Australia’s APA Seeks to Buy Distressed U.S. Natural Gas Pipes

  • Company can write “pretty big checks” CEO McCormack says
  • APA also hopes to spend A$1.5 billion in Australia on deals

APA Group Ltd., Australia’s largest natural gas infrastructure business, is seeking to buy distressed pipelines that transport the fuel in the U.S., as it targets expansion opportunities overseas.

The Sydney-based company that owns pipelines that transport over half of Australia’s natural gas supplies is seeking U.S. assets as operators there face increasing pressure over whether their contracts with energy explorers will survive a prolonged downturn in prices. APA had A$84.5 million of cash and cash equivalents in the year ended June.

“The North America midstream market has crashed in the last 18 months,” APA Group Chief Executive Officer Michael “Mick” McCormack said in a phone interview. “It’s been over capitalized with too much gas and too much infrastructure. The assets are fine but the market is in distress and that is suggesting to us there might be some opportunity.”

Moody’s Investors Service in March downgraded Houston, Texas-based Midcontinent Express Pipeline LLC with its 500-mile pipeline because its “significant counterparty risk due to contractual exposure” to Chesapeake Energy Corp. Denver, Colorado-based oil and gas explorer Bonanza Creek Energy Inc. has said it has "substantial doubt" about its ability to continue as a going concern.

‘Big Checks’

McCormack declined to say how much APA may pay for U.S. pipelines but said the company hopes to spend A$1.5 billion on deals in Australia in the next three years and spent $5 billion buying BG Group Plc’s Australian liquefied natural gas pipeline in 2014.

“We can write pretty big checks that’s pretty obvious,” McCormack said. “Clearly if something was to come off over there it wouldn’t be for A$5 million, it would be something reasonably substantial to justify all of the effort.”

APA said full-year profit after tax fell 12 percent to A$179.5 million when it reported earnings Wednesday. Shares rose 0.4 percent to A$9.25 on Wednesday in Sydney trading, the highest close since Aug. 8.

"A lot of gas from a lot of sources has come into the market and because the pipeline sector is so deep over there you’ve got parties who are contracted to buy gas some years ago for a long tenure at high prices," McCormack said. "Those parties can now buy gas cheaper from other sources and get it to where they want it delivered through other pipelines. That has caused problems."

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