Coal seam gas major AAG Energy continues its hunt for acquisitions

Its specialised teams are scouring China and Southeast Asia, particularly focusing on those projects potentially linked to Beijing’s the ‘Belt and Road Initiative’

PUBLISHED : Tuesday, 30 May, 2017, 4:46pm
UPDATED : Tuesday, 30 May, 2017, 11:04pm

AAG Energy, which operates one of China’s most advanced projects extracting natural gas from coal seams, will continue to scour Southeast Asia for oil and gas acquisition targets, after a potential deal was scuppered last year when the seller withdrew the asset from the market.

Chairman Stephen Zou Xiangdong has told the South China Morning Post, that conventional oil or gas projects are hard to come by in the region, as most available are early stage exploration or development projects, involving higher risk and cost.

“In both China and Southeast Asia, we have specialised teams actively looking at projects. In China, opportunities have also been scarce in the last two years, with only one deal completed each year,” he said, adding that it has been looking at opportunities in Thailand, Indonesia and other nations.

Zou said AAG is focusing on Asia Pacific – which includes Australia – partly because it falls under Beijing’s “Belt and Road Initiative”.

“We have also looked at opportunities in Central Asia, but most are early stage projects that do not fit our criteria.”

After seven months of due diligence , AAG late January terminated a “definitive bid” it submitted in late August last year on a proposed acquisition.

Chief financial officer Alan Mak said this was because the seller – a US-based oil major that needed to raise funds to finance another – pulled out of the deal after successfully selling another asset in the region.

The pullout also came after the oil price rebounded from a low of near US$30 a barrel early last year to just above US$55 early this year, on the back of supply cuts by some major producers.

AAG was the first overseas coal seam natural gas explorer to be given Beijing approval to enter into full scale commercial production, via a joint venture with state-owned China United Coalbed Methane.

AAG was sitting on 2.3 billion yuan (US$335 million) cash reserves at the end of last year. It raised HK$1.9 billion from its initial public offering in Hong Kong two years ago, 35 per cent of which was earmarked for acquisitions of unconventional gas projects such as coal seam gas.

Chief executive Pierce Li Jing added the company has not stopped discussions on potential unconventional gas acquisitions in China since its listing, adding it focuses on projects that are either in production or have proven viability to be developed into production stage.

It has set a target for its coal seam gas project in Panzhuang, Shanxi province to raise this year’s output by 10 per cent to 557 million cubic metres of gas, at a cost of 300 million yuan. Annual output capacity will be expanded to 800 million cubic metres once work on power supply expansion is completed next year.

Beijing has set a target for natural gas to account for 10 per cent of China’s primary energy consumption by 2020, up from 5.9 per cent in 2015, as part of its strategy to combat chronic air pollution in major cities.

The nation’s year-on-year gas consumption growth quickened to 12 per cent in this year’s first four months, compared to 6.6 per cent last year, according to industry regulator National Development and Reform Commission.