2nd UPDATE: Eastern Star Launches A$100M Placement, Buys LNG Site
09/08/2010 12:00PM
(Adds analyst comment, implications for Santos)
By Ross Kelly
Of DOW JONES NEWSWIRES
SYDNEY (Dow Jones)--Eastern Star Gas Ltd. (ESG.AU) is pressing on with its ambition to be one of the first Australian companies to turn coal seam gas into liquefied natural gas for export, on Monday launching a A$100 million share placement and announcing it has bought some land to accommodate a small-scale LNG processing plant in New South Wales state.
Far larger players, including BG Group PLC and Royal Dutch Shell, are vying to be the first in the world to super cool the unconventional gas for export from massive projects in Queensland state, slated to go live from 2014.
Eastern Star and its Japanese partners Hitachi Ltd. and Toyo Engineering Corp., which will provide the technology, are betting regional energy demand will grow so quickly that there will be a need to focus on small-scale natural gas reserves too, especially in Southeast Asia.
Eastern Star's share issue will test 20% shareholder Santos Ltd.'s (STO.AU) intentions for its investment in the company.
Santos is building a competing LNG project in Queensland and some analysts believe it may have put its foot on Eastern Star as a potential tie-back gas supply option for the Queensland project. Santos also has a 35% stake in Eastern Star's Narrabri coal seam gas prospect.
Eastern Star declined to comment Monday on whether Santos intends to participate in the placement and a Santos spokesman wasn't immediately available for comment.
New shares in Eastern Star are being issued with an underwritten floor price of 82 Australian cents each, with the final issue price to be determined by a bookbuild. The company's existing shares, which last traded 10.4% above the floor price at 91.5 cents, have been placed in a trading halt until no later than Tuesday morning.
Sydney-based Eastern Star wants to start exporting 1 million metric tons of LNG a year from a A$1 billion processing plant at the port of Newcastle by 2014.
The company has agreed to acquire a 24 hectare parcel of land on Kooragang Island, Newcastle for A$25 million plus "pre-transaction costs" and taxes.
Proceeds from the raising will also be used for ongoing exploration costs of about A$48 million and front-end engineering and design costs of about A$34 million for the proposed LNG plant.
Credit Suisse and RBS are the joint lead managers of the placement.
Goldman Sachs analyst Mark Wiseman was surprised by the timing of the raising, given potential positive news flow from Eastern Star in the coming months related to pilot gas flow test results and additional reserves bookings.
"The timing of funding requirements for Narrabri LNG may have been outside Eastern Star's control," Wiseman said. "However, what is required in the next six months for this purpose only appears to represent about 25%-35% of the capital being raised."
Wiseman maintained a buy recommendation on Eastern Star with a A$1.28 price target. It's still unclear whether Santos will want to participate in Eastern Star's LNG plans with its 35% interest in the Narrabri gas fields, Wiseman said.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; [email protected]
ESG Price at posting:
91.5¢ Sentiment: Buy Disclosure: Held
