Today’s Blog – Wednesday 1st February 2017


London based oil and industry blog “Malcy’s Blog” alerted us yesterday to an interesting recent news item from LSE listed SOCO International – the setting up of a high powered Business Development Unit in the company.

Shock horror ensues in the oil patch!  What about cost cutting!  How do you spell “grouwtth”?

Hopefully this move by one small-ish company is not one premature swallow but the potential start of a summer (or spring anyway).  Larger companies take longer to think these things through – by the time they start really committing to growth again, the likes of SOCO will hope they will have snapped up some excellent opportunities that their larger peers will have to pay generously to get into.  As so it has always been.

Commodity prices

Crude prices rose slightly yesterday on encouraging news that key OPEC countries are actually cutting as promised – with for instance Reuters reporting that total OPEC production had already fallen by more than 1 mmbbls per day.

Brent closed at US$55.58 and WTI at US$52.82.

In addition to actual deliberate cutting, there are a lot of potentially unplanned OPEC gains & losses happening on the sides – for instance, some degree of political stabilisation in Libya is currently bringing back 100,000s of bopd.  On the other hand, the ongoing collapse of Venezuela – manifested in the likes of an inability to ship crude through tankers becoming be-fouled by uncontrollable oil leaks – works the opposite way with a similar order of magnitude.

Henry Hub was down ~3% at US$3.13.

LNG and international gas

The media has recently reported again on plans by the Japanese Government to materially add to its coal-fired generation fleet (by 45 power stations – the capacity is not mentioned, but presumably it could be ~1 GW each).  This is a diversification strategy – to reduce reliance on high cost LNG.

It is not clear what developments if any have driven this story to re-emerge just now.  The technology to be used is said to be a generic “high energy low emissions” (HELE) type – but that is PR rather than engineering.

It would seem unlikely that Japan could introduce new coal fired capacity of this magnitude and not increase its greenhouse emissions materially – contrary to its promises under the Paris Agreement.

So all up this does not appear to be a real strengthening in the likelihood that this program will go ahead – but it could assist Japanese LNG buyers in negotiations over existing and new contracts.

Company news – APA Group (APA) and Santos (STO)

APA announced yesterday that it had executed an “agreement” with STO about the potential construction of a new A$500M pipeline from the latter’s troubled New South Wales coal-bed methane assets to the former’s existing gas transmission network in the State.

The announcement indicated a pretty soft agreement (more like a MOU – or a napkin signed after a long lunch?) – “if you develop something then so might we – with pricing for haulage services still to be agreed“.

The parties might intend this deal to put pressure on the NSW Government to facilitate the upstream development.  With a new Premier in the State without much political capital – and as always an election on the horizon – we don’t think this strategy will deliver much.

Company news – Senex Energy (SXY)

Today SXY came out of the trading halt that we reported at the start of the week.  It has just placed AS55M of new equity capital – at a decent premium – largely to major Private Equity player EIG.  Its existing cornerstone PE investor, Sentient, would presumably have been given what in Harvard Business School is called “first dibs” on this deal – but obviously it gave way to EIG.

The deal involved an unclear – but critical – element – EIG’s potential future funding support (of up to US$300M) for SXY’s Surat CBM venture.

This asset is now even more clearly SXY’s main growth focus.  The acreage is generally considered to be not of the highest technical quality – and SXY’s challenge will therefore be whether it can be enough of a very low cost operator to overcome the geological limitations.

Company news – Beach Energy (BPT)

BPT’s recent quarterly report contained a few snippets that have received less coverage than the overall message of strong production and cost cutting (and balance sheet preparation for a deal):

  • Strategic shareholder Seven Group will add another Director to the BPT Board.
  • BPT has walked from its farm-in to offshore Otway acreage after spending up on a 3D program. (Its organic growth hopper appears to be pretty empty).

Quote of the day

A call from Venezuela’s President Maduro – whose party has rapidly turned the country from one of South America’s richest into one of the poorest through such policies as  politicising the national oil company PDVSA:

“We have to clean out the corruption that has incubated in (the oil industry), I call on the oil workers to forcefully defeat corruption.”



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