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By Angela Macdonald-Smith
May 30 (Bloomberg) -- Origin Energy Ltd., Australia's biggest producer of gas from coal seams, will immediately start considering a break-up or partnership after rejecting a A$13.6 billion ($13 billion) takeover offer from BG Group Plc.
Options include splitting off the coal seam gas business or forming a venture for liquefied natural gas production, Managing Director Grant King said today. The Sydney-based company, whose shares rose to a record today, has had approaches from ``very credible'' LNG companies, he said.
BG wanted Origin's gas resources to feed a project supplying LNG, the fastest-growing energy market, to buyers in northern Asia where prices reach almost double the U.S. benchmark. Origin today doubled its coal seam gas reserves and said a $2.5 billion accord yesterday by Malaysia's Petroliam Nasional Bhd to buy into a rival Santos Ltd. gas project show its reserves of the fuel are worth A$16 billion alone.
``Given the price that Petronas has paid for the Santos interest I think the board has probably done the right thing'' in rejecting BG, said Rob Patterson, managing director of Argo Investments Ltd., an investor in Origin. ``Our preference would be for Origin holders to continue to have some interests in those assets, so a similar JV deal like Santos would be a preferable outcome.''
Sydney-based Origin, which has gained 83 percent in the past six months, rose as much as 11 percent to A$16.15 and was at A$15.95 at 2:52 p.m. local time. The company had previously agreed to BG's offer before the Petronas investment was announced, BG said in an e-mailed statement.
Raised Offer
Goldman Sachs Group Inc. and Gresham Advisory Partners are advising BG, while Origin is advised by Macquarie Group Ltd.
BG, the U.K.'s third-biggest natural gas company, raised its cash offer for Origin to A$15.50 a share, from an original bid of A$14.70, Origin said today in a statement. Its reserves of coal seam gas have doubled, the company said, citing an independent assessment.
``The volume of the increase in resources leaves them a raft of different options they can choose as to how to monetize these,'' said Gavin Madson, associate director at Fitch Ratings in Brisbane. ``Management would have looked at what Petronas paid to join in with Santos yesterday and decided there's a bit more money out there for their gas resources compared with what BG put forward.''
Earlier Acceptance
BG said Origin's board had on May 28 confirmed in writing the U.K. company's offer should be recommended to shareholders and that it is ``surprised'' Origin broke off talks. Origin's latest report on its gas reserves, released today, is ``unrealistic'' and doesn't change BG's view on the target's value, it said. The company said it is ``considering its options.''
BG's bid team is today leaving Sydney for London, said Rob Millhouse, a spokesman for BG in Australia. He declined to comment on whether BG would be interested in an alternative transaction with Origin and said the company is still ``intensely committed'' to developing a proposed LNG project in Australia with Queensland Gas Co.
The offer price ``failed the test'' when compared against the potential value of Origin's coal seam gas reserves, in light of the price agreed yesterday by Petronas, Chairman Kevin McCann said on a conference call with reporters.
`Back to Work'
``As soon as we hang up on you folks the guys and girls are getting back to work'' to study other options for Origin's coal seam gas business, McCann said.
LNG demand is set to increase by 10 percent a year through 2015, more than five times estimated gains in crude oil, as Power producers switch to cleaner fuels, according to Citigroup Inc. LNG if gas chilled to liquid form for transportation by tanker. Coal seam gas, mostly comprising methane, lies on the surface of coal and can be extracted when pressure on the coal seam is reduced, usually by removing water.
Origin, which is also Australia's second-biggest power and gas retailer, may be worth A$16.62 a share, Credit Suisse Group said in a May 15 report. Petronas yesterday agreed to pay A$4.91 a gigajoule for proven and probable coal seam gas reserves from Adelaide-based Santos, which Santos Acting Chief Executive David Knox said sets ``a new benchmark'' for reserves valuations.
BG's bid for Origin valued the target's coal seam gas reserves at between A$1.74 and A$2.30 a gigajoule, EnergyQuest, an Adelaide-based consulting firm, said this month in a report, citing analysts.
``Origin may have a defendable argument for rejecting BG's proposal if the Petronas deal multiples are to be applied, notwithstanding the very attractive premium in BG's offer over Origin's prior price,'' National Australia Bank Ltd. said in an e-mail.
Queensland Gas
BG, the largest supplier of LNG from the Atlantic Basin into Asia, in February formed a venture with smaller coal seam gas producer Queensland Gas to build a A$8 billion LNG export project in Gladstone. The venture is one of five rival projects in the northeastern Australian city based on coal-seam gas, which hasn't previously been used as a fuel for LNG.
Origin today said an independent review of its fields had increased proven, probable and possible coal seam gas reserves by 121 percent to 10,122 petajoules as at May 15, up from 4,578 petajoules last July. Proven and probable reserves jumped 91 percent to 4,715 petajoules.
About 8,000 petajoules of the so-called 3P reserves are not committed to customers, enough for an LNG plant of about 5 million tons a year, King said. Origin isn't interested in developing its own LNG project and is more likely to link with a partner, he said. The company also owns oil fields and power plants.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
Last Updated: May 30, 2008 01:29 EDT
