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(generated from captions) and 'Inside Business'. Coming up next - Alan Kohler Thanks, Barrie. and welcome to the program. G'day to you high, pushing through $60 a barrel. This week oil surged to a new record forces driving the relentless rise We'll take an in-depth look at the and just where it's heading. winners out of it all, And we'll talk to one of the big Peter Botten from Oil Search, towards transforming his company who this week took another step in the energy major league. into a player And in First Person, a legal way of making a killing. behind bars, How hard is it? You're selling the product anyway to sell their product. and somebody wants to give you money It's a no-brainer. with the business news headlines. But first here's Jayne Edwards as the oil price hit new records It was a mixed week on Wall Street for the 9th consecutive time. and interest rates rose raised rates by another 0.25% The US Federal Reserve but disappointed investors tightening cycle would end. by giving no hint of when the

week but rebounded to $59 on Friday, Oil prices took a breath during the prepared to fill their cars as Americans

for the 4th of July long weekend. surging oil prices Figures this week showed haven't dented consumer confidence, is now 2% higher and demand for petrol in the US than this time last year. blue chip stocks were firmer - By Wall Street's closing bell, the S&P500 managed a slight rise, water despite a 14% plunge and the Nasdaq kept its head above in Pixar shares. the US was just in the black, Over the week,

the UK hit a new three year high. the German market gain ground A looming early election helped

and Japan's Nikkei added almost 1%. financial year with 0.5% gain. The local market closed the Tom Murphy from Deutsche Bank. And with more, here's brought a great result The year just ended sharemarket investors. for Australian in the broad market, Behind the 21% rise among sectors. there was a fair divergence was, of course, the oil stocks. The big winner carried the energy index 64% higher, Companies like Woodside and Santos occurring just in the past 2 months. with a big run-up in those stocks the materials stocks, with BHP, Rio Right behind the oil stocks were to the value of materials stocks and others adding a third for the year. market - the banks - The biggest sector in the Australian but fell behind the broader market. produced double-digit gains,

week over the company's cashflows At Evans & Tate, the debacle last

by a clarification was somewhat rectified its wine inventories that it's writing-down by between $8 and $10 million. the loss for the year just ended The company has projected that of $7.5 million. will be in the vicinity now makes it increasingly difficult The maturing wine industry market Ofor good wine brands to compete

supply chain cost structures. within the existing

this week, CSL put on more than $1 a share after announcing that it intends of its shares. to buy back up to 8 million The market likes CSL, for plasma prices both because of a positive outlook agreement and because of a vaccine licensing being undertaken with Merck. May sales were 0.9% up, In the retail sector, began discounting in May. partly because David Jones and Coles It was also disclosed big stakes that Solomon Lew has recently taken and the Just Group, in both David Jones for retailers. making things more interesting consumer tax cuts With the Howard Government's taking effect this week, for the retail sector maybe a healthier outlook is quite an astute market view. is one of our perennial losers - Finally, our winner of the week which rocketed by 49% to 45.5 cents, Village Life - been kind to our loser of the week, while the end of the tax year hasn't which fell by 13% to $3.50. Great Southern Plantations, high oil prices are here to stay? Is $60 a barrel just a spike, or are So far efforts to rein in prices futile jaw-boning seem to amount to little more than appetite both in China and the West. in the face of the insatiable little good news on the horizon. And for consumers of oil, there's

Stephen Long reports. are behind us now. The days of cheap oil $70 a barrel. You just can't rule out Taking a five year view the oil price above $100 a barrel. it's quite conceivable we will see US $60 a barrel this week, When oil spiked above investors got nervous. But it might not be too long a fond memory before prices of this order are just of a new China syndrome. because the world is in the grip are driving China's economic boom. Factories like this plant in Kunshan with demand But energy output can't keep pace

are a fact of life. and blackouts and rationing (Speaks foreign language)

in south-eastern China Since 2002, the energy problems a serious shortage, he says. became more obvious, This enterprise like thousands of others - has responded to the power crisis through diesel. by installing a generator that chugs

up the oil price, It's just one of the factors pushing from peasantry to proletariat. as China's workforce transforms of an industrial revolution Well it's basically been a case

