The oil and gas industry, along with their mineral mining brethren, is lobbying hard for changes to investment taxation laws to stimulate junior-end exploration. Sunshine Gas may have hit upon the answer without having to rewrite any tax acts.

Could it be that the Federal Government is finally getting the message? Has it ultimately dawned on Canberra's bureaucrats that providing tax breaks to investors who put money into exploration companies is actually the right way to go if it wants to guarantee a resource inventory for future generations of Australians?

Tough questions at a time when the easy way to create shareholder value has been to pursue merger or acquisition opportunities rather than drill holes in the ground.

The difficulties for juniors raising capital in Australia have been well noted. The constant dilution of shareholder’s equity through placements and capital raisings to keep exploring has had a wearing effect on the small investor.

Lobby groups from all resource sectors have hounded politicians in an effort to get them to look at some of the models other countries have adopted in an effort to stimulate investment driven exploration. Last month Federal Minister Ian Macfarlane said at the annual Australian Petroleum Production and Exploration Association conference that he supported the notion of spurring investor driven investment.

The Canadian investment model, where exploration losses are passed directly onto the investor’s end of year tax return, rather than being retained by the company itself, is one model often discussed. Discussions are also often prefaced by the mention of tightening some of the associated loopholes identified by the entrepreneurial Canadians.

Enter Sunshine Gas NL. At first blush it is a fairly straightforward, modest exploration float. It has competent managers raising $6 million based around a combination of CBM and conventional oil and gas prospects in northern New South Wales and Queensland. The company is offering investors 30 million, 20c shares with a free attaching option exercisable at 20c before June 2004. It is anticipated the initial offer will close on June 14 and list on the Australian Stock Exchange at the end of that month.

The difference with this company is that chairman John Towner expects in 10 year’s time to have the same 120 million shares and options on his books, his original $6 million float capital in the bank and most of his equity still intact.

Taking a leaf from the agricultural sector and teaming up with one of the country’s leaders in rural financing plays, Sunshine Gas (SHG) have hooked up with the farm-in partner Towner believes will keep his company from blowing out their issued capital in the search for new exploration funds.

This sort of partner has long been seen in the US oilfield business and has been on the Australian rural landscape for many years also – the tax effective managed investment scheme (MIS). It is exactly the same sort of structure that has been responsible for driving up investment in a whole range of agricultural business activities from nuts to blue gums.

It is not the same sort of scheme, Towner stresses, that has given some of the more flamboyant tax-effective marketed schemes a bad name in recent times. “ARG Management Ltd has developed 800 tax investment schemes in their 30 years and since 1998 every one of their investment schemes they’ve applied for has received a tax product ruling,” he said.

“We’ve filed with the Tax Office for that tax ruling and (Minister) Macfarlane’s comments at APPEA were timely and well called and have to be acted on. The company has given him the details of our project and the MIS for him to endorse and refer to the Tax Office.”

It is not the first venture ARG has made into the resources sector. The company has one gold MIS under its belt – as a subsidiary of Charters Towers Gold.

Continued part 2