Origin Energy Profits Down, Flags Cost Cuts

Origin Energy ltd, Australia's biggest gas and power retailer, reported a 9 percent drop in first-half underlying profit on Thursday, hurt by a drop in its oil production, and said it would focus on cutting costs amid the oil price slump.

 

Underlying profit fell to A$346 million for the six months to December from A$381 million a year earlier. That was below two analysts' forecasts around A$369 million. However Origin held its dividend steady at 25 cents, as expected.

 

Origin Energy sees this year and next as transition years as it gets set to start exporting liquefied natural gas from its A$24.7 billion Australia Pacific LNG project in Queensland, due to start producing mid-year, but is under pressure in the meantime amid a sharp slump in oil prices .

 

"In this changed environment, with the fall in oil prices potentially reducing growth in earnings and cash flow relative to prior expectations, the continued implementation of Origin's key priorities will be moderated to conserve cash flow and accelerate cost reductions," Origin said.

 

Before oil prices plunged 50 percent, Origin Energy (OGFGF.PK) and rival Santos Ltd building LNG plants in Queensland were looking forward to sharp growth in earnings as LNG prices are tied to oil prices and exports of LNG are going to sap gas from Australia's eastern markets, driving up local gas prices.

 

They have now had to temper their outlooks, although Origin said at current market forecasts for oil prices to improve to $85 a barrel in real terms from 2018, the economics of its APLNG investment "remain robust" but diminished.

 

The first full-year contribution from APLNG is expected in the year to June 2017.

 

 

(Reporting by Sonali Paul; Editing by James Dalgleish)