in China. on an almost unimaginable scale constructed We've seen power plants being at the rate of one every two weeks. in the past five to ten years. We've seen oil demand nearly double numbers. These are really unprecedented China really is now in the world. the second largest consumer of oil rapid growth. It's been an absolutely research analyst Simon Wardell From his office in London,

growing thirst for oil has tracked China's changed the whole equation on price. and he's one of many who say it's increasingly, I think that we are going to see

supply and demand. a very, very tight balance between That means more volatile prices. security risks That means that political risks, take on greater importance underlying oil price. and it means we have a higher China's petroleum needs are also creating geo-political tensions as east battles west for scarce reserves. China and the United States are basically competing over the same sandbox. There are limited resources, there is only a number of places where you can find cheap oil and both countries are vying for the same reservoirs. In its quest for oil security,

China is making a multi-billion bid for one of America's biggest oil companies. In New York, China oil firm Scenic Executives have begun selling their $18.5 billion bid for Unocal. And meanwhile in Beijing, the Chinese government said the offer should be considered as a normal business deal without... And China is cozying up to regimes the US doesn't like. Well what we are seeing is Chinese companies

looking to secure long-term oil supply deals with primarily Middle East suppliers.

And what they are doing is using the leverage the Chinese government can give them with their political weight in the UN Security Council as a way to try and secure these long-term sources of supply. China is already very involved in energy deals in Iran and Sudan and gradually vying for Saudi oil and gas. In the case of Iran and Sudan, we already see a source of tension with the US. The US and the Europeans are working very hard to prevent Iran from developing nuclear weapons. They tried to do something in the Security Council and the Chinese have announced that they will veto any attempt to sanction the Iranians. Iran produces nearly 40 million barrels of oil a day, about 5% of the world's output. And fears that the Bush Administration would greet its new president with sanctions or worse was the catalyst for this week's oil price hike. Across the globe in Melbourne, Nicholas Marandos of Aus Plastics is counting the cost. Oil is obviously a raw material of plastic and it's impacted a lot,

so we're not talking just a few per cent, we're talking by as much as 10, 15%. And he can't pass on the cost to key customers. We're locked in already to certain projects, government projects and other private projects, and you really can't go back and say, "Hey, petrol's gone up, so oil's gone up, "so I'm gonna have to charge you a bit more for your plastic." You can't do that, you're locked in. Unlike the last oil shock in the late 70s, those higher production costs haven't caused a wage-price spiral. The rise in the oil price certainly puts upwards pressure on measured inflation. The petrol price goes up, simply as we drive down the road we can see the petrol price going up. What happened in the 70s was oil price went up, that led to a pick up in headline inflation. And then because the union movement was very powerful back then it flowed straight through to wages which then led to another generalised increase in costs right throughout the economy. Now this time around it's very different because you've got the rise in the oil price, rise in petrol prices at the bowser, but you don't have the wage bargaining power that was around back then. And this time around rising petrol prices have only been a speed bump for economic growth, at least for now. So far, more expensive petrol is just part of the China trade-off. Higher costs at the bowser, but cheaper goods in the shops made in China. But if there's another major supply disruption - a war, a hurricane, a terrorist attack on key supplies, then maybe it could spell recession. Conventional wisdom says rising prices will encourage more production. That is unless you believe those who say the world's key oil reserves have already peaked. People like Matthew Simmons, who runs an investment bank specialising in energy, and has advised George Bush on energy policy. What it really basically means is that the continued growth in the energy-demand era is coming to an end unless we can quickly invent some other form of energy to take its place. And we haven't started. Even if the doomsayers are wrong, it will be years before new production and refining comes online. And it may not be enough to meet China's growing demands. If China moved to a similar level of car ownership to Australia and a similar sort of oil usage as Australia has

and many other western countries have, then global oil production would have to go up by 50%. If we see China's population mimicking the west in terms of the desire and the consumption of individual personal transport in the form of automobiles, we are going to see the sorts of growth in energy and oil consumption that I don't think the world could actually sustain physically. For prices, you would get to a situation fairly swiftly where supply would be unable to meet demand and we would see prices, well, go through the roof essentially.

