Origin Energy (ASX: ORG) might be a hopeless romantic. The company has taken to wooing customers with chocolates as part of the its new “Knowledge is Power” brand campaign, packaging the iconic Fantale chocolates with anecdotes and facts about energy. However, even chocolates haven’t been enough to entice a buyer for a stake in the company’s $24.7 billion Australia Pacific LNG (APLNG) project.
Origin had planned to reduce its holding in the project from 37.5% to 30%, but has failed to find a buyer, citing the increased competition from the US shale-gas boom projects. Origin originally held a 50% share in the joint venture in 2011 before reducing it to 37.5% — that share was sold to Chinese petroleum giant Sinopec (NYSE: SNP).
The holding is problematic for Origin because it means higher capital expenditure obligations to the project and an inability to use the cash to repay debt, for which interest payments increased by $44 million in the first half of the financial year. According to Origin the funding requirement for its 37.5% share will be approximately $4.4 billion for the period from 1 January 2013 to first production in 2015.
As ‘plan B’, Origin is considering selling the 530Km main gas transmission pipeline associated with the project, delivering coal seam gas from Miles in Queensland to the coast north of Gladstone. One potential buyer could be APA Group (ASX: APA). APA is Australia’s largest natural gas infrastructure business and is flush with cash after the sale of its 1,184Km Moomba Adelaide Pipeline System (MAPS) for $400.6 million. The company has earmarked the money to repay debt and allocated some to its growth program.
Origin’s failure to sell its stake is a warning for other gas producers who may be relying on the partial sale of projects as a source of capital, including Woodside Petroleum (ASX: WPL) and Santos (ASX: STO).
Currently, APLNG is still on time and meeting the revised budget. Origin’s plan was always to sell the stake, but while holding onto it will mean reduced ability to reduce debt, it will give the company a larger volume of gas to play with. With gas shortages forecast for the east coast of Australia, that may not be bad for investors.
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