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Beach Energy grabs Origin gas assets

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Reuters are reporting that Australia’s Beach Energy has agreed to buy gas assets from Origin Energy for US$1.25 billion in a deal that will more than double the oil and gas producer’s output and step up its exposure to a tight energy market in eastern Australia.

The deal will triple Beach’s oil and gas reserves, transforming a company valued at AUS$1.5 billion that has long been focused on one basin in central Australia to give it a foothold across Australia and New Zealand, onshore and offshore.

At the same time, it has locked in gas sales to Origin from the Lattice Energy business it is acquiring at higher prices than it averaged in the year to June 2017, serving a market that is likely to see gas demand soar for power plants.

Origin spun off the gas assets into a separate arm last year, aiming to sell or float the business to help it cut debt which it had taken on to build the Australia Pacific LNG project.

Beach Chief Executive Matt Kay said that besides expanding the company’s output and reserves, the deal offered certainty of cashflow from the gas sales agreements, which stretch out to 2033.

Beach plans to fund the acquisition through a AUS$301 million entitlement offer to shareholders and new debt facilities, which it expects to be able to pay down within three years.

While analysts congratulated Kay on the deal, they were busy trying to work out the confidential pricing on the gas contracts to evaluate how good an acquisition Beach had made.

Beach said only that the sales were priced at higher than the average of AUS$6.10 a gigajoule that its gas fetched last year and would switch to market pricing, potentially substantially higher, within four years.

Origin was equally happy with securing gas long term in a tight market.

Origin said proceeds from the Lattice sale put it on track to cut net debt to below AUS$7 billion by 30 June 2018.

The losing bidder for Lattice Energy was private equity-backed Questus Energy.

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