Today’s Blog – Friday 2nd September 2016


Earlier this week a UN process commenced to address concerns by the East Timorese that Australia had somehow robbed it of some greater share of the Sunrise gas field located in the Timor Sea between the countries.

Most observers seem to concede that Australia had in fact given the desperately poor country somewhat more than it was entitled to under the relevant international laws.

Australia’s legal position will be to no doubt defend the status quo.  However, a rather more imaginative strategy would be so say: “here – you have the lot”.

That could generate international kudos – and in commercial terms surrender nothing.  Sunrise’s position in the ultra-lengthy queue of potential LNG developments is arguably towards the bottom.  Giving 100% ownership to East Timor would likely move it down the queue rather than improve its chances of getting up. Result for Australia – it has given up nothing in value terms but looks good.

We see (somewhat tenuous you might say) linkages with what the Victorian Government has just done in banning fracking/unconventional petroleum.  Given the likely lack of any material private sector interest in what appear to be only very low quality and/or immaterial prospective petroleum resources in the State, the Government could instead have lifted its moratorium.  The result would have been to look like an adult Government – but no actual fracking would have occurred, as no funding for same would have been found.  (Although does Rick from The Young Ones want to look like an adult Government?)

Commodity prices

Since our last blog on Wednesday, crude prices have have fallen a hefty ~6%.  Brent closed last night at US$45.45 and WTI finished at US$43.16.

The weekly EIA report was a big negative – a larger than expected crude inventory build of 2.3 mmbbls, combined with a gasoline draw of only 0.7 mmbbls and a distillate build of 1.5 mmbbls.

And the “OPEC whispering” medicine of recent rumours of freezes, etc, continues to wear off.

Henry Hub was down ~1.4% over the last 2 days to US$2.79.

LNG and international gas

Reuters reported earlier this week that Qatar was starting operations at the last gas project approved before it imposed a moratorium on further production from its massive North Field.  This project will largely supply the domestic market – which presumably includes cooling down soccer stadiums for the World Cup in 2022 – but not cooling down beers for the thirsty patrons attending the same event.

Whether the Qatari moratorium will persist in the face of Iran’s increasing efforts to ramp up production from the South Pars field (i.e. basically the same massive gas resource located under the Gulf) remains to be seen – and the answer could have consequences for all other hopeful LNG project proponents given the unbeatable cost structure of this resource.

Company news – FAR Ltd

FAR issued a presentation on its Senegalese assets yesterday, basically saying they were commercial and only getting better.

The presentation did not however say anything interesting about its pre-emptive rights battle with Woodside Petroleum (WPL).

FAR seems to be managing to keep its cool over this matter more effectively than WPL’s Peter (what is a pre-emptive right?) Coleman.

And we note from recent press reports that FAR’s MD is currently in Senegal, no doubt shoring up the company’s relationships and position under its JOA in case WPL (or vendor Conoco) try to exert some pressure there.

Company news – Central Petroleum (CTP)

CTP’s CEO, Richard Cottee (we should of course say the “ebullient” Mr Cottee) put out an ASX announcement today basically saying to the Australian pipeline industry (encapsulated by APA Group’s Mick McCormack) – bring it on!

That is, Cottee effectively said that we have gas, but monopolistic behaviour by some (read: APA) is stopping it come to gas-starved East Coast markets.

McCormack had recently issued his own challenge to the ACCC over the latter’s potential moves to impose greater regulations on the pipeline business.

This could be an interesting battle between two very large personalities in the Australian energy industry.

Quote of the day

For those who have not read Pierpont’s article in today’s AFR, the following quote will no doubt resonate for many readers’ share portfolios:

“Pierpont classifies his investment portfolio as falling into two categories: companies in which he holds too many shares and those in which he holds too few.”


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