Contact to sell Ahuroa Gas Storage to Gas Services NZ for $200M

Thursday 21st December 2017

Contact Energy has signed an agreement to sell its Ahuroa Gas Storage facility in Taranaki to Gas Services New Zealand, which is affiliated with Maui pipeline owner First Gas, for $200 million, which it will use to repay debt.

Wellington-based Contact expects to reap net proceeds of $151 million from the transaction, reporting a $15 million gain on the sale, which will go to repaying debt, it said in a statement. A $48 million tax bill will create extra imputation credits that could allow full imputation for the electricity generator-retailer's targeted 32 cents per share dividend in 2018.

Contact will keep the rights to use the facility to meet its future needs, entering into a 15-year agreement for gas storage at a "competitive annual fee" with the option to extend it for five years. Contact will also provide transition services for three months after the sale.

"By selling AGS to GSNZ we maintain access to a flexible and cost-effective fuel supply," chief executive Dennis Barnes said. "The deal has the additional advantage of seeing AGS operated by a dedicated gas infrastructure company, letting us focus on the generation and customer side of our business."

Gas Services NZ provides operational services to First Gas, which has built up a network of 2,500 kilometres of gas transmission pipelines and 4,800 kms of gas distribution pipelines in the North Island with the 2015 acquisitions of Vector's gas transmission and distribution network and the Maui natural gas pipeline, which it bought from Shell New Zealand, OMV New Zealand and Todd Energy. First Gas is the holding company for Australian infrastructure investor First State Funds.

The deal is subject to ministerial consent under the Crown Minerals Act and Overseas Investment Office approval, and contains other conditions such as getting a binding ruling on the tax treatment of the assets and a third party taking up or waiving its storage entitlements. Contact wants to settle the deal by June 30 next year.

GSNZ plans to expand the facility within two years of completing the deal, which First Gas chief executive Paul Goodeve said offers an "opportunity to provide gas producers, shippers and end-users more flexibility to manage their energy needs."

The facility's gas injection capacity is up to 27 terajoules per day and gas extraction capacity of up to 45 terajoules a day, and GSNZ plans to boost that to 65 terajoules a day for each.

On completion of the deal, Contact is contracted to use 75 percent of injection and extraction capacity, falling to 69 percent once capacity is expanded, and Barnes said his company's annual fee will fall as more customers come on board.

Contact bought the rights to develop a facility from former parent Origin Energy in 2007 for $164 million, and between 2011 and 2017 invested a further $58 million to do so. It took over the facility's operation in 2013 and has cut the annual operating cost to $7 million in the 2017 financial year from historical levels of $12 million a year.

The company's shares closed at $5.59 yesterday and have gained 20 percent this year.

(BusinessDesk)

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