The USD29 billion Wheatstone liquefied natural gas (LNG) project is a key part of Chevron’s (NYSE: CVX) ongoing effort to shift its focus away from North America and Europe and toward Asia. The San Ramon, Calif.-based Super Oil recently announced an agreement with joint venture partners Apache Corp (NYSE: APA) of Houston, Kuwait Foreign Petroleum Exploration Company, or Kufpec, and Royal Dutch Shell Plc (London: RDSA, NYSE: RDS/A), that will lead to the creation of an estimated 6,500 jobs and generate perhaps AUD20 billion in government revenue.

Wheatstone is actually just the second-biggest Chevron LNG project Down Under, as the company has already committed USD43 billion to the Gorgon project, also on Western Australia’s Pilbara Coast. Chevron hopes to award AUD3 billion in local contracts over the next three months. Construction of the LNG processing plant at Onslow, 900 miles north of Perth, will start soon, and its first exports are scheduled for 2016.

Australia surely felt others’ pain from 2007 to 2009, but it’s the only developed economy that didn’t sink into what’s commonly referred to as “The Great Recession.” Like Canada, its vast resource base gives the country emerging-market-like characteristics. Stable institutions and Western-style transparency make the Land Down Under an attractive destination for investors seeking relatively high, relatively safe income.

Although it’s not tied to any one particular commodity in the way the Canadian dollar trades with crude oil, the Australian dollar is nevertheless rooted in the coal, iron ore, natural gas and other minerals and resources found there in abundance. And like the loonie the aussie is underpinned by sound fiscal and monetary policy.

Australia’s net debt-to-GDP ratio was 5.53 percent as of Dec. 31, 2010, much lower than figures found in the US, Great Britain and Japan, for example. And the Reserve Bank of Australia’s target overnight interest rate as of the central bank’s last policy meeting is 4.75 percent.

Should current economic conditions devolve into another run of negative global growth, budget discipline by Australia’s federal government and sensible interest-rate policy from its central bank leave room to open spigots for legitimate countercyclical spending that won’t spell long-term disaster and to bring down borrowing costs, to help businesses and consumers, should the need arise.

The key to Australia’s long-term growth is its resource base. Australia is the largest provider of basic commodities needed to run the economies of China, India and Japan. The latter continues to suffer from the aftershocks of this year’s combination earthquake and tsunami, which killed more than 20,000 people. But it’s still sucking down large amounts of Australian energy, particularly as so much of its nuclear power fleet has been taken down.

Meanwhile, trade with the Middle Kingdom remains robust, and commerce with fellow English-speaking democracy and Commonwealth country India is only beginning to pick up steam.

The value of Australia’s resources and energy exports reached a record in 2010-11 because of higher commodity prices driven by Asian demand. According to the Bureau of Resources & Energy Economics, exports of coal, iron ore, gold, natural gas and other commodities grew 27 percent year over year to AUD175 billion, 9 percent above the previous record, AUD160 billion, set in 2008-09. The mining sector now accounts for some 59 per cent of the country’s total goods and services exports.

International energy companies have committed more than USD100 billion to develop natural gas reserves off Australia’s northern coast and trapped stores of methane in eastern Queensland state’s coal seams. If all goes according to plan Australia could surpass Qatar as the world’s biggest LNG exporter by 2020.

Work on other, non-LNG resource projects continues apace, too.

Australia’s Bureau of Resources and Energy Economics (BREE) has forecast that iron ore exports will increase over the next six years by 7 percent per year to 600 million tonnes, up from about 408 million tonnes in the 12 months ended Jun. 30, 2011. Major Australian miners are currently expanding existing mines, and other companies, such as China’s CITIC Pacific, are planning new mines in the Pilbara.

Iron ore export capacity is expected to be boosted by about 75 percent to at least 815 million tonnes by December 2016, driven by an estimated AUD37 billion worth of projects with secured funding, including expansions of mines operated by BHP Billiton Ltd (ASX: BHP, NYSE: BHP), Rio Tinto Ltd (ASX: RIO, NYSE: RIO) and Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF). Other estimates place spending at AUD85 billion Australia-wide, an effort that would double current capacity of 465 million tonnes to 1 billion by the end of 2016.

Efforts continue to get Australia’s coal production back up to speed, as a combination of devastating floods that hurt operations and weaker-than-forecast economic conditions around the world have reduced volumes and revenues.

