Origin's APLNG posts record gas revenue
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Origin's APLNG posts record gas revenue

Origin Energy's jointly owned liquefied natural gas venture in Queensland posted record revenue in the December quarter, up 45 per cent on the previous year on higher LNG and oil prices and a weaker Australian dollar.

Origin's share of revenue from its 35 per cent owned Australia Pacific LNG (APLNG) was $741 million in the 2018 December quarter, up 16 per cent from $640 million in the previous three months, and up 45 per cent on the 2017 December quarter's $510 million.

APLNG has boosted Origin's performance as it records a slump in its energy retail arm.

APLNG has boosted Origin's performance as it records a slump in its energy retail arm.

The leap came despite gas sales increasing only 1 per cent quarter-on-quarter and falling 4 per cent year-on-year, and stable production.

APLNG's record revenue was mainly driven by an average realised oil price of $US76 a barrel in the December quarter, up from $US69 a barrel in the previous quarter, as well as a weaker Australian dollar. The oil price hit a ceiling of $US86 a barrel in October before it fell sharply to around $US50 a barrel in late December. The LNG price is linked to oil prices.

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Origin said LNG prices over the first half of the quarter were strong but began to weaken due to slower industrial activity in China, mild weather in Asia and high gas inventory levels in Europe, along with new LNG liquefaction projects boosting supply.

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“Australia Pacific LNG benefited from both higher commodity prices and favourable movements in the exchange rate, while continuing to operate reliably at steady-state production levels,” Origin chief executive Frank Calabria said.

While electricity and gas sales were lower over the quarter, with retail sales slipping nearly 20 per cent in volume and natural gas levels plummeting 57 per cent, Origin retained its forecast annual earnings guidance of between $1.5 billion and $1.6 billion.

“In line with seasonal demand, electricity and natural gas sales volumes in the energy markets business were lower over the period,” Mr Calabria said.

Capital expenditure shot up as Origin invested heavily to ensure its Eraring coal-fired power station performed over summer.

“Eraring, which is critical to power supply in NSW, had a major overhaul of one of its units, and we are also in the process of updating a unit at Quarantine Power Station,” he said.

This weaker electricity segment performance could be a boon for households.

One energy analyst, who declined to be named, expects Origin’s electricity arm to struggle more as competition increases in the market.

“We’re at a point of more customer churn and much lower demand due to increasing levels of solar penetration,” he said.

“This could actually be a more effective way of forcing energy companies to become more customer focused as they fight over a much smaller pool of shrinking customers, especially as more competitors enter the market.”

Analysts at RBC Capital Markets believe the upcoming federal election will also prove a hurdle for Origin in 2019.

“Origin remains firmly in discounted value territory due in large part due to potential and/or perceived regulatory headwinds leading into a May federal election, headed by proposed “big stick” divestiture legislation,” analyst Ben Wilson said.

“Origin has done a good job recently in framing the potential downside from default offers for retail; however, the memory of the first-up FY19 guidance disappointment lingers. The next few months could be a bumpy ride as electioneering ramps up.”

Origin's share price, which fell sharply towards the end of last year as oil prices dropped, rose 2.5 per cent from $7.17 to hit $7.35 in early trading before subsiding to $7.28 by midday. The stock has risen about 11 per cent so far this year.

APLNG is a joint venture between Origin, ConocoPhillips and China Petroleum & Chemical Corp.

Covering energy and policy at Fairfax Media.

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