Origin Energy Rejects BG A$13.8 Billion Takeover Bid

By Jason Scott

July 4 (Bloomberg) -- Origin Energy Ltd., Australia's biggest producer of gas from coal seams, told shareholders to reject BG Group Plc's A$13.8 billion ($13.3 billion) hostile takeover bid.

The A$15.50 a share all-cash offer announced June 24 doesn't reflect the true value of its gas reserves, Origin said in a statement to the Australian stock exchange today.

BG, the U.K.'s third-largest oil and gas producer, took its offer direct to shareholders after Sydney-based Origin rejected the bid in May. Reading, England-based BG wants Origin's gas resources in east Australia, which may feed a proposed liquefied natural gas project supplying utilities in northern Asia.


Origin's board spurned the previously agreed approach after doubling its coal-seam gas reserves. It said the decision by Petroliam Nasional Bhd., Malaysia's national oil company, to pay $2.51 billion for a stake in a rival LNG project being developed by Santos Ltd. showed its resources were worth more.

``We have by far the largest reserves in the industry,'' Managing Director Grant King said on a conference call from Sydney today. ``BG's rejection of the Santos deal as a benchmark is entirely self-serving.''

Origin has risen above the offer price as investors bet the bid may be increased to win shareholder support, and touched a record A$16.49 in Sydney on June 25. Origin fell 8 cents, or 0.5 percent, to A$16.20 at 11:41 a.m. in Sydney trading.

Higher Offer

BG's offer values Origin 48 percent higher than when it first bid April 30. The U.K. company may have to increase its offer, Merrill Lynch & Co., Credit Suisse Group, ABN Amro Inc. and JPMorgan Chase & Co. said last week.

Should the acquisition go through, it would be the second- largest foreign takeover of an Australian company after the $14.2 billion purchase last year of Rinker Group Ltd. by Cemex AB, North America's largest cement producer.

BG, the largest supplier of LNG from the Atlantic Basin into Asia, in February formed a venture with smaller coal-seam gas producer Queensland Gas Co. to build an A$8 billion LNG export project in Gladstone. The venture is one of five rival projects in the northeastern Australian city based on coal-seam gas, which hasn't previously been used as a fuel for LNG.

Fuel Demand

Demand for the fuel is set to increase by 10 percent a year through 2015, more than five times the estimated gains in crude oil, as power producers switch to cleaner fuels, according to Citigroup.

LNG is gas chilled to liquid form for transportation by tanker. Chinese oil companies plan to build more than 10 LNG terminals along the coast to meet a government target of doubling gas use by 2010.

Coal-seam gas, mostly comprising methane, bonds as a thin film on the surface of coal and is released when pressure is reduced, usually after water is removed.

Origin today said it bought the 640 megawatt gas-fired Uranquinty Power Station for A$700 million from Babcock and Brown Power, and committed to proceed with the 550 megawatt Mortlake Power Station, estimated to cost A$640 million.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net.