UPDATE: Origin Says Gladstone LNG Mergers Extremely Unlikely

Origin Energy Ltd. (ORG.AU) Chief Executive Grant King on Friday played down the potential for mergers to occur between proposed LNG projects at Gladstone in Queensland state, saying the companies building the massive terminals probably view consolidation as "extremely unlikely".

King told reporters after the company's annual general meeting in Sydney that analysis shows that there will be plenty of demand for gas by 2015, justifying the existence of multiple projects, and that some people may not fully appreciate that LNG projects take a long time to build.

"So the expectation that someone will do something in a day or a week for projects that take years and years to execute means that perhaps patience is a good virtue," King said in reference to any potential for consolidation.

Origin and partner ConocoPhillips proposed LNG terminal is considered by most analysts to be lagging behind some of its rivals at Gladstone.

It is therefore seen as a more likely candidate for consolidation, along with Royal Dutch Shell PLC's proposed terminal, which currently lacks a sufficient supply of equity gas.

"My sense is that all the major proponents of projects would say that the prospect of what people think of as an equity consolidation is extremely unlikely," King said.

Still, he added that dialogue on potential operational coordination, like sharing infrastructure such as pipelines, has occurred and is expected to continue.

King's comments cool speculation that Origin and ConocoPhillips will team up with Shell, and show that they remain confident of getting their project built by late 2014, despite the fact that it hasn't signed any customers yet.

King's comments may also be a little at odds with statements made earlier this month by the head of Shell's international upstream operations, Malcolm Brinded.

Brinded, who was touring Australia at the time, said Shell is in consolidation talks with other ventures planning to build LNG plants at Gladstone, but he added that Shell is well placed to "go it alone".

The two projects analysts consider to be the frontrunners at Gladstone are being built by BG Group PLC and a joint venture between Santos Ltd. and Malaysia's Petroliam National Berhard.

Analysts like those two particular projects because they have already found customers for at least some of their gas.

Concerns about a looming LNG supply glut stoked by new capacity coming on line from Australia, Papua New Guinea, Qatar and Russia, have prompted investors to discount Origin's share price out of a fear that it and Conoco won't find customers for their gas.

Conoco recently announced that it will cut spending and divest around US$10 billion worth of assets but it has also indicated that work on its 50% share of the Gladstone LNG project will continue as planned.

King said it's important to consider that the joint venture is trying to sell gas five years from now and that a recent slump in energy demand is largely irrelevant.

"From the analysis I've seen, the market's expecting to be requiring additional supply from 2015," he told reporters.

"As I understand it, world re-gas facilities are about twice liquefaction facilities, so there's a lot of ability to import and use LNG."

 
   No Current Intention To Raise Equity Raising 
 

King also said Friday that Origin would not have to issue new shares as a consequence of participating in the proposed privatization of retail power assets by the government of New South Wales state.

Still, he added that Origin may consider conducting an equity raising depending on a number of factors such as whether it makes other acquisitions, whether its interest in NSW power assets actually converts to an acquisition and the state of capital markets.

"Having said that, we have no current intention of raising any equity," told reporters.

Largely thanks to selling 50% of its coal seam gas assets to ConocoPhillips, Origin has access to A$4.4 billion in cash and undrawn debt facilities, so it doesn't have a pressing need to raise equity immediately.

But it will need lots of capital to fund its wind farm development pipeline thanks to the recent introduction of Australia's mandatory renewable energy target and could take an interest in power generation assets currently owned by distressed fund Babcock & Brown Power Ltd.

King said Origin could also take the opportunity to farm into new exploration acreage if it's offered attractive terms.

Origin on Friday also reiterated its profit guidance for the year to June 30, 2010 and said its Australian operations have performed in line with expectations over the first quarter of the financial year.

The integrated energy company said it still expects underlying profit for the 2010 financial year ended June 30 to be around 15% higher than the previous year.

-By Ross Kelly, Dow Jones Newswires; 61-2-8235-2957; [e-mail]