Today’s Blog – Friday 17th March 2017

Editorial

The recent news of planned direct Government investment into the Australian energy sector (a gas fired power station in South Australia, pumped hydro in the Snowy Mountains, etc, etc) continued today.  The South Australian Government has just announced the awarding of A$24M in grants to various marginal gas projects in the State with a view to trying to bring on more gas supplies.

Most of the money is directed towards the Cooper Basin – which we think could have the perverse consequence of allowing Santos to divert more gas from this region to its ill-fated GLNG facility in Queensland.

To us the most interesting award was to Beach Energy (BPT) – A$6M towards the cost of drilling what BPT has called an “exploration” well but which goes by the delineation or development style name of “Haselgrove 3” – based in the South-East of the State  (you know – the part where the locals oppose drilling).

BPT themselves state this has an unrisked target size of ~30 Bcf with a ~33% chance of success.  Not exactly the definition of a company maker (and we find it hard to understand why the previous owners of this asset, who had the benefit of the same 3D and other data that BPT has, would have missed this presumably by-passed gas in an existing producing pool).

We think BPT will find considerable community opposition to any activity in this region – no matter the nature of the target (conventional – not requiring stimulation).   The size of the prize would hardly seem to warrant the potential pain and distraction – and begs an awkward question for BPT – “is this one of the best opportunities you have got?”

Also BPT may be a pawn in a political game between the Liberal and Labor parties in South Australia – with the former promoting severe limitations on E&P activities in the region and the latter shouting “sovereign risk” (rightly so).  And as for the new royalties for landowners scheme – BPT themselves own the freehold farming land covering the target area – so they will have no new local allies on that front.

Commodity prices

Oil prices pulled back slightly from the previous days gains, with Brent closing at US$51.74 and WTI at US$48.81.  No real news or numbers arose on the day to give the market a direction.

Henry Hub fell 5c to close at US$2.92.

LNG and international gas

Recent analysis from Houston based E&P focused advisers Tudor Pickering & Holt (TPH) suggests that the US gas market could face a whole lot of new supply coming on from the Permian Basin – the hottest spot on the planet for oil and gas right now.  Associated gas from tight oil production could push Henry Hub prices down to US$2 in TPH’s view.

That would have flow-on consequences in LNG markets – as it would make US exports which are priced against Henry Hub even more competitive (especially given the economic effect of sunk liquefaction capacity costs for many buyers).

Company news – Origin Energy (ORG)

Yesterday we reported on the last minute sale of downstream energy company Alinta Energy to a Hong Kong billionaire – for a very full price of ~10 times EBITDA (with the cash-flows coming from a less than stellar asset suite).

And the relevance of this to ORG?  This deal will provide succour to that company with respect to its planned disposal of its non-core upstream assets – that dreams do come true and every now and then that elusive but legendary figure to asset vendors of all sizes – “a Chinaman with a big cheque book” – does exist.  Completion however is not guaranteed in such instances.

Quote(s) of the day

Back by popular request on a Friday, the one-and-only Rodney Dangerfield:

“I could tell that my parents hated me. My bath toys were a toaster and a radio.

I come from a stupid family. During the civil war my great uncle fought for the west!”

 

 

 

 

 

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