Why the Origin Energy Ltd share price is falling today

Shares in Origin Energy Ltd (ASX: ORG) edged lower this afternoon after the group revealed an underlying net profit of $354 million for the full year ending June 30 2016. The underlying EBITDA from continuing operations was $1.6 billion, which is roughly in line with the prior year.

However, the headline number was a huge loss of $589 million after the company wrote off the value of $515 million worth of assets including its Cooper Basin, BassGas and Otway projects. While the value of international development projects in Chile and Indonesia was also written off to the tune of $106 million.

Many of these assets are LNG-production related and their value has been lowered as a result of the mark down in their expected future cash flows as a result of plunging energy prices and today’s low growth world. The group also sold assets alongside slashing capital expenditure and employee numbers in a bid to survive the precipitous falls in global energy prices during FY16.

Full year underlying earnings per share were 23.2 cents with the group failing to declare a dividend. This is no surprise given adjusted net debt stands at $9.1 billion, despite an equity raising over the period that helped lower net debt by $4.1 billion.

Origin’s primary business is energy generation and retailing to the consumer market across Australia and this business performed respectably over the year, with underlying EBITDA of $1.3 billion and it expects this division to increase EBITDA to between $1.44 billion to $1.54 billion in FY17.

It also expects net debt to fall below $9 billion in FY17 with a forecast for an even better FY18 as its giant (and costly) Australia Pacific LNG project transitions from development to production of LNG.


Origin remains in part at the mercy of global energy prices, but less so than its peers such as Santos Ltd (ASX: STO) or Woodside Petroleum Limited (ASX: WPL).

Its consumer electric and gas retailing business is also a consistent cash cow, however this is a competitive space where it’s hard to consistently lift margins. The debt profile and patchy outlook for energy prices means this is a stock I suggest investors give a wide berth, especially as there are many other businesses to invest your money in.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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