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
 
Update on Silver Star-1 Exploration Well: Origin Energy Ltd (ASX: ORG) has a 33.75 per cent participating interest in the Silver Star-1 exploration well, and recently, the well has been drilled ahead with lateral well from 3,348 meters and the current position is 4,224 meters. The Silver Star-1 well is a high impact exploration well and will target basin centered gas in the Permian sandstones. Moreover, the properties of the reservoir have successfully met certain criteria and a lateral section of up to 1,500 meters is currently being drilled.  The fracture stimulation and testing of the well will follow post the drilling. As per the Silver Star-1 well exploration 8 update, the gross drill cost estimate is over $15 million with Planet Gas’ 12.5 per cent interest free along with the joint venture partner Senex Energy Limited and the group.
 
Additional renewable energy topped up to the portfolio with a new benchmark for renewable PPA pricing: ORG has announced that they would commit to a 530 MW long-term power purchase agreement (PPA) for the Stockyard Hill Wind Farm, which sets a new benchmark for renewable PPA pricing in the market. Under the terms of agreements executed with Goldwind, ORG would sell Stockyard Hill Wind Farm, Australia’s largest wind development, for $110 million and sign a long-term PPA from the commencement of operations in 2019 to 2030. The group would also agree to buy all of the power generated by the wind farm and the related Renewable Energy Certificates for a market leading PPA price of below $60/MWh. However, the sale of Stockyard Hill Wind Farm is subject to the satisfaction of certain regulatory approvals, including Goldwind achieving financial close and a number of other conditions. Moreover, the deal shows that the renewable energy is being rolled out rapidly in the Australia’s energy market and the costs have fallen at a very fast rate. The deal with Goldwind, will enable ORG able to add a substantial amount of new renewable energy to their portfolio at a market leading PPA price. The company had announced the ambition to add up to 1,500 MW of new renewables by 2020, and the company is now just 300 MW short of that target. By 2020, the group expects that renewables would be more than 25 per cent of the energy in the generation mix. The sale of Stockyard Hill Wind Farm formed part of ORG’s asset divestment program. The proceeds from the sale would be used to reduce debt, which is a key focus of the company. 

Bundled Power Purchase Agreement (PPA) Prices (Source: Company Reports)
 
Increased interest in prospective Beetaloo Joint Venture to 70 per cent: ORG has increased its share to 70 per cent in the Beetaloo Joint Venture after acquiring Sasol Petroleum Australia Limited’s (Sasol) 35 per cent share. Recently, there was an announcement of the discovery of a material shale gas resource in the Beetaloo Basin, with the acquisition of Sasol’s 35 per cent share, ORG will have share on the gas resource. Moreover, the transaction is not expected to impact ORG’s short term focus on debt reduction as there are no immediate capital requirements in the Beetaloo.
 
Decent operational performance in 1H 17: The group 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 per cent to $1.15 billion, due to the solid operational performance of the business. The EBIT (excluding Contact) was stable despite growth in EBITDA, as LNG revenue was insufficient to offset the increase in APLNG ITDA largely due to low oil prices and the ramp up to full production. Moreover, ORG has completed APLNG project, announced intention to IPO conventional upstream assets, increased earnings and operating cash flow, reduced capex and contributions to APLNG and progressed with asset sales. The APLNG production has increased by 76 per cent with the commencement of LNG and the E&P production increased by 12 per cent driven by Halladale/Speculant. APLNG Train 1 has produced above design nameplate capacity through the 120-day production test and Train 2 has started production in late 2016. Additionally, the production ramping up has been expected ahead of the 90-day two train operational test in H1 FY2018. There is a release of US$5.1 billion (60 per cent) of APLNG’s project finance guarantees associated with Train 1.  For the March quarter, the group produced a total of 27 LNG cargoes which were loaded and shipped from the APLNG facility on Curtis Island, including to Sinopec and Kansai in accordance with their respective long term Sales and Purchase Agreements. In early April, APLNG produced and shipped its 100^th cargo. APLNG participated in the drilling of 26 development wells during the quarter while 8 operated appraisal wells were drilled in the quarter. The contracted LNG sales is at an effective oil price of US$42.3/bbl in H1 FY2017 and the spot LNG sales is at an average price of US$6.12/mmbtu in H1 FY2017. However, the first year planned shutdown for Train 1 is expected for H2 FY2017 (3-4 weeks’ outage). In addition, ORG had $5.7 billion of undrawn committed bank facilities and cash at December 31, 2016. During this period, ORG 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. ORG has given the focus on debt reduction, and accordingly, the ORG Board has determined to not pay a dividend in respect of earnings for H1 FY2017. The group recently appointed Gordon Cairns as the independent Non-executive director.
 

1H 17 Financial Performance (Source: Company Reports)
 
FY 17 Outlook: There is an expectation of continued growth in the earnings and operating cash flow, lower working capital, higher APLNG production and completing the asset sales program of target of $800 million on track for the second half of FY 17. Moreover, FY 17 targets of ORG are underlying EBITDA guidance improved to $2.450 - $2.615 billion, subject to the market conditions, adjusted net debt well below $9 billion by June 30, 2017 (excluding NewCo IPO for conventional upstream assets) and remaining contributions to APLNG of $0.3 billion ($0.2 billion below prior guidance). Meanwhile, the group’s joint venture with Senex for Immortals-1 oil exploration well is expected to drill in the last quarter of FY17, which is the third exploration target in the northern Cooper Basin drilling campaign within PEL 182.Origin is also positioning itself to leverage the booming renewables demand, and accordingly, committing to more than 680 MW since early 2016, which is coming into production from 2018. Stockyard Hill Wind Farm is under negotiation for over 500 MW.  
 

FY2017 Guidance (Source: Company Reports)
 
Stock Performance: ORG stock has risen over 38.34 per cent in the last six months (as of May 16, 2017). ORG’s efforts coupled with strength in assets will have an important role in the transition to a player for a secure, affordable and cleaner supply of energy for Australia while the group is well positioned to make gas available to customers. Focus on reducing operating and capital costs has been another highlight for the company for quite some time. ORG also has sufficient liquidity for anticipated funding requirements. The recent Stockyard Hill deal with Goldwind has further strengthened ORG’s market positioning setting a new low benchmark for a bundled renewable PPA. Margins are expected to be delivered through the deal. Potential also flows in considering that Australia Pacific LNG’s present contracts with east coast industrial firms and energy retailers would deliver greater than 100 PJs per year till 2020, and more than 80 PJs till 2030. We give a “Buy” recommendation on the stock at the current price of $ 7.72

 
ORG Daily Chart (Source: Thomson Reuters)

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