Origin Slumps as Oil’s Plunge Threatens LNG Project Returns

Updated on

Origin Energy Ltd. fell the most in 15 years in Sydney trading after the utility turned to a full-year loss and said the plunge in oil prices could significantly reduce the contribution from its liquefied natural gas project.

Origin had a loss of A$658 million ($480 million) for the 12 months ending in June, compared with a profit of A$530 million a year earlier, the Sydney-based company said Thursday. Origin expects to reduce expenses by A$200 million a year and cut about 800 jobs, or 12 percent of its workforce.

Shares of Australia’s largest electricity retailer slumped 13 percent to A$8.60, the biggest drop since February 2000. Brent crude, the global benchmark, has dropped by more than half from a year ago as U.S. shale drillers and the Organization of Petroleum Exporting Countries boost output amid a glut.

“Oil continues to weaken and there’s a broader concern in the market as to where does this end,” Managing Director Grant King said in a phone interview. “At lower prices for longer, you can construct scenarios which would say it’s going to be very difficult for everyone in the industry, not just Origin.”

The downturn comes as Origin prepares to start its A$24.7 billion gas-export project with ConocoPhillips on Australia’s east coast. Should oil stay at current levels, the increase in earnings from the LNG project will be significantly below prior expectations, the company said in the statement.

Profit Drop

Origin doesn’t need to sell shares to pay for the project and can fund its remaining contributions, it said. The company isn’t planning asset sales “in any material way,” King said.

If oil stays low “there will be concerns for many companies about their robustness and their need to raise equity,” he said.

Every A$10-a-barrel drop in the price of oil will cut Origin’s share of cash from the project by A$200 million, the company said. The remaining cash contribution to the LNG project will increase by A$550 million to A$1.8 billion due to lower revenue and oil prices, the company said.

Origin, which had about 6,900 employees at the end of June, took a charge of A$705 million partly after writing down the value of its oil and gas assets, it said. Excluding one-time items, profit fell 4 percent to A$682 million.

The job cuts, expected to occur by the year ending June 2017, will be spread across Sydney, Melbourne, Brisbane and Adelaide, Origin wrote in an e-mail.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE