AGL bonanza from Queensland Gas takeover

Sydney Morning Herald
Wednesday 29/10/2008 Page: 20

AGL ENERGY is set to pocket a windfall from BG Group's takeover of Queensland Gas, giving it the chance to firm up its gas supplies or pounce on other energy assets. AGL said it would sell its 22 per cent stake in Queensland Gas for $5.75 a share after buying at $1.60 a share in March last year, unless a higher offer emerges. Proceeds from the sale would be $1.18 billion, taking AGL's net debt to $700 million. The sale also gives AGL the option to buy a significant acreage in the Walloons area that Queensland Gas snapped up in its takeover of Sunshine Gas.

Under the clause, AGL would acquire Sunshine's two biggest assets - the Lacerta fields and a stake of 15 per cent in the Polaris exploration project - for $856 million. Deloitte valued the fields at $500 million to $650 million in an independent valuation of Sunshine Gas last month. AGL also has the option to buy QGC's Condamine gasfired power plant, expected to be completed in 2014.

The sale comes as the market waits for the results of AGL's sale of its 3.4 per cent stake in the PNG LNG project, expected to fetch about $900 million. With the extra cash in hand, possible targets could also include NSW electricity assets and parts of the troubled energy business Babcock and Brown Power. "We will conduct a thorough assessment of not only the assets potentially available under the BG Group deal but also other opportunities available in the gas and electricity markets," AGL's managing director, Michael Fraser, said in a statement.

Increasing direct ownership of gas reserves is a longstanding goal for the company: it buys gas from third parties to supply its retail business. An analyst at UBS, David Leitch, said he doubted AGL would want to buy all of Babcock and Brown Power because this would not serve AGL's goal of building an integrated generation-retail business.

"They'll look at all of those things, and do the one that makes the most sense," Mr Leitch said. "But certainly one of the things that does make a lot of sense is to get some more upstream gas." Andrew Preston, an investment manager at the AGL shareholder Aberdeen Asset Management, said more acreage would keep a lid on rising gas costs. "They've had equity ownership in QGC for some time now, but the potential to convert that into actual reserves is attractive for them," he said. "It secures that upstream source of reserves for them at reasonable prices." AGL shares gained 98c, or 7.3 per cent, to close at $14.38.