Asset sales in the resources space have typically been met with cheers from investors but few felt much like celebrating with the Origin Energy Ltd (ASX: ORG) share price dipping into the red after the company announced a $231 million sale of its Ironbark coal seam gas project.
The ORG share price dipped 0.2% ahead of the market close to $7.66 after falling as much as 0.8% earlier. In contrast, its peers had a much better day.
The Beach Energy Ltd (ASX: BPT) share price, Woodside Petroleum Limited (ASX: WPL) share price and Santos Ltd (ASX: STO) share price rallied while the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained 0.3%.
Resource companies that have sold assets recently have used the proceeds to fund generous capital returns like special dividends and share buybacks.
Asset sale details
In Origin's case, this may not be so. Origin said it would sell the Queensland asset to Asia Pacific LNG (a joint venture which it is a member of) but will book a loss on the sale. Origin bought the project for $655 million in 2009, according to the Australian Financial Review. Talk about value destroying!
The company had written down the value of Ironbark early last year and will book a $34 million impairment in its FY19 results. Origin said it wouldn't have to pay tax on the deal – whoopee do!
No one likes to pay tax but at least you know you've added value when you do, but I digress.
"The sale represents the best way for Origin to maximise value from Ironbark. Australia Pacific LNG is able to realise additional value from the asset by utilising its existing nearby gas and water processing infrastructure to efficiently bring the gas to market," said Origin CEO Frank Calabria.
"Origin will derive value from the development of the Ironbark asset through its investment in Australia Pacific LNG."
Foolish takeaway
What he's saying is not to be too upset about the loss on the sale as shareholders could get extra value from Ironbark if APLNG can turn Ironbark into a producing asset.
Ironbark, located in Queensland's Surat Basin, has 129 PJ of 2P reserves and 192 PJ of 3P reserves. Origin owns 37.5% of APLNG.
I think the oil and gas sector looks attractive for 2019, although the hard to predict and volatile crude oil price makes this sector higher risk than the miners, in my view.
The upside is that valuations in the energy sector are probably more attractive than in the mining space, at least that's according to Morgans (click here to find out more).
Origin shareholders will be hoping the broker has got that right.
