Origin Energy will divest its near-80 per cent stake in the Beetaloo Basin and explore exiting nearly all its upstream gas exploration permits as it accelerates its push to renewable energy.
Origin will also conduct a strategic review of all remaining exploration permits excluding its interests in Australia Pacific LNG, with a view to exiting those permits over time.
The policy shift, which Origin said was motivated by a desire to give it greater capital flexibility, will fuel an intense debate about the speed of Australia’s energy transition and the role of gas as a transition fuel.
The future of gas in Australia is coming under mounting pressure. Environmental and climate change activists have cited the recent federal election results as evidence of public support to curtail new drilling, but a global energy crunch that has sent prices soaring is proof that additional supplies will still be needed.
Origin said it had struck a deal with Tamboran Resources and its substantial shareholder, Bryan Sheffield, to divest Origin’s interest in the Northern Territory’s Beetaloo Basin for $60 million and a royalty payment of 5.5 per cent of revenue for gas it produces.
As part of the deal, Origin has also secured an offtake deal for 36.5 petajoules per annum for 10 years. This is conditional on Tamboran taking a final investment decision on developing the project and securing regulatory approval.
Origin has long weighed options for the Beetaloo Basin, which it has yet to develop into a producing asset, since the turn of the decade, but few expected a full divestment.
Chief executive Frank Calabria said the company believed gas would continue to have an important role in its business, but exiting Beetaloo and most exploration rights will give it greater financial flexibility.
“The decision to divest our interest in Beetaloo and exit other upstream exploration permits over time, will enable greater flexibility to allocate capital towards our strategic priorities to grow cleaner energy and customer solutions, and deliver reliable energy through the transition,” Mr Calabria said.
“We believe gas will continue to play an important role in the energy mix and it remains a core part of our business. Typically, the experience in progressing these types of projects is that the exploration and appraisal phase can be uncertain, and it can be capital intensive to bring projects into production.
“Ultimately, we believe Origin is better placed prioritising capital towards other opportunities that are aligned to our refreshed strategy.”
Mr Calabria told The Australian Financial Review Origin had initially intended to reduce its stake in the Beetaloo Basin but talks with Tamboran quickly led the company to reconsider not only its presence in the Northern Territory but also its place in exploration.
By avoiding the need for heavy investment in exploration, Origin can move even harder into renewables. The announcement comes just months after Origin said it was bringing forward the closure of Eraring, its only coal-fired power plant, by seven years to 2025 in a move that would accelerate the reduction in its carbon emissions.
Origin has previously described the Beetaloo Basin as “one of the most promising shale gas resources anywhere in the world”, and it was the largest player testing commercial viability of the basin’s gas deposits.
The Beetaloo Basin was a favourite of former prime minister Scott Morrison’s government, which had earmarked it as key to the so-called “gas-led recovery” and offered millions of dollars in grants to fast-track exploration.
The May election of the Labor government has, however, moved the dial, and it has pushed aggressively to accelerate the development of renewables.
It has set an aggressive target of having zero-emission sources make up more than 80 per cent of Australia’s electricity mix by 2030, which would allow the country to meet its net-zero by 2050 target.
While pushing renewables, Prime Minister Anthony Albanese has offered support to the gas industry, insisting there was no way to immediately turn off fossil fuels.
The CEO of the Australian Petroleum Production and Exploration Association, Samantha McCulloch, hit back at suggestions the industry is running out of friends, citing support from the prime minister and communities directly benefiting from its investment, such as Dalby in Queensland.
Beetaloo has also been a lightning rod for environmentalists, who have long opposed the Beetaloo development, and Origin had been criticised for its decision to carve out the gas project from new emissions reductions targets for 2030 and 2050.
“Fracking is not what we want. The government should give up backing the industry with taxpayers’ money and invest in health, education and clean energy from the sun because that’s what will keep our future strong,” said Johnny Wilson, chairman of Nurrdalinji Native Title Aboriginal Corporation.
The deal propels Tamboran, which has proved to be an ambitious gas junior since listing on the ASX last year, in the domestic gas market. The company with a $144 million market capitalisation owns unconventional gas resources in the Northern Territory, also in the Beetaloo.
Tamboran was in a trading halt ahead of the announcement as it moves to finalise a $133 million equity raising, with proceeds pegged to pay Origin Energy for an acquisition and for drilling.
Origin expects to record a non-cash post-tax loss of between $70 million and $90 million over the transaction, but analysts welcomed the decision.
Last month Origin said it intends to expand in renewables and storage, with its portfolio of those assets to reach 4 gigawatts by 2030, up from about 1.6 GW now.
Origin is progressing plans to install a 700 megawatt battery at its Eraring site, while it also announced in August the purchase of a 60MW Yanco Solar Farm project from German, family-owned company ib vogt.
“Beetaloo was starting to enter a capex-heavy phase of its life cycle with a long payback period, which would need to be equity financed. Immediate cost savings can be achieved by simplifying the business to Energy Markets and APLNG. These projects added no strategic benefit to the group yet carried significant development risk,” Macquarie wrote in a note to clients.
Shares in Origin were little changed following the announcement, ending down 0.9 per cent.