Origin, ConocoPhillips partner in CSG-LNG project

Origin Energy, Sydney, has shunned English suitor BG Group by selecting US major ConocoPhillips as operating partner in its four-train coal seam methane and LNG project proposed for Gladstone in Queensland.

Rick Wilkinson
OGJ Correspondent

MELBOURNE, Sept. 8 -- Sydney-based Origin Energy Ltd. has shunned British suitor BG Group by selecting US major ConocoPhillips as operating partner in its four-train coal seam methane (CSG) and LNG project proposed for Gladstone in Queensland.

The move means that Origin has hooked up with a major LNG player with operational, marketing, and technological expertise but no interest in Origin's domestic gas and electricity business and hence an unlikely candidate for a takeover move against Origin.

The deal, announced Sept. 7, specifies that ConocoPhillips will pay as much as $9.6 billion (Aus.) for a 50% share in the CSG-LNG joint venture. This values Origin's 3P CSM reserves at $1.88/gigajoule.

Origin will act as the upstream coal seam gas supplier to the project while ConocoPhillips will be the downstream LNG operator. The 50:50 joint venture formed by the two companies will market the LNG, probably to Asian markets.

The deal involves an upfront payment by ConocoPhillips of $6 billion plus an additional $1.15 billion to carry Origin's share of the costs to final investment decision for an initial 2-train project—a decision expected by yearend 2010. There also will be four additional payments of $525 million when each of the four LNG trains is approved.

The first two trains each will have a capacity of 3.5 million tonnes/year of LNG and are scheduled to come on stream in 2014.

A full four-train development will need a total of about 24 tcf of gas over a 30-year period. That translates into about 20,500 wells needed to supply the LNG development and Origin's existing supply agreements for the domestic market which will be part of the joint venture.

The project also will involve a major increase in gas gathering, centralized gas processing, and compression station infrastructure in and surrounding Origin's coal seam methane fields in Queensland.

Origin put the new joint venture in place as part of its strategy to ward off the hostile takeover offer of $13.83 billion from the UK BG Group.

The transaction is conditional on approval of the Australian Foreign Investment Review Board and any other approvals needed because of the BG offer, which is still on the table.

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