BG Group will release its bidder’s statement this week as the battle for Origin Energy heats up.
Origin Friday rejected the $13.7 billion takeover bid offer of $15.50 a share from BG Group, citing increases in its coal seam gas reserves and valuations for the sector.
But there was something else happening on Friday that will have a major influence on this and every future takeover: carbon taxes, levies, climate change and government policy in these hard to understand areas.
The draft report from Professor Ross Garnaut, released Friday, means that all future commercial activity in this country will have to change, and will have an additional cost/benefit to be turned into a financial equation: carbon footprint, carbon credits, carbon tax, emission trading system/securities are all going to be terms we will have to get our minds around.
This is the website for the Garnaut Report and a read of it shows that for some industries it’s going to be tough at first, for others it won’t be as hard because they will have a big asset in what they sell. if its a carbon limiting product, its a bigger, more valuable asset than first thought.
That asset is the carbon value of that production and the methods of turning raw materials into finished goods.
Coal mining aluminium, copper, etc and a slew of packaged goods should have high carbon values at the end of the production chain.
Some products will have a lot carbon value, or will have value because they can lower the carbon emissions of other companies.
Origin Energy is one such company, as are the likes of Santos, Queensland Gas, Woodside Petroleum and the many companies off rooting around the natural gas/coal seam methane gas sectors.
That’s why the bid for Origin is light on. Its gas reserves and their possible use in an export LNG plant in Gladstone (or somewhere else, or used to supply gas to industrial and domestic consumers across the country) has a real value because it is not as big a carbon footprint as coal and electricity from coal fired power stations.
There’s no value ascribed to Origin for that gas and its low carbon potential.
Even though it is early days in this process, should there be some attempt to put a carbon value on Origin, as well as a conventional financial valuation? Are shareholders getting full value for the relatively positive carbon rating for Origin’s main and prospective businesses?
BG Group will reject that, but Origin’s gas has a value greater than the conventional method of valuing it.
But at the moment it’s a conventional bid.
BG launched its hostile bid of $15.50 cash per share last month, almost a month after Origin rejected its unsolicited proposal at the same price – which was revised up from an initial $14.70 a share in April.
BG Group wants Origin to secure its vast gas resources in eastern Australia to feed a proposed LNG plant at Gladstone it plans to develop with Queensland Gas Company Ltd (QGC).
"Clearly there is ever increasing interest in coal seam gas, further transactions have occurred, and we’re clearly living at a time when energy prices globally continue to increase," Origin managing director Grant King told reporters in a conference call on Friday.
"All of which confirm the underlying value of the business."
Shares in Origin dropped 13c to close at $16.15 on Friday, giving it a market value of $14.22 billion.
Origin said it was also trying to clarify what the company labelled "misleading" criticisms by BG Group of its coal seam gas reserve position, reversionary rights and relevant valuation benchmarks.
The power retailer said it’s proved, probable and possible (3P) reserves position had been certified by an independent expert and was consistent with the methodology used for other Queensland coal seam gas operators.(Used by Queensland Gas in which BG group has a 9.9% stake and an LNG plant deal.
On reversionary rights (the rights or royalties going back to previous owners of the areas), Origin’s Grant King said "None of the 3P reserves are likely to revert to prior owners under current market conditions and planned developments".
Origin is pursuing a plan to put value into its extensive coal seam gas reserves in Queensland by inviting third parties to lodge expressions of interest to buy into or joint venture in the development of the resources.
The tender process closed at 7 pm on Friday.
There should be some sort of statement this week as well from Origin on this proposal.
Credit Suisse says BG’s $15.50 per share bid "materially" undervalued Origin and put a "conservative" valuation of $20 per share on the company; Merrill Lynch values Origin at $17.35 per share.
Origin also said Friday that it would pursue the $640 million development of the Mortlake power station in Victoria and had acquired the 640 megawatt gas-fired Uranquinty power station near Wagga, in southern NSW, for $700 million from Babcock & Brown Power.
