UPDATE: Origin Says Gladstone LNG Mergers Extremely Unlikely
30 October 2009 - 4:28PM
Dow Jones News
Origin Energy Ltd. (ORG.AU) Chief Executive Grant King on Friday
played down the potential for mergers to occur between proposed LNG
projects at Gladstone in Queensland state, saying the companies
building the massive terminals probably view consolidation as
"extremely unlikely".
King told reporters after the company's annual general meeting
in Sydney that analysis shows that there will be plenty of demand
for gas by 2015, justifying the existence of multiple projects, and
that some people may not fully appreciate that LNG projects take a
long time to build.
"So the expectation that someone will do something in a day or a
week for projects that take years and years to execute means that
perhaps patience is a good virtue," King said in reference to any
potential for consolidation.
Origin and partner ConocoPhillips proposed LNG terminal is
considered by most analysts to be lagging behind some of its rivals
at Gladstone.
It is therefore seen as a more likely candidate for
consolidation, along with Royal Dutch Shell PLC's proposed
terminal, which currently lacks a sufficient supply of equity
gas.
"My sense is that all the major proponents of projects would say
that the prospect of what people think of as an equity
consolidation is extremely unlikely," King said.
Still, he added that dialogue on potential operational
coordination, like sharing infrastructure such as pipelines, has
occurred and is expected to continue.
King's comments cool speculation that Origin and ConocoPhillips
will team up with Shell, and show that they remain confident of
getting their project built by late 2014, despite the fact that it
hasn't signed any customers yet.
King's comments may also be a little at odds with statements
made earlier this month by the head of Shell's international
upstream operations, Malcolm Brinded.
Brinded, who was touring Australia at the time, said Shell is in
consolidation talks with other ventures planning to build LNG
plants at Gladstone, but he added that Shell is well placed to "go
it alone".
The two projects analysts consider to be the frontrunners at
Gladstone are being built by BG Group PLC and a joint venture
between Santos Ltd. and Malaysia's Petroliam National Berhard.
Analysts like those two particular projects because they have
already found customers for at least some of their gas.
Concerns about a looming LNG supply glut stoked by new capacity
coming on line from Australia, Papua New Guinea, Qatar and Russia,
have prompted investors to discount Origin's share price out of a
fear that it and Conoco won't find customers for their gas.
Conoco recently announced that it will cut spending and divest
around US$10 billion worth of assets but it has also indicated that
work on its 50% share of the Gladstone LNG project will continue as
planned.
King said it's important to consider that the joint venture is
trying to sell gas five years from now and that a recent slump in
energy demand is largely irrelevant.
"From the analysis I've seen, the market's expecting to be
requiring additional supply from 2015," he told reporters.
"As I understand it, world re-gas facilities are about twice
liquefaction facilities, so there's a lot of ability to import and
use LNG."
No Current Intention To Raise Equity Raising
King also said Friday that Origin would not have to issue new
shares as a consequence of participating in the proposed
privatization of retail power assets by the government of New South
Wales state.
Still, he added that Origin may consider conducting an equity
raising depending on a number of factors such as whether it makes
other acquisitions, whether its interest in NSW power assets
actually converts to an acquisition and the state of capital
markets.
"Having said that, we have no current intention of raising any
equity," told reporters.
Largely thanks to selling 50% of its coal seam gas assets to
ConocoPhillips, Origin has access to A$4.4 billion in cash and
undrawn debt facilities, so it doesn't have a pressing need to
raise equity immediately.
But it will need lots of capital to fund its wind farm
development pipeline thanks to the recent introduction of
Australia's mandatory renewable energy target and could take an
interest in power generation assets currently owned by distressed
fund Babcock & Brown Power Ltd.
King said Origin could also take the opportunity to farm into
new exploration acreage if it's offered attractive terms.
Origin on Friday also reiterated its profit guidance for the
year to June 30, 2010 and said its Australian operations have
performed in line with expectations over the first quarter of the
financial year.
The integrated energy company said it still expects underlying
profit for the 2010 financial year ended June 30 to be around 15%
higher than the previous year.
-By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957;
ross.kelly@dowjones.com