AGL Energy Ltd. (AGK.AU) said Wednesday it won't exercise an option to acquire A$1 billion worth of coal seam gas and power generation assets in Queensland state from BG Group PLC (BG.LN).

The integrated energy company said in a statement that it is comfortable its strategic target of securing 2,000 petajoules of equity gas can be achieved from recent acquisitions.

AGL in October gained the option to purchase the assets, which include the Lacerta and Polaris CSG fields and the Condamine Power Station, when it agreed to sell its holding in Queensland Gas Company Ltd. into BG's takeover of that company. The options had a four month expiry date, which AGL said Wednesday have lapsed.

The market didn't expect AGL to exercise the options, particularly since it didn't exercise them by Feb. 1, when an interest-free period on the exercise price expired.

AGL late last year bought CSG interests in New South Wales state including a full acquisition of Sydney Gas Ltd. after divesting non-core assets, like its stake in a gas export plant in Papua New Guinea.

Australia's biggest energy retailer has made no secret of its intention to participate in the privatization of NSW's retail power assets, which the government wants to sell by the end of 2009.

AGL said its existing 400 megawatt of despatch rights over the Yabulu and Oakey Power stations in Queensland, together with power station development rights, delivered a better outcome than exercising the Condamine Power Station option.

By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957; ross.kelly@dowjones.com
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