Ben Harvey: Foreign ownership of oil and gas assets is nothing new
The United Arab Emirates has more oil than a Sean Combs freak-off, so why is it sniffing around Australian energy company Santos?
And why would the UAE offer to pay such an astonishing premium (a full 28 per cent above Santos' then market value) to acquire a business that's 10,000km from home and in a different hemisphere to boot?
Anyone who doubts the world's ongoing dependence on fossil fuel should think about the logic of this takeover bid.
Abu Dhabi's ruling Nahyan family didn't become billionaires 300 times over by writing cheques. They aren't fools and they don't part with their money readily.
This week's $36b bid for the Kevin Gallagher-led LNG and domestic gas business isn't chump change, even for the Arabs.
So, what do they know about this 'legacy' business that we don't?
It's got to be a hedge against the turmoil in the Middle East, right?
The wide-open sea lanes of the Indian and Pacific oceans must look like a cake walk compared with the Strait of Hormuz.
The most dangerous thing an LNG tanker will run into around Australia will be an Indonesian fishing vessel that's drifted off course.
There's no chance of being targeted by Houthi rebels or accidentally strafed by aircraft launching from the USS Nimitz carrier strike group.
Geographical diversification seems a logical reason for the UAE play but the geo-political imperative doesn't explain the timing.
Sure, Tehran and Tel Aviv have spiced things up of late, but when was the Middle East not engulfed by turmoil?
It's been a war zone pretty much every day since the first kibbutz was established in 1948.
Yet in all that time — through the Arab-Israeli war, Egyptian revolution, Suez crisis, the Lebanese civil war, Iran-Iraq war, the Iranian revolution, Gulf War 1, Gulf War 2 and countless other skirmishes and crises — the oil-rich provinces rarely looked outside their own backyard for investment opportunities in the fossil fuel game.
Certainly not this far outside their backyard.
Take risk-defraying out of the value equation and you are left with one upside: the UAE reckons the world is going to be dependent on hydrocarbons, and natural gas in particular, for a long, long time.
Santos shareholders, including dominant stockowner L1 Capital, clearly aren't as confident in a CO2-soaked future because they were falling over themselves to accept the bid.
The only thing standing in the way of shareholders and a fat profit is the Foreign Investment Review Board, which has to tick off on the sale to foreign entities of Australian assets that are economically or politically sensitive.
The deal will give the FIRB pause for thought because Santos owns some important stuff.
The company runs the Darwin LNG plant, supplies one sixth of WA's domestic gas and owns and fills the pipelines that feeds the east coast energy system.
It is also Australia's most aggressive oil and gas play. At a time when fossil fuel executives are desperately trying to pass themselves off as windfarm manufacturers, Gallagher stands out as a 'drill, baby, drill' kind of guy.
Billy Bob Thornton could well have had an eye on Gallagher when he got into character in the TV series Landman.
Drill, make as much money as possible, spud and move on to the next prospective patch of the outback or sea floor. Rinse and repeat.
He is Greta Thunberg's worst nightmare and he cares not one jot about that.
Gallagher's solution to the current supply crunch is simple: more exploration permits. His insistence that Australia can drill its way out of trouble is relevant to the UAE takeover because Gallagher has spent the past few years bagging the Federal Government's 'soviet' energy policy.
With $50m on the table (at the $8.89 offer price that's the value of the Santos stock he has in his family trust, employee equity scheme and short-term incentives) Gallagher's likely trying to bleach those remarks from the internet, lest Jim Chalmers chances upon them whilst considering the impending FIRB recommendation.
Shareholders will also be hoping the Treasurer doesn't make this decision personal.
Chalmers will almost certainly feign concern about foreign ownership, especially by a State-run entity.
XRG, which is the name of the bidder, is a subsidiary of a national oil company owned by the Government of Abu Dhabi, which trades under the imaginative name Abu Dhabi National Oil Company
The word 'feign' is used advisedly because the reality is foreign ownership of Australian oil and gas assets is nothing new.
Only 43 per cent of Santos is owned by local shareholders; the Americans have the rest.
It may be headquartered in Adelaide, but Santos' financial heart is in the US.
Australia's most important energy asset — the North West Shelf — might be operated by Woodside but it is owned by London-headquartered BP and Shell, Californian supermajor Chevron, Beijing's China National Offshore Oil Corporation and Japan Australia LNG.
Woodside itself is only 55 per cent Australian owned, with almost half its stockholders residing in the US and the UK.
The Dampier-to-Bunbury pipeline, which brings gas from the NW Shelf to southern WA, is owned by a Hong Kong national — billionaire Li Ka-Shing.
The Ichthys project in water off Broome is run by Japan's INPEX and the Gladstone LNG plant is a joint venture between Santos, Malaysia's Petronas and South Korea's KOGAS.
What difference will another flag make?
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