Page 4 - AsiaElec Week 29

AsiaElec COMMENTARY AsiaElec

Australian firms issue

asset write-down warning

Three of Australia’s biggest listed oil and gas companies have
warned that billions in asset write-downs are on the cards

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

P4 www. NEWSBASE .com Week 29 22•July•2020