Today’s Blog – Wednesday 23rd November 2016


Some recent “right-on” political moves from two different sides of the planet that would have received the applause of Rick from The Young Ones – but that would have made zero difference to actual exploration & production activities:

Firstly, the Victorian Government is now formally introducing legislation to ban the evils of unconventional oil and gas exploration and production in its fair State.

Fracking might poison the farms don’t you know, I read it on Facebook!   And current practice of burning roughly 50 million tonnes of low grade brown coal does not lead to any mercury, particulates, etc, contamination!

If no ban was in place, the amount of exploration d0llars that could be mustered to actually invest in unconventional gas exploration in the State of Victoria would be close to zero.

Secondly, the outgoing Obama regime has just issued a five year plan for offshore Federal leasing which excludes offshore Alaska.  Again, the chances of the private sector actually wanting to lease that area just now – after Shell just spent billions drilling what its MD called a “dry hole” are again close to zero.

So virtue signalling trumps the retention of strategic flexibility.  Doing nothing in Victoria or Alaska would not have let in hordes of environment wrecking private sector investors.  Changing things make it harder to change them back and reduces the sovereign’s optionality, for no gain other than feeling good for a few moments.

Commodity prices

Crude prices run hard in Monday’s trading, up more than 6% on the day.  Tuesday was much calmer, with a pretty flat day that saw Brent close at US$49.16 and WTI at US$48.09.

The driver was of course bullish views on the chances of an OPEC deal on 30th November. Even previous bear Goldman Sachs has said that:

“Our base case now is that an OPEC production cut will be announced and implemented.”

(Our view – there is a rather large gap between an announcement and its implementation).

Taking a rather more sanguine approach (its cold and dark up in Norway just now), Statoil however has just said:

“If the sentiment in the market now is we are moving toward a deal then most of the positive impact of any kind of deal might have been taken out in the market before we get there,” Eirik Waerness, the Norwegian oil major’s chief economist.

(So even if there is a deal, the price won’t go up).

Henry Hub rose on Monday but was also flat on Tuesday, closing at US$2.96 overnight.

LNG and international gas

Reports from Oklahoma of a small scale – and private sector funded – GTL plant – that if it works could un-strand a lot of gas.  Envia Energy has completed a 300 barrel per day plant in the oil friendly (but shaky) State – a completely different scale to the type of plant that exists in the likes of Malaysia and Qatar.

If this was in some other location involving a NOC or similar, we would scoff.  And it might still not work.  But then again, it might.  If <US$3 gas can profitably be turned into <US$50 liquids without massive injections of capital into complex processes – then that is game changing.

Company news – Central Petroleum (CTP)

The Macquarie Bank takeover approach to CTP continues to be of interest – particularly given the unusually frank comments from CTP’s CEO, Richard Cottee, thereon.  He was quoted in the press as saying something which everyone in small cap (and even big cap) land knows is the current dismal reality, but never usually says:

“Clearly a capitalised Central is much more potent in the issue of restructuring the industry than an undercapitalised Central.  But the depressed commodity price environment meant that equity markets had effectively been “closed” for gas companies for almost the last 30 months”.

Company news – Armour Energy (AJQ)

AJQ recently announced an up to A$40M capital raise – which would appear to be at odds with the sentiments noted above.  That is until one looks at the detail – expensive convertible note based financing which could absolutely crush ordinary shareholders if a few things go awry.

Quote of the day

A recent bear-ish view on oil prices – which relies on a very bullish view on the quantum of drilling locations in the US oil patch:

“To reach a sustained $100 per barrel is unlikely, as there is so much oil, and potential oil, on the market, especially given the role of U.S. shale oil producers.”   Adrian Del Maestro, PwC’s director of research

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