Figure 2 Half yearly gas and electricity gross profit. Source: Company
Key points
ORG lost electricity customers but grew revenue, price and margin. Overall the result was strong in the June half at virtually every line. Furthermore guidance was positive with energy markets ebitda expeted to increase to $1.7-$1.8 bn (up about 16% on FY17) and mainly driven by expected increase in electricity.
Looking forward Eraring will increase output say 10% but will face increasingly higher coal costs.
ORG indicated that its 700 PJ Ironbark CSG reserve will move towards FID this year targeting gas production by about 2020 at say 30-40 PJ per year. That’s enough to run a 500 MW power plant or more likely to keep industrial gas customers happy.
Gas production/retailing profits were boosted by Halladale/Blackwatch offshore Otway Basin production. However that production is very short term and we expect that production falling sharply before say 2020.
The “Lattice Energy” business remains on track for sale in calendar 2017 which ORG states will help debt fall below $7 bn.
ORG earned about $70 m from sale of its REC inventory in FY17 but like AGL won’t be able to repeat that in FY18. This makes the estimated $250 m or 17% expected increase in electricity gross profit all the more notable.
APLNG’s distribution break even (the point for equity cash flow to flow to shareholders) at a $0.75 currency is around US$ /boe 48 however this is after repayment of A$ 1 bn of project debt repayments. It’s a race but in a few more years APLNG will have paid down much of its project debt and long suffering shareholders may see some cash. Still a longer term resolution of ORG’s financial position will likely require sale of the interest in APLNG.
Changes in segment reporting make some of the numbers in the summary table below rubbery. We show some “fill right” FY18 estimates but these are not in the least reliable.
A chart of the as reported half yearly electricity and gas gross profit is shown below. It fails to really show the improvement in the electricity business in the past 18 months. Electricity gross profit was up 19% in the June half and gas 16%.
Figure 2 Half yearly gas and electricity gross profit. Source: Company
Figure 2: Half yearly gas and electricity gross profit. Source: Company
On a full year basis the electricity gross profit break up as reported is:
Figure 3 Electricity gross profit: Source: Company
Figure 3: Electricity gross profit: Source: Company
Figure 4 AGL and ORG electricity volume & price outcomes. Source: Company
Figure 4: AGL and ORG electricity volume & price outcomes. Source: Company
Figure 5 Electricity volumes. Source: Company
Figure 5: Electricity volumes. Source: Company
David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.
David Leitch is a regular contributor to Renew Economy and co-host of the weekly Energy Insiders Podcast. He is principal at ITK, specialising in analysis of electricity, gas and decarbonisation drawn from 33 years experience in stockbroking research & analysis for UBS, JPMorgan and predecessor firms.