bond - peter bond, deal maker and energy

Angela Macdonald-Smith

Peter Bond zips around Australia in his corporate jet, pops over to his island in the Great Barrier Reef, toys with his Spitfire and Aston Martin, and is off in a couple of weeks to catch up with Roman Abramovich, the Russian business tycoon.

The self-made millionaire and chief executive of Queensland’s Linc Energy has come a long way from his days as a trainee metallurgist down at BHP Steel’s coke ovens in the Illawarra, in NSW.

“I’ve done OK, I can’t complain,” Bond says of his journey to riches.

When Linc hit the headlines last month with news of a potential 230 billion barrel shale oil resource in South Australia, the media went into overdrive: “Trillions of dollars worth of oil found in Australian outback,” said one London broadsheet, holding up South Australia as “a new Saudi Arabia”.

Bond, who owns 39 per cent of Linc, has firmly distanced himself from estimates in media reports including in the Adelaide Advertiser newspaper of a “$20 trillion” oil find, fully acknowledging the early stage of investigation of the shale resource in the remote Arckaringa Basin in the area around Coober Pedy.

But he is adamant his announcement of the oil potential within Linc’s permits was justified and that he would have been remiss not to make the estimates public.

“Two independent reports after drilling and seismic and three years of geology come back and say, you’ve got an upside of 230 billion barrels, [if that] is not material then someone’s on the wrong planet.”

Linc shares spiked as much as 50?per cent on the news, to $2.99, adding more than $500 million in market value in less than three days. Bond’s own holding shot up to $604.5 million. The share price has since slid back to $2.15, just 7.8 per cent higher than before the shale resource estimate.

Bond says that even using the lowest valuation of the shale resource, of 3.5 billion barrels at $1 a barrel, the increase in valuation for Linc is more than $6 or $7 per share. Valuing the Arckaringa permits on an acreage basis, as is more typical for uncoventional oil and gas, gives the same result.

“No matter how you cut it, this thing it’s still worth a lot of money and it’s still worth a re-rating for the stock,” he says. “It’s a multi-dollar revaluation [a share].”

But some saw it as another example of the junior perhaps having more talk than substance.

Linc’s yet-to-be commercially proven core business of underground coal gasification (UCG), the wide mix of its portfolio that also spans Queensland coal exploration and Alaskan oil production, and its history of a purported coal asset sale that never eventuated means some investors remain unconvinced by the story.

“Obviously the Arckaringa has great promise. But whilst the shales are potentially very good, it is very, very early days.,” one Queensland energy market expert cautions.

“Peter’s a genuine entrepreneur. He’s very smart in promoting Linc: so top marks to him. We’d just like to know more about time lines, costs.”

“They are full of surprises,” says a hedge fund investor, warning the stock is a dangerous one to short in the current environment.

“They have pulled off one amazing deal,” he adds, referring to Linc’s 2010 deal to sell a Galilee Basin coal tenement to India’s Adani for $500?million plus a royalty of $2 a tonne that could earn it another $2.5?billion over 20 years.

But he also points to Linc’s high cash burn, with its $44.2 million net cash outflow in the December quarter despite over 6000 barrels a day of oil production in the US.

On the question of UCG – where coal is burnt underground to produce synthetic gas, for conversion into diesel – and strategy, Bond admits things haven’t always run to plan.

The Queensland government’s heavy-handed regulation of UCG, the global financial crisis which upset the Emerald coal asset sale and other deals, and the need for short-term cash flow have all come into play.

“I understand the criticism. But unfortunately we were pushed that way due to circumstances, and at the end of the day we have a very large collection of very good assets on our books.”

Bond says he has more faith than ever in the potential of UCG, a technology that has also caught the imagination of Russian investor Roman Abramovich, who owns shares in Linc and flew to Australia for dinner with the chief executive in Brisbane a couple of months ago before touring the UCG operation in Chinchilla in Queensland.

“Roman is one of a handful of very large investors that have been talking to Linc and doing business with Linc,” he says. “He’s fascinated by the UCG business and the value-add that UCG brings.”

Bond admits that Australia, with its cheap coal, “maybe is not the best location for UCG”. But he says a technology that can produce synthetic gas at “$2-plus” a gigajoule, has a bright future in Europe, Africa and Asia, which are “held to ransom” on gas supplies by giant producers such as Gazprom or by LNG imports.

“It will find its place in the energy world, that I am certain. It may not be Queensland but certainly it will be somewhere in the world.”

Bond’s critics concede he has put in the hard yards to develop Linc.

“He’s been able to do things because he’s gone out and drilled holes, then talked about them very successfully,” says one.

From the outset, Bond has been driven to go places. Leaving BHP before completing his traineeship, Bond drove trucks for his father’s business before sealing his first coal trade, for $17,000.

“I was a very hungry young man trying to make a few bucks.”

More coal trades following, providing the means to build and buy equipment and then a coalmine a few years later. Selling his amassed NSW coal assets in 2002, including one for $50 million, Bond, at 39, had made enough to retire.

“For a country boy that grew up in Cobbitty, thinking a HR Holden Ute was probably the greatest car you could own, a few million bucks is a lot of money,” he says.

But 18 months later, deciding he was “too young, smart and good looking to sit on a beach”, he went back into business, turning around the Hillgrove goldmine for a sale to Straits Resources before snapping up then-bankrupt Linc for $1 million in late 2004.

Along the way to building up Linc to its current $1.1 billion value, Bond has picked up Dunk Island, a Citation jet, and his personal flying favourites, a 1944 Spitfire and a 1943 Harvard trainer. “Oh well, boys and their toys,” he chuckles.

Bond says he got the Citation “cheap, after the GFC” and the same for Dunk – for $8 million-odd after it was ravaged by Cyclone Yasi.

But he won’t be retiring again until he’s “put some full stops, put some definition” to Linc’s businesses and got them standing on their own two feet, with the aim of separate spin-offs. The oil and gas unit is already at that point, he says, while coal and UCG are about a year away, and shale two or three years off.

The motivation isn’t to answer his critics, however: “I don’t really give a rat’s what most people think,” he says. “I’m self-educated. I’ve grown my wealth from nothing to something across a number of fronts. And I’ve done it pretty much on my own. You sit around a table and have to believe in your own abilities rather than the critics.”