Origin Energy has formally rejected a hostile A$13.8bn (US$13.3bn) takeover bid from BG Group amid widespread expectations that the UK gas producer will be forced to raise its offer if it wants to secure the Australian group’s huge coal-bed methane reserves.

All of Australia’s major broking houses are valuing Origin at more than the bid price, with Credit Suisse and Merrill Lynch valuing the energy retailer at A$17.8bn and A$15.5bn respectively.

“We suspect BG Group is softening the market up for a higher bid,” said Merrill Lynch in a client note.

Frank Chapman, BG Group chief executive, has not ruled out a higher bid. Although he claims that Origin is not critical to the group’s plans for the Asia-Pacific region, BG hopes to become one of the first companies in the world to convert coal-bed methane into liquefied natural gas.

Mr Chapman stepped up his attack on Origin, highlighting the risks it faced in commercialising its reserves, scorning its A$16bn valuation and questioning its progress.

“We wish to retain and invest in all of Origin’s businesses in Australia – from gas resources and power generation through to retail gas and electricity marketing,” he said.

The UK gas producer is already planning an A$8bn project in Australia with Queensland Gas Company, in which it has taken a 9.9 per cent stake.

Grant King, Origin chief executive, backed the board’s decision to reject BG Group’s offer, saying that interest in coal seam gas was increasing, reinforcing his view that the bid price was too cheap.

“We are living in a time when energy prices globally are increasing, which adds to the underlying value of the business,” he said.

Mr King rejected BG Group’s earlier criticisms of Origin’s reserves position and its valuation of itself.

He said the company’s proven, probable and possible reserves position had been certified by an independent expert and was consistent with the methodology used for other Queensland coal-bed methane operators.

Mr King said the rejection of BG Group’s offer was not purely about price. He said the bid was highly conditional on regulatory approvals that would take months to achieve.

Origin would continue with its strategy of seeking proposals from major energy groups around the world to help commercialise its assets, he said.