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SYDNEY: US oil giant ConocoPhillips will pay up to A$9.6 billion (US$8.0 billion) for a half share of a coal seam gas (CSG) venture with Australia's Origin Energy in a deal that could thwart a hostile bid by Britain's BG Group.
Origin and ConocoPhillips on Monday told the Australian stock exchange that the US firm had agreed to invest in a 50 per cent stake in Origin's scheme to convert CSG in Queensland state to liquefied natural gas (LNG) for export to Asia.
Origin's Managing Director Grant King said the venture would "transform" the company and give it "financial strength to fund a decade of growth".
"This strengthened financial position will enable Origin to fund both its future growth and undertake capital management initiatives for the benefit of shareholders," he said.
"We believe the joint venture will deliver both companies with a strong and competitive position in a rapidly growing market for LNG," he said.
ConocoPhillips, the third largest US integrated energy company, would make an up front payment of A$6 billion to become a half owner of the firm that owns all of Origin's CSG interests as well as of the gas-from-coal scheme.
The joint venture, which underscores growing global interest in cleaner fuels, could also help stymie a A$13.8-billion bid for Origin, Australia's second biggest energy retailer, by Britain's BG Group, analysts said.
"It is a massive deal for Origin and it really does underwrite what they have been saying - that the company is worth a lot more than what BG has put on the table," Fat Prophets analyst Gavin Wendt told Australian Associated Press.
Origin has urged shareholders to reject the offer, pitched at A$15.50 per Origin share, a level that BG said represented "full and fair value."
But an independent expert's report released by Origin on Monday said its shares were worth A$28.55 to A$30.71. Origin's share price jumped nearly 13 per cent to close at A$17.65 on Monday.
The joint venture will comprise of coal bed methane development, operated by Origin, and an LNG scheme operated by ConocoPhillips, which will market the gas in Asia from its new hub.
"The joint venture would market the LNG, primarily targeted to Asian markets, with ConocoPhillips leading the marketing venture for the first 10 years," ConocoPhillips said in a statement.
LNG is natural gas that has been frozen to liquid form to make it more dense for transportation. Coal seam gas is naturally occurring methane gas trapped by water in coal seams deep underground.
Following its initial investment, the US company, which has a market capitalisation of US$125 billion, will make a A$1.5-billion payment into the joint venture at the end of 2010 and further payments as the project comes online.
The firms aim to build two LNG production facilities, each boasting an annual capacity of 3.5 million metric tonnes, that should begin delivering by 2014.
The deal, which requires approval from Australia's Foreign Investment Review Board, will leave Origin with no net interest bearing debt and a significant cash balance.
"We will have the financial strength to fund a decade of growth," King said, adding that Origin would see "immediate and substantial increase in earnings."
ConocoPhillips' chairman and chief executive officer, Jim Mulva, said the investment gave his company access to the leading coal bed methane resource in Australia, an 8.1-million net acre resource.
"Moreover, the company has enhanced its LNG position with the creation of an additional Australian LNG hub serving Asia-Pacific markets.
"This joint venture better balances ConocoPhillips' oil and gas resource mix" and its "long-term production growth is expected to benefit from a steady, secure source of resource additions," he said.
- AFP/so/yb
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