28th Oct 2008 07:02
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News Release |
28 October 2008
BG Group recommended takeover offer for Queensland Gas Company Limited
The Boards of BG Group plc ("BG Group" - LSE:BG.L) and Queensland Gas Company Limited ("QGC" - ASX:QGC) are pleased to announce that they have agreed the terms of a recommended transaction under which BG Group will offer to acquire all the issued shares in QGC at AUD$5.75 per share by means of an unconditional on-market takeover bid on the Australian Securities Exchange (ASX). The all-cash offer values the entire issued share capital of QGC at approximately AUD$5.6 billion (£2.2 billion). BG Group's consideration to increase its ownership of QGC to 100%* will total some AUD$5.2 billion (£2.0 billion).
Key points
The offer price represents an 80% premium to QGC's closing price of AUD$3.20 on 23 October 2008, the last full day of trading in QGC shares prior to the two companies' announcement published today on ASX at 1030 AEDT 28 October 2008 (2330 GMT 27 October 2008). The offer price is final and will not be increased in the absence of a superior proposal.
The QGC Voting Directors** unanimously recommend that QGC shareholders accept BG Group's offer in the absence of a superior proposal. On the same basis, the Voting Directors who hold or control QGC shares have indicated that they intend to accept BG Group's offer in respect of the entirety of their shareholdings in QGC. Those holdings (excluding the shares held by the QGC Chairman and Managing Director that are the subject of the pre-bid agreements referred to below) amount to, in aggregate, 7.1% of the issued share capital of QGC.
BG Group has pre-bid agreements to acquire the entire shareholdings of QGC's two largest institutional investors, ANZ Infrastructure Services Pty Ltd and Sentient Group, as well as pre-bid agreements to acquire certain shares held by QGC Chairman Robert Bryan and QGC Managing Director Richard Cottee. Those agreements, combined with BG Group's existing stake***, take BG Group's relevant interest in QGC to 17.1%.
In addition, as of the close of trading on ASX on 28 October 2008, BG Group's wholly-owned Australian subsidiary, BG International (AUS) Investments Pty Limited ("BG AUS"), had acquired more than 100 million shares in QGC at the offer price, representing 10.9% of QGC issued share capital.
AGL Energy Limited ("AGL" - ASX:AGK) has indicated that it intends to sell its 22% shareholding in QGC into BG Group's recommended takeover bid in the absence of a superior offer for the entirety of QGC. Separately, AGL has also entered into an option agreement with BG AUS, detailed later in this announcement.
BG Group estimates that its existing shareholding in QGC, taken together with QGC shares acquired in trading on ASX today (28 October 2008) and QGC shares that are subject to pre-bid acceptances and declarations of intention from shareholders, now accounts for a total of up to 57.0% of all the issued share capital in QGC.
BG Group has received advice from the Australian Foreign Investment Review Board that there are no objections to the Group's plans to acquire 100% of QGC.
BG Group intends to retain and further develop the QGC brand, management and staff.
Recommended offer
QGC Chairman Robert Bryan said: "In the eight years since QGC was founded, the Company has prospered beyond our most optimistic expectations, delivering very significant value to shareholders. The next phase of QGC's evolution would require a step-change in the Company's skills base, organisational resources and balance sheet capacity. While QGC's deepening relationship with BG Group has been fruitful and positive, it has also clearly revealed the opportunity to create additional value through efficiencies from the integration of the two companies' assets and skills under single-company ownership."
"This offer represents a full and fair premium for QGC shareholders. Given this, the Voting Directors have unanimously decided to recommend BG Group's offer, which the Board regards as an excellent outcome for QGC's many supporters."
QGC Managing Director Richard Cottee said: "BG Group's unconditional all-cash offer is an attractive reward for our loyal shareholders. It is appropriate that I am today to be a cornerstone seller into this on-market offer. QGC is a world-class coal seam gas producer. BG Group is a world leader in natural gas, with a very strong track record in exploration, production and liquefied natural gas (LNG), as well as superb project management skills. This transaction will meld two specialist skill sets to create the only seamless, vertically-integrated LNG proponent in Eastern Australia."
