Origin Energy Limited (ORG) Technical Update

Submitted by Jim Thesiger on 5 May, 2008 - 19:30

Origin Energy Limited (ORG) has a target price of $14.70 from Australian Stockmarket analyst Macquarie Research Equities.

Origin Energy Limited (ORG) Not so fast

We'll take the lot - Quantity as much as price matters:

We learned two things from BG's bid for ORG. Firstly the Asian market will buy however much gas Australia has to sell and at reasonable prices. That there was a lot of gas in QLD was never in doubt. Until LNG there was no point in talking about how much gas there was in the ground, as there was no market for it. Now the more gas the better. Secondly BG believes ORG has more gas. In this note we have a guess at how much. Trouble is, it's just a guess.

UBS upside estimate now around 15,000 PJ:

We divide ORG's CSM ground into five areas and make some high and low guesses about the amount of gas in each that might be economic. Clearly though we will have to wait for management to tell us, at least the results of this year's drilling program as well as their thoughts about other areas.

Upside in other areas:

Compared to our last published estimate, we can from an optimist's point of view, see value upside in both the retail and non csm upstream assets of about $1600 m. Most is sourced from the retail business, using a higher multiple and assuming value for some synergies if the asset was sold to another player. Our upside SOPT on that basis and using $7bn for the CSM business is as much as $16.70.

Valuation - unchanged at $14.70 bid price for the time being

ORG could be worth in excess of the bid price, but the uncertainty around the actual level of reserves and the optimism to reach an upper end value, we leave the price target unchanged pending the release or more management information.

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