Recently completed deals
Further to our reporting in February and May, on 11 June 2014, Baytex Energy Corp, the oil and gas corporation based in Calgary, announced the closing of its acquisition of ASX-listed Aurora Oil & Gas pursuant to a scheme of arrangement. Based on a cash consideration of A$4.20 per share, the total purchase price for Aurora is estimated at C$2.8 billion (including the assumption of approximately C$0.9 billion of indebtedness). Further to our reporting in the April edition of the Australian Energy Sector Update, the Australian Competition and Consumer Commission (ACCC) has approved Caltex Australia’s acquisition of the Scott’s Group fuel division. The ACCC had raised competition concerns regarding the acquisition in regions where Caltex would have controlled the majority of retail fuel sites. Consequently, Caltex agreed to a court-enforceable undertaking that requires it to sell three sites in Mt Gambier in South Australia and one in Nhill in Victoria to ACCC-approved purchaser, Agostino, an independent operator of BP-branded retail fuel sites.
On 16 May 2014, Karoon Gas announced that it had entered into a Farmout Agreement with a wholly owned subsidiary of Apache Corporation to farm out a 50% interest in Carnarvon Basin exploration permit WA-482-P off the coast of Western Australia. In order to acquire a 50% interest in the tenement, Apache will pay Karoon a US$9.04 million reimbursement for seismic acquisition costs, fund 90% of the drilling costs for one exploration well (capped at a value of US$63 million) fulfilling the Year 3 work obligations for the permit, assume operatorship of the permit, and commit to drill an exploration well in the first half of 2015. A few weeks later, on 2 June 2014, Origin Energy announced that it had entered into a conditional Sale and Purchase Agreement with Karoon Gas to acquire its entire 40% equity interest in two exploration permits in Western Australia’s Browse Basin (Poseidon Permits). According to Origin, the Poseidon Permits contain large and prospective offshore gas fields. Following satisfaction of all conditions precedent and appropriate regulatory approvals, Origin will make a cash payment of US$600 million with additional cash payments of US$75 million payable upon a project Final Investment Decision and US$75 million payable on first production. A further payment of up to US$50 million will be payable on first production if 2P reserves at the time of the Final Investment Decision reach certain thresholds. ConocoPhillips, the project operator, holds a 40% interest in the Poseidon Permits, and PetroChina holds the remaining 20%. Both parties retain pre-emption rights relating to the sale of Karoon’s 40% stake for a limited period. The Agreement also remains subject to regulatory approval and is expected to complete in Q3 2014. Origin will initially fund the acquisition from existing committed undrawn debt facilities. The drawdown associated with this acquisition will be refinanced through an equity raising of around A$1 billion which will occur through a pro-rata equity offer following completion some time after the release of Origin’s full year financial results at the end of August 2014. On 28 May 2014, Drillsearch announced its intention to make a conditional off-market takeover offer for Ambassador Oil and Gas, the ASX-listed unconventional oil and gas exploration company. The original offer contemplated one Drillsearch share for every 5.4 Ambassador shares, which received unanimous support from Ambassador’s directors, who recommended that shareholders accept the offer. In response to a rival scrip bid from Magnum Hunter Resources, Drillsearch increased the offer price to one Drillsearch share for every 5.4 Ambassador shares plus five cents in cash per Ambassador share on 16 June 2014. In the absence of a superior offer, Ambassador’s Board recommended that shareholders accept Drillsearch’s offer. According to the Drillsearch announcement, the offer is now unconditional with accelerated payment terms, and Ambassador shareholders will receive their consideration within ten business days of acceptance. On 17 June 2014, Magnum also announced an increased offer for Ambassador comprising one Magnum share of common stock for every 23.6 Ambassador shares held, which represents a price of A$0.38 per Ambassador share based on Magnum’s closing price on 16 June 2014. Magnum also declared its offer to be unconditional and said that shareholders who prefer to receive cash rather than stock will be able to elect to participate in a sale process to facilitate this. According to Magnum, the implied revised Magnum offer price represents a 15% premium to the revised Drillsearch offer. Further to our reporting in the March and April editions of the Australian