By Mike Cherney and David Winning
SYDNEY--Origin Energy Ltd. (>> Origin Energy Ltd) agreed to sell its conventional oil and gas production business for US$1.24 billion, in a new move to slash debt and focus more on exports of chilled coal seam gas to Asia that have been blamed by lawmakers for worsening energy shortages in eastern Australia.
Origin said it would sell the Lattice Energy unit to Beach Energy Ltd. (>> Beach Energy Ltd) after ditching earlier plans for an initial public offering, which would have been one of the biggest new listings on the Australian Securities Exchange this year.
"While Lattice Energy was ready to be a successful independent listed entity, the sale to Beach represented the most attractive option to deliver value to Origin shareholders," Origin Chief Executive Frank Calabria said.
Beach, which has a market value of 1.55 billion Australian dollars (US$1.22 billion), said it would fund the deal for Lattice through a mix of new shares and debt. The Adelaide-based company is seeking to raise A$301 million via a partly underwritten entitlement offer, which it said had strong support from its biggest shareholder Seven Group Holdings Ltd. (>> Seven Group Holdings Ltd).
Lattice's portfolio includes Origin's stakes in an oil-and-gas venture in the Cooper Basin in South Australia, gas operations in Western Australia, Victoria and New South Wales states and exploration projects in New Zealand.
The exit leaves Origin focused on power-generation assets and retail businesses in eastern Australia, as well as its stake in the almost A$25 billion APLNG project and the coal-seam gas operations that feed it. APLNG is one of three LNG operations on the coast of Queensland that have positioned Australia to overtake Qatar as the world's biggest exporter of the fuel, possibly as early as 2019. The plant counts ConocoPhillips (>> ConocoPhillips) and China Petrochemical Corp. as partners.
Origin racked up billions of dollars in debt during the construction of the APLNG plant, but has been forced to sell assets and suspend its dividend in an effort to repair its balance sheet after oil prices fell. The company made a A$2.23 billion net loss in the 2017 fiscal year, widening from a A$628 million loss the year before.
Beach said the Lattice business was attractive because it would increase its exposure to the "strong market fundamentals of the Australian east coast gas market," where prices have been rising amid an energy-supply shortage and strong population growth.
On Wednesday, Australia's government held back from imposing curbs on exports of liquefied natural gas after producers, including Origin, agreed to put more gas into the domestic market to ease energy shortages.
The decision, which followed a meeting between Prime Minister Malcolm Turnbull and energy companies, came just days after an Australian regulator warned that gas shortages in 2018 could be three times worse than previously thought. Experts had warned the export curbs risked damaging the country's standing as a destination for investment, while having a limited impact on local gas supply and prices.
-Write to Mike Cherney at [email protected] and David Winning at [email protected]