Origin Energy has joined the growing list of energy companies writing down the value of their assets because they have been forced to slash future projections for prices.
Origin has cut the value of its assets by between $1.16 billion to $1.2 billion due to the fall in oil and gas prices (thanks to overproduction and the impact on demand from the COVID-19 pandemic) and growing realisation of the world’s move away from fossil fuels.
Following similar moves by European oil majors BP, Shell, Occidental, Chevron, and Exxon Mobil plus Woodside on Tuesday, Origin yesterday cut the book value of its assets and cut its price forecasts used out to 2026.
The biggest write-downs relate to the lower carrying value of Origin’s Asia Pacific LNG joint venture in Queensland by up to $770 million following sharp revisions to its benchmark Brent oil price assumptions, which Origin now expects will be as low as $US40 a barrel next year rising to $US61 a barrel by 2025.
That’s a bit more conservative than Woodside which in its write-downs announcement on Tuesday revealed it had cut its Brent price forecasts to $US44 next year, rising to $US61 in 2025.
Outlining its write-downs Origin cited the “progressive transition to a lower-carbon energy supply”. It is a justification now being heard regularly from companies in the sector (such as Oil Search which cut the book value of its assets on Monday by $$575 million.
Origin also said it had taken up an additional provision worth $25 million-$35 million in its power and gas retailing division for an expected rise in bad and doubtful debts due to the economic impact of COVID-19 lockdowns on customers’ ability to pay their energy bills.
Origin CEO Frank Calabria on Wednesday said Origin had responded swiftly to the shock of coronavirus and the collapse in commodity prices through cutting costs and pulling back on investment spending.
“These actions have improved resilience and helped to mitigate some of the impacts on our business,” he said.
Mr. Calabria said Origin’s diversified portfolio – which spans coal- and gas-fired power generation, LNG production, and renewable energy – was well-positioned over the longer term and had significant exposure to future growth opportunities in renewable energy and new technologies.
Origin said there would no change to its guidance for 2020 including underlying earnings of between $1.4 billion and $1.5 billion in its energy markets business.