Australia's largest power retailer, AGL Energy Ltd (ASX:AGK), says it is considering divesting its 10-percent stake in Oil Search Ltd's liquefied natural gas (LNG) project in Papua New Guinea (PNG).

AGL managing director Michael Fraser said the project was too much of a departure from what it was when AGL originally became involved, a project to pipe gas from PNG to Australia.

Work was suspended on the pipeline project at the end of January 2007 and efforts refocused on developing PNG LNG.

The other project participants are Oil Search (44.2 percent), project operator ExxonMobil (39.4 percent), MRDC (a PNG company representing landowner interests, with three percent) and Nippon Oil Exploration (3.4 percent).

Project participants are expected to make a decision on front-end engineering at the end of March or early April, Mr Fraser said.

"That's a point in time that we will look at what our divestment options are for that asset.

"Expect us to be out of there at some stage in the not too distant future.

"PNG is a non-core asset (for AGL)."

He said AGL began considering exiting PNG as soon as the pipeline project fell over.

"It's worth a fair bit of money but is a small stake in the overall project."

Both divestment and acquisition is high on AGL's agenda this year.

AGL has said previously it would divest assets in Chile and several pipelines.

"One of the pipelines at Moranbah (in Queensland) will be up for sale in the coming weeks and that should be done by June," Mr Fraser said.

"We're looking at the rest of the portfolio and reshaping it so that we're focused on our core business."

Mr Fraser said AGL was interested in the New South Wales Government's proposed privatization of power assets, both retail and generation.

"But they really need to decide first of all that it is actually happening.

"There's been some union backlash on that.

"We have to see what the shape of the assets are ... but that's something that's obviously a step-out opportunity for us beyond organic growth."

Mr Fraser said there were many opportunities to continue adding to AGL's renewable energy portfolio as part of its organic growth.

The company is looking at landfill-gas projects.

It is already involved in wind, hydro and solar power, and trades carbon on the Chicago Carbon Exchange.

"We're looking at the full range of technologies because when you look at the Rudd government's announcements and targets that they are setting by 2020 for the renewable industry, there is something like A$25 billion (US$23.7 billion) to A$30 billion (US$28.44 billion) worth of projects that need to be built," Mr Fraser said.

"There's no one technology that will deliver all of that renewable energy.

"We've got A$2 billion (US$1.9 billion) invested in renewable assets, which makes us the largest private owner and operator of renewable assets in the country.

"That's part of repositioning the company for a better future, consistent with where the country is heading."

AGL is constructing two wind farms in South Australia and its 140 megawatt Bogong hydroelectric project in the Victorian Alps.

"That's the largest hydro project in Australia for the last 25 years or so," Mr Fraser said.

"You're going to see a big step up in the development of wind farms right across the country."

Chief financial officer Stephen Mikkelsen said the company had a modest amount of debt that needed to be financed in the next 12 months.

"Between the sale of non-ore assets and ability to raise further debt on the back of those sales, I see us in a very good position to capture these opportunities in coming years," he said.

Shares in AGL closed 40 cents, or 3.45 percent, lower at A$11.20 (US$10.62).

(C) 2008 Asia Pulse Pte Ltd.

Related Project
PNG LNG Project
Facility Type: LNG Owner: ExxonMobil; Oil Search Limited; Santos; Nippon Oil Exploration; AGL; MRDC); Eda Oil
Scope: New Construction Location: Port Moresby Papua New Guinea