Today’s Blog – Monday 27th March 2017

Blogging will be intermittent due to travel, etc, this week

Editorial

News from ASX E&P company FAR Ltd (FAR) this morning illustrates one of our perennial issues – at present the direction of the stock market’s sentiment driven winds are more important than actual physical exploration results.

Senegal focused FAR is on an incredible run of exploration success – this morning reporting that the VR-1 well (in which it has a 15% stake) has encountered a 97M gross oil column.  The well is drilling ahead to test a deeper play – and is running below budgeted cost.  The integration of this well’s results into the already discovered regional plays should lead to a material contingent resource increase for FAR.

Market interest this morning?  The stock is up a few percent only (and part of that was from a massive $4,000 purchase just made by your impecunious blogger).  In better times the market would reward this sort of news with a rise of many times that.

FAR did not name its joint venture partners on its ASX announcement (readers will recall some dispute about who they actually are).  Woodside Petroleum (WPL) believes itself to be a member of the JV but has not reported this result (yet anyway) – which seems strange to us given WPL has not encountered ~100M oil columns in many, or any, of its other exploration activities recently.

FAR continues to deliver on the exploration front.  Whether it will deliver on the share price front remains to be seen.  Non-exploration companies can be patient about investment timetables and ride out market cycles – however the likes of FAR can be caught in a game of needing more capital when the market is not supportive of providing it at anything other than a dilutive basis.

Still, international interest in this play has to be increasing with every piece of news – its not all about the Permian, global oil and gas industry!

Commodity prices

Crude had another down week last week – with Brent falling ~2% over the week to close at US$50.80 and WTI down a similar amount to US$47.97.

Things could have been worse – with another set of bad “numbers” on Friday – another big rise in the US rig count, with oil rigs up a material 21 (with gas rigs down 2).

We would normally expect a negative Monday trading response to Friday’s BHI rig count report – but on the other hand a group of OPEC and non-OPEC members meeting in Kuwait over the weekend recommended an extension of the current cuts.  This was largely expected – the consequences of any other decision would have likely been very bearish.

LNG and international gas

US LNG keeps on-a-coming. Last week Cheniere received rapid FERC approval for the ongoing adding of trains at Sabine Pass.  The phrase a “wall of gas” comes to mind.

Governments

The US Federal Government last week gave an important regulatory approval to the potential Keystone XL pipeline connecting Canadian tar-sand production to US refiners.  To some external observers the heat and light generated by Keystone XL is reminiscent of medieval debates about how many angels can dance on a pin – the real issues seem relatively immaterial for oil markets.

As always, the money is more important than the politics and the biggest issue this pipeline faces is whether when it comes to a FID point investors will want to put billions into a project that relies on long term production from tar-sands – a high cost asset that parties such as Shell have recently been selling out of.

Quote of the day

From an article in this week’s The Economist on the resilience of the US shale sector:

“Demand is soaring again for the industry’s raw materials: sand, other people’s money, roughnecks and ice-cold beer.”

 

 

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