Origin Divests Upstream Unit Lattice for US$1.2bn
Australian utility Origin Energy has sold its conventional upstream oil and gas business, Lattice Energy, to Australian producer Beach Energy for A$1.6bn (US$1.2bn). Origin said September 28 its aim is to simplify its core business, reduce debt and improve returns to shareholders.
The transaction will be effective July 1, 2017. As Lattice includes not only Australian but also New Zealand assets, the deal is subject to approvals from the New Zealand minister of energy and resources and the New Zealand Overseas Investment Office.
As part of the sale, Origin has secured access to a portion of Lattice Energy’s future east coast gas production under long-term gas supply agreements to support its domestic gas business.
“Origin and Beach have a long history of working together through joint ventures and existing gas supply arrangements, and we look forward to continuing that relationship as Beach will remain a major supplier of gas to Origin into the future,” Origin CEO Frank Calabria said.
Proceeds from the sale will be used to pay down debt, putting Origin on track to reduce adjusted net debt to below A$7 billion by June 30, 2018.
According to Wood Mackenzie’s Australasia senior analyst Chris Meredith the acquisition will bump up Beach’s production by 160% to 46,000 boe/d. The company will become much more gas focused, with gas production increasing from 45% of total production to 66%. "The sale will be positive for the eastern Australian gas market. Beach is a domestic focused player, and without LNG to distract it, we expect to see increased investment in exploration, development and production in these assets. This will enable Beach to capitalise on the high east coast gas prices," said Meredith.
“It establishes Beach as a major supplier of gas to domestic markets, and provides a step‐change in production, operating capabilities and geographic exposure. It also provides attractive long‐term gas contracts with Origin Energy and other high quality counterparties,” Beach CEO Matt Kay, said.
Beach intends to fund the acquisition through a mix of share sale and debt.
Shardul Sharma