Company Details - Origin Energy Limited is an integrated energy company. The Company is engaged in exploration, production, generation and the sale of energy to households and businesses across Australia. Its segments include Energy Markets, Integrated Gas, Contact Energy and Corporate. The Company's exploration and production portfolio includes the Bowen, Surat and Cooper/Eromanga basins in Central Australia, theOtway and Bass basins in Southern Australia, as well as interests in the Browse and Perth Basin in Western Australia, and the Bonaparte and Beetaloo Basin in the Northern Territory. It also has exploration projects located in New Zealand in the Taranaki and Canterbury basins, as well as in Vietnam. It jointly owns and wholly operates gas-producing facilities in Australia and New Zealand, including the BassGas and Otway Gas Production plants in Victoria, coal seam gas (CSG) production plants as part of the Australia Pacific LNG Project in Queensland, and the Kupe Gas Project in New Zealand.


 ORG Details 
Enhanced resource position at Waitsia gas field: Origin Energy Ltd.’s (ASX: ORG) 50% owned Waitsia gas field has been confirmed that they have sufficient 2P Reserves to market at least 100 TJ/day for up to 10 years as per the independent certification report provided by the Perth-based RISC Operations Pty Ltd (RISC). Moreover, RISC also highlights the substantial upside potential of the Waitsia field (as per the report) which points that the 2P Reserves for the Waitsia field were 34% higher than AWE’s current estimates. RISC’s independent certification report has estimated higher reserves than AWE’s estimate of 3^rd June 2016, mainly in the HCSS. Additionally, AWE (50% owned, Operator) has planned to drill two new appraisal wells on the Waitsia field in 2017 and the data from these wells would enable further assessment of the booked Reserves and Contingent Resources. Production from Waitsia Stage 1A (10 TJ/d) has started in August 2016 and is on time and under budget. The companies are looking to contract significant volumes ahead of FID for Stage 2 (100 TJ/d) of the Waitsia development. On the other side, the group has released its Annual Reserves Report on 29^th July, 2016 and including production, ORG’s proved plus probable (2P) reserves have been enhanced by 17 PJe to a total of 6,277 PJe, against earlier year. The key changes in 2P reserves comprise the 249 PJe net increase from revisions and extensions with notable increases in the Perth Basin (Waitsia/Senecio field) and offshore NZ (Kupe field), which was partly offset by decreases in Cooper, Otway and Bass basins, and a 231 PJe decrease due to production.
 


Comparison of AWE and RISC estimates of 2P Reserves and 2C Contingent Resources for the Waitsia gas field (Source: Company Reports)
 
Other exploration and appraisal updates: For the South Australian Gas, which is a JV with Beach having 20.21%, Santos having 66.6% (operator), and Origin having 13.19% interests, a five-well appraisal and development campaign on the central flank of the Big Lake Field has been reported to be continued. The aim has been to expand the central development area of the field while targeting the Patchawarra Formation, Tirrawarra Sandstone and Merrimelia Formation, with the Epsilon Formation providing a secondary target.  Under the campaign, four development wells (Big Lake-135 to -138) are being drilled from a single pad and Big Lake-135 has been cased and suspended as a future Permian gas producer while Big Lake-136 was drilling ahead and has been now cased and suspended as a future gas producer.
 
Boosting capital position further via sale of Darling Downs pipelines:Origin has planned to meet several pipeline owners to discuss the sale of its Darling Downs gas pipelines. The Darling Downs Gas Pipelines are the final part of ORG's slated $800 million infrastructure asset sales program. Asset sales consist of $800 million target sale and the $1.6 billion sale of Contact Energy in which $484 million sale has been announced comprising $355 million for Mortlake infrastructure, US$30 million for interest in Indonesian geothermal project, $72 million for Cullerin Range Wind Farm and about $16 million of upstream assets sales as on 30^th June, 2016. More than $300 million in other asset sales are progressing, as Origin is offloading its non-core assets to focus only on its core assets.
 

