Company Overview - Origin Energy Limited (Origin) is engaged in the exploration and production of oil and gas, electricity generation, and wholesale and retail sale of electricity and gas. The Company's segments include Energy Markets, Exploration & Production, liquefied natural gas (LNG) and Corporate. Its Energy Markets business is an integrated provider of energy solutions to retail and wholesale markets in Australia and in the Pacific. It has exploration and production interests principally located in eastern and southern Australia, the Browse and Perth basins in Western Australia, the Bonaparte basin in north-western Australia, the Beetaloo basin in Northern Territory and in New Zealand. Its liquefied natural gas segment includes Origin's equity accounted share of Australia Pacific LNG, and also contains its activities and transactions arising from its operatorship of the Australia Pacific LNG upstream activities. Its Corporate segment includes investments in Chile and Indonesia's energy sectors.


ORG Details
 
Solid June quarter performance: Origin Energy Ltd (ASX: ORG) had delivered a 57% rise in annual production and 15% growth in revenue during fiscal year ended on June quarter 2016 as compared to the same period of last year. During FY16, ORG’s production from APLNG increased by 91.6 PJe, while BassGas’s output rose by 3.7 PJe as the Yolla 5 and Yolla 6 wells came on line. But, the company reported lower production at Otway (-9.4 PJe) due to lower well deliverability, planned compliance shutdown and natural field decline. Meanwhile, ORG reported a revenue rise of 3% in June quarter against March 2016 quarter, despite better production due to fall in average LNG and natural gas prices. The group shipped 16 LNG cargoes from APLNG facility during the quarter, which comprise first LNG shipment to Kansai Electric. After the quarter, five more cargoes would be loaded and shipped while APLNG shipped 32 cargoes till date. Accordingly, for its Australia Pacific LNG Train 1, the group is releasing 60% of project finance shareholder guarantees in the second quarter of the FY 17. The company intends to release the rest of the 40% of project finance guarantees in calendar year 2017. In addition, Train 2 is entering the commissioning phase and the first cargo shipment is expected to start from the second quarter of the FY 17.
 

June quarter performance (Source: Company Reports)
 
Upgraded resource base: The group’s 2P reserves increased by 17 PJe to 6,277 PJe, as at 30^th June 2016 with an increase from revisions of 249 PJe, offset by 231 PJe of production. Positive well results coupled with updated reservoir model led to the rise in the Perth Basin of 216 PJe and Kupe of 71 PJe. But, there was 102 PJe of downward revisions at Cooper, Otway and Bass basins. Factors contributing to the reduction comprise revised development plans coupled with impact of lower oil prices in the Cooper Basin, faster decline in well deliverability at Otway and lower observed reservoir performance at BassGas. Meanwhile, Origin’s share of APLNG 2P reserves rose to 63 PJe on the back of successful development drilling and better than expected performance in some fields.
 

Origin 2P reserves (Source: Company Reports)
 
Positive exploration results at Beetaloo: ORG as operator of the Beetaloo Joint Venture, has confirmed that the Beetaloo W-1 well in EP117, Northern Territory, was spudded on 22^nd July 2016. Additionally, the exploration in the Northern Territory’s Beetaloo Basin has progressed with the fourth of five Stage 1 wells spudded. ORG has completed the performance test of Bechtel and Train 1 was handed over to operations. As per Cooper / Eromanga Basin, total eight wells were drilled in the June quarter, with three development wells and five exploration/appraisal wells. Two wells in South West Queensland and Durham Downs 9, were plugged and abandoned. Rest of the wells were cased and suspended as potential producers. Meanwhile, Origin is planning to drill two wells in PEL 638 during fiscal year of 2017. The group finished Halladale and Speculant pipeline installation from the well site to Otway Gas Plant in the quarter. The first gas from Otway Gas Plant would start by late August 2016. Stage 1A of the Waitsia gas field project progress has been on track as per the June quarter, comprising connection of the Waitsia-1 and Senecio-3 gas wells to the AWE operated Xyris gas facility. First gas from this is forecasted by early 2017 financial year.
 

