BG to sell liquefied natural gas pipeline for $5bn
BG Group has sold a gas pipeline built as part of the company’s liquefied natural gas project in northern Australia for $5bn to APA Group.
The FTSE 100 company said on Wednesday the proceeds of the sale would be used to reduce net debt and fund future investment growth.
“The sale of the pipeline is in line with our strategy to focus on BG Group’s core areas of oil and gas exploration and production and LNG,” said Andrew Gould, interim executive chairman of BG Group.
The 534km pipeline delivers gas from the company’s natural gas fields in central Queensland to a two-train LNG facility at Gladstone on the east coast of Australia.
The sale comes as BG Group’s $20.4bn LNG project in Queensland is about to make its first shipment of gas following a lengthy building process and a $5bn cost blow out that dented investors’ confidence in the company.
In October, BG appointed former Statoil boss Helge Lund as its new chief executive with a mandate to manage down the company’s net debt, which stood at $10.3bn in June. Selling non-core assets such as the LNG pipeline infrastructure is part of this strategy and the Australian deal is likely to be welcomed by investors, who are rewarding balance sheet strength as oil prices plummet.
“The 40 per cent fall in oil prices since June is causing a lot of companies to re-evaluate their balance sheets and cash flows,” said Mark Pervan, analyst at ANZ Bank.
“Selling off infrastructure in this way reduces the risk of LNG projects.”
Last month, analysts at Deutsche Bank expressed disappointment at the reported stalling of BG’s planned sale of North Sea assets, which it was hoped would raise up to $2bn.
APA is Australia’s biggest gas pipeline owner and defeated rival bids from IFM Investors, QIC Limited, AMP Capital and China Investment Corporation, according to reports in the Australian media. It will fund the deal through a rights raising and a $4.1bn syndicated bank debt facility.
BG said the pipeline asset would provide a fixed rate of return on the asset with tariffs increasing annually with US inflation. The pipeline has a current book value of $1.6bn and is expected to deliver to APA earnings of about $390m for the year ending December 2016.
BG said the sale was conditional on the start of commercial LNG deliveries and on partner consent. BG and its partners have capacity rights in the pipeline for 20 years as well as an option to extend this.
BG said completion of the deal was expected in the first half of 2015 and is expected to result in a post tax profit of about $2.7bn. The profit will be partly offset by a post tax impairment of BG’s remaining QCLNG assets, which is expected to be about $2bn.