Origin sees not material impacts of COVID-19 to date

Australia’s top power and gas retailer, Origin Energy, noted that to date there has been no material impact on the company’s energy supply operations amidst the COVID-19 outbreak.

Most of Origin’s workforce is working from home and only roles critical to maintaining energy supply remain at the site, the company said in its statement.

Protocols continue to be reviewed and updated in line with the latest government advice.

Commenting on the effects, the company’s CEO Frank Calabria said, “While Origin is clearly being affected by both COVID-19 and the significant reduction in oil prices, action taken in the last three years to simplify the business, significantly reduce upstream costs at Australia Pacific LNG and materially reduce debt, has put us in a financially resilient position.”

Calabria noted that the impacts have not been material to date can be absorbed within Origin’s existing FY2020 guidance range, however, the company is monitoring the situation.

In its update on the FY2020 guidance, Origin noted it will maintain the underlying EBITDA guidance of A$1.4 – $1.5 billion.

There is no change to Australia Pacific LNG production or distribution breakeven guidance for FY2020. Cash distributions from Australia Pacific LNG are subject to debt serviceability tests under the project finance arrangements, which are satisfied at current forward oil prices.

With no further material decline in forward oil prices, Origin continues to expect total cash distributions in FY2020 from Australia Pacific LNG of A$1.1 – 1.3 billion.

Continued focus on cost efficiencies has driven Australia Pacific LNG’s FY2020 forecast distribution breakeven down to US$29 – $32 per barrel, inclusive of approximately $8 per barrel of project finance principal repayment, based on an average AUD/USD exchange rate of 70 cents.

FY2020 capital expenditure (excluding Australia Pacific LNG) is estimated to be 5-10 percent lower than previous guidance of A$530 – $580 million.

Looking forward to FY2021, Origin is targeting a 25 – 30 percent reduction in capital expenditure in FY2021 compared to previous FY2020 guidance of A$530 million – A$580 million.

In Integrated Gas, Origin is targeting an A$300 million – A$400 million reduction in Australia Pacific LNG upstream capital expenditure in FY2021 compared to FY2020 guidance. This reduction is expected to be driven by reduced development activity as well as lower exploration and appraisal and is not expected to materially impact production in FY2021, the statement reads.

As Australia Pacific LNG’s operating costs are predominantly in Australian dollars and long-term LNG offtake contracts are in US dollars, the impact of lower oil prices is partially mitigated by a lower AUD/USD exchange rate.

Based on a combination of targeted reductions in expenditure, the nature of the long-term LNG contracts and a 60 cent AUD/USD exchange rate, Origin estimates that Australia Pacific LNG can fund its FY2021 operating, development and project finance costs at oil prices at or above US$25 per barrel.

Origin’s FY2021 Australia Pacific LNG-related oil hedging program consists of 3.1mmbbl fixed at A$90 per barrel and 0.4mmbbl fixed at US$57mmbbl.

The current exploration program in the Beetaloo Basin has been temporarily paused due to COVID-19. The joint venture is targeting a recommencement of Stage 2 activity in the second half of the 2020 calendar year, with exploration and appraisal activities beyond this program able to be deferred, while ensuring permit obligations are met.