Origin to spin off gas assets to $16 billion joint venture with ConocoPhillips

08 September 2008

Mumbai: Australia's Origin Energy Limited will spin off its gas assets to $16 billion (A$19.2 billion) joint venture with US oil major ConocoPhillips that will develop a four train coal steam gas-to-liquefied natural gas project using Origin's CSG reserves and resources in Queensland - a move that could thwart an $11 billion hostile bid from BG Group Plc or force a higher offer from the British group.

Conoco would contribute up to $8 billion towards the 50-50 joint venture that will develop the massive coal-seam gas (CSG) assets and build a liquefied natural gas (LNG) project, Origin and Conoco said in separate statements.

The tie-up could force the UK gas producer to raise its A$15.50 per share bid, which was aimed at growing BG's Asia-Pacific LNG production arm to feed its booming Asian LNG sales business, dealers said. Some analysts expects BG to raise its offer to A$18 a share.

''Origin is delighted to welcome ConocoPhillips, one of the world's largest integrated energy companies, as its partner in monetising our extensive CSG reserves and resources. This outcome represents an outstanding result for Origin shareholders, with ConocoPhillips paying up to A$9.6 billion for a 50 per cent share in a CSG to LNG joint venture,'' Origin's chairman Kevin McCann said in a statement.

The transaction with ConocoPhillips is conditional on FIRB approval and any approvals necessary because of BG's offer, the release said.

ConocoPhillips's 50 per cent share of the a CSG-to-LNG joint venture comprises an up-front payment of $5 billion (A$6.0 billion); additional fixed contribution of A$1.15 billion to carry Origin's share of costs to final investment decision (FID) expected by end-2010; and additional payments of $500 million (A$600 million) at the point that each of the four LNG trains is approved, to partly carry Origin's share of costs.