Origin will write down the value of its Australia Pacific LNG (APLNG) facility in Queensland. Image by Dave Hunt/AAP PHOTOS

Energy

Origin Energy takes $1.2b hit on oil slump

2020-07-16 11:41:10

Origin Energy will book impairments of $1.2 billion after tax, joining other energy majors that have cut the value of their assets after a coronavirus-induced drop in oil and gas prices.

Australia’s top power and gas retailer on Wednesday said it expects to record non-cash charges of between $1.16 billion and $1.24 billion in its full-year accounts.

The bulk of the charges – over $700 million – relate to writedowns of its equity investment in its Australia Pacific Liquefied Natural Gas (LNG) joint venture, due to a drop in the prices of the commodity.

A provision for an onerous LNG contract accounts for about $440 million to $460 million of the total.

The company buys a small number of cargoes every year from Cameron LNG, and due to the slump in global LNG prices, cargoes from the United States that were potentially hugely profitable into Asia are now loss-making.

These post-tax charges would have no impact on fiscal 2020 cashflow or adjusted profit, and as a result, Origin said it expects no change to its annual outlook.

A smaller part of the charge – between $25 million and $35 million post tax – relate to potential defaults on energy bill payments by customers that are financially hurt by the outbreak. 

This provision would be included in adjusted profit, Origin said.

Energy companies across the globe have been struggling as oil prices plunged in the face of dwindling demand due to the pandemic, prompting asset writedowns and sharp cuts in spending.

More writedowns in the sector were expected after global majors such as BP and Royal Dutch Shell announced huge impairments on their assets.

Woodside Petroleum on Tuesday flagged impairments of $6.3 billion.

Origin will release its full-year results on August 20.