The Sydney Morning Herald from Sydney, New South Wales, Australia • Page 52

Hiejsjibnqi ftlortiingjcralii Bonds rally, shares Up 20 points: page 55 Tuesday, October 1 1 1 994 51 THE BOTTOM LINE Oil stocks climb as Gulf tensions enhance prices Why everyone has a housing fetish Index 20.8- CRUDE OIL WOODSIDE 957.2- OIL AND GAS 205 I PETROLEUM 950.0- I fWVH 4.9- It30-0- i i Ira 1 I8.S- I 4.7- Jr 1 9,00 I l8.0- 1 WW 900.01 it ifl 4.S- fiH js- Witi 890,0 I m0'4WM 16.8- I V- rh laawinaaMawnliMaid 4.3 mHHtnnm uttifTin'iiiiir-ot 367.0 -tr i (iaf.tr otiii hi ino its Elang-2 well as a follow up to the Elang-1 discovery. At the same time, a series of smaller companies are commencing busy exploration programs, some of which include shots at big targets that analysts say have the potential to add substantially to shareholder wealth. These include Capital Energy NL, formerly known as Quicksilver Resources NL. As a result of a $3 million capital raising, announced yesterday, Capital will effectively become the arm's length exploration offshoot of Queensland-based energy group Equity Energy Corp. Capital will this month kick off an eight-well program in the services yard of Victoria's Loy Yang power station, where it will test a 90 million barrel target It has a 57.5 per cent interest in this play.

Sun Resources, which has 12.5 per cent of Loy Yang, is also enjoying support at the junior end. It has an added attraction By BRUCE HE XT ALL Resources Writer The oil market is showing fundamental strength beyond a price rally sparked by renewed tensions between Kuwait and Iraq that yesterday increased investor interest in oil and gas stocks. The sector rose after crude oil prices moved back over the $US18-a-barrel mark, following a new round of brinkmanship between Iraq's President Saddam Hussein and the US. Buying was across the board although investor interest was focused more on exploration success than on price fundamentals. Woodside Petroleum led the way, rising 25c on heavy trading to close at $5.05, pushing its market capitalisation up a further $166 million to $3.6 billion.

The market enthusiasm for Woodside was again fuelled by the success of its Laminaria-1 exploration well adjacent to the Timor Sea Zone of Co-operation, because of its 15 per cent participation in Papua New Guinea's Menga-1 well, which next month will test the eastern end of the PNG highlands' highly rated Iagi-fu-Hedinia field. The exploration activity has been helped by increasing optimism about oil prices. Melbourne-based trader Bell Commodities said the latest Middle-East tension had translated into short-term price gains, but that underlying fundamentals suggested there was room for sustainable higher, prices. "The world's oil market is running at 90 per cent capacity as to 80 per cent in the 1980s," said Bell's Mr Peter Graham. He said US production had fallen by 25 per cent since 1986 and that production by the Commonwealth Independent States revealed a similar trend.

"The supplydemand balance is tight, which means little room for mishaps," he said. stocked. Aluzvic wsls raider JUN i OCT 10 The extremely light nature of the oil of the 50 per cent-owned Laminaria-1 discovery meant the market took the view it could reap rich rewards for Woodside. The discovery also sparked renewed interest in the Timor Gap area, where Petroz NL is sinking jUN I OCT 10 company would define an oilfield of up to 150 million barrels in the ACPA permit area. Such a field would be nearly four times the original reserve estimate for the BHP-operated Jabiru field, discovered more than a decade ago.

4,. 'v. fi -1 THE PRIME Minister has taken umbrage at words I penned recently about his real estate dealings. He claims I have a housing fetish. While the PM and I rarely converse these days, I would like to lay a small bet that he would still be more animated and informed about Sydney real estate than, for example, Mahler or French clocks.

On Friday, a colleague recalled to me how a few years ago he watched Paul Keating on a cruise around Sydney Harbour where he stood at the rail with a CEO from the media industry and between them identified the owner of every waterfront block between Elizabeth Bay and Watsons Bay. Maybe that's a slight exaggeration but only slight. Having a housing fetish is part of the national condition. The chart reproduced with this column contains one of the most extraordinary statements about Australia's economic mores. It records the fact that it took from 1967 to 1990 23 years -for housing credit to rise from 10 per cent of GDP to 20 per cent.

In the four years since, it has climbed by more than 10 per cent above 30 per cent. This is an explosion in housing credit the likes of which we have never before seen. It has already sent home price HOUSING CREDIT Source: RBA inflation surging way past the rise in the Consumer Price index. According to the Real Estate Institute of Australia, housing prices in the three months to July were up by 6.6 per cent over the same period last year. The Commonwealth BankHousing Industry Association index recorded a 7.4 per cent increase in house prices in the June quarter compared with last year.

