Analyst Ivor Ries says "every Australian householder will be paying a lot more for gas thanks to captain Bob Wilson from British Gas. He's the best buccaneer England ever produced."
The Labour party may be very anti other people buying our assets.
You know what happened to Woodside. But that was probably a much bigger and more important asset. But at the time I think Shell wanted it for for about $10 which would have made the bid worth about $7,000 m.
ORG is worth about $12,000 m.
what do you think?
good interview here on Inside Business v v v
Analyst looks at BG's share offer for Origin
Date : 04/05/2008
Reporter: Alan Kohler
ALAN KOHLER, PRESENTER: This week's $13 billion bid by British Gas for Origin Energy was immediately characterised as a knock out blow because it was a 40 per cent above the near record price at which Origin had been trading.
BG wants Origin's Queensland coal seam gas reserves to export as LNG into Asia.
But is the $14.70 all cash offer really such a good deal for Origin and its shareholders?
I spoke EL and C Baillieu's Research Director, Ivor Ries.
ALAN KOHLER, REPORTER: Well BG bid about 40 per cent more than Origin's market price and the market now is still below the bid price so the suggestion is that it's a good price, it will succeed. Is that true or in fact has the market just been getting Origin's price wrong?
IVOR RIES, RESEARCH DIRECTOR, EL and C BAILLIEU: I think the market has failed to grasp the fact that global gas prices have quadrupled in the last four years and this company is extremely gas rich, the share price is just taking a long time to catch up with the new global reality.
ALAN KOHLER: So do you think that $14.70 will get it or will Origin Energy's board reject or accept that price?
IVOR RIES: I think the Origin Energy board will ask for a least a dollar above this bid price and they will be entirely justified in doing it, and if BG is able to get Origin at $15.50 in five years time it will look like a fantastic deal.
ALAN KOHLER: How do you think the shareholders will react? I mean what's your sense in the market of how the institutions are viewing $14.70?
IVOR RIES: A lot of institutions think it's a very good price but they haven't really done the math yet on the effective price that BG is offering to buy the gas at. Essentially BG is offering to buy Origin's five trillion cubic feet of gas for 40 cents a gigajoule and the going market price in Asia at the moment is somewhere between 10 and 12 dollars so when they do the math they'll actually realise it's actually not a fantastic offer and I don't think the bid will get anywhere at this price.
ALAN KOHLER: So what does it say about the Australian investors and analysts that Origin's price was around the $10 mark before the bid?
IVOR RIES: Everyone in Australia had assumed it was going to take a long time before Australia's domestic gas prices caught up with international parity, but what BG has done has said "we're going to take this gas and we're gonna export it", so that's removing massive quantities of surplus gas from the market, obviously that's going to drive up the gas price. If you drive up the gas price assumptions, the value of Origin rises dramatically.
ALAN KOHLER: And what does it mean for other gas companies in Australia?
IVOR RIES: Well, you just have to look at the market this week. Most other gas companies are up somewhere between 15 and 20 per cent on the news of this bid, and we think there's a lot more in it. We think there's a lot of undervalued gas in Australia and most of these companies will end up merging or being taken over by a bigger party within the next 12 to 18 months.
ALAN KOHLER: What are the implications specifically for Santos?
IVOR RIES: Santos gets a wonderful fillip from it. They are the second largest holder of coal seam gas reserves in Queensland, they're going to do an LNG development, it's going to boost confidence in them and by comparison, of course, their value is going to increase.
ALAN KOHLER: And what about AGL, what does it mean for them?
IVOR RIES: AGL owns a little bit of coal seam gas but nowhere near enough and so they need to do a bit more work, they need to shore up their gas supplies for the long term to make sure this coming very large increase in domestic gas prices doesn't crunch their margins.
ALAN KOHLER: And what are the political implications of this rise in the gas price that you are talking about?
IVOR RIES: The political implications is there's going to be a lot of industries that become uncompetitive and I think particularly...
ALAN KOHLER: Such as?
IVOR RIES: Fertiliser manufacturers, chemical manufacturers all make good profit margins in Australia because our gas price is low. That's their main feed stock, it's their main cost input. Well, the price of that is going to increase very dramatically over the next few years so obviously pressure is going to come onto politicians to try and somehow quarantine the Australian domestic gas price from these export prices.
ALAN KOHLER: Which has been the basis, I guess, of the market's view that it will take a long time for Australia to reach world parity pricing on gas?
IVOR RIES: Yes, but what's going to happen is that as soon as an LNG plant is built in Gladstone, Australia's domestic gas price will move to parity because that will drag prices up.
ALAN KOHLER: And does that include the domestic gas price for homes?
IVOR RIES: Absolutely, yes, every Australian householder will be paying a lot more for gas thanks to captain Bob Wilson from British Gas. He's the best buccaneer England ever produced.
ALAN KOHLER: Please explain?
IVOR RIES: Well, Bob Wilson used to be the chairman of Rio Tinto and Rio Tinto grew fat on buying undervalued assets from Australians basically and he's trying to do it yet again.
ALAN KOHLER: Thanks very much Ivor.
IVOR RIES: You're welcome.
ORG Price at posting:
0.0¢ Sentiment: None Disclosure: Held
(20min delay)