Beach Energy has positioned itself to become a major supplier to Australia’s gas famished east coast with a $1.58 billion (US$1.25 billion) buyout of Origin Energy subsidiary, Lattice Energy.

The deal saw the Adelaide-based oil and gas producer acquire assets in the Otway, Cooper, Bass, Perth and Bonaparte basins and interests in New Zealand’s Kupe gas project and Canterbury Basin.

Beach said the sale would boost its reserves by 200% to 232 million barrels of oil equivalent (MMboe) and raise production guidance for 2018 by about 150% to between 25 and 27 MMboe.

The deal comes after Origin Energy agreed to release more gas for domestic use following a meeting between Australia Prime Minister Malcolm Turnbul, who had strongly suggested the possibility of curtailing international exports and diverting gas cargoes to the fragile Australian east coast market, and major east coast gas suppliers.

Origin Energy is believed to have joined captains of the gas industry in pledging more gas to the domestic market, but offloading Lattice essentially shores up its balance sheet as the company was now on track to reduce net debt to less than $7 billion (US$5.5 B) by June 30, 2018, it said in a statement. The Sydney-based company saw its debts soar to $12 billion (US$9.4B) in 2015 as a consequence of cost blowouts and asset write downs at the A$25.9 billion (US$20.3B) Australia Pacific LNG plant on Curtis Island, Queensland.

Origin Energy has a 37.5% stake and is the upstream operator of APLNG, which includes JV partners ConocoPhillips (37.5%) and Sinopec (25%).

Beach Energy said it would finance the Lattice acquisition with a A$301 million (US$236M) share sale and a new $1.58 billion (US$1.24B) debt facility. Two years ago, the company bought Drillsearch Energy for A$384 million (USS$301m), substantially expanding its position in Australia’s central Cooper Basin.

“The transaction greatly enhances our platform for continued growth, delivers a diverse asset portfolio with significant upside and provides material value accretion for Beach shareholders,” Beach Energy Chief Executive Matt Kay said.

“It established Beach as a major supplier of gas to domestic markets and provides a step-change in production, operating capabilities and geographic exposure.”

Prior to the acquisition Beach Energy’s portfolio was restricted to the Cooper Basin. The Lattice deal has transformed the company into a significant Australian gas player with offshore and overseas producing assets.

Offshore operations will now account for about half of the company’s operated production levels, increasing 50 to 70% as a flow on from the deal. East coast gas sales and ethane production will increase by some 310% to 95PJ equivalent -- representing about 15% of east coast demand in 2016 -- from three core gas processing hubs.

The deal includes long-term domestic supply clauses between Origin and Beach that will lock in gas price increases for at least three years. The agreement supersedes Origin Energy’s original intention of floating Lattice Energy.

Neither company has revealed the price of the contracts, but Kay said it would be higher than the $6.10 a gigajoule average gas price the company received last year.

Seven Group Holdings, with a 22.73% stake in the company, is a major shareholder of Beach Energy which has a market value of $1.5 billion.

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