Rather slower was the rate of housing inflation recorded by the Australian Bureau of Statistics in the 12 months to the end of the June quarter just 3.4 per cent which is twice the rate of inflation recorded by the CPI. The ABS number lags behind the others because it excludes the top 10 per cent of the housing market which is where inflationary surges first manifest themselves. Keating, for example, is paying 44 per cent more for his Woollahra home than the same house fetched in 1989 at the height of the last housing boom. Now he is buying a positional good. As the real estate people would say, God is not creating any more land in Woollahra.

JUN 1 OCT 10 off The Northern Territory coast Woodside reported yesterday that the well was close to total depth and had encountered a 102-metre oil column. This was almost twice the size of the column reported last week and led to estimates that the concern to the Federal Government The arm-wrestling on the matter started on Thursday last week. Coincidentally, Aluvic placed its buy order for units in the trust with the broker Mcintosh Securities on the same day. Yesterday the Treasurer, Mr Alan Stockdale, put some distance between the Government and the the timing of the raid by Aluvic, saying the decision was a commercial matter for the Aluvic board. He also said that there was no conflict between Aluvic's purchase and the government's longer-term policy of selling its 25 per cent interest in the smelter.

The Treasurer said the "big issue" for the Government was the resolution of the flexible power tariff "subsidy" which the Government claims costs taxpayers $200 million a year. The managing director of Aluvic, Mr Greg Turnidge, acknowledged that there had been an "unfortunate coincidence of issues" with its move on to the trust register. But he said Aluvic was not working to some "Machiavellian Mr Turnidge said the raid on the trust gave Aluvic a say in the trust's future. "At this stage the intention has been to buy a significant strategic stake and no more than that," he said. Mr Turnidge said Aluvic had not made any "final decisions" on how it would vote at the trust's corporatisation meeting.

Alcoa, a 9 per cent unitholder in the trust, would not comment yesterday on Aluvic's move on the trust But it did report that its profit for the first nine months of the year was $196.4 million, down from $300.4 million previously. 11 rsfwMwkis could be turned into "controlled Photograph by ben rushton 1 Buttle senior bank management By BARRY FitzGERALD in Melbourne First National Resource Trust was rocked yesterday by news that it was the Victorian State Government-owned Aluvic which was behind the $20 million sharemar-ket raid on the group last Friday. Aluvic snared 14 per cent of the trust in the raid and continues to stand in the market for more at $1.35 a unit, a price that values the 1 0 per cent partner in the Portland smelter at $148 million. The trust was angered yesterday by what it sees as a government-endorsed threat to its long-planned move to drop its trust structure in favour of corporatisation. It is planning to put its proposal to unitholders on October 24, but Aluvic, a 25 per cent partner in the Portland joint venture with designs on more, would not say yesterday whether it would support the plan.

Mr Paul Exell, the executive director of the trust's manager, National Australia Managers, said yesterday that the Aluvic raid had caused "enormous He made a plea for Aluvic to "come out now" and declare its voting intentions on the corporatisation, and its longer-term objectives in buying the stake. The raid follows the State Government's stepped-up attack on the power charges to Portland smelter which the managing partner, Alcoa with 45 per cent, has said threatens the operation's long-term viability. As a result, relationships between the private partners in the Portland joint venture and the State Government are already strained, with one foreign partner understood to have expressed its Companies poorly MAX WALSH And unlike the inner city areas of our capital cities the local council has an effective ban on high-rise developments. For a number of years with a handful of others, have expressed concern at the way in which the tax laws divert such a large proportion of domestic savings into the residential housing market. It remains the best tax shelter available to any Australian unable to afford the services of an offshore tax haven.

To suggest residential housing should be subject to a capital gains tax has been a decidedly quixotic exercise. Not even a rationalist like John Hewson would advocate such a policy. In fact, Hewson was quite a dab hand at exploiting the tax relief available through residential housing investment. The interesting point about the explosion in housing credit in recent years, and the concomitant boom in residential building, is that the evidence now suggests we are creating a situation of excess supply. While the economy has grown at 5 per cent a year in nominal terms during the last three years, housing credit grew by 13 per cent, then by 19 per cent and last year by 23 per cent.

This year we will do at least 15 per cent, maybe more. More tellingly, last financial year we actually commenced building more residential units (housing plus flats) than the growth of our population that is, population, not just new household formations. If indeed we now have an excess supply of developed residential housing, then concern about a diversion of savings into housing will, as the market sorts the mess out, fade as' an issue. That will not address the situation at the top end of the market where the price of positional goods will continue to be set by the economic success of the region rather than by that of the domestic economy. This does not make the sector immune from downturn.

One has only to look at the UK, where hundreds of thousands of what might be called 1980s yuppie buyers are still underwater with their housing investment as a result of the downturn in the market there. However, it is possible to say that those buyers of positional residential real estate who were being stalked by revenue-hungry bureaucrats in Canberra are now free of the risk of having a differential capital gains tax introduced one, for example, that would apply to houses sold for more than $500,000. So long as Keating is PM they should be safe. GLENN BURGE float at 90c a share, Austereo's board has agreed to buy fellow FM network Triple in a deal that will give the Kirby family's Village Roadshow control. And APN is offering Wesgo's shareholders $1.90 a share in a takeover that has won the approval of the target's board.

