Rob Wheals had big shoes to fill when he replaced Mick McCormack mid-year as chief executive of one of Australia’s infrastructure giants – the $13-billion gas pipeline group APA.
A year on from the controversial decision by Treasurer Josh Frydenberg to block a takeover offer from Hong Kong’s CK Infrastructure on national interest grounds, Mr Wheals has resurrected Mr McCormack’s aspirations to expand operations into the US market.
It’s the glittering prize that so many Australian companies have sought but that a large number have failed to execute well.
Boral is a case in point. It’s $2.5 billion acquisition of US building materials group Headwaters in 2017 hit the headlines in December when it discovered financial irregularities in its windows division, which further undermined the economics for the acquisition.
Mr Wheals is determined that his legacy won’t be defined by a failed acquisition. He has a $4 billion budget and a team located in the US to scour potential acquisitions.
“If, after a comprehensive review and assessment, we don’t find the right asset we will up stumps. There is no imperative that would override a commercially sensible decision,” Mr Wheals says.
He won’t be betting the balance sheet or the past 19-year record of consecutive steady distribution growth.
“We are looking at a significant-sized transaction to make it worthwhile – but not so big that we are ‘betting the farm’ or the continuing robustness of our business,” Mr Wheals says.
Regardless of whether Mr Wheals finds the right US asset, he says there are plenty of opportunities in Australia to grow APA.
The company plans to spend between $300 million and $400 million a year investing in domestic organic growth. And it expects growth in 2020 distributions to increase 6.4 per cent on 2019, based on its forecast for an improvement in earnings before interest, tax, depreciation and amortisation of between 5.5 per cent and 6.9 per cent.
“We commissioned multiple new assets and invested over $460 million in new growth projects that will continue to add incremental revenue in future years,” APA chairman Michael Fraser told shareholders in October.
Over the past three years APA has spent $1.5 billion on gas pipelines, energy generation and renewables.
But like all participants in the chain of energy provision, the challenges presented by a lack of a cohesive government policy undermine the certainty of investment decisions.
The outspoken Mr McCormack had been clear about what energy companies needed from the government in order to make educated investment decisions.
“Policymakers have to be upfront and realistic about what are the targets, what’s the transition timetable, who are the winners, who are the losers and what it’s going to cost people. I don’t think it’s hard but politicians over the last decade have made it real hard,” was his parting shot as he finished in July.
Six months later, with another hot summer upon us, we are seeing panic again about whether our energy supplies will be sufficient to cope with the seasonal surge in demand.
“We are having this debate because we have allowed the energy market to transition without anyone in the driving seat to manage that transition,” says Mr Wheals.
“If we get in the driving seat and have a plan agreed by federal and state governments along with industry and consumer groups [that involves] an acceptance that the market is transitioning, we can manage how it transitions and the speed at which it transitions, ensuring reliability and balancing that with affordability,” he says.
Mr Wheals refers to it as the “energy trilemma” – getting the balance right between affordability, reliability and lower emissions – between which he says there will always be tension.
We need clear energy policy guidelines in place to guide us, as well as goal posts that don’t keep moving.APA Group chief executive Rob Wheals
“To do this we need clear energy policy guidelines in place to guide us, as well as goal posts that don’t keep moving,” he says.
On the emissions themselves, gas sits somewhere in the middle of the spectrum between coal and renewables, making it in some respects the environmentally acceptable face of fossil fuels.
Like others in the gas sector Mr Wheals is keen to project gas as a vital part of the landscape as we transition to cleaner energy – cleaner than coal and more reliable than wind or solar.
“It’s always a balance but it’s a matter of priority. In a complex system reliability has to be number one,” he says.
“The future mix is a portfolio of different solutions and gas has an important part in that.”
But while Australia has abundant sources of gas, some state governments, in particular Victoria, have, as he says, “put a foot on the [supply] hose”.
“In the east of Australia, where around 85 per cent of our population resides, there is a very tight gas supply and demand relationship. More supply needs to be extracted,” Mr Wheals says.
Source: Thanks smh.com