Origin Energy to divest upstream business

Origin Energy Limited (Origin) has announced its intention to divest its conventional upstream business via initial public offering (IPO), with NewCo to be listed on the Australian Securities Exchange (ASX).

NewCo’s assets will include a 67% interest in the Otway gas project and various exploration permits; a 100% interest in the Halladale and Speculant gas fields off Victoria and Tasmania; a 42.5% interest in the BassGas project off Victoria; and interests in the Cooper Basin and Perth Basin, including a 50% interest in the Waitsia gas project and a 67% interest in Beharra Springs.

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 CEO Frank Calabria said, “The divestment of Origin’s 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 focused 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.

“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.

“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,” Calabria said. 

At IPO, NewCo will be a mid-cap exploration and production company listed on the ASX with a sound capital structure and core capabilities as an on-and-offshore operator and developer of conventional resources. NewCo will have diversified exposure to the Australian east coast, Australian west coast and New Zealand gas markets. It will have a mix of production and exploration assets. Both of these provide a foundation for further growth and development.

NewCo will also benefit from near-term revenue certainty through contracts that will be put in place with Origin. These contracts will be structured to reflect current and future prevailing market prices.

NewCo will have an independent board and a dedicated management team with deep industry and market experience who will develop a strategy, cost structure and culture tailored to the scale and nature of its assets. Origin will assist with appropriate transitional services for a limited period. It is not intended that Origin will hold an ongoing equity interest in NewCo.