May 30 (Bloomberg) -- Origin Energy Ltd., Australia's biggest producer of natural gas from coal seams, rejected a higher, A$13.6 billion ($13 billion) takeover offer from BG Group Plc, citing the increased value of its reserves.

BG, the U.K.'s third-biggest natural gas company, raised its cash offer to A$15.50 a share, from an original bid of A$14.70, Origin said today in a statement sent to the Australian stock exchange. Origin advanced as much as 11 percent to a record A$16.15 in Sydney trading.

BG wanted Origin's gas resources to feed a project supplying liquefied natural gas, the fastest-growing energy market, to buyers in northern Asia where prices are almost double the U.S. benchmark. Origin today doubled its coal seam gas reserves and said a $2.5 billion agreement yesterday by Malaysia's Petroliam Nasional Bhd to buy into a rival Australian gas project show its resources are worth more.

``The volume of the increase in resources leaves them a raft of different options they can choose as to how to monetize these,'' said Gavin Madson, associate director at Fitch Ratings in Brisbane. ``Management would have looked at what Petronas paid to join in with Santos Ltd. yesterday and decided there's a bit more money out there for their gas resources compared with what BG put forward.''

Sydney-based Origin, which has gained 84 percent in the past six months, was at A$16.09 at 11:31 a.m. local time.

Earlier Acceptance

BG said Origin's board had on May 28 confirmed in writing the U.K. company's offer should be recommended to shareholders and that it is ``surprised'' to learn Origin has broken off discussions. Origin's latest report on its gas reserves is ``unrealistic'' and doesn't change BG's view on the target's value, it said.

``BG Group's proposal delivers full and certain value today to Origin's shareholders and removes the considerable technical, project and commercial risk which Origin would face in pursuing an LNG scheme,'' it said. BG is ``considering its options.''

LNG demand is set to increase by 10 percent a year through 2015, more than five times the estimated gains in crude oil, as power producers switch to cleaner fuels, according to Citigroup Inc. LNG if gas chilled to liquid form for transportation by tanker. Coal seam gas, mostly comprising methane, bonds as a thin film on the surface of coal and is released when pressure on the coal seam is reduced, usually after water is removed.

`Higher Value'

``The board of Origin has given careful consideration to all of the relevant information available to it, particularly the substantial increase in the company's coal seam gas resource base and the demonstrably higher value now placed on coal seam gas resources,'' Origin Chairman Kevin McCann said.

Origin, which is also Australia's second-biggest electricity and gas retailer, may be worth A$16.62 a share, Credit Suisse Group said in a May 15 report. Petronas yesterday agreed to pay A$4.91 a gigajoule for proven and probable coal seam gas reserves from Adelaide-based Santos, which Santos Acting Chief Executive David Knox said sets ``a new benchmark'' for reserves valuations.

BG, the largest supplier of LNG from the Atlantic Basin into Asia, in February formed a venture with smaller coal seam gas producer Queensland Gas Co. to build an A$8 billion LNG export project in Gladstone. The venture is one of five rival projects in the northeastern Australian city based on coal seam gas, which hasn't previously been used as a fuel for LNG.

`Not Challenging'

Origin Managing Director Grant King said earlier this month BG's offer represents valuation multiples that are ``not at all challenging'' when assessed against Origin's coal seam gas resources, raising speculation the target may seek a higher offer. He said the company may have about 10 trillion cubic feet of recoverable coal seam gas resources in Queensland, about four times its booked reserves of the fuel.

Still, the valuation of the coal seam gas resources depends on how economic they are to develop and that's unclear, Paul Johnston, a utilities analyst at Commonwealth Securities Ltd. in Melbourne, said before today's statement was released.

Origin said an independent review of its fields had increased proven, probable and possible coal seam gas reserves by 121 percent to 10,122 petajoules as at May 15, up from 4,578 petajoules last July. Proven and probable reserves jumped 91 percent to 4,715 petajoules, of which more than half are available for immediate contracting to customers, it said.

`Many Approaches'

``Directors believe, having developed the largest proven and probable coal-seam gas reserves base in Australia, that responding to the many approaches the company has received from third parties will best accelerate the commercialization of these resources,'' McCann said.

The company also owns oil fields and power plants.

The acquisition would have been the second-largest foreign takeover of an Australian company after the $14.2 billion purchase last year of Rinker Group Ltd. by Cemex SAB, North America's largest cement producer.

Goldman Sachs Group Inc. and Gresham Advisory Partners are advising BG, while Origin is being advised by Macquarie Group Ltd.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

Last Updated: May 29, 2008 21:44 EDT