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Origin Open to Deal With Competitor in Queensland’s LNG Industry

Origin Energy Ltd. (ORG), ConocoPhillips’s partner in a A$24.7 billion ($25 billion) natural gas project in Australia’s Queensland state, said it’s open to collaborating with rivals such as Royal Dutch Shell Plc. (RDSA)

“We’re open to that proposition,” Origin Managing Director Grant King said yesterday in a phone interview when asked about the potential for a deal with Shell and PetroChina Co.-owned Arrow Energy Ltd. “We’re not giving any running commentary on whether such conversation is occurring. We remain open to those discussions. It won’t be ruled out on our part.”

Origin, Santos Ltd. (STO) and BG Group Plc (BG/) are building three liquefied natural gas plants on the Queensland coast. Shell said last year that it may delay a decision on whether to go ahead with the Arrow LNG venture until 2014 amid rising costs in Australia and that it was studying plans to combine its Arrow gas resources with third parties.

King declined to be more specific about any collaboration opportunities in Queensland. It may make sense for Arrow “to consolidate with, or sell gas into one of the existing LNG terminals” operated by Origin or Santos, according to a Nov. 26 report from Goldman Sachs Australia Pty.

Origin yesterday reported a 7 percent cost increase at the Australia Pacific LNG project and cut its forecast for full-year profit for the second time in three months. Standard & Poor’s cut Origin’s credit rating to BBB from BBB+.

Infrastructure

Origin may sell infrastructure assets, including pipelines, connected to the Queensland LNG development as an alternative to selling a stake in the venture, King said. The Sydney-based company said last year that it was looking to lower its holding in the project to 30 percent from 37.5 percent.

“At the right value or price we would still dilute our interest,” King said. “But there are other ways of achieving the same effect as dilution, for example, liberating our assets like infrastructure,” he added.

BG, the U.K.’s third-largest oil and gas producer, is working with Goldman Sachs Group Inc. as it considers selling pipelines and other equipment at its Queensland project, said two people with knowledge of the matter.

Origin won’t need to sell shares to fund its project, King said. China Petrochemical Corp., known as Sinopec Group, owns 25 percent, while Houston-based ConocoPhillips (COP) has 37.5 percent.

“We’re confident that at a BBB, we can fund our interest in APLNG without raising equity,” he said. “We can take right off the table whether we need to raise equity or in fact dilute our interest in APLNG as a way of funding the project.”

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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