BG thwarted in bid for Origin by £4.5bn deal with Conoco

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The Independent Online

Origin Energy has signeda A$9.6bn (£4.5bn) coal seamgas (CSG) joint venture with ConocoPhillips, the US giant, sounding the death knell for BG Group's moves on the Australian company.

The UK group's A$15.50-per-share hostile bid, which expires this month, is unpopular with Origin's board and has spurred repeated recommendations that shareholders reject it. But the Conoco deal agreed yesterday – and the accompanying report from Grant Samuel, an independent investment adviser, extrapolating a value of between A$28.55 and A$30.71 – leaves BG with few options.

Kevin McCann, Origin's chairman, said: "Origin's directors commenced the CSG monetisation process shortly after rejecting BG's approaches in late May. ConocoPhillips' investment clearly demonstrates the value of Origin's CSG assets... The independent expert's valuation highlights the inadequacy of BG's offer."

Assuming Australia's Foreign Investment Review Board approves the deal, Conoco's investment will secure a half share of a company owning all Origin's CSG interests and committed to building a major plant to convert it into liquefied natural gas (LNG) for export to Asian markets such as China and Japan.

Grant King, managing director of Origin, said: "The joint venture combines Origin's extensive CSG reserves and resources and operational capabilities, with ConocoPhillips' proven LNG and CSG development and operating capabilities."

BG said that it noted the announcement and was reviewing the documentation. But analysts saw little opportunity for the UK group to salvage a deal. "This pretty much kills the chances of BG taking over Origin," Richard Griffiths, an analyst at Evolution Securities, said. "The gap between where BG is and where the Conoco deal has come in is so huge that BG doesn't have much choice but to walk away."

Despite the Origin board's confidence in the high value of their company, now corroborated by Conoco and the Grant Samuel analysis, the US group's price may reflect both its different strategic priorities and a bet on the future market for LNG. "The real value of Origin is probably somewhere in the middle," Mr Griffiths said. "BG might have been cheeky initially, and Conoco may be willing to pay more to clinch the deal."

The conversion of CSG into LNG is a new development for the energy industry. The gap between the amount put up by Conoco and BG's proposed price – which represented a 40 per cent premium on Origin's shares when the first offer was made in April – underlines the interest Australia's CSG resources are generating in the industry. "With improvements in drilling technology and rising commodity prices, the world has woken up to what the potential of these resources might be," Mr Griffiths said.

BG's shares closed up 5.81 per cent at 1093p.