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Origin Energy share price higher on guidance and COVID-19 update

The Origin Energy Ltd (ASX: ORG) share price is pushing higher on Monday following the release of an update.

At the time of writing the energy retailer’s shares are up 2% to $4.86.

What did Origin Energy announce?

This morning Origin Energy provided an update on its operations and financial position in response to the COVID-19 pandemic and a material reduction in oil prices.

According to the release, the company is doing its part during these hard times by supporting those that have been financially affected. It will not disconnect any residential or small business customers in financial stress. This will apply until at least July 31.

There will also be no default listing for any customer who is having trouble paying and all late payment fees have been paused over the same period.

And despite most of its workforce now working from home, to date there has been no material impact on Origin’s energy supply operations.

Oil price collapse.

Over the last few weeks the price of oil has collapsed due to a price war between Russia and Saudi Arabia. In light of this material reduction in oil prices, Origin provided an update on its expectations for the full year.

Pleasingly, its Energy Markets FY 2020 underlying EBITDA guidance has been maintained at $1.4 billion to $1.5 billion. This is subject to any material increase in bad and doubtful debt provisioning.

Also unchanged is its expected FY 2020 cash distributions from APLNG. These remain on track to be between $1.1 billion to $1.3 billion.

The company is reducing its capital expenditure. This is likely to be 5% to 10% lower than its guidance for the year. And then in FY 2021 it is aiming to reduce this even further. Management advised that it is targeting a 25% to 30% reduction in capital expenditure in FY 2021 compared to its previous FY 2020 guidance of $530 million to $580 million.

Another positive is that there is significant headroom in Origin’s debt covenants at current oil prices for multiple years. It also has more than 24 months of committed and undrawn liquidity.

The company’s CEO, Frank Calabria, concluded: “While there is some uncertainty about the extent of the short-term impact on Energy Markets, Origin is in a resilient financial position, with a sound balance sheet and a competitive cost position. We will also continue to play our part, supporting our customers and the broader Australian community through this challenging time. The impacts of COVID-19 are likely to be wide-reaching, and we believe in business getting behind the community and providing whatever support we can.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.