Australia: Insights and trends for the leading edge of the energy industry

Australian Energy Sector Update: August 2014

Recent announcements

In an announcement to the New York Stock Exchange on 18 August 2014, Apache, the US oil company, revealed that at the Phoenix South-1 well located in permit WA- 435-P, offshore Western Australia, preliminary estimates indicate that there might be as much as 300 million barrels of oil in place. Thomas E. Voytovich, Apache's executive vice president and chief operating officer – International, stated "the oil and reservoir quality we have seen point to a commercial discovery. If these results are borne out by further appraisal drilling, Phoenix South may represent a new oil province for Australia." Apache has a 40-percent interest and operatorship in WA-435-P and the adjacent permit WA-437-P; co-venturers are Carnarvon Petroleum (20 percent), Finder Exploration (20 percent) and JX Nippon (20 percent). The Australian Financial Review reported on the same day that the newly located oil field has been regarded as potentially the largest oil discovery in Australia in the last 30 years.

AGL Energy announced on 20 August 2014 that it had concluded an agreement with the New South Wales Government to acquire Macquarie Generation assets for a consideration of $1,505 million and that it is seeking to raise approximately $1,232 million from an entitlement offer to fund part of the purchase price. AGL stated that the Macquarie Generation power stations give AGL ownership of the lowest cost, large-scale baseload generators in NSW and increase AGL's registered generation capacity by approximately 82 percent to more than 10,400 MW. Macquarie Generation's key assets include the Bayswater and Liddell power stations.

On 12 August 2014, Nexus Energy, through administrator McGrathNicol, announced that at the second meeting of creditors held on 11 August 2014, creditors resolved that Nexus execute a deed of company arrangement and creditors' trust substantially in the form of the deed of company arrangement and creditors' trust tabled at the meeting of creditors. Nexus must execute the deed of company arrangement within 15 business days after the end of the second meeting of creditors. The deed of company arrangement was proposed by Seven Group Holdings and is reportedly valued at A$180 million.

MEO Australia, an independent oil and gas exploration company, on 7 August 2014 announced an initiative to realise value from its strategic Tassie Shoal Methanol and LNG projects proposed for offshore Northern Australia. The decision to pursue this initiative has been taken following a number of discussions with parties who had expressed interest to MEO in obtaining equity in these projects. UBS has been appointed as adviser to MEO to assist with conducting a formal process in relation to this initiative.
On 4 August 2014, Nido Petroleum and BCP Energy International, executed a bid implementation deed in relation to an off-market takeover offer for BCP Energy to acquire 100% of the shares in Nido not already held by BCP Energy. Nido shareholders will be offered 5.5 cents in cash per Nido share, representing a 62% premium to 1 month Nido VWAP. The offer is subject to a 90% minimum acceptance condition and Nido directors have unanimously recommended that shareholders accept the all-cash offer, in the absence of a superior proposal.
Further to the July edition of the Australian Energy Sector Update, on 4 August 2014 Roc Oil announced that it has entered into a Bid Implementation Agreement under which it is proposed that Fosun International or a subsidiary of it will acquire all of the Roc Oil shares currently on issue for A$0.69 cash per share by wall of offmarket take over offers In making their recommendation, the Roc Oil directors stated that they have carefully considered the Fosun offer and determined in good faith that the Fosun offer is more favourable to Roc Oil shareholders than the proposed merger with Horizon Oil. On 5 August 2014, Horizon Oil announced that as a result of the Roc Oil board's unanimous recommendation of Fosun's takeover offer, Horizon Oil has given notice to Roc Oil terminating the Merger Implementation Deed.

Beach Energy announced on 28 July 2014 that it had executed a farm-in agreement to explore for oil in ATP 924 within the Cooper Basin in Queensland with Drillsearch Energy. The farm-in is a two staged process whereby Beach Energy will fund approximately 150 km2 of current 3D seismic activities and drill an initial exploration well. Should Beach Energy elect to continue beyond this initial well, it will drill a further exploration well and reimburse Drillsearch Energy for past costs to earn its 45% interest, including other seismic operations being conducted by Drillsearch Energy.

Market rumours and opportunities

According to a Bloomberg report on 19 August 2014, the bid by listed French gas supplier GDF Suez to divest an approximate 30% stake in GDF Suez Australia, its Australian power generation unit, has attracted the interest of listed Thai energy company PTT and Singapore-listed Keppel Infrastructure Trust. According to the report which cited people with knowledge of the matter, GDF Suez is targeting to raise more than A$400 million from the sale of its stake in its Australian unit. According to its website, GDF Suez Australia has six power generation plants located across Victoria, South Australia and Western Australia, with a total capacity of 3,540 MW (gross) from its renewable (wind turbine), gas-fired and brown coal-fired generating plants.

