Welcome to the November 2013 edition of the Australian Energy Sector Update, a monthly publication prepared by Corrs Chambers Westgarth for clients and contacts 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
On 6 October 2013, ASX-listed Linc Energy announced that, at its extraordinary general meeting held that day, it received shareholder approval to delist from the Australian Stock Exchange (ASX) and, subject to final regulatory approval, list on the Main Board of the Singapore Exchange (SGX). Linc Energy has stated it believes that listing on the SGX will reposition the company in the emerging oil and gas hub and broaden its investor base. Linc Energy has also foreshadowed that a share offering to new investors may complement the SGX listing. Despite the delisting from the ASX, Linc Energy will still be headquartered in Brisbane and has confirmed that the company will continue to invest in and develop its Australian assets. According to the indicative timetable released, the ASX suspension of trading for Linc Energy will occur from close of business on 15 November 2013, with the simultaneous delisting from the ASX and listing on the SGX expected to occur on 6 December 2013.
On 5 November 2013, Linc Energy also announced that its underground coal gasification (UCG) 'Gasifier 5' located at its demonstration facility in Chinchilla will cease operation in November 2013, with the demonstration facility to be decommissioned and the site rehabilitated. Linc Energy's UCG research and development has been the longest operating in the world, with Linc Energy successfully conducting UCG operations at the Chinchilla site since late 1999. Linc Energy commented that, in those 14 years, it has advanced its leading proprietary UCG technology from the basis of a 70 year old technology used in the former Soviet era into a revolutionary and efficient in-situ gasification technology, enabling previously uneconomic or stranded coal resources to produce gas at a low cost and with minimal surface disturbance. Linc Energy intends to move its UCG operations overseas, with a focus on Asia, stating that the commercial opportunities to deploy its UCG technology in Queensland are presently limited due to the failure of the Queensland Government to provide the UCG industry with the certainty and confidence required to support commercial investment.
In other Linc Energy news, on 3 October 2013, Linc Energy announced that its wholly owned subsidiary New Emerald Coal has entered into a sale and purchase agreement with the Blair Athol Coal Joint Venture (BACJV) to acquire the Blair Athol coal mine located in Queensland's Bowen Basin. Under the sale and purchase agreement, New Emerald Coal will pay no upfront amount and the BACJV will contribute to the anticipated statutory site rehabilitation requirements. Completion of the acquisition is conditional on commercial arrangements relating to New Emerald Coal's access to train-loading capacity, workforce accommodation and port and rail capacity to Abbot Point being finalised, which New Emerald Coal expects will take six months. The Blair Athol mine ceased operations in November 2012, but will be reopened following completion of the acquisition, with a production target of 3 Mtpa. Corrs advised Linc Energy in relation to this acquisition.
ASX-listed Galilee Energy announced on 21 October 2013 that it has received a letter from ASX-listed investment company Mercantile Investment Company proposing to make a proportional takeover offer for 50% of each shareholding in Galilee Energy at a price of A$0.15 per share. The Board of Galilee Energy has recommended that its shareholders take no action until Mercantile lodges formal takeover documents and the precise details of the offer are known. Galilee Energy holds two highly prospective coal seam gas and hydrocarbon tenements (ATP 529P and ATP 799P) in Queensland's Galilee Basin, covering a combined estimated 7,000 square kilometres. ATP 529P is held in a joint venture with ASX-listed AGL Energy (in equal 50% interests), while ATP 799P is 100% owned and operated by Galilee Energy.
Following a request from the Korean Stock Exchange regarding Korea Gas Corporation's (Kogas) rumoured sale of its interest in the GLNG Project, Kogas announced on 26 September 2013 that it is undertaking a review as to the sale of its interest in the GLNG Project but cannot yet confirm a final decision. Kogas further stated that specifics of a final decision will be determined and published at an appropriate time, or within the next six months. Kogas holds a 15% interest in the GLNG Project, along with ASX-listed Santos (with a 30% interest), Malaysian oil and gas company Petronas (with a 27.5%) and French multinational oil and gas company Total (with a 27.5%).
