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Seven's Cooper play muddies the waters
Tim Treadgold
839 words
18 Jun 2015
Business News
WABN
English
© Copyright 2015 Business News Pty Ltd.
The oil price recovery to more than $US60 a barrel appears to be accelerating one of the biggest corporate shuffles ever by a Western Australian company, with Seven Group getting ready to consolidate ownership of the oilfields of South Australia.
Precisely how Seven, which is best known for its media and industrial equipment assets, orchestrates the merger of several companies with assets in the Cooper Basin is yet to be revealed, but that's not stopping speculation that a deal is brewing.
The latest thoughts on a Seven push to unite a large part of the Cooper into a single business come from the investment bank, Credit Suisse, which reckons the action could start with a share-swap merger between Beach Energy and Drillsearch.
Seven's 19.9 per cent stake in both Beach and Drillsearch is what gives the Perth-based company and its major shareholder, Kerry Stokes, the power to force a deal.
The logic behind consolidating the Cooper is compelling, with the gasfields of central Australia a major supplier to Sydney and Melbourne (the country's biggest domestic gas markets) facing a potentially severe shortage of gas that will drive the price higher.
Meeting the future gas needs of south-east Australia was also behind Seven's original move into the region, with its acquisition of control of the Bass Strait gas producer, Nexus Energy.
Credit Suisse said most observers of events in the Cooper have been expecting a consolidation play, with the only uncertainties being who would drive it and when it would happen.
"The arrival of Seven Group on the Beach and Drillsearch share registers could prove to be the platform for things to actually happen," the bank said in a note published yesterday.
Credit Suisse likened what's happening at Beach and Drillsearch with how Seven arranged the 2011 merger of WA Newspapers Holdings and Seven Media to create Seven West Media.
That comparison is interesting, because it can be argued that Seven West has not been a strong performer and might become weaker in the future, if the thoughts of another investment bank are correct.
In a research report circulated last week, Goldman Sachs dropped its advice on Seven West to sell, thanks largely to a decline in free-to-air television advertising and a poor profit outlook.
"The headwinds we see ahead for advertising are likely to drive a lower growth television environment. We see those same headwinds as likely to drive an intensifying battle for audience, placing upward pressure on content costs," the report said.
Seven West's print assets are also under pressure, Goldman Sachs said.
"We expect Seven West's print earnings (newspapers and magazines) to fall from $111.6 million in financial 2014 to $34.2 million in 2019, a five-year compound annual growth rate of minus 21 per sent," it said.
It's when you combine the thoughts of Credit Suisse in the oil sector with the thoughts of Goldman Sachs in the media industry that a picture of Seven's dramatic makeover becomes clearer.
Essentially, Seven and the Stokes family are repositioning business interests away from low (or no) growth sectors into a business that offers the potential for rapid growth and fatter profits.
Media, as is widely known, has become a highly competitive industry thanks to the rise of internet publishing and broadcasting. Industrial equipment, such as the Caterpillar equipment sold and serviced by Seven's WesTrac division, has entered a period of low growth thanks to the slowdown in Australia's resources sector and China's construction sector.
The answer to those challenges, from what an outsider can see, is to take whatever profits can be gleaned from media and equipment and reinvest them in Seven's fast-growing third leg - oil and gas.
If oil and gas prices continue to recover from their sharp decline caused by a flood of production by Saudi Arabia and the US, then Seven will emerge a significant winner from its Cooper play.
But for investors in Seven there is a question to consider: what sort of company are they investing in?
Last year there was no doubt that Seven was a mixture of media and industrial equipment, plus an assortment of other investments.
Next year, as declining profits from media and industrial equipment are reinvested in oil, Seven shareholders could find themselves heavily exposed to a company with a large oil and gas division, a business with a totally different risk profile to what it has today.
The oil price recovery is attracting fresh interest in Seven but it also raises interesting questions about the future level of capital investment in media and industrial equipment, with both of those business units likely to be on short rations for some time.
For an outside investor, the changes under way at Seven make it a difficult stock to pick, especially while there is uncertainty about where future profits will be generated and where future investments will be made.
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Beach Energy looking to become a top-50 ASX company
THE AUSTRALIAN AUGUST 13, 2015 12:00AM
Matt Chambers
Resources Reporter
Melbourne
Beach eyes top-50 ASX position
Rob Cole, the new managing director of Beach Energy. Picture: Mark Brake. Source: News Corp Australia
Beach Energy has its eye on consolidation of the Cooper Basin as part of long-term plans released under managing director Rob Cole to boost production with the aim of making Beach a top-50 company.