There is no shortage of radio-watchers of the view that the dynamics confronting APN at Wesgo have changed considerably in the wake of the Austereo and Triple deal-Just before the APN bid for Wesgo, the situation was that Wesgo's main station, 2WS, faced two independently owned and fiercely competitive FM stations in Sydney. And they targeted the lucrative 10- to 39year-old demographic the age group that accounts for the largest slice of the advertising dollar spent on radio. Continued page 54 jj equipped to deal with strategic risk Mr By JAMES WALKER Companies are ill-equipped to deal with the strategic risk that leaves them with a multi-million dollar exposure every day, according to a risk management expert A partner of the KPMG Business Risk Management Index, Mr Colin Flynn, emphasised the need for staff to have personal accountability for risk, "with the onus for strategic risk accountability resting fairly and squarely on the shoulders of He said a survey of 90 chief executives had higlighted customer satisfaction and the competitive environment as some of the "critical" areas of risk, but that there were few procedures set up to monitor that risk. "The public and investors at large are demanding the risk be a heavy said after Mr Fly nn's speech that he believed the Reserve Bank of Australia would follow the US regulatory authorities and ask the senior management to sign off a bank's accounts as being in a position of control. The mov would hav an effect of making the top echelon of banking management scrutinise risk more closely.

Mr Flynn said banks' senior management could be turned into "controlled entrepreneurs" through the recognition of risk in all its forms, increasing the efficiency of the use of assets. "The concept of risk must be broadened and it is the domain of management, not auditors or accountants," he said. Company reports and other publications only gave an idea of past risk at a time when risk profile could change daily. CANALI Milano Meanwhile, it was also confirmed yesterday that National Australia Bank' is currently undertaking a world-wide review of its risks in a bid to improve its management systems. The review could lead to NAB's upper management running their own level of risk, within limits set by the bank's board.

The national chairman of KPMG's banking and finance industry group, Mr John Buttle, strictly dealt with by the company," Mr Flynn said. He said there was something wrong with a bank spending money creating a new product or installing new technology which were risky moves, while then refusing to lend to a customer with a moderate credit risk. The risk could be classed as technical or operational, financial, human resource, marketing or as a part of future innovation. ABACUS Sugar war takes toll on CSE Justification is the name of the game throughs with the larger users of sugar in Australia, and in the coming year we will be increasing sales to the smaller and medium-sized users of sugsir." The cost of the battle for market share had been prices plummeting towards export parity, said Mr Harley. He said he would be surprised if any refined sugar sold in Australia since April had covered the full costs of production.

Industry analysts believe Mackay Continued page 52 refiners and has swiftly gone about poaching CSR's customers. CSR, with its gigantic balance sheet, replied by slashing prices. Mackay has now been in production since the end of June, and according to chief executive Mr Athol Harley, is meeting sales and production targets. "We are quite happy with the progress we have made so far," Mr Harley told the Herald yesterday. "We have made important break By MICHAEL WEST The battle being waged among Australia's sugar producers has cut CSR's refining profits to the bone and is expected to offset the increasing profitability of its milling operations.

Ever since the proposed joint venture between CSR, Mackay Sugar, and UK trading house E.D. F. Mann was blocked by the Trade Practices Commission last December, business has been tough for the nation's four refiners. Instead of working with Mackay and enjoying the promised cost savings and export opportunities of the joint venture, CSR was forced to compete with Mackay. Its response to the TPC action was to lock in its established customer base through forward sales to thwart the prospective market penetration of new entrant Mackay Refined Sugar.

Mackay with its new capacity refinery is the biggest and most efficient of the NATIONAL ASSOCIATION OF PERSONNEL CONSULTANTS Dorft be a turkey. r.x Tl A TTf s)a. SPEEDO SWIM CAPS THE battle between the merged AustereoTriple radio group and an Australian Provincial Newspapers-owned Wesgo promises to be quite a stoush, since both deals are unlikely to prove win-win outcomes for their shareholders. Austereo's Paul Thompson must deliver the proposed cost savings to justify the proposal to acquire Triple and in doing so hand over control to Village Roadshow. And APN's Cameron O'Reilly must show that APN hasn't overpaid and mistimed its entry into the radio industry through its bid for Sydney-based Wesgo.

Both Thompson and O'Reilly have effectively staked their careers on their respective abilities to assess correctly the future profit potential of the radio industry. Although both deals are not yet consummated, there is no shortage of back-of-the-envelope calculations being undertaken on the merits of both transactions. It is quite rare for two major deals in the one industry to be run in tandem, especially when radio left so many shareholders and bankers nursing losses after frenetic activity in the 1980s. The economic cycle is, of course, a lot better, but radio remains a highly competitive industry. Just four months after a public Could your business cope if the information on your computers was lost, destroyed or corrupted? If you don't think your data is at risk 'J your job could be.

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