Today’s Blog – Tuesday 28th February 2017

Editorial

Late last week the partners in the massive offshore Israel Leviathan gas-field sanctioned the first stage of its development.  The operator is US company Noble Energy and there are a couple of Israeli partners as well.  Australia’s own Woodside Petroleum (WPL) could have been a partner in this asset – but it walked away from a deal to come into the joint venture back in 2014, over apparent concerns about sovereign risk.

The initial development phase will cost up to US$4B – and result in the booking of nearly 10 Tcf of reserves.

WPL might contrast and compare that progress with the glacial (if not completely frozen) pace of the development of its large gas resources in the Browse and Timor Sea, off Northern Australia.

In hindsight, WPL seems to have prematurely chickened out of Leviathan.  However, it is no orphan in Australian oil and gas circles in not doing well when venturing overseas (although BHP would claim success for its Gulf of Mexico assets – but don’t mention shale gas! – in the US).

Why has this been the case – particularly when compared to various London listed stocks that have performed well in Africa, etc.  We think the following factors come into play:

  • The ASX has much fewer oil and gas companies than London.
  • We host no super-majors who feed talent down the food chain.
  • London is an easier spot to reach other countries from.
  • It is easy to be Australia-centric when the country punches well above its weight in terms of gas and hosting Majors and NOCs.
  • The business culture is conservative, even self-centred – witness last week’s handover of the Chairman-ship of WPL to a Perth business identity rather than someone with international E&P (or resources, says Sam Walsh) experience.

However, as Australian E&P assets are increasingly held onto tightly by incumbents, local plays don’t work out (e.g. Cooper shale gas), relentless ongoing depletion, etc – eyes might need to be lifted up a bit more aggressively – and opportunities like Leviathan seized.

Commodity prices

Oil prices traded flat overnight, with Brent closing at US$55.99 and WTI at US$54.09.

Many market commentators have pointed out the collectively very large long position held by hedge funds in the oil market.  Optimists say “they must know what they are doing”.  Pessimists say “what if they conclude they are wrong and close out positions come-what-may – the market will crash”.

Henry Hub fell ~3% to close at US$2.70.

LNG and international gas

Late last week Reuters reported on Japanese LNG trade data.  Very strangely to us, it showed that imports of LNG from the US (Sabine Pass) had landed at a price of US$13.45 per mmbtu.  We don’t understand how that could have been the case given Henry Hub prices, no matter much we add on for shipping and liquefaction, etc.  Are we missing a dog not barking – or a reporting error?

G0vernments, fracking, etc

The Citizen Smiths running Victoria (Power to the People!) are blessed with a Marxist ability to rationalise contradictions.  Their latest ploy – in a State that has banned unconventional petroleum forever and imposted a “moratorium” on conventional oil/gas (what arbitrary permeability level do they use to determine what is what?) – is to provide A$10M in funding into determining what the State’s conventional petroleum potential is (but don’t drill!).

Hmmmm.

Company news – Central Petroleum (CTP)

In a move which also may have something to do with the idiocy of Governments, CTP yesterday announced that French Super-Major Total had walked from its Northern Territory exploration joint venture.

The Territory’s “moratorium” on fracking could have something to do with that.  However, we suspect that little shame will arise in Darwin when one of the world’s largest companies leaves for sovereign risk reasons.  That’s a longer term issue.

Company news – AWE and AGL

AWE announced yesterday that its operated Perth Basin joint venture (Waitsia) had entered into a preliminary gas sales agreement with AGL.  This represents the first material entry by the latter in to WA’s gas market.

Don’t mention the words “fracture stimulation” in the context of the imminent WA election – and a likely Labor Party win.

Quote(s) of the day

A couple more pearls from Warren Buffett’s recent annual letter to shareholders, this time about Management weaknesses:

“As Charlie says, it’s great to have a manager with a 160 IQ – unless he thinks it’s 180.”

“That’s because bad behavior is contagious: CEOs who overtly look for ways to report high numbers tend to foster a culture in which subordinates strive to be “helpful” as well.”

 

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