The Business of Oil and Gas

Big News in LNG

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A significant developments occurred this week affecting the US gas market. New LNG Futures Contract As reported in the Wall Street Journal, Singapore Exchange Ltd has created a market for LNG futures and swaps. Trading could begin as soon as January. The contract will be called the Singapore SLiNG.  (The name alone is worth the price of admission) What does this mean? Price Transparency The first impact will be to provide greater transparency to the price of LNG. Most cargos are sold under long term contracts, often not visible and with opaque terms for origin, destination, transportation charges and pricing and adjustment provisions. This makes estimating the true market value a guessing game at best. Growing LNG Spot Market Although the number of long term contracts has declined and spot trades have climbed to 29% of total volumes, pricing has mainly been privately negotiated between counter parties. Re-exports of cargos under...
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Hope Springs Eternal

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In a Wall Street Journal interview this week, IEA chief Fatih Birol predicted oil prices rising to $80/BBL in 2017. The rationale?  "Current prices are not sustainable", whatever that means. This seems to be more wishful thinking than hard fact or intelligent analysis. I am sure the IEA, like most everyone else, is hard pressed to make sense of this historic situation. In another WSJ article, a survey of investment banks delivers “a sobering message”, oil prices won’t break $60/BBL next year. Really? Prices today are below $40. Inventories are at record levels and some express concern that storage capacity may soon be so full that floating storage in tankers may be brought on line. Yet there are some that expect (or hope) that this week’s OPEC meeting will bring some rationality to the market and there will be a short term bump in prices. The reasoning is that the Saudi’s...
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The Case for Higher Oil Prices

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In a wide ranging interview in Barron's Larry Jeddeloh the Institutional Strategist makes a good case for higher oil prices. Common knowledge has long held oil to be a political commodity. Indeed the Saudis have used their spare production capacity and pricing power to pressure more vulnerable producing countires, mostly Iran. A new player has emerged and flexing his much photographed physique, Vladimir Putin. Now that he sees an opening in the Middle East, Vlad is moving to join forces with the world's largest exporter to get what they both want and need, higher prices. Add to this mix, the Iranians threatening Saudi Arabia from Yemen to the south and a new potentially potent brew bubbles up. Iran is soon to be exporting more oil and would dearly love to get a higher price for it. Could a new alliance be in the making? Mr. Jeddeloh certainly thinks so, and...
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Day of Financial Reckoning

Posted by on in The Business of Oil and Gas
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Energy Transfer (ETE) is buying Williams Companies (WMB) for $32.6 Billion, $15.4 Billion less than was offered in June. Article That is an astonishing 32% decrease in value in just 3 months. What is more amazing is that William is a midstream company with little direct price risk. It owns one of the industry’ most valuable assets: the Transco system, and has other pipes serving growing natural gas markets on both coasts. One would think that Energy Transfer would be rewarded by Mr. Market for such a shrewd deal. Not so. On the day the deal was announced ETE dropped 13%, a further $13.7 Billion erosion in value. Read More This $29.1 Billion loss in value is for a combined company that will have on the order $47 Billion in market value. What gives? Has the oil price contagion spread that far, that fast and that deep that even Steady...
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N Amercian EP Financial Performance
N_Amercian_EP_Financial_Performance.pdf Defending against a takeover a few months ago may have seemed a worthy cause and the biggest challenge for senior management of upstream companies. Today, a takeover may be the best outcome for many North American E&P companies. The reason is that despite the collapse in oil and gas prices many upstream companies could and perhaps should be acquired or their assets sold. These companies have a negative enterprise value and what asset value they have should be placed into the stewardship of other management teams. That means; asset value exceeds the value of the company. We examined the publically traded E&P companies operating in North America (US and Canada), excluding the integrated majors. We included only those with $1 Billion or more in market capitalization to ensure scale and resources were not constraints on success. We looked at the 10 year period from 2004-2014, a time frame that includes...
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