APA boss Rob Wheals abruptly quits as US plans dumped

The boss of APA Group has unexpectedly quit after several large shareholders approached the board, demanding the shutdown of its stalled $4bn North American expansion.

The boss of APA Group has unexpectedly quit after several large shareholders approached the board, demanding the shutdown of its stalled $4bn North American expansion and calling for a broader strategy reset to tap into net-zero investment opportunities.

APA chief executive Rob Wheals said he had “run his race” just two days ahead of its annual results. The ultra-marathon runner made the surprise decision to exit the Sydney-based company after just three years in the top job, with the company simultaneously abandoning its long-held plan to diversify into the US.

Sources said the intervention by the board to can its long-running but fruitless bid to diversify into North America came after several of its influential investors had sent a direct message to call time on the search and instead re-focus on boosting its Australian business.

APA chairman Michael Fraser said the call to ditch North America was supported by shareholders.

“There’s always a variety of views in that area but fundamentally I think shareholders will be happy with the decision,” he told The Australian. “Everybody’s always concerned to make sure you’re not going to overpay, so there was a level of concern.

“Quite frankly I think everybody realises the size of the task for Australia, the size of the investment opportunity and where our key advantages are. So I think people on the whole will be very supportive of that decision.”

Mr Wheals, who took the top job in July 2019, blamed an “intense couple of years in the energy industry”, combined with weathering the Covid-19 pandemic.

“Every leader needs to know when is the right time and every runner needs to know when they’ve run their race,” Mr Wheals said. “For me this is the right time.”

He will be replaced on an interim basis by chief financial officer Adam Watson, a former Transurban executive who is expected to be in the frame for the top job on a permanent basis.

The future of its North American boss, Ross Gersbach, will be discussed with the board in the next few weeks. “We’ve agreed that we need to have a discussion with Ross over the next couple of weeks. Obviously, it’s been a busy few days. So that’s a discussion to be had,” Mr Fraser said.

Mr Wheals told staff not to be distracted by the management change. “I am aware that the news of my resignation might be unsettling, and I ask you all to please not get distracted, continue to make safety your number one priority and execute with excellence,” he said in a message to staff.

APA chief executive Rob Wheals says the decision not to go ahead with a planned US acquisition also played a role in his exit. Picture: John Feder

The US acquisition strategy was first put in place by Mr Wheals’ predecessor, Mick McCormack, as a way of diversifying its Australian earnings base.

However, Mr Wheals said he did not feel in any way pressured to continue with the strategy and backed it on its own merits.

“Obviously, as a leader, you make your own decisions. And one of the first decisions I made was to ask one of our senior experienced executives to physically go to the US and lead this strategy for us. But I’ve also been part of the decision-making to pull up stumps.”

APA had been scanning US targets as it sought to add a higher-margin business to its regulated Australian earnings. It was aiming at electricity-integrated energy infrastructure in addition to gas pipelines and utilities. However, it missed out on several and shareholders had never been sold on the reasoning behind the strategy shift.

APA has appeared “strategically adrift” for the past two years, according to Macquarie, noting it had also lost out on auctions in Australia for Tilt Renewables and AusNet in recent times.

“Its strategy to participate in Australia’s energy transition is logical and consistent with those of many other players. However, execution has been extremely challenging with the loss of Tilt and AusNet (that we know about),” Macquarie analysts said.

The US strategy had also been controversial, the broker said, and more ructions may await with a new CEO likely to make their mark on executive ranks.

“Again, competition has left APA coming second in bids, and it has become increasingly difficult to acquire accretive assets. It also saw the strategy shift from just gas assets to both electricity and gas distribution assets,” Macquarie said. A “change of CEO typically means a review of strategy, and further turnover of the executive committee.”

APA last week revealed it faced a $32m hit over a payroll bungle and also endured a setback after Santos opted to buy the Hunter Gas Pipeline to transport gas from its prospective Narrabri project rather than a 460km pipeline proposed by APA, known as Western Slopes, which would have connected Narrabri to networks via the Moomba-Sydney pipeline. APA owns 15,000km of gas pipelines worth $21bn across Australia and delivers half the nation’s gas. It also has stakes in storage facilities, power stations and wind and solar farms.

Ahead of its 2022 results on Wednesday, the company provided unaudited numbers with underlying earnings rising 3.9 per cent to $1.69bn, free cash flow up 19.8 per cent to $1.08bn and a dividend of 53c per security, up 3.9 per cent on the last year.

Prior to taking up the CEO role, Mr Wheals was APA’s transmission executive. He joined the company in 2008 following a stint at AAPT as general manager of strategy. APA’s general manager of investor relations, Kynwynn Strong, will be acting CFO.