OPEC (Organization of the Petroleum Exporting Countries) is back in the headlines as the group makes the controversial decision not to cut crude oil output last week. The most obvious result is that the price of oil will continue to slide as supply outstrips demand.
The decision will hit some producers harder than others; and governments that are heavily dependent on oil revenues to fill the public purse weren’t shy in their condemnation of the decision. Venezuala says it will be forced to make cuts in its budget while Angola and Nigeria will also be hit hard.
At the heart of the conflict is US shale oil and its immensely disruptive impact on the cosy control of global oil markets that OPEC countries wielded for many decades. With the price of oil rising above $US100/barrel in past years the high cost of refining the shale oil became economic, the play by OPEC is an unsubtle attempt to push these supposedly higher cost producers out of the game. Tensions are high and US producers are showing little signs of cutting their own production in the short-term.
The impact on Aussie stocks was equally unsubtle with energy stocks leading the local market lower for a number of days last week. This week Santos was down about 25 per cent, while Oil Search lost close to 10 per cent but it managed a reversal into the green late this week.
Economic news
The burgeoning LNG export industry is also under fire as falls in the oil price will put downward pressure on other energy sources, such as LNG. Debate is mixed about how this leaves Aussie producers but there is optimism in the fact that local LNG producers have the benefit of low cost production and proximity to buyers. This should leave Australian gas as the cheapest of the bunch. An outside benefit of rising oil costs is that high cost gas projects overseas might be shelved, leaving Aussie suppliers to take the spoils.
The Bureau of Resources and Energy Economics (BREE) says Australia is on its way to becoming the world’s largest LNG exporter in its 2014 Gas Report. The government resources forecaster concedes that there will be challenges and adjustments to be made, including the East Coast linking to the international gas market and labor pressure building. Despite these pressures Australia has a number of distinct advantages that should see it remain as a key supplier for its Asian neighbors.
Gas deals
Shares in Woodside Petroleum Limited
(ASX:WPL) have dipped despite its approval of the Persephone Project off the north-west coast of Australia today. As part of the North West Shelf Project, the $1.2 billion investment is the third major gas development for the project in the past six years.
Santos Limited
(ASX:STO) has forecast first LNG to begin flowing from the Gladstone LNG project in the second half of next year. The oil and gas explorer says the project is 90 per cent complete and development is within its $US18.5 million budget.
Senex Energy Limited
(ASX:SXY) is celebrating first commercial gas sales as it works to delivering its growth acceleration strategy. The oil and gas company has started commercial production of gas and achieved inaugural gas sales from the Hornet field in the Copper Basin.
Striking oil
Senex Energy Limited
(ASX:SXY) latest drilling efforts have shown mixed results. The petroleum explorer and producer recently completed drilling at two wells in the South Australia Cooper-Eromanga Basin.
Woodside Petroleum Limited
(ASX:WPL) is poised to explore a block offshore Morocco. The oil and gas producer has entered into a contract for an exclusive reconnaissance licence with the National Oil Company of the Kingdom of Morocco.
Strata-X Energy Ltd
(ASX:SXA)(TSX.V:SXE) will begin drilling in the Illinois basin early next month. The oil and gas explorer says it will start with shallow, vertical wells and that it has regulatory approval to drill three wells.
Executive appointments
Beach Energy Limited
(ASX:BPT) has appointed Robert Cole to replace outgoing Managing Director Reg Nelson. Mr Cole most recently held executive positions in the Corporate and Commercial division of Woodside Petroleum and also held a position on the board.
Uranium producer Paladin Energy Limited
(ASX:PDN) has unveiled a $205 million capital raising and a number of measures to recapitalise the company. The Africa-focused miner will raise the money through issuing new shares and says it expects to be fully funded until at least June 2016. A placement of shares has been made to Chinese’s Hopu Investments for $61 million at 42 cents per share.
