ALG sells stake in PNG energy project for record price

This is setting new benchmarks for valuation in energy (especially LNG projects) in PNG and shows that despite the dim market conditions (to say the least), PNG’s LNG projects generate very good buyer interest and prices.

AGL to sell PNG assets for approximately A$1.1 billion net.
30 October 2008

  • AGL Energy Limited (AGL) advises that it has executed Sale and Purchase Agreements (SPA) for all of its oil and gas exploration and production interests in Papua New Guinea (PNG), which include a 3.6% interest in the PNG LNG Project.
  • Net proceeds as a result of the sale, after closing out oil hedges, will be approximately A$1.1 billion.
  • 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 $A/$US0.65.
  • 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$360m1 to $390m1.
  • 1. Excludes fair value adjustments to hedging contracts and customer amortisation charges but
  • Assumes ongoing depreciation of the PNG assets.

And there is another article, slightly more informative:

AGL offered premium price for PNG gas project

  • INTERNATIONAL interest in liquefied natural gas shows little sign of waning, with AGL Energy’s stake in the Exxon Mobil-led LNG project in Papua New Guinea attracting a price well above market expectations.
  • AGL said yesterday an unnamed “international oil and gas company” had bid $1.1 billion for its 3.6 per cent stake in the PNG joint venture. This compared with market predictions the stake would fetch $900 million.
  • The sale is the final step in AGL’s sell-off of “non-core” assets as it focuses on domestic energy operations. The managing director of AGL, Michael Fraser, described the sale as an “excellent outcome” after Tuesday’s agreement to sell its 22 per cent holding in Queensland Gas to BG Group for $1.18 billion.
  • “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 business,” Mr Fraser said.
  • Industry sources said the bidder was unlikely to be a big international player because of the small size of the deal, and the offer could have come from a smaller company in the region with LNG aspirations.
  • Analysts at Citi recently reported that an Italian energy company, Eni SpA could be interested in the assets. Eni was not available for comment.
  • Other partners in the PNG project now have a chance to match the offer over the next 30 to 45 days, under a pre-emptive rights agreement. The project operator, Exxon Mobil, has a 41.5 per cent stake, followed by Oil Search, which has 34 per cent.
  • The managing director of Oil Search, Peter Botten, said the price was “reasonably high”, but he did not say if the company would exercise its pre-emptive rights. “I think this is a very good price, and it establishes a benchmark for the oil and gas assets in that area,” he said. The company would examine the details of the bid and discuss it with project partners, taking a “conservative approach” in its assessment.
  • An analyst at ABN Amro, Jason Mabee, said market turmoil and oil price falls may have lowered AGL’s hopes for the PNG asset. The transaction allows AGL plenty of scope to expand, which could include exercising options to buy gas fields from QGC or NSW electricity retail assets likely to be privatised. “We continue to like the moves that Fraser is making to reshape AGL going forward and this is obviously a fantastic point in the cycle to be sitting on balance sheet capacity,” Mr Mabee said.
  • AGL shares gained 15c, or 1 per cent, to $13.90 and Oil Search shares were up 59c, or 16 per cent, to $4.30.

It hardly comes as a surprise though:

AGL may sell stake in PNG LNG project
February 29, 2008 – 3:20PM

  • Australia’s largest power retailer, AGL Energy Ltd, says it is considering divesting its 10 per cent stake in Oil Search Ltd’s liquefied natural gas (LNG) project in Papua New Guinea (PNG).
  • AGL managing director Michael Fraser told AAP that the current project was too much of a departure from what it was when AGL originally became involved, a project to pipe gas from PNG to Australia.
  • Work was suspended on the pipeline project at the end of January 2007 and efforts re-focused on developing PNG LNG.
  • The other project participants are Oil Search (44.2 per cent), project operator ExxonMobil (39.4 per cent), MRDC (a PNG company representing landowner interests, with three per cent) and Nippon Oil Exploration (3.4 per cent).
  • Project participants are expected to make a decision on front-end engineering around the end of March/early April, Mr Fraser said.
  • “That’s a point in time that we will look at what our divestment options are for that asset.
  • “Expect us to be out of there at some stage in the not too distant future. “PNG is a non-core asset (for AGL).” He said AGL began considering exiting PNG as soon as the pipeline project fell over last year.
  • “Its worth a fair bit of money but is a small stake in the overall project,” he added. Both divestment and acquisition is high on the agenda for AGL this year. It has previously said it will divest assets in Chile and several pipelines including the 440 kilometre high pressure gas transmission pipeline from Moranbah to Gladstone in Queensland.
  • “One of the pipelines at Moranbah will be up for sale in the coming weeks and that should be done by June,” Mr Fraser said.
  • “We’re looking at the rest of the portfolio and reshaping it so that we’re focused on our core business.

