Major electric utility player Southern Company plans to buy natural gas utility AGL Resources in a $12 billion deal predicated on the need for more infrastructure to get all the shale natural gas to growing markets, particularly for power generation.
Southern Company CEO Thomas Fanning said Monday his company would “play offense in supporting America’s energy future.” Clearly, he believes that future depends upon shale gas and its growing consumption.
"Going forward, the future of natural gas is expected to be influenced by continued low natural gas prices, federal environmental regulations and customers who will have more and more options when it comes to energy consumption," he said.
AGL Resources already is participating in three pipeline projects targeting shale gas. A combined company would go after more and bigger projects, Fanning said Monday.
The combined company would have 11 regulated electric and gas distribution companies serving nine million customers with a projected rate base of $50 billion. It would also have more than 80,000 miles of natural gas pipelines, 200,000 miles of electric transmission and distribution lines and generating capacity of about 46,000 MW. It would be the second-largest U.S. utility company by customer base.
AGL Resources shareholders would get $66/share in cash for their stock, representing a 36.3% premium based on the Aug. 21, 2015 20-day volume-weighted average price. Enterprise value of the deal is $12 billion, including equity of $8 billion.
"For some time we have expressed our desire to explore opportunities to participate in natural gas infrastructure development," Fanning said. "With AGL Resources' experienced team operating premier natural gas utilities and their investments in several major infrastructure projects, this is a natural fit for both companies."
During a conference call to discuss the deal, Fanning was bullish about the future of natural gas demand, particularly for power generation.
"On a standalone basis, Southern company's use of natural gas is projected to increase to 1.8 Bcf/d in 2015...Our natural gas usage has nearly doubled in the last 10 years, and by 2020 this number could grow to as much as 2.2 Bcf/d,” he said.
"The throughput on the AGL Resources system currently averages over 2 Bcf/d, and additionally, AGL Resources' retail energy business purchases significant amounts of natural gas for its end-use customers.
“Combined, our use of natural gas would grow to well over 4 Bcf/d, making Southern Company the most important consumer of natural gas in the United States."
Atlanta-based Southern Company owns electric utilities in four states and a competitive generation company, as well as fiber optics and wireless communications. Its unit Southern Company Services (SCS) acts as agent in the procurement of natural gas, pipeline transportation services and gas storage services for Alabama Power Co., Georgia Power Co., Gulf Power Co., Mississippi Power Co. and Southern Power Co. SCS buys gas on a spot and contract basis from a variety of locations, including Gulf of Mexico production and onshore shale production in the Marcellus region and Midcontinent. SCS has firm transportation contracts on several gas pipelines.
AGL Resources serves 4.5 million utility customers through regulated distribution subsidiaries in seven states (Atlanta Gas Light, Chattanooga Gas, Elizabethtown Gas, Elkton Gas, Florida City Gas, Nicor Gas and Virginia Natural Gas).
The company also has three natural gas storage businesses: Central Valley Gas Storage, Golden Triangle Storage and Jefferson Island Storage & Hub. Its Pivotal LNG unit provides wholesale liquefied natural gas (LNG) for transportation and other domestic uses. AGL Resources and Pivotal own and operate six LNG liquefaction facilities.
AGL Resources also is a backer of PennEast Pipeline Co. LLC (see Shale Daily, Aug. 19) and the Atlantic Coast Pipeline (see Daily GPI, Aug. 20) and is involved in Transcontinental Gas Pipeline Co. LLC’s Dalton Expansion Project (see Daily GPI, March 20). During the conference call, Fanning said the combined company would “...be able to compete for more and larger [gas infrastructure] opportunities in the future and to further increase supply.”
AGL Resources also serves more than one million retail customers through its SouthStar Energy Services joint venture and Pivotal Home Solutions, which market natural gas and related services. Other non-utility businesses include asset management for natural gas wholesale customers through Sequent Energy Management.
After closing, AGL Resources would continue to maintain its own management and board, and, as is the case with Southern Company's other operating subsidiaries, AGL Resources would continue to maintain its own corporate headquarters, which is in Atlanta.
Southern Company has committed financing from Citigroup Global Markets Inc. and plans to put long-term financing in place before closing.
Closing is conditioned upon the approval of the AGL Resources shareholders and certain state utility and other regulatory commissions. Antitrust clearance is also necessary, with completion expected during the second half of 2016.
"AGL Resources' management team and board of directors wholeheartedly support this transaction, and we believe it will provide new opportunities and enhanced value for our shareholders, customers and employees," said AGL Resources CEO John Somerhalder.