Today’s Blog – Monday 29th May 2017

Editorial

One of our recurring themes has been that capital markets might well drive more change in the future energy mix than politicians and regulators.  In this light we note the potential significance of a recent interview with the global head of BlackRock’s infrastructure investment group, Jim Barry, who said:

“Coal is dead. That’s not to say all the coal plants are going to shut tomorrow. But anyone who’s looking to take beyond a 10-year view on coal is gambling very significantly.”

Some in the oil and gas industry might say – “that’s coal – we are much cleaner” (and indeed the strategies of the likes of Shell are to re-weight towards cleaner gas).  However, a less rosy view is that where coal goes today, oil – then gas – might well go tomorrow.

Last week we noted Woodside Petroleum’s annual strategy presentation which advised the market that FIDs on new large scale LNG developments would not occur for 10 years. However, at that point the likes of BlackRock (the largest investment house in the world) but not be very keen on their investee companies committing billions to any multi-decade fossil fuel projects.

Commodity prices

Last week’s OPEC meeting delivered pretty much what the market expected – a 9 month extension of the previously agreed cuts.  The oil price response was a negative one – falls of nearly 5% during Thursday’s trading in what was generally interpreted to be a “sell the news” phenomenon.  Prices bounced back a bit on Friday, but were still down for the week, with Brent closing at US$52.15 and WTI at US$49.80.

Friday’s weekly rig count from BHI reported an increase of only two oil rigs and five gas rigs.

Henry Hub was down ~2% in the week, closing at US$3.31.

LNG and international gas

In a move that is as geopolitical as it is economic, last week Sri Lanka announced that a 50/50 consortium of India’s Petronet and an un-named Japanese company would invest in a LNG regasification plant on the strategically located Island nation.  The counterbalance this provides to China’s port and other investments in the country (as part of the ever growing web of “one belt one road” investments) was obvious.

Counter-balancing other not-necessarily-benign forces was news that LNG should be imported from the US into Poland and the Netherlands in the next week or so. Geopolitics again in terms of reducing Russian exposure – but also a response to better prices, more flexible terms, etc – i.e. a focus on the actual customer.

Company news – FAR Ltd

FAR is holding its AGM this morning and it is interesting to note for the first time in some months a public allusion to what seems is the still unresolved issue of whether the company has a pre-emptive right over last year’s sale of JV interests by Conoco to Woodside.

The presentation to the AGM noted that “preserving” such rights was a key strategic focus of the company – as is keeping open the optionality of selling down or out of pre-production assets to focus on the rather more fun part of the business – new ventures and exploration.

Company news – Central Petroleum (CTP)

CTP was due to hold an EGM next Monday to vote upon its Board recommended takeover by Macquarie Bank by way of a Scheme of Arrangement.  Recent trading in the company’s shares – at a discount to the takoever price – indicated a growing market view that the vote at the EGM might reject the Scheme.

The company has reacted today by initiating a trading halt pending news of a delay in the vote and more information to be sent to shareholders (the previous ~500 page booklet was clearly too short).  CTP shareholders seem to be economically supporting the high remuneration of Australia Post’s CEO that has recently been the focus of media attention.

Quote of the day

Departing Australia Post CEO Ahmed Fahour on what he thought was unreasonable focus on his >$5M annual salary:

‘’I was bemused at the time because there were some CEOs who were doing some things that were not so great to their secretaries and some were not running their businesses very well, and they seemed to keep their jobs and nobody seemed to care about what they were being paid.”

 

 

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