Origin Energy has raised more than $2 billion from the sale of part of its stake in a big Queensland LNG plant, taking advantage of high demand and prices for the compressed natural gas.
Origin said on Monday that had sold 10% in the Australia Pacific LNG (APLNG) joint venture in Queensland for $2.12 billion deal to a US based investment group
The sale to US-based energy investor EIG will leave Origin with 27.5% of the Australia Pacific LNG venture, while US energy group, ConocoPhillips would retain 37.5% and China’s Sinopec will be on 25%.
Origin chief executive Frank Calabria said divesting the 10% stake would provide Origin with a “material cash injection” at an important time, enabling it to deliver returns to shareholders, pay down debt and seize on growth opportunities.
That’s an important comment because at June 30 Origin only had around $470 million in cash on its books, down from $1.24 billion at the end of June, 2020 as it faced further problems on its energy contracts from falling power prices.
Origin reported a $2.2 billion loss for the year ended June 30.
That loss and the fact that the company still has more than $5.2 billion in short- and long-term debt on its books (which is down from $6.8 billion a year earlier) makes the sale of part of its key asset at a time of high demand for its gas, a more bankable option for investors and its banks than borrowing more debt.
Selling part of the company’s core producing assets though is a bit like selling off a bit of the family silver.
Mr Calabria said on Monday though was confident; “A diverse asset portfolio, combined with strategic investments over the past 18 months, have put Origin in a strong position to lead the energy transition.”
That’s a line he took in the annual results release in August and at last week’s annual meeting – but there was no mention of telling shareholders the company wanted to raise more cash.
Origin, AGL and EnergyAustralia have been felling the pinch in the past two years from the rise of renewable energy, as the rise in the capacity of cheaper wind and solar power has pushed down daytime wholesale electricity prices to levels where big coal and gas-fired plants struggle to compete.
But because of the global carbon shortage – specifically coal in Asia, gas in Europe and the Asian area, LNG prices have surged – getting close to $US50 a million British Thermal Units two weeks ago which is close to 10 times what they were a year ago in the middle of the pandemic’s first wave.
LNG prices remain above $US30 a million BTU’s and oil is more than $US80 a barrel and up 100% in the past year.
Mr Calabria said Origin would retain its existing seats on the Australia Pacific LNG board, while EIG would have one board seat and voting rights commensurate with its 10 per cent shareholding.
Completion of the sale is subject to pre-emptive rights in favour of ConocoPhillips and Sinopec, while ConocoPhillips must be satisfied that EIG is capable of satisfying its obligations under the Australia Pacific LNG Shareholders’ Agreement with the benefit of Origin’s supporting guarantee.
Based on an estimated completion date of December 21, Origin’s net proceeds of the sale were expected to be $2 billion after adjustments and transaction cost, the company said.
Investors were positive about the sale – the shares rose 3.8% to $5.38.
