UK's BG gives up battle for Australia's Origin

LONDON Tue Sep 9, 2008 4:17am EDT

Origin Energy Ltd. Managing Director, Grant King, arrives for a news conference in central Sydney August 19, 2008. REUTERS/Daniel Munoz

Origin Energy Ltd. Managing Director, Grant King, arrives for a news conference in central Sydney August 19, 2008.

Credit: Reuters/Daniel Munoz

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LONDON (Reuters) - UK gas producer BG Group admitted defeat in its hostile bid for Australian coal-bed methane producer Origin Energy, but analysts said BG may shift its focus to another target or become a target itself.

BG said in a statement on Tuesday it would not increase or extend its A$15.50/share offer, which closes on September 26, and said it expected the offer to lapse, after Origin formed an $8 billion joint venture with U.S. oil major ConocoPhillips.

"The price implied by this newly announced joint venture is higher than BG Group is able to justify," BG Chief Executive Frank Chapman said. "We wish Origin and ConocoPhillips every success with their joint venture."

Origin said on Monday it had agreed to spin off its massive coal-seam gas assets in Queensland into a joint venture in which ConocoPhillips would inject up to $8 billion.

BG had hoped to use the reserves to expand a liquefied natural gas export terminal it plans to build with Queensland Gas Co.

Some analysts had predicted BG would abandon its bid after the Origin-Conoco tie-up, prompting BG's shares to rally 6 percent on Monday.

The shares traded up 1.5 percent at pence at 4:02 a.m. EDT, outperforming a 0.2 percent rise in the DJ Stoxx European oil and gas index.

Origin shares closed down 1.42 percent at A$17.40 before the announcement.

An Origin Energy spokesman said, "We look forward to completing what we believe is an outstanding deal with ConocoPhillips and increasing value for our shareholders."

OTHER TARGETS

BG could now shift its sights to another Australian gas producer, analysts said.

"I think BG will continue to look for opportunities in Australia and there is a chance that BG could look to secure control over Queensland Gas," said Mark Greenwood, analyst at JP Morgan in Sydney.

In February, BG said it had agreed to acquire a 20 percent interest in QGC's coal-seam gas assets and a 9.9 percent stake in QGC and to build an LNG production facility to export the gas from QGC's fields.

Some analysts said energy firm Santos Ltd, which has also proposed a LNG project using coal-seam gas in Queensland, could also become a target for BG once the government lifts its 15 percent shareholding restriction on Santos in November.

However, any approach would complicated by the fact Santos already has a partnership with Malaysia's Petronas to build an LNG facility.

One analyst said he expected BG and the Santos/Petronas venture to work together on building a single LNG facility.

The decision to give up on Origin could make BG a more attractive takeover target itself, one dealer said.

Traders said a recent rumor of U.S. oil major ExxonMobil bidding for BG resurfaced on Tuesday, although no one who heard it said they believed it. BG is frequently the subject of takeover rumors.

Coal-seam gas or coal bed methane is gas extracted from coal fields by drilling into the coal seams. It is a more complex procedure than producing from traditional gas reservoirs but as oil and gas companies face difficulties in making new finds, Australia's CSG has become a hot area for investment.

(Writing by Tom Bergin; Additional reporting by Fayen Wong and Jonathan Standing in Sydney; Editing by Sue Thomas and Quentin Bryar)

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