NGC looks to lift from Petrochem

By FIONA ROTHERHAM

Natural Gas Corporation's new gas supply deal with urea manufacturer Petrochem allows it to fully use up its annual entitlement to natural gas from Maui under the take or pay contract with the Government.

Details of the Petrochem deal were released with yesterday's first half-year result, down 18 per cent to $20.5 million.

NGC, 72 per cent owned by Australian Gas Light, is poised to become the country's largest energy retailer through its bid for 75.8 per cent of TransAlta New Zealand.

NGC is to supply up to 35 petajoules of gas to Petrochem over the next six years from either its Maui or Kapuni gas entitlements.

This contract follows last month's deal to supply Genesis Power with 91 petajoules of gas until 2008.

Earnings, and in particular cashflow, are expected to lift "significantly" as a result of unlocking the value of NGC's surplus entitlements to cheap gas from the Maui field, says chief executive Richard Bentley.

It has 135 petajoules of pre-paid surplus gas sitting on its balance sheet not earning anything. The two contracts will also allow NGC to accelerate access to gas from Maui paid for in 1990. Access to this is linked on a one to two basis to how much gas it uses under the take or pay contract.

Any further large natural gas delivery contracts would have to be supplied by new discoveries, Mr Bentley said.

The $20.5 million first-half year result was in line with analysts' expectations. The 1998 half-year profit of $25.2 million included $8.2 million in income from the divested gas loan investment.

Sales rose 61 per cent to $197.2 million due to new revenue streams from the move into electricity retailing and LPG trading.

Earnings improved 21.3 per cent over the period.

An unchanged interim dividend of 5c per share will be paid on March 17.

A special meeting of NGC shareholders to consider the TransAlta purchase will be held on March 21.

The acquisition price is now estimated at $824 million compared with $834.3 million initially. TransAlta's recent dividend announcements triggered a provision in the sale and purchase agreement for the price to be adjusted downwards.

The market is still saying NGC will have difficulty extracting value for the price paid. One analyst said it "turns a good story into an average one."

Details of the proposed pro rata rights issue to fund around 40 to 50 per cent of the purchase price are still being finalised.

Analysts say the rights issue could dilute the earnings per share further if priced at a discount to the present $1.40 per share market price.

Given the weak state of the equities market, NGC expects the offer to be fully underwritten. AGL has previously indicated it will fully take up its entitlement, leaving around $120 million to be sourced from minority shareholders.

A Commerce Commission decision on the deal is expected next week.