According to a filing with the ASX yesterday, BG Group of Britain holds a huge 0.15%, or 1.337 million shares, in its takeover target, Origin Energy, or rather its former takeover target.
The filing is a timely reminder of the lack of success of the BG Group’s $15.50 a share hostile offer for Origin: it’s just wasn’t going anywhere.
With Origin shares trading around $17.40, BG Group could make a handy $2.7 million profit on the deal if it chose to sell now after Origin’s shares surged on the news of its joint venture with ConocoPhillips of the US over half its Queensland coal seam methane gas reserves.
And that’s what BG did, announcing the withdrawal of its bid yesterday evening, leaving Origin to get on with life with Conoco.
Origin shares eased 15c to $17.40 in yesterday’s market that was down 1.6%.
One analyst at Merrill Lynch had said BG Group would need to almost double its $13.8 billion takeover bid for Origin if it is to scuttle the power retailer’s joint venture with Conoco.
Merrill Lynch said in a client note that "BG Group’s offer looks unlikely to proceed unless it can significantly increase its bid.
"With the (Origin) board reaffirming the independent expert’s $28.55 to $30.70 per share valuation, we believe BG would need to nearly double its bid to obtain the support of the board and Origin’s 40 per cent retail shareholding."
"Conoco’s deal values ORG’s CSG reserves at greater than the BG bid, and Conoco’s proposed price extinguishes concerns around reversion and the reserves upgrades. So we believe BG is left to either significantly increase its bid, or abandon it."
In a comment entitled ‘Independence Day’ JPMorgan said "Following this transaction we do not expect BG to come back with a significantly higher cash offer that would enable a successful bid.
"We believe it will be difficult for BG to come back with a higher cash offer given the Independent Expert’s valuation of Origin’s shares is A$28.55 to A$30.71/share. Whilst BG currently has ~£600m in cash sitting on its balance sheet, the company had planned to fund its bid for Origin using bank debt which has already been secured.
"We believe that in order for Origin shareholders to accept the BG offer, BG would need to revise their cash offer to somewhere in the vicinity of $22 to $25 per share, representing a 42% to 61% increase on their original bid. Any revised bid would still be subject to BG shareholder approval as was the original $15.50 bid."
That was an accurate reading of the situation.
International parties active in the sector include, Royal Dutch Shell, Malaysia’s state-owned Petronas and BG Group.
Origin’s joint venture with ConocoPhillips proposes the development of four LNG trains, or processing plants, in Queensland, with production from the first two 3.5 million tonne-a-year trains expected by 2014.
That will be one of four competing plant proposals, a situation that cries out for some rationalisation and sharing of interests.
With Origin out of the picture, Queensland Gas and Santos are now tipped to get more attention.
QGC and BG Group already have a relationship with a 9.9% shareholding by BG in QGC. That can rise under certain circumstances. AGL Energy is in QGC as a major shareholder that will be watered down by the cash and share offer QGC is running for Sunshine Gas.
BG Group said yesterday it was committed to the relationship with QGC.
QGC closed up a cent at $4.81 yesterday which values the company at just over $3.9 billion. That would be a cheaper option for BG
Santos was trading at $18.61, down 14c after a big jump Monday in the wake of the Origin-Conoco tie up.
The South Australian Government’s shareholding cap comes off Santos shortly and at $11.1 billion market cap it would be a cheaper entry. Market analysts say Petronas is not a contender for a bid, despite its 40% interest in the coal seam gas based LNG plant Santos is proposing for Gladstone.
Petronas is owned by the Malaysian government and the Australian government doesn’t like foreign national governments controlling strategic Australian resources.
JP Morgan said yesterday in its note to clients:
"In our view the Origin /ConocoPhillips deal has provided further credibility to the concept of coal seam methane LNG, and again highlighted the value of high quality coal seam methane reserves in Australia. We continue to see good value in QGC and Santos, which still trade at attractive discounts compared to Woodside.
"Origin’s proposed CSM LNG project in Queensland will compete with the BG/QGC and Santos/Petronas proposals.
"Our assessment is that Origin’s proposal is behind both the BG/QGC and also Santos/Petronas LNG project proposals, and we do not see the Origin project as a major threat to the first train schedules for the BG/QGC and Santos/Petronas proposals.
"We now count more than 100mtpa of proposed LNG capacity just in Australia, whereas Wood Mackenzie demand forecasts call for only about 65mtpa of new supply for the Pacific Basin out to 2020.
"Additionally, we are seeing less of a requirement for LNG imports into the US given the boom in shale gas production.
"While Asia Pacific LNG markets are currently very tight, we foresee a softening of this market and also see the potential for major project deferrals.
“For investors, it is a case for buyer beware.
"The Oil Search (OSH) PNG LNG project is low risk in our view, and we also like the prospect of the Santos and QGC coal seam methane LNG projects, which we believe are
