Australia: Energy Sector Update: December 2013 edition

Introduction

Welcome to the December 2013 edition of the Australian Energy Sector Update, a monthly publication prepared by Corrs Chambers Westgarth for clients and contacts who are interested in the Australian energy industry.

This publication brings together a brief summary of information on recently completed deals, market rumours and potential opportunities, and relevant regulatory updates.

Recent announcements

Further to our reporting in the November 2013 edition of the Australian Energy Sector Update, ASX-listed Linc Energy announced on 26 November 2013 that it has lodged its preliminary prospectus with the Monetary Authority of Singapore (MAS) in relation to the share offering to new investors that will complement Linc's listing on the Main Board of the Singapore Exchange (SGX). The preliminary prospectus is subject to a minimum 14 day exposure period. This exposure period enables potential investors to review the document prior to the raising of funds, as well as to identify any deficiencies that require amendment. After the exposure period expires, the MAS may register the prospectus and its offer will be open to retail investors. Linc also announced that the revised date for the simultaneous delisting from the ASX and listing on the SGX is expected to be 18 December 2013.

ASX-listed Buru Energy announced on 4 November 2013 that it has entered into binding agreements with Mitsubishi Corporation and Apache Energy (the principal Australian subsidiary of Apache Corporation). Under the agreements, Apache will farm-in to a number of the joint venture's exploration permits located in the Canning Basin which are prospective for shale oil and gas and conventional sandstone reservoirs. By funding a A$25 million exploration program in 2014, Apache will earn a 50% interest in exploration permits 390, 471 and 473, and up to a 50% interest in exploration permit 438 (jointly named the "Coastal Permits"). Apache will also have the option to earn a 40% interest in exploration permits 472, 476 and 477, up to a 40% interest in exploration permit 478, and up to a 50% interest in exploration permit 474 (jointly named the "Acacia Permits"). Apache will pay a non-refundable option fee to Buru and Mitsubishi. If Apache exercises its option to acquire interests in the Acacia Permits, Apache will fund 80% of the costs for the initial two exploration wells to be drilled in those permits, and if successful, a further 80% of the initial two appraisal wells. Under the agreements, Buru will remain as the operator of both the Coastal and Acacia Permits, however Apache does have the right to assume operatorship upon completion of the relevant work programs and the expiry of a transition period.

On 15 November 2013, ASX-listed diversified energy company Peak Oil & Gas and ASX-listed oil and gas exploration company Octanex NL jointly announced that the companies are working towards a merger which is to be implemented via a scheme of arrangement. Under the scheme, Peak shareholders will exchange their shares for Octanex shares, on the basis of attracting a value of not less than A$0.01 per Peak share with the full consideration to be determined in the first quarter of 2014. The scheme is intended to be submitted to Peak shareholders in early 2014. Peak has also announced the proposal of a pro rata rights issue to its shareholders under which shareholders will be able to subscribe for two new Peak shares for every five Peak shares held at an issue price of A$0.01. Peak's rights issue is expected to raise approximately A$1.943 million before costs, and will be used as working capital prior to the implementation of the scheme. Octanex has committed to fully underwrite Peak's rights issue.

Further to our reporting in the November 2013 edition of the Australian Energy Sector Update, ASX-listed Galilee Energy announced on 26 November 2013 that it has received a bidder's statement from Olympus Funds Management, a wholly owned subsidiary of ASX-listed Mercantile Investment Company. The bidder's statement proposes a proportional takeover for one out of every two shares held by Galilee shareholders at an offer price of A$0.15 per share. Galilee's Board has recommended that its shareholders take no action until they have received and reviewed Galilee's target's statement. Galilee has also noted that it did not solicit the proposed takeover.

Recently completed deals

On 11 November 2013, Capital Dynamics, the private asset manager of a leading UK pension fund, announced that it has acquired two fully operational base-load power plants located in northern New South Wales. The power plants have a combined capacity of 68MW and co-generate renewable electricity and steam from local sugarcane waste and other biomass fuel sources. Under long term contracts, the power generated is sold to neighbouring sugar mills, as well as to the National Electricity Market. Managing Director of Capital Dynamics' Clean Energy and Infrastructure team David Scaysbrook has stated that the acquisition of these power plants represents a genuine, long term partnership model, with the company intending to own and operate the assets over the long term in order to provide investors with strong financial returns.

Market rumours and opportunities

The Australian has reported that Royal Dutch Shell's Arrow CSG assets located in Queensland could likely be divested following Shell's chief financial officer Simon Henry stating that the company intends to reduce its development spending by stepping up its divestment initiatives. Reportedly, Henry has stated that LNG projects pending approval or recently approved are included in the assets potentially up for sale. The Australian Financial Review has further reported that Shell may be contemplating options regarding its remaining interest in ASX-listed Woodside Petroleum, but noted that Shell is unlikely to divest its 190 million shares all at once and may instead pursue a share placement or buyback. Shell's 23% interest in Woodside Petroleum is reportedly valued at A$7.4 billion, and the company also holds interests in projects including Prelude Floating LNG, Sunrise LNG and Browse LNG.

According to the Australian Financial Review, Japan's Inpex is seeking shale gas acreage in the Northern Territory, particularly in the Beetaloo Basin, and is considering buying into an exploration venture. Reportedly, global energy company Falcon Oil & Gas could be a potential partner for Inpex after American-based oil company Hess Corporation abandoned a partnership with Falcon in June 2013. The report also noted that independent exploration and production company Pangaea Resources also holds permits in the Beetaloo Basin, while ASX-listed Santos, ASX-listed Armour Energy and Norwegian multinational oil and gas company Statoil all hold permits in the nearby McArthur and Georgina Basins.

