Investors will be watching Origin Energy shares today to see if the sharp rebound on Friday after a new CEO was revealed, survives Friday night’s sharp slump on Wall Street and a 4% slump in global oil prices.
The shares closed at $5.41 on Friday afternoon after new chief executive Frank Calabria, who replaces Grant King, confirmed that he will continue the company’ focus on reducing debt and lifting shareholder returns (which is what chairman Gordon Cairns has made clear that is Origin’s prime focus now).
But Friday night’s interest rate tantrum by European and US markets, which saw bond yields jumping, share prices down more than 2%, and oil off 4%, will test local confidence.
ASX futures trading has the local market off 80 points at the opening this morning and Origin’s share price gains won’t hold.
Friday’s rise of 5.5% boosted the gain for the year to date by just over 10% (and last week’s 3% plus rise) will also bit hit hard today.
Calabria’s appointment came on the cusp of Origin starting up a second LNG unit at its multi-billion dollar Queensland export project in Gladstone.
HIs appointment will rekindle speculation of a potential restructuring of the group, splitting into its energy markets and its gas export businesses.
That possibility was underlined by Origin pointing to the prospect for “further strategic and structural changes” with Mr Calabria’s appointment.
The new chief executive was chosen following a global search. He will replace Mr King, Origin’s founding chief executive, at the company’s annual meeting next month.
Calabria has been with the company for 15 years, joining not long after Origin was spun out of Boral, initially working as the chief financial officer before moving across in 2009 to run its energy markets businesses.
King’s retirement has been expected for a while as the company’s Queensland export project, known as Asia Pacific LNG, moved closer to full production.
Chairman Gordon Cairns said in Friday’s statement that finding the new CEO “has been a three-year process. We identified internal candidates and put them on internal and external development programs and they were benchmarked against external candidates.Frank [Calabria] was the outstanding candidate."
King is the second CEO of a Cairns-chaired company to have been replaced this year. The other was the troubled Woolworths where Brad Banducci was found internally to replace Grant O’Brien. The difference is that King’s retirement has been coming for a while.
Both Woolies and Origin have faced difficult market conditions and have needed significant revamps to convince investors they are back on track.
Origin has dropped its dividend (Woolies is at least paying a reduced final)for the June half year and reported a near $600 million loss. Like Woolies, origin has impaired assets and taken losses and looked to revamp its finances in the face of the slide in global oil and lNG prices.
Mr Cairns ruled out any ‘de-merger’ of the oil and gas business from the energy markets business, which is centred on its gas and electricity generation and retailing units for now, with the focus on cutting debt.
"Getting debt down and driving productivity in LNG [liquefied natural gas] – they’re the two areas of focus. The demerger is not a consideration."
“The company’s focus in the short term remains on accelerating debt reduction and improving returns,” Mr Cairns said on Friday. “This will lead to the opportunity for further strategic and structural choices."
And that’s Mr Mr Calabria’s riding orders from the board.
Origin is already raising cash (to cut borrowings) by selling $800 million of assets, spanning oil and gas assets to pipelines and potential wind farm developments, along with the Chilean hydropower business Energia Austral which Origin owns with Glencore (it went up for sale last week).
Last year, the Origin’s longstanding chief financial officer, Karen Moses, left the company, which triggered speculation over the timing of King’s departure. That is now clear.
