Today’s Blog – Monday 25th July 2016

Please pass this blog onto others who might like to read it

Note – there will be no blog tomorrow due to conflicting travel 


Today’s Australian Financial Review (AFR) contained a story on a recent survey of Queensland’s mining industry undertaken by its representative body, the Queensland Resources Council (QRC).

We have previously reported on the very onerous new “chain of responsibility” laws that were rushed through the Queensland Parliament earlier this year in response to the falling over of Clive Palmer’s Queensland Nickel refinery located in Townsville.  This has some very large abandonment liabilities that the Government does not want to fall into its lap.

The QRC survey noted that the number one concern of the mining industry in the State is not the currently very low price of coal, etc – but instead was the sovereign risk which this new law encapsulated.

The law equally applies to the oil and gas sector and is a major deterrent to transacting in assets in Queensland – leading to an unhealthy locking in of the current ownership status quo.

The current downstream energy market woes in South Australia in particular are in part caused by the upstream gas producers such as Santos (STO) selling spot gas at very high prices (there is not exactly a lot of competition).

However, the producers should be wary of the South Australian Government actually working out what is going on in energy markets at present and wielding an angry and short term club such as introducing its own “chain of responsibility” law – which would effectively lock Santos into the Cooper Basin forever.

Commodity prices

Crude prices had another dirty day on Friday, closing down ~1.2 % on the day and ~4% for the week.  Brent finished at US$45.60 and WTI at US$44.19.

The day’s “numbers” were negative – yet another rig count uptick from the weekly BHI report (oil rigs up 14, gas rigs down 1, miscellaneous up 2).

The theme of the week was a recognition that summer would come to an end soon – and that the US driving season and Saudi air-conditioning season would pass without crude and product inventories declining as much as the market would like.

Henry Hub had a strong day, closing up 6% to US$2.78 (and was up 1% for the week).

LNG and international gas

Last week Chevron announced a small scale LNG supply deal – the sale of 0.5 mtpa over 5 years commencing in 2018.  The sale is to a private Chinese company called JOVO.  No destination was mentioned and the purchasing party was a Singaporean subsidiary of JOVO.

This deal therefore captures a few aspects of current LNG markets – not a traditional buyer, smaller volumes, more flexibility – and a Singapore connection as the Island Nation continues to build a pre-eminent position in the LNG trading firmament.

Company news – FAR Ltd (FAR)

We speculated last week that FAR (and its partner Cairn Energy) had 30-60 days to exercise their pre-emptive rights over Woodside Petroleum’s (WPL’s) purchase of Conoco’s interests offshore Senegal.

It appears that this period is in fact 30 days – based on comment by London based blogger, Malcy’s Blog – who is close to FAR and presumably has better information on this than the market.

So FAR apparently has until the 13th of August to see if it can pull a very large funding rabbit out its hat.

Company news – Origin Energy (ORG)

ORG today announced it had just spudded the fifth out of six wells in a current exploration program in the Northern Territory’s Beetaloo Basin.

It would seem it is running out of time to try and frack these wells prior to the expected incoming new NT Government’s “moratorium” on such well established – and absolutely necessary in the NT – stimulation practice.  So what the wells will actually tell the ORG operated JV is fairly limited.

Quote of the day

One outcome from the Republican Convention last week in our view has been the longer term elevation of Texas Senator Ted Cruz, whose lack of support for The Donald appeared to be a canny blend of principle – and positioning for 2020.  He summed up his stance as:

“I am not in the habit of supporting someone who attacks my wife and attacks my father.”

(Readers may recall The Donald’s accusation that Cruz pere was part of the Kennedy assassination conspiracy).

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