APA in no rush for US purchase

APA Group has set a 24-month deadline to seal a US pipeline deal worth up to $6bn but says it won’t pursue an acquisition at any cost.

APA Group chief executive Rob Wheals. Picture: John Feder.

Gas giant APA Group has set a 24-month deadline to seal a US pipeline deal worth up to $US4bn ($6bn) but said it won’t pursue an acquisition at any cost.

The Sydney-based operator continues to scan the market but said a transaction would need to be struck by the end of 2021.

“If we don’t find what we’re after we’ll up stumps,” APA chief executive Rob Wheals said after delivering its half-year earnings.

“Two years would be a good time to stand there and ask, ‘Is this something just around the corner we can continue to pursue or is this a time to draw a line?’ ”

APA opened an office in Houston nearly three years ago as a first move to striking a US deal but progress in landing a target was delayed as a longwinded $13bn takeover bid from CK Group was ultimately blocked by the Australian government.

The overseas plot was hatched by former boss Mick McCormack, with Mr Wheals relocating strategy head Ross Gersbach to the US in September to step up the search for a deal.

“The way we always think about it is it’s got to be big enough to get out of bed for and not so big that in one fell swoop we transform the company and now have a US head office,” Mr Wheals said.

APA said it would raise equity if it lands a deal but would not be drawn on the funding mix.

APA chief financial officer Peter Fredricson said: “We have always said in the context of a significant acquisition we will always support it with ­equity and appropriate amount of equity and funds retained in the business.

“So where that number starts and finishes will always depend on the day.”

Some shareholders are nervous about the mooted expansion given the number of experienced operators already operating in the North American market and questions around the lifespan of assets as the role of gas in the ­energy mix potentially falls over the next few decades.

RBC Capital Markets said there was still uncertainty over what sort of deal the company might pursue.

“Our outlook is tempered slightly by uncertainty over what a potential US acquisition might look like due to valuations of the types of businesses it is looking at similar to APA’s valuation,” RBC analyst James Nevin said.

“With the inclusion of North America in ‘core business’ before a North American acquisition has been made is arguably a clear statement of intent from the ­company.”

APA expects full-year earnings at the lower end of a $1.66bn to $1.69bn range and said final commissioning of its Orbost gas processing plant on Victoria’s east coast had been delayed until next month because of smoke from the summer bushfires.

Net profit rose 11 per cent to $175m from $157m in the previous corresponding period, while earnings before interest, tax, depre­ciation and amortisation rose 6.9 per cent to $842m from $787m. Both figures were ahead of RBC forecasts for the six-month period. It declared a first-half dividend of 23c, up 1.5c.

The company will also fill new strategy and commercial and transformation and technology roles as part of a new organisational structure following a strategic review by Mr Wheals.

“As a significant participant in the energy industry, APA has a ­responsibility to stay in front of, or at least keep pace with, technology developments to continue to assist customers in meeting their energy portfolio needs,” the company said.

APA shares rose 0.1 per cent on Tuesday to close at $11.40.