RICH PICKINGS: It's a gas
As the interest around coal-seam gas reaches fever pitch, a new breed of multi-millionaires has emerged. But their fortunes may prove to be as volatile as the underlying resource.
The heightened interest in coal-seam gas is already helping some canny investors build some impressive fortunes, as Alan Kohler revealed yesterday with fund manager Phil Mathews (Secret Billionaire, June 5). But it's the true believers – the executives behind the coal seam gas companies – who are really rejoicing.
Queensland Gas has had a big few years since launching an unsuccessful bid for Sydney Gas in 2006. In March 2007, it struck a 20-year gas supply deal with AGL, which included AGL acquiring a stake in QGC as part of the deal. In February, it formed an $870 million alliance with BG Group under which it sold BG a 20 per cent interest in its Walloons gas acreage and took a 10 per cent stake in QGC. The two companies are also looking at building an $8 billion coal-seam gas fed export LNG plant at Gladstone in Queensland. Queensland Gas’ share price has more than doubled in the past 12 months.
The biggest winner out of Queensland Gas’ rise is Dale Elphinstone, a Tasmanian who made his fortune from mining machinery in the Tasmanian town of Burnie. He joined the Rich 200 this year with a fortune of $565 million, thanks in no small part to his Queensland Gas stake, which is worth about $279 million.
Elphinstone has a fabulous rags-to-riches story. He started out as apprentice mechanic at Tasmanian company William Adams in 1974, but eventually formed his own company. He bought out William Adams in 1987 and eight years later formed a joint venture with US heavy equipment company Caterpillar. He eventually started investing in the stock market, buying into Queensland Gas (and joining its board) in 2002, when the stock languished around 25c. It is now trading around $5.00.
Queensland Gas chairman Robert Bryan was a member of the team that formed the company back in 2000 and he now owns at stake worth a tick over $90 million. The company’s chief executive, Richard Cottee, owns around $30 million worth of shares.
Arrow Energy is another pioneer of the sector basking in the attention from investors. It signed a $776 million joint venture deal with Shell on June 2 and its shares have taken off again; they are up more than 40 per cent since the start of the year. The big winners on the management team are executive director Stephen Bizzell (who owns $39 million of shares) and director Jeremy Barlow (with a $30 million stake).
Eastern Star Gas is another coal-seam gas star which recently welcomed former deputy prime minister John Anderson as its chairman. The company’s focus is the coal fields of NSW and it already has memorandums of understanding with Babcock & Brown and Macquarie Generation. The stock has doubled in the past six weeks, which is great news for the three main shareholders: managing director Dennis Morton (who holds $26 million in Eastern Star Gas shares), chairman David King (a further $20 million) and non-executive director Doug Battersby ($28 million).
The share price of fellow coal-seam player Pure Energy Resources received another boost on June 5 when Phil Mathews’ fund Mathews Capital Partners increased its stake from 16.8 per cent to 18.2 per cent. The shares have increased from 88c to around $2.50 in the last 12 months, providing a big boost to the fortunes of managing director Steven Beardsall (who owns a stake worth just over $9 million) and director Terrence Primeau (who has a $10.1 million).
Of course, the meteoric rise of these companies should make investors stop and think before rushing out to spend their hard-earned on coal seam gas shares. While bigger companies and Queensland Gas and Arrow Energy have proven resources and sizeable joint venture partners, some of the junior explorers are still in their infancy. While coal seam gas looks certain to become an important energy source in the future, it is equally certain that share prices of some of these companies – and by extension the fortunes of their executive – will remain volatile.