Origin Energy Half Year Result - ORG swings to a wider loss on write-offs & weaker energy markets

CommSec

Energy group, Origin (ORG) posted a $1.68bn loss for the six months ended December 2016 after losing $254m a year earlier. The result was largely held back by $1.9bn in impairment charges (mostly LNG related) over the half. Not including these one-off charges, Underlying Profit still worsened by 28% to $184m on a lower contribution from Australia Pacific LNG (APLNG) which it blamed on low oil prices.

The $1,893m in impairment charges were flagged yesterday by ORG. This included a $1,031m write-off for APLNG, Browse Basin ($578m), conventional exploration assets ($170m) and Energia Austral SpA ($114m). ORG attributed the write-downs in carrying value for its APLNG assets to an increase in US$ interest rates, which impacts the opportunity cost of capital.

Its Energy Markets division – which includes the production and sale of electricity, gas and LPG – performed below the market’s expectations and was impacted by weaker electricity gross margins (rising wholesale electricity prices). The unit still reported a $13m increase in Underlying EBITDA to $734m. ORG said that “while the market remains competitive, total customer accounts increased by 17,000”. The volume of natural gas sold to business customers increased by 24%.

Its Integrated Gas business – which includes its LNG unit – lifted Underlying EBITDA by $305m to $442m over the half and was slightly ahead of some analyst expectations. The division was boosted by record production as new projects came online. A 76% lift in output at its APLNG operations and the commencement of production at its Speculant fields and Halladale sites off the Victoria coast helped boost output.

Debt reduction has been a major focus for the group. However, net debt remained largely unchanged over the half. Instead, debt edged higher by $12m to $9.1bn. ORG aims to cut net debt ‘well below’ $9bn by the end of this financial year.

As was flagged earlier in the financial year, ORG has an intention to float its conventional upstream assets in 2017. It expects this will further cut its debt levels. Upstream assets refer to exploration & production (E&P) in the petroleum industry.

As expected, no dividend will be paid to investors following the loss. February 2016 was the last time the energy group paid shareholders a dividend.

The result was poorly received by the market, with ORG shares down as much as 2.2% this morning. ORG shares however have surged by ~40% since OPEC/non-OPEC production cuts were announced in late November 2016, making it one of the better performing stocks in the energy sector. Oil prices have improved by ~25% over the past three months.

Looking ahead, ORG slightly lifted the bottom end of its FY17 guidance range yesterday for Underlying EBITDA (a measure of its operating performance) from $2,370m - $2,615m to $2,450m - $2,615m with underlying profit guidance to $480m - $590m. p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 13.0px Helvetica} span.s1 {text-decoration: underline ; color: #9e4a2f}

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