AGL Agrees to Buy Sydney Gas to Add Coal Seam Output

By Madelene Pearson

Dec. 24 (Bloomberg) -- AGL Energy Ltd., Australia’s biggest electricity and gas retailer, agreed to buy Sydney Gas Ltd. for A$171 million ($116 million) to expand coal seam gas output.

AGL Energy offered 42.5 cents a share in cash for Sydney Gas, the Australian coal seam gas producer partly owned by Babcock & Brown Ltd., Sydney-based AGL said today in a statement. That’s 55 percent more than Sydney Gas’ last traded price of 27.5 cents

The deal adds to AGL’s expansion into coal-seam gas after it this month agreed to pay A$370 million for an exploration venture in New South Wales state. BG Group Plc, Malaysia’s Petroliam Nasional Bhd. and ConocoPhillips are among international companies that have invested in Australian coal-seam gas assets this year.

“AGL has really come of age as an upstream player and it makes good sense to diversify and broaden its base the way it is,” Peter Arden, an analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co., said by phone from Melbourne. “It’s a pretty generous bid. I would doubt very much if there’s anyone else out there now that is going to rival that bid.”

AGL fell 1.5 percent to A$15.45 on the Australian stock exchange when last traded. Both stocks were halted from trading yesterday ahead of the announcement.

AGL has entered into pre-bid agreements with Sydney Gas’ two largest shareholders for about 20 percent of Sydney Gas stock, it said. The board of Sydney Gas will unanimously recommend the offer in the absence of a higher bid. Babcock & Brown will also accept the offer, AGL said.

More Reserves

AGL, which uses gas for power generation and retail sales, has a target to increase its ownership of gas reserves to 2,000 petajoules, or about 1.9 trillion cubic feet, for protection against higher prices. It agreed to buy the PEL 285 license in the Gloucester Basin from AJ Lucas Group Ltd. and Molopo Australia Ltd. on Dec. 17.

“Combining this acquisition with our recent purchase of the Gloucester Basin acreage will give us the opportunity to further increase our ownership of gas reserves in our core New South Wales market,” Michael Fraser, AGL managing director said in the statement to the exchange.

Sydney Gas was established in 1987 and was the first commercial producer of natural gas in New South Wales state, according to its Web site. It formed a joint venture with AGL in 2005 to develop the state’s coal seam natural gas.

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net