Across client accounts that have selected the “Growth” Australian Equity option we have added Origin Energy (ORG).

Origin Energy is an integrated energy company encompassing all aspects of energy exploration, production, power generation and retailing. Origin’s Energy Markets division is the leading energy retailer in Australia with 4.2 million gas, electricity and LPG customer accounts. The Integrated Gas division consists of Origin’s Exploration and Production Operations and a 37.5% shareholding in Australia Pacific LNG, a two train LNG production facility, which after eight years of construction and development shipped its first cargoes of LNG in January 2016 and is achieving above nameplate production rates.

In September, Origin reset its senior management team with the replacement of the previous CEO and CFO’s. The subsequent business review undertaken has led to the announcement of the intention to undertake an IPO of the energy exploration and production division, with the proceeds to be utilised to reduce debt and service on-going capital expenditure requirements.

With new management and the reduction of the debt burden on the company, we see the opportunity to add ORG to the Growth Portfolio to take advantage of:

  • Rising domestic energy prices and a domestic gas market that is expected to tighten given ORG’s flexibility to be able to sell gas into the domestic market or export;
  • Substantial increase in free cash flow a APLNG production ramps up and two train production is added;
  • Any continued recovery in oil prices as global growth shows further signs of increasing (analyst estimates of free cash flow breakeven for ORG is $US42 per barrel)

With a more stable balance sheet and refocused management we see current levels as an excellent medium term entry point for Origin.

Sale of ALS (ALQ)

To fund the purchase of ORG we are using the proceeds from the recent sale of ALS. For the rationale behind the sale of ALS, please refer to the previous posting.

If you have any queries, please contact your Elston adviser.