Australia: Australian Energy Sector Update: June 2013 Edition

INTRODUCTION

Welcome to the June 2013 edition of the Australian Energy Sector Update, a monthly publication prepared by Corrs Chambers Westgarth for clients who are interested in the Australian energy industry.

This publication brings together a brief summary of information on recently completed deals, market rumours and potential opportunities, and relevant regulatory updates.

RECENT ANNOUNCEMENTS

On 24 April 2013, ASX-listed Infigen Energy announced it has engaged advisors and is considering a potential sale of its 140.7MW Capital wind farm in New South Wales. Infigen has indicated the process is at an early stage and that there is no certainty a transaction would occur.

On 14 May 2013, ASX-listed Torrens Energy Limited announced, after completing its due diligence, that it has elected not to acquire 100% of Strike Energy Western Australia Pty Ltd, a wholly owned subsidiary of ASX-listed Strike Energy Limited. Torrens Energy had previously announced it had entered into a Binding Letter of Agreement regarding the acquisition of Strike Energy Western Australia, subject to certain conditions, including satisfactory due diligence. Torrens Energy will continue to evaluate new opportunities within the energy and resources sectors.

RECENTLY COMPLETED DEALS

On 15 May 2013, Statoil announced it has signed a farm-in agreement with BP to acquire a 30% equity share in four exploration licenses (EPP 37, 38, 39 and 40) in the Great Australian Bight, which cover more than 24,000 square kilometers. The commercial terms of the transaction remain confidential and are subject to Australian government approval. BP has recently completed a 12,000 square kilometre 3D seismic survey in the licensed area.

MARKET RUMOURS AND OPPORTUNITIES

According to MergerMarket, venture capital investors of wind energy development company Windlab Systems are reportedly assessing the viability of either a trade sale or an IPO. Windlab Systems, which is reportedly valued at over AUD $100m, develops wind energy sites, and currently has approximately 40-50 sites across Australia, South Africa, the US and Canada. Potential acquirers include wind farm builders, power companies, construction companies seeking to build wind farms, and turbine manufacturers.

On 2 May 2013, the Australian Financial Review reported Arrow LNG has held talks with rival Queensland LNG ventures, causing speculation that Shell and PetroChina may abandon plans for an AUD $20bn plus standalone LNG plant in favour of joining projects with ASX-listed Santos or Origin Energy. All three Queensland LNG projects have encountered cost issues, and merging projects may enable cost efficiencies.

MergerMarket reported that ASX-listed Tap Oil's managing director Troy Hayden has said a number of companies are interested in buying its holding in the Carnarvon Basin. Tap Oil is looking to package WA-290-P/49-R, including the Zola-1 discovery, and WA-351-P, the Tallaganda discovery, for the assets sale, both of which are long-term, capital intensive projects. Tap Oil expects to divest the assets by the end of 2013.

MergerMarket has reported that ASX-listed Transerv Energy and Alcoa of Australia are engaged with several parties as they seek to divest a portion of their holdings in EP321 and EP407 in the Warro gas field, Perth Basin. Transerv Energy and Alcoa, which may be seeking up to AUD $300m for the assets, are still welcoming approaches from interested third parties. It is reported that the companies will determine whether to proceed with a sale, or continue with a proposed drilling program, by June 2013. An analyst suggested the most likely bidders will be small to mid-cap entities already present in the Perth Basin who are seeking access to established infrastructure.

On 14 May 2013, the Wall Street Journal reported that EnergyAustralia, part of CLP Holdings, had agreed to sell its 75% stake in the 111MW Waterloo wind farm for AUD $228m (net of costs) to Palisade Investment Partners and Northleaf Capital Partners of Canada.

According to MergerMarket, joint venture partners Perenco UK and Mitsui E&P Australia are looking to conduct a sale process for exploration permits T/35P and T/32P in the Otway Basin. Perenco UK is scaling back its global exposure. Mitsui E&P Australia, a fully owed subsidiary of Mitsui, is reportedly looking to grow its Australian presence, but will still consider a partial divestment of its 40% interest in the permits. Options over operational control are reportedly open for discussion.

On 14 May 2013, the Australian Financial Review reported that the APLNG project, owned by Origin Energy, ConocoPhillips and Sinopec, could potentially be close to selling its 520km pipeline from the Surat and Bowen Basin gas fields to the LNG plant on Curtis Island. The pipeline could be worth up to AUD $3bn. The report indicated that a final pipe shipment to Gladstone has reassured investors the pipeline was on track to be finished next year, suggesting a sale of the pipeline could be imminent.

On 15 May 2013, the Australian Financial Review reported that Denham Capital, a US private equity group, is eager to acquire wind power projects in Australia - indicating that the group has capacity to take advantage of opportunities in Australia after the closing of a USD $3bn fund in March 2012. Denham Capital recently invested USD $75m in OneWind. Australia's 2020 Renewable Energy Target was singled out as underpinning the OneWind investment and other potential deals.

