Today’s Blog – Tuesday 28th June 2016

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The blog is now back from its recent travels – at least for a while.  Meanwhile we note the strong vote over in the UK for “stop the world I want to get off!“.  We think it likely that Australian votes for the Senate this weekend will tap the same vein – but we hope that in this coming November that US voters do not.

We briefly considered a few weeks ago what Brexit might mean for oil and gas markets (although our view is that the Brexit leave vote will not necessarily lead to a break-away outcome – another vote, etc, could be feasible).  Our latest views:

  • Although the oil price has been hit in the short term, this is not much of a guide for a longer period, more just a reaction to the incorrect odds adopted by the market prior to the vote – and as always a reaction to the US dollar rising.
  • The supply side will not be affected.  The UK North Sea is not that material any more and its governance will not change in important way that would affect production, etc.
  • The demand side is where the concerns are.  The UK is a material economy – and more importantly if Brexit leads to further economic and political troubles in Europe – then demand side growth could be less than expected (retraction would seem too extreme).
  • However, this demand side affect would likely be less than currently very live supply side issues we are facing in Libya, Nigeria and Venezuela.
  • All up, Brexit is a big deal for the UK, a potentially big deal for Europe, disruptive to short term markets – but not that important for medium/long term oil markets.

Commodity markets

Since our last blog on Thursday (ah – the good old days of >US$50 oil!) prices have fallen substantially on the unexpected Brexit vote.  Prices fell around 5% on Friday and another 2-3% yesterday and Brent is now US$47.47 whilst WTI is US$46.33.

Friday’s rig count numbers were lost in the noise – although they were positive, with a three week increase reversing with oil rigs down by 7.  Gas rigs were up by 4 – possibly in reaction to the recent strong rises in Henry Hub pricing – a few week’s up-ticks will be needed to confirm this was not just a blip.

Henry Hub has pretty much shrugged off Brexit – down a bit on Friday, but more than recovering yesterday to close at US$2.72.

LNG and international gas

A material milestone has just passed for Mozambique LNG – Government approval of a gas sales agreement (GSA) from ENI to BP – from a 3.4 mtpa FLNG project.  The sighting of that rare bird of a binding GSA is more important than the Government sign-off.

There are quite a few more steps to FID for this project, but this was a strong laying down of a gauntlet to the other “100” LNG projects competing for the handful of supply side slots.

Governments, fracking, etc

Germany has formally joined the ranks of those who have effectively banned fracking.  We are not aware of any material oil and gas company who was currently seeking to do so in the country, so this is pretty much just gesture politics.

Burning the country’s low grade lignite is of course still allowed, notwithstanding its well known local and global polluting effects.

Company news – Santos (STO) and AWE

Positive news has just been published from STO/AWE’s 50/50 AAL joint venture in Indonesia’s (or is it China’s……?) Natuna Sea.  An extended DST has reported flow-rates of 828 bopd from a fairly shallow well.

A higher oil price (which we firmly believe is unavoidable in the “medium” term) should render such a rate economic.

Company news – Woodside Petroleum (WPL)

WPL announced yesterday it had FID’ed (with partner Mitsui) the Greater Enfield oil-field off Western Australia.  The development cost is nearly US$2B for a ~70 mmbbl field – i.e. development capex of less than US$30/bbl.

Quote(s) of the day

Some acerbic tweets from British comic Frankie Boyle on Brexit:

  • “And as Boris takes control, we finally understand that they wanted to control our borders so they could stop us from fleeing.”
  • “It’s important to just accept the result and move on, possibly to another country.”
  • “A lot of uncertainty ahead for high street banks, as all our armed robbers come back from Spain.”
  • “It’s been good to see an election where we’ve focussed on what unites us, which, sadly is hatred.”
  • “Don’t forget that we can restore the value of Sterling simply by buying pounds off each other. I’m offering 30p each.”
  • “Still, at least we have put a stop to economic migration, by making the pound worthless.”

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