Takeover target Origin Energy has unveiled a $9.6 billion coal seam liquefied natural gas (LNG) joint venture with US energy giant ConocoPhillips, which sent the Australian company's share price to a record high.
Origin, the nation's second biggest energy retailer, is the subject of a hostile $13.8 billion takeover bid by UK company BG Group.
ConocoPhillips, an established developer and operator of LNG projects worldwide, will take a 50 per cent share in the Queensland joint venture, making an initial payment of $US5 billion ($A6 billion) to Origin.
The joint venture proposes the development of four LNG trains, or processing plants, in Queensland, with production from the first two 3.5 million tonne-a-year trains expected by 2014.
Origin managing director Grant King said the transaction would transform" the company and provide the group with the financial strength to fund a decade of growth.
Mr King said that more than 20,000 petajoules of gas would be required to underpin the development of the four trains, with the joint venture yet to decide on a site for the proposed development.
Shares in Origin gained $4.34, or 27.7 per cent, to a record high of $19.99 before easing to close $2 higher at $17.65.
Origin also announced a $1.5 billion capital management program involving the payment of an additional 25 cent a share dividend and on-market buyback of shares after the completion of the ConocoPhillips transaction.
The transaction is conditional on Foreign Investment Review Board approval and any approvals necessary due to BG Group's takeover offer.
Australia's coal seam gas sector has evolved rapidly this year after the entry of large international players including, Royal Dutch Shell and Malaysia's state-owned Petronas, which are jostling to develop separate LNG plants in central Qld using coal seam gas as feed.
BG Group is targeting Origin, in part to secure its gas resources to feed a proposed LNG plant at Gladstone on the Qld central coast with local partner Queensland Gas Company Ltd.
Origin reiterated its recommendation that shareholders reject the "demonstrably inadequate" hostile BG Group bid of $15.50 cash per share.
"It is a massive deal for Origin and it really does underwrite what they have been saying - that the company is worth a lot more than what BG has previously put on the table," Fat Prophets analyst Gavin Wendt said.
An independent expert's report compiled by Grant Samuel & Associates Pty Ltd has valued Origin's shares at between $28.55 and $30.71 a share.
The independent expert's report valued the coal seam gas assets of Origin between $18.70 and $19.49 per share, assuming the completion of the ConocoPhillips transaction.
"There is a substantial gap called daylight between that (independent valuation) and the BG bid," Mr King told reporters.
BG Group spokesperson Rob Millhouse said the company was reviewing the available documents and would comment further in due course.
ConocoPhillips chief executive Jim Mulva said in a statement that the company had gained access to the leading coal bed methane resource in Australia.
"Moreover, the company has enhanced its LNG position with the creation of an additional Australian LNG hub serving Asia-Pacific markets."
ConocoPhillips will be the downstream LNG operator and Origin will be the upstream coal seam gas operator, with a joint venture company established to market the LNG.
"There is a voracious appetite for LNG, so we really don't anticipate any issues being able to market the LNG," ConocoPhillips executive vice-president of exploration and production John Lowe
told a conference call.
