Origin wipes $1.9 billion off assets despite higher oil prices
Posted
Origin Energy has finally bitten the bullet and wiped more than $1 billion off the value of its stake in the $25 billion APLNG gas export project in Queensland.
Key points:
- Origin Energy announces $1.9 billion in impairments
- Total write-downs in Queensland gas projects more than $12 billion after tax
- Browse Basin acreage purchased in 2014 for $860 million written down to zero
The $1.031 billion impairment charge on APLNG was part of broader $1.9 billion post-tax asset write-downs Origin announced ahead of its half-year results.
The other impairments include $578 million on the Browse Basin project it purchased from Karoon Gas in 2014 for $860 million, as well as $170 million for the conventional gas assets that are slated to be spun off later this year and $114 million on a hydro-electricity investment in Chile.
APLNG is the last of the three big Gladstone-based projects — which cost collectively around $80 billion to build — to bow to the inevitable their investment decisions were approved on unsustainably high oil and gas prices.
Origin and United States firm Conoco Phillips each hold a 37.5 per cent stake in APLNG, with the Chinese energy giant Sinopec — which has the biggest offtake agreement — owning the other 25 per cent.
On Royal Bank of Canada (RBC) figures the $1 billion post-tax impairment equates to a pre-tax figure of $3.7 billion, meaning Australian taxpayers would be kicking in $2.7 billion into write-down.
The APLNG figure compares to the post-tax impairment of $US3.5 billion ($4.6 billion) at the Santos-operated GLNG joint venture and the $4.8 billion wiped-off the QCLNG project, now owned by Royal Dutch Shell.
RBC analyst Ben Wilson said the impairment was not a surprise and the market would probably not mark Origin down, beyond what it has already been marked down in the past.
"APLNG was the last domino that had to fall following the capex binge on Queensland coalbed methane-to-LNG projects," Mr Wilson said.
Origin shares lose ground
In a statement to the ASX, Origin said the carrying value of its assets, including the APLNG stake, depended on many factors — including the oil price, exchange rates, discount rates and costs — which had not warranted a change until now.
The current valuation is now based on an oil price stepping up to $70 a barrel and the exchange rate being $US0.70 in 2021.
The decision to write down the value of Browse leases effectively to zero is due to the realisation they are likely to be stranded and uncommercial for at best a considerable time.
The Browse Poseidon field is located in remote waters 480 kilometres off Broome and would require a 1,000-kilometre pipeline to be built across the Timor Sea to the Ichthys LNG plant in Darwin to operate.
"Based on new information, Origin has formed the view that the Caldita-Barossa fields are now the lead prospects to be developed to backfill Darwin LNG and other commercial alternatives are unlikely in the near term," the Origin statement said.
The Caldita-Barossa assets in the Bonaparte Basin are owned by Conoco Phillips and are only about 270 kilometres from Darwin.
The impairments were softened by Origin raising the lower end of its full earnings guidance by $70 to $80 million dollars.
Origin shares lost ground on the news, giving up early strong gains to end the day down 0.7 per cent at $7.25.
Topics: business-economics-and-finance, oil-and-gas, industry, qld, australia
