While most eyes were on Woodside’s better-than-expected production report and upgraded annual output target, there was equally good news on the stock market, in the form of rising share prices by other conventional oil and gas producers and explorers.
Beach Energy, for example, had an excellent week, rising by 14c (or 15%) over just five trading days as investors revisited the Cooper Basin specialist.
Norwest, a minnow in the business, had an even better week, rising 1.6c (or 30%) as it moved to within sight of a start on fracture-stimulation testing for shale gas in its part-owned historic Arrowsmith No 2 well in the Perth Basin.
If they had occurred in isolation not many observers would have noticed the Beach 15% rise, or the Norwest 30% rise. However, when incorporated with the $2.49 (8.2%) rise by Woodside and a pattern starts to emerge – a pattern completed by the non-performance of the top two coal-seam-to-LNG stocks, Origin and Santos.
While the conventional and unconventional shale-gas hunters were having a great week, the coal seam duo where doing less well. Santos, perhaps because Cooper conventional remains at its core, managed a rise of 18c (1.7%). Origin went the other way, sliding A23c (1.9%) lower.
One week on the market is not a trend. However, it is awfully interesting in the light of comments made in this column two weeks ago about the words of ex-Woodside boss, Don Voelte, coming back to haunt coal-seam believers.
Back on July 9, The Slug dredged up The Don’s prophetic words about “the dash for coal seam gas” seeing some projects “being sanctioned before being ready, and some without sufficient reserves”
When combined with ongoing environmental protests, worries about the cost of operating a borefield with a zillion producing wells, and worries about simply gathering enough gas for the liquefaction plants, it is clear that the pressure is mounting on the coal-seam-to-LNG brigade.
Shale-gas hinters might yet experience the same pressure as they try to reinvent their part of an industry built on conventional oil and gas reservoirs of the sort tapped by Woodside in the offshore Carnarvon Basin.
There might even be fresh pressures on Woodside as it rebuilds its bruised reputation as a company that can deliver on its promises, rather than perpetually disappoint with under-delivery.
The June quarter result was, in that regard, a step in the right direction, which is why the company had its best day on the market in three years. That 8.2% price rise sat very comfortably alongside a 3% rise in the underlying price of oil.
The trick for Woodside management will be to maintain the momentum by delivering a series of record-breaking quarters as it heads off in pursuit of its revised annual output target of between 77 million to 83 million barrels of oil equivalent. That is a modest but important rise on the previous 73 to 81 million barrel target.
Investment banks that follow Woodside have upgraded their view of the stock after last week’s report. However, they remain cautious on how the company will handle its plans to develop the promised second and third stages of the increasingly-important Pluto LNG project.
“Show me the gas” is a common catch cry from the banks that want to see Woodside nail down reserves before committing to Pluto 2 and 3 rather than building in hope of the gas turning up.
A sample of tips from the banks includes: UBS sliding its 12-month share price forecast from Woodside up by a modest 5c to $43.10, an eye-catching 31% higher than Friday’s closing price. Deutsche lifted its price tip from $40.10 to $40.45. JP Morgan went from $45.84 to $46.12. RBS lifted from $39.75 to $41.25, Citi from $40.78 to $41.02. Goldman Sachs, however, trimmed its 12-month target from $40.75 to $40.55.
Broker’s tips at a time of deep global economic uncertainty are probably not worth the paper they’re written on. However, it is interesting to see the nearly uniform positive upgrades to Woodside after the June quarter results were released.
It was equally interesting to see what might have been another sign of the migration of money out of the coal-seam sector back into more conventional oil and gas. That is a trend that should be watched closely as the coal seam developers get closer to demonstrating (or not) that their industry can successfully, and profitably, produce LNG.
This article first appeared in ILN's sister publication EnergyNewsBulletin.net.
