LNG, Shell/BP, Petrofac, and Genel Energy

WTI $93.52 -1.32; Brent $108.15 -2.90; B/WTI Diff – $14.63 – 72c ; Natural Gas $3.80 +10c

Good morning

You know what it’s like when you shout at the TV as if it ever does any good? I have to say I was guilty as charged when the bloke from the BBC, reporting on the Geneva agreement, said, ” no one anywhere could have predicted this”. Clearly, although the blog does go to the BBC, it hadn’t got though as although the effects haven’t really happened as we thought, our views on Iran this year, published in January have been pretty spot-on!

Herewith the link to the White House release just in case you wanted chapter and verse on the agreement.

http://www.whitehouse.gov/the-press-office/2013/11/23/

Oil Price

Brent actually took the news more badly than I expected, at one stage having been $111.63 on Friday it was $3.48 off the top, this morning after the sell-off Brent has settled at around $108.50 and WTI $93.63. The agreement has seen a pretty substantial climb down by Iran but one of necessity, it appears that the Ayatollah took on board the fact that there was only one way to start ending sanctions and reviving the economy.

There is considerable dispute about how much Iran is exporting at the moment, last month was well below 1m b/d which is the new cap, accordingly most people are suggesting an immediate boost of around $7bn.

Long term I reckon that targets will be 2.5m b/d last achieved nearly two years ago, the 4m b/d from way back is very optimistic.

Sinopec has said that there will be disruption at its ‘super-large’ production in Qingdao after a pipeline leak and explosion that has killed 55 people.

LNG

In a very interesting and extensive article on the LNG market today, the FT agree with my view that the LNG market is getting into a bit of a state. This starts from the premise that Asian buyers in general and Japanese buyers specifically have stopped signing the traditional long-term contracts as they think they will be able to buy cheap gas from the USA. This has had the effect of putting projects on hold as they can’t go ahead without the off-take commitment they need to finance them, thus creating a logjam which ironically may put prices up to the biggest consumers long term.

I have said repeatedly that despite the opportunity to gain balance of payments benefits short term that it is not in the interests of the USA to sell cheap gas to Japan or anyone else for that matter. One of the big advantages of cheap shale gas is that it creates a significant advantage to domestic industry and thus creates inward investment, selling cheap gas to your competitors doesn’t make much sense.

There are a number of large LNG plants, fed by significant gas finds, notably in East Africa, that will supply to the East but rising demand in China in particular should satisfy that production for a long time to come. My guess is that Japans attempt to get the purchase price of gas down to Henry Hub levels will fail and that a country that depends on imported oil and LNG almost entirely isn’t long on bargaining chips.

Shell/BP

I’m not sure what Shell have done or said to the Sunday Times but it’s clearly something big and bad! The stinging attack on the company for its investment policy, its succession plan and its attitude to investors is slightly odd but to suggest that BP is doing better by being a forced seller of assets is bordering on the weird! BP is selling assets to pay for fines and damages as a result of the Macondo disaster which they operated, indeed it seems that they were strongly criticised by the ruling Judge on Friday for making “unwarranted” accusations against the administrator and its lawyers were accused of “deeply disappointing” actions.

It is interesting to compare the two very long term charts, whilst Shell is nothing to write home about lately it looks to me like an equity that yields 5% and has beaten BP which hasn’t always paid a substantial dividend whilst BP isn’t quite so heart-warming. At the moment I would be switching out of BP into Shell as it happens,

Petrofac

The company has announced a contract, shared with the Korean company Daelim , worth $2.1bn in Oman. The contract, which is a 36 month EPC contract to refurb and extend a refinery is a first for ORPIC the Oman Oil Refineries and Petroleum Industries Company but it is not a first in Oman as Petrofac has recently completed a project for the Government of Oman.

I am going to write a comparison piece on some of the larger service companies shortly but although last week’s news was disappointing it was only a push to the right and I am happy to be a buyer down here.

Genel Energy

Apart from winning an award at the Oil Council’s Assembly last week (I should have known, seeing Julian Metherill there was a huge giveaway!) it looks like the news from Kurdistan is continuing to please as pipeline gossip was coming through thick and fast last week. Watch this space as they say. In addition to that it seems that we are also to expect news from Somaliland that the Government there are about to announce a fourth International Energy Company to have signed up, following Genel in.

Finally on a technical point you should watch this chart, I am in a minority here but the resistance at 1000p has been serious and on good volume, I have noted sellers appearing every time it approaches it retreats, today it has burst through, if it stays above the line for a few days then the world is indeed your lobster.

And finally…

Some fantastic sport over the weekend, not to be confused with the Aussie cricketers who have yet again gone over the top with their cowardly yapping and gobbing off. Now I can take any old verbals and in rugby chit chat wasn’t an issue, it was generally handbags but to hear Warner, whose finest achievement is to punch a man in a bar whilst drunk, calling someone ‘scared’ and ‘weak’ takes the biscuit. And for George Bailey, in his first test, to slag off someone makes me laugh!

Anyway, get well soon Trotty…………………..

The Rugby at the weekend was thrilling, interestingly two tales of last minute indiscipline which cost potentially famous victories, both involving the Kiwis. The Ireland team were 30 seconds from victory with their own possession, only needing to recycle and keep the big forwards with the ball but when they lost it unnecessarily we all knew what was going to happen……………………………

In the rugby league, this time England v New Zealand the same thing happened, almost identically, a few seconds left, 4th tackle and a place in the World Cup Final at stake and what do they do? Give away a penalty and watch the Kiwis go over……………..

Fairly boring weekend football-wise but even Man U managed to concede in the 93rd minute to only get a draw in Wales and dreadful goalkeeping errors at Middle Eastlands and at the Emirates let their own sides down.

The boxing was one of the best, Froch v Groves and who could of guessed the outcome of that, both men took a battering and how Froch got up after that ko is a mystery…

Anyone else apart from Vettel would have let Webber past, and he still doesn’t know why people boo him!

In the NFL, the Patriots come back from 24-0 to beat the Broncos in overtime. The televised games saw the Giants edged out by the Cowboys and the Jets beaten by the Ravens. In Cleveland, the Steelers continue their good run of form as they beat the Browns. Green Bay managed to put a stop to their losing streak but only managed a draw against the Vikings after it remained all square in overtime. Other results include the Saints beating the Falcons. The Detroit Lions and Kansas City Chiefs also lost.

Front page of Saturday FT, Prince Andrew, Duke of York allowed JP Morgan to use Buckingham Palace for a private dinner to invite a few of their clients. A dinner that they did not pay anything for in the way of a room fee and totally inappropriate, clearly they still have enough money after paying off a $13bn settlement for being naughty boys to buy some fine claret from Her Majesty’s cellars eh? Oh well……………………..