Today’s Blog – Wednesday 6th July 2016

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Yesterday saw a rare global FID of a large oil project – the expansion of the Tengiz oil-field in Kazakhstan by a Chevron/Exxon/Lukoil/Kazmunaigaz joint venture – for a cool US$37B.

This will add up to 300,000 bopd by 2022 – very relevant to the companies involved, but immaterial for global oil markets.

The sanction was helped by a number of factors:

  • Onshore not offshore.
  • Good fiscal regime.
  • Brown-fields not green-fields.
  • Technical challenges, although large (high pressure and high sulphur), already solved in earlier investment stages.
  • The Kazakh Government (in terms of seeking a higher stake/take and/or opportunities for corruption) is likely currently chastened by low oil prices and failures elsewhere in the country, in particular with the very lengthy delays at Kashagan.

The brownf-ields aspect in particular is important – and echoes last week’s FID of an expansion of the Tangguh LNG plant by a BP led joint venture in Indonesia.

Commodity prices

The US has come back from its 4th of July holiday and decided it did not like the oil market.  Brent fell ~4% overnight to close at US$48.22 whilst WTI fell ~5% to US$46.60.

Worrying global economic signs – Brexit, a slowing China, possibly poor US employment numbers due soon, etc, were a key factor.

On the supply side, political progress appears to be being made in both Nigeria and Libya in ways that could materially bring back a lot barrels.

Henry Hub suffered even more than crude from the economic gloom – falling ~8% to close at US$2.76.

LNG and international gas

A recent small gas leak at Gorgon appears to be fairly minor and unlikely to affect sales much – but shows that the shake-down of this new plant is still ongoing.

Wood Mackenzie have recently re-iterated previous media comments that Gorgon buyer Petronet is seeking to re-open its LNG purchase contract to achieve a pricing outcome more in line with the wider Pacific LNG market.

Company news – Cooper Basin joint venture

Beach Energy (BPT) has issued its monthly drilling report, which largely comprises updates on development wells in the Cooper Basin operated by Santos (STO).

Technically these appear to be performing well – but capital markets would likely be more interested in what has not been reported – costs and are these declining as much as anticipated?

Company news – Origin Energy (ORG)

The Australian Financial Review today reports that Chinese/Singaporese infrastructure company Jemena has appointed UBS to assist it in potentially buying pipeline assets held in Queensland by ORG.

ORG has been prosecuting a non-core asset sale program over the last year and this asset is said to potentially add A$400M to that.

The appetite for yield goes on and Brexit, etc, just reinforces that.

Company news – New Standard Energy (NSE)

Micro-cap junior NSE has today flagged that it may join the ranks of ASX listed oil and gas stocks that may leave the sector through the back-dooring of a new business of a type that is more fashionable in equity markets at present (e.g. “internet of things, blah, blah”, etc).

This statement was made in the context of its CEO “resigning” (the emphasis is ours).

Quote of the day

We have previously said on a number of occasions (somewhat tongue in cheek) that a feared Macondo style blow-out from exploration efforts in the unexplored Great Australian Bight would in fact be a good sign of a high pressure working oil system.

Looking back at Tengiz today, we note that this had probably the largest blow-out in history (losing 34 million barrels up in smoke – around 7 times more than Macondo spilled).

The Soviet view at the time:

“..this blowout has demonstrated that we are onto a major oil field”.





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