Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. There are some huge moves in the energy space at the moment. Santos and Oil Search are merging, BHP's combining its oil and gas business with Woodside, prices are high, very high, and the industry's under intense pressure to convert to renewables. So, where are the investing opportunities in energy right now? My guest now is Romano Sala-Tenna, portfolio manager at Katana Asset Management. Romano, welcome to Fear and Greed.

Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. There are some huge moves in the energy space at the moment. Santos and Oil Search are merging, BHP's combining its oil and gas business with Woodside, prices are high, very high, and the industry's under intense pressure to convert to renewables. So, where are the investing opportunities in energy right now? My guest now is Romano Sala-Tenna, portfolio manager at Katana Asset Management. Romano, welcome to Fear and Greed.

Nice to be here.

Nice to be here.

Where do you start when you're thinking about investing in energy? Wow, there's a lot going on in that sector.

Where do you start when you're thinking about investing in energy? Wow, there's a lot going on in that sector.

Yeah, look, there certainly is. I think it really to a large degree comes back to time frames. Where you'd invest for the shorter term is not where you'd invest the longer term. I think shorter term, for example, there are clear opportunities right here, right now in the LNG (Liquefied Natural Gas) space. We're seeing spot markets blow out from $7 an MMBtu (Metric Million British Thermal Unit), as high as $27-$29 an MMBtu. Now, that's going to have an impact on all of the LNG players, Oil Search, Santos, Woodside, Origin, and even Beach in the coming year or two. But of course only about 10-15% of their volumes are sold into the spot market. The bigger amount is sold on a slope to the oil price, but short term there's definitely some opportunities in the LNG players. I think the market's just starting to get a bit of a whiff of that.

Yeah, look, there certainly is. I think it really to a large degree comes back to time frames. Where you'd invest for the shorter term is not where you'd invest the longer term. I think shorter term, for example, there are clear opportunities right here, right now in the LNG (Liquefied Natural Gas) space. We're seeing spot markets blow out from $7 an MMBtu (Metric Million British Thermal Unit), as high as $27-$29 an MMBtu. Now, that's going to have an impact on all of the LNG players, Oil Search, Santos, Woodside, Origin, and even Beach in the coming year or two. But of course only about 10-15% of their volumes are sold into the spot market. The bigger amount is sold on a slope to the oil price, but short term there's definitely some opportunities in the LNG players. I think the market's just starting to get a bit of a whiff of that.

Okay. If we look at some of the LNG, we'll take that in gas prices, why are they so high at the moment?

Okay. If we look at some of the LNG, we'll take that in gas prices, why are they so high at the moment?

Yeah look, a few people are trying to work that out. There seems to be a number of specific factors that are coming together at the same time to have that impact. First of all, we had an unusual season just gone by where you'd normally have the gas reservoirs built up ahead of the Northern Hemisphere winter. That hasn't happened, so you've got a lot of the big energy players from China, Japan, right through Europe, scrambling for LNG cargos at a time where they'd normally be flush with gas. Now, why exactly that's happened? There's been a few factors. There's certainly talk about Russia and the pressure that's putting on Europe in terms of trying to get funding for a second pipeline there, and they've been restricting cargos into Europe, which has flowed right through to our part of the world. There's also been what's happening in China there, in terms of their push towards a higher LNG or gas mix ahead of the winter Olympics, trying to clean out air quality, et cetera. There's a whole lot of factors there, and throw into the mix of course, recovery from COVID-19, and we're starting to see high levels of economic activity, despite the sensational headlines, and the world's suddenly finding it's a bit short of energy in the short term.

Yeah look, a few people are trying to work that out. There seems to be a number of specific factors that are coming together at the same time to have that impact. First of all, we had an unusual season just gone by where you'd normally have the gas reservoirs built up ahead of the Northern Hemisphere winter. That hasn't happened, so you've got a lot of the big energy players from China, Japan, right through Europe, scrambling for LNG cargos at a time where they'd normally be flush with gas. Now, why exactly that's happened? There's been a few factors. There's certainly talk about Russia and the pressure that's putting on Europe in terms of trying to get funding for a second pipeline there, and they've been restricting cargos into Europe, which has flowed right through to our part of the world. There's also been what's happening in China there, in terms of their push towards a higher LNG or gas mix ahead of the winter Olympics, trying to clean out air quality, et cetera. There's a whole lot of factors there, and throw into the mix of course, recovery from COVID-19, and we're starting to see high levels of economic activity, despite the sensational headlines, and the world's suddenly finding it's a bit short of energy in the short term.

