Energy giant APA Group may pounce on distressed US gas assets
A Democrat win in November’s election in the US could hobble the development of new pipelines, says APA.
Energy giant APA Group may pounce on distressed US assets as gas players buckle under heavy debt loads but warned a Democrat win in November’s election in the US could hobble the development of new pipelines.
APA is conducting due diligence on US targets in a potential $2bn to $4bn deal as it looks to add a higher margin business to its regulated Australian earnings.
The oil market crash has hiked pressure on the midstream sector including pipeline operators, processing facilities, gas gathering systems and LNG terminals which could see companies place assets on the market to raise capital.
The Covid-19 “pandemic and fall in oil prices have caused substantial balance sheet pressure,” APA said in its annual investor presentation on Friday.
Owners of local distribution companies “are looking to take advantage of current valuation levels,” APA said.
APA is targeting both LDCs where it has identified 145 targets with return on equity in the 9-10 per cent range while identifying 169 state pipeline opportunities which allow returns in a 13-15 per cent range.
Combined, the two asset classes are valued at $US450bn.
Still, the pipeline giant has one eye on the US election in November and pointed to opposition from environmental groups to greenfield pipelines connecting shale gas regions to the east coast market.
“I think if the Democrats were elected, it makes things more difficult for greenfield pipeline opportunities,” APA’s president North American development Ross Gersbach told investors. “But I also should say that certainly Joe Biden being the Democratic nominee takes away some of the extreme policies that were being discussed.”
Bernie Sanders and Elizabeth Warren had both proposed full fracking bans, potentially derailing the industry, while ratcheting up powers under the Clean Air Act were also canvassed to pull back on US oil and gas activity.
APA confirmed that while it doesn’t expect to raise equity during the current downturn, it will consider tapping shareholders if it proceeds with a US deal.
Spending plans
The Sydney gas operator plans to spend $1bn over the next two to three years on growth investment compared with $400m on average over the last five years. Investment this year is forecast at $250m from $463m in the 2019 financial year.
It expects near-term growth to be hit by the Covid-19 downturn and oil price crash with some customer decisions deferred.
Still, it’s plotted a $4bn pipeline of growth options split including gas infrastructure on the east and west coasts, renewables projects and North America.
APA reduced its annual profit guidance on April 21 after delays to its Orbost gas plant on Victoria’s east coast.
Earnings before interest, tax, depreciation and amortisation will fall by up to 3.3 per cent for the 2020 financial year to a $1.635bn-$1.655bn range from $1.66bn-$1.69bn previously with its dividend guidance unchanged.
Production from the plant is only flowing at about 70 per cent capacity or 40 terajoules a day compared with total output of 68TJs a day, lowering revenues, due to issues with technology removing hydrogen sulphide.
The plant has yet to be commissioned and will be shut down for nine days to inspect and modify the sulphur recovery unit, a statement said on Friday.
APA was up 1.35 per cent to $11.26 in late afternoon trading on Friday.
