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Oil giants muscle in on Origin deal

Oil giants muscle in on Origin deal

By Mark Kleinman and Ben Harrington

Last Updated: 9:36pm BST 02/08/2008



Shell and BP have both approached Origin Energy about its coal seam gas assets, a move that could scupper BG Group’s A$13.8bn (£6. 5bn) hostile bid for the Australian energy firm.

Since BG made a hostile bid for Origin, the Australian company has been soliciting proposals on how best to exploit its gas reserves in Queensland, with options ranging from the sale of its gas tenements to partnership in a liquefied natural gas project

Sources said that BP and Shell, which is it is said is being advised by investment bank Rothschild on the deal, are two of the parties that have expressed an interest. They are both thought to be in the data room carrying out due diligence.

Chevron, the US energy firm, and government-backed groups from Asia are also reported to have submitted proposals, although it is not clear whether they have also been given access to information on Origin’s assets.

The interest in those assets from some of Britain’s largest oil production groups comes as BG prepares to issue its bidder statement on Monday. There has been speculation that BG may raise its offer for Origin, one of the biggest retailers of energy in Australia and New Zealand.

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  • BG went hostile after Origin rejected its offer on the grounds that it did not adequately value the Australian company’s reserves of coal seam gas.

    The UK-listed company has been expanding in the Pacific region and hopes to use some of Origin’s gas for the liquefaction plant it plans to build at Gladstone on Australia’s east coast.

    However, Origin has said it would prefer to team up with a big international energy group to commercialise its gas assets, a plan that it argues should deliver better value for shareholders

    The tussle for Origin comes as several of the world’s largest energy groups scramble to get hold of Australia’s coal seam gas reserves. Companies have been exploiting coal seam gas for at least 15 years in America, where the traditionally higher price of gas made it a viable business.

    Its extraction involves drilling into coal seams where methane is trapped. Once punctured, the gas either escapes immediately or must be depressurised by removing trapped water from the coal.

    The rush to Australia has, in part, been triggered by the record-breaking price of oil and gas.

    In June, Shell agreed to pay up to $776m (£395m) for a 30 per cent stake in the coal seam gas assets of Arrow Energy, an Australian group.

    That deal gave Shell access to Arrow’s 90,000?sq km of coalfields and includes plans to build a liquefied natural gas (LNG) facility to cool it to liquid form so that it can be exported by tanker to Asia, where such shipments are fetching high prices.

    As part of the transaction, Shell also got 10 per cent of Arrow’s international assets, including sites in China, India, Indonesia and Vietnam, and a five-year option to acquire up to 50 per cent of individual Arrow projects.

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