Letters of the Week

Hybrids and vested interests. The risks around CSG. Shale win.

Hybrid noise
Hybrids have received increasing attention recently and objective comment on them is hard to find. Established bank hybrid prices have softened a little, apparently, as advisers push clients into newer issues; churning for adviser benefit is not ethical but understandable. One factor that makes hybrids attractive is that they can be readily bought and sold without use of specialist brokers who control retail access to most bond investments. Couple this with a better-than-bank-interest return and their popularity is guaranteed. The chance of default on bank hybrids and other blue chip issues is low, as is their suspension of interest payments. It would be nice to feel that objective information on these investments were available, but little is to be found. Everyone seems to be pushing their own loaded barrow.

– P Copleston

CSG danger

Thanks for yet another thought-provoking issue. In last Wednesday's email, you mentioned the "fracking controversy" and I suggest that an article (or even a series of them) on the broader issues surrounding Coal Seam Gas (CSG) extraction would interest your readers, including shares in companies involved in CSG exploration and extraction.

With due respect, the issue is broader than just "fracking". It is about the basic CSG extraction process and the serious long-term damage that it can easily inflict on the environment (with or without "fracking"). Wells are drilled into the coal seam and, where nature has seen fit to seal water from coal with an impervious layer of rock above the coal, that drilling can very easily break that seal. There are large quantities of salt and other naturally occurring noxious chemicals locked up within the coal seam, and extraction of CSG releases them.

The main dangers are therefore (i) leakage of contaminants (natural and fracking) into underground aquifers; (ii) pollution of surface water and streams by those same chemicals; (iii) that the large quantities of water injected to force the CSG out will deplete scarce fresh water resources, which would otherwise be available for agricultural purposes; and (iv) leakage of CSG into the atmosphere. (CSG is methane, which is a "greenhouse gas" many times more damaging once in the atmosphere than the CO2 emissions it is supposed to "save").

No doubt there are ways of avoiding these consequences, but the present "don't you worry about that" attitude of the companies involved is, in my view, bound to end in tears. There needs to be candid acknowledgement (and, for that matter, disclosure) of the dangers involved, and proper independent surveys to identify environmental impacts, as well as much more effective regulation and monitoring.

– G Treadgold

Shale delight

I was interested in your coverage from Tim Treadgold on shale (Minefield: Six shale stars). About nine months ago, I started to build a holding in New Standard Energy. My rationale then was very simply that shale was such big news in the US. I picked New Standard Energy because it seemed a bit of a dark horse then, and prepared for a five-year time frame. It's been my policy for a long time to devote 5% of my portfolio to 'non-dividend speculatives' in the resource sector. Today, New Standard Energy appears to be the only 'positive'. My long-time stockbroker was fairly dismissive initially, but that's now changed!

– J Hallpike

To read this week’s letters, click here.

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