Origin Expects a Challenging Year Ahead Despite a 427% Profit Leap

Australia's Origin Energy said Thursday in an earnings release statement that the coming year is going to be "more challenging than in prior years with less growth coming from new capital investments."

Net profit for the financial year ended June 30, 2012, skyrocketed 427 percent to $1 billion (AUD980 million) from $195 million (AUD186 million) in the same period last financial year. The company said in its earnings statement that it had pocketed a one-off benefit from the sale of its stake in Australia Pacific LNG (APLNG) to China's Sinopec. Origin had diluted its stake in APLNG from 50 percent to 42.5 percent when Sinopec joined the project in July 2011.
Commenting on the APLNG project, Origin's Managing Director Grant King said that the company is focused on "delivering APLNG on schedule and budget." 
Taking a long-term view of the APLNG project, it is likely that Origin will continue to struggle with costs associated with the construction and start-up of APLNG. The company announced on July 4, 2012, that it had offloaded additional stakes in APLNG to Sinopec. The deal which Origin inked with Sinopec saw its interest in the APLNG project drop to 37.5 percent.
Origin had acknowledged in its published statement on July 4, 2012, that the company is not immune to future cost pressures. "There have been cost increases announced by third party LNG projects in which APLNG is a non-operating joint venture participant in specific upstream gas fields," Origin said in its published statement in July. 
"Origin's remaining funding requirement for its 37.5-percent of APLNG for the period from July 1, 2012, to first production from both LNG trains is approximately $3.7 billion (A$3.6 billion). Any dilution of Origin's interest in APLNG below 37.5-percent will improve this funding position," Origin added in its published statement in July. 
The company reinforced its opinion published in July, stating in its earnings release on Thursday that if it achieve the planned dilution in APLNG below its current shareholding of 37.5 percent, its current funding position will further improve.
Peter Kiernan, lead analyst of the energy team in The Economist Intelligence Unit (EIU), told Rigzone in an interview on August 14, 2012, that "the issue of costs keeps on coming up for the new LNG projects in Australia."
Origin assured its shareholders on Thursday that there has been no change to APLNG's estimated project cost of $23 billion to-date. King said that "more than two thirds of the total project cost is fixed … with the remainder variable and already largely agreed with contractors."
The APLNG project sees the construction of two 4.5 million tonnes per annum (mtpa) coal seam gas to liquefied natural gas (CSG-to-LNG) trains. The first train will start its first LNG exports from mid-2015, while the second train is scheduled to commence its first LNG exports from early-2016. 
Most of the plant's production will be sold to Sinopec through a 20-year contract for 7.6 mtpa of LNG purchases from 2016. APLNG also has a 20-year supply agreement with Japan's Kansai Electric for one million tonnes of LNG per year from 2016. 
The CSG fields that the APLNG project aims to develop are in the Surat and Bowen Basins. A 323-mile (520-kilometer) gas pipeline will link the gas fields to the two-train LNG facility in Gladstone, Queensland. 


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