QGC justified its decision yesterday afternoon by saying it “no longer considered Sydney Gas a value proposition” for its shareholders. It will allow the offer to lapse on May 12 by relying on the defeating conditions outlined in the offer document.

This morning, Sydney Gas chairman Ray Schoer responded to the market by saying QGC “had run hot and cold” during the three months since making its offer.

“Even as it has conceded defeat, [QGC] has changed its mind yet again on the rationale for its offer,” he said.

QGC managing director Richard Cottee said his company believed it could create more value for its shareholders by focusing on its existing assets, rather than pursuing a Camden-focused Sydney Gas acquisition.

“QGC’s original rationale for the takeover was to concentrate on the Hunter Valley prospects of Sydney Gas,” he said.

“However, Sydney Gas had now locked itself into the development at Camden, which QGC regards as a doubtful proposition.”

Schoer dismissed Cottee’s claims as “nonsense”.

“Since QGC made its offer, Sydney Gas has announced value-adding achievements, including record monthly production and sales and a substantial increase in reserves,” Schoer said.

“QGC’s bid has been undone by its opportunistic nature and its failure to recognise the strategic advantages of Sydney Gas.”

Cottee added that since launching the takeover bid in January, QGC believed Sydney Gas’ “defence tactics” had destroyed significant shareholder value in the company.

Last month, Sydney Gas announced plans for a $50 million share placement to repay its convertible notes debt.

The recapitalisation plan, which is subject to certain conditions and shareholder approval, also includes establishing a new convertible note facility through Babcock & Brown.

About $20 million of the money raised will be used to fund the repayment of Sydney Gas' current convertible notes, which mature on June 1, 2006. The remainder of the funds raised will be used to pay Sydney Gas’ share of development and exploration costs under its coal seam gas joint venture with AGL.

As a consolation for QGC, the company announced this morning it has achieved record gas flows of 1.9 million cubic feet per day from its Berwyndale South-60 well.

The field is now producing 10.75 million cubic feet per day.