Origin Energy has announced plans to exit the gas exploration business, starting with its share in the massive and controversial Beetaloo Basin fracking project in the Northern Territory, as it shifts its focus and “ambition” to the renewable energy transition.
While stressing that gas remains a core part of its business, Origin said on Monday that it would divest 100 per cent of its majority share in the Beetaloo project, ahead of exiting its other upstream exploration permits “over time,” excluding its its interests in Australia Pacific LNG.
Origin CEO Frank Calabria says the decision to divest – which on Beetaloo alone will see the gen-tailer incur a $70-$90 million loss – will allow “greater flexibility” to fund its evolving strategic priorities, which are “to grow cleaner energy and customer solutions, and deliver reliable energy through the transition.”
Calabria also points to the risk inherent in developing projects like Beetaloo as a contributing factor to the decision, noting both the uncertainty of the exploration and appraisal phase and the high cost of producing and delivering the gas, should the resource be there to develop.
“Ultimately, we believe Origin is better placed prioritising capital towards other opportunities that are aligned to our refreshed strategy,” Calabria said.
Origin is the majority shareholder in the Beetaloo Basin joint venture and, according to a statement in March, has carried 100 per cent of the costs of exploration activity there. The joint venture is with Falcon Oil and Gas, which is part owned by sanctioned Russian oligarch Viktor Vekselberg.
The project remains in the exploration phase, with Origin most recently looking to get permission to drill up to 12 more appraisal wells between 2023 and 2026 to further evaluate the viability of the resource before development and production.
As well as being slammed by Australian Greens lead Adam Bandt as a “carbon bomb” with the potential to be worse for the climate than the Adani coal mine, the Beetaloo Basin exploration project is also criticised for being hugely speculative, and logistically and economically challenged due to its remote NT location.
“Beetaloo Basin shale gas development cannot do anything to ‘shore up’ Australia’s energy security,” wrote John Robert from the Institute of Energy Economics and Financial Analysis (IEEFA) in July.
“Proponents of public funding for this development – which is still in the exploration phase – should clarify specifically how this could possibly be the case.
“If there is gas in the Beetaloo Basin in sufficient quantity and with sufficiently low costs of production – given shale gas is significantly more expensive to prove up and produce than conventional gas resources – the cost of delivering it by pipeline to even Darwin or Gladstone is unlikely to be economically attractive.
“If Beetaloo gas were to be piped to Darwin or Gladstone to make liquefied natural gas (LNG) or hydrogen, that again would do nothing for Australia’s energy security. It would only increase tax-free super-profits for foreign gas and LNG producers, as current LNG exports are doing right now.”
Nevertheless, as recently as March of this year former federal resources minister Keith Pitt used the Russian invasion of Ukraine and the subsequent unfolding energy crisis to justify another $7.5 million in grant funding to select proponents to underwrite exploration drilling.
For Origin, at least, after eight years exploring in the Beetaloo Basin alongside its partner Falcon, the ongoing financial gamble of the project has been judged not worth taking.
Calabria says agreements have been executed with Tamboran, an entity 50/50 owned by Tamboran Resources Limited, and its substantial shareholder, Bryan Sheffield, to divest Origin’s interest for an upfront consideration of $60 million and a royalty on future production over the life of field across the Origin interest being acquired.
Origin has also signed a gas sales agreement that will deliver up to 36.5 petajoules a year over 10
years to Origin if development does ultimately occur from the Beetaloo.
“The suite of agreements executed with Tamboran allow Origin to realise value created by our investment and exploration activities to date, and ensures another operator present in the area and committed to developing its resources, can continue to take the venture forward,” Calabria said on Monday.
“We believe gas will continue to play an important role in the energy mix and it remains a core part of our business.”
Elsewhere, Origin says it will undertake a strategic review of all remaining exploration permits – excluding its interests in Australia Pacific LNG – with a view to exiting those permits over time, too.
So what does it all mean? Is Origin becoming a climate good guy?
Origin’s move to stop fracking for gas is, on face value, good news. But not everyone is convinced that this is Origin changing its spots.
