Origin Energy Limited (Origin) today advises that it expects to recognise an impairment charge of approximately $1.9 billion (post tax) in its HY2017 results to be released on 16 February 2017. 


Origin’s Underlying EBITDA guidance range has improved to $2,450 million to $2,615 million for the 2017 financial year, subject to market conditions.

Australia Pacific LNG (APLNG) has recognised an impairment charge on its assets of which Origin expects to reflect its 37.5 per cent share ($1,031 million post tax) in the financial statements. In addition, Origin expects to impair its investments in the Browse Basin $578 million, NewCo conventional exploration assets $170 million and Energía Austral SpA $114 million.

In determining the carrying value of its assets, APLNG considers a range of project and macro assumptions – including oil price, AUD/USD exchange rates, discount rates and costs. The cumulative net effect of these has reduced the valuation over time but had not warranted a revision by APLNG of the carrying value of its assets until now. Since the last assessment at 30 June 2016, there has been a change in a number of relevant assumptions but principally an increase in US dollar interest rates which caused an increase in the discount rate from 9.0 per cent to 10.2 per cent (pre-tax)1. As a result, APLNG is now recognising an impairment.

Origin’s own assessment of the carrying value of its equity accounted investment in APLNG identified that no further impairment was required, based on the same discount rate as APLNG and using Brent oil price consistent with the forward curve at 31 December 2016 for the short term, stepping up to US$71/bbl (real) from FY2021 and an AUD/USD exchange rate consistent with the 31 December 2016 forward curve and a long term rate of 0.70 from FY2021. Origin’s valuation of its investment in APLNG is sensitive to changes in these assumptions which could impact the financial statements in the future.

The impairment of the Browse Basin has been made following an assessment of the likely timing and potential commercialisation of the resource. Based on new information, Origin has formed the view that the Caldita-Barossa fields are now the lead prospects to be developed to backfill Darwin LNG and other commercialisation alternatives are unlikely in the near term.

Following a review of the carrying value of the assets to be included in the proposed Initial Public Offering of our conventional gas assets (announced in December 2016) an impairment of exploration assets that primarily offer low growth has been recognised.

After an extended sale process, the impairment of Energía Austral SpA reflects the reduced prospects of an asset sale proceeding.

Impairment Details

Asset

Post-tax impairment ($m)

Assets held by APLNG

1,031

Browse Basin

578

NewCo conventional exploration assets

170

Investment in Energia Austral SpA

114

Total

1,893


The aggregate impairment charge is subject to finalisation of Origin’s half year financial statements and is an after tax, non-cash item with no impact on cash flow or EBITDA.

1The discount rate calculation uses the current market observed interest rate on the US Government 20 year bond as the risk free rate

Post-tax impairment ($m)

578