santos may sell stake in gladstone, page-6

worth a read folks .. via todays petroleum news .. sets the pulse racing

2010: Year of the takeover


Monday, 11 January 2010


IF running hard to stand still is your definition of progress you will enjoy 2010. But if, like Slugcatcher and just about everyone else interested in petroleum, you expect a little more action, then 2010 is shaping as the year of the takeover.


Three facts observed during the Christmas break triggered this thought.

First, and most obvious, was ExxonMobils $US41 billion bid for US gas producer XTO.

Second, and were all tired of hearing this, the day peak oil moved a little closer as worldwide petroleum discoveries struggled to keep pace with production.

Thirdly, came The Slugs own discovery that Australias major oil and gas producers have been mimicking the rest of the world by doing very little over the past few years to boost production or build reserves.

Combined, these events lead to the conclusion that corporate growth in the future will be via merger and acquisition which, when you think about it, isnt actually adding anything to the petroleum industry, simply shuffling management deck chairs.

ExxonMobils move on XTO is the most striking example of the takeover games we will see started in 2010, for a number of reasons.

It is the first big acquisition by the worlds biggest oil and gas company since it was created by the 1999 merger of Exxon and Mobil, and it is recognition by the hard-nosed oilmen who run ExxonMobil that gas is the place to be in the 21st century, if only because its a first step along the climate change road.

More importantly, it is ExxonMobil voting with its balance sheet (since it is issuing shares, not paying cash) on the future of unconventional gas which is what XTO has in the form of gas-rich shale deposits.

For Australias unconventional gas producers, especially the coal seam methane players in Queensland, ExxonMobils newfound interest in unconventional gas is a big vote of confidence though it could also be recognition that the best of the worlds conventional oil and gas reserves are spoken for.

In other words, big oil is voting with its cheque book on both (a) the need to make a splash in unconventional gas and, (b) the need to grow by acquisition.

Both factors play neatly into the second factor noted during the Christmas break, the fact that the peak oil debate is scheduled to flare again in 2010 as the world climbs out of recession.

China is once again setting a cracking growth pace with annual economic expansion measured at 9.5%, a number which will be hard to maintain, but even with a little slippage to cope with overheating points to continued strong demand for energy.

To put energy demand growth into perspective, the rapid expansion of Asia means that total world demand will expand by 50% over the next 20 years, with the obvious question being where will it come from?

ExxonMobil reckons gas, and its backing that belief with a share-issue takeover which really isnt genuine expansion at all, its simply taking two companies and giving them the same name.

Production might increase, because ExxonMobils big balance sheet can drive exploration and development of XTOs shale gas, but thats really just a timing issue as XTO would have got around to the job, albeit at a slower pace.

In Australia, a similar situation is emerging because as far as The Slug can see the big three of Australian petroleum havent done much over the past few years in terms of expanding production and reserves.

Better things are promised. Woodside Petroleum will soon switch on its Pluto gas project, with more conventional gas projects in the pipeline. Santos has high hopes for coal seam gas and other gas projects, but its production profile looks pretty ordinary for the next few years, and BHP Billitons petroleum division has made lots of noise, but not really done much.

Lack of discovery meant that in the 12 months to the end of 2008, Woodside lifted its proved plus probable oil and gas reserves by a lowly 15.1 million barrels equivalent, a drop in a bucket which contained 1703.2MMboe.

Santos, at its last balance date, had just over 1 billion barrels of oil equivalent and a production track record that was travelling in reverse and is likely to continue shrinking for another 2-3 years.

But, BHP Billion represented the best example of running hard to stand still with its official proved oil equivalent reserves position falling from 1.4 billion barrels in 2005 to 1.38 billion in 2009.

Interestingly, and just to prove his political incorrectness, The Slug noted how each of Australias big three of petroleum emphasise their safety and sustainability reports ahead of their reserve position.

Perhaps that is to highlight what good corporate citizens each is, or perhaps it is to mask a pretty ordinary recent discovery record and minimal reserve growth.