Origin (ASX: ORG) has announced it expects to recognise charges in its FY20 accounts of more than $1 billion.
What is Origin?
Origin is one of Australia’s leading energy retailers, with substantial operations ‘upstream’ (i.e. in electricity generation and storage). Origin also operates a range of renewable energy projects, such as wind farms and solar panel farms. It’s also the leading gas producer in Australia.
Origin’s painful FY20
COVID-19 has caused Origin to announce it expects to recognise post-tax charges in the range of $1.16 billion to $1.24 billion in its FY20 accounts.
These charges have come about due to the updated year-end valuation estimates primarily driven by revised assumptions about commodity prices, the associated impacts of the COVID-19 pandemic and the progressive transition to a lower carbon energy supply. Origin also said it expects revise its provisions for restoration and rehabilitation of generation assets.
There are two main elements for the writedowns. The first is an impairment in the range of $720 million to $770 million after tax for ‘Integrated Gas – Australia Pacific LNG’. The other main amount is $440 million to $460 million for an onerous contract provision for ‘Integrated Gas – Cameron LNG’.
Origin CEO Frank Calabria said: “Origin has responded quickly to COVID-19 and the decline in commodity prices, reducing operating costs and capital expenditure, and these actions have improved resilience and helped to mitigate some of the impacts on our business. These factors, and the broader macroeconomic environment, have contributed to our revised and medium and long term outlook for commodity prices.”
Summary
It’s painful for shareholders to see that amount of money written down. But the Origin share price is actually up 1.8%. I’m not sure about the future of large energy companies, so I’m happy to leave those investments like Origin to other people.
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