Today’s Blog – Wednesday 8th February 2017

Editorial

A news story from the US last week reported on the view that many (one third to one half) of the nearly 0.5M oil-field jobs lost over the last few years will never come back – largely due to permanent increases in productivity and the substitution of automated processes for labour.

Ouch! says the current army of part-time bloggers, consultants, hobos, etc. For this once Business Development person, we are hoping that robotics has not yet come up with the abilities to do things like: swim through the swamps of developing nation regulators’ complex “requirements”; close non-obvious deals whose value is not supported by a spreadsheet; and – of course – enjoy a good lunch.

Also reported recently (by the not so neutral source, the Institute for Energy Economics and Analysis) was that one in fifty new jobs in the US last year was in the solar industry.  These presumably are weighted towards the more labour intensive household installation side rather than the large industrial facilities, which do not need a lot of employees once constructed.  And they are unlikely to pay as well as in the oil patch.

However, as an ex-economist we think it self-evident – although we think many politicians would disagree – that if 100 mmbopd came out of one well serviced by one worker – the world would be a much richer place (and a royalty on that well would be nice…).

Commodity prices

Oil prices fell again overnight, with Brent down ~1.3% to US$55.08 and WTI hit harder (down ~1.7%) to US$52.17.  The US dollar again rose and fears about rising inventory levels now seem to be percolating in the market.

Iran announced that a large oil discovery has been made in the country – although the media for some reason has focused on the in-place number of 15B bbls rather than the estimated recoverable oil of 2B bbls (a recovery factor of 13% does not suggest the best reservoir ever).

Although we would take any such announcement with a pinch of salt – it likely does demonstrate that there remains large upside (as occurred in Iraq) when a country opens up after a few decades of largely isolation.  However, whether current geo-political tensions will let Iran bring in foreign expertise and capital remains to be seen.

Henry Hub rose ~2.3% to close at US$3.12.

LNG and international gas

One of our LNG news sources recently reported a story that did not seem to make its way to an ASX announcement – a move by ASX listed Energy World Corporation (of monkeys swinging on vines on its half built Philippines/Indonesian assets) into the USA.  This was sourced from a port authority in Louisiana, who advised that the Asian focused company was looking at building a liquefaction facility in the Gulf of Mexico to take gas to its assets in South East Asia.

With EWC, who knows what might happen next.  But minority shareholders might prefer it to actually finish some of its other half-built assets first.

Company news – Beach Energy (BPT)

As recently flagged, BPT has appointed another Director from its strategic shareholder, Seven Group – Mr Richard Richards (coming from this billionaire controlled company it would surely be better if he was named Richie Rich).

Still no room around the Board-room at BPT for its humble CEO.

Company news – Origin Energy (ORG)

The Australian Financial Review (AFR) reported earlier this week that ORG had gone to a second stage in its process to sell its Darling Downs gas pipeline in Queensland.  Not surprisingly, competition was fierce for a new asset with long term cash-flows – with infrastructure companies and more passive investors both interested.

Various investment bankers will be coming up with smart pitches to their clients on the buy-side about how low their cost of capital really is and hence how much more they can bid.

Quote of the day

For some reason the old Wall Street saw came to mind when talking about the incentives for bankers above:

“But where are the customers’s yachts?”

 

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