REGULATORY UPDATES

NATIONAL ENERGY RETAIL LAW (ADOPTION) REGULATION 2013 (NSW)

The Regulation is made under the National Energy Retail Law (Adoption) Act 2012 (NSW). Amongst other matters, it prescribes consumption thresholds for determining customer types, imposes obligations on distributors in relation to planned interruptions, and requires that information about the effect of the carbon tax on electricity cost is included in electricity bills.

CLEAN ENERGY LEGISLATION AMENDMENT REGULATION 2013 (NO. 1)

The Regulation amends the Clean Energy Regulations 2011 (Cth) and the Renewable Energy (Electricity) Regulations 2001 (Cth). It makes provisions in relation to the coverage of non-transport LPG and LNG under the carbon pricing mechanism (for example, an exemption from liability where it is imported or packaged in small containers). The Regulation also includes as an emissions-intensive-trade-exposed-activity of integrated lead and zinc production, the production of lead metal with a lead concentration from 99.5% to 99.97% as a sub-activity eligible for assistance. The Regulation also makes various minor technical amendments - for example, defining "fugitive emissions".

LAND, WATER AND OTHER LEGISLATION AMENDMENT ACT 2013 (QLD)

Further to the update in the April 2013 edition of the Australian Energy Sector Update, the Land, Water and Other Legislation Amendment Act 2013 (Qld) was assented to on 14 May 2013. The Act addresses safety issues associated with converting petroleum wells to water supply bores. The Act also identifies who can convert a petroleum well into a supply bore, determines safety and environmental matters that arise during the conversion process, and removes restrictions on the use of associated water by landholders and petroleum tenure holders.

OFFSHORE PETROLEUM AND GREENHOUSE GAS STORAGE AMENDMENT (COMPLIENCE MEASURES NO.2) BILL 2013 (CTH)

Further to the update in the May 2013 edition of the Australian Energy Sector Update, Resources and Energy Minister Gary Gray announced on 15 May 2013 that the Senate has passed the Bill. The Minister said "This Bill ensures regulators and the courts can apply more stringent requirements for offshore petroleum and greenhouse gas operations to protect their workforce and Australia's environmental assets. Now, polluters have a statutory responsibility to respond to an oil leak or spill and pay all the costs of clean-up, remediation of the environment and environmental monitoring if they have not met their statutory responsibilities."

The Bill introduces alternative enforcement mechanisms into the offshore petroleum regulatory regime, enables inspectors appointed by the regulatory authority to issue environmental improvement notices and environmental prohibition notices, and introduces a duty on petroleum titleholders to stop, control and clean-up petroleum escapes, amongst other amendments.

ENERGY SERVICES CORPORATIONS AMENDMENT (DISTRIBUTOR EFFICIENCY) BILL 2013 (NSW)

The Bill proposes to amend the Energy Services Corporations Act 1995 (NSW) by:

• providing for the appointment of a single board of directors to act as a joint board on behalf of the energy distributors listed in the Act, in order to improve the combined operational efficiency of the distributors;
• allowing the chief executive of an energy distributor to delegate functions to an employee (subject to any direction by the joint board); and
• limiting the circumstances where an energy distributor is entitled to be reimbursed for complying with a direction.

ENVIRONMENT PROTECTION AND BIODIVERSITY CONSERVATION AMENDMENT BILL 2013 (CTH)

Further to the update in the April 2013 edition of the Australian Energy Sector Update, the Senate Environment and Communications Legislation Committee has made available its report on its inquiry into the EPBC Amendment Bill. The report concluded that the Bill is necessary. It said that because water is Australia's most important national resource, it is appropriate for federal assessment and approval of activities affecting environmentally significant water resources.

OTHER NEWS

BROWSE MAY BE DEVELOPED WITH FLOATING LNG

ASX-listed Woodside Petroleum has announced it has entered into an agreement with Royal Dutch Shell that sets out principles that will apply if Shell's Floating LNG technology is used to develop the Browse resources. Woodside CEO Peter Coleman said Floating LNG had the potential to commercialise the Browse resources in the earliest possible timeframe and further build the company's long-standing relationship with Shell.

NO SALE OF QLD STATE ASSETS UNTIL AFTER 2015 ELECTION

Further to our story in the April 2013 edition of the Australian Energy Sector Update, the Australian Financial Review reported on 1 May 2013 that in response to the Queensland Commission of Audit's report, which recommended selling state-owned assets to reduce debt, the Queensland government said it will consider selling electricity assets, but not until after the 2015 state election. However, the government said it will not sell Powerlink, Energex, or Ergon Energy.

THE FEDERAL BUDGET AND THE RESOURCES SECTOR

In the Federal Budget handed down on 14 May 2013, several important issues were raised for the energy sector. Changes have been made to the tax deductibility of exploration costs, which the Queensland Resources Council estimates may cost the minerals and energy industry an estimated AUD $1.1bn over four years. Additionally, federal investment in carbon capture and storage project funding has been cut by AUD $500m with AUD $1bn in funding still being allocated to the project. See Corrs' Federal Budget wrap up here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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