Coal is still Australia’s largest export. The industry is still trying to recover after massive open-cut mines were flooded early in 2011. July trade data today showed that coal exports fell 12 percent, or AUD535 million, compared with June.

The major variable here, apart from the still remote threat of eurozone crisis leading to another global meltdown, is costs, particularly in light of the emerging competition for workers and equipment. Woodside Petroleum Ltd (ASX: WPL, OTC: WOPEF), for example has already reported a USD880.5 million cost overrun at its Pluto LNG project northwest of Karratha, Western Australia, in the Northern Carnarvon Basin.

The scale of the commitments and the shape of consumption patterns coming from Asia strongly suggest many if not most of these projects will get built. Australia is home to several companies that will benefit from the billions in contract awards due to flow over the next decade.

Built to Serve

A case can be made–a solid one–that demand from Asia and capital flows from China, in particular, will support the fortunes of companies that provide equipment and services to the mining and energy industries in Australia in a way that renders them essentially recession-proof. Because the Middle Kingdom must have its eye on the long term appetites of a restless emerging middle class population, Australia will always have a customer for its iron ore, coal and other minerals and resources. It’s an argument made even more compelling when you take account of the potential for new demand for non-nuclear energy from Japan in the aftermath of the earthquake/tsunami that felled Fukushima-Daiichi.  

Perhaps no other Australian company is as well positioned to benefit from the global hunt for energy and resource as WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY). This provider of professional services to the resources and energy sectors and the complex process industries operates in four primary business segments: Hydrocarbons, Power, Minerals & Metals, and Infrastructure & Environment. Major resource companies around the world continue to invest in new projects, and WorleyParsons is one of the few contractors with the global capabilities sufficient to support multinational customers. Its customers include BHP Billiton, Rio Tinto and Chevron; in fact WorleyParsons conducted early-stage analyses of Chevron’s Wheatstone project.

Worley recovered from a weak first half to post full fiscal 2011 profit growth of 25 percent, from AUD291.1 million to AUD364.2 million. Revenue grew 12 percent from AUD5.1 billion to AUD5.68 billion, as the company benefitted from work for BP Plc (London: BP, NYSE: BP) at Iraq’s supergiant Rumaila oilfield and at the Curtis LNG facility in Queensland.

Operating cash flow increased 5 percent to AUD294 million. Earnings per share were AUD1.215, while the company declared dividends of AUD0.86 per share, for a full-year payout ratio of 70.8 percent. Currently yielding about 4 percent and poised for solid growth, WorleyParsons is a buy up to USD25.

It’s pretty clear that the market doesn’t share Bradken Ltd (ASX: BKN, OTC: BRKNF) Brian Hodges’ optimism about China’s ability to pull his company to double-digit sales growth in fiscal 2012. Bradken reported earnings growth of 17 percent on 24 percent higher sales; the company also recorded a record EBITDA-to-sales margin of 17.1 percent. Mining consumables, the primary focus of Bradken’s strategic growth efforts, grew 10 percent to surpass pre-global financial crisis levels. It’s all about three words, according to Mr. Hodges: mining, production and China.

Bradken’s Mining Products division designs and manufactures wear parts and crawler systems for earth-moving equipment. It also provides maintenance and refurbishment services to the resources industry. The Rail segment designs and builds freight wagons, bogies and drawgear componentry as well as cast and general spares parts for freight, passenger and locomotive rollingstock.

Industrial manufactures consumable parts for process plants and manufacturing processes. Power & Cement focuses on consumable parts for power generation and cement industries globally, while Engineered Products provides design assistance and manufactures capital products for the rail, transit, mining, industrial, military, energy and power generation industries. Recent acquisitions have taken it beyond its traditional focus on the major minerals coal, iron ore, gold and copper and into the Canadian oil sands.

Bradken has an admirable record of dividend sustainability. Beaten up amid recent fear-based selling, Bradken is a buy under USD7.

Two other names are worthy of consideration for investors who have the capability trade on the Australian Securities Exchange or on the Deutsche Borse.

Emeco Holdings Ltd (ASX: EMH, Germay: E3A) rents heavy earthmoving equipment to the mining and energy industries all over the world. It rents equipment, sells used machinery and supplies parts and asset management services. Its global fleet includes approximately 1,000 machines.