Energy Sector Update, the ACCC has defended its rejection of AGL Energy’s A$1.5 billion acquisition of NSW’s largest electricity producer, Macquarie Generation (MacGen), following AGL’s appeal to the Australian Competition Tribunal. In its submissions, the ACCC considered that the transaction will, or is likely to, only result in a small public benefit compared to a substantial public detriment. The public detriment includes reduced competition due to raised barriers to entry and expansion for smaller electricity retailers in the State, and a material risk of increased generator market power. As a result of decreased competition, the ACCC said the proposed acquisition was likely to mean that consumers would pay more for electricity, receive lower quality service and be offered less choice. At the time of writing, the Tribunal has not handed down its decision, but an unsourced report in the Australian Financial Review on 15 May 2014 indicated that AGL has also lodged an expression of interest for Delta Coastal, the NSW State-owned power asset, possibly as a means of hedging its bets as it contests the ACCC ruling against its takeover of MacGen. According to the article, other bidders include RATCH Australia and Marubeni, but ERM, which had been considered a likely buyer for Delta, did not submit an expression of interest for Delta. The paper noted that if AGL wins its appeal against the ACCC, it will be forced out of the running for Delta because of competition issues. On 17 June 2014, Royal Dutch Shell announced the sale of approximately 156.5 million shares in Woodside Petroleum representing approximately US$5 billion in value to Shell after tax. The sale, which comprises 19% of Woodside’s issued share capital, is via an underwritten sell-down to equity market investors and a selective share buy-back by Woodside. Specifically, Woodside has signed a binding buy-back agreement with Shell to purchase 78.3 million Woodside shares at a price of US$2,680 million, representing approximately 9.5% of Woodside’s issued share capital and based on a share price of A$36.49. The buy-back is subject, amongst other things, to Woodside shareholder approval. Shell CEO, Ben van Beurden said that reducing its stake in Woodside is part of the company’s “drive to improve Shell’s capital efficiency and to focus [its] Australia growth in directly owned assets.” However, Mr van Beurden confirmed that “Woodside is an important strategic partner for [Shell], through [its] investments in established projects such as the North West Shelf and growth opportunities such as Browse.” Shell’s divestment of its interest in Woodside follows the announcement, on 21 May 2014, that Woodside had advised the Leviathan Joint Venture participants of its election to terminate the memorandum of understanding agreed by the parties in February 2014. Woodside indicated that negotiations between the parties had failed to reach a commercially acceptable outcome that would have allowed fully-termed agreements to be executed. Woodside had been in negotiations with Noble Energy Mediterranean, Delek Drilling, Avner Oil Exploration and Ratio Oil Exploration to acquire a 25% stake in the Leviathan gas field located off the coast of Israel. Woodside CEO, Peter Coleman, said this was a difficult decision but that Woodside was committed to making “disciplined investment decisions.” At a meeting held on 12 June 2014, Nexus Energy shareholders did not approve the proposed sale of the company to Seven Group Holdings by scheme of arrangement. As the scheme resolution was not passed and no alternate proposal has been received, the Nexus board of directors resolved to appoint McGrathNicol as joint and several administrators of the company, which will focus on putting into place funding arrangements to enable the Longtom, Crux and Echuca Shoals projects to continue with minimal interruption. On 9 May 2014, IGas, the UK oil and gas producer, announced its acquisition of Dart Energy under a conditional scheme of arrangement for a transaction value of A$211.5 million. Upon implementation of the scheme, Dart shareholders will receive 0.08117 IGas shares for each Dart share held (equivalent to A$0.1898 per Dart share based on the A$:£ exchange rate and closing price of IGas on 8 May 2014), representing a 40.6% premium to the closing price of Dart shares on 8 May 2014. With licences covering over one million net acres in the UK, the combination of IGas and Dart is expected to create a market leading onshore UK oil and gas company. At the time of writing, IGas had finalised it due diligence investigations. Subject to a number of conditions precedent, including FIRB, ASIC and shareholder approval, the companies expect the scheme implementation date to be some time in September 2014.
