Rationalisation moves bypass heavy hitters

WA produces 70 per cent of Australia’s gold and all of the nation’s LNG, but while recent consolidation in the international gold industry has had a significant effect on WA, the same cannot be said for oil and gas.

Consolidation among the international energy giants in the past few years has mostly affected the Northern Hemisphere, where the markets for production are large.

On the Australian scene last year, Phillips Petroleum gained the former Queensland-based Petroz, Royal Dutch Shell was denied Woodside Petroleum, and there was plenty of talk about possible Santos moves and BHP Billiton’s plans.

Rationalisation rumours continue around the top three Australian-listed oil companies by earnings – BHP Billiton, Woodside and Santos – but so far this year, the major Australasian consolidation news has been the merger of Papua New Guinea-based companies Oil Search and Orogen Minerals.

In WA, however, Tap Oil’s bid for Arc Energy has stirred comment on likely local scenarios.

Analysts say the small to medium companies will remain on the lookout for opportunities to merge amicably, but interest by the larger companies will remain with farm-ins and joint ventures, at least until a proposed gas-to-liquids industry is established and developments get under way in the Timor Sea.

Ernst and Young consultant Paul Fry said Australia was viewed as very prospective, with the potential to make some large discoveries.

Apart from the Timor Sea, with companies looking for investment in areas with big prospects, international interest remains largely in the Carnarvon Basin, he said.

But while the market for production sales remains comparatively small, it is confined to exploration and development, rather than acquisition activity.

Clayton Utz partner and head of the firm’s national energy and resources group Geoff Simpson said the mid tier of internationals was now starting to recognise Australia as a significant hydrocarbon region, with many companies thinking they should be here and looking to set up regional offices.

And while there were few local companies of the size attractive to the larger internationals, the strategic sense behind Agip and Phillips fighting it out for Petroz, with its 11 per cent interest in the potentially lucrative Bayu Undan venture, would re-appear in other scenarios.

Although opinion differed on whether or not the largest companies were always looking for immediate cash flow, they definitely chased the chance to operate a venture, and there was limited opportunity for this in Australia, a PricewaterhouseCoopers consultant said.

However, he predicted further consolidation among international majors would affect the local industry through rationalisation of assets.

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