In his landmark history of oil, author Daniel Yergin dubbed petroleum "the prize". And in the 20th Century,

mastery of oil was the key to security and prosperity. But this new century may belong to Asia and the west may have to share "the prize".

This week another important piece fell into place for Oil Search's grand dream of becoming a dominant energy player by piping gas from Papua New Guinea to Australia. Oil Search slipped under the guard of the gas giant, Woodside to win a lucrative contract to supply Alcan's energy needs at its Gove smelter in the Northern Territory.

And as early as next week the big gas retailer, AGL, may sign up as well in a deal that could finally secure the pipeline's construction. I spoke to Oil Search's Managing Director, Peter Botten.

Peter Botten, is the deal to sell gas at Alcan at Gove this week the clincher in getting your PNG Gas project off the ground? Have you got all your ducks lined up yet? Well, there are lots of ducks to line up.

Alcan is a very substantial step forward in underwriting the project. It's a significant load. The initial build of the project is 200 petajoules per annum capacity and Alcan makes up over a fifth of that. Is that what you are saying, you need 200 petajoules? That is the capacity of the first build in this project, so with Alcan, depending on the range of markets that you think you might achieve, presently on conditional terms we have somewhere between 110 and 160 petajoules. Clearly we are getting up to the upper levels and we are confident that with the remaining market potential we'll get there. There are lots of ducks still to come in place, not so many in the marketing front now but on the financing and the regulatory side. How did you get the Alcan deal? Was that difficult? I mean they had previously done a deal with Woodside. How did you gazump them? Firstly, I suppose, a couple of years ago

we were in deep and meaningful negotiations with Alcan to buy that load and we offered a very competitive package to Alcan, we believed at that time. However Alcan wanted greater project certainty than we could deliver at that time. We were not in front in engineering design

and they quite naturally thought that they would be able to better rely on Blacktip to provide them with their gas. Blacktip is Woodside's project? Exactly. Where they contracted originally. And Blacktip was only dependent really on the Alcan load to get development. Part of the problem, as I understand it, with Woodside and Blacktip was that they ended up having to raise their price or at least the project's costing more than they thought. Is there much of a chance of that happening to you, that you've come in at a low price that you're going to have to put up later? No, we don't see it that way. I must say that like all big projects, world scale projects, given there is cost pressures on a range of aspects to them. However our project is not just about a gas project, it's a liquids project with gas, frankly, as an ancillary product. So a few years ago when we looked at the project with a capital cost in the order of $1.8 billion, $2 billion,

at $19 a barrel the liquids content and revenues was half the total revenue stream for the project. Obviously costs may have gone up, and I think they probably have, but the reality of the oil price has gone up very dramatically and as much of our project is based on liquids revenues

we are sitting in a very comfortable position, albeit that we are doing what we can to keep our cost base down. One of the ducks you had lined up

was Western Mining's Olympic Dam project. Western Mining has now been taken over by BHP Billiton, which has its own gas, so are you going to lose Olympic Dam? Look at the moment there is no indication from Western Mining or BHP that that will happen. We believe we do have a competitive product offer to Western Mining. Clearly BHP will bring its own review and make its own decisions about the expansion and where that energy source may come from. We certainly see at the moment no indication that they are backing away from our deal. Obviously the big potential in terms of gas is for Australia's east coast markets and possibly eventually replacing the Cooper Basin. Now can you just bring us up-to-date with where you're at with negotiating with the residential suppliers in the east coast? It's a really pivotal time for energy supply on the east coast. The traditional large supply of the Cooper Basin is definitely reaching its old age and in an ever-increasing competitive market they are struggling to deliver gas on a competitive price into that market.

And over the next five, seven, eight years

you will see Cooper Basin's production decline dramatically. The issue then is who is going to replace it. And, of course, PNG, we believe, is going to fill a material part of the east coast market but there are other supplies as well such as coal seam methane which is growing some credibility. We really believe this is an opportunity to put PNG Gas as a major supplier into the eastern and southern markets for 20, 30, 40 years and provide a very competitive source of energy for major resource projects right up and down the east coast.

