SPE June 2010
Coal Seam Gas: opportunities & the RSPT SPE Victoria / Tasmania branch 16th June 2010 John Young Senior Resources Analyst Wilson HTM Investment Group
Victoria / Tasmania SPE June 2010
Disclosure and Disclaimer
2
Disclosure of Interest. The Directors of Wilson HTM Ltd advise that at the date of this report they and their associates have relevant interests in securities in companies mentioned in this report. They also advise that Wilson HTM Ltd and Wilson HTM Corporate Finance Ltd A.B.N. 65 057 547 323 and their associates have received and may receive commissions or fees from these companies in relation to advice or dealings in securities. Some or all Wilson HTM Ltd authorised representatives may be remunerated wholly or partly by way of commission. Disclaimer. Whilst Wilson HTM Ltd believes the information contained in this communication is based on reliable information, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. To the extent permitted by law Wilson HTM Ltd disclaims all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage) however caused, which may be suffered or arise directly or indirectly in respect of such information. Any projections contained in this communication are estimates only. Such projections are subject to market influences and contingent upon matters outside the control of Wilson HTM and therefore may not be realised in the future. The advice contained in this document is general advice. It has been prepared without taking account of any person’s objectives, financial situation or needs and because of that, any person should, before acting on the advice, consider the appropriateness of the advice, having regard to the client’s objectives, financial situation and needs. If the advice relates to the acquisition, or possible acquisition, of a particular financial product – the client should obtain a Product Disclosure Statement relating to the product and consider the Statement before making any decision about whether to acquire the product. This communication is not to be disclosed in whole or part or used by any other party without Wilson HTM Ltd's prior written consent. 17-Jun-10
Victoria / Tasmania SPE June 2010
Market opportunities Resource Super Profits Tax
3
17-Jun-10
Victoria / Tasmania SPE June 2010
Australia’s energy endowment 1,200
SDR/Unconv EDR
'000 PJ
1,000 800 600 400 200 0 Black Coal
Brown Coal
Oil & Cond
Gas
Uranium Geotherm
Source: “Australian Energy Resource Assessment”, DRET & ABARE, March 2010 (Table 1.1, p 7 and Table 2.3, p18) and Wilson HTM Notes: - Resources shown are “Economically Demonstrated (EDR)” and “Sub-Economically Demonstrated (SDR)” & “Unconventional” - Unconventional includes “prospective” (i.e. yet to be discovered, but believed to be recoverable) - Geothermal based on assumed 10% recovery of in-place resource
4
17-Jun-10
Victoria / Tasmania SPE June 2010
Australia’s gas resources
Conventional (3P+2C) CSG (Recoverable) CSG (3P+2C) CSG (3P) 5
Capital Source: ABARE and Wilson HTM
17-Jun-10
Victoria / Tasmania SPE June 2010
Gas usage outlook
6
Source: “Australian Energy Resource Assessment”, DRET & ABARE, March 2010 (Figure 4.3, p85)
17-Jun-10
Victoria / Tasmania SPE June 2010
Australian liquids self-sufficiency 3000
PJ/year
2500 2000
Consumption
1500 1000 Production
500 0 2010
2015
2020
2025
2030
Source: Wilson HTM analysis of ABARE data
7
17-Jun-10
Victoria / Tasmania SPE June 2010
Pricing structure 20
$US/GJ
15 10 14.30 5
8.80
0 LNG
Diesel
Source: Wilson HTM analysis. Notes: - Oil price $US80 /bbl - LNG to oil price relationship = 80% (13.8% slope factor). 5.80 mmBtu/boe. - LNG freight = Japan / Gladstone @ $US0.60 /mmBtu - Crude includes refining margin of $US3.00 /bbl and Australian product quality premium - Fuels freight = $US4.50 /bbl, comprising Singapore/Australian east coast freight + Insurance & Loss + inwards wharfage - Loss represents conversion of feed gas to finished product, assuming 90% yield for LNG and 80% yield for GTL - Revenue expressed in $US/GJ of feed gas
8
17-Jun-10
Victoria / Tasmania SPE June 2010
Micro-LNG Already happening – Wesfarmers, WA – BOC, Victoria
BOC national plan – Tasmania, Queensland, Victoria and NSW – Interstate network of refuelling stations
Gas supply with BG – 2 PJ/year, Queensland
Source: Wesfarmers Limited
9
17-Jun-10
Victoria / Tasmania SPE June 2010
CNG for transport
Source: OES CNG Australia and Volvo
10
17-Jun-10
Victoria / Tasmania SPE June 2010
Market opportunity
'000 PJ
300
200
37 7 51
100 60
52 44
0 Resources Available
Domgas Usage
LNG
Fuel
Potential
Source: Wilson HTM analysis.
