Origin to focus on cutting debt as profit tumbles

Origin chief Grant King will focus on debt reduction now that the APLNG project in Gladstone is close to completion.

Origin chief executive Grant King. Picture: Britta Campion.

Origin Energy chief Grant King has declared debt reduction the company’s main focus now that the $25 billion Australia Pacific LNG project in Gladstone is close to completion, with the company yesterday suspending dividends and flagging more asset sales after reporting its worst underlying profit in 10 years.

Despite the loss, the company has bolstered its balance sheet and operations against low prices and is set for earnings growth thanks to APLNG, giving Mr King and Origin chairman Gordon Cairns the chance to turn to strategic decisions about the structure of Origin, where a demerger of the LNG business has long been speculated about.

With the company soon to see its eight-year development of the 37.5 per cent-owned APLNG turn to cash flow, a major strategic announcement on Origin’s future is possible as soon as in the next few months.

Mr King said that the focus of 2016 had been to ensure the business was stable and resilient to low oil prices.

“The next steps are much more strategic in terms of the structure of the business and strategy going forward,” he said, when asked about a potential ­demerger of the company’s LNG business or energy markets ­business.

“The mix of renewables is something we are very committed to, but within that context we will continue to review assets and structures that best position Origin to take advantage of that ­future — it is now time to think about those issues and that’s where a lot of our attention will go, certainly in the next few months.”

Increased attention will also turn to the tenure of Mr King, who has been at the helm since it was demerged from Boral in 2000 and whom many expect to step down in the near future.

Origin’s full-year report was a mixed bag, with the company reporting a marginally improved net loss of $589 million, down from $658m.

The loss was driven by after-tax impairments of $515m, with $271m due to downgraded reserves at some assets despite net reserve upgrades to the portfolio.

Underlying net earnings weakened due to the impact of low crude prices, tumbling 46 per cent to $365m, the lowest since 2006 and roughly in line with analyst expectations.

A final dividend was not paid, leaving the full-year dividend at 10c a share, in line with market expectations after the company flagged a dividend suspension if oil prices did not recover.

Origin shares slipped 7c, or 1.2 per cent, to $5.77 yesterday.

Mr King said Origin was looking at selling more upstream oil and gas assets than those previously flagged as part of an $800m asset sales program announced with the company’s $2.5bn equity raising last year, a target it says it is on track to reach by the end of this financial year.

“We have not nominated any others, other than saying we continue to prioritise absolute reduction in debt,” Mr King said, adding the company had many assets that were profitable but not central to its strategy.

The board decided not to pay Mr King any short-term bonus in 2015-16.