Beach to buy Origin oil and gas spin-off in 'transformational' $1.6b deal

By | septiembre 28, 2017
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Oil and gas mid-cap Beach Energy will buy Origin Energy subsidiary Lattice Energy for $1.585 billion, setting it up as a major supplier of gas to the east coast markets.

The acquisition of the oil and gas producer and explorer rapidly expands Beach’s capabilities, increasing its reserves by around 200 per cent, and its guidance by approximately 150 per cent, overnight.

Lattice Energy’s projects include the Otway joint venture, which comprises offshore gas fields, incorporating Thylacine in Tasmania and Geographe in Victoria, and produces an average 60 petajoules (PJ) a year.

Origin chief executive Frank Calabria said while Lattice was ready to be an independent listed entity, the sale to Beach delivered the most value to Origin shareholders.

Beach Energy chief executive Matt Kay said the acquisition was “transformational”.

“The transaction greatly enhances our platform for continued growth, delivers a diverse asset portfolio with significant upside and provides material value accretion for Beach shareholders,” Mr Kay said.

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

Gas supply deals

The agreement also establishes long-term gas supply deals between Origin and Beach to support Origin’s domestic gas supply.

It comes just a day after Prime Minister Malcolm Turnbull reached an agreement with the east coast’s largest gas suppliers to ensure domestic supply in the coming years in order to avoid a predicted shortfall in gas levels.

“Origin retains access to future Lattice Energy east coast gas production and LPG to help us continue to meet the energy needs of our domestic customers,” Mr Calabria said.

“Origin and Beach have a long history of working together through joint ventures and existing gas supply arrangements, as we look forward to continuing that relationship as Beach will remain a major supplier of gas to Origin into the future.”

Beach’s proved and probable reserves lift to 232 million barrels of oil equivalent (MMboe) and its guidance for 2017-18 to between 25 and 27 MMboe.

The acquisition lifts its operated production levels from about 50 per cent to 70 per cent, with offshore operations now forecast to account for about half of all its production. Its attributable east coast sales gas and ethane production will increase by about 310 per cent to 95 PJ equivalent from its three core gas processing hubs, and will represent around 15 per cent of the east coast demand, as recorded last year.

Beach will acquire all the shares Lattice on a cash and debt-free basis.

Seven supportive of deal

It will fund the acquisition through new senior secured syndicated debt facilities of up to $1.575 billion, and by raising $301 million through a 3-for-14 pro-rata accelerated non-renounceable entitlement offer.

Of this offer, $233 million will be fully underwritten, with the remaining $68 million representing the pro-rate entitlements of Beach’s major shareholder, Seven Group Holdings. As a result, Seven Group’s holding in Beach could rise from 22.73 per cent to 25.73 per cent.

Beach will be advised on the transaction by Credit Suisse and Luminis Partners, with Gilbert + Tobin and Chapman Tripp providing legal advice.

Origin will use the proceeds from the sale to pay down debt, keeping it on track to bring its adjusted net debt below $7 billion by June 30.

The deal is still subject to approval from the New Zealand Overseas Investment Office and the New Zealand Minister of Energy and Resources.

The acquisition comes less than a month after Origin inked a $250 million deal to provide Lattice with full control of the Otway Gas Project Joint Venture, as well as nearby exploration projects.

Origin shares rose to a high of $7.58 on Thursday morning, while Beach Energy last traded at $0.825.

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