Yeah, okay. And oil prices are, as we speak at the moment, are at near three year highs.

Yeah, okay. And oil prices are, as we speak at the moment, are at near three year highs.

Yeah, that's right. And look, again, part of that, there's some specific reasons, for example, Cyclone Ida in the Gulf of Mexico took out about two million barrels of oil per day, at a time when the markets were already tight. And notwithstanding that OPEC's agreed to put an extra 400,000 barrels a day into the market and increasing that on a regular basis. We're finding that the market is very tight, the economies globally are opening up. We have had a substantial draw down in reserves, and people are suddenly realising that they're not going to have the stockpiles they thought they'd otherwise have.

Yeah, that's right. And look, again, part of that, there's some specific reasons, for example, Cyclone Ida in the Gulf of Mexico took out about two million barrels of oil per day, at a time when the markets were already tight. And notwithstanding that OPEC's agreed to put an extra 400,000 barrels a day into the market and increasing that on a regular basis. We're finding that the market is very tight, the economies globally are opening up. We have had a substantial draw down in reserves, and people are suddenly realising that they're not going to have the stockpiles they thought they'd otherwise have.

Coal's the other big one, and of course we export a lot of coal in Australia. And that's not that far off 2008 levels which was the peak for thermal coal, at least.

Coal's the other big one, and of course we export a lot of coal in Australia. And that's not that far off 2008 levels which was the peak for thermal coal, at least.

Yeah. It's certainly right. We're actually focused, one of the opportunities we see right here right now is in met-coal (Metallurgical coal), which obviously can be used for energy but is more used in the steel making industries. Met-coal at the moment-

Yeah. It's certainly right. We're actually focused, one of the opportunities we see right here right now is in met-coal (Metallurgical coal), which obviously can be used for energy but is more used in the steel making industries. Met-coal at the moment-

Sorry. I'm jumping in. Metallurgical coal, met-coal?

Sorry. I'm jumping in. Metallurgical coal, met-coal?

Yes. Correct. That's right. Yep. That's jumped from about US$120 a ton, hit US$390 a ton just recently, in the space of five months. So, stocks like Coronado at the moment literally printing cash. They're going to be paying down their debt at a rate of knots and will start to look at capital management initiatives. That's a big change where they were even just three or four months ago.

Yes. Correct. That's right. Yep. That's jumped from about US$120 a ton, hit US$390 a ton just recently, in the space of five months. So, stocks like Coronado at the moment literally printing cash. They're going to be paying down their debt at a rate of knots and will start to look at capital management initiatives. That's a big change where they were even just three or four months ago.

I mean, Whitehaven Coal's another good example of that where its debt levels 18 months ago were huge and people were wondering if it was going to survive. And it's up, I think it's almost 100% this year.

I mean, Whitehaven Coal's another good example of that where its debt levels 18 months ago were huge and people were wondering if it was going to survive. And it's up, I think it's almost 100% this year.

Certainly is. They paid off $200 million in the space of two months. Thermal coal prices jumped from US$50 a ton, knocking the door of US$200, and just gone through on some spot cargos. Now, these are extraordinary rises. Now, these are unsustainable, they're unsustainable as coal at US$50 US a ton was, but every day the coal price is here is a very good day for these producers, and I think what it does show is that when it does finally settle and rebase, it'll rebase at a higher price than most analysts were expecting.

Certainly is. They paid off $200 million in the space of two months. Thermal coal prices jumped from US$50 a ton, knocking the door of US$200, and just gone through on some spot cargos. Now, these are extraordinary rises. Now, these are unsustainable, they're unsustainable as coal at US$50 US a ton was, but every day the coal price is here is a very good day for these producers, and I think what it does show is that when it does finally settle and rebase, it'll rebase at a higher price than most analysts were expecting.