Emeco reported operating net profit after tax (NPAT) of AUD56 million for the year ended Jun. 30, 2011, up from AUD41.1 million a year ago. Return on capital improved to 11.3 percent from 8.3 percent in fiscal 2010. Solid momentum has continued into fiscal 2012, as utilization has crept up past 83 percent. Emeco Holdings is a buy under AUD0.95.

Specialist driller Ausdrill Ltd (ASX: ASL, Germany: FWG), like Emecom, does not have an active US symbol at present. It’s maintained a remarkable level of dividend stability despite threats to its underlying business over the past five years. The company reported record results for fiscal 2011, posting 52 percent profit growth to AUD73.3 million on revenue growth of 32.3 percent to AUD834.6 million. A low payout ratio and low debt make Ausdrill a solid buy up to AUD on the ASX.

Power and Pipes

Demand for resources has supported Australia’s record of growth that’s unmatched in the developed world since the mid-1990s. That growth has been explosive, and it’s laid the foundation for decades of economic stability.

Companies that produce and/or distribute power and those that operate energy pipelines and related generate reliable revenues, even in a global economic downturn. Although stocks of such companies will lose ground when markets are rocked by fear-based selling, they’re also among the first to recover when investors regain their rationality.

Here are three ways to play power and pipes in Australia and lock in high yields supported by solid businesses tied to domestic economic strength.

AGL Energy Ltd’s (ASX: AGK, OTC: AGLNF, AGLNY) diverse power generation portfolio–including base, peaking and intermediate electricity production plants–are spread across traditional energy sources such as gas and coal as well as renewable sources including hydro, wind, landfill gas and biogas. AGL provides gas and electricity to 3.2 million customers in New South Wales, Victoria, Queensland and South Australia.

Revenue for fiscal 2011 (ended Jun. 30) rose 7 percent to AUD7.1 billion, though underlying profit–the best reflection of ongoing operations–was essentially flat at AUD431.1 million. Underlying operating cash flow surged AUD45.6 million to AUD676 million.

Retail profit grew 17 percent to AUD373 million, though Merchant operations, including the Loy Yang A wholesale power station, saw a 2 percent decrease at the bottom line to AUD378.2 million Management noted in its annual earnings conference call in August it wasn’t seeing “very strong demand” across the Australian economy and that it sees “the wholesale [electricity] market remaining low.”

Severe weather also had an impact at Merchant operations, shaving AUD43.7 million from underlying profit, and the Energy Investments unit reported a loss of AUD41.2 million. Overall gross margin improved by 11.2 percent, however, despite relatively subdued demand, while gross margin per customer rose 10.1 percent.

Capital expenditure for fiscal 2011 was AUD 522.6 million; that figure is likely to nearly double in fiscal 2012. The 365-megawatt Macarthur Wind Farm in southwest Victoria will account for about 40 percent of 2012 CAPEX. Other projects underway include the gas turbine Dalton power station, which will have initial peaking capacity of 500 megawatts (scalable to 780 and ultimately up to 1,500 megawatts) to serve fast-growing New South Wales. Completion is expected by the summer of 2013-14.

AGL is continuing its aggressive push to lift electricity customer numbers in New South Wales. It added 96,000 “lead sales” in the second half of 2011, an increase of 75 percent from the first half of the year. Additional customers are costing AGL AUD170 each, which is significantly lower than the AUD1,500 per customer paid by Origin Energy Ltd (ASX: ORG, OTC: OGFGF, OGFGY), the largest gas and electric company in Australia, for some of the assets it bought in the New South Wales retail electricity market earlier in 2011.

A combination of severe weather and hedging costs crippled AGL’s Merchant operations in fiscal 2011. These one-off events are unlikely to recur in 2012, which should allow the segment to rebound strongly. Retail results, meanwhile, remain strong, and at its present pace of additions AGL should hit its target of 800,000 to 900,000 customers in New South Wales by 2014. AGL Energy, yielding more than 4 percent, is a buy under USD15.30.

APA Group (ASX: APA, OTC: APAJF), Australia’s leading gas transportation company, has interests in almost 12,000 kilometers of natural gas pipeline infrastructure covering every state and territory in the county. It runs more than 2,300 kilometers of gas distribution networks in southeast Queensland as well as gas and liquefied natural gas (LNG) storage facilities and gas processing facilities.

Most of its annual revenue is secured by long-term contracts with high-credit-quality entities such as government-owned energy generators and regulated returns. The structures of these contracts basically relieve APA of commodity-price risk.

