Origin open to corporate-level consolidation, says Grant King

Origin’s Grant King says he is open to ­corporate level consolidation talks with Santos or other players.

Origin Energy AGM

Origin Energy managing director Grant King says he is open to ­corporate level consolidation talks with Santos or other players and that there would be potential ­benefits.

But he says it would not be easy to get a deal done and that the company’s focus is squarely on the things it can control.

Mr King made the comments after Sydney-based Origin logged a first-half loss of $254 million, gave a warning that dividends would be cut to zero if oil prices did not improve and cut earnings guidance from its stake in the Australia Pacific LNG plant at Gladstone.

Stripping out impairments and other one-offs gave underlying profit of $254m, down from $346m a year ago but beating expectations because of the strong performance from the company’s wholesale gas sales business.

As a result, Origin shares finished the day 9 per cent higher.

The company slashed its first-half dividend to 10c per share, unfranked, from 25c a year ago, which was in line with guidance given late last year when it embarked on a $2.5bn equity raising to bolster its debt-heavy balance sheet in the face of sliding oil ­prices.

But final dividend payment guidance of 10c now looks unlikely to be met. “Oil prices have fallen to levels well below expected prices at the time of the entitlement offer,” Origin chairman Gordon Cairns said.

“Should the current low oil price environment persist through the second half of 2015-16, which puts at risk ongoing debt reduction, the company will suspend dividends until appropriate debt levels are achieved.”

Fronting investors, Mr King was asked if he was open to the corporate activity to help the company get through the tough market environment, in particular a merger with Santos.

The Origin boss replied that he was open to conversations, that there was a potential benefit but it would not be easily achievable.

Speaking to The Australian after the call, Mr King said the priority was focusing on things in the company’s control, such as capital raising and cost-cutting, and then to ensure it was sustainable if things got worse, something accomplished by a recent oil hedge.

“We acknowledge there are opportunities out there of the ilk that was referred to in the question, but at the end of the day our priority has been the things we can control,” he said.

“Whether it’s consolidation activity or restructuring activity or whatever, we’re open to all of those things but we won’t link our destiny to things that are dependent on the actions of others.”

The question came from ­Credit Suisse analyst Mark Samter, who in January released a research note saying a merger between Santos and Origin could drive $3bn of cost savings.

The suggested merger would see Origin’s utilities business spun-out and APLNG merged with the Santos-run Gladstone LNG plant, where one of four LNG trains would be shut down.

Origin’s shares rose 34c to $4.23 on a day when oil stocks and the oil price rebounded.

Origin said 2015-16 underlying earnings before interest, tax depreciation and amortisation from APLNG were forecast to be $30m to $80m, down from a previous estimate of $110m to $230m.

Next year, underlying EBITDA is expected to be $650m to $750m, down from previous guidance of $1.2bn to $1.3bn.