Okay. I just want to go through some of the big mergers that we're talking about, but then I want to bring in the whole climate debate over the top of it. The Santos/ Oil Search merger, what's that mean for investors?

Okay. I just want to go through some of the big mergers that we're talking about, but then I want to bring in the whole climate debate over the top of it. The Santos/ Oil Search merger, what's that mean for investors?

Look, that one's perhaps a little bit more surprising. It's not a bad move. I mean, I think it comes about because we're finding two things. One is that the replacement exploration costs are substantially more than inorganic growth. So, M&As (Mergers and Acquisitions) makes a lot of sense when companies are so cheap to actually purchase. You take out all the exploration risk, you take out development time frames and costs, and so for a company to grow, it makes a lot of sense to actually make acquisitions to grow. I think the second thing driving it of course is that companies realise that the cost of capital now in this ESG (Environmental Social Governance) conscious environment is going to be sustainably higher. The weighted average cost of capital are going through quite a lot to fund projects. You're going to need to get big to be able to fund a lot more internally, but also to then use your size and economies of scale and leverage to try and maximise your borrowing power. This is going to be a theme I think we're going to see, not just here but also globally, where we're going to see companies get large to maximise their capacity to fund projects.

Look, that one's perhaps a little bit more surprising. It's not a bad move. I mean, I think it comes about because we're finding two things. One is that the replacement exploration costs are substantially more than inorganic growth. So, M&As (Mergers and Acquisitions) makes a lot of sense when companies are so cheap to actually purchase. You take out all the exploration risk, you take out development time frames and costs, and so for a company to grow, it makes a lot of sense to actually make acquisitions to grow. I think the second thing driving it of course is that companies realise that the cost of capital now in this ESG (Environmental Social Governance) conscious environment is going to be sustainably higher. The weighted average cost of capital are going through quite a lot to fund projects. You're going to need to get big to be able to fund a lot more internally, but also to then use your size and economies of scale and leverage to try and maximise your borrowing power. This is going to be a theme I think we're going to see, not just here but also globally, where we're going to see companies get large to maximise their capacity to fund projects.

Okay. Romano, stay with me, we'll be back in a minute.

Okay. Romano, stay with me, we'll be back in a minute.

I'm speaking to Romano Sala-Tenna, portfolio manager at Katana Asset Management. What about Woodside and BHP? It seems to me that what you've just discussed sounds like a lot of sense for Woodside, but then BHP's oil and gas business merging with Woodside, that's not necessarily the same incentive or the same reason that BHP had.

I'm speaking to Romano Sala-Tenna, portfolio manager at Katana Asset Management. What about Woodside and BHP? It seems to me that what you've just discussed sounds like a lot of sense for Woodside, but then BHP's oil and gas business merging with Woodside, that's not necessarily the same incentive or the same reason that BHP had.

No. Look, I mean even 12-15 15 nths ago, the concept of BHP selling off its second largest and best performing pillar, it would have been unthinkable. What we're seeing here really is a paradigm shift and it really has taken place very rapidly on the back of the ESG, Environmental, Social, and Governance thematic. BHP's made a decision to pivot into new world metals, to pivot out of old world commodities. Now, it's one thing to do that when iron ore's at US$200 a ton, US, but through the cycle, this has been their second best performing pillar and on our numbers, in 2025, they go from 25 billion down to 12 billion at the EBITDA (Earnings Before Interest Taxation Depreciation and Amortisation) line without oil and gas there. To sum it up, I think it's a good move for Woodside. They are tier one assets, there's lots of synergies, it increases their scale, et cetera. And helps their funding gap, as well. From a BHP shareholder point of view, it's a good move. Because BHP shareholders then can play out their ESG preferences through the shares that they receive, but from a BHP corporate perspective, I think it's a brave move. The fullness of time we'll understand better whether it was a good move, but I think it's a brave move on their part to be selling these assets at this time.

