Australia: Australian Energy Sector Update: May 2013 Edition


Welcome to the May 2013 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 28 March 2013, ASX-listed Linc Energy announced the successful completion of a US$200m bond issue. The bonds, with a five-year maturity date, are convertible into ordinary shares - although Linc has the option to cash settle the bonds to prevent shareholder dilution. The funds raised from the bond issue will be used for working capital purposes, to support the commercialisation of the company's key assets, and to pay down debt.

On 28 March 2013, ASX-listed geothermal energy developer Geodynamics announced that ASX-listed Origin Energy will withdraw from the Innamincka Deeps and Innamincka Shallows Joint Ventures effective from 30 June 2013. In response to the withdrawal, Geodynamics' Managing Director, Geoff Ward, commented that the company remains committed to the development of enhanced geothermal system (EGS) resources in Australia.

On 2 April 2013, ASX-listed Dart Energy announced that it has commenced a restructuring, cost cutting and refocusing program. According to the company, the decision was made in response to current market conditions, a reassessment of the company's priority projects, recent NSW and Federal government decisions relating to coal seam gas regulation, and shareholder feedback. Dart Energy will focus its forward strategy on maximising the value of its UK assets, which it believes offer the best prospects for near-term value creation. The company also announced the cancellation of its proposed IPO of Dart Energy International and will instead focus on securing its long-term capital requirements through farm-outs, asset sales, and strategic partnerships.

On 4 April 2013, Shell Australia announced that it will put its Geelong Refinery up for sale. The proposed sale of the 120 kb/d refinery is in line with the company's strategy to concentrate investment on large scale sites. If a sale cannot be achieved on acceptable terms, the company will consider alternative options such as converting the site to an import terminal. Shell Australia aims to conclude the sale process by the end of 2014.

On 10 April 2013, ASX-listed natural gas distributor Envestra announced the successful completion of an AU$130 million underwritten placement of new fully paid ordinary shares. The proceeds from the placement will be used to partly fund the company's forward capital expenditure requirements, expected to be around AU$1.3bn over the next five years.

On 11 April 2013, ASX-listed Red Sky announced that its subsidiary, SOLEIR, has secured the rights to acquire 269 hectares of land near Darlington Point in NSW for the potential development of a 100 MW solar project. Red Sky said the project would cost approximately AU$200m to develop.

On 12 April 2013, ASX-listed Woodside Petroleum announced that it has mothballed plans to develop the Browse field through an onshore LNG plant at James Price Point in Western Australia. Woodside said the AU$45bn-plus development did not meet the company's commercial requirements for a positive final investment decision. Woodside will now meet with joint venture partners to evaluate other development concepts which could include floating technologies, a pipeline to existing LNG facilities in the Pilbara, or the development of a smaller onshore option at James Price Point.

Recent deals

ASX-listed Buru Energy has sold down its stake in the Fitzroy Blocks exploration permits (EPs 457 and 458) in the Canning Superbasin from 90% to 37.5% for consideration of AU$21m. Japan's Mitsubishi will take a 37.5% interest and Rey Resources will increase its stake from 10% to 25%.

Market opportunities and rumours

According to MergerMarket, Alinta Energy's CEO, Jeff Dimery, has said the company is on the lookout for acquisitions to diversify its asset portfolio in a move designed to increase the company's access and appeal to debt markets. Dimery confirmed the company's interest in energy retailers, flagging the Tasmanian government's privatisation of energy retailer Aurora Energy as one such opportunity. Alinta is also speculated to be keen on strengthening its clean and renewable energy portfolio.

The Australian has reported that EnergyAustralia, the Australian unit of Hong Kong listed CLP Holdings Ltd, is looking to sell its majority stake in the Waterloo wind farm. The wind farm, located in South Australia, has a generation capacity of 111 MW with plans in place to build additional turbines to increase capacity to 129 MW. The wind farm is reportedly worth around AU$300m.

According to MergerMarket, Hydra Energy's CEO, Paul Nimmo, has said that the company plans to invest at least AU$50m buying new energy assets, or developing existing ones in Western Australia. On the acquisition front, Hydra Energy proposes to target unexploited, small assets such as stranded or late-life assets, particularly oil fields, which are underdeveloped or considered marginal in the portfolios of larger players.

MergerMarket has reported that Hong Kong-listed gas distributor ENN Group is seeking an Australian joint venture partner to develop a gas fuelling business in Australia. The company proposes to build gas fuelling and LNG stations for vehicles, with the aim of using the 'shale gas revolution' to deliver cost effective fuel solutions. Suitable partners potentially include local gas fuelling companies with gas station construction experience or local gas channel resources. ENN Group hopes to find an Australian partner by the end of 2013.

According to a report by The Australian, ASX-listed New Hope Corporation plans to pursue acquisitions in the conventional oil and gas space. The report suggests that New Hope has approximately AU$1.3bn to deploy on acquisitions. New Hope reportedly intends to focus on targets within Australia but would potentially consider acquiring locally-listed businesses with overseas operations.

