If global oil prices continue under pressure in coming months, shareholders in struggling Origin Energy (ORG) face the prospect of losing their dividend completely after the interim was more than halved yesterday.
The company, which has seen its expensive $24.7 billion Queensland export LNG project come on stream amid the turmoil of falling world oil and gas prices, yesterday revealed a December half year net loss (after one -off items) of $254 million.
That was significantly deeper than the $25 million bottom-line loss in the six months to December 2014.
Group underlying profit, which excludes one-off items, dropped to $254 million from $346 million as sales slid 14% to $6.13 billion in the latest half year.
Origin cut the interim dividend to 10c from 25c (as warned last October), and chairman Gordon Cairns yesterday warned that unless oil prices recover this half the final payout of 10 cents a share (itself reduced) would be scrapped altogether, along with next year’s interim.
“Should the current low oil price environment persist through the second half of FY16, which puts at risk ongoing debt reduction, the company will suspend dividends until appropriate debt levels are achieved,” Mr Cairns said yesterday.
Origin had warned about the reduction in the interim dividend in the guidance it gave at the time of the $2.5 billion rights issue last October, but it had previously signalled a final dividend also of 10 cents a share.
Mr Cairns said Origin had made significant cost savings over the past months, with the energy markets business on track to achieve $100 million of reductions by the end of June.
He says Origin is also on track to deliver $200 million in broader cost savings from 2016-17.
Despite the warning on the dividend, Origin shares rose as much as 8.7% to $4.23, reflecting also a bounce in global crude oil prices overnight Wednesday and the 2% plus rise in the wider market yesterday.
ORG 1Y – Origin cuts payouts over oil prices
Origin raised $2.5 billion in fresh equity to shore up its balance sheet last October and forecast gross earnings for the Queensland LNG project of around $230 million. Now it is forecasting a figure of just $30 to $60 million, while estimates for 2017 have been cut by 45%.
Earnings guidance was maintained on the rest of Origin’s business.
CEO Grant King said Origin had been making good progress on work to cut costs and preserve cash to ensure the company "can withstand lower oil prices for longer".
He said the company is looking to again cut debt this year after last year’s sale of Origin’s stake in New Zealand’s Contact Energy and its equity raising (which helped cut debt by $5.5 billion). Mr King said the company wants to reduce debt under $9 billion in 2016-17.
A solid rise in underlying earnings in Origin’s core energy markets business prevented a bigger fall in core profit. They rose 16% to $721 million. But the contribution from the integrated gas business halved to $137 million, while earnings from exploration and production slumped $94 million to $117 million after write-offs. Earnings from the LNG business dropped to $20 million from $62 million.
