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ConocoPhillips to take stake in Origin gas venture

Monday 8th September 2008

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ConocoPhillips agreed to join Origin Energy Ltd.'s coal-seam gas venture in Queensland, a move that may thwart BG Group's hostile takeover bid for the Australian utility.

The U.S. oil refiner will initially pay US$5 billion for a half share of the venture, which will convert coal-seam gas to liquefied natural gas for the Asian market. Total payments may rise to as much as A$9.6 billion, the companies said in a statement today.

Shares of Origin jumped 12% to A$17.75 and earlier touched a record A$19.99. That's well above BG's A$15.37 a share bid. Origin today reiterated its opposition to the U.K. company's overture.

The transaction will lift underlying earnings per share for 2009 by more than 35%, it said.

The deal with ConocoPhillips will transform Origin's balance sheet, wiping out its net interest bearing debt and giving it a "significant" cash balance, the company said. Origin will manage the coal-seam gas production and ConocoPhillips will be the downstream LNG operator.

Demand for LNG will rise 10% a year through 2015 as power producers switch to cleaner fuels, according to Citigroup Inc., Bloomberg reported.

Grant Samuel & Associates valued Origin at between A$28.55 and A$30.71 a share, with the coal-seam gas assets alone worth A$18.70 to A$19.49 a share.

Shares of Contract Energy Ltd., which is half owned by Origin, rose 2.8% to NZ$8.60. BG Group had said it would sell the holding of Contact if it succeeded in gaining control of its parent.

By Jonathan Underhill

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