11
17-Jun-10
Victoria / Tasmania SPE June 2010
Market opportunities Resource Super Profits Tax
12
17-Jun-10
Victoria / Tasmania SPE June 2010
Resource taxation Current system – state royalty, 30% corporate tax for onshore projects – PRRT for offshore projects
RSPT – 40% RSPT, 28% corporate tax – Capital uplift at 10 year government bond rate
PRRT – 40% PRRT, corporate tax rate – Capital uplift at 10 year gov’t bond rate + 5 to 15%
13
Source: “The Resource Super Profits Tax - a fair return to the nation”, www.futuretax.gov.au, 2 May 2010
17-Jun-10
Victoria / Tasmania SPE June 2010
Resource taxation Upstream
Downstream
60
Tax take (%)
50 40 30 20
47
49
32
26
10
26
26
0 Royalty RSPT
PRRT
Royalty RSPT
PRRT
Source: Wilson HTM analysis. Estimated tax take over project life for CSG to LNG project Tax take is expressed as percentage of revenue less cash operating costs (i.e. EBITDA+royalty add-back), rather than EBT
14
17-Jun-10
Victoria / Tasmania SPE June 2010
Resource taxation Upstream
Downstream
0.50
NPV ($A/GJ)
0.40 0.30 0.20 0.10
0.39
0.33 0.20
0.39
0.39
0.23
0.00 Royalty RSPT PRRT
Royalty RSPT PRRT
Source: Wilson HTM analysis. Estimated NPV per unit of gas produced over project life for CSG to LNG project NPV after tax at 11.5% nominal discount rate
15
17-Jun-10
Victoria / Tasmania SPE June 2010
RSPT impact on project returns IRR vs. gas price 38%
40% 34% 30% 30%
32%
IRR (%)
25%
29% 25%
19%
20%
21%
10%
16%
10% 9% Upstream, current
Upstream, RSPT
LNG
0% 0 Source: Wilson HTM analysis
16
2
4
6
8
10
12
14
16
Gas Price (A$/GJ)
17-Jun-10
Victoria / Tasmania SPE June 2010
Conclusions Opportunities for CSG exist beyond LNG RSPT reduces the value of resource projects Explorers / producers are impacted more than vertically integrated majors
17
17-Jun-10
Victoria / Tasmania SPE June 2010
Thank you
John Young Senior Resources Analyst Wilson HTM Investment Group [email protected]
18
17-Jun-10
Victoria / Tasmania SPE June 2010
Disclosure and Disclaimer
2
Disclosure of Interest. The Directors of Wilson HTM Ltd advise that at the date of this report they and their associates have relevant interests in securities in companies mentioned in this report. They also advise that Wilson HTM Ltd and Wilson HTM Corporate Finance Ltd A.B.N. 65 057 547 323 and their associates have received and may receive commissions or fees from these companies in relation to advice or dealings in securities. Some or all Wilson HTM Ltd authorised representatives may be remunerated wholly or partly by way of commission. Disclaimer. Whilst Wilson HTM Ltd believes the information contained in this communication is based on reliable information, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. To the extent permitted by law Wilson HTM Ltd disclaims all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage) however caused, which may be suffered or arise directly or indirectly in respect of such information. Any projections contained in this communication are estimates only. Such projections are subject to market influences and contingent upon matters outside the control of Wilson HTM and therefore may not be realised in the future. The advice contained in this document is general advice. It has been prepared without taking account of any person’s objectives, financial situation or needs and because of that, any person should, before acting on the advice, consider the appropriateness of the advice, having regard to the client’s objectives, financial situation and needs. If the advice relates to the acquisition, or possible acquisition, of a particular financial product – the client should obtain a Product Disclosure Statement relating to the product and consider the Statement before making any decision about whether to acquire the product. This communication is not to be disclosed in whole or part or used by any other party without Wilson HTM Ltd's prior written consent. 17-Jun-10
Victoria / Tasmania SPE June 2010
Market opportunities Resource Super Profits Tax
3
17-Jun-10
Victoria / Tasmania SPE June 2010
Australia’s energy endowment 1,200
SDR/Unconv EDR
'000 PJ
1,000 800 600 400 200 0 Black Coal
