APA Group to buy BG's Australian LNG pipeline for $5 billion

By JAMES PATON and BRETT FOLEY
Bloomberg

APA Group agreed to buy a pipeline supplying BG Group's Australian liquefied natural gas (LNG) project for about $5 billion, adding to a system that already carries half the nation’s gas.

APA, Australia’s largest gas pipeline owner, is interested in LNG pipeline sales after the purchase of the newly-built 543-kilometer (337-mile) network connecting gas fields to BG’s plant in Queensland state, managing director Mick McCormack said.

BG’s $20.4 billion export project at Gladstone, due to start by the end of the year, is one of seven Australian LNG developments under construction. Competing projects on the east coast led by Origin Energy and Santos will probably look at their own sales of pipeline assets, according to a report last month by RBC Capital Markets.

“APA is a growth business, and gas pipelines are a core strength of ours,” McCormack said. “Any asset that’s called a pipeline and that’s for sale, you will find APA interested.”

APA plans to sell A$1.84 billion ($1.53 billion) of shares to help fund the acquisition from BG, the Sydney-based company said today in a statement.

“It’s very steady income” for APA, said Adrian Atkins, a Sydney-based analyst at Morningstar. “It’s a big equity raising, but they should have good demand” amid a strong appetite for infrastructure stocks, he said.

BG Impairment

The company received at least three bids for the pipeline including from APA, according to people familiar with the matter. IFM Investors, an Australian fund manager, bid with QIC, and AMP Capital Investors led a group with backing from Chinese parties, the people said.

The pipeline has locked in revenues under 20-year contracts. APA has the option to take over operation of the pipeline after 12 months, it said. The pipeline is expected to contribute operating cash flow of about $200 million to $221 million for the year ending in June 2016, the company said.

“There may be some extra benefits, synergies, that wouldn’t be available to the other bidders,” Morningstar’s Atkins said.

The sale is conditional on the start of LNG deliveries, and BG and its partners have rights to use the pipeline for 20 years. APA has more than 14,000 kilometers of pipelines.

The transaction is expected to yield about $2.7 billion in profit for BG, which will be partially offset by a $2 billion impairment from its remaining QCLNG assets, BG said in a statement. The company plans to use the proceeds partly to reduce debt as it reviews its “long-term price assumptions and business plans” after a decline in oil prices, it said.

BG accelerated asset sales, including a 562 million pound ($881 million) stake in a North Sea pipeline this year, prior to the naming of incoming CEO Helge Lund. Lund, due to join in March, was appointed after former CEO Chris Finlayson left in April following a dispute over strategy.

China National Offshore Oil Corp. holds a 50% stake in the LNG project’s first production unit. BG is contracted to supply the Chinese company with 5 million tpy of LNG for 20 years, starting in 2015.

• Most Read
• Most Commented