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Australian firms issue asset write-down warning
Three of Australia’s biggest oil and gas companies have warned that billions in asset write-downs are on the cards
COMMENTARY
WHAT:
Origin, Woodside and Oil Search all expect to recognise non-cash impairment charges.
WHY:
Energy prices have crashed this year, invalidating past valuation metrics.
WHAT NEXT:
The companies will likely tighten their belts this year and next.
AUSTRALIAN oil and gas companies have begun the pAinful process of writing o billions from the value of their upstream assets after energy prices tanked earlier this year.
Origin Energy, Woodside Petroleum and Oil Search all issued warnings this week that they expected to recognise non-cash impairment charges on their oil and gas assets. e move was hardly a surprise, however, with local media speculating for a number of weeks that such an outcome was inevitable.
Australian energy companies are under- stood to have based the asset valuations on an oil price of around $70-75 per barrel, a gure not expected to return for the foreseeable future. Brent crude prices averaged $71.19 per barrel in 2018, $64.37 last year and the US Energy Infor- mation Administration expects it to average just $40.50 this year and $49.70 in 2021.
Prices were already under pressure when OPEC+ met in March to agree on future oil pro- duction cuts. But their meeting failed to yield a consensus that instead sparked a price war that sent Brent oil to a 21-year low of around $16 per barrel at one point in April.
e plummet in prices has le a major gap that oil and gas companies are striving to plug.
Price revisions
Natural gas and power utility Origin Energy warned on July 15 that it expected to recog- nise post-tax charges in the range of AUD1.16- 1.24bn ($810.1-865.8mn) in its nancial year 2019-2020 results, which are due to be released on August 20.
The company said the charges related to updated year-end valuation estimates that were primarily driven by revised oil and gas price pro- jections, the economic fallout from the coronavi- rus (COVID-19) pandemic as well as a transition towards lower carbon energy supply.
e bulk of Origin’s write-downs relate to its Australia Pacific LNG (APLNG), where it expects to recognise a AUD720-770mn ($502.6- 537.6mn) impairment. Origin, which operates APLNG with a 37.5% interest, said the charge was calculated based on a reduction in oil price assumptions over the near term and a revised long-term Brent crude oil price assumption of $60 per barrel from 2025-2026.
Origin also expects to recognise a non-cash charge of AUD440-460mn ($307.2-321.1mn) post-tax relating to an onerous contract provi- sion associated with Cameron LNG. e com- pany agreed in December 2013 to buy 250,000
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w w w . N E W S B A S E . c o m Week 28 16•July•2020