Over the last four years–a period that includes the integration of a number of assets acquired during the preceding two years and overlaps with some of the worst global economic conditions since the 1930s–APA has grown operating cash flow by 17.8 percent per year. Operating cash flow was up 8 percent in fiscal 2011 to AUD290 million, or AUD0.526 per share, covering APA’s AUD0.344 per share distribution for fiscal 2011 by a 1.6-to1 ratio; management reported a payout ratio of 65.7 percent.

Active on the acquisitions front and aggressively funding organic growth, APA is well-positioned for further expansion as Australia flirts with regulation of carbon dioxide (CO2) emissions and new discoveries of natural gas fields and technological advances that make tight and shale gas more accessible drive demand for infrastructure. Efforts are focused on expanding pipeline and distribution capabilities in the eastern half of Australia to boost gas transportation and storage services, while in the western half of the country the emphasis is on growing storage capacity.

APA is able to maintain its stable yet growing profile because it has good access to capital. It raised AUD300 million in equity capital in late June, the net proceeds of which will cover the fiscal 2012 capital expenditures (CAPEX). It sports investment-grade credit ratings from Standard & Poor’s and Moody’s Investor Services, and it’s been able to refinance AUD1.8 billion over the past four years.

APA has AUD900 million of relatively cheap bank debt coming due in June 2012. Management anticipates paying higher interest costs in 2012–between AUD260 million and AUD265 million, up from an above-forecast AUD247 million in fiscal 2011. The company has already successfully rolled over AUD1.8 billion over the past two and a half years, so access to credit won’t be a problem. But management doesn’t anticipate getting it done at similarly cheap rates.

And there is the looming threat of the CO₂ tax–AUD23 per tonne for Australia’s largest polluters–but it’s expected to be neutral for APA Group because of cost-recovery mechanisms built into the regulatory framework and written into its long-term contracts. The switch from coal- to gas-fired electricity generation is actually a plus for APA over the long term, given its asset mix.

Like most Australia-based publicly traded companies APA pays a semi-annual dividend, usually declaring in December and June payments for March and September. The March payment is known as the “interim” dividend, September the “final.”

Conservative financial practices and a good mix of fee-generating assets position it well to keep those payment stable and growing over the long term. APA Group–and its 8 percent-plus yield–is a buy up to USD4.20.

APA Group provides management and operation services to companies in its energy investment portfolio, including gas transmission and distribution company Envestra Ltd (ASX: ENV, OTC: EVSRF). Envestra owns about 21,000 kilometers of natural gas distribution networks and 1,000 kilometers of transmission pipelines, serving more than a million consumers in South Australia, Victoria, Queensland, New South Wales and the Northern Territory. It generates revenue by charging retailers to transport natural gas through these networks.

Envestra has been one of the best-performing stocks listed on the Australian Securities Exchange (ASX) since the S&P/ASX 200 made a post-March 2009 peak. That benchmark is off 17.6 percent on a total-return basis since late April 2011, but Envestra is up 18.5 percent, including capital appreciation and dividends.

The company trades as a “stapled share” on the ASX, a single security combining a debt and an equity component. Although distributions in respect of stapled shares can include interest payments, repayments of loan principal and return of capital, since 2009 Envestra has paid only dividends in respect of the equity component. Such dividends are qualified for US tax purposes and are subject to 15 percent withholding.

Fiscal 2011 (ended Jun. 30) gas volume on Envestra’s network increased 7 percent, largely because of a colder-than-normal winter in Australia. Distribution tariff increases in South Australia, Queensland and Victoria and the first-time contribution of revenue from an acquisition in New South Wales also helped. Revenue was AUD424 million, an 11 percent year-over-year increase, while operating cash flow surged 16 percent to AUD136 million. Envestra’s customer roll grew by 11 percent, or 26,700, in fiscal 2011.

Although interest costs have risen over the past year, in part because of a credit facility taken in as part of the acquisition of Country Energy in New South Wales, the increase was well within expectations. Capital expenditure was up 30 percent to AUD130 million; 45 percent of all-important growth capital was covered by internally generated cash flow.

Positive regulatory outcomes in South Australia and Queensland–and its solid results–have driven Envestra’s outperformance in the stock market in the short term. Solid capital management, including prudent acquisitions, is another reason investors are attracted to the company.