By Fayen Wong and Tom Bergin
PERTH/LONDON (Reuters) - Origin Energy Ltd
Origin and Conoco said in statements on Monday that Conoco would contribute up to $8 billion toward a 50-50 joint venture that will develop the massive coal-seam gas (CSG) assets and build a liquefied natural gas (LNG) project.
BG declined to comment on the deal.
The tie-up could force the UK gas producer to raise its A$15.50 per share bid, which was aimed at growing BG's Asia-Pacific LNG production arm to feed its booming Asian LNG sales business, dealers said.
Some analysts said BG could afford to pay up to A$18/share but others said the Conoco deal could scupper the bid altogether.
"We believe it will be difficult for BG to match the Conoco deal," Citigroup's David Thomas said in a research note. "We therefore believe the most likely outcome now is for BG to withdraw."
Origin's shares rose nearly 28 percent to a record high of A$19.99 on news of the venture.
"Obviously, ConocoPhillips' joining is a positive. I suppose it shows that there is good market out there for what Origin has got," said Peter Chilton, a fund manager with Constellation Capital Management, which does not own Origin shares.
Conoco said it would pay $5 billion to the joint venture and would carry Origin Energy for their first A$1.15 billion ($950 million) in joint venture expenses.
It will also pay $500 million into the venture when the partners agree to proceed with each train -- LNG production unit -- of the planned four-stage LNG project.
The deal would take the financial burden of developing the reserves off Origin, whose main business is retailing power and gas.
Origin said after the completion of the transaction, it would pay a dividend of 25 Australian cents, doubling the 2008 dividend, and commence a A$1.275 billion buy-back of shares.
GROWING RESERVES
Conoco said it anticipated booking reserves of around 100 million barrels of oil equivalent from the joint venture in 2008 and the significant size of Origin's coal fields means it could make substantial additional bookings in the years ahead.
Like most oil majors, the company is struggling to add reserves as the biggest resource holders like Saudi Arabia and Russia restrict access, preferring to have their state oil companies develop their richest fields.
The No.3 U.S. oil company by market value already operates a 3.2 million tonnes a year LNG plant in Australia's northern city of Darwin.
"The joint venture combines Origin's extensive CSG reserves and resources and operational capabilities, with ConocoPhillips' proven LNG and CSG development and operating capabilities," Origin Managing Director Grant King said in a statement.
After its board rejected a friendly approach from BG at A$15.50 per share on May 30, Origin invited proposals as to how best exploit its CSG reserves, with options ranging from the sale of its gas assets to partnership in a LNG export project.
The deal is conditional on approval by Australia's Foreign Investment Review Board and Conoco said it expects it to be completed in October.
BG's offer closes on September 26. If Origin's shareholders reject the bid and BG fails to increase it, Origin management can proceed without consulting shareholders, a company spokesman said.
Origin, which holds the largest CSG reserves in Australia, also said an independent expert, Grant Samuel & Associates, has valued its shares at between A$28.55-A$30.71 a piece.
The Conoco-Origin joint venture plans to initially develop two LNG production units, each having capacity of about 3.5 million tonnes per annum (mtpa), and then to add another two or more units. First LNG production is expected in 2014.
CSG fields take up to 18 months to ramp up to full production, when the LNG facility can start up, and Origin has agreed to find a local market for this gas, which could depress local prices or prompt it so sell the gas to a rival, such as Arrow Energy, who will already have a LNG facility onstream.
The joint venture would market the LNG, which is gas cooled to liquid so it can be transported in ships, primarily to Asian markets and ConocoPhillips would leading the marketing venture for the first 10 years.
"This joint venture better balances ConocoPhillips' oil and gas resource mix. In addition, the company's long-term production growth is expected to benefit from a steady, secure source of resource additions," Jim Mulva, ConocoPhillips' Chairman and Chief Executive Officer said in a statement.
Origin said the Conoco deal values Origin's CSG proved, probable and possible (3P) reserves at up to A$1.88 a gigajoule, higher than the A$1.65/gj Malaysia's Petronas
BG shares traded up 4.5 percent to 1,079 pence by 0835 GMT, outperforming a 3.4 percent rise in the DJ Stoxx European oil and gas sector index <.SXEP>. Shares in Origin were up 12.8 percent at A$17.65.
"We see the potential for BG shares to stage a relief rally, given that the market has been concerned for some months that BG might increase its current offer for Origin," Thomas said.
(Additional reporting by Denny Thomas in Sydney; Editing by Louise Ireland/Dhara Ranasinghe)