Asset Sales Program (Source: Company Reports)
 
SPA for Production License L14 Jingemia Oil Field: The Sale and Purchase Agreement (SPA) is between Cyclone Energy Pty Ltd and current L14 Joint Venture partners, Origin Energy Developments Pty Ltd, AWE Limited (via subsidiary), ROC Oil (WA) Pty Ltd and John Geary. The SPA, Change of Title and Change of Operator documentation for Production License L14 (L14) are submitted to the Department of Mines and Petroleum (DMP) for formal approval. After the DMP approval Cyclone Energy and RCMA Australia would acquire equity in L14, with the intention to restart production from the Jingemia Oil Field. The production is expected to restart by the first half of 2017 subject to the necessary approvals. On the other side, Australia Pacific LNG (a joint venture with ConocoPhillips having 37.5%, Origin Energy having 37.5% and Sinopec with 25%) has signed a 20-year Gas Transportation Agreement with APA Group, who is a prominent player at east coast gas transportation infrastructure. APA would build and operate a pipeline from the Australia Pacific LNG network directly to the Wallumbilla Gas Supply Hub. This would offer them the opportunity to participate flexibly and fully in Australia’s dynamic gas market.
 
Focusing on cost reductions and capital position:Origin reported a 41% fall in the underlying profit from continuing operations to $354 million during fiscal year of 2016 as compared to the previous year. Despite strong operational performance from ORG’s Energy Markets business and maiden LNG production by Australia Pacific LNG (APLNG), lower oil prices pressurized the performance. Moreover, Origin has posted a 10% improvement in the statutory loss from total operations to $589 million, which is due to the lower underlying profit from continuing operations of $249 million, coupled with sale of Origin’s interest in Contact Energy of $55 million and a reduction of $386 million in items excluded from underlying profit. Additionally, the net cash from operating and investing activities improved $3.3 billion to $1.2 billion due to the asset sales and improving cash flow as capital expenditure and operating costs reduction. As a result of improved cash flows, asset sales and the Entitlement Offer in October 2015, ORG’s adjusted net debt decreased $4 billion to $9.1 billion. In addition, ORG has reduced the workforce by 28%, or 2,500 people during the 18 months to the end of FY2016, as capital projects have either been completed or stopped. Moreover, the group continues to focus on operating costs by FY17. Moreover, ORG has also taken action to reduce exposure to low oil prices through the purchase of put options over 15 million barrels of oil for FY2017 at prices of US$40 per barrel and A$55 per barrel. Additionally, FY 16 has seen witnessing new LNG projects coming into production and the adoption of carbon reduction targets on a global basis.


FY 2016 Financial Performance (Source: Company Reports)
 
Completion of APLNG's LNG project: ORG has started the LNG production from APLNG’s first train in fiscal year of 2016 and expects Train 2 to start production in the second quarter of FY2017. This transition from development through to production in FY2016 and FY2017 would drive ORG from its investment in APLNG through earnings and returns from FY2018 and beyond. The capex of the Energy Markets has achieved the target of $50 million reduction, while the Integrated Gas has reduced capital spend by $171 million with focus on maintaining assets, permit commitments and projects that increase gas production into a market of growing gas demand. In addition, the APLNG contributions have declined $960 million as the projects are nearing completion. ORG’s efforts to position to lower oil prices through asset sales, cost reduction, coupled with strengthening balance sheet efforts would lead to a better than estimated target of cutting debt to below $9 billion by end of FY17.
 

Capital Expenditure and APLNG Cash Contributions (Source: Company Reports)
 
Key management changes:Mr Frank Calabria, the current CEO of Origin's Energy Markets Business, is appointed as the next Managing Director and CEO of ORG effective from 19^th October, 2016. Mr Grant King would retire from the firm at the end of October 2016.
 
Stock Performance:The shares of ORG rose 19.44% in the last six months (as of October 04, 2016) and has a good dividend yield. The group continues to focus on debt reduction while pursuing strategic options to generate value to shareholders. FY2016 and FY2017 are said to be transitional years for ORG as LNG production has started while the group is ramping up for a full year production over this period. ORG is expecting 45-60% rise in the underlying EBITDA for fiscal year of 2017 against FY16 underlying EBITDA from the continuing operations. ORG stock has surged over 10.82% in the last five days (as of October 04, 2016) at the back of boost in oil prices given the latest OPEC meeting outcome on production freeze, and we believe the momentum to continue in the stock. We give a “Buy” recommendation on the stock at the current price of –  $5.42
 

ORG Daily Chart (Source: Thomson Reuters)

---