Harriet Kater, climate lead at the Australasian Centre for Corporate Responsibility (ACCR) says that with the gas offtake and royalty payments, it’s “more like a conscious uncoupling than full throttle divorce from the Beetaloo Basin.
“This is just more greenwashing,” Kater says. “Divestment is not a solution to reducing real world emissions. Divestment is simply passing the hot potato to the next asset holder.
“Origin will still receive up to 36.5 petajoules of gas per annum from a successful Beetaloo development. It cannot claim this transaction reduces its supply chain emissions or is aligned with its commitment to 1.5C.
“Rather than seeking further buyers, Origin should commit to wind down its permits in the Canning, Cooper and Browse basins.”
The Australian Conservation Foundation sees Origin’s move as a good thing – and a sign that the writing is on the wall for future long-term gas exploration.
“Big new coal and gas projects are material risks, so clever companies are divesting before they find themselves landed with stranded assets,” says ACF climate program manager Gavan McFadzean.
“Origin’s announcement comes on the same day as the news about Trevor St Baker’s decision to sell the Vales Point coal-fired power station in NSW to a Czech company.
“Australia’s energy future is in renewables, not dirty coal or gas or dangerous nuclear.”
Anti-fracking group Lock the Gate Alliance welcomes the signs of a broader financial shift away from fossil fuel projects, but says Origin still has a lot of work to do to really clean up its act.
“Origin has suffered relentless reputational damage over its fracking projects, including in the Northern Territory,” says the Alliance’s national coordinator, Ellen Roberts.
“They’ve faced pressure from their investors, staff and Origin customers who want to see investment decisions in line with a safe climate.
“This reflects the shift away from fossil fuels towards renewable energy and climate action as investors and energy customers increasingly demand companies align with the Paris Agreement.
“But it’s extremely disappointing that Origin plans to proceed with its APLNG project, which includes plans to drill 7,700 new coal seam gas wells north of Roma and in Queensland’s Central Highlands, including on the border of the world-renowned Carnarvon National Park.
“If Origin was serious about its climate targets and its environmental responsibilities, it would abandon these projects too.”
IEEFA analyst Bruce Robertson says Origin’s decision to divest has little to do with the greening of the company.
Rather, Robertson says Origin is simply recognising the need to make the “cold, hard decision” that Beetaloo is no longer a promising investment.
“Beetaloo has caused large-scale wealth destruction for Origin,” Robertson told RenewEconomy. “Given it expects to lose between $70 million and $90 million, Beetaloo’s performance has been pretty appalling.”
More broadly in Australia and globally, Origin’s divestment underscores a growing recognition that costly exploration spending to exploit new sources of gas are becoming more difficult to justify amid the shift to renewables.
Former Origin executive, energy expert and Climate Councillor, Andrew Stock, agrees and says chasing new sources of gas is incompatible with net zero target goals.
Moreover, the financial risk of pursuing new gas is economically unstable, having cost Origin shareholders alone hundreds of million of dollars. Still, Stock called Origin’s move a “positive step.”
“It’s a positive step for Origin to prioritise the energy sources we need more of – renewables backed by storage. Other Australian energy companies and government agencies would do well to follow suit,” he said
Australia’s Greens Party warn than Beetaloo threatens to lift the nation’s carbon emissions significantly, no matter who owns the project.
“The Beetaloo Basin is a climate bomb no matter whose name is on the fracking wells,” Greens leader Adam Bandt said following the announcement.
“Whether Origin Energy is involved or not, cracking open the Basin would increase Australia’s total carbon emissions by up to 11 percent.”
Greens resources spokesperson and Yamatji-Noongar Woman Senator Dorinda Cox said traditional owners and climate defenders would continue to petition to stop this project.
“Origin are either in or they’re out – everything else is greenwashing. You can’t remain a customer while trying to distance yourself from this dirty climate bomb,” Senator Cox said.
“Tamboran must consult and engage with all Traditional Owners and obtain free, informed, prior consent before proceeding with this project.”
