ORIGIN Energy has continued its acquisition spree, this time entering into an agreement with Karoon Gas to give it a foothold in Western Australia’s Browse basin.
Under the sale and purchase agreement with Karoon, announced to the Australian market in June, Origin will purchase the company’s entire 40 per cent stake in two exploration permits in the prospective Poseidon gas field.
If the deal is successful, Origin will join project operator ConocoPhillips and PetroChina in the partnership, with the companies holding a 40% and 20% stake in the permits respectively.
Once regulatory approvals and other conditions precedent have been met, Origin will make an upfront US$600 million cash payment to Karoon followed by additional payments of US$75 million payable upon a project Final Investment Decision (FID) and US$75 million payable on first production.
A further payment of up to US$50 million will be payable on first production if 2P reserves at the time of FID reach certain thresholds, Origin said.
Origin will participate in the ongoing exploration and appraisal program – including the Pharos well which is currently being drilled by the joint venture.
Options to monetise the Poseidon field’s resources may include transporting natural gas to LNG production facilities in Darwin or through a standalone floating LNG facility.
Origin managing director Grant King said the deal enabled the company to establish a position in one of Australia’s largest recent offshore gas discoveries at a competitive entry price.
“Poseidon is located in one of Australia’s most significant hydrocarbon regions and various options exist to monetise the gas through LNG export opportunities linked to growing demand in the Asian region.
“We believe that acquiring these resources, when compared with greenfield exploration, substantially reduces the risk of securing opportunities to drive the long-term growth of Origin.”
With Australia Pacific LNG due to begin producing in mid-2015, Mr King said the company was mindful of a significant increase in its long-term cash flow and earnings position.
“It is important that we act now to invest in Origin’s continued development and growth through the latter part of this decade,” he said.
Origin plans to initially fund the acquisition from existing committed undrawn debt facilities which totalled upwards of $5.5 billion at the end of April.
However, Origin said it would need to go to the market to find an additional $1 billion.
“Given these facilities were put in place to fund Origin’s share of Australian Pacific LNG and maintain an appropriate liquidity buffer, the drawdown associated with this acquisition will be refinanced through an equity raising of around $1 billion,” the company said.
“This will occur through a pro-rata equity offer at an appropriate time following completion of the acquisition and, in any event, sometime after the release of Origin’s full year financial results on 21 August 2014.”
For Karoon, the transaction will provide a welcome relief to its funding issues, with the acquisition injecting a significant amount of capital to fund the planned high impact oil drilling program in the Santos, Carnarvon and Tumbes basins. In addition, Karoon said it would allow the board to consider possible strategic capital management initiatives.
Origin’s move into offshore WA comes in the wake of the company’s $200 million beeline into the Northern Territory’s onshore Beetaloo basin as it seeks to diversify its portfolio which is currently centred on exporting LNG next year from its CSG fields in Queensland.
“The acquisition of these permits complements recent farm-ins in South Australia’s Cooper basin and the Northern Territory’s Beetaloo basin, thereby increasing Origin’s exposure to growing demand for natural gas both in Australia and overseas,” Mr King said.
Analyst Peter Strachan said in a note that at a price of around US$2.60/BOE, Origin’s purchase costs for Poseidon were less than half the normal discovery cost for hydrocarbons in Australia, setting Origin up to increase its exposure to global LNG supply.
According to Mr Strachan, the most logical route to market for Poseidon gas was through a pipeline connecting with existing delivery into Darwin to provide top-up and backup for the facility or, more likely an expanded plant with and LNG output capacity of over 7 million tonnes per year.
The deal with Karoon is anticipated to be completed during the third quarter of 2014.