No. Look, I mean even 12-15 15 nths ago, the concept of BHP selling off its second largest and best performing pillar, it would have been unthinkable. What we're seeing here really is a paradigm shift and it really has taken place very rapidly on the back of the ESG, Environmental, Social, and Governance thematic. BHP's made a decision to pivot into new world metals, to pivot out of old world commodities. Now, it's one thing to do that when iron ore's at US$200 a ton, US, but through the cycle, this has been their second best performing pillar and on our numbers, in 2025, they go from 25 billion down to 12 billion at the EBITDA (Earnings Before Interest Taxation Depreciation and Amortisation) line without oil and gas there. To sum it up, I think it's a good move for Woodside. They are tier one assets, there's lots of synergies, it increases their scale, et cetera. And helps their funding gap, as well. From a BHP shareholder point of view, it's a good move. Because BHP shareholders then can play out their ESG preferences through the shares that they receive, but from a BHP corporate perspective, I think it's a brave move. The fullness of time we'll understand better whether it was a good move, but I think it's a brave move on their part to be selling these assets at this time.

Okay. If you take that whole ESG rider, which the reason that I'm sure some people ... I'm talking retail rather than institutional here, people don't buy some of these companies, is that they are worried about the fossil fuel debate, renewable energy debate. Is that weighing on some of these share prices, given the commodity cycle at the moment?

Okay. If you take that whole ESG rider, which the reason that I'm sure some people ... I'm talking retail rather than institutional here, people don't buy some of these companies, is that they are worried about the fossil fuel debate, renewable energy debate. Is that weighing on some of these share prices, given the commodity cycle at the moment?

Look, it certainly has been. I think it hit the coal space probably 12-18 months ago and I think the register reoriented towards investors who are comfortable with ESG preferences to invest in thermal and coking coal. And so when the coal price has recovered, as it has now, I think you saw registers that had rebased and were able to recover their share price. For example, Whitehaven's gone from 1.20 a share to 3.20 share. I think that was what we saw. I think with oil and gas, it's happened more recently, and I think Woodside had its moment probably in the last couple of months, coinciding with a BHP announcement there. Woodside's put on 20% in the space of a couple of weeks, so I think that's largely now run its course there. I think this is a natural part where you'll see some investors leave and this will be an ongoing thematic, but I think a big chunk of that's now taken place. What I'm hoping is that the ESG debate will mature and not just look at things such as gas and LNG, and throw it in the same basket as coal and oil, et cetera, because it is a big part of the mix we need. You can't have the transition and pivot to renewables without gas, right? It's as simple as that.

Look, it certainly has been. I think it hit the coal space probably 12-18 months ago and I think the register reoriented towards investors who are comfortable with ESG preferences to invest in thermal and coking coal. And so when the coal price has recovered, as it has now, I think you saw registers that had rebased and were able to recover their share price. For example, Whitehaven's gone from 1.20 a share to 3.20 share. I think that was what we saw. I think with oil and gas, it's happened more recently, and I think Woodside had its moment probably in the last couple of months, coinciding with a BHP announcement there. Woodside's put on 20% in the space of a couple of weeks, so I think that's largely now run its course there. I think this is a natural part where you'll see some investors leave and this will be an ongoing thematic, but I think a big chunk of that's now taken place. What I'm hoping is that the ESG debate will mature and not just look at things such as gas and LNG, and throw it in the same basket as coal and oil, et cetera, because it is a big part of the mix we need. You can't have the transition and pivot to renewables without gas, right? It's as simple as that.

It's not a very subtle debate, in a sense. I mean, what you're bringing out is it's not a case of black or white here. It's a transition phase and there are some commodities that are dirtier than other commodities, but a lot of that seems to be lost with the climate change debate.

It's not a very subtle debate, in a sense. I mean, what you're bringing out is it's not a case of black or white here. It's a transition phase and there are some commodities that are dirtier than other commodities, but a lot of that seems to be lost with the climate change debate.

Exactly right. I think we're at the early stage of the ESG thematic in the mainstream level, so it is clumsy at the moment. I mean, another example is do you want someone like a Woodside, as custodian of these assets over the next 10-20 ars, or do you want some junior offshore company that doesn't have the same level of governance and responsibility to Australia?

