According to the company’s website press release on February 16, 2023, Origin Energy Limited (Origin) announced its results for the half-year ended 31 December 2022.
Origin reported a Statutoryprofit of $399 million compared to a $131 million loss in the prior corresponding half. Underlying profit declined by $224 million to $44 million with higher earnings from Integrated Gas offset by lower earnings in Energy Markets, along with an income tax expense associated with unfranked distributions from Australia Pacific LNG. Underlying EBITDA was slightly lower at $1,059 million.
Origin received cash distributions from Australia Pacific LNG of $783 million for the half year on higher realised oil prices. Australia Pacific LNG is expected to distribute between $1.4 billion and $1.6 billion in cash to Origin for FY2023, net of oil hedging.
Adjusted free cash flow was lower at ($439 million) compared to $233 million in the prior corresponding half due to a combination of lower Energy Markets earnings and unfavourable working capital movements, partially offset by higher distributions from Australia Pacific LNG. Cash flow is expected to improve in the second half as Energy Markets earnings increase and working capital stabilises.
The Board declared a fully franked interim dividend of 16.5 cents per share.
Origin CEO Frank Calabria said, “The first half result is mixed, reflecting a higher earnings contribution from Integrated Gas, contrasted with more challenging conditions for Energy Markets resulting in lower earnings from that business.
“Australia Pacific LNG, which continued to be a major supplier to the domestic gas market, delivered a strong cash distribution to Origin of $783 million.
“In Energy Markets, the electricity business was adversely impacted by the under recovery of higher wholesale costs in customer tariffs. The domestic gas business performed well driven by higher sales to business customers, as Origin increased supply to help meet the needs of customers.
“The retail business also performed well, driven by significant growth of community energy services and the addition of 30,000 customer accounts. Origin Zero is making good progress in partnering with business customers to optimise their demand and supply lower carbon energy solutions.
“Octopus Energy, in which Origin owns a 20 per cent stake, recently completed the acquisition of Bulb Energy, propelling the company to the second-largest energy retailer in the UK. Octopus’ continued growth amid challenging and volatile market conditions demonstrates the value of its superior customer experience, low-cost operating model and market-leading Kraken platform.
“We continue to focus on executing our strategy, including accelerating investment in renewable and cleaner energy and customer solutions. We have completed the acquisition of the Yanco Solar Farm development, our virtual power plant is growing strongly, we continue to progress the proposed Eraring battery towards a final investment decision and explore potential hydrogen projects alongside our partners.
“Consistent with our stated intention to exit upstream exploration activities, excluding Australia Pacific LNG, we have now completed the divestment of Origin’s interest in the Beetaloo Basin and recently executed agreements with Buru Energy to exit our interests in the Canning Basin.
“At a time of rising cost of living pressures across the economy, we are ever cognisant of the essential nature of the services we deliver, and we will provide at least $20 million of support to customers in our Power On program this financial year. We have also continued to work actively with governments and regulators to ensure our industry supports the most vulnerable members of our community.
“In January, Origin upgraded guidance for Energy Markets Underlying EBITDA for FY2023, reflecting improved operating and trading performance. Since then, operating and trading performance, including at Octopus, has continued improve and earnings are now expected to be towards the higher end of the range. We anticipate further earnings growth in Energy Markets in FY2024, as customer tariffs better reflect wholesale costs, earnings from Octopus improve and cash cost savings are achieved through Origin’s investment in the transformation of our retail business.
“In summary, Origin has an advantaged portfolio, is positioned for growth, and provides the ideal platform for investment into the energy transition, enabling the company to capture value and continue delivering good outcomes for our millions of customers, our communities and shareholders,” Mr Calabria said.
Dividend
The Board determined a fully franked interim dividend of 16.5 cents per share. Considering the improved outlook for the second half, the Board decided to maintain the dividend at 16.5 cents per share, consistent with the prior period and considering the improved outlook for the second half. The dividend will be paid on 24 March 2023 to shareholders registered as at 1 March 2023.
Further capital management initiatives will be considered by the Board during FY2023 and beyond, taking into account franking balances, business conditions, growth opportunities, and the status of the Brookfield/EIG non-binding, indicative offer.
OPERATING PERFORMANCE
Energy Markets
Underlying EBITDA for Energy Markets declined to $148 million from $268 million in the prior corresponding half as the electricity business was negatively impacted by the under recovery of wholesale energy costs in customer tariffs and increased fuel costs. As tariffs are repriced, this is expected to support a recovery in electricity earnings. Natural gas profit rose, driven by increased sales to business customers and the repricing of customer tariffs reflecting the higher cost of procuring gas.
The retail business continued to grow, with total customer accounts increasing by 30,000 to 4.5 million driven by our growing community energy services business and strong uptake of broadband. The transformation of the retail business is progressing well and customer migrations to Kraken are expected to be complete in the first quarter of this calendar year. Origin continues to target cash cost savings of $200 million to $250 million from an FY2018 baseline, by 2024.
Through the acquisition of Bulb Energy, Octopus added ~2.5 million customer accounts, to become the UK’s second-largest energy retailer. Octopus’ earnings, which were adversely impacted in the first half by the under recovery of wholesale energy costs and volatile market conditions, are expected to recover in the second half as tariffs begin to reflect higher market prices.
Origin Zero has made good progress helping business customers decarbonise through a range of lower carbon products and services, while also helping them find new ways to share value in energy through connecting 94 MW of demand response to Origin’s virtual power plant. 360EV continues to expand as Origin taps into the accelerating trend towards electric vehicles, most recently introducing a subscription model for employees.
Origin’s virtual power plant grew rapidly to 449 MW in December, from 258 MW in June, as we accelerate towards our 2 GW target. Spike, our retail demand management program, grew to 85,000 connected services, utilising leading-edge technology to optimise supply and demand.
Integrated Gas
Underlying EBITDA rose 10 per cent to $954 million due to higher realised oil prices, partly offset by losses from hedging associated with higher commodity prices.
Production declined by 5 per cent due to the cumulative impact of prolonged wet weather restricting well access and unplanned outages at non-operated fields. A recovery in production is underway with additional wells coming online and a ramp-up in workover activity. Additional pipeline capacity that is coming online is providing greater operational flexibility to optimise gas processing.
The sale of Origin’s interest in the Northern Territory’s Beetaloo Basin completed in November with a royalty agreement covering future production and $70 million net cash proceeds. An agreement has been executed with Buru Energy Limited to exit Origin’s interest in Western Australia’s Canning Basin, which is expected to complete in the second half of FY2023.
Outlook
The following guidance is provided on the basis that market conditions and the regulatory environment do not materially change.
Since providing an update to guidance on 27 January 2023, operating and trading performance, including at Octopus, has continued to improve and as a result, Energy Markets’ underlying EBITDA for FY2023 is now expected to be towards the higher end of the
$600 million to $730 million range. This excludes the impact of the introduction of the legislated coal price cap.
Australia Pacific LNG production for FY2023 is reaffirmed at 660-680 PJs. Australia Pacific LNG capital and operating expenditure guidance is unchanged.
LNG trading EBITDA across both FY2023 and FY2024 periods is expected to be $40 million to $80 million, and LNG trading EBITDA across both FY2025 and FY2026 periods is expected to be $450 million to $650 million. This outlook remains subject to market prices on unhedged volumes, operational performance and delivery risk of physical cargoes, and shipping and regasification costs.
