Today’s Blog – Thursday 24th November 2016


News from the 0il-field service sector is currently dominated by the effective takeover of Baker Hughes by an arm of GE – which the E&P industry hopes will bring a stronger competitor to industry leader Schlumberger (and to a lesser extent Halliburton).

The service sector does not normally attract a lot of attention from this blog, but this news got us thinking about the resilience of said sector in Australia when the oil price turns and industry seeks to ramp up activity again.

The weekly rig count from the US is a closely followed “number” by oil traders (and this blog).  Notwithstanding massive reductions since late 2014, that count is still at around 600.  This provides a very solid base of expertise and equipment from which to expand from.

However in Australia the current rig count (which number is not published outside some subscription only industry sources) is nearly 100th of the US figure.  That order of magnitude provides a much thinner base of skills/capital equipment from which to stage a comeback when market conditions warrant.  And importing people and equipment – always difficult given Australian red-tape and green-tape – will be even harder in the future given the global posturing about immigration, etc, which has been seized upon by populists here as much as in the UK or US.

So we consider that ramping up activity here – even once capital becomes available again – will be more challenging than many will expect.  That will affect the Cooper in particular.

Virtue signalling State Government moratoriums (and now bans) will combine with this factor to support higher prices – and potentially provide the market opening for LNG imports that AGL recently indicated it was investing material sums to investigate.

Commodity prices

Oil prices were again flat to down last night, with Brent down a tad to US$48.97 and WTI down slightly less at US$47.96.

Its still all about “blah, blah, OPEC, blah, Iran?, blah, Iraq, etc”.  A “deal” seems increasingly likely next week.  Sticking to that deal less so.

BHI released its weekly rig count report early this week given the US’s Thanksgiving holiday – it was not as bad as recent weeks – but still showed an increase of 3 oil rigs and 2 gas rigs.

The EIA’s weekly inventory report was also negative – but again not as negative as some recent weeks – with oil stocks actually down by 1.3 mmbbls – more than counter-balanced by an increase of gasoline stocks of 2.3 mmbbls and distillate by 0.3 mmbbls.

LNG and international gas

Reports have emerged from Japan of a recent deal between Tokyo Gas and the UK’s Centrica to swap gas between the Atlantic and Pacific LNG markets – to reduce shipping costs.  From next year Tokyo Gas will deliver contracted East Coast USA supplies to the UK, whilst Centrica will in turn deliver Qatar-sourced volumes to Japan.

The once separate hemispheric Ocean markets are increasingly coalescing.

A smaller LNG story – but of a piece in terms of the small increments of new demand that could collectively add up to material volumes. This was news of Exxon joining a LNG bunkering venture based out of Scotland’s Orkney Islands that would supply ocean going vessels in the North Sea with LNG as a fuel.

Governments, etc

A couple of examples of confusion and blatant dishonesty over resource industry taxes:

Today’s Sydney Morning Herald (SMH) reported that Australian E&P companies pay less taxes as a share of revenues than occurs in Malaysia.  The reasons are obvious for anyone who wants to look beyond a “big business not paying its fair share!” argument: gas/oil mix; no Australian NOCs; world’s most expensive LNG projects; etc.

In today’s Australian Financial Review (AFR), the leader of the Western Australian National Party, Brendan “Trotsky” Grylls, sought to justify his plans to use sovereign powers to unilaterally change the long term contracts under which iron ore producers pay rents.  In a use of the English language that George Orwell could have used in an essay, he has called this planned theft from BHP/Rio shareholders as “proposing an increase”.  A “proposal” can be rejected whilst legislation cannot.

Company news – Strike Energy (STX)

An interesting example of the higher duty of disclosure under ASX rules which exists when a capital raise is underway came from STX yesterday.  This was a note to the market to the effect that previous off-take dealings with chemical company Orica appeared to be on the ropes.

In normal circumstances such news could well be considered as “immaterial” for reporting purposes…..

Quote of the day

Oil patch veterans who know the Granite City of Aberdeen will be familiar with the long running dispute between President-elect Donald Trump over the visual impact of proposed offshore wind-farms on his near-by golf course.  In the hurly-burly of his preparation for occupying the Oval Office this issue has not been forgotten, with the following quote from a recent attendee of a Trump/Nigel Farage meeting:

“He did not say he hated wind farms as a concept; he just did not like them spoiling the views.”



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