Australia: Origin Reports Strong Operational Performance

Origin Energy Limited (“Origin”) today reported that Underlying EBITDA was up 16 per cent to $818 million on the prior corresponding period. Importantly, Underlying EBITDA before exploration expenses was $915 million, up 26 per cent and Group operating cash flow after tax of $794 million was up 87 per cent.

Underlying Profit of $304 million for the six months to 31 December 2010 was a decrease of 14 per cent on the prior corresponding period, primarily as a result of increased exploration expenses and a higher effective tax rate.

Origin reported a Statutory Loss of $136 million for the period which included $440 million of expenses that do not reflect the underlying business performance. These expenses included the impairment of Origin’s investments in the Innamincka Deeps Joint Venture and Geodynamics Limited, stamp duty and costs associated with Origin’s recently announced acquisition of NSW Government energy assets and changes in the fair value of financial instruments.

Origin Chairman, Mr Kevin McCann said, “Origin has been through a period of substantial capital investment expanding our oil and gas production and power generation capacity and it is pleasing to see this reflected in a strong increase in Underlying EBITDA and cash flow.

“Origin is pursuing two major opportunities which will both have a transformational impact on Origin’s business.

“We have continued to invest in the growth of our business through the acquisition of the NSW energy assets, which will see Origin become Australia’s largest energy retailer with one of the country’s largest and most flexible generation portfolios.

“The Australia Pacific LNG project is making significant progress and earlier this week received Federal environmental consents.

“Origin remains in a strong financial position and confirms its intention to conduct a pro-rata equity offering to partly refinance the debt facilities put in place to fund the NSW energy assets, further strengthening the balance sheet.

“The Board has declared an interim fully franked dividend of 25 cents per share representing 73 per cent of underlying earnings,” Mr McCann said.

Underlying business performance

Origin Managing Director, Mr Grant King said, “Origin’s underlying business has performed strongly during the half year, demonstrated by the 26 per cent increase in Underlying EBITDA before exploration expenses.”

As foreshadowed at the full year results in August 2010, Origin undertook an expanded offshore and international exploration program in greenfield areas during the half, which included the drilling and testing of five exploration wells. None of these wells encountered commercial hydrocarbons and the associated costs have been expensed in the half year.

Underlying EBITDA increased 16 per cent or $112 million to $818 million.

“The half year result has been driven by increased contributions from additional investment in oil and gas production, the completion of Darling Downs Power Station and the effective management of the energy supply portfolio in our retail business,” Mr King said.

Exploration and Production Underlying EBITDA was $125 million, 20 per cent or $21 million higher than the prior half year. Excluding exploration expenses from both periods, Underlying EBITDA of $222 million was up 76 per cent for the period due mainly to increased contributions from the Kupe Gas Project and Origin’s increased equity interest in the Otway Gas Project, and expanded production by Australia Pacific LNG.

Outlook

Origin expects the trend in operational performance observed in the first half to continue into the second half, with the following factors also influencing the performance of the underlying business:

• A significantly lower level of greenfields exploration activity will be undertaken and consequently a lower level of exploration expense is expected;
• Recent floods and volatile weather conditions are expected to have some impact on operations during the second half, however this is not likely to have a material impact on earnings;
• Origin’s generation portfolio will continue to contribute to earnings in line with the increased productive capital deployed in this segment, however it is not anticipated that the Mortlake Power Station will make any contribution to the result for the full year; and
• At the full year retail margins are expected to be in line with the prior year reflecting natural seasonality in the retail business.

[mappress]

Source:Origin Energy, February 24, 2011;