Clash of the titans: Gas battle heats up among WA’s billionaires

Billionaire media and mining mogul Kerry Stokes is not the type to retreat from a battle. And yet as he fights for ownership of a small, strategic gas company, Warrego Energy in the Perth Basin, he finds himself clashing with Australia’s richest person, Gina Rinehart, for the same asset. Her personal wealth of $34 billion is five times that of Stokes’.

It’s been described as a clash of the titans, with another billionaire, Chris Ellison, the founder of Mineral Resources, watching from the sidelines. His nearly $2 billion in wealth isn’t a match for either Stokes or Rinehart. Mineral Resources has interests in the Perth Basin through a joint venture with Norwest Energy, and according to two sources had cast its eyes over the books and assets of Warrego.

Mineral Resources billionaire managing director Chris Ellison is watching the takeover activity for gas minnow Warrego from the sidelines.

“People with deep pockets like Gina Rinehart and Kerry Stokes have come to the view that, like it or not, gas is going to be around for a while yet as a transition fuel,” says Peter Rose, a partner at law firm Johnson Winter Slattery, which specialises in the oil and gas sector. “There has also been an expectation for some time that the Perth Basin area was ripe for consolidation.”

Saul Kavonic, head of Credit Suisse’s integrated energy and resource research team, agrees. “This is the starting gun for the Perth Basin consolidation phase,” he says of the multiple bids for Warrego. “I anticipate that in time whoever ends up acquiring Warrego may wish to consolidate the Basin further.”

At the heart of this very West Australian takeover tussle is energy security, a phrase uttered frequently this year by politicians around the world as gas prices soar following the invasion of Ukraine and as nations struggle with the transition away from fossil fuels towards renewable energy sources.

However, geopolitics and targets to reach net zero by 2050, are affecting households and manufacturers on Australia’s east coast, leaving them shrieking at this year’s soaring energy bills. The sharp rise in gas prices is putting pressure on the federal government to contemplate imposing some form of price cap on gas and electricity producers.

The controversial proposition of federal government intervention, to protect households and industry from surging energy prices, has already drawn outrage from global companies such as South Korea steelmaker POSCO and US oil giant ConocoPhillips, and also some state governments.

It has also spurred on some individual deals by manufacturers. At the end of November, Santos announced it had extended its current gas supply agreement with Brickworks, with a new 11-year deal starting in 2025. In the announcement, Santos said: “The agreement will provide long-term security of affordable gas supply for Brickworks and support Santos’ investment in more gas supply for the east coast market.”

“Australia has a source of energy [in the Perth Basin] which is equivalent to gas costs coming out of Qatar and Russia.”

Stuart Nicholls, Strike Energy chief executive

Multinationals and global firms have increased their investment in Australia, in a worldwide rush to snap up such assets, as gas prices have soared. ConocoPhillips invested in exploration in the Otway Basin, between South Australia and Tasmania, citing the need to “identify gas reserves to supply into the domestic market and contribute to Australia’s energy security”, while EIG Global Energy Partners and Brookfield Asset management made an $18.4 billion bid for Origin Energy, one of the nation’s biggest electricity and gas generators.

Now the billionaires are joining in this modern-day gold rush. “In the case of [Gina Rinehart’s] Hancock, it’s a clear market opportunity to take that gas [from the Perth Basin] through their mining operations, and if you assume that Hancock might also bring in their joint venture partner POSCO, like they have in Queensland, POSCO possibly could also look to the downstream steel application of some of that gas,” says Credit Suisse’s Kavonic.

Rinehart’s Hancock Prospecting took joint ownership of Senex Energy, in Queensland, with partner POSCO, earlier this year. Last month, Hancock Prospecting released its results and outlined growth plans in the energy sector. On Friday, it raised its bid for Warrego to 28¢ a share, or $342.5 million, which is higher than the Stokes-backed Beach Energy’s bid.

Warrego was first subject to a scrip-based bid by Strike Energy, which owns about 8 per cent of the company, before being outgunned by the offers from Beach and Hancock.

Warrego and Strike are equal partners in the West Erregulla gas resource in the onshore Perth Basin, with Strike also the operator. It’s estimated it would take at least 18 months to two years for it to start delivering gas to the domestic market.

The Perth Basin consists of offshore and onshore gas fields. The onshore area stretches roughly from Busselton in Western Australia’s south to Geraldton in the north.

Strike Energy chief executive Stuart Nicholls.

Strike chief executive Stuart Nicholls says the gas discoveries in the Perth Basin are among the largest and lowest cost in more recent times, with low impurity, which sit adjacent to existing pipeline infrastructure.

“Australia has a source of energy [in the Perth Basin] which is equivalent to gas costs coming out of Qatar and Russia, and that generates a strong impact, in terms of the competitiveness of people who consume that energy for their end products, whether they be vertically integrated miners or, in our case, aspirant fertiliser manufacturers.”

In 2017, AWE in the Perth Basin was bought by trading giant Mitsui. It also owns 50 per cent of the Waitsia gas field in the Basin, in partnership with Beach.

The Waitsia gas field had a special exemption granted to it, where it can export gas, whereas West Australian government policy limits all other onshore gas producers to only delivering their gas to the state’s domestic market.

The West Australian government was criticised by other companies for that decision. If Rinehart’s Hancock Prospecting gains control of Warrego it may also put pressure on the West Australian government to extend that exemption to other companies.

If the Stokes-backed Beach Energy ups the ante and makes a counter bid for Warrego, then there remain questions about whether it could export gas from Warrego, under the existing deal it has for Waitsia.

It has been speculated the WA government could face a legal challenge from other companies exploring in the Perth Basin, if this were allowed.

For now, the winners of this takeover tussle will be Warrego’s shareholders, and a billionaire or two.

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