Origin eyes $8b joint venture with Conoco

PERTHLONDON, Sept 8 (Reuters) Origin Energy Limited, fending off an $11 billion hostile bid from Britain's BG Group Plc (BG.L), is to spin off its coalbed methane assets into a joint venture with US oil major ConocoPhillips.brOrigin and Conoco said in statements Monday that Conoco would contribute up to $8 billion toward a joint venture that will develop the massive coal-seam gas (CSG) assets and build a liquefied natural gas (LNG) project.brA BG spokeswoman declined to comment immediately on the move but analysts said it 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.brOrigin's shares rose nearly 28 per cent to a record high of A$19.99 on news of the venture.brObviously, ConocoPhillips' joining is a positive. I suppose it shows that there is good market out there for what Origin has got, said Peter Chilton, a fund manager with Constellation Capital Management, which does not own Origin shares.brConoco said it would pay $5 billion to the joint venture and would carry Origin Energy for their first A$1.15 billion ($950 million) in joint venture expenses.brIt will also pay $500 million into the venture when the partners agree to proceed with each train or phase of the planned four-train CSG to LNG project.brThe deal would take the financial burden of developing the reserves off Origin, whose main business currently is retailing power and gas.brOrigin said after the completion of the transaction, it would pay a dividend of 25 Australian cents, doubling the 2008 dividend, and commence a A$1.275 billion buy-back of shares.brConoco said it anticipated booking reserves of around 100 million barrels of oil equivalent from the joint venture in 2008 and the significant size of Origin's coal fields means it could make substantial additional bookings in the years ahead.brLike most oil majors, the company is struggling to add reserves as the biggest resource holders like Saudi Arabia and Russia restrict access, preferring to have their state oil companies develop their richest fields.brThe No.3 US oil company by market value already operates a 3.2 million tonnes a year LNG plant in Australia's northern city of Darwin.brThe joint venture combines Origin's extensive CSG reserves and resources and operational capabilities, with ConocoPhillips' proven LNG and CSG development and operating capabilities, Origin Managing Director Grant King said in a statement.brAfter its board rejected a friendly approach from BG at A$15.50 per share on May 30, Origin invited proposals as to how best exploit its CSG reserves, with options ranging from the sale of its gas assets to partnership in a LNG export project.brThe deal is conditional on approval by Australia's Foreign Investment Review Board and Conoco said it expects it to be completed in October.brBG's offer closes on September 26. If Origin's shareholders reject the bid and BG fails to increase it, Origin management can proceed without consulting shareholders, a company spokesman said.brOrigin, which holds the largest CSG reserves in Australia, also said an independent expert, Grant Samuel & Associates, has valued its shares at between A$28.55-A$30.71 a piece.brThe Conoco-Origin joint venture plans to initially develop two LNG processing trains, each having capacity of about 3.5 million tonnes per annum (mtpa), with first production in 2014, and then to go on to boost the number of trains to four or more.brCSG fields take up to 18 months to ramp up to full production, when the LNG facility can start up, and Origin has agreed to find a local market for this gas, which could depress local prices or prompt it so sell the gas to a rival, such as Arrow Energy, who will already have a LNG facility onstream.brThe joint venture would market the LNG, which is gas cooled to liquid so it can be transported in ships, primarily to Asian markets and ConocoPhillips would leading the marketing venture for the first 10 years.brThis joint venture better balances ConocoPhillips' oil and gas resource mix. In addition, the company's long-term production growth is expected to benefit from a steady, secure source of resource additions, Jim Mulva, ConocoPhillips' Chairman and Chief Executive Officer said in a statement.brOrigin said the Conoco deal values Origin's CSG proved, probable and possible (3P) reserves at up to A$1.88 a gigajoule, higher than the A$1.65gj Malayasia's Petronas (PETR.UL) agreed to pay for a stake in Santos Ltd (STO.AX) in May.brBG shares traded up 4.5 per cent to 1,079 pence by 0835 GMT, outperforming a 3.4 per cent rise in the DJ Stoxx European oil and gas sector index (.SXEP). Shares in Origin were up 12.8 per cent at A$17.65.br