The shares of Queensland Gas Co and other coal seam hopefuls surged yesterday on confirmation of the news of QGC's snazzy deal with BG group of Britain.
QGC shares had their best day in 15 months (since when Santos and then AGL were playing in the shares) rising 72c to $4.14 after confirming the link up with BG Group in an $8 billion Liquefied Natural Gas (LNG) export project in Queensland.
Arrow Energy rose as much as 49.5c, or 27%, to $2.34 on the ASX before easing to $2.27 for a gain of 42.5c on the day; Sunshine Gas gained as much as 18.5c, or 14%, to $1.505 before it fell back to close at $1.45, up 9.8% or 13c. Adelaide-based Santos, which is building a presence in Queensland after missing out on buying QGC, ended 59c higher at $13.37, after being up 5.5%, while LNG Ltd. rose just a cent to 74.5c.
The most interesting reaction was in the price of AGL Energy (AGK) which fell 43c or 3.5% to $11.77. It owns 27% of QGC and had been considered to be well placed.
But according to the statement issued by QGC yesterday, there are change of control provisions between QGC and BG that would seemingly shut AGL out of taking control of QGC.
They seem to supplant, or at least offset the change of control provisions AGL has with QGC that allow AGL to increase its stake should a bid be made for QGC.
BG will be entitled to one QGC board seat and the statement yesterday said:
"The various agreements contain change of control provisions. The agreement under which BG Group gains its interest in relevant QGC assets provides that, should a change of control occur (e.g., another entity gaining more than 50% of QGC shares or gaining a right to control the composition of the Board), BG Group can require QGC to sell to BG Group the further 10% interest in the tenements, i.e., to 30%, at the agreed price.
"The ongoing alliance agreement further provides that if QGC is subject to a change of control, BG Group may: terminate the alliance; terminate the joint marketing of gas; and cause QGC to be removed as operator of the underlying joint ventures.
"Under the downstream arrangements, if there is a change of control in QGC then BG Group may elect to terminate the arrangements. In each instance, termination is not automatic but at the election of BG Group. QGC has similar rights in relation to a change of control of BG Group."
That arrangement seems to remove any ability AGL has to move further on QGC, while giving BG the power to undermine the long term value of the latest deal.
AGL CEO, Michael Fraser is on the QGC board, so the deal would have been discussed and presumably he would have signed off on it.
So perhaps AGL doesn't have any further ambitions for its holding in QGC.
The heart of the deal with BG will see an LNG export facility built near Gladstone on the central Queensland coast with a capacity of 3 million to 4 million metric tons a year, with deliveries starting in 2013.
The investment will include the development of coal seam gas fields, a 380-kilometer pipeline and a production plant.
BG Group is Britain's third-largest gas producer and it agreed to pay $250 million for a 9.9% stake in QGC at $3.07 a share, and $415 million for a 20% interest in the company's coal seam gas assets in the Surat Basin. It will pay a further $207 million for another 10% share of the acreage once the LNG project is approved or once Queensland Gas firms up 7,000 petajoules (6.6 trillion cubic feet) of reserves.
BG is already up more than $85 million on its placement, based on yesterday's price rise, so perhaps QGC shareholders might argue the deal was done too cheaply!
Construction of the LNG project is due to start in 2010 once the partners approve the investment.
The project is one of four LNG ventures being proposed for the Gladstone areas, all fueled by coal seam gas. Santos is planning a $7 billion project, while Japan's Sojitz Corp. and Sunshine Gas Ltd. are proposing a smaller venture. Liquefied Natural Gas and Arrow Energy Ltd. intend to build a $400 million plant.
In answer to a query lodged after trading finished yesterday, Arrow (AOE) revealed that its results for the 2007 December half were turning out better than expected.
"It is anticipated that there will be a change in the operating profit before abnormal items and income tax so that the figure for the period ending 31 December 2007 will vary from the previous corresponding period by more than 15%.
"This is due to the increased production and profitability from the Company's producing projects during the half year together with initial results from the recently acquired Enertrade gas and pipeline businesses.
"The Company is currently finalising with its auditors the accounting treatment of numerous items including acquisition accounting for the Enertrade gas and pipeline business acquired in December 2007. The Company will provide an earnings guidance range for the half year as soon as these matters are finalised.
"Operating revenues for the half year have increased by over 125% over the corresponding period to 31 December 2006 (from $11.2m for the six months to 31 December 2006 to over $25m for the six months to 31 December 2007).
"The increased production, sales revenue and cashflows from operations have been previously advised to the ASX through the Company's quarterly cashflow reports, the most recent of which was lodged on 31 January 2008.
"The Company expects the audit review of its results for the six months ending 31 December 2007 to be completed and the results released on or before 25 February 2008."