"BG Group and QGC are absolutely dedicated to ensuring the success of the Queensland Curtis LNG Project - and the jobs and revenues for Queensland that the project represents. It is clear that BG Group has the market knowledge, global experience and financial muscle to make one of Australia's largest capital infrastructure projects happen over the next five years.''
"We are tremendously proud of everything QGC has achieved in its maturation from junior explorer to a leader in the coal seam gas sector. The technical expertise of our outstanding staff has underpinned that transformation, creating a lasting legacy of jobs, wealth and cleaner energy as part of our major contribution to the community. I believe QGC will continue to prosper as BG Group expands on our vision of creating a world-class energy facility in Queensland."
Transaction rationale
BG Group Chief Executive Frank Chapman said: "This transaction brings together two highly successful companies with complementary skills and assets and a shared focus on the creation of long-term value for shareholders. Our offer builds on the successful alliance between BG Group and QGC, which has already led to the establishment of effective collaborative relationships at all levels."
"Establishing a single integrated organisation within a one-company ownership structure allows BG Group to optimise the development of the LNG scheme as well as expand QGC's resource base for the supply of both domestic and export markets. The benefits arising from this transaction accrue to both sets of shareholders, with BG Group gaining the opportunity to invest in the long-term growth of upstream production and LNG liquefaction, and QGC shareholders gaining a certain and fair cash premium."
It is anticipated that there will be an immaterial impact on earnings per share until the Queensland Curtis LNG Project begins production, after which the acquisition is expected to be earnings-accretive for BG Group.
The transaction is driven by several strategic factors. It would:
establish a material BG Group business in Australia - a stable and attractive OECD investment environment;
mark a step-change in the scale of BG Group's Asia-Pacific business, with undeveloped resource potential located close to valuable domestic and regional markets;
enhance BG Group's global LNG position by securing new equity supplies from the Queensland Curtis LNG Project; and
offer a key opportunity to extend QGC's industry-leading coal seam gas (CSG) skills internationally, as access to conventional hydrocarbon sources becomes increasingly challenging and resource holders seek partners with expertise in the development of unconventional gas alternatives.
BG Group investment in Queensland and Australia
BG Group is a committed long-term investor in Queensland and Australia. Anticipated benefits arising from BG Group's investment plans include:
The expansion in gas supply will also play a role in supporting Government climate change strategies. There is widespread support across Australia for greater gas utilisation, as a lower-carbon alternative to coal or oil, in response to the challenge of global warming linked to the use of other fossil fuels.
People and assets
QGC management and employees have highly valuable skills and experience. BG Group intends to retain QGC's people while further developing their careers within a global energy company. BG Group also intends to create new jobs as part of its investment plans.
BG Group intends to retain and further develop QGC's existing assets, including its current operations, and to maintain the head office in Brisbane.
BG Group intends to retain and further develop the distinctive and respected QGC brand.
QGC-BG Group relationship
Since listing on the ASX in 2000, QGC has become one of Queensland's largest companies and a leading Australian coal seam gas producer. The centre of QGC's resource base lies in the world-class coal seam gas play of the Walloon Fairway in the Surat Basin. QGC has an industry-leading track record in exploration and production and consistently strong reserves growth from its extensive acreage.
BG Group is a world leader in natural gas. Active in 27 countries on five continents, BG Group has a broad portfolio of exploration and production, LNG, transmission and distribution and power generation business interests.
In February 2008, BG Group and QGC announced an alliance to co-operate in CSG exploration and production, the development of domestic market opportunities and the construction of a new LNG export facility on the Queensland coast.
Under the terms of the alliance agreement, which was completed in April 2008, BG Group acquired a 9.9% stake in QGC and a 20% interest in QGC's coal seam gas assets in the Surat Basin. BG Group and QGC are also developing the Queensland Curtis LNG Project (BG Group 70%; QGC 30%), to be built on Curtis Island near Gladstone. BG Group has the rights to purchase and market 100% of the LNG produced by that facility.
