Light shed on Aussie natural gas move

By Mark Reynolds

Between the lines

Natural Gas Corporation deserves a trophy for constructing what must be the most complex balance sheet of any company listed on the New Zealand Stock Exchange.

At the beginning of this year its multifarious fixed assets in the electricity and gas transmission and processing sector were entwined with pre-sold gas entitlements and a related portfolio of obligations to purchase gas from energy producers.

The balance sheet also harboured a complex gas loan investment to one of NGC's main shareholders and a series of notes that were issued to raise cash in the early 1990s.

To add to the complications, the company had a substantial deferred taxation liability and was busy assimilating new electricity retailing operations bought from Hamilton-based WEL Energy.

Given this jumble, it is no surprise that NGC started life as a Government department. It was established as a state-owned enterprise in 1967 to buy, process and sell natural gas discovered in Taranaki's Kapuni field. The energy production, wholesaling, retailing and transmission assets it now owns were founded on Kapuni's production.

The public were able to directly buy a stake in the company when 30 per cent of it was privatised in 1987. In recent years NGC has effectively been a joint-venture between Fletcher Challenge and Australian Gas Light, who have each held a third of the company with the remainder held by more than 8000 public shareholders.

Problems arose, however, because the two main shareholders wanted to pursue different energy strategies: Fletcher wanted to concentrate on exploration and production of oil and gas; while AGL was keen to expand into the wider energy marketing and distribution business, including an expansion of its electricity retailing and generation activities.

NGC had been steadily unravelling some of its balance sheet clutter this year, including selling its gas loan. But to fully meet the separate objectives of its main shareholders the company had planned to split its assets - the transmission system was to be shared while Fletcher Energy was to control processing operations and AGL retail and distribution operations.

That deal has been scuttled by complex tax issues and potential Commerce Commission challenges to Fletcher Energy controlling parts of the gas industry infrastructure.

So, Fletcher will sell its NGC stake to AGL and the Australian company will control the destiny for NGC's small shareholders.

But given that AGL has already stated that it wants to be involved in retail energy activities, it will be interesting to see how it pursues those objectives while still satisfying the interests of all NGC shareholders.

Without Fletcher there to pick up the non-core pieces, AGL is going to have its work cut out extracting itself from the many strands of NGC's business it does not want to be tied to.