Today’s Blog – Friday 10th March 2017

Editorial

To continue yesterday’s key theme – the media and political coverage of the various energy “crisis” issues facing Eastern Australia is escalating by the day. Today’s Australian Financial Review (AFR) has numerous articles on the subject, including such matters as:

  • The Prime Minister calling in at short notice the CEO’s of the main gas companies such as Origin, Santos and Shell – presumably to dress them down and demand they work harder to meet local customers’ needs.
  • The Chairman of Shell Australia noting that some customers were selling gas to the LNG project and them moaning about a shortage of gas.  Readers of this blog will know that the main culprit starts with an “A”, ends with an “L” and has a “G” in the middle.
  • A FSRU could be a solution with a quick turn-around time (as we have noted ad nauseam).
  • When global LNG markets are long, surely it is not beyond the wit of man to effectively “swap” gas supplies that someone in say Seoul does not want at present and instead deliver gas to Australian buyers at Wallumbilla.

Overall we are impressed with the pace of acceleration of interest in this area.  In the words of the great Ron Burgundy:

“Boy, that escalated quickly. I mean, that really got out of hand fast.”

Commodity prices

Overnight trading in crude following on from the previous down day – with further falls of ~1.3% in both London and New York.  Brent closed at US$52.45 and WTI fell through the US$50 level to close at US$49.58.

Sentiment appears to have turned and some solid inventory data will likely be required to turn it back again (and in our view, this week’s numbers were not really that bad).

Yet another very large crude oil discovery has just been made in Alaska – by Spanish Major Repsol.  Overnight Repsol announced an onshore discovery of 1.3 B bbls – the larges in the US for 30 years.  This follows on from similar sized discoveries in the State last year in the immediate offshore.  Unfortunately prices will likely need to solidly hold above US$50 before these will be developed in this high cost (and high tax) location.

Henry Hub was up again – closing near it own key pricing level of US$3.00 – at US$2.98.

LNG and international gas

Exxon has just bought a 25% stake in a massive offshore Mozambique gas joint venture from ENI (who remains in with a slightly smaller stake than Exxon).  The purchase price of US$2.8B for a net 21 Tcf of gas works out at a bargain basement 13c/mcf.  The stake bought is in the operating company.

That sort of metric is a fraction of what was paid at the height of the CBM boom in Queensland – and is large discount to the 70c/mcf that Exxon recently paid to acquire PNG gas (through the acquisition of InterOil).  This discount level shows that there is clearly a long way to go and/or risks to be overcome before anyone expects to monetise Mozambique gas.

Company news – Central Petroleum (CTP)

CTP has come out of yesterday’s trading halt to announce that its Board is recommending a revised takeover offer from Macquarie Bank (MQG).  The price is now 20c/share – with a additional “contingent value right” to give shareholders some potential return from exploration success in certain defined areas.

The takeover will be effected by a scheme of arrangement.  Although completion is not guaranteed, it seems highly likely to us.

The timing is great for MQG given the East Coast gas crisis.  We think in due course MQG might consider farming out/selling down its equity position in the acquired assets – potentially even to long time asset owner in this area, Santos.

Quote of the day

Continuing with another quote following the street-fighting scene in critically acclaimed arthouse masterpiece, Anchorman – the Legend of Ron Burgundy:

” There were horses, and a man on fire, and I killed a guy with a trident.” — Brick Tamland

 

 

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