Gas prices boost Origin’s profit, as “green” takeover bidder seeks partners

Takeover target Origin Energy on Friday released dramatically higher earnings guidance for its energy markets division, amid reports that bidder Brookfield is looking for equity partners for its share of the proposed $18.4 billion takeover.

The bid by US-gas company EIG and Canada’s Brookfield Asset Management has been held up as the bidders dive into the target’s books, and amid concerns about the impact of the federal government gas price and coal price caps.

Origin went some way towards allaying concerns by revealing on Friday that its energy markets business, which includes generation and retail, are expected to earn between $600 million and $730 million in the 2023 financial year, up from earlier guidance of between $500 million and $650 million.

Canada’s Brookfield Asset Management is leading the bid for Origin, and plans to split the business in two and spend another $20 billion by 2030 on renewables and storage by 2030 if successful.

Brookfield’s investment is seen as an important plank in helping Australia reach its objective of 82 per cent renewables by 2030.

Brookfield is offering $9 a share for Origin and has said it intends to retain its electricity and gas retailing business, while bid partner MidOcean Energy will take over the LNG business. MidOcean is managed by EIG Group.

Additional suitors have been free to explore investment in Origin since a twice-extended period of exclusive due diligence with Brookfield and EIG ended on January 24, though new names have emerged.

“Without a binding offer quickly following, investors will become increasingly sceptical over time that a binding offer will emerge,” Macquarie Bank said in a note to clients.

Origin’s profit upgrade is almost entirely based on its fossil-fuels-driven operations, despite expectations Brookfield, part of the Brookfield Global Transition Fund, the world’s largest fund dedicated to the energy transition, would move quickly to transition the energy markets business into the clean economy.

Brookfield declined comment over  any implications for the bid stemming from the guidance update. However, RenewEconomy understands that Brookfield is continuing to conduct due diligence.

“The improvement in Energy Markets Underlying EBITDA is driven by an expected increase in natural gas and electricity gross profit due to good operating and trading performance, as well as improved coal delivery under legacy contracts,” Origin said in a short statement

No material impact is expected on earnings from its energy markets division from the government’s introduction of a $12/GJ cap on uncontracted gas, given gas supplies for the year had been almost entirely contracted prior to the cap coming into effect, Origin also noted.

That price cap is imposed on domestic rather than international sales, and is designed as a circuit breaker to the soaring gas prices affecting Australian consumers as they mirror international contracts.

Pproduction at Australia Pacific LNG in Queensland – the part EIG hopes to acquire — has been hit by wet weather, with output now expected to be lower than anticipated.

However, earnings from LNG trading would now also be higher than anticipated in the next few years due to hedging in place at “favourable” market prices, according to Origin.

Origin last February announced the fast-tracked closure of its massive 2,880MW Eraring coal power station in New South Wales – the country’s biggest – bringing it forward by seven years to August 2025.

However, Origin CEO Frank Calabria in November warned Australia was not moving with enough urgency to build the replacement infrastructure needed within the next seven years to manage coal closures and achieve the nation’s objective of 82 per cent renewables by 2030.