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Politicians wade into North West Shelf

PERHAPS it was inevitable, but it is unacceptable that the takeover bid for Woodside has been turned into a political football.

Until last week the position was relatively clear. The Foreign Investment Review Board was plodding towards its recommendation to Treasurer Peter Costello on whether or not control of Woodside passing to Royal Dutch/Shell was contrary to the public interest.

If the FIRB was any lower key, it would slide under the door. However, it did have a clear role in advising on the provisions of the Foreign Acquisitions and Takeovers Act 1975. That is until Prime Minister John Howard jumped on talkback radio to express his now famous view that he would not allow Australia to become a “branch office economy.”

The remark wiped over $600 million from the market value of Woodside. And it was instantly interpreted as policy being made on the run by a government badly shaken by the resurrection of the One Nation Party.

We need not be concerned about the mainly overseas “arbs” who have bought about 10 per cent of the Woodside capital in recent months punting on the prospect of collecting $14.80, or more for their shares. However, if the notion literally gets abroad that the Australian government is moving the goalposts on overseas investment for electoral reasons, the implications are grave.

Indeed, they may have already shown up as part of the reason for the once again wobbly Australian dollar. Every vibrant country in the world encourages foreign direct investment. It is infinitely preferable to foreign bank debt. The NWS riches would still be under the sea without large dollops of foreign money

Obviously the unsought Shell move on Woodside is a matter of national interest. But it must be decided on its merits, not by pesky pols from all sides of the spectrum.

Those merits have been examined by Professor Ian Harper of the Melbourne Business School, who is a former senior official of the Reserve Bank and served as a member of the Wallis inquiry into the Australian financial system.

Professor Harper took just three weeks to do the job. Admittedly he sent his large bill to Shell, and you may not agree with his conclusions. But his report clearly identified the issues.

One is the strategic importance of Australia’s LNG and oil reserves in the North West Shelf, where they sit on the doorstep of a far from stable Asia. Professor Harper points out the government’s power to secure the use of strategic resources in national emergencies is independent of whether Woodside were Australian-controlled or Shell-controlled.

There is also a belief in some quarters that a foreign firm would ultimately seek to remove high-value-added activities and high-paying jobs (as well as the corporate headquarters) from the host country to the home country.

Professor Harper found that Shell-Australia’s added value per employee is as high or higher than that of Woodside. Moreover, Shell has promised to keep the headquarters in Perth and to build a “centre of excellence” technical services facility in the city

Professor Harper supported Shell’s case that, even after a merger, the group would own no more than a one-third interest in the NWS, and could not unilaterally alter its pace of development. If there were any doubts on this score, Harper suggests, the operating agreement could be amended or “another participant chosen as operator.”

This is the very odd notion, which leaked out of the submissions made to the FIRB by BP, BHP, Chevron and MiMi, the quartet that own the NWS venture along with Woodside and Shell. They surely cannot mean an entirely new independent project operator produced out of a hat.

It seems what is being suggested in the event of Shell getting over the line is the establishment of an alternative operator in which all the partners had an equity interest. That would imply the efficient Woodside exploration, production and marketing outfit being replaced by a corporate dog’s breakfast

The clog brigade played the wrong card recently when it suggested that there was not enough LNG in the project to satisfy future demand from China and elsewhere, and promoted the Greater Gorgon field where Shell has an interest. The notion was comprehensively shot down.

Professor Harper has been accused of isolating a too narrow definition of a takeover that would be contrary to the national interest i.e. that it must reduce on balance the economic or material welfare of the people of Australia, either absolutely, or relative to the level that they might otherwise have enjoyed.

By the same token, if the government does block the Shell proposal, it should spell out the reasons in clear unequivocal language that would be understood, not only by Woodside’s 42,000 shareholders, but by all potential foreign investors in this country.

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BN30 Index

Index = 100 as of 4 Jan 2016
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Total Shareholder Return as at 31/10/18

1 year TSR5 year TSR
216thWoodside Petroleum19%3%
243rdSouth3213%0%
398thFortescue Metals Group-9%-0%
423rdIluka Resources-11%-3%
441stMineral Resources-15%9%
744 WA (and selected non WA) listed companies ranked by 1 year TSR relative to other companies with similar revenue
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Share Transactions

31/08/18
$22k Bought
31/08/18
$23k Bought
31/08/18
$20k Bought
Total value as at the date of the transaction
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Revenue

1st↑South32$10,519.6m
2nd↓Fortescue Metals Group$9,358.7m
3rd-Woodside Petroleum$5,050.0m
4th-Mineral Resources$1,706.7m
5th↑Iluka Resources$1,079.2m
512 listed resources companies ranked by revenue.
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