Origin Energy buoyed by ‘impressive’ pricing
Better-than-expected LNG prices helped Origin avoid fallout from tepid gas markets, while electricity sales fell.
Better than expected LNG pricing and production helped Origin Energy avoid any fallout from tepid gas markets in the June quarter, while electricity sales fell as COVID-19 saw big industrial users curb their volumes.
Revenue from Origin’s Australia Pacific LNG business dipped 3 per cent to $610m compared with the March quarter, ahead of analyst expectations, while income for the 2020 financial year fell 5 per cent to $2.64bn on the prior 12-month period. Production for integrated gas fell 3 per cent due to lower demand from the pandemic.
Still, its LNG price rose 3 per cent to $US8.80 per million British thermal units on the previous three months, bucking a trend among some competitors for lower prices. The average realised price was $10.21 a gigajoule with its LNG pricing equating to $12.72GJ and domestic pricing of $4.90GJ.
Origin received a record $1.275bn annual cash distribution from APLNG, which was at the top end of a $1.1bn to $1.3bn range and nearly a third higher than last year’s $974m payout.
Rival Woodside Petroleum sold LNG volumes for $US5mbtu in the quarter after customers took less on a contracted basis, forcing it to sell more in the weak spot market which is suffering from oversupply and tepid demand.
Origin’s LNG pricing “is impressive and this highlights the quality of its contractual LNG position,” RBC analyst Gordon Ramsay said. “We also like the defensiveness of its key Sinopec LNG contract that has relatively little downward quantity flex tolerance which facilitates fewer spot cargoes sold (vs. Woodside realising 46 per cent of total volumes at spot pricing) and without price review for the next ~5 years.”
Electricity volumes for the 2020 financial year dropped 7 per cent, reflecting lower use among both small and medium businesses along with larger commercial and industrial customers with the same dynamic causing a 4 per cent fall in gas volumes.
“The pandemic has impacted natural gas and electricity demand and some residential and small to medium enterprise customers are facing financial difficulties,” Origin chief executive Frank Calabria said.
Origin has previously flagged a $25m-$35m hit to its annual underlying profit from bad debts while rival EnergyAustralia said it would also take a hit as some customers struggle to pay their energy bills.
Origin could look to expand its dividend, RBC noted.
“With current expenditure at reduced levels, and no major capital projects ongoing, we see potential for the free cash flow-linked dividend to be expanded,” Mr Ramsay noted.
The company became the latest victim of the oil price crash earlier in July, bracing for a hit of up to $1.24bn in writedowns and charges, including on its APLNG project in Queensland.
Australia’s LNG sector has now blown up more than $20bn in writedowns after French energy giant Total took a $US800m ($1.1bn) hit, sparking concern high construction costs and a lower oil price outlook may derail spending needed for a next wave of investment.
Origin fell 4.6 per cent to $5.37 on Friday compared with a 2.04 per cent fall in the broader S&P/ASX 200 index.
