Again sorry but don't agree. Sorry but my old age and spots are showing, let alone my forensic accounting skills.
Here is why.
These are facts and historic returns. Sorry.
I actually have the accounts of Our largest gas/oil company right in front of me. WPL.
Last 2 years of production. Namely calander 2002 and 2003.
Remember Oil averaged US$ 27.73 in 2003 and USD $22.51 in 2002. Overall average say US $25-.
Now I pointed out earlier the return compared to oil for gas has improved. For then using a 65% number instead of the current 79% .... I come up with USD $16.25 should have been expected.
Average exchange rate 0.6000. So that's and expected return of AUD 27- per barrel equiv. or 6,000 cubic feet of gas.
Just using the easy numbers 6,000 CF and 1,000 Btu
WPL in 2003 Sold 1.3 million tone's of LNG and 110,230 tj for domestic use. It received 707.7 m AUD in revenue
WPL in 2002 Sold 1.2 million tones of LNG and 97,455 tj for domestic use. It received 665.7 m AUD in revenue
Together 2.5 m tones of LNG 207,685 tj for domestic revenue 1.3734 billion dollars
Converting the production numbers back to cubic feet what did WPL earn per 1,000 cubic feet ? Export 2.5 m tones on LNG = 21,146 Kobe 21,146 Kobe = 21,146,000 barrels of oil equiv. Domestic 207,685 tj = 33,977,266 barrels of oil equiv. conversion rate is 163.6 barrels per tj
In total 55,123,266- million barrels of oil equiv gas production.
So income from Domestic and Export LNG was 1.3734 billion
WPL received in other words AUD 24.915 per barrel of oil. However lets just go back to per 1,000 feet first. They received AUD 4.15 on average per 1,000 feet of gas. Remeber I was expecting AUD 27.15 as the number and we got 24.915 in actuallity.
This was when Oil was an average of USD $25- per barrel and AUD $40-. Now today it is USD $45- plus and in fact AUD $59.21 per barrel. An increase of 35.5% in price. Today right now in 2005 I would expect if we averaged USD $45- Woodside's numbers in 2006 to show on average they received an increase over the 2002-2003 of 35% or in plain English AUD $5.60 or more. Its because one very bad year will fall off the average. Read on .....
Now I can hear the arguments already. So if as I say the gap is narrowing why is the price less than half the expected ?
I agree domestic gas use pays less. But not that much less.
Why, well its all got to do with the economics. To build the LNG plants in the first place the company has to put up massive amounts of capital. But on the other side so does the consumer. If a power company in Japan wants LNG for a new Power plant he has to assure himself of supply. The price despite what you may think is based off the LNG or crude price. However by signing a contract he is give a discount because they in effect have a locked in demand. The amount of the discount may vary but by assuring a willing and ready customer it is a marriage of convenience on both sides.
Now the consumer, the power company in Japan doesn't want to be hit with massive spikes in prices so he demands and receives a formula to work out what he pays. Gas as I have pointed out has 100% range in 2004. The Japanese company wants to be insulated against sudden spikes as one may view the rise this year. So how do they do it. The economic life of all these projects whether domestic or LNG export is normally well over 25 years for Gas. In fact one on the books the life of the field is 70 years or more.
There is no normal period but using an average price measure over years as opposed to a spot price is the normal. Gas market is different to crude oil. It requires massive amounts of capital both ends. So whilst the spike of 35% was seen this year compared to 2003, it might take a bit of time to flow thru.
Just looking back, I can hear you asking but why only AUD 24.915 instead of AUD 40- expected in 2002-2003.
Well most gas contracts seem to be locked this way. Oil going back in USD averages below for the whole year THIS IS OIL NOT GAS
So as each year out of the average falls out the new year replaces it. It is the only way to operate a long term business. Either that or raise the price every second month. Also remember in 1998 where was the ozzie .....
You get the drift. Further backed up by any large companies accounts. If one looks at total production for WPL its roughly 46 million barrels P/A but they are in 2003 only running a hedge of 5% ... the sensitivity to a move in oil by $1- USD will only change the profits by USD $23- mio ergo they are locked into this type of arrangement.
Futher on this in 2002 WPL had a problem with a hedge loss and I suspect a lot was allocated you know where.
Even from this the 6 year avg. in AUD out from 1998 to 2002 was in AUD 27.205 for a barrel equiv.
Even with the actual numbers and returns despite having to allocate some very bad foreign exchange hedges WPL still returned AUD $4.15 per 1,000 cubic feet with the price sitting 25% below where we are now, I am not sure I can convince you.
As time goes on you can see the prices in AUD once 1999 and 1998 are out of the mix returns for WPL will go up accordingly. Especially replacing 15.56 return with the current 60.81 .... of course its only an average but when the rubbish is gone .... holey dooley.
Sorry but the $2- per thousand cubic feet may have been true in 1999 but the gap between oil and gas has narrowed by a large margin as well since 1999. If someone wants to pay $2- per thousand cubic feet that's nice. WPL even stuffing a huge FX loss in the numbers was able to return twice that when oil was 35% lower and gas around 40% lower on average.
Who cares about the US. I don't.
Arrh my head ..."" the pain "" hair of the dog time.
have been researching WPL obviously so the time not wasted
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