Today’s Blog – Wednesday 14th June 2017

Editorial

One largely unreported aspect of the recent escalation of tensions in the Middle East over Qatar’s blatant bribery to secure the FIFA World Cup, err, we mean its support for terrorism, is its likely to have flow on consequences for the pricing of Saudi Arabia’s planned IPO of 5% of Aramco.  To the downside, naturally – given the publicity it gives to the high level of regional sovereign risk, capricious medieval rule, etc.

Even before this erupted last week, we noted reports coming out from the LSE in London of key parties’ in the City’s desire to not have Aramco listed there.  This came from representative of large institutions (particularly passive funds) who would be effectively required to hold the stock, like it or not, given the weighting it would achieve in the index.  Not exactly a vote of confidence when major investors say: please list somewhere else.

Our view continues to be that an IPO of Aramco faces major hurdles – disclosure of reserves, what assets will be in and out, and over-arching everything – governance.

Commodity prices

Crude fell slightly (down 0.2%) in London overnight, closing at US$48.20.  In New York, WTI did better – closing up ~1% at US$46.46.  However, an ominous cloud emerged in the US later in the day – estimates that the weekly EIA inventory report will show another large build.  We await tomorrow with trepidation if this proves to be the case.

Henry Hub fell a couple of percent to close at US$2.96.

LNG & international gas

The Australian business media has today reported on the ongoing angst of the East Coast LNG exporters in dealing with the Commonwealth Government’s very new Australian Domestic Gas Security Mechanism (ADGSM).  They are right on the money in terms of their critique that the ADGSM is being rushed in, there is little time for consultation and unintended consequences might arise.

But the politicians don’t care – there is no political cost to them for fixing the gas shortfall issues – which are seen by the Australian public – and critically international investors – as being caused by mistakes of the oil and gas companies’ making, rather than a manifestation of unfair sovereign risk.

Governments

Two business days in and the Finkel Report is under a lot of pressure – maybe even fatally.  Its efforts to find a middle ground are tripping over demands for everlasting cheap coal power from the right.  Our simple view – throw them a bone, but with no real meat on it – capital markets won’t fund coal in Australia no matter what regulatory system is put in place.

Over in the States, the soft hearted vampire squids at Goldman Sachs are starting to underwrite major wind-farm investments – and will apply their GFC honed financial skills to slice and dice the output therefrom to meet different parties’ needs in terms of duration, volume, risk, etc.

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

STO and OSH reported today upon further positive results from the Muruk well in PNG. A choke constrained production test flowed a handy 16 mmcfd.  Estimates of resources will follow in due course – and a further delineation program is flagged.

PNG’s sovereign risks will now be looking a little bit better to buyers in light of what is happening in Qatar.

Company news – Senex Energy (SXY)

SXY announced today that it to commence a 30 CBM well program in its Western Surat project – with production due to start in just over a year’s time.  SXY will be hoping that the market’s love for East Coast gas – particularly as manifest over Cooper Energy – will rub off on its own share price as flow rates, etc, build news-flow from this project.

Quote of the day

From Michael Lewis’ classic, the Big Short, which makes us wonder who the vampire squids have identified as the patsies in their new renewables dealings:

“When the Goldman Sachs saleswoman called Mike Burry and told him that her firm would be happy to sell him credit default swaps in $100 million chunks, Burry guessed, rightly, that Goldman wasn’t ultimately on the other side of his bets. Goldman would never be so stupid as to make huge naked bets that millions of insolvent Americans would repay their home loans.”

 

 

 

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