ORGCD Origin Energy Ltd

MELBOURNE, Australia—Origin Energy Ltd. plans to sell its conventional oil-and-gas operations and focus on energy markets and liquefied-natural-gas sales in an effort to further slash debt built up investing in a massive gas-export plant in eastern Australia.

Origin said on Tuesday it would bundle its upstream operations into a company known for now as NewCo and sell them through an initial public offering next year. The move would accelerate debt reduction and reduce ongoing spending requirements, while also lifting earnings per share in the years ahead, the Australian company said.

Ben Wilson, an analyst at RBC Capital Markets in Sydney, estimated the business to be floated has an enterprise value of about A$1.6 billion-A$1.8 billion (US$1.2 billion-US$1.34 billion), including the oil-sale liability, although there remained questions over issues such as debt. That would position it in line with midsize oil-and-gas company Beach Energy Ltd., which has a market value of close to A$1.6 billion.

Speculation that Origin would split its utility businesses from its oil-and-gas operations has heightened since former energy markets boss Frank Calabria took over as chief executive from Grant King in October. A sale would take advantage of a recovery in oil prices this year, and a recent jump in prices following an agreement by Organization of the Petroleum Exporting Countries to reduce crude output.

"Given Origin's ability to invest capital in the NewCo assets is constrained, their long-term value will be better supported by them being an independent business," Chairman Gordon Cairns said.

Origin said it wouldn't retain a stake in NewCo following the IPO and the proceeds would be used to repay debt, after closing out of two hedging contracts to sell oil.

Origin, one of Australia's biggest energy producers and retailers, was badly stretched by its funding of the A$24.7 billion Australia-Pacific LNG, or APLNG, project on Australia's east coast, one of three big operations in Queensland state that convert methane trapped in seams of underground coal into chilled natural gas that can be exported on tanker ships to meet the anticipated growth in Asia's energy consumption. The start-up of the plant in late 2015 coincided with a slump in oil prices, which underpin most long-term LNG contracts, denting earnings for producers.

Origin had committed to further reducing net debt that was slashed by A$4 billion to about A$9.1 billion through asset sales and an equity raising in the year to June 30.

Origin said it has ended a planned sale of its assets in Australia's western Perth Basin, despite interest in the operations, and would instead add that to NewCo alongside interests in the Otway Gas Project, BassGas Project, Kupe Gas Project, and the Cooper, Bonaparte and Canterbury basins.

That would allow Origin to focus on a portfolio of power-generation assets and retail businesses in eastern Australia, as well as the APLNG project and the coal-seam gas operations that feed it. The APLNG venture, with partners ConocoPhillips and China Petrochemical Corp., recently began exports from a second production line. Origin also plans to put contracts in place with NewCo to give it access to resources to support Origin's east-coast gas portfolio.

A listing of NewCo on the Australian Stock Exchange next year will be subject to market conditions but won't need shareholder approval, Origin said. It plans to release further details on its plans in due course but said NewCo would have a sound capital structure and diverse exposure to markets in eastern and western Australia and in New Zealand. The operations had production in the year through June of 75 petajoules equivalent, a measure of the volume of different petroleum products based on energy content.

Origin appointed Macquarie Capital and UBS Group AG as joint financial advisers and lead managers for the IPO.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

December 05, 2016 21:25 ET (02:25 GMT)

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