Australia's Origin Energy Ltd said it shortlisted several candidates for a plan to build a liquefied natural gas project as it fends off a near-$12 billion takeover bid from Britain's BG Group Plc.
In a statement to shareholders, Origin rejected BG's A$13.6 billion ($11.9 billion) hostile offer as undervaluing its business and future prospects, and said a number of "global participants in the energy industry" had proposed building a LNG project, using Origin's coal seam gas (CSG) reserves, the largest in Australia.
Managing Director Grant King said the candidates proposed LNG projects of various sizes, adding that the company's largest estimate of CSG reserves, also known as proved, probable and possible (3P) reserves, was close to the level required to support a two-train, 6 million tonnes per annum project.
"There's a sense that Origin has gotten quite a positive response on its CSG monetization process, but that's still in early days so it's hard to decide which is a better option," said Jason Mabee, utilities analyst at ABN AMRO in Sydney.
"It's difficult to say what BG might do. There's a high chance they will wait until they get more details on the CSG monetization proposals Origin has received, but they could also make a pre-emptive strike and launch a higher offer."
Origin did not detail the candidates, but bankers previously suggested Royal Dutch Shell.
Shares in Origin, which peaked at A$16.49 in June, eased 0.7 percent to A$16.04 by 0230 GMT on Tuesday, indicating investors expect a higher offer than BG's A$15.50 per share bid.
Origin argues that teaming up with a major energy group to commercialize its CSG assets may deliver better value for shareholders than BG's offer.
"The introduction of LNG channels to market for CSG from eastern Australia has the potential to further increase domestic gas prices," King told a teleconference.
He said Origin was open to committing a majority of its CSG reserves to a LNG project and would buy additional gas from third parties to fulfil its domestic gas contracts.
Sydney-based Origin, which doubled its 3P CSG reserves to 10,122 petajoules in May, also said its CSG assets could be worth A$9.8 billion, or A$0.97 a gigajoule, using recent CSG sector deals as benchmarks.
King said Origin, Australia's second-largest energy retailer, would continue to target growth in underlying earnings per share averaging 10-15 percent a year.
Origin said it would provide an independent valuation as well as the outcome of the CSG monetization process before BG's offer closes on Sept. 26.
Some analysts have said BG, Britain's third-largest oil and gas producer, may have to raise its bid by 10 percent.
A banker with knowledge of BG's thinking has said that if Origin strikes a a good joint venture deal then BG would come under pressure to increase its offer, but he cautioned there was a limit to how far BG would chase the deal.
Origin Chairman Kevin McCann noted the company's average daily share price had been above BG's offer price since Origin rejected the bid on May 30.
"Shareholders should also be aware that brokers' average 12-month share price targets, ranging from A$17.01 to A$20.00, are materially above BG's offer," he added.
BG plans an A$8 billion LNG project in northeastern Australia with Queensland Gas Co Ltd
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