GOT GAS: The Origin takeover bid is not all about renewables

There are big moves afoot in the energy sector and it all stems from Origin Energy (ASX:ORG) receiving a non-binding takeover offer from Brookfield Asset Management and EIG valuing its shares at $9 each – a level that was last seen in 2018.

It is also a fair bit higher than Brookfield’s previous indicative proposals, which valued the company for $7.95 per share in August and between $8.70 and $8.90 per share in mid-September.

Whatever the reasons behind the two previous – presumably unsuccessful – offers were, the most current certainly seems to have met the board of Origin’s approval, at least if it were made a binding offer and an independent expert ruling the transaction to be fair and reasonable.

Much has been made about Brookfield intending to use Origin as the vehicle to fast track Australia’s shift to green energy, and that is almost certainly true.

However, it is worth remembering that the Australian energy provider also has a 27.5% stake in Australia Pacific LNG.

Responsibility for this business – and its associated coal seam gas fields in Queensland – is likely to be held by Brookfield’s partner EIG, which owns LNG company MidOcean Energy.

This is likely to raise an eyebrow or two given the Australian Federal Government being under increased pressure to reserve a portion of the gas from the Gladstone LNG projects for domestic use as well as concerns about supply chain security.

Gas sector impact

Political concerns aside, that EIG will pick up Origin’s upstream and LNG businesses speaks volumes about how important gas remains in the energy mix both here and the rest of the world.

For junior gas companies, it is just a further sign that there’s still a market for their product, if it wasn’t already clear enough.

Particularly attractive plays might find themselves on the receiving end of a takeover bid – see Strike Energy (ASX:STX) making an all-scrip play for its West Erregulla partner Warrego Energy (ASX:WGO) just today.

One potential loser is AGL Energy (ASX:AGL), itself the subject of two takeover offers from Brookfield.

With Origin flagging its interest in being acquired, Brookfield will likely be unable to take another tilt at AGL due to competition laws though it does not preclude another party doing so.