On 8 October 2013, GDF Suez and Mitsui & Co announced that an agreement has been reached under which Mitsui will acquire a 28% interest in GDF Suez's newly established subsidiary International Power (Australia) Holdings (IPAH) by way of share subscription. Through the share subscription, Mitsui will acquire a 28% interest in each of the following assets – the Canunda wind farm located in South Australia, the Hazelwood coal power station located in Victoria, the Pelican Point gas power station located in South Australia, the Synergen gas peaking plants located in South Australia, and retail business Simply Energy which has approximately 650,000 electricity and gas accounts across Victoria and South Australia.
Recently completed deals
On 23 October 2013, Chevron announced that its Australian subsidiary Chevron Australia has acquired exploration interests in two offshore blocks located in the Bight Basin. Blocks S12-2 and S12-3 are located approximately 443 kilometres west of Port Lincoln off the coast of South Australia and collectively cover over 32,375 square kilometres. Chevron Australia is the operator of the two blocks with a 100% interest.
Market rumours and opportunities
Further to our stories in the August, September and October 2013 editions of the Australian Energy Sector Update, the Australian Financial Review has reported that first round bids for New South Wales state-owned electricity generator Macquarie Generation (MacGen) were due on Monday 21 October 2013. According to the Wall Street Journal, ASX-listed AGL Energy, Chinese coal company Shenhua Energy and ASX-listed ERM Power have all been shortlisted in the sale process. Despite the State noting that it intends to seek a price higher than the A$2.1 billion book value of MacGen, the bids received are reportedly anticipated to be lower than that value. Competition issues may reportedly prevent the purchase of both of MacGen's power plants and the Australian Competition and Consumer Commission (ACCC) is likely to closely examine any potential purchase by AGL. Final offers are reportedly due to be submitted before February 2014.
Mergermarket has reported that ASX-listed oil and gas exploration company Blue Energy is participating in discussions with parties interested in acquiring all or a share in its coal seam gas permit ATP 814P located in Queensland's Bowen Basin. ATP 814P consists of seven disconnected blocks covering areas from Moranbah to Newlands – a region in which there is already established CSG production. Blue Energy's Managing Director John Phillips has reportedly stated that ATP 814P has reached development stage and since the company does not have the necessary development expertise, Blue Energy is considering either a full asset sale or joint venture with a suitably experienced partner to progress the permit. Sector analysts have reportedly tipped ASX-listed Central Petroleum and Norwegian national oil company Statoil to be amongst the parties interested in ATP 814P. Although Arrow Energy operates the Moranbah Gas project in close range to ATP 814P, Arrow Energy is reportedly not interested in its acquisition. No deadline has been set to complete a transaction in relation to ATP 814P and Blue Energy is reportedly not looking to secure advisors at this stage.
Bloomberg News has reported that ASX-listed Linc Energy is participating in discussions with a number of oil companies to develop shale oil fields in central Australia. Reportedly, Linc Energy's CEO Peter Bond has stated that the company anticipates completing a deal with a development partner prior to its plans to commence drilling in the Arckaringa Basin in February 2014.
Mergermarket has reported that ASX-listed oil and gas company Empire Energy is taking part in informal discussions with potential joint venture partners in relation to the exploration of EP 184 located in the onshore McArthur Basin, with a view to securing a deal within one year. EP 184 is owned by Empire Energy's subsidiary Imperial Oil & Gas and is located in close proximity to established rail and gas pipeline infrastructure. Reportedly, Empire Energy's Chief Executive Officer Bruce McLeod has stated that capital expenditure of approximately US$40 million is required for the first of the three exploration stages of EP 184, with A$20-A$30 million required for each of the second and third stages. Empire Energy is believed to be considering both asset and corporate transactions. Analysts have speculated that ASX-listed Santos may be interested in farming into EP 184 after completing a farm-in agreement with Tamborin Resources in December 2012 relating to four permits also located in the McArthur Basin. New York-based oil and gas company Hess has also been tipped as a potentially interested party, with operations in the adjacent Beetaloo Basin. Reportedly, Empire Energy is also planning to list on the New York Stock Exchange if it can double its hydrocarbon production in the United States.
According to the Australian Financial Review, the Commonwealth Bank of Australia (CBA) has sold its 8.16% interest in the Hazelwood power station located in Victoria to Hazelwood's majority owner GDF Suez for a price which is reportedly above A$1 billion. Citing documents submitted to Victoria's Essential Services Commission (ESC), the Australian Financial Review reported that contracts for GDF Suez to acquire CBA's interest were signed in approximately May 2013, but were only filed with the ESC on the 6 September 2013.
