Today’s Blog – Monday 30th January 2017

Editorial

Various news stories have recently emerged in the US about a matter we have to date been sceptical about – an independent reserves review being undertaken over Saudi Aramco’s massive crude oil reserves, as part of the company’s proposed IPO.

Off the record sources have indicated that Aramco has engaged industry reserve reviewing stalwarts Gaffney Cline and DeGolyer & Macnaughton to report on its numbers.  Initial indications have emerged that these are actually in line with previously reported figures.  Many like us will be surprised by this, given the apparent unlikelihoods involved in the Kingdom of Saudi Arabia’s history of reserves reporting since Aramco’s full nationalisation.  These included an unaccounted for vast step-up and then reserves adds basically being identical to production in each and every year.

If these stories are validated, then there is a lot more oil out there than many had previously believed.  This has major consequences for medium/long term oil markets.  For instance, as the cost of renewables seems to be coming down exponentially – should the KSA produce flat out rather than risk leaving reserves in the ground?

We retain a degree of scepticism about this matter.

We also ask ourselves what were included in the terms of the Confidentiality Agreements that the reserves auditors and their staff had to sign – “don’t disclose this or we will cut your heads off”?!

Commodity prices

Crude prices last week finished up pretty much where they started, with Brent closing at US$55.52 on Friday whilst WTI was US$53.17.

The week’s key “numbers” were again bearish:

  • EIA crude inventories went up by 2.8 mmbbls and gasoline went up even more with a build of 6.8 mmbbls (distillate did not change).
  • BHI’s rig count was again up – an increase of 15 oil rigs and 3 gas rigs.

However, news about OPEC cuts compliance – and general bullishness associated with the Dow breaking through 20,000 – overcame the bear factors.

Henry Hub closed up 5% for the week at US$3.36.

LNG and international gas

Late last week The Financial Times reported on the ongoing supply glut in LNG markets.  Interestingly – given the news-flow about a potential Floating Storage and Regasification Unit (FSRU) development for Australia’s East Coast, the article including the following quote from the head of LNG trading at commodity house Trafigura, Hadi Hallouche:

“The overwhelming majority of new markets in recent years have been FSRU markets.  The coming oversupply will only accelerate this trend.”

Woodside Petroleum (WPL) continues to promote another new demand source for LNG – fuel for the large bulk shipping fleet operating out of North West Australia where its liquefaction assets are also located.  This is also being supported by the major iron ore exporters in the region, BHP and Rio.

Governments, fracking, etc

No sooner did the well known stymied pipeline projects in the US (Keystone XL, etc – which have been held up by green-tape for many years) get the go-ahead from new White House – than a new class of onerous regulations emerged – Trump-tape.

This was the imposition of a requirement to use American steel, etc, in the required pipes, not that ghastly foreign stuff.

Company news – Senex Energy (SXY)

The company with the best ASX ticker amongst the listed E&P stocks went into a trading halt this morning, pending a deal to bring in finance (potentially at asset and company level it appears based on the few words in the announcement) to support the development of its Surat coal-bed methane (CBM) project.

SXY’s largest shareholder, the investment fund Sentient, appears to be a good candidate for the primary source of the new funds.

SXY issued its December quarterly report last week.  That indicated it had still not finalised a GSA with the Santos led GLNG joint venture – no doubt sub-clause 83.3(iii)(a) of the GST article of the contract is still enriching he lawyers, err, we mean is the subject of keen commercial debate.

Another item in SXY’s quarterly that pertained to this CBM project was somewhat confusing – the company is plugging and abandoning wells in an area which it seeks to develop.  We are not an engineering blog, but one would have thought the sunk capital here could be exploited (unless the old wells were completely stuffed up – which could be possible).

Quote of the day

From that ever reliable on-line news source, The Onion (no fake news or alternative facts for us – just news that could almost be true):

“WASHINGTON—Putting the nation on alert against what it has described as a “highly credible terrorist threat,” the FBI announced today that it has uncovered a plot by members of al-Qaeda to sit back and enjoy themselves while the United States collapses of its own accord.”

 

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