King Of The Day In Gas Wars
Sydney Morning Herald
Tuesday September 9, 2008
Long live the King. Origin boss Grant King will continue to rule over his domain after delivering what appears to be a fatal blow to the British BG Group's $13.8 billion bid for his company.
King's $9.6 billion joint venture with the American energy group ConocoPhillips is yet another landmark in the rapidly escalating war for control of Australia's huge gas reserves, and particularly the previously untapped methane gas that lies in Queensland's rich coal seams.The question now is: which company is next? And the answer must be Santos.Within the next few weeks, the shareholding restrictions that have kept Santos takeover-proof since the 1980s will be lifted. There is likely to be a stampede from international investors for the company, which is rich in gas reserves and has a major presence in Queensland coal-seam methane gas.In the past few months BG, Shell and the giant Malaysian group Petronas have plunged into Queensland in an attempt to shore up future energy supplies. There has been talk that both BP and Chevron have also been actively scouting for opportunities.And with each new deal, the numbers seem to grow exponentially.BG started the ball rolling early this year with a joint venture with Queensland Gas and then a friendly takeover bid for Origin at a huge premium. The initial $14.70 a share was sweetened to $15.50 which, given Origin was trading around $10 before the offer, seemed assured of success. But then Petronas tied up a joint venture with Santos at much higher prices per unit of gas. That raised the price bar and made BG's offer for Origin look a little on the light side. King and his Origin directors nervously retreated just as they were about to sign to seek an alternative offer. It was a risky ploy that has now been vindicated. King's deal with ConocoPhillips has set a new price benchmark for gas reserves. At $4.07 per gigajoule of possible reserves it easily outstrips the Santos deal with Petronas at $3.73 per gigajoule. The Americans are clearly gambling on a continuing escalation in the price of energy and, in particular, are punting that the price of liquefied natural gas will be equal to that of oil by 2014. BG still has a takeover bid on the table. But unless it comes back with an improved offer of about $20 a share for Origin, it would appear the game is over. The British have retreated to mull over their options and consult their bankers on the possibility of a higher offer. But they face serious problems. To start with, Origin's deal with ConocoPhillips is transparent and cash-rich. The Americans have agreed to stump up a $5 billion deposit to Origin just to get the joint venture up and running. Then there is the question of whether even $20 a share would be enough to get BG across the line. Origin's independent expert has valued the company at between $28.55 and $30.71 a share - which would make any of the independent directors nervous about recommending anything less, even though you would have to discount about $9 a share for the ConocoPhillips deal not proceeding.It is clear BG is here to stay. But the only way it could convince its bankers to stump up extra cash would be to increase the size of the LNG plant planned for Curtis Island, just off the coast at Gladstone. At the moment there are plans for four plants on Curtis Island. But it is likely only two large plants will ever make it off the drawing board.Origin and ConocoPhillips are virtually locked in for one of them. Just who will build the second is up for grabs.BG has contracts in place to deliver gas to Singapore and an expanding Asian market for our energy reserves. It has also indicated it wants to be a major player in the Australian domestic market.That would make Santos an ideal target.In the 1980s, in a bid to ward off the rapacious Alan Bond, the South Australian government decreed individual shareholders could own no more than 15 per cent of the company. Bond never won control.But the restrictions did little to enhance Santos's market performance and it has campaigned for several years for the removal of the shackles.A major player in coal-seam methane gas, it controls 80 per cent of the Fairview field just north of Roma in Queensland. Origin, ironically, has the minority interest in the field. Although Santos already has signed a joint venture with Petronas over its coal-seam methane gas reserves, the Malaysian group would be unlikely to be a bidder for the company.As a wholly owned government company, Petronas would encounter significant hurdles with the Foreign Investment Review Board following recent comments by the Treasurer, Wayne Swan.
© 2008 Sydney Morning Herald