Market rumours and opportunities
However, on 18 June 2014, an unsourced article in the Australian Financial Review suggested that Dart Energy could be subject to a third party takeover offer despite Dart’s recent acceptance of the A$211.5 million scripbased offer from IGas Energy noted above. According to the report, UBS has recently acquired 45 million Dart shares on market, representing approximately 5% of the company, on behalf of an unknown buyer. The report speculated that hedge funds could be responsible for the acquisition, or another entity seeking gas exposure. The article noted that a rival bid for Dart may come from a UK-based power company or an oil and gas group such as the London-listed Scottish & Southern Energy. An unsourced article in The Australian on 10 June 2014 reported that Wesfarmers is thought to be “quietly setting its sights on” AGL Energy, the ASX-listed electricity generator mentioned above. AGL has a market capitalisation of around A$8.9 billion.
LAND AND OTHER LEGISLATION AMENDMENT ACT 2014 (QLD) The Land and Other Legislation Amendment Act 2014 (Qld) was assented to on 28 May 2014 and makes a number of amendments to the Petroleum and Gas (Production and Safety) Act 2004 (Qld) (P&G Act). Specifically, the P&G Act will be amended to extend the term of all current Authority to Prospect exploration work programs from four to six years, with the associated relinquishment of 33% of the tenure also deferred to the end of the extended six year period. According to the Explanatory Memorandum, this amendment is designed to ensure that petroleum and gas explorers have an appropriate period of time to undertake genuine exploration activities that is reflective of the current industry conditions and best practice tenure administration. According to the Minister for Natural Resources and Mines, Andrew Cripps, the amendments will also provide more flexible relinquishment arrangements and the ability to amend a work program for an Authority to Prospect. Further, Mr Cripps said the amendments should “speed up the granting of petroleum lease applications by requiring a statement about the presence of commercial quantities of gas instead of the current mandatory requirements for 20% of discovered petroleum to be classified as proven and probable reserves.” This is to fulfil one of the objectives of the amendments which is to ensure that petroleum and gas explorers are afforded the flexibility to be able to amend their work program or relinquishment conditions, where doing so would optimise the development and use of the State’s resources, for example to align tenure assessment requirements with project-based commercial arrangements.
MINERAL AND ENERGY RESOURCES (COMMON PROVISIONS) BILL 2014 (QLD) Further to our reporting in May, on 5 June 2014, the Mineral and Energy Resources (Common Provisions) Bill 2014 (Qld) was introduced into Parliament, representing the first stage in the Modernising Queensland’s Resources Acts Program (MQRA Program) which aims to ultimately effect a complete overhaul of Queensland’s resources legislation. The MQRA Program proposes to replace the five existing resources Acts and their associated regulations with a single, common resource Act that unifies tenure administration across all sectors of Queensland’s resources industry. The MQRA Program is a staged reform process, anticipated to take three to four years to complete, targeting a reduction in existing regulatory burdens and related compliance costs A major component of the Bill is a complete re-design of the overlapping coal and CSG tenure regime. The existing overlapping tenure framework, which was introduced in 2004, has been widely criticised for being unnecessarily complex and impeding the development of coal and CSG resources in Queensland. In particular, the new regime proposes to remove existing barriers to the grant of a resource authority in areas where there is overlap between coal and CSG tenure, and establish a right of way for coal (subject to certain notice and information sharing requirements). A copy of the Bill can be found here. We have prepared an article which highlights the key matters covered by the Bill (other than the new overlapping tenure regime) which is available here. Our analysis of the new overlapping tenure regime and its likely impact on participants in the coal and CSG industries can be found here.
QUEENSLAND STATE BUDGET PROPOSES TO ADDRESS DEBT WITH THE USE OF ASSET SALES In its 2014-15 Budget released on 4 June 2014, the Queensland State Government focused on the need to reduce the State’s $80 billion debt and the annual $4 billion interest bill. The Government has issued a draft plan to address its debt through a program of transactions, including long-term leases, asset sales, and an innovative option of structured private sector financing, where the Government will retain ownership of the asset and some of the dividends, with private sector funding of debt and further capital expenditure. No plans will be implemented before the Government seeks a mandate at the next State election. Accordingly, the proposed asset divestments and associated infrastructure spending has not been incorporated into the 2014/15 Budget figures. Minister Cripps, said the 2014-15 Budget delivers strong investment in both the agriculture and resources sectors, providing A$450 million for Natural Resources and Mines. The full State Budget can be found here.