Origin Energy, the Australian coal seam gas producer, today rejected a A$13 billion hostile bid from BG Group.

Origin said it would pursue separate deals with joint venture partners to generate value from its coal seam gas, including partnerships with liquefied natural gas companies.

The Australian group, which in May retreated from negotiations with BG over an agreed takeover, rejected suggestions by BG Group that its coal seam gas reserves were overvalued and said that an independent expert had certified the proven, probable and possible reserves to be 10,122 petajoules, equal to 31.6 million cubic metres of gas.

Despite Origin's withdrawal, BG launched a cash offer of A$15.50 per share on June 24 and the British company said the offer was a substantial premium to Origin's undisturbed share price.

The Origin share price has risen by 50 per cent since BG's overtures were first disclosed at the end of April. The Australian company's shares were down 1 per cent on Thursday at A$16.11.

The argument between the two companies is about the latent value of the methane lying in coal bed over which Origin has rights in Australia. Investor interest in coal seam gas has increased greatly with rising international oil and gas prices.

Origin's rethink over the BG deal was prompted by a $2.5 billion purchase in May by Petronas, the Malaysian state oil company, of a 40 per cent share in Gladstone LNG, a liquefied natural gas project to be developed by Santos, an Australian gas company. Petronas will get a third of Santos' coal seam gas reserves and will build a pipeline to an LNG plan in Queensland.

Kevin McCann, Origin's chairman said that Petronas partnership with Santos and Shell's decision to invest in Australian coal seam gas had set a new valuation benchmark.

He said: "It is the board's belief that accelerating themonetisation of Origin's CSG Resevers thourhg a formal process of inviting proposals from suitably qualified and experienced parties will enable Origin to thest the value of its CSG assets through a competitive process."

BG Group yesterday denied suggestions by some analysts that the company needed Origin's coal seam gas to meet its Asian LNG export commitments.

Frank Chapman, BG's chief executive said that Origin had failed to address the risks in it alternative proposals to generate value from its coal seam gas reserves. He said: "It remains the case that Origin must spend a significant amount of time and money to prove up its coal seam gas (CSG) potential. Origin continues to lag its competitors in the exploration and appraisal of its CSG acreage."

Times Recommends

• US stocks fall below 9,000 mark
• House price fall smallest in seven months
• Wary investors opt to keep cash in safes