Origin to divest of upstream business

PERTH (miningweekly.com) – Australian energy major Origin Energy has unveiled plans to focus on its energy market business by spinning out its conventional upstream business.

The company told shareholders on Tuesday that the new company, which would be subject to an initial public offering (IPO), would include the Otway gas and the BassGas projects, in Victoria and the Kupe gas project, in New Zealand.

Origin is the operator of the Otway gas project, a joint venture (JV) between Origin (67.23%), Benaris (27.77%) and Toyota (5%). The company is also the operator of the BassGas project, a JV between Origin (42.5%), AWE (35%), Toyota Tsusho (11.25%) and Prize Petroleum International (11.25%).

The Kupe project is also operated by Origin, which owns 50% of the gas project in a JV with Genesis Energy (31%), New Zealand Oil & Gas (15%) and Mitsui E&P Australia (4%).

The new company would also hold Origin's assets in the Perth, Cooper, Bonaparte and Canterbury basins.

Origin would retain its interest in the Australia Pacific liquefied natural gas project and fully-owned Ironbark project, in Queensland, as well as the Browse and Beetaloo basins.

“The divestment of Origins’ conventional upstream business will allow the company to focus on its energy markets business and the simplified integrated gas business,” said chairperson Gordon Cairns.

“The decision to divest is consistent with Origin’s strategy to focus the business, reduce debt and improve returns for shareholders.”

At IPO, the new company would be a mid-cap exploration and production company with diversified exposure to the Australian east coast, west coast and New Zealand gas markets. It would have a mix of production and exploration assets and would benefit from near-term revenue certainty through contracts that would be put in place with Origin.

The new company would have an independent board and a dedicated management team, with Origin to assist with transitional services for a limited period.

Origin would not hold an ongoing equity interest in the new company.

CEO Frank Calabria described the divestment of the conventional upstream business as a major step towards restoring Origin’s financial flexibility, and said that it was expected to improve the company's return on capital.

Proceeds from the IPO would be applied to debt reduction, less the cost of sale and the amount to close out two oil forward sales agreements that Origin entered into in 2013. Based on the current market pricing, the estimated cost to close these contracts was around A$350-million.

The proposed IPO will not require shareholder approval, and listing of the new company is targeted for 2017.

The proposal is subject to market conditions and final Origin board approval.