PERTH (miningweekly.com) – ASX-listed Origin Energy has warned of a A$1.5-billion post-tax impairment charge in the 2021 financial year, relating to its Energy Markets division and its generation assets.
Furthermore, tax expenses of A$669-million will be reported relating to a deferred tax liability, reflecting the expectation of an increased distributable free cash flow and unfranked distributions from the Australia Pacific liquefied natural gas (LNG) project.
Origin said on Friday that its assessment of the carrying value of its tangible and intangible assets in the Energy Markets division considered a range of macroeconomic factors, including market prices for wholesale electricity, Large-scale Generation Certificates (LGCs) and gas, retail market dynamics, discount rates and costs.
The principal changes since the last assessment at the end of December last year are a significant reduction in wholesale electricity prices and a contraction in near-term gas earnings as a result of higher procurement costs and subdued business customer demand.
Origin expects 2022 underlying earnings before interest, taxes, depreciation and amortisation for Energy Markets to be lower at A$450-million to A$600-million, largely offset by increased earnings from Australia Pacific LNG with cash flow to Origin estimated to be greater than A$1-billion net of oil hedging.
Meanwhile, Origin on Friday also reported that production for the 2021 financial year had remained stable, despite a 53% reduction in capital expenditure reflecting strong field performance. Commodity revenue declined 35% reflecting lower realised oil prices.
The 2021 electricity sales volumes were flat compared to 2020, while gas sales volumes decreased by 11%, primarily driven by expiration of business contracts as well as lower demand from gas-fired generation.
“The strong performance of Integrated Gas continues, with full-year production at Australia Pacific LNG stable even as we significantly reduced development activity and costs, reflecting the performance of the gas fields,” Origin CEO Frank Calabria said.
“Higher realised commodity prices and higher domestic volumes drove a strong increase in Australia Pacific LNG revenue during the quarter, while the continued recovery in global oil demand has driven stronger Japan Crude Cocktail prices and we expect this to flow through to higher effective prices into 2022.
“Pleasingly, cash distributions from Australia Pacific LNG were A$709-million in 2021, compared to our guidance of greater than A$650-million,” said Calabria.
“Wholesale electricity prices recovered strongly during the quarter due to a number of unplanned baseload plant outages in the National Electricity Market and a winter cold snap, which also drove higher demand for gas.
“As the pandemic continues to impact on sectors such as travel, hospitality, recreation and education, electricity sales volumes were largely flat over the year with higher residential demand.
“Gas sales were down year on year, with higher residential demand but lower business volumes. Less gas was used for electricity generation with lower wholesale prices for most of the year, however gas peakers have been in high usage over recent weeks in response to outages at other plants, reinforcing the crucial role these assets play in providing reliable power when it is needed.
“The development of Origin’s new, more efficient retail operating model and migration to the Kraken platform is progressing very well, with 250 000 customers now on the platform. We are in a strong position to start scaling up migrations towards a goal to have all our customers on the new platform by the end of 2022,” Calabria said.