Origin to spin off upstream assets in IPO

Origin Energy, the owner of a 37.5 percent stake in the Australia Pacific LNG project, plans to divest its conventional oil and gas assets via initial public offering to cut debt and to focus on its energy markets and LNG business.

According to a statement by Origin issued on Tuesday, Origin intends to sell its equity interest in its conventional oil and gas assets to a newly created entity, NewCo, that will list on the Australian Securities Exchange and will be majority owned by third parties.

NewCo will include Origin’s interests in the Otway Gas Project, BassGas Project, Kupe Gas Project, and the Perth, Cooper, Bonaparte and Canterbury basins. Origin said it will retain its interests in Australia Pacific LNG, Ironbark and the Browse and Beetaloo basins.

Origin Chairman Gordon Cairns said, “The divestment of Origin’s conventional upstream business will allow the company to focus on its energy markets business and the simplified integrated gas business. The decision to divest is consistent with Origin’s strategy to focus the business, reduce debt and improve returns for shareholders.

“Given Origin’s ability to invest capital in the NewCo assets is constrained, their long term value will be better supported by them being an independent business.”

Origin’s newly installed CEO Frank Calabria said the divestment of conventional upstream business will be a major step towards restoring the company’s financial flexibility and is expected to improve Origin’s return on capital.

“The energy markets business will continue to be focussed on driving improved earnings through our customer led strategy combined with a competitive wholesale cost of energy.”

“Origin is uniquely positioned to lead the transition to less carbon intensive energy through the acceleration of renewables development supported by a flexible gas supply portfolio and generation fleet which we see as a source of competitive strength. Origin will retain the benefits of integration in the east coast gas market through long term contractual arrangements to be put in place between Origin and NewCo prior to listing,” he said.

“As the upstream operator for Australia Pacific LNG, Origin’s integrated gas business is the largest onshore unconventional gas developer in Australia. Origin has clear scale and capability in this area with onshore unconventional resources available to supply both the growing LNG demand and the east coast domestic gas market,” the CEO said.

Calabria noted that both LNG trains in the Australia Pacific LNG project are now in operation and the integrated gas business is “continuing to focus on reducing costs and improving well productivity.”

The proposed IPO will not require Origin shareholder approval and a listing of NewCo is targeted for 2017.