Shares in Origin Energy rose to a two year high on Tuesday with some reports claiming the rise was due to the company revealing cost cuts at its flagship liquefied natural gas export operation in central Queensland.
But the real driver was the news of higher earnings from its big coal fired power station in the NSW Hunter Valley, plus the lure of capital management from the sale of its Lattice conventional oil and gas operations to Beach Energy.
Origin shares were up more than 3.3% at one stage at $8.87 – they closed up 2.4% at $6.80 and have now risen 35% year to date.
Origin Energy lifted guidance for output from its huge Eraring coal fired power plant in the Hunter Valley because of surging wholesale electricity prices in the wake of the closure of the Hazelwood power station in Victoria’s Latrobe Valley.
Output from the country’s biggest power station is expected to be between 15.5 terawatt-hours and 16 terawatt-hours this financial year, up from a range of 14.6TWh-15.3TWh given in August, which was itself a 5-10% increase on 2016-17’s output.
The company said the upgrade is supported by both long-term and short-term sales contracts and an “optimised” supply chain (the coal supply is running smoothly).
"Eraring is running harder than ever in response to high wholesale prices," Origin said in a presentation investors in Sydney.
The company also said it is aiming for $500 million a year in capital and running cost cuts at the Australia Pacific LNG export project in Gladstone over the coming 18 months.
It wants to reduce the oil price at which the $25 billion project pays distributions to less than $US40 a barrel from June 2019, compared with expected $US48 a barrel rate this financial year.
It says it is targeting an operating breakeven oil price of less than $US24 a barrel, down from $US30 expected for this year. Origin had indicated its intentions to embark on aggressive cost-cutting at APLNG in August when it revealed its 2016-17 results.
The company also told investors it is still targeting renewables to be 25% of its generation mix by 2020, up from 10% currently.
Origin said it expect renewables output to almost triple by 2020, having committed to 1200 megawattsWof new supply since March 2016. It has pledged to exit coal power generation by the early 2030s.
