The problem for the Scots was that they had been hatching a plan to break free from English dominance.
History students will say there’s nothing new in that, and they’re right. The Scots have been trying the same trick for about 400 years.
But this time around, the grand plan was based on the soaring world oil price, with one of the Scottish spokesmen telling the BBC that it would be easy to make Scotland’s economy work efficiently “with the oil price at $US65 a barrel” – which was the number being used to balance the theoretical Scottish budget.
But these assumptions now look a wee bit over-optimistic.
As every oilman knows, $65/bbl has suddenly become yesterday’s number. The real number now for premium benchmark crudes is somewhere around $52/bbl – give or take a dollar.
The point is that Scotland’s “get-out-of-the-English-jail-card” is suddenly looking somewhat useless, in that the national budget has suffered a $13/bbl puncture.
If the noises from Edinburgh have died down, they are just beginning in the world of alternative energy where exotic power sources such as wind, solar and tidal swim freely with ethanol and the flavour of the month, biodiesel.
Grand budgets, which look remarkably like those drafted by the Scottish Nationalists, are suddenly looking somewhat tatty.
None more tatty than that of freshly floated Natural Fuel, an ambitious new Australian business with plans to build biodiesel plants around the world, starting in Darwin and then spreading to Singapore, the US, Belgium, the Netherlands and Port Botany near Sydney.
This “global vision” attracted a pack of true-believer shareholders, strong financial backing from the likes of Commonwealth Securities and clients of the well-heeled stockbroking firm, BBY. It even features as its chairman a one-time prominent Australian politician and senior economist, John Hewson.
But even armed with a cast of highly qualified directors and advisers, and backed by a 172-page prospectus that quickly raked in a very substantial $A80 million, Natural Fuel has performed a truly beautiful swallow dive off the end of the 10m board – and now appears to be about 10m underwater – well, about $74.8 million, actually.
That impressive “paper loss” is calculated by comparing the $1.50 offer price for shares in the Natural Fuel float and the closing price last Friday of 98c – a 52c (34.7%) decline achieved over just 14 trading days between listing day of December 21 and January 12.
With an issued capital of 143.9 million shares, the loss is calculated simply by multiplying the number of shares by 52c (or, in this case, minus 52c!).
What went wrong? Natural Fuel seems to have a good plan, but right from the “get go”, as the Yanks say, the stock was in trouble. First sales were posted at $1.48, but quickly fell away to $1.12 – the damage was done on Day 1.
From then on investors looked at the sinking oil price, but more closely at a “financial sensitivities” table produced by Natural Fuels itself. Seven oil prices were assumed for that document, plus seven palm oil prices – the preferred feedstock.
The palm oil price assumptions ranged from $US400 a tonne to $550/t. The oil price assumptions ranged from $50/bbl to a high of $65/bbl. The highlighted numbers, and presumably the favourites, were palm oil at $455/t, and oil at $55/bbl.
It isn’t rocket science to see that Natural Fuel’s profit assumptions are in trouble – as they are for most alternative fuel companies, a sector that has suffered a wholesale share price correction even more savage than that suffered by conventional oil and gas producers.
The big question for biodiesel and ethanol producers, is what now? If the oil price recovers, all will be forgiven. If not, it’s cellar time because investors do not quickly forget a 34.7% haircut over 14 trading days.
