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Osaka Gas Plans Another U.S. Shale Stake After Pearsall

Osaka Gas Co., Japan’s second-biggest city-gas distributor, is seeking another U.S. gas asset even after losing money on a similar investment.

The Osaka-based utility plans to spend between 20 billion yen ($196 million) and 30 billion yen to acquire a minority stake in a U.S. shale-gas project by the end of March 2017, Motoyuki Hirabayashi, the company’s general manager, said in an interview today. The utility is in talks with several companies offering stakes, Hirabayashi said without elaborating.

Japan, the world’s biggest buyer of LNG, imported a record 87.49 million metric tons in 2013 after the shutdown of nuclear power plants. The Japanese government wants utilities to lower fuel costs by securing shale gas and flexible terms with sellers in the U.S. and other nations.

Investing in shale assets comes with risks. Osaka Gas agreed in June 2012 to pay $250 million to Cabot Oil & Gas Corp. for a 35 percent stake in the Pearsall shale oil and gas project in Texas. The Japanese company in December cut its net income forecast by 45 percent to 35.5 billion yen for the year ended March 31 following a one-time impairment charge for “economically unfeasible” extraction at the Pearsall project.

“We learned investment risks through the Pearsall experience,” Hirabayashi said. “We want to target projects and fields with good production track records in our next acquisition.”

The acquisition of an upstream U.S. gas asset is part of Osaka Gas’s strategy to hedge against price volatility as it invests in a downstream project there, Hirabayashi said.

Osaka Gas and Chubu Electric Power Co., Japanese utilities serving central and western Japan, will invest $600 million each for stakes in the first train of the Freeport LNG plant in Texas, they said in a joint statement in February. The unit with capacity to produce 4.4 million a year of LNG is scheduled to start in 2018, they said at that time.

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Emi Urabe in Tokyo at eurabe@bloomberg.net

To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Mike Anderson

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