Today’s Blog – Monday 30th May 2016

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Blogging services will remain intermittent this week due to travel commitments


Your blogster was travelling in Western China last week and can report that Xinjiang’s oil patch is as impressive as the effectiveness of the Great Firewall of China (which managed to block access to pretty much all of the news-sites which this blog relies on).

Some interesting observations from the oil and gas sector in Karamay and Urumqui:

  • A ten pump-truck frac job on a 4 deviated well pad of CBM wells showed how tight the coal formations are here compared to Queensland – and the positive economics of gas in China.
  • No “lock-the-gate” types were to be seen.  The locals would literally not have understood where any such protestors were coming from – the industry generates wealth, jobs, energy, gas is replacing dirty coal, etc – why would you block it??
  • Safety briefings before entering well-sites were handily omitted – rather visitors were treated as common-sensical adults.
  • Chinese oil and gas companies can actually still own non-core assets like hotels and wineries (and a decent drop of Cab Sav can be made on the frozen northern Silk Road!).  Western E&P companies can only look back fondly when the likes of Gulf Oil owned a circus.
  • As exemplified by a visited research institution funded by the public and private sectors, a huge amount of ongoing research is still going into maximising outputs from large but maturing oil-fields – R&D has not been the first thing to be cut.
  • Chinese vodka is not as good as Xinjiang Cab Sav……..

Commodity prices

Oil markets briefly pierced US$50 during the week (which evinced at least one toast of Chinese vodka) – but could not quite hold above this key psychological level – as a lot of profit taking appeared to cap the price.  Brent closed up 1% for the week at US$49.32 whilst WTI managed to sneak above it to close up 2% at US$49.33.

The BHI rig count on Friday had an oil rig fall of 2 rigs (with gas rigs gaining 2) – so there is as yet no sign of US companies going-back-to-(drilling)-work at US$50 – as yet anyway.

The EIA’s weekly report was somewhat mixed, with crude handily down 4.2 mmbbls – but gasoline was up 2 mmbbls (while distillate was down 2 mmbbls).  This weekend (including today’s Memorial Day) public holiday is the semi-offical start of the US driving season, which should add Clark Griswold style demand pressure to the supply side pressures (from e.g. Canada’s wild-fire hit areas) on US inventories.

Intensive French strike action (which appears to be about whether workers have to work 35 hours or 35.1 hours a week and can retire at the age of 50 or one week later) will also be affecting European gasoline inventories.  (Although perhaps it could be said that whilst the US has a traditional driving season, the French have a traditional rioting season, so markets will take this interruption in their stride).

Aramco’s Chairman reported on results (at a very high level) for 2015 last week.  It was noted that production averaged 10.2 mmbbls a day in the year – a record for the KSA.  The IPO plans for Aramco are said to be on track – but are still unclear as what is actually going to be sold-down.

OPEC is due to meet on Wednesday this week – we expect no change.

Henry Hub was up 6% for the week, closing at US$2.18.

LNG and international gas

We noted a number of months ago that Indian gas buyer Petronet had managed to successfully persuade Qatar to re-negotiate an LNG supply contract.  Recent press reports now indicate that Petronet is also seeking to amend the price of LNG purchased from Australia’s Gorgon project, ran by Chevron, Exxon and Shell.

If these Super-Majors cannot hold this contractual line in a country like Australia where there should be much less political intervention possibilities, then we would expect much more widespread LNG contract re-openings.

Governments, fracking, etc

Last week saw a milestone being passed in terms of the permitting process for fracking a well in Yorkshire in the UK.  Other stages still have to be passed, and the well-organised anti-fracking opponents will continue to fight all the way – up to and beyond any actual physical work starting.

Hundreds of wells will have been fracked in Xinjiang for the same amount of time and effort put into the opposition to the UK’s onshore petroleum industry.

Company news

Not much has happened on the ASX listed front over the last week.  A few snippets:

  • Santos announced first LNG had been produced in GLNG’s second train.  Some of the now liquefied CH4 molecules would have come all the way from Bass Strait given pipeline flows North over recent times.
  • The media continued to favourably report on the Oil Search deal with InterOil – notwithstanding the opposition of the latter’s founder, Phil Mulacek.
  • Sundance Energy (SEA) managed to hold an AGM on Friday which included the usual homilies about looking for acquisitions in distressed asset markets – and then called a capital raising related trading halt after the end of ASX trading for the day.  The media reported that it is placing up to A$80M  of new shares at a 22% discount through Euroz and Canaccord – presumably to shore up its fairly highly geared balance sheet.

Quote of the day

Much media attention in Australia over the last week focused on the pathetic bullying by large building society, the ANZ, of stock-broker Angus Aitken, who dared to express an actual opinion in his daily note (we are shocked! shocked!)

What was actually said:

“Former investment bankers tend to be crap at most things in the listed world.”  Angus Aitken

“Sexism alive and well in stockbroking?” Head of PR at the ANZ, Paul Edwards (who clearly has nothing better to do – perhaps he could find some counter-factuals – oops, there are very few other than the ones pointed out by Aitken)

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