Russians upset the oil equation

By Peter V O'Brien

Friday 13th August 2004

Oil and mining company investors now add the activities of Russian courts and government departments to the many political and economic matters affecting international commodity and share prices.

The Russian justice department has frozen assets and bank accounts of Yukos, the country's largest oil producer, as part of its battle over the company's alleged tax fraud. Those actions hit Yukos' output, sent oil prices to all-time highs and caused a jump in oil company share prices.

The courts defrosted the assets and accounts a few days later, allowing Yukos to continue operations. Oil prices fell, leading to a partial reversal of share price gains.

Oil markets were still concerned about supplies and prices but the consequent unfavourable economic scenario was good news for investors in energy companies.

Higher oil prices meant profit increases for the producers and better returns for their shareholders.

The table shows price movements over the past three and six months for Australian oil producers BHP Billiton, Santos and Woodside Petroleum.

They were three of the five major Australian companies included in NBR's quarterly examinations of mining and exploration activity as representative of the Australian industry and for comparison with New Zealand share price movements.

Most of the price gains of the past six months came in the three months ended August 6, reflecting recent heightened interest in energy stocks on all sharemarkets.

New Zealand companies' price movements were modest in the three months since April but held most of the previous quarter's gains, excluding Oceana Gold and Summit Resources.

Oceana was again the only listed mining company with New Zealand operations to produce any substantial quantities of mineral or oil.

NZ Oil & Gas and Cue Energy Resources had small outputs, the latter from its 5.57% interest in Papua New Guinea's/SE Gobe oil field. It provided Cue with revenue of $US1.33 million in the three months ended June.

Cue's other major interest is 15% of the Oyong oil and gas field offshore East Java, Indonesia, which is estimated to have 128 billion cu ft of recoverable gas and 8.3 billion barrels of recoverable oil.

A sales agreement has been signed with PT Indonesia Power for the Oyong field's gas reserves.

Cue will have to produce an estimated $A26 million in 2005 as its share of Oyong's development and may increase its capital to meet part of the cost.

The company's recent share price history provided good opportunities for traders.

Heritage Gold's share price last week was the same as at April 30. The gain since February was based on promising assessments of an estimated resource of 109,600oz of gold and 438,400oz of silver for the company's Talisman mine at Karangahake on the Coromandel.

Heritage also has a 33% interest in a cobalt project near Broken Hill, New South Wales. The project is at the sample testing stage.

Oceana Gold continued to extract gold from its Macraes mine at Macraes Flat, Central Otago, to develop extensions of that operation and to gear up its West Coast Reefton gold project, comprising the Blackwater mine and the Globe Progress mine.

NZ Oil & Gas also continued its development, the operations in its case being oilwell drilling offshore from Taranaki, sale of gas from the Kupe field to Genesis Power and more work on the Pike River coal field. The last included letters of intent from steel mills and coke makers in Southeast Asia and Brazil to buy more than one million tonnes of coal a year at prices to be negotiated.

The company's share price took off between February and April but eased in the next three months. Traders have often done well in the stock, provided they settled for gains on small price swings. That comment also summed up profitable dealing in other New Zealand mining stocks, most of which represent explorers and developers rather than producers.

Shareholders in oil and gas company Austral Pacific Energy had no need for small price swings. Their stock has been an extraordinary performer since listing. The company consolidated its oil and gas interests in Taranaki, the main development being the announcement last week that the 45%-owned Kahili gasfield would start production this month.

Share price action based on current real production of oil and hard minerals is the province of people dealing in overseas-based stocks. The producers' share price changes can be as volatile, or more volatile, as those of blueskyers.

That happens when, for example, actions of courts and official agencies in distant lands decide the fate of world oil and mineral prices.

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