Revised Bid Still Too Low, Origin Tells BG Group

Origin Energy said Friday that it was rejecting a revised $13 billion takeover bid from the British natural gas producer BG Group and sought to increase its value by doubling its estimate of gas reserves.

Origin, the largest coal-seam-gas producer in Australia, said it would now focus on how to get the best value from its reserves, possibly through partnerships to supply a liquefied natural gas plant or even through a breakup of the company, which also has power generation and consumer businesses.

“We’re now back in the game, and we will be aggressively pursuing those alternatives as quickly as we can,” Kevin McCann, Origin’s chairman, told reporters.

Origin said it was open to talking to BG about supplying BG’s planned liquefied natural gas plant in Gladstone, Australia, or any other offer.

“BG is welcome to come back in any way they want,” McCann said.

BG said it was surprised by Origin’s rejection and was considering its options.

Origin raised its estimated reserves by 121 percent and said they were worth more than $15 billion, a move that could put pressure on BG to come back with more money as it looks to expand and meet rising global demand for natural gas.

Origin said BG had increased its offer to 15.50 Australian dollars, or $14.80, per share in cash, valuing it at about 13.6 billion dollars. Its initial offer at the end of April was for 14.70 dollars a share.

“It’s not a surprise that Origin would turn it down,” said Paul Johnston, a utilities analyst at Commsec Securities.

On Thursday, Petronas, the Malaysian state-owned oil company, agreed to pay $2.5 billion for a 40 percent stake in a liquefied natural gas plant planned by the Australian energy company Santos. The Petronas-Santos deal “has really set a new benchmark for the price of coal-seam gas,” Johnston said.

Grant King, Origin’s chief executive, said in a teleconference that using the Petronas-Santos deal as a benchmark, Origin’s coal- seam-gas reserves would be worth more than 16 billion dollars, above BG’s offer.

Campbell McComb, investment director at Armytage Private, which holds Origin shares, said BG’s raised offer was reasonable.

At 15.50 dollars a share, “in our eyes that’s fair value or a bit better for Origin,” McComb said. “The directors in rejecting it have set themselves up with a fair bit of work to do to justify how and why they rejected it.”

Shares in Origin rose 8.6 percent to 15.86 dollars, after rising as high as a record of 16.15 dollars. Origin shares have climbed around 80 percent since the start of the year.

Analysts said Origin’s rejection would be a setback to BG, which was hoping the deal would help secure the reserves it needed for a proposed liquefied natural gas plant fueled by coal-seam gas.

Origin said that a review showed that its largest estimate of coal-seam-gas reserves had increased to 10,122 petajoules, from an earlier estimate of 4,578 petajoules. Its reserves of most likely recoverable gas jumped 91 percent to 4,715 petajoules.

BG said it thought the review was unrealistic.

Proposals by some Australian companies to use coal-seam gas for liquefied natural gas plants have sparked strong interest in the Australian coal seam gas sector.

Bidders who lost out to Petronas on the joint venture with Santos included Royal Dutch Shell and ConocoPhillips. King said other companies not involved in the Santos joint-venture bid had approached Origin about tapping its reserves.

“I can assure you that those who have approached us are companies of similar standing, people with enormous and very credible credentials in the LNG business,” he said.

Origin’s oil and gas production assets account for about a quarter of its revenue and have helped to offset tighter margins in its traditional retail energy business.

Originally published by Reuters.

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