WTI $46.02 -52c, Brent $48.42 -49c, Diff -$2.40 +3c, NG $3.02 +4c

Oil price

A bit of slippage from oil yesterday but it has rallied again this morning on the weak dollar and various pieces of news. Clearly the Chinese refinery demand number is the main positive but there are negatives as well. Whilst bad news from Venezuela seems to be a constant it seems that Ecuador is on the sick list too, they are claiming hardship and only cutting 60% of their quota. Elsewhere Syrian forces are taking back their oil and gas fields, one of each yesterday to add to the six at the weekend, is this Gulfsands’ time?

Falcon Oil & Gas

I have been waiting for some months for the interim report by the scientific enquiry into hydraulic fracturing in the Northern Territory in Australia chaired by Justice Rachel Pepper and at the end of last week it was released. Having spent a while on the 175 page report and having been sent a number of press reports and ‘initial’ company reports I managed to have a long conversation this morning with Falcon Chief, Philip O’Quigley. For background, the incoming Labour Government, led by PM Michael Gunner had put a moratorium on fraccing until the report had made its findings public. Whilst this is an interim report with the final not due until the end of the year the report in my eyes could not have been better for Falcon or Origin, the Operator.

These are the two comments that give the most weight to the view that the final report may be a qualified positive for Falcon and Origin.

“The major recommendations, consistent with other Australian and International reviews, is that the environment risks associated with hydraulic fracturing can be managed effectively subject to the creation of a robust regulatory regime.”

“Having regard to the substantive weight of agreed expert opinion, the Inquiry finds that there is no justification whatsoever for the imposition of a moratorium on hydraulic fracturing in the NT.”

The primary and most raised issue is that of water,particularly between fracced shale formations and aquifers, this has been considered to be ‘low risk’ due to the distance between the two and low permeability of the intervening strata. Indeed on this primary and most important point “The Panel’s preliminary assessment is that the impact of onshore shale gas operations on surface water supply in semi-arid (such as the Beetaloo Sub-Basin) and arid areas of the NT is relatively low.” Indeed the enquiry actually said that there was a risk that groundwater and/or surface water could be contaminated by chemicals but that this could be contained by ‘existing management strategies. In addition to this, the enquiry said that reinjection of wastewater into groundwater should be prohibited but Origin have already said that this would never happen.

With two economic studies due shortly that may be published by Justice Pepper, and an analysis of the social impact of any drilling in the Beetaloo Basin which shouldn’t be an issue as that is a no-brainer, yet to come nothing can be taken for granted but the outlook looks positive. Mr Gunner has said that when the decision is made it will be taken only by the cabinet and the Government and ‘solely on the recommendations of the Pepper enquiry’. The two choices appear to be, as might have been expected, either a ban on fraccing or to allow it in a highly-regulated manner in tightly prescribed areas. With the economic argument backing up an approval, it would seem to me that a 10% override with social and scientific backing  is enough to sanction the process. By starting in the Beetaloo Sub-Basin the big winners, apart from the Government are Origin and Falcon who have up to 61 TCF of gas to prove up. Finally it should be noted that Australia is in somewhat of a pickle with regard to its domestic gas supply. Despite having some of the biggest gas discoveries offshore and huge LNG plants selling product all the way up the Pacific Rim it has a severe shortage at home, this might go a little way to addressing that.

Falcon shares were very poor performers after the moratorium was announced which is no surprise as anything could have happened. Since then though some investors have seen the size of the prize and taken the risk which has moved the shares up sharply  reaching a peak of 27.375p earlier in the year. Interestingly with word of this report seeping out yesterday they fell by 10% to 19.5p and they have drifted again today. Whilst it cannot be assumed that the ban will be lifted it is right to balance the risks and with the potential upside being so huge I would be of the view that this fall should be reversed and then some, a multiple winner by almost any means is on the cards here.

Ascent Resources

An update from Petišovci this morning where delays have been the order of the day up until now but things seem to be on the move. Regarding gas delivery to INA, the line from the CPP is now ready, refurbishment of the separation equipment at the CPP is progressing as planned, it is installed and being connected. Now all it needs is recertifying and that should be by the end of this month, meanwhile, at the Pg-11A well the workover should be complete in two weeks. Modest bullish comment from CH but I suspect he is waiting until it flows before breaking out the Travarica.

And finally…

The World Para-athletics Championships are on in London and yesterday another three gold medals were added by Great Britain.

England dutifully lost the cricket but in pitiful circumstances as batsmen through a combination of incompetence and stupidity threw away their wickets. I mentioned the selectors yesterday and  they must get a grip and stop picking serial losers, old mates and has-beens. I’m sure they won’t but Jennings and Ballance have to go, Dawson is no better with bat or ball than Rashid whom they seem to hate and even Mark Wood, who I love to bits appears to be carrying a knock. Oh and btw, do something about the review system on field or Broad and Stokes will use them up in their first overs…Rant over.

Pre-season is underway and the Red Devils are in the US where they had a fiery fixture last night against Real Salt Lake (are you sure?) in which Lukaku scored and Valencia was sent off. I know I have a few readers in Houston where United play the Noisy Neighbours on Thursday night, get down and watch it!!