Master of illusion’s vanishing act

by | Mar 31, 2012 | Business

It was pure gold, the best first line to a telephone conversation in years. We called Stewart Elliott this week, the Hong Kong-based chairman, managing director and chief executive of Energy World Corporation.

”What have I done?” Stewart said.

How does a reporter respond to that? There is only one comeback.

”What do you think you’ve done?”

We had called Stewart to inquire as to the whereabouts of a liquefied natural gas plant. An LNG plant is not an easy thing to hide – it’s no missing sock, or set of car keys.

But somehow, in a feat worthy of David Copperfield, Energy World had managed to make a LNG liquefaction facility vanish into thin air.

Stewart was quite helpful. He happily fielded all sorts of annoying questions about this mystery LNG plant, make that ”plants” plural, although some nagging doubts remain as to whether these objets mysterieux may yet materialise in the physical realm.

You see, Energy World – which is valued by the share market at $1.5 billion and is domiciled in leafy suburban Seaforth in Sydney but run out of Hong Kong – has raised a lot of money to build its plants.

In 1997, via the stockbroker Tricom Securities, it raised $100 million at 50¢ a share. ”The funds will be used to finance the construction of an LNG plant, LNG terminal and power plant expansion,” the press release said.

The LNG plans became bolder and more concrete over time. In a letter to shareholders of August 2007, the size of the project had grown to 2 million tonnes of LNG per annum.

By November 16 that year, it wasn’t a case of ”going to build”, rather ”EWC is building” the plant in Indonesia – where, incidentally, it does own an old power station that produces income.

And by May 2008, Energy World had returned to the trusty Tricom to raise another $156 million from retail clients.

”The funds will be used to finance the construction of an additional 1 million-tonne LNG plant and related gas field development in Indonesia,” the announcement to the Australian Stock Exchange said. Was this a newie, anotherie, or the same LNG plant as before?

It was all quite confusing really, hence the call to Stewart. Energy World raised money again this year, from none other than Richard Chandler, to build an LNG plant.

Readers may recall Chandler as the Kiwi-born billionaire and ”deep value investor” who was just about to recapitalise Gunns Timber. He was also the top shareholder in celebrated China stock fraud Sino-Forest.

Chandler tipped in $86.5 million in a placement to Energy World last year and bought a few more shares on-market to move to 18 per cent.

He’s not the first big-name investor. James Packer’s hedge fund Ellerston made a killing on the stock by taking a placement in 2006, when the shares were trading in single digits, then exiting three years later at north of 40¢ a share.

For the Packer crew, it was a classic case of ”buy the rumour, sell the mystery”. For it was in 2009, the year Ellerston bailed, that ”all major equipment” for the LNG plant was ”being manufactured”.

Energy World’s timetable was unambiguous: ”Our first 500,000 tonnes per annum LNG liquefaction facility remains on target for production in the last quarter 2009.”

Certainly, as you can see from the EWC cash flow statements for 2008 and 2009, there were big licks of capital being paid out for ”property plant and equipment” – some $200 million.

Stewart provided comfort on this front. ”We’ve actually purchased all the equipment and it’s on its way now from factories around the world,” he said.

It seems as though Stewart had solved part of the mystery for us. If the LNG plant was scheduled for production in the first quarter of 2009 then this latest funding from Chandler must have been for another LNG plant.

After all, the diagrams showed prospective LNG facilities in Indonesia, the Philippines, Australia and Papua New Guinea, the last being a joint venture with the colourful Interoil.

No, Stewart said, the parts for the LNG plant in Indonesia were in storage awaiting final approval from relevant authorities. The company had got slightly ahead of itself when it said three years ago that it was ”building” the facility.

Where did all this money go to then, the $200 million-odd that had been paid out for property, plant and equipment?

Bear in mind your run-of-the-mill LNG plant costs well over $5 billion these days. Exxon and Oil Search, the ”competitors” for Energy World/Interoil in Papua New Guinea, are spending $15 billion for their 6.6 million-tonne per annum plant.

Woodside is forking out $15 billion for its 4.3 million-tonne per annum project. But Energy World claims its ”modular” LNG plants cost just one-10th of the price per tonne of LNG.

”One of the reasons that we have been able to keep our capital costs down is that we don’t put the mark-up on it like Woodside,” Stewart said, sounding like he could give David Jones a tip or two about retailing.

But Stewart hardly needs to expand into retail. Roughly one-fifth of that $200 million paid out for the LNG parts has gone to Slipform Engineering – a company incorporated in the British Virgin Islands and wholly owned by none other than Mr Stewart Elliott.


Michael West

Michael West

Michael West established to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.

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