'MAD MAX' STYLE RESOURCE WAR WON'T HAPPEN
Written on the 1 May 2012
A CBD energy producer does not believe spiralling oil prices will lead to a Mad Max-style apocalypse.
Linc Energy (LNC) CEO Peter Bond (pictured) believes rising oil prices will not lead to a global resource war and are only the product of decades of cheap energy.
“I do not think we will reach a Mad Max situation where wars begin over oil. At the moment you and I are paying more for our Coca-Cola,” he says.
“The perception is we grew up on cheap energy but there was always going to be a reconciliation. You cannot expect to get oil for $20 a barrel, gas for 5 cents a kilowatt because there is no return on investment.”
Bond explains the price hike is due to pressure on supply and stock, leading to a ‘classic peak-oil’ scenario.
“The world uses 1 billion barrels every two weeks. It will only take a few years before the world starts consuming 90 million barrels a day. The industry cannot match that with ships, drill rigs and infrastructure,” he says.
“There are questions over our ability to handle the next few million barrels. That is why oil is already at boiling point where it is exploding to $100 plus a barrel. It does not feel overpriced yet; it is ready to increase due to demand from China, India, the US and Europe.”
LNC recorded a $296.4 million net profit after tax in the year to June 30, 2011. The figure represented a turnaround from its 2010 loss after tax of $16.2 million. Revenue was $3.199 billion, a 157.9 per cent jump on the previous fiscal period.
The growth was fuelled by first oil-sale revenues following the Rancher acquisition in March 2011, which carried a $6 million bargain purchase gain since fair value of acquired assets exceeded the consideration paid.
“We have made progress on the Wyoming assets and have quite a large presence in the Wyoming, Texas, the Gulf Coast and Alaska,” says Bond.
“I am expecting oil to more than double in growth this coming year and profits to increase considerably.”
Selling non-core coal tenements in the Galilee Basin to the Adani Enterprises Group of India for $500 million was a profitable strategy. LNC also made an agreement with Adani to receive $2 for each tonne of coal produced during the first 20 years of production.
“The Galilee coal tenement is just such a great asset. The Adani Group understands it is a good and valuable asset,” says Bond.
“Demand for coal will remain strong. It will be a strong growth asset for us going forward.”
However, LNC incurred unrealised foreign exchange losses of $7.7 million compared with an FY10 gain of $199,000. This was influenced by currency movements on Australian dollar-denominated intercompany loans to US subsidiaries.
Staff growth lifted employee benefit expenses by 160.2 per cent to $38.3 million. The increase was driven by noncash share based payments expenses, reflecting the fair value of options granted under the employee option plan and rights granted under the performance rights plan.
LNC have one debt facility at BNP Paribas worth in excess of $120 million.
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