What: Leading vertically integrated energy giant Origin Energy Ltd (ASX: ORG) has announced the near $1.6 billion sale of its 53% shareholding in New Zealand-listed Contact Energy. Investors have responded negatively to the news, sending Origin's shares down over 3% on a day when the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is trading 0.7% lower.
So What: As Managing Director Grant King noted, the sale of Contact Energy, "is consistent with Origin's stated intention to continue to take action to reduce operating and capital costs, realign debt across group entities, and, where appropriate, diversity assets. The proceeds from the Sale will provide increased financial flexibility in the short to medium term."
According to a report in the Australian Financial Review, broker Deutsche Bank believes Origin's net debt position will drop around 21% thanks to the cash proceeds from the sale of Contact Energy. That's good news for shareholders, however, the asset sale does also mean the end of an earnings contribution from Contact. Management also drew investors' attention to an expected impairment charge of $270 million which is set to be taken by the company.
Now What: News of Origin's move to strengthen its balance sheet in the face of persistent low oil prices and a clouded outlook for LNG export demand comes as the news wires report that oil and gas producer Santos Ltd (ASX: STO) may launch a capital raising in the coming weeks to shore-up its own balance sheet.
With Brent oil trading at around US$50 per barrel, some investors will logically be eying the market and wondering if a cyclical low has been reached. If the oil price has bottomed it could potentially be a good time to begin acquiring shares in major oil producers. If companies are forced into a discounted capital raising however, share prices could go even lower still.
