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BG Group, the British natural gas giant, will reap $5 billion when it completes a deal in the first half of 2015 to sell its QCLNG Pipeline in Australia to APA Group, the country’s largest provider of gas infrastructure.
A condition for the sale is for commercial liquid natural gas (LNG) deliveries to begin in early 2015 from the QCLNG export station at Gladstone on the east coast of the state of Queensland. BG said that condition will be met. Meantime, BG will have the right to use the pipeline for 20 years.
If completed, the sale would be the biggest since BG earlier this year began looking for opportunities to sell assets and raise cash to pay debt, fund future growth and enlarge dividends to its shareholders. Its production targets had to be reduced dramatically because of continuing problems in its Egyptian gas fields, which had for some time been dampening the company’s earnings.
At the end of October, BG announced a 29 percent drop in third-quarter earnings to under $1.2 billion. Once the pipeline sale is complete, the company said, it should reap a profit of about $2.7 billion after taxes.
The seller, Andrew Gould, BG’s interim executive chairman, issued a statement saying, “The sale of the QCLNG pipeline is in line with our strategy to focus on BG Group’s core areas of oil and gas exploration and production and LNG.”
The buyer, APA Managing Director Mick McCormack, told Bloomberg News that acquiring the pipeline was second nature to someone in his business. “APA is a growth business, and gas pipelines are a core strength of ours,” he said. “Any asset that’s called a pipeline and that’s for sale, you will find APA interested.”
APA issued a statement Dec. 10 saying that to finance the transaction, it intends to sell $1.53 billion in shares.
One analyst said the acquisition will be worth the cost. “It’s very steady income” for APA, said Adrian Atkins, a Sydney-based analyst at the investment research firm Morningstar Inc. “It’s a big equity raising, but they should have good demand.”
BG’s project to export LNG from Gladstone is due to start by the end of 2014. It is one of seven such programs now under construction in Australia, and the idea of selling their pipelines appeals to the developers of some of their competitors, including Origin Energy Ltd. and Santos Ltd., according to the Canadian investment bank RBC Capital Markets.
Anonymous sources told Bloomberg that APA didn’t tender the only bid for the pipeline. They said there were three other potential buyers, including QIC Ltd. and AMP Capital Investors Ltd., which led a group of investors backed by Chinese financing. Also bidding was the Australian fund manager IFM Investors.
APA said it expects the QCLNG pipeline to be highly profitable, with operating cash flow of about $200 million to $221 million for the year ending in June 2016.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com