Origin Energy sells Darling Downs gas pipeline to Jemena for $392m
Summary: Origin Energy has increased the proceeds from its asset sale program to $1 billion after striking a deal to sell its Darling Downs gas pipeline in Queensland to Chinese-controlled Jemena for $392 million.....
The deal, which has been in the works for several months, increases proceeds from divestments beyond the $800 million target announced in September 2015, with Origin yet to sell its large conventional oil and gas business.
Chief executive Frank Calabria said the sale proceeds would be used to cut debt, which built up during the oil price slump as Origin invested in the $27 billion Australia Pacific LNG project in Queensland.
The latest deal puts Origin well on track to reduce net debt to below its $9 billion target by June 2017.
"In addition we continue to make good progress on the divestment of Origin's conventional upstream business, Lattice Energy, during calendar 2017," Mr Calabria said.
Jemena is understood to have been up against a range of competitors for the Darling Downs pipeline, including a consortium between pipeline giant APA Group and Marubeni, and ATCO Australia.
Paul Adams, Jemena managing director, described the acquisition as "a crucial next step" in the company delivering on its northern Australian growth strategy, which aims to build an interconnected supply chain of energy delivery infrastructure in northern Australia.
The network would be built both through acquisition and the development of assets from scratch such as the $800 million Northern Gas Pipeline being built between Tennant Creek in the Northern Territory and Mt Isa in Queensland, which Jemena has ambitions to extend.
Jemena, which was advised by UBS, said the deal represents a multiple of about 13 times of expected earnings before interest, tax, depreciation and amortisation in 2018. Origin put it on a higher multiple of 16.9 times 2018 EBITDA but Jemena said its figures took into account total forecast revenues and operating costs inclusive of expected savings from integrating the pipeline into its portfolio.
The 292-kilometre Darling Downs pipeline network consists of three interconnected pipelines in south-east Queensland that take gas from coal seam gas fields to the key Wallumbilla gas hub in central Queensland, the Darling Downs power plant and to Origin's APLNG gas pipeline.
The acquisition will "allow us to grow scale in this key market at a crucial time for the Australian energy sector," Mr Adams said, referring to the surge in gas demand from the Queensland LNG export projects, which is requiring greater volumes of gas to be shipped around the grid.
Jemena, with $9 billion of assets, is controlled by China's State Grid Corporation.
Citigroup analyst Michael Dargue said the sale yielded a stronger result than expected.
He said the deal improves the balance sheet, with net debt now potentially being lowered to about $8.5 billion. Assuming Lattice is sold for about $1.7 billion, gearing could fall to 29 per cent by the end of the 2018 financial year, down from about 39 per cent, he said.
Origin is running a dual track process for the sale of Lattice Energy, having originally focused on an IPO of the business, expected to be worth more than $1 billion. Several parties are understood to be looking at Lattice for a potential trade sale, including Beach Energy, Senex Energy with partner EIG Global Energy Partners and other private equity interests.
The Darling Downs sale comes on top of previous divestments including the Mortlake terminal and gas pipeline in Victoria, two wind farms and a 50 per cent stake in a geothermal energy business.
Although APA lost out to Jemena for the asset, JPMorgan analyst Mark Busuttil said the deal had "positive read-throughs" for APA's valuation based on the EBITDA multiple.