Today’s Blog – Wednesday 17th May 2017

Editorial

Your blogster has just returned from a couple of days at Australia’s peak conference for the oil and gas industry – APPEA – this year held in Perth.  Our key takeaways:

  • Numbers were still significantly down from the boom years and the foreign contingent was particularly low.  In our view this reflects not only the current low oil price – but also the low probability of any large new LNG projects being developed in Australia in the near future.  Or indeed ever.
  • We are collecting bets on which IPO would you least like to invest in: the sale by a Medieval theocracy of a non-controlling stake in Saudi Aramco – or – the sale by aggressive PE firms of a depleting Western Australian gas business for more than they paid for it a few years ago – or – the sale by Origin Energy (ORG) of some generally late life Australian gas assets whose upside seems likely to be contracted away to ORG.  Hmmm.
  • To us the elephant that is being studiously ignored in the petroleum industry room is the enormous cost cutting made in rival renewable energy technologies in recent years.  The industry resists the “this time its different” mantra and assumes the old cycle will be renewed as it always has before.  But sometimes things are different – ask Kodak.

Commodity prices 

Crude prices rose strongly on Monday – due to news about Saudi Arabia and Russia agreeing to extend the current OPEC/non-OPEC freeze into 2018.  Last night prices closed at US$51.30 in London and US$48.66 in New York.

A comment in Houston based industry adviser, Tudor Pickering Holt’s daily email captured well the bullish view on the what the OPEC freeze has achieved:

“When OPEC started this price turmoil in Nov’14 they were sending a message to 1) US tight oil, 2) heavy oil, 3) Arctic, and 4) deepwater   So far, US tight oil is the only area to show signs of life and we wonder if OPEC believes that 11 counties in W. TX and S.E. NM can supply a 100mmbpd global oil market over the medium/long term.”

Henry Hub closed at US$3.23.

LNG and international gas

At APPEA the two old geo-politcal foes (but now sharers of secrets in the Oval Office it would appear), the USA and Russia, spruiked their respective LNG messages.

The US, as represented by Tellurian (fronted by Pommie ex-BG exec Martin Houston rather than an actual good-old-boy), said that US gas prices were heading down sharply, due to a wall of “free” associated gas from the Permian.  Hence US LNG would be the cheapest in the World.

The Russians, owner of the world’s largest low cost conventional cost resources, spoke of ambitious timetables for more pipeline gas (to e.g. China) and LNG from Sakhalin, the Arctic, etc.

The US case is bullish – but the Russian one relies on a more “efficient” economy and society than Moscow’s kleptocracy arguably possesses.

Governments

The NT Government gave some support at APPEA to those looking for a lifting of its fracking moratorium – albeit with more hints that any lifting will be localised rather than general.  If this happens, the winners and losers seem unlikely to be determined scientifically….but rather by a licence holder’s lobbying skills and the compromises that politicians will likely make with local indigenous groups.

Company news – Santos (STO) and Oil Search (OSH)

The Muruk exploration well in PNG (now with numerous successful side-tracks) keeps on delivering for its partners (STO, OSH and Exxon).  Results this week indicated great reservoir quality and still more volumetric upside, with the gas-water contact not yet hit.

The other 100 global LNG projects looking for customers/FIDs will not like the sounds of this.

Company news – Woodside Petroleum (WPL)

WPL have continued to promote the use of Browse gas through the North West Shelf liquefaction facilities when the existent feed-stock starts to run-off.  Whether WPL will derive more money from being an infrastructure owner rather than a sub-surface resource owner is open to question.

No doubt its Board is actively considering a break-up that could deliver substantial shareholder value, with the minor consequence of reduced senior management and Director compensation.  Wait a minute!

Quote of the day

News from an anonymous source on NATO’s preparation for dealing with Trump might resonate with industry people’s recollections of some of their own previous chief executives:

“It’s like they’re preparing to deal with a child – someone with a short attention span and mood who has no knowledge of NATO, no interest in in-depth policy issues, nothing”.

 

 

 

 

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