Energy deals ran out of gas last year

Australian
Tuesday 27/1/2009 Page: 16

UNCERTAINTY over the federal Government's planned emissions trading scheme and the global economic crisis nearly brought Australian power deals to a halt last year, according to a report to be released today. Australian electricity and gas mergers and acquisitions fell from $US19 billion ($29 billion) in 2007, when it led the Asia-Pacific region in power deals, to $US1.75 billion last year, PricewaterhouseCoopers says.

"Power deals in Australia, which had previously been a main motor of growing merger and acquisition activity in the Asia-Pacific region, virtually stalled, as uncertainty over new carbon emission policies combined with the financial crisis to deter deal flow," said Manfred Wiegand, PwC's head of global utilities. The wave of consolidation in Queensland's burgeoning coal seam gas industry, which saw more than $20 billion in cash change hands last year, was not included by PwC in its figures.

But it did refer to Origin Energy's defence of BG Group's $15 billion bid as evidence of companies holding on to gas assets. PwC's head of resources in Australia, Michael Happell, said the stalling of NSW plans to sell electricity assets also meant fewer deals went through last year, but that 2009 should see a pick-up in activity. "The NSW Government's power privatisation plans, as well as Babcock and Brown Power's intended disposal of its national energy portfolio will significantly alter the ownership in 2009," he said.

But gas asset sales could be excluded from activity, as potential sellers try to see out the current economic crisis. "Many owners of gas assets have strong cash flows and are choosing not to sell in the current environment," Mr Happell said. A PwC spokesman said the absence of BG Group's $5.3 billion takeover of Queensland Gas was because it had just missed the deadline to be included in the report.

He said the multi-billion dollar deals done by ConocoPhillips and Petronas to gain stakes in reserves and liquefied natural gas projects, which were finalised during the year, were left out because they were upstream deals, unlike the QGC and Origin Energy deals, which also contained power assets. Internationally, power and gas transactions plunged from $372.5 billion to $US205.6 billion, while transaction volumes rose. The biggest deal of 2008 was Gas Natural's $US35.9 billion takeover of Spanish compatriot Union Fenosa.