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Origin Energy sells APLNG stake for $2.1bn

Origin Energy may plough part of a $2bn windfall into clean energy and storage projects after it sold a stake in APLNG to private equity owner EIG, three years after the US player’s takeover bid for Santos was foiled.

The pair were in talks for two years over the deal which saw Origin offload a 10 per cent stake in its Australia Pacific LNG export project in Queensland’s Gladstone for $2.12bn to EIG, cutting its ownership to 27.5 per cent.

The $2bn windfall could see Origin pour money into ‘energy transition’ projects in addition to paying off debt and potential returns to shareholders.

“We now get to choose to invest in growth opportunities and balance that against returns to our shareholders,” Origin chief executive Frank Calabria told The Australian.

“That‘s the way we think about it and it enables us to consider those options and that feels like a good place to be as we accelerate into the energy transition.”

Origin, which will remain upstream operator of APLNG, first exported gas from the Queensland plant in 2015 and the joint venture has proved a lucrative source of cash in recent years while also offsetting tough market conditions that have piled pressure on its electricity business.

The Sydney-based company expects more than $1bn of cash flow from APLNG for the 2022 financial year with its smaller stake broadly offset by high oil and LNG prices.

EIG was previously rebuffed by Santos in 2018 with a $13.5bn takeover bid but the private equity player has invested in a string of LNG plants with exposure to nine separate projects spread through six countries.

A belief that gas will be a critical bridging fuel as nations look to cut emissions and move away from coal remains at the heart of its investment strategy, according to EIG chief executive R. Blair Thomas.

“We developed a view a few years ago about how this energy transition would play out. We saw LNG would be particularly valuable going forward.

That was formed in a period in time when we were actually in an overbuild situation on LNG. But as we looked into the future, we felt like, particularly as it relates to Asia, that the long term fundamentals were going to be constructive in LNG.”

EIG said it was open to considering other LNG investments in Australia but held no regrets over its failed Santos takeover, with the South Australian company now embarking on a $21bn merger with Oil Search.

“I’ve been doing this long enough where I get over my regrets pretty quick,” Mr Thomas told The Australian.

“We’re not emotionally attached to these investments. The stars either line up or they don’t. And if they don’t, you move on to the next one.”

“I do think that attempted transaction was part of this same investment thesis and so there is a straight line that connects the thinking on our side as to what makes an investment attractive.

“ They are a good company but they are off doing other things and so be it. But the thinking behind the thesis is similar.”

US oil company ConocoPhillips will remain a 37.5 per cent owner of APLNG with China’s Sinopec at 25 per cent and EIG the final 10 per cent share.

Origin will retain its existing seats on the APLNG board and EIG will have one board seat and voting rights reflecting its 10 per cent ownership while it has already gained foreign investment approvals.

Origin has agreed that it will guarantee EIG’s obligations to satisfy any future cash calls made by APLNG.

Asia LNG prices have soared to a record level, smashing the previous high mark, amid a global energy crunch and supply fears, with Australian exporters in line for a bounty if producers can sell spare cargoes on the spot market.

Origin in August had guided to $1bn in distributions from its APLNG business in the 2022 financial year, based on oil at $US68 a barrel and said there was now “upside” given booming commodity prices. Brent crude is trading above $US85 a barrel and LNG has soared to all-time seasonal highs above $US30 per million British thermal units.

Source: The Australian