Weekend Australian
Saturday 1/3/2008 Page: 34
AGL Energy is poised to sell major assets as it continues to rebuild after the Alinta carve-up of 18 months ago. Chief executive Michael Fraser confirmed yesterday that AGL's 10 per cent stake in PNG gas fields was set to be sold. The company was also considering the future of its investment in the Loy Yang A power station the most efficient of Victoria's brown coal generators as well as selling its equity in Queensland Gas Company.
AGL Energy, the nation's biggest electricity and gas retailer, reported a first-half loss because of a slide in the value of hedging contracts for the purchase of power and the sale of oil. In the half year to December 31 the loss was $22.9 million, compared with a profit of $3.4 million in the equivalent months of 2006. Earnings before one-time items and derivatives slid 6.5 per cent to $183 million. Mr Fraser repeated that the result was in line with the company's announcement to the market last October, guidance that led to AGL Energy's stock being savaged and ultimately the sacking of then CEO Paul Anthony.
AGL Energy said yesterday fullyear "underlying" profit was on track to meet the revised forecast of $330 million to $360 million. But ratings agency Standard & Poor's remained unimpressed, confirming its BBB negative credit measure and negative outlook on AGL Energy, saying this reflected a "temporary weakening of AGLE's financial performance and uncertainty on the timely execution of AGLE's strategies to substantially strengthen its balance sheet well before the end of calendar 2008."
"We expect AGL Energy to take immediate action to begin the sales process of some non-core assets in order to reduce its debt by $600-$700 million over the next six months," the agency said. Mr Fraser said AGL Energy was considering selling its interests in oil and gas fields in PNG, and planned to sell all its pipeline interests once the benefits of owning the assets were achieved.
The company's merchant energy business, which includes power generation, had a 21 per cent jump in first-half operating profit to $238.9 million, but retail earnings were essentially unchanged. "These results confirm that AGL has a strong underlying business," Mr Fraser said. Later he said the company was actively rebalancing its portfolio in the light of the federal Government's impending greenhouse emissions trading scheme. This meant its investment in Loy Yang would be reviewed.
Gas would continue to grow along with renewables, and coal's contribution would decline. He noted the energy future was clouded, depending on the takeup of wind power and the need to cover its contribution to national electricity supply through peak shaving gas-fired generation plants. Mr Fraser said also he believed the deal between BG Plc and QGC, in which AGL has a 27 per cent stake, to build a coal seam methane - fuelled LNG plant in Gladstone would change the dynamics of LNG in Australia.
It was unlikely that all four LNG plants proposed for Gladstone would go ahead, with the BG plant likely to stimulate the aggregation of CSM supplies from a number of producers. AGL Energy's investment in QGC, which cost around $300 million, was now worth $800 million so the board was considering whether to realise the capital gain for other projects. The gas supply contracts with QGC would not be affected, Mr Fraser said.
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