Aug 23, 2019

Shell in $617m takeover deal for ERM Power

Shell in $617m takeover deal for ERM Power

Global energy giant Shell has launched a $617 million takeover bid for ERM Power, whose assets include the Oakey gas-fired power station.

Shell Energy Australia proposes to acquire 100 per cent of the share capital of ERM Power for a cash price of $2.4654 per share, by way of a scheme of arrangement.

“This acquisition aligns with Shell’s global ambition to expand our integrated power business and builds on Shell Energy Australia’s existing gas marketing and trading capability,” Shell Australia’s country chair Zoe Yujnovich said.

“ERM will become our core power and energy solutions platform and this acquisition is a significant step forward in growing Shell’s integrated power business in Australia. Upon completion, we look forward to welcoming ERM’s staff and customers to Shell.”

The acquisition has received Foreign Investment Review Board and Australian Competition and Consumer Commission approvals and Shell’s offer is subject to court approval as well as ERM shareholder approval.

The acquisition is expected to be completed before the end of 2019.

Wood Mackenzie research director Nicholas Browne said ERM Power looked to be a good fit for Shell for several reasons.

“Firstly, it has a gas-only fleet, whereas most other Australian utilities own and operate coal fired power. Secondly, it is relatively small scale so it will not raise any anti-competitive concerns compared to if Shell acquired a larger utility. Thirdly, it only sells to business customers. As such, it will likely avoid the political spotlight under which the retail utilities have been operating recently given blackouts and rising prices,” he said.

Shell would likely supply ERM Power’s Oakey power station in Queensland with gas from its Queensland Curtis LNG project, Mr Browne said.

“Shell does not have dedicated international LNG contracts from this project, providing it with the flexibility to redirect gas to the domestic market,” he said.

“Furthermore, global LNG prices are currently depressed and are expected to remain so for one to two years.

“The acquisition provides Shell with an opportunity to arbitrage between domestic and international markets. Domestic prices are relatively attractive currently. The massive scale of the Queensland Curtis resource means that Shell can significantly increase its gas supply to ERM Power in future, particularly if its pipeline of potential new power projects develop further.”

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