Australia: Australian Energy Sector Update: April 2013 Edition


Welcome to the April edition of the Australian Energy Sector Update, a monthly publication prepared by Corrs Chambers Westgarth for clients who are interested in the Australian energy industry.

This publication brings together a brief summary of information on recently completed deals, market rumours and potential opportunities, and relevant regulatory updates.

Recent announcements

On 15 February 2013, Sumitomo announced its purchase of a part interest in the Bluewaters power stations in Western Australia from Griffin Energy Group. The interest will be held by Summit Southern Cross Power Holdings, a wholly owned subsidiary of the Sumitomo Group. Kansai Electric Power acquired the remaining ownership interest. The Japanese consortium will jointly manage the plants, which together have a combined output of 416 MW.

On 20 February 2013, ConocoPhillips announced its agreement to sell down working interests in two Western Australian exploration assets to PetroChina. The agreement will see PetroChina acquire a 20% working interest in the Poseidon discovery in the Browse Basin and a 29% working interest in the Goldwyer shale in the Canning Basin. ConocoPhillips said that it was pleased that PetroChina has recognised the significant potential and value of these Australian opportunities.

On 25 February 2013, ASX-listed Beach Energy announced it has agreed to sell down interests in PEL 218 and ATP 855 to Chevron. Under the agreement, Chevron can acquire up to a 60% interest in PEL 218 and up to a 36% interest in ATP 855. ASX-listed Icon Energy, Beach Energy's joint venture partner in ATP 855, has consented to the transaction. Beach Energy will potentially receive US$349m for the Cooper Basin permits.

On 4 March 2013, ASX-listed Infigen Energy announced it will continue to assess options to provide improved financial flexibility, including potential sales of its Australian wind farm portfolio. The proceeds would be used to pay down debt. The announcement followed a report in the Australian Financial Review on 4 March 2013 that the current business climate offered Infigen Energy an opportunity to consider asset divestments.

ASX-listed WestSide announced on 5 March 2013 it is continuing discussions with parties interested in acquiring an interest in the company, including by way of a full takeover. PetroChina is speculated to be the most likely bidder. Westside wants to finalise the process promptly. The announcement followed recent reports that Mitsui & Co, which made a takeover proposal in November 2012, now prefers to sell its 49% stake in WestSide's Meridian gas project to PetroChina. There is speculation that WestSide may be sidelined while Mitsui and PetroChina attempt to reach agreement over Mitsui & Co's exit from the project.

Recently completed deals

Former ASX-listed Texon Petroleum announced the demerger of Talon Petroleum and Texon's subsequent acquisition by ASX-listed Sundance Energy. Texon was removed from the official ASX list at close of trade on 12 March 2013.

Market opportunities and rumours

On 15 February 2013, the Australian Financial Review reported that Kogas (Korea Gas Corporation) is considering its options for selling its stake in the Gladstone LNG joint venture, including selling the majority of its 15% stake in the project. The project is a joint venture between ASX-listed Santos, Petronas, Total and Kogas. Kogas reportedly paid AU$665m for the stake in 2010.

The Australian Financial Review reported on 21 February 2013 that ASX-listed infrastructure company APA is eager to buy pipeline infrastructure to support LNG projects in Gladstone, Queensland.

Meridian Energy Chief Executive Ben Burge said Meridian is investigating selling or restructuring its stake in the 420 MW MacArthur wind farm, currently operated through a 50/50 joint venture with AGL. Japanese and Chinese energy groups are reported to have indicated interest. Potential investors include Marubeni, Mitsubishi and Mitsui & Co. AGL says it intends to retain its interest in the joint venture.

On 28 February 2013, the Australian Financial Review reported that ASX-listed Woodside Petroleum has amassed AU$4.1bn, with a gearing level of only 11%, and that it is prepared to spend its capital for growth. The report stated that a potential opportunistic target is ASX-listed Santos.

A report released by the Queensland Commission of Audit on 1 March 2013 recommends the Queensland government sell State-owned assets, particularly in the electricity sector, to reduce its debt. The Commission reported that the sale of electricity assets could raise up to AU$25bn. It has been reported that Premier Campbell Newman is not convinced selling State-owned electricity assets would benefit the State.

According to CEO Ryan Lance, ConocoPhillips' plans to reduce its 37.5% stake in the Australia Pacific LNG project are progressing. He said ConocoPhillps is not in a hurry to do a deal, but noted the market is reasonable and interested. ASX-listed Origin Energy and Sinopec respectively hold 37.5% and 25% interests in the project.

Linc Energy is looking for joint venture partners for its shale oil assets in South Australia. CEO Peter Bond said Linc Energy wants an experienced partner that can unlock the oil flow and finance the project. He suggested Linc Energy would require AU$200m-$300m and that it would maintain a majority interest in the venture. Linc Energy's ideal investors are major oil companies with shale oil experience, Asian investors wanting to establish business in Australia, or major independents looking to enter the shale oil sector.

According to CEO Richard Cottee, ASX-listed Central Petroleum is talking with Australian banks about financing its Surprise oil field discovery. The overall cost of the project is estimated to be AU$120m, with an initial investment of AU$60m required. It is speculated that up to 50% of the initial investment will be raised by opening credit lines and that the remaining portion will be raised through a farm-out deal to a larger sector player.

On 7 March 2013, the Australian Financial Review reported that Royal Dutch Shell is rumoured to be considering a sale of its remaining 23.3% stake in ASX-listed Woodside Petroleum. Shell is reportedly seeking AU$40 per share.

