The share price of Origin Energy Ltd (ASX: ORG) is powering ahead this morning after the company said it's cashing in on the high oil price and record production from its joint venture (JV) project.
The stock jumped 0.6% to $9.72 in the first hour of trade when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) is struggling to keep its head above breakeven.
Origin reported that its share of the Asia Pacific LNG (APLNG) JV increased 2% to 64 petajoules (PJ) as the amount of gas sold improved 3% to 62.8 PJ equivalent in the June quarter compared to the previous quarter.
This is the highest amount of quarterly output that Origin has reported but the thing that is more exciting is the 14% quarter-on-quarter jump in revenue to $520.2 million. This pushes the year-to-date revenue increase to 42% thanks to the rising oil price, which LNG contracts are benchmarked against.
In contrast, the Brent crude oil price has risen by around 15% to US$75 a barrel since January this year and analysts believe it's heading to US$80 a barrel before year end.
"Across FY18, we saw strong uplifts in production, sales and revenue, reflecting a full year's contribution from Australia Pacific LNG's Train Two and assisted by strengthening commodity prices," said Origin's chief executive Frank Calabria.
"A total of 125 LNG cargoes were loaded and shipped for the year. Australia Pacific LNG also delivered net cash flows to Origin of $363 million in FY2018."
The quarterly report is a good result, although not surprising given the resilience of the crude oil price. It also helps distract investors from the threat of regulatory changes affecting its retail electricity division.
The change recommended by our competition watchdog is aimed at lowering electricity prices and has affected Origin's peer AGL Energy Ltd (ASX: AGL) more adversely given that the latter is more exposed to the retail electricity sector.
Origin's integrated gas division (which is largely made up of its exposure to APLNG) contributes around half of the group's underlying earnings before interest, tax, depreciation and amortisation (EBITDA) in FY17.
However, Origin will take a $41 million hit from the write-off of the Gilbert Gully tenement as the JV failed to find any viable gas in the permit area.
I think Origin is well placed to outperform this year and the latest production figures give me confidence in its ability to capitalise on the oil price rise.
This gives Origin a distinct advantage over AGL even though the former is still lagging behind other oil and gas producers like Oil Search Limited (ASX: OSH), Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) since the start of calendar 2018.
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