Origin Energy is on track to post another heavy full-year loss, in the order of $2.5 billion, after taking the knife again to the value of its assets.
- Origin 2017 FY loss likely to be $2.5bn after another big write down announced
- Falling oil prices are likely to contribute to almost $3.8bn in losses over the past three years
- Origin share price has halved since 2014, in line with the decline of the oil price
Ahead of next week’s full-year profit release, Origin announced a further $1.2 billion of impairment charges against its stake in the Australia Pacific LNG (APLNG) project and the value of a collection traditional oil and gas assets that have been bundled together to be spun-off as Lattice Energy.
The new write-downs follow the $1.9 billion worth of impairments announced at Origin’s half-yearly results in February.
The consensus forecast from analysts covering Origin is it will churn out underlying full-year earnings of around $520 million.
Factoring in the write-downs, Origin is likely to report a full-year loss of around $2.5 billion, taking the cumulative loss since 2015 to around $3.8 billion.
It will also be around $9.5 billion below Origin’s record full-year profit in 2009 which was inflated by the sale of a large stake in the APLNG project to the energy giant Conoco Phillips.
The write-down is part of a regular biannual review of the value of assets ahead of results.
Recent results have been brutalised by declining oil prices which have more than halved since mid-2014. Origin’s share price has also halved to around $7 per share over the same period.
In the latest review, Origin cut the value of its 37.5 per cent stake in the $27 billion APLNG project, based at the Queensland port of Gladstone, by $800 million. The Lattice assets were written down by $400 million.
Impairments may slow debt reduction
Writing down the Lattice assets will not help Origin’s plans to fast track the reduction of debt which grew beyond $13 billion in 2015.
Analysts are hoping debt will come in at less than $9 billion when the 2017 accounts are tabled.
However, the write-down would have been far more savage if based on the current situation of oil at around $US53 a barrel and the Australian dollar at close to 80 US cents, rather than long-term valuations.
Origin’s long term  price assumption for the global oil benchmark Brent crude was cut from $US71/barrel back in February to $US67/barrel, while the exchange rate figure was bumped up from 70 US cents to 74 US cents against the Australian dollar.
RBC analyst Ben Wilson said the new impairment was not surprising given Origin had been holding on to higher oil price assumptions and a lower Australian dollar than many forecasts.
“Prior to the impairment, we estimate that the book value of the [Lattice] assets held for sale is approximately $1.6bn which reduces to $1.3bn post impairment,” Mr Wilson wrote in a note to clients.
The book value for the APLNG stake will now be cut from $10.5 billion to $9.7 billion
However, Mr Wilson said it was not all bad news for Origin.
“We retain an outperform recommendation on Origin and continue to like it for the debt reduction story and the [earnings] growth as APLNG ramps up,” Mr Wilson said.