Gaffer stated Shell interest in CTP has a probability of only 20%, citing various reasons.
IMO, Gaffer has grossly under estimated the business intent and technical capabilities of Shell. Shell is a formidable player in the oil and gas industry in its own right. Shell partners with Petro China in many projects throughout the world, the Shell/Petro China JV is a significant force in the industry.
The JV would not be interested in CTP just for the hundred million barrels of oil. After all, in 2011, Petro China itself produced more oil than Exxon Mobil.
The JV holds one of the five LNG licenses in Queensland. The JV is a multi-billion $ project. The JV has taken over Arrow and Bow for the near term supply of gas. CTP is ideal for a longer term outlook.
Based on CTP announcements, the Amadeus Basin formation is similar to the Sichuan Basin in China. Shell / Petro China has discovered shale gas in Sichuan Basin. The JV is set to develop and produce shale gas from the Sichuan Basin. The geological and technical knowledge gained in Sichuan would aid in the exploration of the Amadeus Basin. The JV success in Sichuan would encourage the JV to have a go at the Amadeus Basin, and the company that has the acreage is CTP. Moreover, CTP can be bought outright for a mere $200m, but I don’t think the JV would do that. Cash is not an impediment as Petro China has set aside $60b for acquisition within this decade.
The hot and dry Amadeus Basin would be ideal for Shell “heating system.” Shell heating system is able to speed up the conversion of kerogen to oil/gas but has not been economical because the heating system requires energy. Out in the hot Amadeus Basin, solar power provides the energy and the two sandstone layers provides the ideal oven condition to cook the kerogen in the Horn valley siltstone. The low porosity of the two sandstone layers may be a plus in this situation, reflecting more heat back into the siltstone layer. Therefore, the tight sands which is negative for oil retention is a plus for heat reflection. Either way, the JV wins.
Shell system is environmentally friendly, and would be welcome over other hydro and chemical fracturing system. In fact, this place Shell as the best candidate to exploit the Amadeus Basin.
HESS indeed may be the company after CTP. HESS is an upstream operator, and Shell/Petro China would be happy for HESS to be the operator supplying gas for its LNG project. I am not surprise that Shell/Petro China is the instigator behind HESS move into CTP because there is no need for Petro China to once again tangle with FIRB.
You may say it is all speculation. But, it is speculation that makes a stock a speculative stock. Meanwhile we keep guessing.
CTP Price at posting:
52.5¢ Sentiment: LT Buy Disclosure: Held
