Breakfast Deals: QLD gas ring

Santos and BG Group's gas deal ends years of speculation in Queensland, while The Trust Company's rival suitors get extra spruiking time.

It’s taken a long time for consolidation of any form to come for the Curtis Island LNG producers. But finally Santos and BG Group have made a gas interconnection agreement to reduce supply risk.

Elsewhere, The Trust Company expects to hear from suitor Equity Trustees next week for an explanation of why synergy benefit expectations have jumped.

Meanwhile, Echo Entertainment’s shares are cheaper for buyers after it lost out to James Packer in Sydney, Brockman is talking to Flinders about some kind of cost reduction arrangements in the Pilbara and AMP Capital has won a crucial infrastructure deal.

Santos, BG Group

Energy giants Santos and BG Group have inked the first significant cooperation agreement for Queensland’s gas industry after years of speculation that Curtis Island would end up with only two major players.

Santos’s Gladstone LNG project and BG’s Queensland Curtis Island project have struck a gas interconnect deal that will drastically reduce supply risk to their neighbouring projects.

The major pipelines leading to the processing plants of both GLNG and QCLNG will be linked at two points – one on the western side of The Narrows Crossing close to Mount Larcom, and one on Curtis Island itself.

GLNG vice president Rod Duke said the deal will help both processing plants – which come at a cost of $1 billion a pop, courtesy of Bechtel – to run as efficiently as possible.

“The interconnect points will enable gas to flow from one project to the other when necessary, for example to allow for LNG plant downtime and planned maintenance to occur without interrupting either project's gas field operations,” Duke said.

“Having two interconnects provides additional flexibility over the lifetime of both projects. It gives more options to the plant operators for moving gas. Ultimately it means the two companies will be able to buy, sell and swap gas at these points during scheduled and unscheduled events, therefore maximising plant productivity.”

Construction of the two interconnect points is expected to be completed sometime next year.

The Australian Financial Review has reported that similar discussions have taken place between BG and Origin Energy’s Australia Pacific LNG.

Meanwhile, Drillsearch Energy has revealed a potential $120 million deal with Santos to bring its wet gas assets to life.

The explorer and producer announced that it is forming a joint venture with its larger energy cousin to quicken the commercialisation of the Western Cooper wet gas field in South Australia as well as expanding production of its Cooper Basin oil reserves.

The Trust Company, Perpetual

The Trust Company expects suitor Equity Trustees and its advisors to detail how they came about their recently improved synergy estimates next week as rival suitor Perpetual is given more time to sell its bid to the competition regulator.

The financial trustee released its second supplementary target statement yesterday, indicating that it’s expecting to sit down with its advisers at Ernst & Young sometime next week and hear how EQT now believes that synergy benefits should total $11 million to $15 million from its original figure of $8 million.

The scheme process with Perpetual has been put on hold while this process plays out.

In the meantime, the Australian Competition and Consumer Commission has pushed back its July 11 deadline to rule on the bid by Perpetual to take over Trust.

The regulator said the decision was to “allow Perpetual Limited to provide further information”, and that a new timetable would be revealed in due course.

Echo Entertainment, Crown

Billionaire James Packer’s victory over Echo Entertainment yesterday for the future of the Sydney casino market sent the defeated’s stock down 4.3 per cent before it was thrown into a trading halt.

Given that Echo’s balance sheet was under a certain amount of pressure given its ambition in Brisbane and Sydney, not to mention its enduring exclusivity in Sydney until 2019, the stock is looking attractive at the moment. Yesterday’s slide merely enhances the case to buy.

There’s been whispers in the market this week that Malaysian billionaire KT Lim, head of the Genting empire, has been quietly increasing his stake in Echo.

This has yet to be established. But if it is true and Lim does win approval from regulators to take his stake beyond 10 per cent, and chooses to do so, at current prices it’ll be a bargain.

For all the details on yesterday’s announcement, check out the take of Business Spectator’s Stephen Bartholomeusz. And here’s the New South Wales government report on the two unsolicited proposals.

Brockman Mining, Flinders Mines, Aurizon

Flinders Mines is taking its first strides towards putting the bizarre and ultimately unsuccessful $544 million takeover bid from Russia’s Magnitogorsk Iron & Steel Works behind it.

The Pilbara iron ore junior, which owns the very sensibly titled Pilbara Iron Ore Project, has signed a non-binding memorandum of understanding with Brockman Mining that some suspect could end up leading to merger discussions.

To be clear, all the pair is explicitly doing is assembling a working group to discuss sharing contractor costs and other funding issues. This is consistent across the mining industry – costs have to come down.

Still, given the binding “relationship agreement” signed by Brockman and Aurizon two days ago in a bid to find an infrastructure solution for the former’s Ophthalmia and Marillana iron ore tenements, the closest of ties might make sense in the end.

Flinders has been through a weird patch to say the least.

A takeover offer from MMK, headed by oligarch Viktor Rashnikov, was brought undone in April last year.

The stated reason was court proceedings launched by minor, and as-yet unsighted, shareholder Elena Egorova.

A high degree of scepticism lingers over the Egorova case, given that it coincided with increasingly bearish overtones for the iron ore price, which have since been vindicated.

AMP Capital, Brookfield Infrastructure Partners, Powerco

AMP Capital has won a highly sought after 42 per cent stake in New Zealand electricity and gas distributor Powerco for $NZ525 million ($450 million) from Brookfield Infrastructure Partners.

The ASX-listed financial services giant expects the deal to be completed by the end of 2013. AMP still needs to secure the support of New Zealand’s Overseas Investment Office.

Infrastructure assets are in high demand at the moment from big investors and AMP is undoubtedly thrilled with the win. China’s State Grid and soveign wealth giant Canada Pension Plan Investment Board were reported to be amongst the other interested parties.

The company made the investment on behalf of a number of clients and funds including AMP Capital Infrastructure Equity Fund and AMP Capital Core Infrastructure Fund.

One question that remains is why majority shareholder QIC Limited passed on the opportunity to take the remaining stake.

It could be planning to sell some or all of its stake, in which case offloading enough to give AMP a majority holding would be a quick, easy deal to do.

On the other hand it could simply be that it’s happy to hold that asset without taking the lot.

We’ll have to wait and see. If QIC does decide to sell we know of at least one Australian party, one Chinese party and one Canadian party that’ll be interested.

Wrapping up

To the surprise of many, the Australian Competition and Consumer Commission  yesterday approved Woolworths’ acquisition of the Hawker IGA site in Canberra.

The decision marks a win for Woolworths, which has run into a few ‘absolutely not’ decision from the consumer watchdog for its creeping acquisitions of certain sites.

And finally in banking, the Australian subsidiary of Lloyd’s Banking Group, BOS International, is selling a portfolio of property and corporate loans with a face value of $740 million, according to The Australian.

Goldman Sachs has apparently been hired to manage the sale, with expressions of interest due on July 19.

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