Today’s Blog – Thursday 18th May 2017

Editorial

As we have previously reported, BHP has come under public attack from a small but influential shareholder – US activist investor Elliot Associates.  Based on public comment from BHP and financial media commentary, it seems that the most likely fall-out from the attack is an accelerated sell-off of BHP’s US shale gas/oil assets – likely by trade sale rather than spin-out/IPO.

Today’s Australian Financial Review (AFR) reports that BHP has concluded that the success of US shale is highly unlikely to be replicated elsewhere – due to the nearly unrivalled quality of the US rocks – and also the country’s amazing petroleum infrastructure (not only pipelines, but knowledge of the sub-surface, access on the surface, oil-field people, the deep and cheap service sector, etc).

BHP’s analysis is not new – but is interesting to juxtapose with ongoing current interest by others in Australian shale plays in the Northern Territory (interest in shale in the Cooper Basin seems to have largely come and gone).

The connection by the NT to the East Coast (and the upcoming need by Darwin LNG for replacement feedstock) has driven parties such as Origin Energy (ORG), Santos (STO) and a host of smaller companies to invest in shale the NT.  Unfortunately their efforts have been retarded by a typical so-called moratorium – but there are signs that this will be partially lifted.

If BHP is correct these parties are wasting their time and money.  It is easy to see that surface and infrastructure access will be orders of magnitude tougher in the NT than in say Texas.  The question might then become – the price of gas in Australia is higher than at Henry Hub – does that sufficiently compensate?

Commodity prices

Crude prices rose slightly (by ~0.5%) overnight, with Brent closing at US$52.03 and WTI at US$49.07.  The weekly inventory report was quite strong (and was the 6th in a row with a fall in crude stocks): crude was down 1.8 mmbbls, gasoline was down by 0.4 mmbbls and distillate was down by 1.9 mmbbls.

Henry Hub had a bad day – down nearly 5% to US$3.19 (somewhat lower than Australian ~A$10 gas prices the NT companies named above would point out).

LNG and international gas

Another day, another delay and/or outage in an Australian LNG project.  Icthys, Prelude, Wheatstone and Gorgon – all  have current problems.  It seems that the most reliable liquefaction plants are those on Curtis Island – that however lack the high quality feedstock the above listed assets possess.

Disruption

Over the last 24 hours alone a number of media commentators, financial blogs – and most interestingly, from hard nosed industry people – have referenced a new paper by (inter alia) energy disruption supremo, Tony Seba, called The Disruption of Transportation and the Collapse of the Internal-Combustion Vehicle and Oil Industries.

This is a good summary of the thinking on how the disruption patterns seen in many other industries could hit the massive oil and gas sector, the number of countries who almost solely live off it, the motor manufacturing sector, etc.

If even only some of this comes to pass, then this time (dare we say it) – “it really is different”.

Company news – Beach Energy (BPT)

The AFR today reported that BPT had added to the ranks of investment bankers acting for it in its potential purchase of ORG’s upstream Lattice Energy assets.

What the article did not mention was the view of BPT’s largest shareholder – Seven Group – a company that does not seem to have a lot of financial capacity to take part in a large BPT rights issue – but would presumably not want to dilute its substantial (near controlling?) shareholding.  Could it vend in e.g. the ill-starred Longtom asset for stock and maintain its position?

Quote of the day

From the Disruption report noted above:

“Oil demand will peak at 100 million barrels per day by 2020, dropping to 70 million barrels per day by 2030. That represents a drop of 30 million barrels in real terms and 40 million barrels below the Energy Information Administration’s current “business as usual” case. This will have a catastrophic effect on the oil industry through price collapse (an equilibrium cost of $25.4 per barrel).”

 

 

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