Origin Energy Ltd has announced that it has taken steps to reduce its exposure to low oil prices by purchasing put options on oil (Oil Puts) for the 2017 financial year and by forward selling LNG cargoes at a fixed price. Both of these transactions will help decrease a significant proportion of Origin’s exposure to oil prices on volumes that Australia Pacific LNG (APLNG) sells under current contracts, as well as spot LNG prices on volumes above contracted commitments.
The Oil Puts allow Origin the right to sell 15 million barrels of Japan Customs-cleared Crude (JCC) at a strike price of US$40/bbl for 25% of the volume and AUS$55/bbl for 75% of the volume. After tax, the overall cost of the Oil Puts is $82 million, which will be expensed in underlying profit in the 2017 financial year. Any payout received by Origin under these Oil Puts will be recognised in underlying profit in that year.
Grant King, the Managing Director of Origin, said: “With the continued decline in oil prices, Origin has acted to reduce the potential requirement for the Company to make additional contributions to APLNG above the $1.8 billion of remaining contributions announced in August 2015.
“By placing a floor on the oil price for the 2017 financial year, the above transactions are designed to limit any additional contribution that Origin is required to make to APLNG caused by declining oil prices.
“If, for example, oil prices fall to US$20/bbl for the entire 2017 financial year, with the benefit of the Oil Puts, the additional contribution that Origin would have to make to APLNG would be around $200 million.
“Origin, as upstream operator, also continues to work with Australia Pacific LNG to reduce operating and capital costs in order to reduce APLNG’s cash-cost breakeven price and further improve the project’s resilience in a low oil price environment.”
Edited from press release by David Rowlands
Read the article online at: https://www.lngindustry.com/liquid-natural-gas/29122015/origin-energy-reduces-its-exposure-to-low-oil-prices-1811/