(Adds potential for LNG mergers)

By Ross Kelly  Of DOW JONES NEWSWIRES

SYDNEY (Dow Jones)--Origin Energy Ltd. (ORG.AU) on Tuesday said the time has come for rival giant gas projects in Queensland state to discuss merger deals after it posted a 10% rise in annual operating profit.

Origin wants to build a multibillion dollar liquefied natural gas plant with partner ConocoPhillips (COP). The pair have superior gas reserves but lag some rivals because they haven't signed any customers yet.

Almost a dozen LNG projects are slated for start-up in Australia by 2016, four of them in Queensland, to try and tap a projected surge in demand for cleaner-burning fuels from developing Asian economies. Most analysts are concerned that there won't be enough demand to support every development, or at least some of their ambitious timetables.

Origin Chief Executive Grant King has previously played down the potential for mergers, saying that the time had not yet come, but probably would at some point.

"The time has now come for those discussions," he told analysts on Tuesday, explaining that competing projects are now in a better position to talk, having selected their sites and clarified their objectives and cost structures.

He later confirmed to journalists that the discussions are likely to include the potential to merge entire LNG plants along with gas reserves from jointly-owned gas fields or mid-stream infrastructure like pipelines.

BG Group Plc (BG.LN), a joint venture between Royal Dutch Shell Plc (RDSB.LN) and PetroChina Co. (PTR), and a joint venture between Santos Ltd. (STO.AU) and Malaysia's Petroliam Nasional Bhd. (PET.YY) are building rival projects, also at the Queensland port of Gladstone.

Few have expressed much enthusiasm for consolidation, apart from Shell, which is behind in the environmental approvals process.

King did not suggest that Origin wants to merge with another project to secure customers. Rather, he said the impetus to merge could come from potential cost savings.

Origin on Tuesday appeared to relax an end-of-2010 final investment decision target for its project, saying that although it expects regulatory and technical issues to be resolved by that time, it won't officially sign off on the development until it finds a customer.

While "comfortable and confident" about the status of customer negotiations, King said finding buyers is proving more challenging than the market had anticipated two years ago, with some potential buyers leaving the negotiating table and some remaining.

Still, he said few LNG projects have recently achieved a final investment decision and uncontracted demand will still exist around 2015, particularly for projects that are close to receiving regulatory approval such as Origin's.

Current uncertainty about who will lead Australia after last weekend's inconclusive national election result is causing "a little bit of uncertainty" in respect to LNG offtake negotiations, King said.

Australia's conservative Liberal-National coalition opposition has promised to scrap a proposed tax on resource companies if it wins power. The tax, however, was watered down by the current government and coal seam gas projects like Origin's have been moved to the tax regime that already applies to offshore oil and gas developments.

Annual Profit Misses Guidance

Origin, which is also Australia's second biggest electricity retailer, on Tuesday reported a 10% gain in full-year operating profit after it switched on new power generators and got higher prices for its gas.

The gain fell short of its forecast of a 15% improvement after it wrote down gas exploration expenses.

The Sydney-based integrated energy company forecast 15% growth in underlying profit growth in the current financial year.

Net profit for the year to June 30 fell to A$612 million from the previous year's A$6.94 billion, when earnings were inflated by the sale of coal seam gas assets to ConocoPhillips.

Underlying profit rose to A$585 million from A$530 million, also missing the A$608 million average of seven analyst forecasts compiled by Dow Jones Newswires. If the exploration expenses are deducted, however, Origin met its own guidance and analysts' expectations with a A$609 million underlying figure.

Origin declared a final dividend of 25 cents per share, unchanged from the previous year.

It said the rise in this year's underlying profit will be driven by new investments, including the Kupe gas project offshore New Zealand, the acquisition a greater stake of the Otway gas project offshore Victoria state and the recent commissioning of the Darling Downs power station in Queensland state.

Macquarie analysts maintained an Outperform recommendation on Origin's shares, noting that only a fraction of the LNG project's potential contribution to earnings has been factored into Origin's share price.

-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; ross.kelly@dowjones.com

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