Today’s Blog – Wednesday 29th June 2016

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A few days ago a suite of “agreements” (we use the word not necessarily in its legally binding sense….) were signed in Beijing between the leaders (and business leaders) of Russia and China over various Russian oil and gas assets.

If these agreements actually come to fruition, they would be amongst the largest (Shell’s takeover of BG excluded) deals since the oil price collapse – which many thought would otherwise driver greater consolidation and/or asset deals than has actually been the case, to date at least.

One deal was the purchase of a 20% stake in a Rosneft operated East Siberian asset – which flows a rather hand 170,000 bopd – by Beijing Enterprise Group (we have not heard of them either).  Price was either not disclosed – or remains to be negotiated (see what we said about these so-called “agreements”).

Why the Chinese acquirer of such a major asset was not one of the NOCs such as CNPC or Sinopec is not clear.  Naturally we would be “shocked! shocked! if any family members of the Chinese leadership had any form of financial exposure to this deal.

Other deals were also foreshadowed – on upstream and downstream assets – and even on a 20% stake in the mighty Rosneft itself.  Maybe this was where the massive NOCs could come in.

Russia remains the largest oil producer in the world and is a place where both NOCs and Super-Majors can get exposure to big non-OPEC assets – but one better make sure one’s supping spoon – or chopsticks – is of driver-like length.

Commodity prices

Crude prices bounced back strongly overnight as market participants absorbed the likelihood that Brexit will be long, drawn-out, uncertain and not material for oil markets.

Brent was up ~3% to US$48.76 whilst WTI performed even more strongly – up ~4% to US$48.11.

“Events” – in the form of potential strikes in the Norwegian North Sea (where pay is not the lowest in the world) and “numbers” – in the form of analyst guesses about a decent crude draw being announced this week, underwrote the bulls.

Henry Hub continued its white hot streak, finishing up 6% to close at US$2.87.

Governments, fracking, etc

We noted yesterday that the Germans had joined the ranks of the frack banners.  Although this is just gesture politics given Germany is not a geological target for material tight oil and gas exploration, it does bring to bear a baleful influence over other more prospective jurisdictions around the world.

For who can readily argue with the simple proposition: “if the sober, rigorous and serious Germans have banned it then it clearly must be unacceptable from a scientific perspective.”

Company news – BHP

BHP’s petroleum exploration budget appears to be larger than that of all other Australian E&P companies put together (not hard the exploration geologists in the audience might say).  Its fire-power is illustrated by it taking on a US$200M well in the Caribbean on a 100% basis.

And that is when US$200M buys a helluva lot more drilling than it did 2 years ago.

And when US$200M wells can easily become US$300M wells……

Three cheers for someone in the oil patch actually having a crack rather than focusing on short term cost cutting.

Company news – Tlou Energy (TOU)

TOU is a small explorer focused on CBM in Botswana.

Its ASX announcement today contained a likely unwitting sell signal – the disclosure that flow rates were “positive” without actually disclosing a figure.  Run for the fire exit!

Quote of the day

We came across the following quote a day or so ago and thought it worth repeating, especially in these dismal post-Brexit times, as one of the most optimistic views we have heard for ages:

“If oil resources are well managed, it could take the country a lot less time to achieve its national vision of attaining upper middle income by 2040.” – Christina Malmberg-Calvo, the World Bank country manager for Uganda

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