AGL set to burst at the seams

Sydney Morning Herald
Wednesday 24/12/2008 Page: 23

THE wave of consolidation sweeping through the NSW coal seam gas industry has rolled into AGL Energy, which is crouched to pounce on the troubled explorer Sydney Gas. Shares in AGL, Sydney Gas and its 20% shareholder AJ Lucas were locked in trading halts yesterday, pending the announcement of a takeover play before the market opened this morning.

It is understood AGL will offer Sydney Gas shareholders close to 40¢ a share - a premium of 45% on the target's pre-trading halt price of 27.5c-valuing Sydney Gas at about $160 million. It is unclear if the offer is cash, shares or a combination. Companies in the deal were tight-lipped, but an informed source said they were within a whisker of agreement, pending late negotiations involving Babcock and Brown, which has a 6.5% stake in Sydney Gas.

Given its debt woes, the cash strapped investment group is expected to welcome the offer. The deal follows a string of buy-outs in the coal seam gas sector- the energy market darling of the year. Foreign oil companies poured billions into the sector, but investment ran mostly to Queensland reserves that had been earmarked for liquified natural gas export.

Recent activity- including AGL's $370 million purchase last week of reserves in the Gloucester Basin from Molopo Australia and AJ Lucas - shows energy giants are watching NSW. Sydney Gas would protect AGL from expected rises in the gas price flowing from green energy demand by giving it additional reserves.

AGL is a 50% exploration partner with Sydney Gas in the Hunter, where the target last month said it had defined 25,000 petajoules, a large potential resource, from coal seams. The offer may also signal the final chapter on the chequered history of Sydney Gas, which has churned through 26 directors since 2002, and in 2006 made a colossal blunder by rebuffing a takeover bid offering one Queensland Gas share for every two Sydney Gas shares.

The AGL deal is expected to offer shareholders about one seventh of what they would have received if Sydney Gas had sold to QGC, which was bought by BG Group of Britain for $5.75 a share in October. In the past week Sydney Gas shares have risen 49%, including a 20% rise on Monday. An ASX spokesman said the exchange had noticed the movements and would investigate pre-halt share trading once details of the takeover were available.