Since the alliance was formed, QGC has announced increases in reserves held by QGC and BG Group, taking 2P reserves to 2,703 petajoules (PJ) and 3P reserves to 7,103 PJ. QGC will also acquire an additional 469 PJ of 2P reserves upon completion of its recommended takeover of Sunshine, set out below. For an explanation of reserves classification, please see the Notes for Editors.
The Final Investment Decision for the Queensland Curtis LNG Project is anticipated in 2010, with two trains of LNG planned in the first phase of development producing 7.5 million tonnes per annum (mtpa) of LNG, and total planned capacity of up to 12 mtpa. The Front-End Engineering and Design (FEED) study is now underway, led by the project contractor Bechtel Oil, Gas & Chemicals, Inc., and commissioning is expected to begin in 2013.
Change of control provisions
BG Group has rights to acquire, for approximately AUD$207 million, another 10% interest in QGC's Walloon CSG acreage when certain conditions are met. If there is a change of control in QGC, the rights to this additional 10% direct interest would vest immediately.
In addition, in the event of a change of control in QGC, QGC is committed to support the transfer of operatorship to BG Group for the licences currently operated by QGC. BG Group also has the right to terminate the arrangements relating to the alliance, including the joint marketing of gas and downstream co-operation. Decisions relating to the terms of new gas sales under the alliance arrangements would not require the approval of QGC.
Bid Implementation Agreement
BG Group and QGC have entered into a Bid Implementation Agreement (BIA), details of which are set out in BG Group's Bidder's Statement. Under the BIA, QGC has entered into conventional "no shop" and "no talk" obligations, subject to fiduciary "carve-outs". BG Group also has a right to match any competing proposal.
QGC has agreed to pay a break fee to BG Group of AUD$50 million under certain circumstances, including: if a QGC Voting Director changes his recommendation and does not support the BG Group bid; if there is a superior proposal and QGC terminates the BIA; or if QGC breaches its "no shop" and "no talk" obligations and BG Group does not acquire more than 50% of QGC. A full summary of the break fee triggers is set out in BG Group's Bidder's Statement.
AGL Energy Limited
In a separate transaction, BG AUS and AGL have entered into an option agreement under which AGL has the right (but not the obligation) to acquire either or both of:
100% of the Lacerta gas field and a 15% interest in the Polaris gas exploration licence, amounting to certified 3P reserves of 1 097 petajoules (PJ) and 2P reserves of 469 PJ. For an explanation of reserves classification, please see the Notes for Editors, below; and/or
the 140MW Condamine combined cycle power station project currently under construction, together with an associated 10 PJ per annum gas supply contract until 1 January 2014.
The exercise price for the Lacerta and Polaris interests is $0.78 per gigajoule (GJ) on existing 3P reserves of 1 097 PJ, valuing those interests at $856 million (£352 million). The exercise price for the Condamine power station will be the higher of the costs paid up to completion or the fair market value to be determined by an independent expert.
The options are conditional on BG AUS acquiring at least 50.1% of the issued share capital in QGC. AGL has no obligation to accept the BG Group takeover offer for QGC, nor is the exercise of the option agreement conditional upon AGL's acceptance of that offer.
AGL's existing 740 PJ gas supply contract with QGC will remain in place on identical terms and conditions.
AGL and BG AUS have also agreed to discuss in good faith a future option for AGL to supply gas from the Lacerta development to the QGC-BG Group Queensland Curtis LNG Project. Should AGL exercise the option to acquire an interest in the Polaris gas exploration project, 100% of AGL's share of any gas produced from Polaris may also be dedicated to the Queensland Curtis LNG Project.
Roma Petroleum and Sunshine Gas
In June 2008, QGC and Roma Petroleum NL ("Roma" - ASX:RPM) announced a recommended takeover offer for all of the issued share capital in Roma; and in August 2008, QGC and Sunshine Gas Ltd ("Sunshine" - ASX:SHG) announced a recommended takeover offer for all of the issued share capital in Sunshine.
