Investors keep watch on fracking

One of Australia's biggest investment companies has revealed it is closely monitoring the development of fracking in Australia, and says it is keen to avoid its money being linked to any sort of environmental damage.

Speaking at the annual meeting of Djerriwarrh Investments, managing director Ross Barker said the board had been closely studying fracking and the other forms of unconventional oil and gas production, which have swept the United States and Australia in recent years.

Djerriwarrh has a strong exposure to energy through its investments in local coal seam gas companies such as Santos and Origin, as well as conventional petroleum producers such as Oil Search and Woodside, and Mr Barker said the company would closely watch the sector for any sign of trouble. "None of us want to end up in an environmental problem later down the track. We certainly, as an investor, don't want to be in that camp."

Mr Barker said the Djerriwarrh board had found no evidence that farmland in the US had been permanently destroyed by fracking, which produces gas by cracking open underground rocks with high-pressure solutions of water, sand and sometimes chemicals. But he said it was too early to tell whether the technique would cause problems in Australia.

"I don't think we can predict what might happen there. I think it's important for governments to have their scientists looking into the issue," he said.

Djerriwarrh directors noted fracking could also deliver environmental benefits if increased gas production resulted in less brown coal being burnt to create energy.

The comments come as policy settings for fracking and unconventional oil and gas continue to evolve in NSW and Victoria, where strict controls have existed to date.

Most experts believe Australia's eastern states could face gas shortages and rising prices in coming years, and a boom in fracking and other forms of onshore oil and gas has been seen as a way of avoiding such shortages.

The Australian Council of Superannuation Investors does not advise for or against investing in companies that conduct fracking in Australia.

ACSI chief executive Ann Byrne said there was a lack of long-term data on the cumulative impact of fracking, and energy companies should work harder to provide this information.

Djerriwarrh's oil and gas investments could rank among its best performers in coming years, and chief investment officer Mark Freeman said he hoped the sector would start to focus on shareholder returns just as BHP Billiton and Rio Tinto have in recent times. "They are all developing large LNG projects and they are all very close to producing very significant cash flows, and once again we will be encouraging the boards of those companies to pay out dividends," he said.