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Why the Origin Energy Ltd share price is suddenly soaring

Credit: Pink Sherbet Photography

What: With the share price of integrated energy company Origin Energy Ltd (ASX: ORG) plunging a massive 65% in the past 12 months, the 6.6% surge in the share price on Thursday was welcome relief for shareholders.

While the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) finished the trading session 0.5% higher, it was company specific news which put the rocket under Origin’s share price.

Here’s what happened: Managing director Grant King released a statement clarifying the group’s financing arrangements in which he stated:

Origin is confident that its robust financing arrangements and cash flows from existing businesses position the Company well to withstand a prolonged period of low oil prices.”

Mr King went on to clarify a number of points which arguably have been weighing on the group’s share price. These include –

  • Confirmation that Origin has in excess of $6.5 billion of committed undrawn debt facilities and cash, which is more than sufficient to support its remaining contributions to APLNG which are expected to total $1.8 billion as per previous guidance
  • There are no material refinancing requirements until financial year 2019
  • Cash flow from the group’s existing businesses without any distributions from APLNG is expected to be sufficient to service all interest and dividend payments and all capital expenditure associated with existing businesses

What’s next: Given the enormous uncertainty in oil markets at present, many investors will wisely choose to by-pass the potential bargains available amongst oil and gas stocks altogether – this could certainly be a sensible strategy given the complicated outlook.

However, given the oil market is inherently cyclical, contrarian investors will instead be looking for opportunities to acquire beaten-up, unloved, out-of-favour and undervalued oil and gas exposed stocks.

The list is long – Woodside Petroleum Limited (ASX: WPL) is down 27% in the last 12 months, Santos Ltd (ASX: STO) has lost 66% and Oil Search Limited (ASX: OSH) has sunk 21%.

Given the diversified nature of Origin’s business operations, arguably it could be better placed to weather the current oil price storm, which could allow it to enjoy a rebound when the cycle eventually turns.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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