Origin Energy Leaves Door Open to Splitting as Debt Targeted

  • Company won’t pay final dividend as it focuses on cutting debt
  • Shares slide as much as 3.8% in Sydney, trimming gain for year

Origin Energy Ltd. left the door open to splitting up once its $9 billion debt pile has been further trimmed as it reels from the collapse in energy prices.

Australia’s largest electricity company made the “difficult decision" on Thursday to cancel its dividend for the first time since it was formed in 2000, preferring to concentrate on strengthening its balance sheet by paying down debt after full-year underlying profit plunged 41 percent.

With the low oil price weighing on earnings, Managing Director Grant King said the potential split of the oil and gas production businesses from its generation and retail units remains an option when it moves into a stronger debt position. Origin is among oil and gas producers that are struggling as a decline in prices and weaker demand growth have reduced revenue while new projects from Asia to North America expand a glut in supply.

“Getting that debt down is the key to everything,” King said in an interview from Sydney. “Whether people want to speculate on demergers or asset sales, we have not ruled any of those out. What we have said is they all sit in priority behind the need to continue to target absolute debt reduction first.”

Debt Slashed

Origin, whose debt ballooned in the years it took to build the A$25.9 billion ($20 billion) Australia Pacific liquefied natural gas plant, said it cut net debt by A$4 billion over the year after selling assets and issuing equity. The company is on track to cut adjusted net debt to below A$9 billion this year, according to slides for Thursday’s earnings presentation.

Earnings fell to A$354 million in the year ending June 30, the Sydney-based company said in a statement Thursday. That compares with the A$372 million average of 12 estimates compiled by Bloomberg. The net loss, which includes exceptional items, narrowed 10 percent to A$589 million driven by after-tax writedowns of $515 million partly influenced by reserves downgrades.

Origin closed 1.2 percent lower at A$5.77, paring its earlier loss of as much as 3.8 percent and trimming its its gain for the year to 23 percent. The benchmark S&P/ASX 200 Index slipped 0.5 percent.

Brent crude, the global benchmark, averaged almost $45 a barrel during the year to June, down from more than $75 the previous period. The price crash has had a knock-on effect on oil-linked LNG prices, which have fallen more than two-thirds since 2014.

‘Difficult Decision’

Cutting the dividend was a tough call for Origin’s board to make, King said.

“It is a very difficult decision because the board is trying to make decisions in the best interests of all shareholders and almost certainly not all shareholders have identical interests," he said. “But we do think it’s in the best interests of the company."

Rival Queensland LNG producer, Santos Ltd., is tipped to post a loss when it reports half-year earnings on Friday as it grapples with buying expensive supplies of domestic gas to feed its Gladstone LNG plant due to shortages from its own fields.

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