BG jilted by Origin at the eleventh hour

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The Independent Online

BG Group executives sent to Australia to seal the gas group's takeover of Origin Energy left empty-handed yesterday after the Australian energy group had an 11th-hour change of heart and rejected the £6.6bn bid.

Origin's refusal came as a surprise to BG, which had expected an approval after improving a previous $14.70-per-share offer to $15.50 per share. "Until yesterday, negotiating teams from the two companies were actively engaged in putting the final touches to the agreement governing the transaction," the company said. "BG was therefore surprised to learn, earlier today, that Origin had broken off discussions."

BG has not withdrawn its offer and it is "considering its options". The company declined to elaborate on what those options were and the deal team dispatched to secure the takeover were sent back to the UK. Amid fevered interest in the coal-seam gas sector, an evolving market in which Origin is one of the biggest players, BG will not want to pull its offer because doing so would mean under Australian takeover rules it could not make a fresh approach for three months.

Origin's chief executive, Grant King, raised the pressure further, confirming Origin had received "numerous approaches" from "all the usual suspects" in the oil and gas world prior to BG's bid last month and in the ensuing weeks.

He added: "Our intention is to immediately resume those discussions and be receptive to all proposals to create the most value out of this incredible endowment of coal seam gas."

The company's shares, which resumed trading after having been frozen in anticipation of an announcement, jumped 7 per cent on expectations of a bidding war. BG shares lost 1.6 per cent.

Origin decided against BG's offer on two factors. One was the findings of an independent valuation firm suggesting that the company is sitting on more than twice the 3P reserves – proven, probable and possible – of coal seam gas than the company's previous estimates. Instead of the 4,578 pentajoules it had on the books as of last July, it now says it has 10,122 pentajoules, thanks to more advanced technology and the rising price of gas, which makes investing the money to convert the resources into sellable gas more viable.

The other factor that convinced chairman Kevin McCann Origin was worth "substantially more" than BG's sweetened bid was a deal its rival Santos struck with the Malaysian oil and gas giant Petronas the day before.

The companies agreed to partner on the building of a new plant that will convert Santos's coal-seam gas into liquefied natural gas (LNG). Demand for LNG has soared in recent years, especially from gas-starved Asian customers who are paying unprecedented prices for cargoes.

Frank Chapman, the chief executive of BG, said he expects the market for LNG to nearly quadruple by 2020. Securing gas supplies in the Asia Pacific region to better capitalise on LNG demand there was the core rationale for BG's pursuit of Origin. Analysts said the move would fill a significant hole in BG's supply portfolio.

Origin, however, was talking up its other options. Mr King called the terms of the Santos deal "very attractive", for the partnering aspect that gives Santos a piece of future profits and the new benchmark price for coal seam gas it implied. The terms of the agreement imply a per-gigajoule valuation of more than twice BG's offer.

Australia's Queensland coal seam gas resources are attracting interest from companies. Trading in Arrow Energy shares halted yesterday ahead of an expected sale of an interest in its assets. Royal Dutch Shell is thought to be interested in partnering with it on the building of an LNG plant.

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