More action in resources after a potentially big deal in Queensland.
We can expect the shares of Queensland Gas Co to jump today from Friday's $3.42 (before a halt in trading was called) after news broke over the weekend of a deal with BG Group of the UK.
BG said Friday night (according to a statement on its website) that it had agreed to pay 299 million pounds (over $620 million) for a 20% interest in coal seam gas assets owned by Queensland Gas in the Surat Basin in Queensland and a 9.9% stake in QGC.
QGC called a halt to trading pending an announcement to the market this morning, but BG Group put the announcement up Friday night Australian time.
Yesterday QGC said the venture with BG Group will involve an estimated $8 billion of investment.
The partners plan to build a liquefied natural gas project on the northeastern Australian coast with a capacity of 3 million to 4 million tonnes a year and deliveries starting in 2013, QGC said in a statement.
The deal means QGC has secured funding and a market for an export LNG plant at Gladstone, where at least two other plants are being planned, including one by Santos, which tried to take over QGC last year but failed because it wouldn't offer enough money.
Other than holdings held by directors, AGL Energy is QGC's biggest shareholder with 27.8% of the shares but is prevented from upping its stake for another year under an agreement between the two companies.
If another bidder emerges, AGL is freed of that restriction so a full takeover bid becomes possible. AGL was the 'friend' QGC's board recruited last year to help fight off Santos. AGL has a gas offtake agreement with QGC and would be in the box seat to either move to control, or extract a higher price for its stake if the British company wanted control.
AGL has been under pressure with a poor 2007 as management failed to execute marketing and integration issues. The CEO, Paul Anthony was forced out after the company shocked the market with a 2007-08 earnings downgrade. But there have been reports that the company made windfall profits from electricity production and trading in December and January, so it may be interested in staying in QGC as the dominant shareholder.
To remain will see it gain exposure from the export market for gas in the form of LNG, as well as meet domestic needs in Queensland where it has been expanding.
BG (the old British Gas) Group has been sniffing around Australia for some years. It is due to report its 4th quarter and 2007 financial results this week (Thursday night, our time). It eyed off Hardman Resources back in 2004.
In London BG Group said it had formed an alliance with QGC to "co-operate in upstream and development of domestic and export markets".
Under the terms of the agreement, the two companies would co-operate in the exploration and development of onshore coal seam gas acreage as well as in the development of domestic market opportunities and a new LNG production and export facility on the Queensland coast.
The deal provides for BG Group acquiring a 20% interest in QGC's coal seam gas assets in the Surat Basin, South West Queensland and in certain other related QGC assets and a 9.9% stake in QGC.
"The Group will also acquire a further 10% interest in QGC's coal seam gas and other assets on the earlier of: either the certification of proven and probable (2P) reserves of 7,000 petajoules (approximately 6.6 tcf); or the final investment decision approving the budget for the construction of a LNG facility to process and export jointly-marketed coal seam gas," BG said in the statement.
"BG Group will hold a 70% interest in the LNG facility and will offtake 100% of its initial planned production. The agreement is conditional upon necessary governmental and regulatory approvals.
"The alliance will leverage the expertise of both companies. BG Group is a global energy company and QGC has extensive expertise in the exploration and production of coal seam gas – an established hydrocarbon source in Australia and other countries.
"The agreement marks BG Group's first investment in Australia. QGC and BG Group have also agreed to cooperate in the evaluation of further coal seam gas opportunities in India, where BG Group already has established upstream and downstream business interests.
"BG Group Chief Executive Frank Chapman said: "Our focus is on connecting competitively-priced gas to high-value markets.
"This alliance with QGC will secure access to new and commercially-proven sources of gas, with significant reserves potential within reach of Australian and Asia-Pacific markets. We look forward to working with QGC to create value for both parties."