Mergermarket has reported that private Australian-based oil and gas exploration company Advent Energy is participating in discussions with several international groups interested in a joint venture or off-take agreement to fund development of the company's offshore PEP 11 Project located in the Sydney Basin. Advent Energy's Executive Director David Breeze has also reportedly stated that the company is continuing talks with private equity firms and institutional investors in relation to a potential sale of an undetermined interest in the company. Advent Energy is also the sole owner of EP 386 and RL 1 located in the Northern Territory's onshore Bonaparte Basin and is reported to be currently discussing a A$50 million capital raising with a number of parties in order to develop those permits.
According to the Australian Financial Review, New South Wales state-owned energy groups Ausgrid and Endeavour Energy have appointed PwC to run a sales process for the companies' national metering businesses. Reportedly, a definitive decision to proceed with the sale has not yet been made, however the Networks New South Wales Chief Executive Vince Graham has reportedly stated that, if the sale does
continue, it could be completed by June 2014. Ausgrid's operations are said to have approximately 33,000 metering customers, while Endeavour Energy's have approximately 11,000. ASX-listed AGL Energy and Singapore Power's Australian energy distribution assets subsidiary SP AusNet are tipped to be parties that would be interested in acquiring the state-owned energy groups.
Mergermarket has reported that since announcing its heads of agreement with private Australian energy company Outback Energy Hunter for the farm-out of a 70% interest in PEL 570, ASX-listed Ambassador Oil and Gas has received a number of approaches from parties interested in acquiring a share in PEL 570. Ambassador's Chief Executive Officer Giustino Guglielmo has reportedly stated that the company is participating in several informal discussions with interested parties. Due to PEL 570's location in the Cooper Basin, industry sources and sector analysts have reportedly commented that the parties most likely to be interested in the permit are those with existing interests also in the Cooper Basin such as ASX-listed Senex Energy, ASX-listed Drillsearch and ASX-listed Cooper Energy. ASX-listed power and gas producers and distributors Origin and AGL Energy have also been suggested as potential parties to be interested in PEL 570 in order to secure gas reserves for future demand in the domestic market.
According to the Australian Financial Review, Texas-based shale gas company Yuma Energy intends to list on the Australian Stock Exchange before the end of 2013. Reportedly, Yuma Energy plans to raise up to A$150 million. Yuma Energy is reported to have requested Ord Minnett, Baillieu Holst and Wilson HTM to market the offer to retail investors.
The Australian has reported that ASX-listed oil and gas company Beach Energy has denied any intention of making a takeover bid for ASX-listed Cooper Energy. Despite Beach Energy being Cooper Energy's largest shareholder after increasing its interest from 9.5% to 18.41%, Beach Energy has reportedly stated that the company has no current intention to take over Cooper Energy.
According to Mergermarket, ASX-listed oil and gas company Metgasco is considering potential targets at both the corporate and asset level. Reportedly, Metgasco's Chief Executive Officer Peter Henderson has stated that ideal targets would be those which allow the company to not only expand, but also acquire technical expertise. In March 2013, Metgasco suspended its exploration activity in the Clareton Moreton Basin due to the New South Wales Government's decision to tighten regulation on CSG operations. Since then, Metgasco has reportedly received a number of approaches from advisers suggesting suitable targets. With no current debt and a reported A$16.5 million in cash, analysts have commented that Metgasco may seek opportunities in Western Australia's Carnarvon Basin including by way of farming into larger companies' projects. Metgasco is reportedly open to further approaches with potential targets.
Mergermarket has reported that ASX-listed hydrocarbons explorer and developer Icon Energy is considering options, including the introduction of a farm-in partner, for its exploration permit ATP 626 located in the Surat Basin. Reportedly, the company is holding talks with a large number of parties and anticipates making a decision within the next 12 months. Icon Energy is believed to want to retain operatorship of the permit and is reportedly not considering divesting the asset. Icon Energy acquired the 100% interest in ATP 626 in July 2013 from its former joint venture partner Goondi Energy.
