Today’s Blog – Wednesday 1st March 2017

Editorial

Do we detect some animal spirits in the air in the Australian E&P sector?  We outline some recent examples below.

Yesterday mid-cap AWE issued its half year results – and its CEO was quoted in the Australian Financial Review as being interested in acquisitions.  It was unfortunate that Dilbert seemed to have handed him his script though:

“Potential acquisitions are likely to be early to mid life producing assets that are value accretive and located within our current sphere of operations.”

Ah – the ever attractive chimera of low risk assets to be purchased at less than their value. Did AWE’s Board just deliver to its CEO the old classic “We’ve set the strategy – now you just deliver”?

Fellow mid-cap (and one time suitor for AWE), Senex Energy (SXY) was also quoted in the press earlier this week as being interested in a range of acquisitions.  SXY could have a run at AWE again – but in some ways to do so could seem strange to the market – even personal – given the previous spurning.  That would be notwithstanding AWE is now a more attractive target given its successful asset clean up – and lower price.

The last example is a wild card – Fortescue Mining.  This iron ore specialist is said to be currently looking for other resource assets that are not correlated with iron ore in terms of risk and commodity prices.  Oil and gas would seem to fit that broad criteria and of course BHP provides a strong Australian example of a successful mining company that is in E&P as well.

Fortescue’s potential fire-power is considerable – and last year we noted some toe-dipping into the oil patch (in the Canning Basin) by the company’s founder, Twiggy Forrest.

Commodity prices

Oil prices were again fairly flat overnight, although London closed up slightly at US$56.45 whilst New York fell slightly at US$53.93.  The latter appeared to have longer in the day to worry itself about this week’s inventory numbers.

Henry Hub closed up ~2% at US$2.76.

LNG and international gas

Reuters recently reported that Total was seeking to invest US$Bs into the sleeping potential giant of global LNG – Iran.  Watch this space – and if you are a competing LNG province like Australia (or the US), cross your fingers that the combination of hardliners in Tehran and Washington will continue to keep the country out of global markets.

Company news – Woodside Petroleum (WPL)

WPL is currently taking a number of steps to seek new markets for LNG – ranging from stronger engagement with potential new customers in India – to marketing to the large energy market in its own back-yard in Northern Western Australia.  With respect to the latter, WPL has recently entered into a partnership with GE to look into substituting the vast liquids fuel use of the iron ore miners with LNG – on trains and trucks.

Total liquids demand by the iron ore miners is said to be 18 million barrels of diesel per annum.  In gas terms, that’s more than 100 PJ per annum (assuming no loss of energy efficiency – which could well not be the case).  A market of large scale – and low risk.

Company news – AWE

As noted above, AWE has been cleaning up its asset register – and has just announced the closure of the sale of its Tui asset in New Zealand.  The company now has effectively only 3 decent sized and understandable assets – therefore making it more attractive to potential buyers.

If SXY is not interested, then we think the likes of Beach Energy (BPT) might be, especially given its current desire to grow through deals.

Quote of the day

Another one from the recent Berkshire Hathaway letter to shareholders – a suggestion on timing as to when good asset deals should be done (hint – not when everyone is feeling bullish):

“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”

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