Beach spends $ 1.6b in Origin gas deal
Townsville AN energy company backed by media mogul Kerry Stokes has agreed to pay almost $ 1.6 billion for Origin Energy’s conventional oil and gas exploration business.
In a move that will double its market value, Beach Energy is buying Origin’s Lattice Energy division for $ 1.585 billion.
The deal will also triple Beach’s oil and gas reserves to 232 million barrels of oil equivalent, and production this financial year is now expected to more than double to between 25 million and 27 million barrels.
Beach chief Matt Kay said the “transformational” deal would deliver a diverse asset portfolio and provide material value growth for shareholders.
“It establishes Beach as a major supplier of gas to domestic markets, and provides a step- change in production, operating capabilities and geographic exposure,” he said in a statement to the stockmarket.
The biggest shareholder in Adelaide- based Beach is Seven Group, the industrial and media investment company controlled by Mr Stokes.
Seven Group is a major investor in Network Seven owner Seven West Media.
Beach had been rumoured to be a suitor for the Origin assets since the energy production and retailing titan hived them into the Lattice business last December.
The deal covers oil and gas projects in the Otway, Cooper, Bass and Bonaparte basins, as well as an interest in the Perth Basin.
It also includes stakes in the Kupe gas project and the Canterbury basin in New Zealand.
Cooper Basin- focused Beach completed an all- stock takeover of smaller rival Drillsearch Energy last year amid an extended downturn in oil prices.
Yesterday, it announced it was offering three new shares to its existing investors for every 14 they owned at a discounted price, to raise $ 301 million.
The shares will be sold at 75c each — a 9.1 per cent discount to the 82.5c closing price on Wednesday.
Funds will go towards the Lattice purchase price, with the balance coming from syndicated debt facilities.
Beach shares were put in a trading halt yesterday as the Lattice deal and capital raising program was announced.
Seven will subscribe to $ 68 million worth of shares in the capital raising program, taking its stake in Beach to 25.73 per cent, from 22.73 per cent now.
The Lattice sale settles efforts by Origin Energy to streamline its business and reduce debt as part of efforts to bolster its finances.
Origin’s balance sheet had been stretched by the development of the $ 26 billion Australia Pacific liquefied natural gas project in Queensland, which has forced it to raise equity, slash jobs and suspend dividends.
The company had pledged to divest Lattice by the end of this year, either through a trade sale or a float.
Origin said yesterday that proceeds from the sale would be used to pay down debt, putting it on track to cut net debt below $ 7 billion by next June. It will keep its 37.5 per cent stake in Australian Pacific LNG, exploration interests in Ironbark, Browse and Beetaloo basins, and its power generation and retailing business.
The company said it was keeping access to a significant portion of Lattice’s future east coast gas production through long- term gas supply agreements.
Stockbroker Morgans called the deal a great result for Origin, but said it was hard to see any upside for Beach.
“Beach has agreed to pay a heavy price to pick up these assets, given all of the upside has been removed by Origin having recently contracted all of the east coast gas back to itself at a fixed below- market gas price,” the broker said in a note for investors.