The NSW government's 58% stake in Snowy Hydro appears to be off the sale agenda, with the Australian Financial Review reporting that the company is unlikely to be privatised. Chairman, Bruce Hogan, commented that Snowy Hydro's capital requirements have reduced in line with an overall decline in electricity demand and overcapacity in the generation space, and that the company could manage within the confines of its existing financial resources. In November 2012, the NSW Auditor-General valued the NSW government's interest in the company at AU$3.3bn.

The Australian Financial Review has reported that Macquarie Group is assessing acquisition opportunities in Queensland's LNG sector on behalf of ASX-listed Clough. Reportedly, Clough is keen to boost its exposure in the sector and will use part of the AU$187m earned from the recent sale of its 35.9% stake in ASX-listed Forge Group to pursue acquisitions.

The Australian has reported that ASX-listed Buccaneer Energy is considering a number of strategies to realise shareholder value, including farm-in agreements, company level investments, a dual listing in North America, or a full takeover. Buccaneer believes its proven reserves in Alaska's Cook Inlet are worth AU$329m. Buccaneer Director, Dean Gallegos, has said that preliminary interest in the company has been strong.

Further to our story in the April 2013 edition of the Australian Energy Sector Update, MergerMarket has reported that PetroChina could make a decision on pursuing a binding proposal for ASX-listed WestSide Corporation in the near future. Negotiations are speculated to be continuing between PetroChina and Mitsui, WestSide's joint venture partner, with discussions suggested to be focused on PetroChina acquiring Mitsui's 49% interest in the WestSide-controlled Meridian gas fields.

Regulatory updates

Petroleum and Geothermal Energy Regulations 2013 (SA)

The Petroleum and Geothermal Energy Regulations 2013 (SA) commenced on 15 March 2013, replacing the Petroleum and Geothermal Energy Regulations 2000 (SA). The new regulations prescribe requirements for petroleum and geothermal licence applications and impose certain operational and reporting obligations, such as a requirement to prepare an environmental impact report.

Offshore Petroleum and Greenhouse Gas Storage Amendment (Compliance Measures No. 2) Bill 2013 (Cth)

The Offshore Petroleum and Greenhouse Gas Storage Amendment (Compliance Measures No. 2) Bill 2013 (Cth) was introduced into the House of Representatives on 20 March 2013 and proposes to amend the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth). The Bill proposes to introduce alternative enforcement mechanisms into the offshore petroleum regulatory regime, enable inspectors appointed by the regulatory authority to issue environmental improvement notices and environmental prohibition notices, and introduce a duty on petroleum titleholders to stop, control and clean-up petroleum escapes, amongst other amendments.

Mining and Other Legislation Amendment Act 2013 (Qld)

The Mining and Other Legislation Amendment Act 2013 (Qld) was assented to on 22 March 2013. The Act amends the Petroleum and Gas (Production and Safety) Act 2004 (Qld) to allow petroleum industry proponents, including CSG-LNG project proponents, to conduct incidental activities for a petroleum facility licence, petroleum lease or another pipeline licence, on pipeline licence land. The amendments are designed to minimise the impact of petroleum activities on landowners, the environment and overlapping tenure holders.

Natural Resources and Mines Legislation Amendment Regulation (No. 1) (Qld)

The Natural Resources and Mines Legislation Amendment Regulation (No. 1) (Qld) amends the Petroleum and Gas (Production and Safety) Regulation 2004 (Qld). Amendments include the insertion of various fees and a new provision that prohibits pipeline licence incidental activities where those activities cause, or would be likely to cause a relevant pipeline to become non-compliant with AS2885 'Pipelines - gas and liquid petroleum' (2008).

Other news

In response to recent Federal government leadership rumblings, Martin Ferguson has stepped down as Minister for Resources and Energy. On 25 March 2013, Prime Minister Julia Gillard announced the appointment of Gary Gray as his replacement. Gray is a former senior executive of ASX-listed Woodside Petroleum.

On 25 March 2013, Arrow Energy received approval from Queensland's Department of Environment and Heritage Protection for its proposed AU$1bn Bowen Pipeline Project. The project involves the construction and operation of a 580km gas pipeline from gas fields in the Bowen Basin to the company's proposed Fisherman's Landing project at Gladstone. Arrow Energy still needs to obtain other approvals, including environmental approval from the Federal government.

On 2 April 2013, ExxonMobil and ASX-listed BHP Billiton filed a referral under the Environmental Protection and Biodiversity Conservation Act 1999 (Cth) for approval to develop the Scarborough field using a floating LNG vessel. The proposed floating LNG vessel measures some 495m long and 75m wide, making it larger than Royal Dutch Shell's Prelude floating LNG vessel. The proposed vessel would be capable of processing an estimated 6-7MMTPA of LNG and is anticipated to be operational in 2021.

On 30 April 2013, the Queensland government released the final Commission of Audit Report into restoring Queensland's fiscal strength. As widely anticipated, the final report recommends the privatisation of the State's electricity generation, distribution and transmission assets. In releasing the final report, Premier Campbell Newman ruled out a sale of the State's distribution and transmission assets (Energex, Ergon and Powerlink) and indicated that the government would not seek a mandate to do so at the next election. However, the government will investigate a possible sale of the State's generation assets, CS Energy and Stanwell.

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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