Origin eyes $8 billion joint venture with Conoco to fend off BG

By Fayen Wong and Tom Bergin

PERTH/LONDON (Reuters) - Australia's Origin Energy Ltd (ORG.AX) struck a joint venture deal with U.S.-based ConocoPhillips (COP.N) and promised an extra shareholder payout, a move that could either defeat an $11 billion bid from Britain's BG Group Plc (BG.L) or force a higher offer.

Origin and Conoco said in statements on Monday that Conoco would contribute up to $8 billion toward a 50-50 joint venture that will develop the massive coal-seam gas (CSG) assets and build a liquefied natural gas (LNG) project.

BG declined to comment on the deal.

The tie-up 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, dealers said.

Some analysts said BG could afford to pay up to A$18/share but others said the Conoco deal could scupper the bid altogether.

"We believe it will be difficult for BG to match the Conoco deal," Citigroup's David Thomas said in a research note. "We therefore believe the most likely outcome now is for BG to withdraw."

Origin also said it would pay a dividend of 25 Australian cents on completion of the joint venture transaction, doubling the 2008 dividend, and commence a A$1.275 billion buy-back of shares.

Its shares rose nearly 28 percent to a record high of A$19.99 on news of the venture.

"Obviously, 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.

Conoco 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.

It will also pay $500 million into the venture when the partners agree to proceed with each train -- LNG production unit -- of the planned four-stage LNG project.

The deal would take the financial burden of developing the reserves off Origin, whose main business is retailing power and gas.

GROWING RESERVES

Conoco 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.

The No.3 U.S. oil company by market value already operates a 3.2 million tonnes a year LNG plant in Australia's northern city of Darwin.