Today’s Blog – Wednesday 15th February 2017


Yesterday we reported again on the current drumbeat of calls for a Federal royalty to replace the low yielding petroleum resource rent tax on Australia’s large LNG industry (note to the protagonists – it is large in terms of capex and output – but very small in terms of rates of return).

This is happening at the same time as:

  • Australia’s Federal budget being boosted by higher than expected iron ore prices – which flow through to higher income taxes on BHP and Rio.  If the previous Labour Government had not been so ham-fisted in introducing its failed mining tax – but instead had gradually engaged with the mining giants over a sensible resources rent tax for mining as well as petroleum – then the Government would likely have its revenues boosted by A$10Bs per annum at present.
  • A lot of political heat over interruptions to energy supplies (arguably partially caused by high gas prices) and rising gas shortages.  Naturally the imposition of higher taxes on E&P companies operating in Australia would not exactly encourage them to invest more monies to try and remediate this shortage……

Commodity prices

Crude prices rose ~0.7% overnight, with Brent closing at US$55.95 and WTI at US$53.22.

This was notwithstanding poor “numbers” in the form of a strengthening US dollar and an ongoing increase in DUCs over recent months – caused by the expanding US rig fleet. Bullishness over OPEC actions is currently consistently beating concerns about rising inventories and increasing US production.  Until it dosen’t.

The potential almost complete collapse of Venezuelan production – although very bad for the beknighted citizens of that empoverished-by-Chavist-socialism land – is the brightest spot on the current landscape of known unknown “events” hovering over the market.

Henry Hub continued to trade down – closing at US$2.93.

LNG and international gas

Reuters recently reported on comments from South Korea’s Kogas about its contracts to buy LNG from the US as being a national hedge against Trumpian calls for trade protection – “look at all the stuff we are buying from you!”.  However that is a two edged sword – a rising US dollar induced by the mooted plans to impose a new tax system on US imports and exports would render those imports more expensive in Won.

Another new market for LNG is being developed in Spain – a trial is to take place in a couple of months in the North West province of Asturias – of a LNG powered train.

The mountainous nature of this part of Spain however prevents us from saying that: a LNG train in Spain runs mostly on the plain.

Company news – Origin Energy (ORG)

We noted yesterday that ORG had pinched its new CFO from Woodside Petroleum (WPL) – he will start in a few months time.  His new CEO has decided not to await his arrival before he undertakes the traditional kitchen-sinking exercise of a new boss – today ORG has announced a ~A$2 write-down in its upstream assets.

This figure is a post tax one, suggesting that the actual cash lost by shareholders is closer to A$3.  We suspect that increasing profits in the future will not only be disclosed on a post tax basis.

The largest component of this write-off arises in connection with the APLNG project in Queensland.

It also includes more than A$500M paid for a stake in a discovered gas resources in the Browse Basin that ORG now ?concedes has no home for the forseeable future (hands up who thought it did at the time ORG made the purchase – which enriched the very lucky – but market unloved – Karoon Gas).

Santos (STO) shareholders would have been pleased to note ORG’s comments that the gas resources at Barossa/Caldita in which STO has a stake (but ORG does not) are better candidates to be developed for the Darwin LNG facility once its current Bayu-Undan feedstock depletes next decade.  ORG’s partner in the Browse asset, Conoco, would likely not have welcomed the diminution of its bargaining position with STO that this statement could lead to.

Quote of the day

Following on from yesterday’s cabbie quote about Bertrand Russell, we stray to the even more cerebral Rodney Dangerfield:

“I’ll tell ya, I don’t get no respect… The other day, I got back from a business trip. I got in a cab and said to the driver, “Hey! Take me to where the action is!” So ya know where he took me? He took me to my house!”



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