Origin Touts 'Strong' Operational Results in 4Q10

Origin reported that Underlying EBITDA was up 16 percent to $818 million on the prior corresponding period. Importantly, Underlying EBITDA before exploration expenses was $915 million, up 26 percent and Group operating cash flow after tax of $794 million was up 87 percent.

Underlying Profit of $304 million for the six months to December 31, 2010 was a decrease of 14 percent on the prior corresponding period, primarily as a result of increased exploration expenses and a higher effective tax rate.

Origin reported a Statutory Loss of $136 million for the period which included $440 million of expenses that do not reflect the underlying business performance. These expenses included the impairment of Origin's investments in the Innamincka Deeps Joint Venture and Geodynamics Limited, stamp duty and costs associated with Origin's recently announced acquisition of NSW Government energy assets and changes in the fair value of financial instruments.

Origin Chairman, Mr. Kevin McCann said, "Origin has been through a period of substantial capital investment expanding our oil and gas production and power generation capacity and it is pleasing to see this reflected in a strong increase in Underlying EBITDA and cash flow.

"Origin is pursuing two major opportunities which will both have a transformational impact on Origin's business.

"We have continued to invest in the growth of our business through the acquisition of the NSW energy assets, which will see Origin become Australia's largest energy retailer with one of the country's largest and most flexible generation portfolios.

"The Australia Pacific LNG project is making significant progress and earlier this week received Federal environmental consents.

"Origin remains in a strong financial position and confirms its intention to conduct a pro-rata equity offering to partly refinance the debt facilities put in place to fund the NSW energy assets, further strengthening the balance sheet.

"The Board has declared an interim fully franked dividend of 25 cents per share representing 73 percent of underlying earnings," Mr. McCann said.

The interim dividend will be paid on April 1, 2011 to shareholders of record on March 7, 2011.

Based on prevailing market conditions, Origin expects Underlying EBITDA to increase by approximately 35 percent in the 2011 financial year when compared with the prior year. The company also anticipates an increase in Underlying Profit of around 10 to 15 percent when compared with the prior year, with the range reflecting the timing of any equity raising.

Underlying business performance

Origin Managing Director, Mr. Grant King said, "Origin's underlying business has performed strongly during the half year, demonstrated by the 26 percent increase in Underlying EBITDA before exploration expenses."

As foreshadowed at the full year results in August 2010, Origin undertook an expanded offshore and international exploration program in greenfield areas during the half, which included the drilling and testing of five exploration wells. None of these wells encountered commercial hydrocarbons and the associated costs have been expensed in the half year.

Underlying EBITDA increased 16 percent or $112 million to $818 million.

"The half year result has been driven by increased contributions from additional investment in oil and gas production, the completion of Darling Downs Power Station and the effective management of the energy supply portfolio in our retail business," Mr. King said.

"The strong operational performance in the half continues Origin's sustained growth, largely driven in recent years by significant capital investments across Origin's integrated business," Mr. King said.

Outlook

Origin expects the trend in operational performance observed in the first half to continue into the second half, with the following factors also influencing the performance of the underlying business:

• A significantly lower level of greenfields exploration activity will be undertaken and consequently a lower level of exploration expense is expected;
• Recent floods and volatile weather conditions are expected to have some impact on operations during the second half, however this is not likely to have a material impact on earnings;
• Origin's generation portfolio will continue to contribute to earnings in line with the increased productive capital deployed in this segment, however it is not anticipated that the Mortlake Power Station will make any contribution to the result for the full year; and
• At the full year retail margins are expected to be in line with the prior year reflecting natural seasonality in the retail business.

In addition Origin will benefit from a four month contribution from the NSW energy assets following the scheduled completion on 1 March 2011. At the time of announcing the $3.25 billion transaction in December 2010, Origin advised that the acquisition would be funded through new debt facilities, with the expectation that these facilities would be partly refinanced with a pro-rata equity offering. Origin reconfirms this intention.

Taking all these factors into account, and based on prevailing market conditions, Origin expects Underlying EBITDA to increase by approximately 35 percent in the 2011 financial year when compared with the prior year. The company also anticipates an increase in Underlying Profit of around 10 to 15 percent when compared with the prior year, with the range reflecting the timing of any equity raising.

"The following year will see significant contributions to earnings coming from a full year of contribution from the NSW energy assets. It will also include completion of the Mortlake Power Station and the completion of Contact's Ahuroa gas storage facility and Stratford Peaking project as well as continuing growth in coal seam gas production and sales," Mr. King said.

Growth Opportunities

The Australia Pacific LNG project has made significant progress towards a Final Investment Decision by Origin and ConocoPhillips.

State and Federal Government approvals have been received for the project's EIS including up to four LNG trains over a 49 year operating period. Australia Pacific LNG's Proved and Probable Reserves have continued to mature to more than 11,000 PJ. There has also been continued progress on FEED and commitment to early works and long-lead time items.

To better align the economic interests of Origin and ConocoPhillips to progress a FID in the near term, agreement has been reached with ConocoPhillips which includes a potential deferral of the FID payments for the first two LNG trains.

These payments were due to Australia Pacific LNG at the time a FID was approved and would have seen Origin's funding for Australia Pacific LNG reduced by US$500 million per train. If deferred, the payments will be made when the project pays out an agreed economic return on the total investment by ConocoPhillips in Australia Pacific LNG.

Australia Pacific LNG is now well advanced in negotiations with a number of foundation customers whose LNG requirements can trigger a FID for the LNG project.

"Looking further ahead, Origin continues to develop a number of significant opportunities which will expand on the scale and scope of our business and provide earnings growth in future years," Mr. King said.

"The company is in a strong position to meet growing energy needs both in Australia and overseas and to continue to deliver sustainable growth for shareholders," Mr. King said.