Origin announces loss as APLNG's slower start-up bites
ORIGIN Energy is making further cuts to costs and spending as lower oil prices and a slower start-up schedule for its APLNG project in Gladstone impact the cash flow expected from the venture, while investment required to complete it rises.
Brisbane Times reports shares in Origin dropped by as much as seven per cent as the company said it was targeting a further $200 million of efficiency and cost savings from the 2017 financial year, while capital expenditure investment was being further reined in.
APLNG had originally been expected to begin production in mid-2015, but the start-up has slipped to the December quarter.
Costs have also risen, while the collapse in oil prices has slashed expected cash flows.
Origin said that when APLNG was approved for construction, the company expected its share of cash flows from the project to be about $900 million a year on average, from the 2017 financial year, assuming oil prices of $100 a barrel in local dollars.
But every $10 a barrel decline in the oil price cuts that share of cash flows from APLNG by $200 million, it said on Thursday.
Origin reported a statutory loss of $658 million for the year ended June 2015. Origin chairman Gordon Cairns said the company had consistently stated that the 2015 and 2016 financial years were transitional years for Origin, as it completed the final stages of its investment in APLNG.
"Work on the Australia Pacific LNG project is nearing completion and the project remains on track to commence sustained production from Train 1 from the second quarter of the 2016 financial year and from Train 2 approximately six months later," Mr Cairns said.
"Notwithstanding the strong energy markets performance for the year, market conditions remain challenging.
"In our integrated gas business, we are mindful that the significant fall in oil price, if sustained at current levels, will result in lower growth in cash flow and earnings than previously expected.
"It is therefore prudent for the company to continue to focus on reducing operating and capital costs, realigning debt across the group entities and where appropriate divest assets, in order to increase Origin's financial flexibility in the short to medium term."
Managing director Grant King said Origin's ability to take advantage of attractively priced ramp gas in its energy markets business as production began in Queensland led to increased natural gas sales, and resulted in Origin reducing its own gas production.
"We have made strong progress on plans to reduce Australia Pacific LNG's total upstream cost structure by $1 billion per annum," Mr King said.
"During the period, initiatives were implemented to reduce annual upstream costs by approximately $650 million, with a target of an additional $350 million of cost reduction initiatives to be implemented by the end of the 2016 financial year."