Today’s Blog – Wednesday 22nd February 2017

Editorial

Earlier this week Woodside Petroleum (WPL) announced the appointment of Wesfarmer’s CEO, Richard Goyder, as a new non-executive Director – and the company’s next Chairman.  This is a well trodden path over in Perth – WPL’s current Chairman Michael Chaney was also previously CEO of Wesfarmers – which has naturally led to some to speculate about a “Perth Boy’s Club”.  We would of course be “shocked, shocked” to think that NEDs of ASX companies were picked on anything other than merit.

In mid last year Rio’s retiring CEO, Sam Walsh, was tipped to be WPL’s next Chairman.  He would have brought to the company far more international experience in extractive industries than does Goyder – but unfortunately for him (and WPL shareholders?) his non-executive career has been caught up in – if not killed by – Rio’s current difficulties with a US$10M fee paid to a facilitating agent over a deal in West Africa.

WPL’s CEO Peter Coleman has maybe seen a handy opening through the potential embarrassment between Chaney and Goyder over this rather-too-friendly-handover and has been reported as wanting to extend his current seven year reign by another five years.  His manifesto: “I haven’t stuffed anything up – look at some of my peers and shudder – thats only $10M p.a. thank you very much – Ker-ching!”

Commodity prices

Crude prices performed fairly strongly overnight, with Brent up ~1% to US$56.71 and WTI up ~1.8% to US$54.38.  Trade was boosted by OPEC’s Secretary General reporting 90% compliance with its planned cuts (shh – don’t mention Libya’s and Nigeria’s large recent rises….).

Henry Hub was however smashed down to US$2.57 – a nearly 10% drop.  Weaknesses in temperature and storage data were apparently boosted by the chartists interpreting their favourite strange “technical” shapes in the market’s tea-leaves.

LNG and international gas

Shell has just released for the first time an LNG Outlook presentation.  As the world’s largest LNG company, that was, not surprisingly, bullish.  The key themes emphasised the changing nature of LNG markets: many new buyers -with worsening credit ratings – using LNG in much more applications than traditional large scale Japanese power generation.  So a bit like crude oil markets then.

Company news – WPL

WPL issued its 2016 results today.  These did not contain that much of interest to this blog – for instance there was zero colour on the long running dispute with small-cap FAR Ltd over whether the latter has pre-emptive rights over WPL’s purchase of Senegalese assets (which are currently the subject of a drilling program).

WPL’s longer dated LNG projects – Browse, Sunrise, its Canadian LNG project (Kitimat) – also did not merit much attention.

No-one would be surprised however to see that stories of heroic cost cutting were underlined.  In our view such numbers are open to much manipulation – particularly when Management is incentivised to do so by blunt and short term bonus-delivering metrics.

Company news – Beach Energy (BPT)

A very small scale deal was announced today by micro-cap Key Energy Ltd (KEY) – the purchase of some Queensland Cooper Basin tenements from BPT for the small sum of A$125,000 plus a 1.5% royalty.  To us the most interesting element about the deal was the CP that the Queensland Government not impose an environmental bonding obligation on KEY of greater than A$300k.  As Governments get increasingly wary of abandonment, etc, liabilities landing in their laps, small-caps will find it harder to fund much bigger bonds than used to prevail in Australia.

Quote of the day

Although the oil patch is showing some signs of life, full blown animal spirits at the exploration end remain elusive.  This zeitgeist was recently captured well in a recent blog by David Bamford, once BP’s Head of Exploration:

“It would be easier to raise money for a spittoon manufacturer than to raise equity funding for a ‘pure’ exploration company.”

 

 

 

 

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