British energy group BG Group has gone hostile (and a bit feral) in renewing its $15.50 per share offer for Australian power generator/retailer Origin Energy.

The off-market takeover bid values the Australian company at $13.8 billion and is unchanged from the offer of $15.50 a share that Origin originally accepted, then rejected last month.

Instead of trying to lift the offer price and win the approval of the board, BG Group has gone on the offensive, bagging Origin’s coal seam methane reserves, its plans for those, including a possible Queensland LNG plant, and claiming that other Queensland gas deals had no bearing on Origin’s value.

One wonders how BG would fix the deficiencies it sees in Origin’s gas ambitions, reserves and plans. Some of the criticisms verge on the laughable after BG group made no mention of its concerns (not enough gas for example, unknown technology) when trying to be a “friend” of Origin back in May.

It was an at times “ballistic” attack on Origin and the reasons it gave for reversing its initial acceptance last and rejecting the higher $15.50 a share from BG. BG has obviously had a bit of a sulk about being rejected at the altar and decided to come back with an unchanged offer: a line of attack not at variance with the aggressive personality of the company’s chairman, Robert Wilson, who was a former chairman of Rio Tinto and aggressively knocked off the Australian arm of the company and then took it to London a decade ago.

Investors took one look at the renewed BG offer today, had a chuckle and chased Origin shares higher to around $16.28 just after 11.30am. The renewed offer was revealed just after trading opened and the shares are now at a small but significant premium to the BG price as hedge funds and others pile in expecting a possible counter offer.

Rival oil and gas producer Santos effectively spoiled the first attempt from BG last month when it announced a deal with Malaysia’s Petronas over a planned liquefied natural gas plant in Queensland. That came as the same day as Origin’s board was preparing to accept the sweetened offer from BG.

The $2.6 billion partnership between Santos and Petronas to build an Queensland export LNG plant using coal seam gas, set a new and higher basis for the valuation of this gas type, and importantly lifted the value of its reserves, and those of rivals, like Origin and Arrow Energy, which later sold an interest in some of its gas holdings to Shell.

The BG offer and the subsequent deals between Santos and Arrow sent the gas sector surging higher as investors, especially institutions realised the hidden value that could be in coal; seams in Queensland and NSW (and possibly in the brown coal areas of the Latrobe Valley in Victoria).

But rather than look at the value of the Origin price at the moment, BG Group preferred to look back to before its first approach was revealed.

BG said on Tuesday its offer price represented a 48% cash premium on Origin’s closing price of $10.47 on April 29 just before it announced the first offer.

BG Group said its offer represented a “material premium” for Origin shareholders and reflected the value of Origin’s energy business and its prospective coal seam gas (CSG) development.

“Recent transactions, analysed on a comparable basis, confirm that BG Group’s offer provides full value to Origin’s shareholders,” chief executive Frank Chapman said in a statement to the ASX.

Mr Chapman said Origin shareholders had only “limited visibility” of the risks in Origin’s current reserves position.

He claimed Origin did not have sufficient CSG reserves for a liquefied natural gas joint venture.

But earlier this month Origin managing director Grant King said its coal seam gas assets now made the company a far more valuable business.

At the time Mr King said Origin was worth “a lot more” than BG Group’s earlier $15.50 offer.

Nothing seems to have changed, except the oil price has risen a bit and demand for clean LNG is growing rapidly.

Peter Fray

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