APLNG Facility on Curtis Island (Source: Company Reports)
 
Offloading non-core assets: Energy Developments (100% subsidiary of DUET Group) made a share sale agreement with Origin to acquire the 30MW Cullerin Range wind farm (Cullerin) for $72 million (excluding transaction costs). The financial close of the deal is expected by the first quarter of FY17. The sale of Cullerin Range Wind Farm is a part of Origin’s $800 million asset divestment program announced by the group last year. Upon the completion of this sale, the group would raise a total of $468 million under the divestment programs. Moreover, the planned sale of Cullerin Range Wind Farm represents an 11.6x FY2017 EBITDA multiple to Origin. On the other side, ORG had entered into an Asset Sale Agreement with SEA Gas (Mortlake) Partnership (SEA Gas Mortlake) for the sale of Mortlake Pipeline for $245 million. Mortlake Pipeline supplies gas to Origin’s Mortlake Power Station in Victoria and ORG has secured long-term gas transportation and storage services on the pipeline. The planned sale of Mortlake Pipeline represents a 14.4x FY2017 EBITDA multiple to Origin. The transaction was finished by 30^th June, 2016. Meanwhile, State Grid Corporation of China is one of the two contenders for the Ausgrid sale, and is also considering an offer for the Origin Energy gas. The group intends to sell its Stockyard Hill wind-farm development in mid-August.
 
Boosting solar portfolio: ORG has entered into an agreement with a leading global solar company Fotowatio Renewable Ventures (FRV) to buy solar power from the proposed 100 MW Clare Solar Farm in North Queensland, which would generate more renewable electricity than any other solar farm in Australia. As per the power purchase agreement (PPA), ORG would buy 100% of the output and large scale renewable energy certificates (LRECs) from Clare Solar Farm, located in Northern Queensland. The PPA would run for 13 years from the starting of operations till December 2030. Moreover, FRV would start constructing the 300-hectare site later in 2016, with operations expected to start by 2017. Additionally, ORG has also secured an option to develop a further 35 MW of capacity. The deal follows the signing of a 15-year PPA with FRV for the solar power generated by the 56 MW Moree Solar Farm in northern NSW in March. We believe that ORG is well positioned to leverage the booming opportunities available at competitive costs as compared to other renewable resources.
 

Expenditure Scenario (Source: Company Reports)
 
Debt Reduction & Cash Preservation: ORG is focusing to strengthen its balance sheet to withstand the volatility in the commodity prices. Accordingly, the group is targeting a net debt below $9 billion in FY2017. This can be achieved through the sale of Contact which would control the group’s debt by $3 billion. Apart from this, Origin is boosting its capital position from $2.5 billion Entitlement Offer and from the A$110 million and US$30 million of asset sales, while targeting at least A$800 million by end FY2017. Moreover, ORG is preserving cash through the reduction of capex, opex and dividend. Additionally, ORG has bought oil put options for FY2017 to reduce risks at oil prices below US$40/bbl (or A$55/bbl).
 
Stock Performance: The group is focusing on cost-control and accordingly planned $1 billion cost reduction in Australia Pacific LNG’s upstream operating costs in the first half. The group’s Energy Markets division is expected to generate over $100 million in cost reductions in FY2016, while functional cost savings of $200 million are due to be recorded from FY 2017 onwards. ORG is planning to cut headcount by 1,900. Meanwhile, ORG stock rose over 36.66% in the last six months (as of August 02, 2016) and the stock has a solid dividend yield. ORG is improving balance sheet through debt reduction, cash preservation and cost reduction. The group is also selling its non-core assets to focus on core business. We believe the positive momentum in the stock would continue in the coming months and accordingly we maintain a “Buy” recommendation on the stock at the current price of  $5.33
 

ORG Daily Chart (Source: Thomson Reuters)

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