And the Adelaide oil and gas producer is in no doubt that Seven Group Holdings taking a big stake in itself and Cooper Basin neighbour DrillSearch Energy is because of the potential benefits in combining the companies.
In a long-awaited strategy review released to the Australian stock exchange yesterday, Mr Cole outlined plans to pursue “organic and inorganic” growth in the Cooper Basin, establish a major gas business in east-coast basins and grow to become the nation’s “premier multi-basin upstream oil and gas company”.
“Over the next 10 years, I would like to see a stepchange in our annual production, and similar growth in reserves,” Mr Cole said.
“Should we achieve this, we will be on the path to becoming a top-50 ASX company.”
Beach said it would continue to assess Cooper Basin consolidation opportunities.
“There is potential for significant consolidation benefits, but consolidation only makes sense if it can be done on a basis that creates value for our shareholders,” said Mr Cole, who took over from long-term managing director Reg Nelson in March. “A dedicated corporate development team has been established to enhance our acquisition capabilities.”
External affairs chief Chris Jamieson, who delivered the presentation to investors yesterday, said there was a benefit in combining Cooper Basin players.
“There’s no doubt Seven taking its position in both us and DrillSearch to 19.9 per cent sends a pretty clear message,” Mr Jamieson told The Australian, adding that consolidation talk around the pair was more than five years old. “Someone did the analysis that if you add the corporate costs of Senex, ourselves and DrillSearch, it’s the same as (BHP Billiton mining spin-off) South32, which is a significantly larger organisation than the three of us combined.”
But as is often the case, while consolidation makes sense, a deal has not been floated that all parties agree reflects the value of their companies.
Mr Cole also alluded to the potential for the Santos-run South Australian Cooper Basin joint venture, in which Beach and Origin Energy are minor partners, to sell the Moomba gas plant and pipeline infrastructure it holds in central Australia.
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Beach Energy flags some job losses in South Australia
THE AUSTRALIAN AUGUST 13, 2015 12:00AM
Michael Owen
SA Bureau Chief
Adelaide
Beach CEO Rob Cole
New Beach Energy managing director Robert Cole. Picture: Kelly Barnes Source: News Corp Australia
Another resources company has flagged some job losses in South Australia, after BHP and Santos cut hundreds of positions and energy company Alinta revealed plans to shut down its coal mine and power stations.
South Australian oil and gas company Beach Energy yesterday released a strategic review of its global operations, including a target of 15 per cent corporate cost savings in the next financial year.
This would see some consultants and contractors axed, but the company said its relatively smaller size meant there would be no job losses for permanent staff along the lines of the cuts BHP and Santos recently announced in the state.
Chris Jamieson, group executive of external affairs for Beach Energy, yesterday told The Australian that cost savings would be found in tightening discretionary spending.
“It is things like travel, making sure our people are booking fixed instead of flexible flights, and we have removed a number of consultants and contractors as well,” Mr Jamieson said.
“Our aspiration is to become an ASX top-50 company and if we’re going to get there, it’s going to be through expansion of our operations and our workforce.”
Mr Jamieson said the company employed about 230 people and hoped its lean organisational structure would see it remain profitable despite low oil prices.
Beach plans to sell a range of assets as part of a broad overhaul of its strategy, while continuing to bet big on oil and natural-gas production from Central Australia’s Cooper Basin.
Late last year the company appointed former Woodside Petroleum executive Robert Cole as successor to long-time managing director Reg Nelson.
South Australia’s opposition mineral resources spokesman Dan van Holst Pellekaan said the immediate future looked bleak.
“It’s a difficult time for the resources sector, especially for workers who are experiencing fewer employment opportunities,” he said.
“This is a further example of the risk to employment created by the Weatherill government’s failure to diversify the South Australian economy.
“They put all of our eggs in one basket and that’s clearly a problem when commodity prices fall.”
However, the Minerals Council of Australia yesterday said there was a strong future in the uranium industry, even as BHP Billiton cuts more jobs at its Olympic Dam operation.
The miner plans to cut 380 jobs in addition to 250 announced earlier this year, citing global challenges in the sector.
The council’s uranium executive director Daniel Zavattiero yesterday told the South Australian Major Projects Conference that uranium prices were picking up.
“At the moment we’re off the low, so there’s been some price recovery and of course yesterday we saw that the Japanese have recommenced their nuclear power generation with the bringing on of the Sendai no 1 plant. So that’s a good — that bodes well for the future,” he said.
A federal five-year employment forecast released this week shows South Australia has the lowest employment growth forecast in the country, predicting the state will add only 53,800 jobs up to November, 2019.
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