BG to Invest 299 Million Pounds in Australian Gas (Update2)By...

BG to Invest 299 Million Pounds in Australian Gas (Update2)

By Eduard Gismatullin and Angela Macdonald-Smith

Feb. 1 (Bloomberg) -- BG Group Plc, the U.K.'s third- largest natural-gas producer, agreed to pay 299 million pounds ($596 million) for coal seam gas assets in Australia with the aim of building a fuel export project.

BG will buy a 20 percent interest in coal seam gas assets owned by Queensland Gas Co. in the Surat Basin in Queensland state, the Reading, U.K.-based company said today in a statement distributed through the Regulatory News Service. It will also acquire 9.9 percent of the Brisbane-based company known as QGC.

The partners want to build a liquefied natural gas export project on the northeastern Australian coast, the fourth to be proposed that would be fueled by gas from coal seams. BG, which has no LNG production in Asia, last year dropped an alliance with Oil Search Ltd. to study an LNG project in Papua New Guinea, to the north of Australia.

``This alliance with QGC will secure access to new and commercially proven sources of gas, with significant reserves potential within reach of Australian and Asia-Pacific markets,'' Frank Chapman, BG's chief executive officer, said in the statement.

BG, which is making its first investment in Australia, rose 40 pence, or 3.6 percent, to 1,140 pence in London. Queensland Gas rose 13 Australian cents, or 4 percent, to A$3.42 in Sydney before trading was halted in the stock.

The transaction is a ``company-maker'' for Queensland Gas, Managing Director Richard Cottee said in an interview. The primary objective of the deal is the LNG project, he said.

Cash Reserves

``We feel very confident that we'll get there and we've got the cash reserves to do it,'' Cottee said by telephone. He declined to comment on the potential investment required in the project in advance of a media teleconference on Feb. 3.

Queensland Gas's largest shareholder is AGL Energy Ltd., which has a stake in an Exxon Mobil Corp.-led venture studying an LNG project in Papua New Guinea.

BG will buy an additional 10 percent stake in Queensland Gas's coal seam gas assets once the Australian company gets certification of 7,000 petajoules (6.6 trillion cubic feet) of proven and probable reserves, or once the partners sanction the LNG project. The U.K. company will take a 70 percent stake in the project and will buy all of the initial planned output for sale to its customers.

Three rival coal seam gas-based LNG projects are being proposed for the Queensland coast, led by Santos Ltd., Arrow Energy Ltd. and Liquefied Natural Gas Ltd. There are presently no LNG export projects worldwide fueled by coal seam gas.

LNG is natural gas chilled to liquid form for transportation by tanker to destinations not connected by pipeline. On arrival it is converted back into gaseous form for delivery by pipeline to users such as power plants, factories and households.

To contact the reporter on this story: Eduard Gismatullin in London at [email protected]
Last Updated: February 1, 2008 11:52 EST