very slightly to US$48.81 and WTI up even less at US$48.27.  No “numbers”, “events” or “technicals” arose on the day to drive prices one way or the other.

Henry Hub was up 4c to close at US$2.04.

LNG and international gas

Smaller scale LNG import developments continue to arise (such as the South African re-gas project we mentioned earlier this week). Sri Lanka is the latest nation to announce it is looking at re-gas facilities.

The aggregation of these smaller demand sources (together with other non-traditional markets such as LNG powered ships, trains, etc) should provide some comfort to the market in the face of flat or declining demand in the old customer powerhouses of Japan and Korea.

Governments, fracking, etc

The CEO of Total has recently echoed our views (somewhat more politely) about the push by the French Energy Minister to ban the importation of shale gas, noting that conventional and unconventional gas is not separated in the global gas supply chain.

We await a politician in say New South Wales to also announce a ban on importing fracked gas – the lights would go out the next day.

Company news – FAR Ltd

Late yesterday FAR announced the latest results from its offshore Senegal delineation program.  In a nutshell, the results were exceptional.  Share market response: yawn!

As we noted a few days ago, in a different time FAR’s shares would be trading in the dollars not below 10c.

Companies like Beach Energy – who actually have cash and a balance sheet, but few decent opportunities in Australia – should be looking very closely at FAR.  The chance to acquire a 15% share in a world class oil-field that will deliver strong cash-flows for decades does not often come up.

Company news – Woodside Petroleum (WPL)

WPL hosts an investor day today.  We suspect a mass exit from the room as analysts pour over the much more interesting OSH news.  No doubt Peter Botten will enjoy immensely the serendipity of the timing.

He will also enjoy the sheer comparative lame-ness of WPL’s announcement today about one of its very few growth opportunities – contingent resource bookings of a net 469 Bcf of dry gas from its Myanmar assets.  That does deserve a market yawn.

Quote of the day

From Labor’s ex-Resources Minister Martin Ferguson, on his party’s recently announced gas policy:

“Make no mistake, Labor’s so called ‘national interest test’ on gas exports is not in Australia’s interest.”

 

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