Company Overview - 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, the Otway 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
Started gas exploration at Silver Star-1: Origin Energy Ltd (ASX: ORG) has reported to have 33.75% stake in silver Star-1 gas exploration well in the South Australian Cooper Basin along with Senex Energy Limited (ASX: SXY) that has 53.75% stake and Planet Gas that has 12.5% stake. Senex Energy which is the operator, started drilling at the Silver Star-1 gas exploration well to target material gas volumes. This might cost over $15 million while Senex and Origin Energy have a budget of $252 million as agreed in 2014 to unlock potential at high-risk gas acreage in the South Australian Cooper Basin. The exploration well is expected to drill to a depth of over 3,600 meters, with a potential lateral section of up to 1,500 meters. Efficient-1 and Ethereal-1 in the southern Cooper Basin, were both cased and suspended post intersected stratigraphically trapped tight gas in the Permian sandstones. The wells were both fracture stimulated and production tested, with the next step to finish a nitrogen lift test on the Ethereal-1 well to enhance gas production. 

Silver Star-1 Location (Source: Company Reports) 
Developments in the Drillings for February: ORG has a 13.19% stake in the South Australian Gas - SACB JV wherein the three?well gas development campaign in the Kanowana Field were finished by February 2016. The recent 3D seismic data interpretation has indicated that the Kanowana structure might extend further east than original 2D data suggested, thereby offering the development potential.  The wells were drilled through a single pad and targeted gas and gas liquids in the Patchawarra Formation and oil in the Tirrawarra Sandstone. The final well of the campaign, Kanowana?14, was cased and suspended as a future gas and oil producer. Further, these results were in?line with pre?drill estimates and the campaign was successful as all the wells were cased and suspended as future producers and are expected to be online in the fourth quarter of FY17. The first well of the campaign, Toolachee?53, was spudded on February 27, 2017 and is drilling ahead. Moreover, for South Australian Gas-SACB JV, in which ORG has 13.19% stake, the Caraka?2 gas appraisal well was drilled on the northern sub?culmination of the Caraka Field.  The well was drilled post a 2016 reservoir study of the Caraka Field and re?interpretation of various 3D and 2D seismic surveys from across the region. The study showed the potential for further reserves to be accessed within the primary target Patchawarra Formation and secondary target Epsilon Formation. Caraka?2 was cased and suspended as a future producer and is expected to be online in Q4 FY17. These results were marginally below pre?drill estimates. Additionally, for Queensland Gas-SWQ JV in which Origin has 16.74% stake, Ranger?1 is the first well of a six?well near?field gas exploration campaign and was cased and suspended as a future producer.
 
First gas sales term sheet agreed for Waitsia Stage 2: AWE and Origin have agreed a nonbinding term sheet with AGL Wholesale Gas (AGL) for the first gas sale from Stage 2 of the Waitsia Gas Project. The term sheet sets out the commercial terms for the sale of 15 TJ per day of gas, or 5.5 PJ per year. This equates to 15% of Stage 2 nominal daily production capacity and represents a material contribution towards underwriting the project. Further, the term sheet would form the basis of a Gas Sales Agreement, which AWE expects to be concluded by mid-2017 calendar year. However, the term and price have not been disclosed for commercial reasons. Moreover, AWE and Origin each hold a 50% interest in the Waitsia gas field and are jointly marketing Stage 2 gas. The stage 2 would have capacity to supply 100 TJ per day, or 10% of Western Australia’s domestic gas needs, for 10 years. AWE is targeting first gas from Stage 2 in calendar year 2020. Additionally, Waitsia Stage 2 is currently in Pre-Front End Engineering and Design (FEED) and is on track to enter FEED in the June quarter. AWE is targeting a Final Investment Decision (FID) by the end of calendar year 2017, subject to completion of FEED and further gas sales agreements.
 
Solid operational performance in 1H 17: ORG has reported the statutory loss of $1.68 billion in the first half of 2017, principally due to an impairment charge of $1.9 billion. However, the underlying EBITDA has increased $277 million or 32% to $1.15 billion in the first half of 2017, due to the solid operational performance of the business. The EBIT (excluding Contact) was stable during the period despite a growth in EBITDA, as LNG revenue was insufficient to offset the increase in APLNG ITDA owing to low oil prices and the ramp up to full production. The APLNG production has improved by 76% with the beginning of LNG while the E&P production enhanced by 12% driven by Halladale/Speculant. Meanwhile, APLNG Train 1 has produced above design nameplate capacity through the 120-day production test while Train 2 has started production in late 2016. Additionally, the group expects their production would be ramping up ahead of the 90-day two train operational test in the first half of FY2018. There has been a release of US$5.1 billion (60%) of APLNG’s project finance guarantees related with Train 1. The contracted LNG sales at an effective oil price of US$42.3/bbl in H1 FY2017 was reported with the spot LNG sales at an average price of US$6.12/mmbtu in H1 FY2017. On the other hand, the first year planned shutdown for Train 1 is expected for H2 FY2017 (3-4 week outage).
 

First half of 2017 Financial Performance (Source: Company Reports)
 
Balance sheet highlights:Origin Energy had built a decent capital position with a $5.7 billion of undrawn committed bank facilities and a cash as at December 31, 2016. During this period, ORG even extended the maturity of $4.5 billion of syndicated bank loans by 34 months to October 2021 and redeemed the A$900 million Subordinated Notes in December 2016. However, the group’s Board determined to not pay a dividend in respect of earnings for H1 FY2017 and focus in debt reduction. The group is finishing the asset sales program with a target of $800 million which is on track for the second half of FY 17. The group is also controlling their adjusted net debt to be well below $9 billion by June 2017 (excluding NewCo IPO) and remaining contributions to APLNG to be $0.3 billion ($0.2 billion below prior guidance).
 

FY2017 Guidance (Source: Company Reports)
 
Stock Performance: ORG stock fell over 10.4% in the last four weeks (as of March 14, 2017) but has risen over 31.59% in the last six months. Despite short term headwinds, the group has finished APLNG project, while announced intention to IPO conventional upstream assets which would enhance the group’s earnings and operating cash flow. Origin is also focusing to cut capex while contributions from APLNG would further drive their business going forward. Origin intends to continue their asset sales to further focus on their core assets. The group believes to have an ongoing growth, with lower working capital. Moreover, the group also enhanced their underlying EBITDA guidance to $2.450 - $2.615 billion for fiscal year of 2017, subject to the market conditions. We believe there is more momentum for the stock going forward. We give a “Buy” recommendation on the stock at the current price of – $ 6.57  

 
ORG Daily Chart (Source: Thomson Reuters)

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