Curious, here it’s talk of a 10% stake. What is a surprise is the price.

It’s not entirely clear just what exactly has been sold. Here is another take:

AGL Energy to sell PNG assets for $800 mln

  • By Fayen Wong
  • PERTH, Oct 30 (Reuters) – Australia’s AGL Energy Ltd (AGK.AX: Quote, Profile, Research, Stock Buzz) said it agreed to sell its oil and gas assets in Papua New Guinea for $800 million to an unnamed international oil and gas company, repositioning itself in its home market.
  • Australia’s top energy retailer said in a statement it would net A$1.1 billion ($733 million) from the long-planned sale, after closing out oil hedges — an amount at the top end of analysts’ valuations.
  • The sale of AGL’s stake in five producing oil fields and a 3.6 percent stake in a planned liquefied natural gas (LNG) project in Papua New Guinea also boosted the share price of project partner Oil Search Ltd, which jumped as much as 30 percent, as the sale led to a revaluation of the PNG assets.
  • “AGL has managed to sell the assets at a very good price. The recent deals will put them in a very good position in terms of potential asset sales from distressed sellers or to participate in the New South Wales power privatisation,” said Peter Warnes, a fund manager at Huntley Investments, which owns AGL shares.
  • AGL’s exit from Papua New Guinea is the last in a series of planned divestments that have fetched about A$3 billion in cash since the start of the year.
  • AGL on Tuesday said it would sell its 22 percent stake in Australian coal seam gas producer Queensland Gas Co Ltd (QGC.AX: Quote, Profile, Research, Stock Buzz) to Britain’s BG Group Plc (BG.L: Quote, Profile, Research, Stock Buzz) in a deal that would net A$1.18 billion.
  • “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,” Managing Director Michael Fraser said in a statement.
  • Analysts said AGL would have a spare balance sheet capacity of between A$500 million and A$1.5 billion following the sales.
  • Possible uses for the funds include buying generation assets held by troubled investment fund Babcock & Brown Power Ltd and investments in coal seam gas fields in Australia, which would help reduce its gas purchases on the wholesale market amid rising prices, Goldman Sachs analyst Kynwynn Strong said in an Oct. 27 report.
  • Shares in AGL were up 1 percent by 0200 GMT, after gaining as much as 4.5 percent, while Oil Search was up 17.3 percent after surging as much as 30 percent to a three-week high.
  • Analysts said AGL’s sale of its interest in the LNG project, led by ExxonMobil Corp would provide an industry value benchmark for the project and boost Oil Search, which has a 34 percent stake in the planned project.
  • Under a pre-emptive rights agreement, AGL’s joint venture partners, which include Oil Search and Santos Ltd, now have up to 45 days to match the agreed sale price on the same terms and conditions should they wish to buy the assets.
  • Oil Search has said it would be interested in buying AGL’s interest in the PNG assets, subject to price and its funding ability.
  • AGL said the sale of the PNG assets would not affect its forecast for underlying net profit of A$360-A$390 million for the year to June 2009.
  • But it said it would provide a further update on the impact of the sale on its fiscal 2009 earnings after it completed, likely around mid-December. ($1=A$1.50)

We believe that, apart from the 3.6% stake in the LNG project, what is at astake is the following AGL stakes (this from p.35 of an investor presentation):

  • PDL 2 (11.9%)
  • PDL 4 (66.7%)