The key Sydney supplier, AGL is a shareholder in the pipeline project to bring the gas from Papua New Guinea to Australia but you haven't yet got them signed up as a buyer of the gas, as I understand it, so how come? What's going on there? Clearly there are a number of major aggregators that we think are important for the long-term future of market build for this project and AGL has indicated recently, very publicly, that they support the pipeline and see PNG as a key energy source for the east coast. Undoubtedly they are a potential customer and discussions are going on with those people to take a volume of gas that may be quite substantial. Are you close to getting a signature there?

All I can say is that we have advanced discussions, negotiations with AGL and I might say with a number of other customers too. So I genuinely believe that as the project grows in credibility that there will be a number of other customers that will come forward because they will want PNG gas in their mix. When do you expect PNG gas to start flowing into Australia? Present circumstances would see it flowing into Australia in 2009. There's a lot of work to do to get to that stage. We are looking at a project sanction decision some time in the first quarter next year and financial close on the project which will be the initiation of construction by, in the second half of next year. There's around the 3-year project to get it up.

Do you think you need more partners? We've got a very strong partnership with Exxon Mobil as operator. We do believe we've got very good partners in the pipeline builders in AGL and Petronas. And undoubtedly as this project matures we hope to get Santos back into the project in the near term and I do believe that AGL and Petronas will play a long-term part in the development of the project outside the pipeline. Given the stage you are at at Oil Search, how vulnerable are you to be taken over? It's always an option for shareholders to take a price if somebody wishes to offer the right price. Our job is to maximize the value of our shareholding base and that's what we are endeavouring to do and our performance over of the last three years has been pretty good in doing that. Obviously Oil Search is about Papua New Guinea. We have about 18% ownership by the PNG government and our interests and the PNG government's interests in maximising the value of the oil business up there, and the gas now, is very much aligned. Since taking over operatorship and acquiring Chevron Texaco's stake in the oil business we've really reinvigorated the oil business and substantially improved the production. That's seen as being very good for Papua New Guinea and we are very close to the government. Has anyone had a nibble, approached you or the board or even the PNG government to see if it's possible? Not to my knowledge, no, but that doesn't preclude that there are, but not to my knowledge, no. What about you personally, you've been juggling the demands of demanding gas buyers, the government, the PNG government, sharemarket, equipment suppliers, partners? I mean have you ever thought I can't really do this, this is too much? It's a challenging job. It's one that obviously means you have to be in Papua New Guinea, you have to service government and the stakeholders up there, you have to service your shareholders down here. It's certainly not a typical Australian company

where you can sit in Perth or Adelaide or whatever and manage the stakeholders locally. It's one that is dynamic, it's a developing country one so you can go and talk to landowners in a village in a smoky fabric hut one moment and you are talking to AMP the next. It's challenging job but frankly, most of the senior managers, if they didn't like it they wouldn't be here. Have you ever doubted that you would get this project, the pipeline project off the ground? There have been some very good times and there have been some very bad times in this project. I think you have to be realistic about what the chances are to get it up but you also have to be very dogged and determined in managing what are a whole range of, some people call, grasshoppers, lining them all up and herding them all in the right direction and that's a challenge. But without the vision and the dedication to do it no big projects get up and I think Oil Search has played its part in keeping it going. We'll leave it there. Thanks very much, Peter Botten. Thank you. Good on Bob Geldof for organising an excellent concert yesterday - on TV in Australia tonight. And especially for getting David Gilmour and Roger Waters of Pink Floyd back on stage together. But the real purpose of the Live8 concerts - persuading the G8 nations to double aid to Africa, cancel its debts and open up trade - while well meaning and hard to argue with, is, in my view, probably useless. 100,000 Africans own just under one trillion, or a thousand billion dollars in wealth, while 300 million live on less than $1.50 a day. The problem with Africa is not a shortage of aid or resources, or a lack of trade opportunities, but grand larceny. The continent is being openly looted by its elites. That's what is causing the poverty. Kenya's 2005 budget, for example, allocates $15 million for a new fleet of Mercedes Benzes for the Office of the President, including a $1 million S500L for President Kibaki himself. allowance for their Mercedes Benzes Kenyan MPs get a monthly fuel of more than $1500 each. in Kenya is less than $500. The average annual per capita income according to 'Spectator' magazine, Three-quarters of Swaziland's aid, his picnics, parties and cars. goes on King Mswati's balls,