To date, the holders of more than 98% of Roma shares have accepted into the QGC offer, and QGC is accordingly proceeding with the compulsory acquisition of all remaining Roma shares. The QGC offer for Roma has been extended to 31 October 2008. The holders of almost 83% of Sunshine shares have indicated that they will accept QGC's takeover offer. QGC's offer for Sunshine closes on 4 November 2008, unless extended. Roma and Sunshine shareholders who accept QGC's offers and are issued QGC shares will be able to receive AUD$5.75 cash per QGC share.
How to accept
QGC shareholders can only accept BG Group's cash offer by selling their QGC shares on-market on ASX through a stockbroker. QGC shareholders who hold their shares in Issuer Sponsored Holdings will need to appoint a broker to sell their shares on ASX. QGC has appointed Austock Securities Limited and ABN AMRO Morgans Limited to provide broking services to QGC shareholders who do not have a stockbroker.
J.P. Morgan Securities Australia Limited (together with its affiliates, "J.P. Morgan") has been appointed as the on-market broker to acquire QGC shares on the ASX on behalf of BG AUS.
In line with usual ASX practice, QGC shareholders will receive the proceeds of the sale of their shares on a T+3 basis, i.e. within three trading days after their sale. QGC shareholders can contact BG Group's offer information line on +61 2 8986 9358 (callers outside Australia) or 1300 656 831 (callers within Australia, toll-free), or should consult their financial or other professional adviser.
Indicative timing of BG Group's offer
The on-market takeover offer is being made by BG AUS. J.P. Morgan, as the BG AUS appointed broker, will be ready to stand in the market on ASX from the re-commencement of trading in QGC expected to be around 11am (Sydney) today, 28 October 2008, offering to acquire QGC shares on behalf of BG AUS at the offer price. Accepting shareholders will receive their sale proceeds on a T+3 basis, i.e. within three trading days of sale.
BG AUS has lodged a Bidder's Statement, available online at www.bg-group.com/qgc which will be dispatched to QGC shareholders by 11 November 2008. QGC will also dispatch its Target's Statement by that date. The offer will close on 15 December 2008, unless extended.
Financing
BG Group will finance this acquisition from its cash reserves, supplemented as required from the Group's existing committed facilities.
Advisers
BG Group is being advised by J.P. Morgan, Goldman Sachs International and Morgan Stanley Australia Limited. Legal advisers are Mallesons Stephen Jaques.
QGC has retained Austock Corporate Finance Pty Ltd and ABN AMRO Morgans Corporate Limited as financial advisers. Legal advisers are McCullough Robertson.
Media and analyst communications
BG Group will hold a briefing for analysts at 0930 GMT on 28 October 2008. The briefing will be available via webcast at www.bg-group.com/qgc
Ends.
Notes for Editors
Footnotes
* Assumes QGC will acquire 100 % of Sunshine Gas Ltd ("Sunshine" - ASX:SHG) and Roma Petroleum NL ("Roma" - ASX:RPM) and that Sunshine shareholders who have yet to accept into the QGC bid elect for 100 % scrip consideration.
** Voting Directors of QGC means all the Directors other than the nominees of AGL Energy Limited ("AGL" - ASX:AGK), all of whom were conflicted and did not vote.
*** BG Group's initial 9.9 % stake acquired in April 2008 has been diluted to 8.7 % as a result of QGC shares being issued by QGC as consideration offered under the terms of QGC's takeover bids for Roma Petroleum and Sunshine Gas.
About BG Group
BG Group plc (LSE: BG.L) is a world leader in natural gas, with a strategy focused on connecting competitively-priced resources to specific, high-value markets. Active in 27 countries on five continents, BG Group has a broad portfolio of exploration and production, Liquefied Natural Gas (LNG), transmission and distribution and power generation business interests. It combines a deep understanding of gas markets with a proven track record in finding and commercialising reserves.
