AGL acquires options over certified gas reserves, exploration acreage, power station and gas supply contract 

Following today’s announcement by BG International (AUS) Investments Pty Limited, a wholly-owned indirect subsidiary of BG Group plc (BG Group – LSE:BG.L) of its on-market bid for Queensland Gas Company Limited (QGC), AGL Energy Limited (AGL) advises that its intention is to sell all of its shares in QGC into the BG bid unless a superior offer emerges for the entirety of QGC.

AGL also advises that it has entered into an option agreement with BG that provides AGL with the right to acquire 1,097 PJ of 3P gas reserves plus exploration acreage.  In addition, AGL has the right to acquire the 140 MW gas fired Condamine Power Station in Queensland and an associated 10 PJ pa gas supply contract.

Transaction Highlights

• AGL to receive A$5.75 per share for its 204.6 million shares in QGC
• The sale of its QGC shares delivers AGL cash proceeds before capital gains taxation of approximately A$1.18 billion
• AGL’s existing 740 PJ gas supply contract with QGC to remain in place on identical terms and conditions
• AGL has signed an option agreement with BG giving AGL the right but not the obligation to acquire:
  • 100% of the Lacerta gas development project and 15% of the Polaris gas exploration project, and/or
  • The 140MW Condamine combined cycle power station currently under construction and a  10 PJ pa gas supply contract until 1 January 2014
• The exercise price for the Lacerta and Polaris interests is A$0.78 per GJ on existing 3P reserves of 1,097 PJ, valuing the interests at A$856 million.
• Exercise price for Condamine power station to be the higher of the costs paid up to completion (currently estimated at A$170 million) or the fair market value determined by an independent expert
• AGL and BG to discuss in good faith a future option for AGL to supply gas from the Lacerta development to BG’s proposed Queensland Curtis LNG project (should AGL exercise the option and acquire an interest in Lacerta)
• 100% of AGL’s share of any gas produced from the Polaris exploration project may be dedicated to BG’s proposed Queensland Curtis LNG project (should AGL exercise the option and acquire an interest in Polaris)
• AGL has no obligation to accept the BG bid. The exercise of the option agreement is not conditional on AGL accepting the BG bid.

Strategic Benefits

Commenting on the transaction AGL Managing Director, Michael Fraser, said “This transaction is consistent with our often stated objective of converting the QGC equity stake into direct ownership of gas reserves. The entire transaction represents an excellent outcome for AGL. Our original investment of A$327 million, made in March 2007, has the potential to be transformed into a number of investments and cash valued at close to A$1.2 billion and we retain our original 740 PJ gas supply contract”. 

Michael Fraser added that AGL would assess the gas acreage and power station options under the BG deal against other potential opportunities.

“We will conduct a thorough assessment of not only the assets potentially available under the BG options but also other opportunities available in the gas and electricity markets” Mr Fraser said.
If the Lacerta and Polaris option is exercised, AGL will acquire direct equity ownership of Walloons acreage containing certified 3P reserves of 1097 PJ, and 2P reserves of 469 PJ.  If AGL exercises the Condamine power station option, it will own, upon completion, 140MW of combined cycle generation and an associated gas supply agreement, both of which complement its existing Queensland merchant and retail businesses.

The potential addition of the Walloons acreage to AGL’s existing upstream gas investments in the Sydney Basin, Moranbah Project and Galilee Basin, together with the company’s substantial gas  contract portfolio, place AGL in a very robust position to meet its ongoing gas demands beyond 2016.

If BG is successful in its bid, and after the bid closes, AGL and BG intend to further discuss mechanisms to potentially supply gas into BG’s proposed Queensland Curtis LNG Project in Gladstone to allow AGL to access LNG net back pricing for gas supply from the Lacerta project. Gas from the Polaris development may also be dedicated to BG’s LNG project.

“I am very comfortable that whatever the outcome of the BG option, we already have in place an equity and contract gas portfolio with sufficient duration, depth and optionality to serve our needs well into the future. The BG option, of course, adds further strategic optionality to our business”  Mr Fraser added.

Financial Impacts

As previously advised, AGL will provide an update on guidance following the PNG sale process.  This guidance will include the impact, if any, of this transaction.

Following a sale of AGL’s QGC stake and prior to any decision regarding the various options,  AGL would have net debt of approximately A$700 million (for further details see Fact Sheet).

Further information

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