Origin Energy says it had to act after agreeing to fork out up to $US800 million ($A865.57 million) for a stake in a new gas project off the Western Australian coast.
The company, Australia’s largest electricity retailer and generator, has taken on a potential second major liquefied natural gas (LNG) project a year before its flagship $24.7 billion Queensland project comes online.
Origin has struck a deal to buy junior Karoon Gas’s 40 per cent interest in the Poseidon discovery in WA’s Browse Basin.
Origin managing director Grant King said investors were already asking what the company planned to do with the extra $1 billion in cash flow its Australia Pacific LNG project would eventually start delivering.
“The answer is we are setting ourselves up through this investment and have a very good opportunity to reinvest part of those cashflows for continued development,” he told reporters.
“We are balancing the risks of acting now versus the risks of not acting at all.”
Origin saw the gasfields as potentially producing a 45-year LNG project.
Traders were unimpressed sending the stock down 58 cents, or 3.8 per cent, to $14.51 by 1600 AEST, while Karoon’s stock soared by $1.04, or 42 per cent, to $3.50.
100 Doors managing partner Peter Esho said that was due to the high sale price.
Mr King argued Origin was decreasing risk by spending money to buy into a project with a largely proven resource – including attractive gas liquids – rather than exploring for gas itself which meant very long lead times.
Karoon Gas’s permits in the area were issued in 2001, he said.
He said the money spent on Poseidon would not affect the upward dividend path investors were expecting due to APLNG coming online to add to its retail electricity earnings, he said.
Origin’s partner in APLNG, US energy giant ConocoPhillips is the project operator of the Poseidon gas fields, and PetroChina also holds a major stake.
Origin plans to conduct a $1 billion equity offer after August to help pay for the deal.
The project might not generate many Australian jobs, with Mr King talking up the prospect of a “floating” offshore LNG facility which could be built elsewhere to avoid Australian construction costs.
Mr Esho said the sale was great news for other small oil and gas companies such as AWE and Drillsearch Energy amid positive forecasts for LNG demand.
“I think the energy space is in play and we’re going to see a lot of action in the next year or so … we think oil prices are going up,”.