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Beach Energy Buys Origin Subsidiary

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The Kerry Stokes-dominated Beach Energy will double in size after it buys the Origin Energy subsidiary Lattice Energy for $1.585 billion.

The purchase will lift Beach’s size and value, reserves, output and cash flows. But it will see a massive debt of more than $1.5 billion taken on, roughly the same size as Beach’s market value.

It is the second big deal involving a company controlled or dominated by Stokes.

Last week Seven Group Holdings, his master company, announced a deal to buy the remaining 53% of Coates Hire for $517 million, plus $1.084 billion in debt. Seven Group then announced the raising of up to $400 million to support that deal.

That raising - $375 million from the big end of the market and $25 million from non-Stokes shareholders - will see Stokes stake in Seven Group fall to around 66% from just under 76%.

Now that capital raising will help support another heavily indebted deal - the Beach purchase of Lattice Energy.

The purchase has the strong support from Stokes’ main company and its stake could rise to nearly 26% from just over 22.7% in the wash up.

Beach, which has a market value of $1.55 billion, will fund the deal for Lattice through a mix of new shares and debt.

Beach shares traded at 82 cents before the announcement yesterday and went into a trading halt to allow the issue to take place.

The Adelaide-based company is seeking to raise $301 million a 3-for-14 pro-rata accelerated non-renounceable entitlement offer, which has the strong support from its biggest shareholder, Kerry Stokes’s Seven Group Holdings.

Of this offer, $233 million will be fully underwritten, with the remaining $68 million representing the pro-rate entitlements of Beach's major shareholder, Seven Group Holdings. As a result, Seven Group’s holding in Beach could rise from 22.73% to 25.73%.

The company will establish new senior secured syndicated debt facilities of up to $1.575 billion.

That means the trio of Stokes companies -Seven Group ($2.56 billion), Seven West Media ($795 million and 41% owned) and now Beach (nearly 23% at the moment and up to $1.57 billion in debt) will be a highly leveraged group connected by shareholdings. All up debt in the three companies will be close to an eye-watering $4.8 billion.

The acquisition will triple Beach’s energy reserves to 232 million barrels of oil equivalent (mmboe), with 2017-18 full-year production now expected to more than double to between 25 to 27 mmboe.

Beach Energy chief executive Matt Kay described the acquisition “transformational” for the company, saying it would significantly enhance the company’s scale and create the leading ASX-listed oil and gas mid-cap with diverse production and growth options.

“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 said in a statement.

Lattice’s portfolio includes Origin’s stakes in an oil-and-gas venture in the Cooper Basin in South Australia, gas operations in WA, Victoria and NSW and exploration projects in New Zealand.

The exit leaves Origin with power-generation assets and retail businesses in eastern Australia, as well as its stake in the $25 billion APLNG export LNG project in Queensland and the coal-seam gas operations that feed it.

A key Lattice project is the Otway joint venture in bass Strait, which comprises offshore gas fields, incorporating Thylacine in Tasmania and Geographe in Victoria, and produces an average 60 petajoules (PJ) of gas a year.

As previously announced, Origin will use the proceeds from the sale to pay down debt, keeping it on track to bring its adjusted net debt below $7 billion by June 30 next year.

And Origin is also looking to sell another asset - its metering business Acumen.

The deal is still subject to approval from the New Zealand Overseas Investment Office and the New Zealand Minister of Energy and Resources.

The Beach deal comes less than a month after Origin did a deal to provide Lattice with full control of the Otway Gas project and nearby exploration interests.

That $250 million seems to have helped nail the deal to sell the company rather than risk a float on the ASX.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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