According to the Australian Financial Review, China State Grid's offer to acquire a 19.9% interest in SP AusNet (Singapore Power's Australian energy distribution assets subsidiary) could receive FIRB approval before the end of 2013. The agreement between China State Grid and SP AusNet was reportedly struck in May 2013 and will see a major portion of Melbourne's electricity network and New South Wales' gas distribution network under the control of China State Grid. Reportedly, since the concerned assets are already controlled by a foreign entity, the likelihood of the Foreign Investment Review Board (FIRB) blocking the deal is low.
LEGISLATION TO REPEAL THE CARBON TAX RELEASED
On 15 October 2013, the Federal Government released carbon tax repeal bills for public consideration. The raft of eight bills propose to:
- abolish the carbon tax from 1 July 2014;
- abolish the Climate Change Authority; and
- expand the Australian Competition and Consumer Commission's (ACCC) powers to take action against businesses that engage in price exploitation following the carbon tax repeal.
BIDS OPEN FOR TWO NEW BLOCKS IN THE COOPER BASIN
On 1 October 2013, South Australian Minister for Mineral Resources and Energy Tom Koutsantonis announced that bidding is now open for two onshore blocks in South Australia's Cooper Basin. CO2013-A covers 627 square kilometres in the southern Cooper Basin and has one well drilled (Twariffic East 1) and 876 line kilometres of 2D seismic data acquired within the block. CO2013-B
Corrs has prepared a Thinking Piece discussing what the draft carbon tax repeal legislation means for businesses, which can be viewed here.
covers 3,443 square kilometres in the southern Cooper Basin, has no wells drilled and 315 line kilometres of 2D seismic data acquired within the block. Both blocks are offered on the basis of work program bidding. Bids close at 4pm on Thursday 29 May 2014, with the winning bidders expected to be announced before the end of July 2014. Companies wanting to explore for oil and gas in the two blocks can visit www.petroleum.dmitre.sa.gov. au for more information.
SANTOS GLNG AND AUSTRALIA PACIFIC LNG SIGN UPSTREAM COOPERATION DEAL
On 25 October 2013, Santos GLNG and Australia Pacific LNG (APLNG) signed gas swap and infrastructure connection agreements which will enable both proponents to realise capital and operational efficiencies in relation to their respective CSG to LNG projects. Under the agreements, two pipeline connection points will be built between Santos GLNG and APLNG. The first will be located on the Santos-operated Fairview gas field north of Roma and will allow significant volumes of gas to bi-flow directly between Santos GLNG and APLNG. The second will connect the Santos GLNG Scotia gas field east of Roma to APLNG's main gas transmission pipeline. These agreements have removed the need to construct 140 kilometres of additional pipeline and associated infrastructure in order for each proponent to deliver its gas to Curtis Island, significantly reducing costs and duplicative infrastructure.
FEE RESTRUCTURE FOR QUEENSLAND PETROLEUM AND GAS INDUSTRY
Queensland's Minister for Natural Resources and Mines Andrew Cripps has announced that, following wide industry consultation, the State's Petroleum and Gas Safety and Health Fee paid by operators will be adjusted to better reflect the range and level of compliance checks required for various industry activities. The restructure of the fee system is set to streamline charges for the supervision and intervention by inspectors in exploration, production and distribution areas, delivering savings to companies by cutting red tape and compliance costs. Two of the key changes include:
- annual reporting requirements for the industry will replace quarterly reporting requirements; and
- a capping mechanism will be introduced for upstream operators to ensure revenue collected does not exceed calculated costs to conduct compliance activities.
Further information on the restructure is available here.
CORRS INDUSTRY PUBLICATION – OIL AND GAS COMPANIES – FROM EARLY STAGE EXPLORATION TO FULL-SCALE PRODUCTION
Oil and Gas Companies – From early stage exploration to full-scale production is a Corrs publication that analyses 50 Australian companies that focus on oil and gas exploration, development
and production. By consolidating information from various sources, the publication provides a snapshot of the key projects pursued by each company and gives the reader an understanding of how these projects will be funded and operated, when first production is likely to occur, and whether they have access to critical infrastructure. The publication also identifies recent corporate and investment activities, and highlights potential opportunities which may arise for investors.
Corrs also produces similar publications for other resource industries, including:
- Australian Coal Companies – From micro to mid cap;
- Australian Iron Ore Companies – From micro to mid cap; and
- Australian Copper and Gold Companies – From micro to mid cap.
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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