Beach Energy buys Origin assets for $1.6b

Kerry Stokes-backed Beach Energy has agreed to pay $1.


585 billion for Origin Energy’s conventional oil and gas exploration business in a deal that will double its market value.

The Lattice Energy acquisition will also triple Beach’s oil & gas reserves to 232 million barrels of oil equivalent (mmboe), and production in the 2018 financial year is now expected to more than double to between 25 and 27 mmboe.

Beach Energy chief executive Matt Kay says the “transformational” acquisition will deliver a diverse asset portfolio and provide material value growth for shareholders.

“It establishes Beach as a major supplier of gas to domestic markets, and provides a step-change in production, operating capabilities and geographic exposure,” he said said in a statement.

Beach, whose biggest shareholder is the Kerry Stokes-owned Seven Group Holdings, had been rumoured to be a suitor for the assets since Origin hived them into the Lattice business in December 2016.

The deal covers oil & gas projects in the Otway, Cooper, Bass and Bonaparte basins, as well as an interest in the Perth Basin.

It also includes stakes in the Kupe gas project and the Canterbury basin in New Zealand.

Cooper Basin-focused Beach completed an all-stock takeover of smaller rival Drillsearch Energy in 2016, amid an extended downturn in oil prices.

On Thursday, it announced a three-for-14 rights share offer to raise $301 million, with the balance to be funded through syndicated debt facilities.

Shares are to be sold at 75 cents each, a 9.1 per cent discount to the 82.5 cents closing price on Wednesday.

Beach shares are currently in a trading halt.

Seven Group will subscribe to $68 million of the capital raising, taking its stake in Beach to 25.73 per cent, from 22.73 per cent now.

The Lattice sale settles efforts by Origin Energy to streamline its business and reduce debt as part of efforts to bolster its finances.

Origin’s balance sheet had been stretched by the development of the $26 billion Australia Pacific liquefied natural gas project in Queensland, which has forced it to raise equity, slash jobs and suspend dividends.

The company had pledged to divest Lattice by the end of 2017, either through a trade sale or an IPO float.

On Thursday, it said the proceeds from the sale will be used to pay down debt, putting it on track to cut net debt to below $7 billion by June 2018.

Origin will retain its 37.5 per cent stake in APLNG, exploration interests in Ironbark, Browse and Beetaloo basins, and its power generation and retailing business.

The company said it had retained access to a significant portion of Lattice’s future east coast gas production through long-term gas supply agreements.

Morgans analyst called the deal a great result for Origin, but said it was hard to see an upside for Beach.

“Beach has agreed to pay a heavy price to pick up these assets, given all of the upside has been removed by Origin having recently contracted all of the east coast gas back to itself at a fixed below-market gas price,” he said in a note.

By 1432 AEST, Origin shares were up 0.9 per cent at $7.52 each.