Oz Origin Energy Cuts Capex

Australian gas and power retailer, Origin Energy, April 6 said it is targeting a 25 - 30% reduction in capital expenditure in the 12 months to June 30, 2021 (FY2021) compared with previous FY2020 guidance of A$530mn - A$580mn (US$320mn - US$350mn) due to Covid-19 outbreak and low oil prices.

Origin is targeting a A$300mn - A$400mn reduction in Australia Pacific LNG (APLNG) upstream capital expenditure in FY2021 compared with FY2020 guidance. “This reduction is expected to be driven by reduced development activity as well as lower exploration and appraisal and is not expected to materially impact production in FY2021,” the company said.

APLNG (a joint venture comprising Origin, ConocoPhillips and Sinopec) is Australia’s largest producer of coalbed methane and supplies gas to Queensland’s domestic gas market, while also processing coalbed methane into LNG for exports. Origin Energy owns a 37.5% stake in the joint venture.

Origin said that since APLNG’s operating costs are predominantly in Australian dollars and long-term LNG offtake contracts are in US dollars, the impact of lower oil prices is partially mitigated by a lower A$/US$ exchange rate.

“Based on a combination of targeted reductions in expenditure, the nature of the long-term LNG contracts and a 60 cent AUD/USD exchange rate, Origin estimates that Australia Pacific LNG can fund its FY2021 operating, development and project finance costs at oil prices at or above US$25 per barrel,” it said.

For FY2020, capital expenditure (excluding APLNG) is estimated to be 5-10% lower than previous guidance of A$530mn - A$580mn, Origin said, adding there is no change to APLNG production or distribution breakeven guidance.

Late last month, Origin halted the exploration programme in the Beetaloo Basin in Northern Territory due to Covid-19. “The joint venture is targeting a recommencement of stage 2 activity in the second half of the 2020 calendar year, with exploration and appraisal activities beyond this programme able to be deferred, while ensuring permit obligations are met,” Origin said.

Origin holds an operating interest of 70% and Falcon Oil & Gas the remaining 30% in the Beetaloo exploration permits 76, 98 and 117. In September last year, Origin secured the go-ahead from authorities to drill the first of two horizontal appraisal wells targeting shale gas plays in the onshore Beetaloo sub-basin. It spudded the first well, Kyalla 117 N2-1, in October.