APA Group (ASX: APA), the natural gas infrastructure group has announced that it has reached an agreement with Incitec Pivot Ltd (ASX: IPL) to deliver gas from the Northern Territory and through 3,300 km of gas pipelines to IPL's fertiliser plant at Gibson Island in Brisbane, Queensland.
The transportation agreement has an initial term that concludes on the 1st of January 2020 with an option to extend.
APA Group Managing Director Mick McCormack highlighted the importance of the Incitec deal as part of the Group's plans to invest in growth capital projects.
He said "By helping our customers with smart and flexible solutions that assist them to meet the requirements of their own customers and energy portfolios, we continue to support our significant investment in bringing together the East Coast Grid. We're a growth business and we grow as our customer's businesses grow. Currently, APA is in the midst of around $1.3 billion plus of further committed growth capital projects, the vast majority of which are for existing customers wanting new energy solutions."
Foolish Takeaway
I think the deal demonstrates how APA Group's infrastructure assets provide it with such a wide moat. It's no wonder that a Hong Kong-based consortium led by CK Infrastructure Holdings (CKI) offered to acquire the company for a 33% premium in a $13 billion takeover.
Incitec shareholders, on the other hand, will be hoping that the deal provides some consistency of gas supply to the Gibson Island fertiliser which has experienced outages in the past.
The plant is also highly sensitive to changes in gas prices with earnings dropping by $14 million for every $1/gigajoule increase in gas prices.
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