Origin Energy Divestment Of Australia Pacific LNG

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Origin Energy Divestment Of Australia Pacific LNG

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  • 5 percent equity interest and upstream operator role retained
  • Divestment proceeds applied to pay down debt and accelerate investment in ‘clean energy’ growth opportunities.
  • Cash flow guidance in FY22 from Australia Pacific LNG remains unchanged, despite 10 percent lower shareholding, buoyed by positive energy price outlook
  • Overall, this is a positive, well-timed divestment for Origin.

Origin Energy Limited (‘Origin’) is an integrated energy business involved in energy exploration, production, generation and retailing.

Divestment details

Origin Energy Limited (‘Origin’) has executed an agreement to sell a 10 percent shareholding in world class energy project, Australia Pacific LNG, for $2.12 billion. The sale to Washington-based global energy investor, EIG, means that Origin will retain a 27.5 percent shareholding in the joint venture. This leaves Origin as the second largest shareholder behind ConocoPhillips, at 37.5 percent.

Settlement is scheduled for 31 December 2021. No tax is payable on the $2 billion net sale proceeds, indicating that the price is broadly in line with the carrying value of the asset.

Origin have not specifically stated what it intends to do with the approximate $2 billion net funds. Management simply flagged that the divestment provides flexibility to pay down debt and accelerate investment in growth opportunities. The growth opportunities are likely to be in the ‘clean energy’ space. This sentiment from management implies that shareholders should not expect a windfall capital return from the asset sale proceeds.

Origin retains its role as an upstream operator of the project, involving exploration, development and production activities. The present strong commodity price outlook for energy means that Origin’s FY22 cash flow guidance from its remaining 27.5 percent interest in Australia Pacific LNG, remains unchanged at $1 billion, following the sale.

The unchanged cash flow and continuation of upstream exploration, development and production activities imply that this divestment is a well-timed and an overall sound financial outcome for Origin shareholders.

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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