Origin Energy faces restructuring to cut debt

08 March 2016, Week 09, Issue 347

Debt -burdened Australian generator and retailer Origin Energy is considering de-merging its power assets from its developing gas business as the company continues to come under investor pressure.

Origin, which produces 13% of Australia’s electricity and supplies 4.3 million customers – about 20% of the population – has accumulated debts of around US$9.2 billion through its 37.5% stake in the Australian Pacific LNG project (APLNG) in Queensland.

Although Origin’s APLNG project has just moved into first phase production and export, a gas glut in the region is undermining plans to secure long-term supply contracts, especially with China, said the Australian Financial Review.

Origin managing director Grant King told local media last week that a demerger and potential mergers were on the table as part of efforts to restore shareholder value. The company had not ruled out anything, he said.

“The comments come as some investors suggest a demerger between Origin’s core energy markets business and its growing oil and gas business is a natural next step for Origin once the APLNG project is fully on stream and reaches technical completion in about 12 months,” the Sydney Morning Herald said.

Origin’s partners in the APLNG project are ConocoPhillips and Sinopec. Origin has already initiated action such as a cash-raising share issue, capital expenditure cuts totalling US$1 billion and the planned sale of some renewable projects, including a geothermal plant in Indonesia.

In Australia, its power portfolio is fuelled by coal, gas, wind and solar. It operates the country’s biggest power plant, the 2,880-MW coal-fired Eraring thermal power plant (TPP) in New South Wales.

Last August, Origin sold its controlling 53% stake in Contact Energy, New Zealand’s second biggest generator with 22% of the market, for US$1.6 billion. That sale was intended to reduce debt and try to improve its credit rating but, as analysts noted, it also diminished a reliable revenue stream.

Despite its share in the APLNG project Origin still only sources 20% of its gas needs from its own resources, even though its operates six gas-fired TPPs.

Edited by

Richard Lockhart


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