An article in Business Spectator on 18 August 2014 reported that British energy company BG Group's Queensland LNG pipeline assets have received further interest from suitors. Reportedly, fund manager AMP and ASX-listed Duet Group are taking part in the sale process of over A$3 billion in assets. China-based power company State Grid as well as Singapore Power are also said to be interested.

Further to our reporting in July, The Australian Financial Review on 15 August 2014 reported that four bidders are preparing final offers for New Zealand-based Infratil's Australian energy assets, which include Lumo Energy and Direct Connect Australia. The buyers said to be interested are AGL Energy, Origin Energy, Alinta Energy and Snowy Hydro, according to the unsourced report. Pacific Hydro and M2 Telecommunications took initial interest in the sale but have since withdrawn.

The Australian Financial Review reported on 14 August 2014, two or three buyers are believed to be in a dataroom for PTTEP's Cash-Maple gas fields. According to the article, which did not cite its source, JPMorgan is running the sale process. The report noted that China's Hongfu Fund is thought to be one of the parties involved however, citing unnamed sources, PTTEP's majority owner, PTT, could be chosen. ConocoPhillips and Santos are believed to have been deterred by the sale structure, according to the report.

Royal Dutch Shell is believed to have fielded pitches from brokers keen to sell down its remaining investment in Woodside Petroleum, the ASX-listed energy group, according to an article in The Australian Financial Review on 7 August 2014. Citing unnamed sources, the paper reported that Shell, which failed in its attempt to reduce its stake in Woodside to less than 5%, is likely to attempt to sell the stock in the next three months. The article notes that Shell's stake is now subject to a 90-day escrow period, which ends in September. Shell is currently unable to sell on market but is able to take part in buybacks, takeover offers, and the like. The report noted that Woodside is likely to initiate an open-access buyback, which would allow Shell to divest part of the stake. Shell has planned to exit much of the holding through a selective buyback but the plan was blocked by Woodside investors. Shell currently owns 13.6% of Woodside.

A report in Business Spectator on 6 August 2014, citing an unnamed source, stated that the New South Wales government had received indicative bids last month for the purchase of Delta Coastal, the New South Wales government-owned electricity group. The government has been considering the bids, with the process previously expected to have been finalised by 11 August 2014. Banking sources cited in the report said that a few potential suitors have withdrawn from the race for the asset. Media reports had indicated that Origin Energy, Energy Australia and Snowy Hydro had lodged expressions of interest. However, banking sources said that Origin is unlikely to proceed because of competition issues. The paper noted that Delta Coastal was valued at A$850 million as at 30 June 2013, excluding cash and debt.

Regulatory updates


Further to the July edition of this publication, which reported on the passing of the Clean Energy Legislation (Carbon Tax Repeal) Act 2014 (Cth) (Carbon Tax Repeal Act), the Carbon Tax Repeal Act also amends the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act) by removing certain registration, reporting and record-keeping requirements which relate specifically to the (now repealed) Clean Energy Act 2011 (Cth). Registered corporations will, however, still need to comply with other, non-carbon tax related, reporting requirements under the NGER Act. Furthermore, although the reporting requirements of liable entities under the Clean Energy Act have been repealed, it is important to note that these entities will still be required to comply with reporting obligations relating to the 2013-14 financial year. According to the Clean Energy Regulator , liable entities must still meet their carbon price obligations for the 2013-14 financial year, including reporting their total emissions number to the Clean Energy Regulator by 31 October 2014, and satisfying their final carbon price liability for 2013-14 by 2 February 2015.

A copy of the Act can be found here.

Other news


Citing state-owned enterprise (SOE) officials and dealmakers, on 19 July 2014 Mergermarket reported that China's campaign against corruption among political officials and companies with government connections has slowed the pace of overseas deals. According to Mergermarket data, the investigations have stymied deal activity among SOEs, threatening the brisk pace of outbound M&A from China, which totalled US$33.8 billion in 1H14, up 18% year on year. The article suggests that in one direct example of how the anti-corruption campaign is affecting Chinese overseas deals, uncertainty looms over China National Petroleum Corp's (CNPC) US$ 3.6 billion purchase of oil sands mines from Canada-based Athabasca Oil due to ongoing investigations into two executives in charge of overseas investment at the SOE. Reportedly, the head of one of China's big four banks has said that in the current environment, very few new deals are being struck by Chinese SOEs.

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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