to Malawi, When Britain increased aid 39 top-of-the-line the government celebrated by buying S-class Mercedes Benzes. And so on. the people are oppressed and robbed. All over Africa will entrench the elites. More aid and debt cancellation And while Europe and America barriers, should definitely lower their trade that is not the problem with Africa. There is plenty of trade in food. about the corruption thing, Sir Bob tells us we should forget that's all that matters. but in my opinion, is to have a functioning democracy The only way out of poverty and jail for thieves. with property rights it might surprise you to know If you were walking past, is a bar. that inside this little bolt-hole and it is really, It looks unassuming, who are running the place but the three young guys between them, are turning over $500,000 a year is pretty much sell beer. and all they do We like to think Never Mind bar when the parents went away. is the Brady Bunch's house (Laughs) Just a big party every night. Jed Burgess is in his early 20s. Richard Concher, own the Never Mind He and friends, Cam Jackson and or 'Ever Blind' as it's known aren't within ear-shot. when licencing inspectors We all own a third. Rich and Cam started it. they turned it into a bar. After it was a restaurant, "Nah, we, can't do this." That's when they realised that, selling lots of beer to young kids. We could probably make more money And that's what they did. around exams There was a semi-slow period in the next couple of weeks. but they should be over beer, young kids, Sounds like a business plan - in new ways. but here, it's been worked over "girl-friendly". The first key is making the place for a few drinks They can come down or they can come down and have a really big night. where they have to be worried It's not a place all those sorts of things. about who's checking them out and what do you reckon? I don't know Cam, where, I guess, I don't know, it's a situation

very much politically correctly a lot of places these days are run and in this day and age rid of the serial pests, a lot of people are scared to get too kindly I think we don't suffer them and we get rid of the dirty old men. 20, mostly from private schools. The people who come are aged around they're cashed up. Their parents are affluent and It's a very specific market niche. you'd like to call it.. (laughs) Most of the recruiting policy if kids that are coming here, ..centres around just grabbing the the just recently 18-year-olds. and getting the Year 12 leavers and do wander in Sometimes people over 25 aspirational class of 'go-getters' to be dismissed as a more

they're in the wrong place. quickly realising when they walk in. You can definitely tell They'll ask to see a wine list. red, one white We'll tell you, "yep, we've got one and one bottle of champagne". And we only just got wine glasses. Having got the glassware right for the next opportunity. the boys are on the lookout is to buy a second-hand limousine. The favoured plan of the moment smell of pure class. Smells like class. It's the pimp it up, they call it We're gonna grab one of those and so we'll put the flashy wheels on it underneath and a really big stereo. and those little lights that go on here, or your 25th or your 18th And whenever you have your 21st get picked up by the limo. you and five of your mates And yeah. Outstanding Sam. I think we're smart businessmen. Done deal.

We live by very simple rules. We play cash flow alot. then do it. If we think its gonna make us money a lot of people out there won't. Take the risk, The risks are far from reckless down and costs are mercilessly screwed have a phone in the bar. to the point where they don't even tough negotiators. The breweries also found the trio favour of Tooheys They dumped Carlton and United in rebate, because they got a higher cash a litre. up from 10 cents to 50 cents We tried to get a little bit more. of power. We thought we were in a position We did get a tiny bit more. selling the product anyway We sort hard is it you're

to sell their product, and somebody wants to give you money there's nothing to think about. it's a no-brainer, about a 70% profit margin. A pot of Tooheys sells for $3,

of the spectrum. We're definitely on the cheaper end of money to spend In the end kids don't have a lot for too much. so you can't really ask isn't quite at the cheaper end, A 70% mark-up more industry standard. to be made in beer There's alot of money is worth $350,000. and business brokers say the bar gonna want to buy a place like this People that have 350 grand aren't a place like this and somebody who wants to buy isn't gonna have that sort of money. The market value is what somebody's prepared to pay on the day but it's not for sale. (laughs)

Luisa Saccotelli reporting. Coming up next, '7 Days' with Joe O'Brien. Thanks for your company. I'm on leave next week, Emma Alberici. and filling in will be So see you in a fortnight. International. Captioning and Subtitling Captions by