Brown Coal
Oil & Cond
Gas
Uranium Geotherm
Source: “Australian Energy Resource Assessment”, DRET & ABARE, March 2010 (Table 1.1, p 7 and Table 2.3, p18) and Wilson HTM Notes: - Resources shown are “Economically Demonstrated (EDR)” and “Sub-Economically Demonstrated (SDR)” & “Unconventional” - Unconventional includes “prospective” (i.e. yet to be discovered, but believed to be recoverable) - Geothermal based on assumed 10% recovery of in-place resource
4
17-Jun-10
Victoria / Tasmania SPE June 2010
Australia’s gas resources
Conventional (3P+2C) CSG (Recoverable) CSG (3P+2C) CSG (3P) 5
Capital Source: ABARE and Wilson HTM
17-Jun-10
Victoria / Tasmania SPE June 2010
Gas usage outlook
6
Source: “Australian Energy Resource Assessment”, DRET & ABARE, March 2010 (Figure 4.3, p85)
17-Jun-10
Victoria / Tasmania SPE June 2010
Australian liquids self-sufficiency 3000
PJ/year
2500 2000
Consumption
1500 1000 Production
500 0 2010
2015
2020
2025
2030
Source: Wilson HTM analysis of ABARE data
7
17-Jun-10
Victoria / Tasmania SPE June 2010
Pricing structure 20
$US/GJ
15 10 14.30 5
8.80
0 LNG
Diesel
Source: Wilson HTM analysis. Notes: - Oil price $US80 /bbl - LNG to oil price relationship = 80% (13.8% slope factor). 5.80 mmBtu/boe. - LNG freight = Japan / Gladstone @ $US0.60 /mmBtu - Crude includes refining margin of $US3.00 /bbl and Australian product quality premium - Fuels freight = $US4.50 /bbl, comprising Singapore/Australian east coast freight + Insurance & Loss + inwards wharfage - Loss represents conversion of feed gas to finished product, assuming 90% yield for LNG and 80% yield for GTL - Revenue expressed in $US/GJ of feed gas
8
17-Jun-10
Victoria / Tasmania SPE June 2010
Micro-LNG Already happening – Wesfarmers, WA – BOC, Victoria
BOC national plan – Tasmania, Queensland, Victoria and NSW – Interstate network of refuelling stations
Gas supply with BG – 2 PJ/year, Queensland
Source: Wesfarmers Limited
9
17-Jun-10
Victoria / Tasmania SPE June 2010
CNG for transport
Source: OES CNG Australia and Volvo
10
17-Jun-10
Victoria / Tasmania SPE June 2010
Market opportunity
'000 PJ
300
200
37 7 51
100 60
52 44
0 Resources Available
Domgas Usage
LNG
Fuel
Potential
Source: Wilson HTM analysis.
11
17-Jun-10
Victoria / Tasmania SPE June 2010
Market opportunities Resource Super Profits Tax
12
17-Jun-10
Victoria / Tasmania SPE June 2010
Resource taxation Current system – state royalty, 30% corporate tax for onshore projects – PRRT for offshore projects
RSPT – 40% RSPT, 28% corporate tax – Capital uplift at 10 year government bond rate
PRRT – 40% PRRT, corporate tax rate – Capital uplift at 10 year gov’t bond rate + 5 to 15%
13
Source: “The Resource Super Profits Tax - a fair return to the nation”, www.futuretax.gov.au, 2 May 2010
17-Jun-10
Victoria / Tasmania SPE June 2010
Resource taxation Upstream
Downstream
60
Tax take (%)
50 40 30 20
47
49
32
26
10
26
26
0 Royalty RSPT
PRRT
Royalty RSPT
PRRT
Source: Wilson HTM analysis. Estimated tax take over project life for CSG to LNG project Tax take is expressed as percentage of revenue less cash operating costs (i.e. EBITDA+royalty add-back), rather than EBT
14
17-Jun-10
Victoria / Tasmania SPE June 2010
Resource taxation Upstream
Downstream
0.50
NPV ($A/GJ)
0.40 0.30 0.20 0.10
0.39
0.33 0.20
0.39
0.39
0.23
0.00 Royalty RSPT PRRT
Royalty RSPT PRRT
Source: Wilson HTM analysis. Estimated NPV per unit of gas produced over project life for CSG to LNG project NPV after tax at 11.5% nominal discount rate
15
17-Jun-10
Victoria / Tasmania SPE June 2010
RSPT impact on project returns IRR vs. gas price 38%
40% 34% 30% 30%
32%
IRR (%)
25%
29% 25%
19%
20%
21%
10%
16%
10% 9% Upstream, current
Upstream, RSPT
LNG
0% 0 Source: Wilson HTM analysis
16
2
4
6
8
10
12
14
16
Gas Price (A$/GJ)
17-Jun-10
Victoria / Tasmania SPE June 2010
Conclusions Opportunities for CSG exist beyond LNG RSPT reduces the value of resource projects Explorers / producers are impacted more than vertically integrated majors
17
17-Jun-10
Victoria / Tasmania SPE June 2010
Thank you
John Young Senior Resources Analyst Wilson HTM Investment Group [email protected]
18
17-Jun-10
