AGL Energy Won’t Buy BG Assets, Favors Own Projects

By Angela Macdonald-Smith

April 15 (Bloomberg) -- AGL Energy Ltd., Australia’s biggest power and gas retailer, decided not to exercise options worth more than A$1 billion ($723 million) to buy assets from BG Group Plc, citing higher returns from building its own projects.

Options over the Lacerta and Polaris coal-seam gas fields and the Condamine power plant in Queensland have now lapsed, AGL said today in a statement to the Australian stock exchange. The decision has no effect on forecast earnings, it said.

Since gaining the rights in October AGL has boosted its gas resources with purchases of Sydney Gas Ltd. and of a venture in New South Wales, while Managing Director Michael Fraser said Feb. 25 he will study bids for power assets to be sold by the state. The A$856 million price of the coal-seam gas option “looks expensive” based on an independent valuation last year, Bank of America Corp.’s Merrill Lynch unit said in a March 27 report.

“They’re making the right move keeping the balance sheet capacity,” said Jason Mabee, a utilities analyst at RBS Group Australia Pty in Sydney. “I definitely think that was a pretty ritzy price to pay for that asset.”

AGL slid as much as 40 cents, or 2.6 percent, to A$14.73 on the exchange and was at A$14.82 at 11:06 a.m. Sydney time. The stock lagged behind a drop of as much as 1.7 percent in the exchange’s benchmark utilities index.

‘No Reason’

AGL secured the rights as part of an accord to sell its stake in Queensland Gas Co. to Reading, England-based BG, which is adding reserves for a planned liquefied natural gas venture in northeastern Australia to supply customers in Asia. Fraser said in February that AGL’s purchase of gas assets in New South Wales made the company “reasonably confident” of meeting its target for adding reserves without exercising the options.

“We are comfortable that our medium-term strategic target of securing 2,000 petajoules of equity gas can be achieved from recent acquisitions without the need for Lacerta/Polaris in our portfolio,” Fraser said in today’s statement.

Buying Lacerta and Polaris would cut earnings by about 7 percent in the year ending June 30, 2010, Goldman Sachs JBWere Pty said in an April 6 report. The gas produced at the fields is likely to be used for LNG exports rather than for the eastern Australian gas market, leaving “no apparent reason” for AGL to invest in the assets, Merrill said.

AGL decided its existing 400 megawatts of rights on power produced at the Yabulu and Oakey generators in Queensland and rights held over sites that may host a further 1,870 megawatts of gas-fired power “delivered a superior economic and strategic outcome” than buying the 140-megawatt Condamine plant under construction west of Brisbane, Fraser said.

AGL forecast on Feb. 25 a profit of between A$370 million and A$400 million in the year ending June 30.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net