Terry McCrann: $4.6bn US oil and gas play shows where Worley Parsons thinks the future’s at

THE $4.6 billion Worley Parson’s move across the Pacific is not only big — the biggest by an Australian-based company — it is also fascinating, intriguing and indeed extremely instructive, writes Terry McCrann.

John Grill, CEO of Worley Parsons at his office in Sydney.

THE $4.6 billion Worley Parson’s move across the Pacific is not only big — the biggest by an Australian-based company — it is also fascinating, intriguing and indeed extremely instructive.

The timing was also exquisite, if entirely accidental, coming as it did straight after the Wentworth by-election — and that ‘accidental death’ in Turkey.

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A few thousand pampered inner-city harbourside and beachfront delusionals might have voted for a future of windmills and solar panels and power blackouts. But that’s OK — for them; they could afford to copy former SA premier Jay Weather-dill by buying big batteries and diesel generators.

In sharp contrast, the major shareholders in Worley are making a big statement that reality, as contrasted with fantasy, is a strong and continuing growth future for fossil fuels — and not just oil and gas, but baseload coal-fired power generation.

Worley has already become an ‘interesting’ company with the previous replacement of its controlling — and founding shareholder — John Grill by the very private multi-billionaire Lebanese Shair family’s Dar Group, with its key linkages and business operations through Dubai and Saudi Arabia and out across the world.

The move will very substantially beef up Worley Parsons from its existing operations in the US and Canada, while broadening its existing presence in Asia, the Middle East, the UK and Europe.

It also brings in the diversified Jacobs Engineering Group as a major shareholder partner with Dar, while Grill continues as what might be termed a ‘major’ minor shareholder partner.

In acquiring Jacob’s “Energy, Chemicals and Resources” division, WP is more than doubling down in, well, let’s run through them.

‘Energy’ — read in this narrow context, that means essentially oil and gas. Yes, WP-Jacobs will play in the ‘useless energy’ sector. Who wouldn’t, when governments are throwing away billions of dollars of taxpayer money in it? But it will be tiny. Lush but tiny.

‘Chemicals’ — read: oil and gas. You don’t make petro-chemicals out of wind and sunlight, even when the wind does occasionally ... well, you know the rest.

And ‘resources’ — read: ‘energy’ and ‘chemicals’. They need those to be developed; and developing them only makes sense if you are going to feed them into an energy-intensive modern economy for use in things infrastructure, buildings, machines, consumer goods and the like.

So in a very real sense of committing $4.6 billion of their and other shareholders’ money, WP and its major shareholders have ‘seen the future’ and the future they see uses more and more oil and gas.

They want to be part of that development and to help feed the steel mills and coal-fired power stations to provide cheap and reliable baseload power.

The Lebanon-Saudi-Dubai relationships are critical to the Shair family’s Dar group, but are more incidental to WP and will be further diluted operationally by the US expansion.

But obviously Saudi oil remains a cornerstone of global energy — even in the US despite the development of shale, which had made the US not just fully self-sufficient in hydrocarbons but now also a net and likely growing exporter of gas.

As a consequence, not exactly incidentally, the US has become one of the only major economies to have actually significantly cut emissions of CO2, and cut them in the context of a growth economy!

President Donald Trump has walked away from the fake Paris climate accord and will more than deliver on his predecessor’s commitments.

China and India will stay in Paris — and ‘deliver’ diddly squat in CO2 emissions reductions.

Hmm, maybe there’s a lesson for Australia in that. That’s if there’s anyone with a brain and a spine left in Canberra after last Saturday.

DAR’S ‘INTERESTING’ PLAY

THE financing is cleverly designed to deliver the $4.6 billion WP needs, while blending that with the balance of the new three-way relationship between WP, Dar and Jacobs, at a time of rather nervous global equity market peaks.

Most of the money — $3.9 billion — is equity, only $900 million is additional debt.

This means the enlarged WP will actually emerge with slightly more conservative gearing.

Jacobs comes in as a new major shareholder, taking $1 billion of its consideration in shares, giving it 11 per cent of the enlarged shareholder base. The shares are issued at the $16.92 theoretical ex-issue WP share price.

John Grill will subscribe for $100 million of his entitlement, so broadly maintaining his equity.

The interesting one is Dar. As the major shareholder it is entitled to subscribe for $660 million of the $2.9 billion being raised (excluding the $1 billion from Jacobs). But it is only firmly committed to $170 million via the institutional offer being bedded down today.

It will subscribe for “up to” the remaining $490 million via the retail offer — to which it doesn’t have to commit for two weeks. By then it will well and truly know how the insto offer has gone and what has happened to the WP share price.

The WP share price specifically aside, if the whole market goes over a GFC-type cliff, Dar’s subscription will be closer to ‘zero’ than the ‘up to’ $490 million.

And underwriters Macquarie and UBS would have to pick up the shortfall at a fee of 1.58 per cent. Whoopee.