About QGC
QGC is a leading and award-winning Australian integrated energy business with a strategy focused on developing its world-class coal seam gas reserves in the Surat Basin for domestic supply and power generation, and international supply. Founded in 2000 as a junior explorer, QGC now employs more than 240 staff who are developing projects including the 140 MW gas-fired Condamine Power Station and the Queensland Curtis LNG Project.
As at 30 June 2008, the audited accounts of QGC showed total revenues of AUD$81.1 million (£33.3 million), net profit after taxation (NPAT) of AUD$244.6 million (£100.5 million), underlying NPAT (unaudited) of AUD$30.6 million (£12.6 million) and total assets of AUD$1.161 billion (£477 million). This financial information is extracted, without material amendment, from QGC's audited financial statements for the financial year ended 30 June 2008.
QGC's executive management team, led by Managing Director Richard Cottee, comprises:
Mark Anning, Company Secretary
Ian Davies, Chief Financial Officer
Leon Devaney, General Manager, Commercial and Financing
Mike Herrington, Chief Operating Officer
Steve Scott, General Manager, Exploration and Technical Services
Brett Smith, General Manager, Shared Services
Hedley Thomas, General Manager, Communications and External Relations
Carsten Thomsen, General Manager, LNG
Andrew Varvari, General Counsel
Coal seam gas
Natural gas in coals (coal seam gas or CSG) occurs when the coal is formed deep underground by a process of heating and compressing plant matter. The gas is trapped in coal seams (typically 300-600 metres underground) by water pressure.
The coal seam gas is extracted via wells which are drilled down through the coal seams. The water is pumped out, and the natural gas is released from the coal. The gas is then processed to remove water and piped to a compression plant for injection into gas transmission pipelines.
The produced water is usually conveyed to an evaporation pond, although QGC is conducting trials to use it for agricultural irrigation and as potable water, after treatment.
Coal seam gas in the Surat Basin of Queensland typically contains more than 98 % methane, with very small amounts of nitrogen and carbon dioxide.
Reserves classification
Under Society of Petroleum Engineers (SPE) guidelines, reserves are categorised according to their probability of production. 1P reserves are reserves with a 90 % probability of successful commercial production. 2P reserves consist of 1P reserves plus other reserves with a 50 % probability of successful commercial production. 3P reserves consist of 1P reserves plus 2P reserves plus other reserves with a 10 % probability of successful commercial production.
1P reserves are known as proved reserves; 2P reserves are known as proved plus probable reserves; and 3P reserves are known as proved plus probable plus possible reserves.
Contacts
BG Group
Communications Australia:
+61 (0) 419 588 166 - Rob Millhouse (BG Australia)
+61 (0) 2 8284 9901 - John Hurst (Cannings)
Investor Relations Australia:
+44 (0) 7920 230093 - Siobhán Andrews (BG Group)
Communications UK:
+44 (0) 118 929 3508/3110 - Edel McCaffrey/Jo Thethi (BG Group)
Out of hours UK media mobile:
+44 (0) 791 718 5707
Investor Relations UK:
+44 (0) 118 929 3025 - Chris Lloyd/Damien Bird (BG Group)
QGC
Corporate Communications:
Hedley Thomas
Out of hours Australia media mobile
+61 (0) 417 797 419
Investor Relations:
Ian Davies
Out of hours Australia mobile
+61 (0) 412 522 215
BG Group: There are matters discussed in this media information that are forward looking statements. Such statements are only predictions and actual events or results may differ materially. For a discussion of important factors which could cause actual results to differ from the forward looking statements, refer to BG Group plc's annual report and accounts for the year ended 31 December 2007. BG Group plc does not undertake any obligation to update publicly, or revise, forward looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.
QGC: No representation, express or implied, is made as to the fairness, accuracy, completeness or correctness of information contained in this presentation, including the accuracy, likelihood of achievement or reasonableness of any forecasts, prospects, returns or statements in relation to future matters contained in the presentation ("forward-looking statements"). No responsibility or liability is or will be accepted by QGC or any of its respective subsidiaries, affiliates and associated companies (or by any of its respective officers, employees or agents) in relation to it.
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