Mergermarket has reported that ASX-listed hydrocarbons explorer IPB Petroleum is planning to engage a financial advisor in relation to farming out its WA 485-P project in the Browse Basin following the completion of drilling of its neighbouring Pryderi-1 well in the first quarter of 2014. Reportedly, IPB is already taking part in informal discussions with a number of interested parties, however IPB's chief executive officer Brendan Brown notes that a financial advisor will enable the company to better engage with potential overseas investors. Brown has further noted that the company intends to prove resources in the WA-424 permit (in which the Pryderi-1 well is located) prior to executing any deal in relation to WA 485-P. IPB is reportedly open to receiving pitches of potential strategies for the WA 485-P farm-out, having not yet settled a final farm-out structure.

The Sydney Morning Herald has reported that unconventional gas group Ignite Energy is considering plans to list on the ASX. Ignite Energy has reportedly formed an early-stage joint venture with Exxon Mobil under which Exxon acquired a 10% interest in the joint venture for A$12.5 million. Exxon reportedly has the opportunity to increase its interest to 51% if it spends A$50 million on exploration of a permit located in the Gippsland region.

According to Mergermarket, ASX-listed oil and gas company Central Petroleum could revisit farm-in plans in 2014 for its Surprise project after discussions with an unnamed foreign investor recently stalled due to delays in that investor's government approval process. The proposed transaction between Central Petroleum and the foreign investor reportedly entailed the sale of a 10% to 30% interest in the Surprise project at an approximate price of A$1 million per percentage point. Central Petroleum's chief executive officer Richard Cottee has reportedly stated that the company is not bound by an exclusivity provision with the foreign investor at this stage and that he would welcome approaches from financial advisors in relation to funding strategies or new farm-in processes. Central Petroleum is continuing to progress drilling at Surpise-1 located in the Northern Territory's Amadeus Basin.

Regulatory updates

REGIONAL PLANNING INTERESTS BILL 2013 (QLD)

The Regional Planning Interests Bill 2013 (Qld) was introduced into the Legislative Assembly on 20 November 2013. The Bill seeks to repeal the Strategic Cropping Land Act 2011 (Qld) and has the objective of managing the impact of resource and other regulated activities on areas of regional interest.

Among other provisions, the Bill proposes to:

• define areas of regional interest to be priority agricultural areas, priority living areas, strategic cropping areas or strategic environmental areas;
• exempt particular resource activities from requiring a regional interest authority (that is, a regional interest decision that approves all or part of the activity that is the subject of an assessment application);
• provide that a person may only carry out a resource activity or regulated activity in an area of regional interest if the activity is either an exempt resource activity or the person holds, or is acting under, a regional interest authority for the activity; and
• prescribe that a person may apply for a regional interest authority by making an assessment application to the chief executive of the department administering the Environmental Protection Act 1994 (Qld), who must consider and decide the application.

Corrs has prepared a Thinking Piece regarding the additional approvals needed for resource projects under the Regional Planning Interests Bill 2013 (Qld), which can be viewed here.

MINING AND PETROLEUM LEGISLATION AMENDMENT (PUBLIC INTEREST) BILL 2013 (NSW)

After being introduced into the Legislative Assembly on 21 November 2013, the Mining and Petroleum Legislation Amendment (Public Interest) Bill 2013 (NSW) was passed on 27 November 2013. The Bill amends the Petroleum (Onshore) Act 1991 (NSW) by introducing public interest as a ground for making a variety of decisions relating to mining and petroleum rights or titles, including decisions to refuse to grant, renew or transfer such rights or titles. The Bill also covers pending applications for mining and petroleum rights and titles.

Other news

VICTORIAN GAS MARKET TASKFORCE PAPER RELEASED

On 21 November 2013, Victorian Premier Denis Napthine released the Gas Market Taskforce final and supplementary reports for public consultation. The reports make 19 recommendations, including lifting the bans on fracking in Victoria, approving new CSG exploration licences and implementing leading environmental and safety standards to ensure regulatory and scientific oversight of the gas industry.

In his foreword to the reports, Chair of the Taskforce Peter Reith stated that "the only sensible course of action is for the Victorian Government and other eastern states to promote production of additional gas supplies". Mr Reith also noted that "clearly there is a lot of exaggeration about fracking [and that] independent scientific evidence to the Taskforce from Geoscience Australia and other sources provided compelling evidence that fracking should be allowed".

The reports will be subject to a 12 month community consultation process which will seek input on issues such as economic, environmental and employment concerns, as well as focusing on delivering a better understanding of technologies and processes used in the extraction of onshore gas. A copy of the Gas Market Taskforce reports is available here.

QCA RELEASES DRAFT REPORT ON REGULATION OF QUEENSLAND'S CSG INDUSTRY

On 22 November 2013, the Queensland Competition Authority (QCA) released its draft report on the regulation of Queensland's CSG industry. The draft report made 36 recommendations aimed at removing regulatory duplication and replacing prescriptive regulation with flexible outcome-focused requirements, which the QCA have claimed could save the CSG industry approximately A$63 million annually. Further, the draft report proposes having a single financial assurance scheme for the industry which is to be administered by the Queensland Department of Environment and Heritage Protection, as well as having only one government department regulate the water released from CSG operations. Submissions on the draft report close on 18 December 2013, with the final report due on 31 January 2014. A copy of the QCA's draft report is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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