BG Group was dealt a surprise blow today when Origin Energy, the leading player in the fast-growing Australian coal-seam gas sector, rejected an improved A$13.6 billion (£6.6 billion) takeover offer.

The British gas and oil producer said that it was reviewing its options after Origin cited the increased value of its reserves of methane in rejecting the offer of A$15.50 cash per share. Shares in the Australian company soared more than 8 per cent.

BG said that it had been surprised by the break-off in talks after Origin sent a letter on Wednesday stating that the revised offer should be put to shareholders.

Until yesterday the two companies had been engaged in putting the final touches to the agreement.

Origin, also Australia's second biggest domestic energy supplier, said that an independent report had resulted in a 121 per cent increase in its proved, probable and possible coal-seam gas reserves to 10,122 petajoules.

Origin said that the value of these reserves was highlighted by a deal announced yesterday in which Malaysia's Petronas is to invest $2.5 billion (£1.3 billion) in a liquefied natural gas (LNG) project to be supplied from neighouring coal-seam gas reserves in the northeast state of Queensland.

The company said that the announcement by Santos, the country's No 3 oil and gas producer, had established a higher benchmark for the value of coal-seam gas and, along with an LNG project proposed by BG Group in Queensland.

Grant King, the chief executive of Origin, said that the valuation of coal-seam gas in the Petronas deal meant that its interests were worth more than A$16 billion.

"It is particularly relevant to the valuation of Origin's coal-seam gas interests, which includes acreage covered by and adjacent to the acreage being acquired by Petronas," Origin said in a statement.

BG said that it had received a draft copy of Origin's recently commissioned report into its reserves, resources and prospects in the coal-seam gas market and had concluded that its assumptions and conclusions were "unrealistic".

The British company told Origin that the report had not changed its views on valuation and the Australians had responded by confirming its intention to proceed with a deal at A$15.50 a share.

The proposal, raised from an initial A$14.70, represents a premium of 48 per cent above the Origin share price at the close of trading before the initial approach on April 29.

Campbell McComb, investment director at the fund manager Armytage Private, which holds Origin shares, said that BG's raised offer was reasonable.

"At $15.50 Australian dollars, in our eyes that's fair value or a bit better for Origin," McComb said. "The directors in rejecting it have set themselves up with a fair bit of work to do to justify how and why they rejected it."

Richard Griffith, an analyst at Evolution Securities in London, said before today’s events that an aborted deal would be unlikely to result in a regional withdrawal.

“Failure to close the deal would properly undermine the scale of the position they are trying to build and would therefore force a re-think on establishing a source of gas supply in the region,” he said.

BG wants a source of LNG in Asia to strengthen its position in the region, where it is weaker than in Europe and America.

Last month it was chosen by the Singapore Government to supply its domestic demand. Under the terms of the deal, BG will be shipping up to 3 million tonnes of LNG into the city-state each year.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive