Moody's and the market were reacting to AGL's announcement yesterday that it would obtain a 10% stake in the PNG Gas Project's gas fields for about A$400 million.

Moody's changed its outlook on the A2 rating for AGL to negative from stable yesterday, but affirmed the A2 senior unsecured rating for the company.

But the market was much more positive, and AGL's share price has risen 15 cents in the day-and-a-half since the announcement was made to hit $14.53 at midday today (AEST).

The agreement to buy into gas fields transforms AGL – which is also a partner in the construction of the pipeline designed to carry the project's gas and a major wholesale customer for the gas itself – into a vertically integrated energy company.

But the deal depends on the PNG Gas Project going ahead and to a commitment to building a gas pipeline from PNG to eastern Australia expected by late next year, Moody’s said.

The investors service said the change in AGL’s outlook reflected greater risk in its business and financial profiles if the gas field acquisition and green-field pipeline project proceeded.

AGL is a 50% joint-venture partner in the AGL-Petronas Consortium (APC), the preferred developer of the Australian component of the pipeline proposal.

The pipeline and gas field deals illustrated AGL's readiness to enter sectors with risk profiles higher than those of its existing electricity and gas businesses, according to Moody’s.

While that AGL had strategic reasons for these investments, they did expose the company to greater risks, according to Moody's.

“The company's experience in these new businesses is further largely untested and could divert attention and resources away from its existing activities," it said.

The investments would require major capital investments over the next three years, but would produce little revenues in that period.

AGL could also be exposed to political risk, uncertain gas reserves and the partial ownership of the pipeline would be debt-funded, Moody’s said.