Woodside Petroleum's (ASX: WPL) boss Don Voelte said yesterday that the company intends on remaining an independent producer of oil and gas. More importantly, for shareholders, Volte says, "Independently we can create tremendous value for our shareholders going forward." Woodside is grist for the rumour mill these days, with the market convinced that Royal Dutch Shell or some other oil paramour will come knocking on Woodside's door.
These days, however, our interest is piqued more by smaller and mid- size energy and resource companies than blue chips. Why? Well, yesterday ABARE reported that Australian commodity exports would top $150 billion in 2007-2008. Minerals and energy should account for nearly 80% of that. And within minerals and energy, an interesting contrast can be found between petroleum and thermal coal.
Crude oil and coal come in at fifth and sixth on the latter, respectively, in terms of the dollar volume of exports. Crude oil exports are projected to be around $10 billion in the next fiscal year, while thermal coal exports will be closer to $8 billion. Despite the dollar volume lead, however, Australian production of crude oil is going to be tough to keep up. Production off-shore is getting expensive. And besides, coal can also be used to produce liquid fuels, as we mentioned last week.
In any case, the leading export earnings generators are still iron ore and metallurgical coal, at $18.5 and $15 billion respectively. Iron ore prices have gone up in each of the last five years. Although this steady price appreciation has given China incentive to increase its own production of iron ore, Australia is in the cat-bird's seat for a simple reason: the Pilbara.
That brings us back to our question from last week. What is the next BHP? Here's some reader mail on that subject.
"Hi Dan, I think that the next "other" has not been really created yet. Perhaps, you will see a round of mergers first. The question here is whether some will be geographically concentrated/dispersed or metal specific/polymetal concentrated. Add into this whether your targets are high volume low grade or high grade low volume. Also projected mine life. What is the strategic focus of the acquirer-is it aligned with a future buyer, e.g. possibly a national investment vehicle or other funds, or specific downstream alignment. Strategic focus and fit. Land, Labour, Capital, Technology, Government. Well, Capital is not an issue, so I'd concentrate on the others."
"Guys
Don't know why you didn't have this one on the list - Xstrata.
Run by Mick Davis ( saffer like Marius Kloppers ) and major shareholder is Glencore - also mostly saffers like Marius.
Come on - these guys sleep about three hours a night and spend the rest of their time 21/7 trying to figure out how to squeeze the last drop of blood out of the commodity markets.
A new write-in entry.
Rgds Kev"
Kev is right. The right people are nearly as important to a mining firm's prospects as the right ore body. And speaking of ore bodies, the first reader is right, too. Geographically isolated, low-grade buy high volume ores will be produced. Newer companies will do this because of the incentive of high prices. And smaller-volume deposits of high grade ores will be produced to.
But where? And by whom? We answer both those questions... in upcoming issues.
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
