Origin Energy (ORG) Company Stock Update

Submitted by Jim Thesiger on 2 June, 2008 - 22:40

Origin Energy (ORG) has a share price target of $17.01 from Australian stockmarket analyst Macquarie Research Equities.

Origin Energy (ORG) declines revised BG offer, bring it on

Two LNG projects both want ORG gas:

Nothwithstanding the gargantuan reserves and resource upgrade announced by ORG today, we don't believe the Board would have declined the BG offer without a clear management plan as to how the CSM resource was to be monetised. By far the most obvious way for this to occur would be via ORG's participation in the Santos/Petronas JV or by a sale of gas to that JV. BG is likely to take a timeout, but is left depending entirely on the QGC resource for its LNG plant. ORG could, potentially sell gas to both projects, it now seems to have enough gas for that.

Substantial risk, but that's the equity market:

Oil and energy prices are at record levels in real terms, and at levels that have caused global recessions previously. The scramble for global gas positions is leading to big dollars being spent on contingent resources with all the risk of proving them up. There are, apparently, some technical issues with CSM LNG plants. All up the upside from higher gas reserves has to be offset against the risk and the cash offer.

More information required:

We now need detail on ORG's monetisation plan, benefits and costs.

Valuation - reluctantly lifted price target to $17.01

The huge increase in gas resources announced by ORG would of itself lead to a $18 -$20 valuation based on our NPV of undeveloped gas in ground models. However that values ORG's CSM business at twice that of STO or QGC and a substantial premium to BG's offer. We have therefore set a price target at a discount to our asset valuation model.