Today’s Blog – Friday 22nd July 2016

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Editorial

As noted yesterday, Oil Search (OSH) has done well from Exxon Mobil’s trumping of its takeover offer for PNG gas specialist InterOil – and corporate ego has not driven it to try and “win” the battle, rather than step back and take what is best for shareholders.

Indeed, OSH’s long time CEO, Peter Botten, has just publicly identified one of his company’s key competitive strengths as being:

“Part of the value that Oil Search brings is a lack of ego and a process which allows us to facilitate dialogue between stakeholders.”

On the face of things it seems extraordinary that a company can say it derives a major competitive advantage from the application of plain old humility and common sense.  But a look around at the ego-driven disasters such as Curtis Island, Pluto/Wheatstone, etc, demonstrate that this is a very real factor in driving share price performance.

Commodity prices

Crude prices fell overnight, with Brent down ~2% to US$46.20 and WTI down ~2% to US$44.75.  Nothing in particular was identified as a single catalyst for the fall, although some commentators consider that the market took an extra day to consider Wednesday’s EIA inventory report as being disappointing.

Henry Hub fell ~1% to close at US$2.63.

LNG and international gas

A few days ago we noted the move by Japan’s competition regulator to review the (prima facie anti-competitive in our view) “destination” clauses in the country’s LNG import contracts.

Bloomberg New Energy Finance has just estimated that the total value of Japan’s contracts which have such clauses is a staggering US$800B.  If Japan removes these clauses it would be untenable for Producers to keep them for other countries such as Korea – so we conclude that the total value of global LNG contracts at risk of being re-opened must be in the rough region of US$1.5 trillion.

International lawyers would see this is an opportunity to have one legendary “field day”.  However, we think it would be prudent for Producers and Buyers to get together and negotiate these things out between themselves rather than resolve them in political and/or legal forums.  For instance, both parties could work together to effectively move from long term traditional contracts to more transparent commodity markets – that is, be the actors not the audience.

One good recent LNG market anecdote that shows the benefits of market liberalisation – the recent sale of US cargoes from Cheniere’s facilities in the Gulf of Mexico to Kuwait and Dubai in the Middle East, reversing the typical long term global perception that energy flows always go the other way.

Governments, fracking, etc

An interesting speculative item on the next Energy Secretary in the USA under President Trump – legendary oil-man Harold Hamm – the King of the Bakken.  It that came to pass, one would expect a big reduction in red/green tape that currently ties up much Federal lands.

But could Hamm open up the biggest oil prize in North America by a mile – the coastal strip in Alaska’s Arctic National Wildlife Refuge (ANWR)?  This is located just to the East of the fabulous Prudeau Bay field (America’s largest) and which many consider could contain similar ultra-rare super-giant field(s)?

Company news – Beach Energy (BPT)

BPT yesterday announced that it had appointed Ryan Stokes to its Board.  Mr Stokes is the CEO of BPT’s largest shareholder (with ~22%), Seven Group (SVW).

Various elements of the announcement about the appointment appeared to indicate that BPT and SVW have a Shareholder Agreement.  One could deduce certain terms thereof from the announcement – but other possible ones were not disclosed.  BPT’s other shareholders would no doubt like to know what was included therein, but BPT has presumably determined they are not material enough to require ASX disclosure.

Company news – Santos (STO)

STO issued its June quarterly report today.  The key take-away from that for us was the sheer scale of capex and operating cost reductions.  Some of these would be secular in nature as particular development projects matured, but there would also be a large element therein derived from recent large cost cutting measures introduced by the new CEO – and avoiding discretionary expenditure on exploration, etc.

The company flagged it would make an investor presentation when it released its half year results next month and observers will be interested to see what new strategy the CEO might put in place other than cost cutting.  If any.

Quote of the day

Now this may come as a shock to some of you, but many of our American oil patch readers are GOP supporters rather than Bernie Sanders acolytes, and we have recently been called out for picking on The Donald excessively (but he gives such good quotes!).

So here is a Hilary related tweet:

“Breaking: speech plagiarism crisis as Hillary Clinton’s 6/4/2013 speech to Goldman Sachs found to be identical to 7/11/13 speech at UBS.”

 

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