BG Group was considering last night whether to walk away from its $11 billion (£6.2 billion) hostile bid for Origin Energy after its target bolstered its defences against a takeover.

BG's plans were dealt a severe blow when Origin, an Australian company, said that it would form a joint venture with ConocoPhillips, the American oil group, to build a liquefied natural gas (LNG) plant and develop its vast coal-bed methane assets in Queensland.

As part of the deal, designed to tap into booming demand for gas from energy-hungry consumers in the Far East, Conoco will pay $8billion for a half-share of Origin's coal-seam gas assets.

The announcement sent Origin shares up more than 28 per cent to a record high of A$19.99, effectively scuppering BG's existing offer of A$15.50 per share.

A spokesman for BG, formerly the exploration unit of the old British Gas group, said that it was reviewing Origin's announcement and would make a further statement in due course. The group was understood to be considering its options yesterday, including increasing its offer or walking away.

David Thomas, a Citigroup analyst, said that the most likely outcome now was for BG to withdraw: “We believe it will be difficult for BG to match the Conoco deal.”

BG wants to take control of Origin's coal-seam gas reserves to feed its booming business selling liquefied natural gas to China and South-East Asia. However, after the initial offer four months ago, Origin responded by seeking a white knight, inviting proposals on how to best exploit its reserves because it lacked the resources to do so alone.

Apart from ConocoPhillips, four other leading oil groups had submitted proposals to Origin, which believes that its shares should be valued at nearly A$30. BG's offer closes on September 26.

If Origin's investors reject the bid and BG fails to increase it, Origin management can proceed with the Conoco deal without shareholder approval.

Grant King, Origin's managing director, said that the Conoco venture would transform the company and give it the financial strength to fund a decade of growth. “This strengthened financial position will enable Origin to fund both its future growth and undertake capital management initiatives for the benefit of shareholders,” he said. The deal will ease the financial burden of developing its gas reserves for Origin, whose main business is selling gas and power.

The joint venture proposes the development of two LNG processing units, each with annual capacity of 3.5million tonnes with first production scheduled for 2014. A further two units could then be built.

Conoco will pay $5 billion into the joint venture and will also cover the first A$1.15 billion (£532,000) in joint- venture expenses. Origin said that once the deal, which requires Australian regulatory approval, has been completed, it would pay a dividend of A$0.25, doubling its 2008 dividend, and launch a A$1.275 billion share buyback.

ConocoPhillips has experience in coal-seam gas plants in the United States and operates a LNG plant in Darwin in northern Australia, with an output of 3.2 million tonnes a year. Its deal with Origin would create a second export hub.

As supplies such as those in the North Sea wane, natural gas condensed to a liquid so that it can be transported long distances in canisters is likely to become important to Western markets.

Battlelines

April 30
BG proposes to pay A$14.70 in cash for Origin Energy’s shares – a 40 per cent premium to their previous closing share price. Origin rejects the offer but later agrees to hold talks regarding a higher offer of A$15.50

May 30
Origin breaks off talks with BG and begins a search for an alternative joint-venture partner

June 24
BG makes hostile takeover approach at A$15.50 a share

Aug 19
Frank Chapman, BG chief executive, attacks Origin’s plans as “lacking substance or clarity”

Sept 8
Origin announces proposed joint venture with ConocoPhillips

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