BRITISH giant BG Group has launched the biggest-ever foreign takeover in the Australian energy sector with a $12.9 billion bid for Origin Energy.

The unsolicited bid, which will require the approval of the Foreign Investment Review Board, comes as companies from resource-hungry countries such as China pursue takeovers across the Australian mining and energy sector.

Origin Energy is Australia’s second-biggest electricity and gas retailer, with nearly three million customers in Queensland, NSW, Victoria, South Australia and New Zealand and several gas-fired power stations.

But its main attraction to the British oil and gas group is its increasingly valuable coal-seam methane gas reserves in Queensland. BG plans to use the reserves to eventually export 10 million to 12 million tonnes of Australian liquefied natural gas a year to the fast-growing Asia-Pacific region.

The bid comes just two months after BG took a 9.9 per cent interest in Queensland Gas Company, which supplies about 15 to 20 per cent of Queensland’s gas market. If the takeover is successful, BG, including its stake in QGC, would control an estimated 20 per cent of the nation’s proved and probable coal-seam gas reserves.

BG has assured the Government it will increase domestic gas supplies if its bid is successful, but some analysts fear a foreign company would push Australian gas prices, which are among the cheapest in the world, sharply higher to better match global prices.

The bid represents the biggest foreign takeover of an Australian company since Mexico’s Cemex last year paid $17billion for building products group Rinker. The takeover would dwarf Anglo-Swiss group Xstrata’s $5billion takeover of MIM in 2003 and is the biggest-ever in the oil and gas sector, eclipsing Shell’s $10 billion bid for Woodside in 2001.

Then treasurer Peter Costello blocked the Shell bid on “national interest grounds”, although analysts believe the Origin deal will not face the same hurdle because BG plans to invest billions of dollars in Australia to build an LNG export business.

And it is considered unlikely that the Government will have the same concerns about this bid that it has about the concerted push by Chinese companies to take a stake in the resources sector, particularly in iron ore. Although BG grew out of the British Gas empire, unlike the Chinese companies pursuing Australian investments, it is no longer government-owned.

BG chief executive Frank Chapman met Kevin Rudd, Wayne Swan and Resources Minister Martin Ferguson on a trip to Australia in February when he toured the Queensland operations of QGC.

Mr Ferguson said yesterday any takeover would be initially a matter for the stock market, which drove Origin shares more than 30 per cent higher to $13.95. “This is a matter for the market to determine and the Government will consider regulatory issues when applications are made in the fullness of time,” a spokesman said.

It is hoped any entry by BG into Australia will stimulate further development in the gas industry, including by international competitors who are often more likely to keep Australian reserves on hold.

Industry sources said the BG bid was a vote of confidence in the prospects for the environmentally cleaner fuel source of coal-seam methane gas. BG is already in a joint venture with QGC to develop an $8 billion LNG plant at Gladstone in central Queensland. The move on Origin would greatly enlarge its existing interests and cement its hold on up to 10 per cent of Queensland’s estimated coal-seam methane gas resources.

The BG bid for Origin is still likely to stir political concerns about ensuring the price and supply of domestic gas given the reserves will increasingly be diverted to export LNG markets. Prices for LNG in export markets are about three times the price of domestic gas at the moment.
But BG, the third-biggest British oil and gas company, has assured federal and state governments its investment in LNG for an export market will only increase the supply of gas for the domestic market. That is because its massive investment in exploration and infrastructure will increase supply while making other smaller projects viable by being able to piggyback on the new infrastructure.

Gas will be increasingly in demand as a power source, particularly after the planned new emissions trading system makes coal more expensive and less attractive. Australia is also discovering more gas every year than it consumes, unlike the situation with oil.

Through Origin, BG will gain access to gas fields as it seeks opportunities to supply LNG to Asia after linking with QGC for an $8 billion LNG export project in Australia. BG will use Australian gas to supply Singapore under its new deal to provide the island nation with up to three million tonnes of LNG a year for 20 years.

The federal Government has been carefully watching the level of Chinese investment in Australian resources companies - including Sinosteel’s $1.4billion bid for iron ore producer Midwest - and FIRB has recently delayed giving approval to some individual company applications.

“What I will do is apply our foreign investment guidelines in the national interest irrespective of the source of those funds,” Mr Swan told Sky News yesterday.

“Chinese investment has got a role to play in this country. But we’ve made it very clear, when it comes to foreign investment from Chinese government entities, that we will apply our national interest criteria as we do in all other cases.”

BG is offering $14.70 a share for Origin, a nearly 40 per cent premium to the share price before the bid became public. The Origin board, which last year rejected a takeover approach from the nation’s biggest power retailer, AGL Energy, said it had not yet considered the proposal and that discussions between the parties would be held.