Shares In Karoon Gas Are Up More Than 40% After An $800 Million Deal With Origin

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Origin Energy Ltd. agreed to buy Karoon Gas Australia Ltd.’s stake in a natural gas project for about $800 million to take advantage of Asian demand, giving the seller’s shares the biggest gain in more than five years.

Origin will acquire 40 per cent of two exploration permits in the Browse Basin off Western Australia that contain the Poseidon discovery, the Sydney-based company said today in a statement. U.S. energy company ConocoPhillips owns 40 per cent and is the operator, while PetroChina Co. holds the rest.

Origin, Australia’s largest electricity and gas retailer, is already partners with ConocoPhillips in the Australia Pacific liquefied natural gas venture in Queensland state, one of seven export developments going ahead in the country. Origin, whose stock fell as much as 3.5 per cent, also plans to sell about $1 billion in shares to refinance the acquisition.

“This is a step in the right direction for Origin as it needed to diversify its gas output outside Queensland,” Evan Lucas, a market strategist at IG Ltd. said today by phone from Singapore. “It’s also a huge relief for Karoon who had been working on this sell down for months.”

Karoon shares jumped 43.09 per cent to $AU3.52 at 2:20 p.m. in Sydney, the most since October 2008. The stock had been suspended since April. Origin fell 3.31 per cent to $AU14.59.

Market Tightness

Chevron Corp., the second-largest U.S. energy producer by market value, and BG Group Plc, the U.K.’s third-largest oil and gas explorer, are among those investing about $180 billion in the seven projects. LNG market tightness will start to ease from 2015 with new supply, according to the International Energy Agency, after spot prices rose to a record in February.

Options for development of the Poseidon field include transporting the gas to LNG production facilities in Darwin or relying on a floating LNG facility, Origin said. A decision on how to develop the gas may be made as early as 2017, Origin Managing Director Grant King told reporters today on a call.

The purchase gives Origin entry into one of the largest offshore gas discoveries at a “competitive entry price when compared to recent transactions in the Browse-Bonaparte region,” King said in the statement. It also follows investments in the Cooper and Beetaloo Basins, he said.

PetroChina, Woodside

PetroChina, Asia’s biggest oil producer, agreed in December 2012 to pay BHP Billiton Ltd. $1.63 billion for its holding in Woodside Petroleum Ltd.’s Browse LNG venture in Western Australia. Woodside last year ditched plans to build an onshore plant to exploit its Browse resources, estimating it would have cost more than A$80 billion ($74 billion).

“Having strong venture partners like Conoco, PetroChina and now Origin give this project a very good chance at being developed,” IG’s Lucas said. “It may also put more pressure on Woodside to clarify its intentions for its gas fields.”

The value of the Origin deal is in line with similar transactions in the Browse Basin, including the BHP agreement, Karoon Executive Chairman Robert Hosking said today by phone.

Karoon is also negotiating with potential partners in South America seeking to attract $200 million to $300 million to fund its exploration plans in Brazil and Peru, Hosking said. Karoon expects to reach an agreement in Brazil “shortly,” while discussions in Peru may extend into next year, he said.

Karoon agreed earlier this month to sell 50 per cent of a Carnarvon Basin exploration permit to Apache Corp.

Origin will pay $600 million and additional payments of $75 million upon a final investment decision and on first production, the company said. A further $50 million will be paid if certain thresholds are reached.

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