July
Talk of gas boom just hot air
Remember the promised LNG boom? It was going to be a time when Australia marched to world leadership as an exporter of liquefied gas. Look again, and you'll struggle to find any evidence of the boom.
The first shot across the bows of Australian LNG was the decision in California to reject BHP Billiton's plan to "land" gas at an offshore terminal. Then came news that the Gorgon project had been hit with a massive cost blow out and speculation that the project was struggling to survive
Now comes a truly bizarre plan from Woodside Petroleum to send gas from one offshore field some 900km via a submarine pipeline, rather than build a nearby processing facility, just to avoid an environmental protest.
When Woodside boss, Don Voelte, suggested he might favour a plan to pipe gas from the Browse fields to be incorporated with the Pluto development, the explanation was centred on the need to find an acceptable onshore landing site.
While environmental objections are an issue it is also possible that gas from the Browse would neatly "top up" what still seems to be a shortfall at Pluto.
Whatever the reason for the problems at Gorgon, Pluto and Browse, it all comes back to the central question of what's happening to the great LNG boom. It is in danger of becoming a fizzer because Australia's resources boom is driving costs through the roof, environmental protests are getting louder, and customers are being too picky or refusing to pay a fair price for gas.
August
Beware buyback blowback
According to the numbers compiled in Canada, the world's top four oil companies, ExxonMobil, Chevron, BP and Shell, booked combined profits of $US57.5 billion in the six months to June 30. But of that $US57.5 billion in profit an estimated 40%, or $US22.9 billion, was spent buying back their own shares.
Share buy backs are good news for shareholders, but there is a limit to how far a buyback can go and there is every chance of a government (or three) asking 'What's the game – and have you forgotten how to play it?'
Rising demand, and rising buyback, must mean less money being spent on exploration – and therefore, further cuts to future supply from the private sector and more power in the hands of national oil companies in Russia, Iran other unfriendly places.
The Slug is looking forward to a furious debate in Europe and the US about what oil companies are doing with their spare loot because buybacks can only go so far before government steps in – and no-one wants that.
September
Hydrocarbons still ahead of the pack
The old player, petroleum, is whipping the arse of the upstart new boy, alternative energy.
Strong profits posted by Beach, Origin, Australian Worldwide, and even tiny Mosaic, followed the pattern laid down earlier by the big boys of oil, Woodside and Santos.
The message in Mosaic's $2.65 million profit, AWE's $35.4 million, Origin's $456.8 million, and Beach's asset-sale assisted $103 million was that conventional hydrocarbon production is still the best way to make money in energy.
What made that message even more clear was news that biodiesel maker, Australian Renewable Fuels incurred a loss of $33.7 million, the Danish-based wind turbine maker, Vestas, is closing its Victorian factory, and the share prices of other biofuel companies continued to plumb the depths, with Natural Fuels hitting an all-time low on Friday of 33.5c.
Meanwhile back in the world of petroleum, it's business as usual, and while discovery is getting harder, production growth is limited, and the peak oil debate rages on, the evidence is that conventional oil is enjoying a far smoother ride than alternative energy sources.
October
Home and away: an oil and gas soap opera
Woodside wants to go home. Santos wants to leave home.
Woodside has been Australia's most ambitious foreign wanderer, much to the annoyance of its major shareholder (and frustrated marriage partner), Royal Dutch Shell.
Shell warned Woodside not go to Mauritania, but to become an Australian LNG specialist.
But Woodside went and comprehensively failed. The company now wants to come home, having spent a decade or two recruiting people with specialist knowledge in African geology, politics and beers.
Santos, on the other hand, has been confined to base by South Australian politicians with brains the size of riesling grapes.
Now, with a whiff of freedom in the air, Santos is pawing the ground ready to expand around the globe – anywhere, in fact, so long as it's not South Australia.
Woodside is undoubtedly making the correct decision to return home. It has in its own backyard some of the world's best LNG opportunities. As Homer Simpson might have said, "D'oh, even Shell knew that".
Santos is also making the right decision. It has sucked the best liquids out of the Cooper Basin and desperately needs to gain life experience away from home.
But does either company have the skills to make the change?
Right now, in the opinion of Slugcatcher, neither has the right personnel structure. Woodside needs more Australians. Santos needs more foreigners.
November
Bayou blunder a turning point for wayward Woodside
Most celebrations mark a victory of some sort, or a birthday someone is trying to forget. But next Saturday, Slugcatcher reckons a visitor to Woodside Petroleum might be surprised to hear the clinking of glasses to mark the first anniversary of a "great loss".
On November 17 last year, Woodside formally marched away from its bid to acquire the US oil and gas producer, Energy Partners Limited (EPL).
In hindsight that decision can now be seen as more than a wise move. It can also be seen as the point at which Woodside started to change shape.
EPL was much more than an over-priced bid for an underperforming business. It was a deal which exposed Woodside as a novice when it comes to working outside its comfort zone of Australia's gas-rich northern waters.
In the wake of the collapsed EPL offer has come Woodside's withdrawal from Mauritania, Kenya, and Libya.
On the New York Stock Exchange, where EPL is listed, the stock has crashed from a 12-month high of $US25.56 during the Woodside raid to recent sales at around $US13.30 – not far off half the peak price.
Why did Woodside bid for EPL?
What did it see that no one else could see – or was there ever actually anything to see?
Today, none of those questions really matter. We've all moved on. The oil price is up. Woodside has a swag of project opportunities ahead of it, and all are close to home and in an area in which Woodside excels.
December
Sequence and consequence in LNG
Look at what confronts ExxonMobil as it struggles with the question of which LNG project is best: a minority stake in Gorgon in waters off the Western Australian coast, or operatorship of an onshore Papua New Guinea development.
Given that one must go before the other, the word sequencing comes into play.
At Gorgon, Chevron says it is getting closer by the day to a development decision. That's nice, but the speed at which it is approaching that decision would make a snail blush.
At the PNG project, according to a recent report by the stockbroking firm, JP Morgan, it's a much brighter outlook because the gas is onshore, there's plenty of it, and the government and partners are "aligned" – unlike Gorgon where Chevron and ExxonMobil are said to be "unaligned" on cost and profitability.
There are rival potential projects requiring an investment decision. One has an apparently cooperative government, the other a difficult one. One has onshore gas, the other has deepwater gas. One has "aligned" partners; the other has a keen operator but an unenthusiastic minority partner.
If ExxonMobil tells Chevron it can't agree on Gorgon just yet because it can see a better "sequence" of opportunities elsewhere, The Slug would not be surprised, but he believes it's far better to stick with regulatory certainty than chase what seems to be a higher profit margin elsewhere – when that elsewhere is the modern day equivalent of the wild west where the gun rules.
