Origin Energy revenue declines on gas price falls
The impact of the COVID-19 pandemic have started to trickle through to the prices Origin receives for LNG.
Origin Energy’s revenue plunged in the September quarter as gas prices and volumes fell amid the COVID-19 pandemic uncertainty.
In a first-quarter trading update released to the market on Friday, the energy retailer said commodity revenues fell by 39 per to $373.9m in the three months to September 30.
Driving the decline was a slump in realised natural gas prices and a slight decrease in sales volumes.
The average price obtained for natural gas fell 36 per cent from $10.21 per gigajoule to $6.52, while integrated gas sales volumes fell 4 per cent to 57.4 petajoules.
Origin Energy chief executive Frank Calabria said long-term contracts helped buoy sales but a declining oil price had started to trickle through to the Australian liquefied natural gas market.
“Gas production was steady for the quarter, however as expected, realised prices were lower as the lagged impact of oil prices on Australia Pacific LNG’s contracts started to flow through to revenues,” Mr Calabria said.
“The majority of sales are under long-term contracts, which provided some protection from soft LNG spot prices during the quarter.”
However the retail electricity market saw growth, with electricity sales lifting 11 per cent to 8.7 terawatt hours.
The average spot price achieved on the National Electricity Market was $42.2 per megawatt hour, a slight increase on the $39.6 achieved in the June quarter.
Natural gas sales increased by 7 per cent to 72 petajoules, which Mr Calabria said signified a return to typical demand in all states save Victoria.
“It is encouraging to see electricity demand has largely stabilised and returned to pre-COVID levels in most states, however business demand remains impacted, particularly in Victoria where there have been ongoing restrictions,” he said.
Company capital expenditures were reigned in, falling from $127m to $74m due to a tamp-down on drilling and lower infrastructure spending.
“With demand for LNG continuing to be subdued and strong performance from our gas fields, Origin has reduced drilling activity for the year across upstream operations at Australia Pacific LNG, with Origin’s share of capital expenditure $33 million lower for the quarter,” Mr Calabria said.
Mr Calabria also said that Origin’s flagship Beetaloo fracking project in the Northern Territory was progressing well and the $500m Kraken retail energy digital platform will be up and running soon.
“We are progressing well with our exploration in the Beetaloo, recently completing fracture stimulation which paves the way for extended production testing,” he said.
“We look forward to sharing further updates on our Beetaloo activity soon.
“We continue to make good progress on the Kraken rollout, with a small team of energy specialists trained in the platform and ready to service the first cohort of 50,000 customers that are targeted to be migrated by the end of 2020.”
Origin said it expected LNG spot prices to increase in the second quarter of the year, with December gas deliveries already achieving in excess of $6.50 per mmbtu.
Despite the revenue decline, analysts at RBC capital said gas contracts helped the price held up relatively well, with falling capex and a recovering electricity market leading to the possibility of larger dividend payouts in the future.
“Origin’s ability to pay dividends is balanced by its debt reduction plans, capital spending plans, and its assessment of the economic and commodity environment,” the analysts said in a note.
“With Origin expenditure forecast at reduced levels over the 2021 financial year, a lack of major growth project capital commitments, and therefore relatively strong free cash flow generation, we see potential for Origin’s dividend to be expanded, particularly as the Australian economy emerges from COVID-19 slowdown.”
Credit Suisse said revenue was 14 per cent below expectations but said the retail electricity result was “a net positive factor”, while JPMorgan singled out electricity prices as the company’s biggest weak spot over the coming financial year.
Origin shares closed at $4.00, down 0.5 per cent.