JOHANNESBURG (miningweekly.com) – ASX-listed Origin Energy has entered into a conditional sale and purchase agreement with oil and gas explorer Karoon Gas Australia to acquire its entire 40% interest in two exploration permits in Western Australia’s Browse basin for up to $800-million.

These permits contained large and prospective offshore gas fields, such as the Poseidon discovery.

“The Karoon board has approved the sale of WA-315-P and WA-398-P to Origin for up to $800-million. This is the culmination of about 12 months of negotiations with a number of international oil and gas companies. The offer is a clear demonstration of the value created for Karoon’s shareholders by executing on the core business strategy,” Karoon executive chairperson Robert Hosking commented.

In terms of the agreement, Origin would pay Karoon $600-million cash upon completion of the agreement, followed by a further $75-million once a final investment decision (FID) was reached and another $75-million on first production.

A further $50-million would be payable on first production if 2P reserves, at the time of the FID, reached certain thresholds.

Origin would participate in the ongoing exploration and appraisal programme for the permits, including the Pharos well, which was currently being drilled, on a proportional basis to augment Poseidon’s existing resource position.

“Options to monetise the Poseidon field’s resources may include transporting natural gas to liquid natural gas (LNG) production facilities in Darwin or through a standalone floating LNG facility,” Origin said in a statement.

Origin said that it would initially fund the acquisition from existing committed undrawn debt facilities totalling $5.6-billion as at the end of April.

Given that these facilities were put in place to fund Origin’s share of Australia Pacific LNG and to maintain an appropriate liquidity buffer, the drawdown associated with the acquisition would be refinanced through an equity raising of around $1-billion.

This would occur through a pro rata equity offer, at an appropriate time, following the completion of the acquisition and, in any event, sometime after the release of Origin’s full-year financial results on August 21.

“Origin’s acquisition of a 40% interest in the Greater Poseidon area will allow the company to establish a strategic position on one of Australia’s largest recent offshore gas discoveries at a competitive entry price when compared to recent transactions in the region.

“Poseidon is located in one of Australia’s most significant hydrocarbon regions and various options exist to monetise the gas through LNG export opportunities linked to growing demand in the Asian region,” Origin MD Grant King said.

He added that the company welcomed the opportunity to enter the joint venture alongside global oil and gas companies ConcoPhillips and PetroChina, which held 40% and 20% in the project respectively.

“The acquisition of these permits complements recent farm-ins in South Australia’s Cooper basin and the Northern Territory’s Beetaloo basin, thereby increasing Origin’s exposure to the growing demand for natural gas in Australia and oversees,” King said.

He further noted that the company was mindful that the Australia Pacific LNG project would start production in mid-2015 and, therefore, over the next two years there would be a significant increase in Origin’s long-term cash flow and earnings.

“It is important that we act now to invest in Origin’s continued development and growth through the latter part of this decade. We believe that acquiring these resources, when compared with greenfield exploration, substantially reduces the risk of securing opportunities to drive the long-term growth of Origin,” King added.

Meanwhile, Hosking noted that Karoon’s subsequent balance sheet flexibility would allow the company to pursue the planned near-term high-impact oil appraisal and exploration programmes in the Santon, Carnarvon and Tumbes basins.

“Upon receipt of proceeds, Karoon will be in a position to advance the Kangaroo oil discovery toward development, pending a successful outcome from the Kangaroo-2 appraisal well,” Hosking said.

Meanwhile, Karoon also on Monday announced that it would be restructuring its board of directors to ensure that the evolving business risks could be effectively managed as the company progressed into the appraisal phase and, upon its success, into development.

Karoon nonexecutive director Stephen Power would retire from his position once a replacement had been appointed.

Karoon would also then appoint a second new independent nonexecutive director, which would result in an independent majority on the board, and once this had been established, and following a subsequent evaluation period, the board would realign its members to more closely reflect principle 2 outlined by the ASX Corporate Governance Council.

Karoon stated that it had identified and was in discussions with potential candidates.