AGL Energy is suddenly in the best position for a company to be in during the current downturn.
In the space of four days it has set in train plans to raise well over $2.2 billion in cash from sales of major assets, without too much damage to earnings.
AGL shares fell 32c or 2.3% to $13.43 at one stage, before reversing to finish up 15c at $13.90: lots of cash is always a great changer of opinions.
But despite that attitude the company is now well positioned to increase its leading role in power and energy by picking up any more asset sales from strugglers like Babcock & Brown Power.
It joins rival, Origin Energy, which yesterday announced that its gas joint venture with ConocoPhillips has been completed and a down payment of $US5 billion received, making two big, rich players in the sector.
At times like this, cash is king and there are not too many companies in the energy sector, outside the likes of BHP and Santos, who could put their hands on $2 billion or more for some expansion, should opportunities come along in early 2009.
AGL said yesterday it will sell all of its gas and oil exploration and production assets in Papua New Guinea to an unidentified international buyer for a net $A1.1 billion.
It comes after it accepted BG Group’s $5.75 cash offer for its 22% of Queensland Gas Co, or $1.18 billion.
The PNG sale details were outlined in a statement to the ASX:
"No capital gains tax will be payable in either PNG or Australia on proceeds from the sale.
"The agreed sale price under the SPA is US$800 million. The purchaser, whose identity is confidential at this stage, is an international oil and gas company. The SPA is unconditional, other than Government approvals, and is subject to the pre-emptive rights process."
Commenting on the transaction, AGL Managing Director Michael Fraser said, “This is an excellent outcome for AGL, particularly in light of current global market conditions.
"Importantly, the PNG sale is a milestone for us as it finalises the non-core asset sale program we commenced late last year and again demonstrates the company’s ability to deliver on its strategy.
“Coming on top of the announcements earlier this week in relation to our QGC investment, we now have considerable balance sheet strength and strategic optionality across our retail, merchant and gas and power development businesses” Mr Fraser added.
Notices will soon be issued to joint venture partners advising of the commencement of their pre-emptive rights, with the pre-emption process anticipated to take approximately 30 to 45 days to complete. Joint venture partners have the right to match the agreed sale price on the same terms and conditions.
As noted in AGL’s 2008 statutory accounts, US$280 million of the proceeds were previously hedged at an exchange rate of A$/US$0.9369. The remainder of the cash proceeds has been hedged at an average exchange rate of approximately $A/US$0.65.
A further update, which will include final details of the sale, its accounting treatment and its impact on FY2009 earnings guidance, is anticipated following completion of the pre-emption process and final settlement, currently anticipated for mid-December.
"As advised at AGL’s Annual General Meeting on 15 October 2008, the sale of PNG assets will reduce Earnings Before Interest, Tax, Depreciation and Amortisation, but would not have any negative impact on AGL’s existing FY2009 underlying Net Profit After Tax guidance of A$360m to $390..” AGL told the ASX
AGL Energy was QGC’s biggest shareholder, but it was clear that it had no ambitions for a takeover.
All it wanted was access to gas in Queensland: it has more demand than supplies at the moment and at one stage the mooted PNG to Australia gas pipeline was to supply some of that demand.
But the idea became too costly and the various companies involved (which included Santos) lost interest. Now the PNG gas is expected to be sold as LNG by Oil Search and its partners, which include Exxon.
AGL picked up an original 29% stake in QGC a couple of years ago as the Queensland company fought off a bid from Santos. QGC has watered that holding down by the BG Group deal and issued shares in a couple of takeovers for smaller players, Roma Petroleum and Sunshine Gas.
AGL Energy will get the cash and access to gas reserves as part of the agreement to sell its stake to BG. That’s why it did the deal with QGC in the first place after it bought a Queensland Government gas retail and distribution business based in Brisbane.
AGL says it will have the right to buy 1.07 petajoules of proven, probable and possible gas reserves, in addition to exploration acreage and it also gains the right to buy the gas-fired Condamine power station in Queensland and a related 10 petajoules-a-year gas supply contract.
Meanwhile Origin Energy, which was a target of QGC’s suitor and shareholder, BG Group of the UK, has formalised its coal seam gas joint venture with ConocoPhillips and has received $US5 billion ($A7.49 billion) as an upfront payment.
Following the payment, Origin declared an additional dividend of 25c per share fully franked, doubling the 2008 dividend payout to 50c per share fully franked.
The additional dividend will be paid on November 21 to shareholders at November 11, 2008.
Origin also said yesterday it would lodge notice with the Australian Securities and Investments Commission to commence a $1.275 billion on-market share buy-back, beginning on November 13.
Origin managing director, Grant King, said in a s