Exactly right. I think we're at the early stage of the ESG thematic in the mainstream level, so it is clumsy at the moment. I mean, another example is do you want someone like a Woodside, as custodian of these assets over the next 10-20 ars, or do you want some junior offshore company that doesn't have the same level of governance and responsibility to Australia?

It's a great point.

It's a great point.

These are the sorts of things that we need to start to discuss, and not to penalise Woodside for example, if it's going to be the custodian of these assets and run them down a mature way, in a way that's sensible with high levels of corporate governance. These are the discussions we need to start having, and this is where ESG does need to evolve.

These are the sorts of things that we need to start to discuss, and not to penalise Woodside for example, if it's going to be the custodian of these assets and run them down a mature way, in a way that's sensible with high levels of corporate governance. These are the discussions we need to start having, and this is where ESG does need to evolve.

Okay. If we look overseas now, and I'm thinking of Total in France, they seem to be evolving their businesses and ExxonMobil, Shell, some of those guys are at least at the edges, doing the same, shifting towards renewables or at least less non-sustainable fuels. Will they all go that way eventually? Is it all about funding a future which is about renewables?

Okay. If we look overseas now, and I'm thinking of Total in France, they seem to be evolving their businesses and ExxonMobil, Shell, some of those guys are at least at the edges, doing the same, shifting towards renewables or at least less non-sustainable fuels. Will they all go that way eventually? Is it all about funding a future which is about renewables?

Look, they won't all go that way. Because as I said, the next three, four, five decades, we need fossil fuels as part of the mix. So what I think you'll see is you'll see like BHP, like some of the big American players, you'll see them decide which way they're going to pivot. Woodside's put a line in the sand and said, "Look, we see ourselves as being a very reliable, long term, good custodian of LNG assets." I think that's where you'll see them continue to look for opportunities and grow there, with some opportunities to explore hydrogen in the longer term and the like. Others have said, "No, we don't see ourselves as being fossil fuel players anymore. We're going to use the cash flows we have to very clearly pivot into solar, wind, hydro." I think you're going to see a dichotomy. You're going to see players move in one of two directions.

Look, they won't all go that way. Because as I said, the next three, four, five decades, we need fossil fuels as part of the mix. So what I think you'll see is you'll see like BHP, like some of the big American players, you'll see them decide which way they're going to pivot. Woodside's put a line in the sand and said, "Look, we see ourselves as being a very reliable, long term, good custodian of LNG assets." I think that's where you'll see them continue to look for opportunities and grow there, with some opportunities to explore hydrogen in the longer term and the like. Others have said, "No, we don't see ourselves as being fossil fuel players anymore. We're going to use the cash flows we have to very clearly pivot into solar, wind, hydro." I think you're going to see a dichotomy. You're going to see players move in one of two directions.

It's going to be an incredibly interesting decade for you, Romano.

It's going to be an incredibly interesting decade for you, Romano.

Oh look, I think the last six months have been incredibly interesting. As I said, if someone said to me 12 months ago that Woodside would be selling off or divesting their second best suite of assets, I would have been dumbfounded. Yet here we are, well and truly advanced in that process.

Oh look, I think the last six months have been incredibly interesting. As I said, if someone said to me 12 months ago that Woodside would be selling off or divesting their second best suite of assets, I would have been dumbfounded. Yet here we are, well and truly advanced in that process.

Romano, thank you for talking to Fear and Greed.

Romano, thank you for talking to Fear and Greed.

Thank you.

Thank you.

That was Romano Sala-Tenna , portfolio manager at Katana Asset Management. This is the Fear and Greed Daily Interview. Join me every morning for the full Fear and Greed Podcast, with all the business news you need to know. I'm Sean Aylmer. Enjoy your day.

That was Romano Sala-Tenna , portfolio manager at Katana Asset Management. This is the Fear and Greed Daily Interview. Join me every morning for the full Fear and Greed Podcast, with all the business news you need to know. I'm Sean Aylmer. Enjoy your day.