BG Said to Bid for Stake in Queensland Gas, May Lead to Offer

By Eduard Gismatullin and Ambereen Choudhury

Oct. 24 (Bloomberg) -- BG Group Plc, the third-largest U.K. oil and natural-gas producer, is negotiating to buy Australian AGL Energy Ltd.'s stake in Queensland Gas Co. and may bid for the company, two people familiar with the plan said.

BG approached Sydney-based AGL and has offered to acquire its 24.9 percent shareholding in Queensland Gas, BG's partner in an Australian A$8 billion ($5 billion) coal-seam gas project, the people said, declining to be identified because the talks are confidential. The stake's market value is A$726 million, based on today's closing share price. An announcement may come as early as Monday, the people said.

BG Group already owns 9.9 percent of QGC and has a 20 percent interest in some of its assets as it builds gas reserves to tap rising demand in north Asia. Last month, BG dropped its A$13.8 billion offer for Origin Energy Ltd., Australia's biggest producer of natural gas from coal seams, after Origin attracted an investment of as much as $8 billion from ConocoPhillips.

``BG was right to walk away from the overpriced Origin Deal, while QGC offers almost the same reserves potential but at a fraction of the price,'' Richard Griffith, an analyst at Evolution Securities Ltd. in London, wrote today in an e-mailed report.

Brisbane-based Queensland Gas has a market capitalization of A$2.9 billion. BG spokeswoman Jo Thethi said the company doesn't have any comment, while Hedley Thomas, a spokesman for QGC, also declined to comment.

Trading Halt

AGL was halted from trading in Australia pending a ``possible material transaction,'' according to the company statement, while Queensland Gas also requested a halt for its shares.

``We've got no comment until we make an announcement, hopefully before the trading commences on Tuesday morning'' next week, Graeme Thompson, head of investor relations at AGL, said by phone today. ``We've said our ultimate strategy was to exit the equity stake that we have in the company and move to a holding at the acreage level, be it QGC acreage or other acreage.''

BG shares fell as much as 100 pence, or 13 percent, to 674 pence in London trading. They were down 7.8 percent at 713.5 as of 12:16 a.m. local time.

Like Origin Energy, Brisbane-based Queensland Gas owns coal-seam gas fields in Queensland state in northeastern Australia. BG plans to develop an A$8 billion liquefied natural gas project with the company, to export the fuel by tanker and tap rising demand in north Asia.

LNG Project

Buying Queensland would help boost the Reading, England- based company's LNG project pipeline. Macquarie Group Ltd. analysts said in an Oct. 8 note BG will probably seek alternative investments after failing to buy Origin Energy, to improve its ability to profit from the ``premium-priced'' Asian gas market.

``BG already has an agreement with QGC to offtake LNG from the first train, but raising its stake will give it greater control of the Australian company,'' Iain Reid, a London-based analyst at Macquarie, said by phone today. Yesterday's Macquarie report on Queensland estimated that the company could be worth A$6.1 a share ``if acquired by a company with a lower cost of capital and access to funds such as BG,'' he said.

Queensland is bidding for Sunshine Gas Ltd. to use its reserves for local demand. It got regulatory approval for the deal Oct. 12 and declared the bid unconditional.

Queensland Gas said Sept. 17 its reserves increased by 6 percent in 10 weeks after drilling more wells. Proven reserves rose to 705 petajoules. Proven and probable reserves rose almost 12 percent to 2,703 petajoules, compared with 5,770 petajoules of proved and probable reserves held by Origin Energy.

Coal-Seam Gas

``Queensland Gas has the second-biggest exploration area for coal-seam gas after Arrow Energy Ltd.,'' Andrew Pedler, an analyst with Brisbane-based Wilson HTM, said today. ``AGL has an imperative to put its foot on sufficient gas to set aside for future needs,'' he said.

BG produces LNG in Trinidad and Egypt and its most advanced planned venture is the 14.25 percent-owned OK project in Nigeria, which is suffering delays.

LNG is natural gas cooled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline.

To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net. Eduard Gismatullin in London on egismatulling@bloomberg.net