It has been reported that Real Energy, a private Australian oil and gas company, will postpone plans for its initial public offering and instead seek to raise AU$20-30m from private and institutional investors. The capital is expected to fund the Toolebuc Formation shale project for the next 18 months as the company seeks to prove the asset's viability through horizontal drilling and fracturing.

On 15 March 2013, The Australian reported that the Gladstone LNG project could be merged with Arrow Energy's Australian LNG project. It is speculated that a merger of the projects would deliver strong synergies and could potentially unlock significant value for both projects.

Regulatory updates

New South Wales coal seam gas regulations

On 19 February 2013, NSW Premier Barry O'Farrell announced new measures to strengthen regulation of the NSW coal seam gas industry. The policies endorsed by cabinet include, among other things, an independent review of all CSG activities in NSW, and the implementation of a two kilometre exclusion zone around residential zones to prevent new coal seam gas exploration, assessment and production activities. The CSG industry will potentially lose access to hundreds of wells located in exclusion zones. In an article on 20 February 2013, The Sydney Morning Herald reported the value of such wells to be approximately AU$4 billion.

In response, AGL Energy warned that the proposed restrictions will put further upward pressure on gas and electricity prices in NSW. According to The Sydney Morning Herald on 28 February 2013, AGL Energy is also considering legal action against the State government, having reportedly invested AU$325 million into its Camden and Hunter Valley CSG projects. Other industry proponents have also warned against the sudden policy shift, with Santos reportedly suggesting that the current policy uncertainty is threatening NSW's energy security. The industry is now waiting on details of a new licensing regime, to be administered by the NSW Environment Protection Authority.

Land, Water and Other Legislation Amendment Bill 2013 (Qld)

The Land, Water and Other Legislation Amendment Bill 2013 (Qld) proposes to amend the Petroleum Act 1923 (Qld) and the Petroleum and Gas (Production and Safety) Act 2004 (Qld). The Bill was introduced into the House of Assembly on 5 March 2013 and among other things, proposes to address safety issues associated with converting petroleum wells to water supply bores. The amendment addresses issues such as who can convert a petroleum well into a water supply bore, when a petroleum well becomes a water supply bore, and safety and environmental matters that arise during the conversion process.

Environmental Protection and Biodiversity Conservation Amendment Bill 2013 (Cth)

The Environmental Protection and Biodiversity Conservation Amendment Bill 2013 (Cth) was introduced into the House of Representatives on 13 March 2013. It proposes to amend the Environment Protection and Biodiversity Conservation Act 1999 (Cth) to expand the Environment Minister's power to assess and approve CSG and large coal mining developments that have a significant impact on an environmentally significant water resource. There are concerns about the constitutional validity of the Bill and that the proposed amendments will frustrate development of major projects by extending the approval process.

Energy Legislation Amendment (Flexible Pricing and Other Matters) Act 2013 (Vic)

The Energy Legislation Amendment (Flexible Pricing and other Matters) Act 2013 (Vic) was assented to on 13 March 2013. The Act amends the Electricity Industry Act 2000 (Vic) and implements consumer protections required to introduce flexible electricity tariff pricing. The Act removes restrictions on cross ownership in the electricity sector and prescribes that the Governor in Council may make provision for matters such as choice of tariff structure and access to electricity usage data. The Act also amends the National Electricity (Victoria) Act 2005 (Vic), Gas Industry Act 2001 (Vic) and the National Gas (Victoria) Act 2008 (Vic), and clarifies the scope of the enforcement responsibilities of the Essential Services Commission of Victoria with respect to electricity regulation.

Environmental Protection (Greentape Reduction) and Other Legislation Amendment Act 2012 (Qld)

The Environmental Protection (Greentape Reduction) and other Legislation Amendment Act 2012 (Qld) was assented to on 14 August 2012. The Act took effect on 31 March 2013 and amends the Environmental Protection Act 1994 (Qld). The Act introduces an integrated approval process for all environmentally relevant activities, which now include resource activities like geothermal exploration, greenhouse gas storage, mining, and petroleum exploration. The requirements allow for an approval process proportionate to the environmental risk.

Amendments to the Environmental Protection Regulation 2008 (Qld) have also been approved and commenced on 31 March 2013. The amendments introduce new application fees and change the requirements for making environmental decisions and assessing applications for environmental authorities.

Other news

Coal Seam Gas Engagement and Compliance Plan 2013 (Qld)

On 21 February 2013, Queensland's Natural Resources and Mines Minister Andrew Cripps released the Coal Seam Gas Engagement and Compliance Plan 2013. The plan outlines how the Department of Natural Resources and Mines will manage the effects of the Coal Seam Gas industry and is a key part of the State government's strategy for sustainable use of the State's natural resources. According to Mr Cripps, the Newman government supports the development of the CSG industry but recognises the balance needed between the interests of industry, landholders, communities and the environment. Minister Cripps said that in 2013 the Queensland government's compliance unit will randomly inspect 250 CSG wells, audit 45% of all CSG drilling activities and inspect 80% of CSG seismic activities to ensure safety and compliance with Australian standards and codes.

AGL commences arbitration over Vic and NSW gas supply prices

According to The Australian on 28 February 2013, AGL Energy commenced arbitration with gas suppliers for its NSW and Victoria markets and will be disputing 80% of its supply contracts due to excessive price increases. AGL claims that suppliers are increasing prices before the supply squeeze expected once Queensland's LNG export terminals begin operating. The Australian Financial Review reported on 28 February 2013 that power prices are expected to continue to rise as a direct result of high gas prices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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