Origin Energy Ltd
Significant Cost Reductions: Origin Energy (ASX: ORG), a major electricity and gas retailer in Australia, witnessed a stock price surge of about 2.45% on November 28, 2017 while the group announced for many positives at its Investor Day. ORG is moving to a simple and leaner structure and has many initiatives delivering on value. ORG also uplifted its guidance for output from the Eraring coal fired power plant in NSW at the back of the wholesale electricity market scenario, supported by both long-term and short-term sales contracts and an optimised supply chain. Eraring coal fired power plant is now expected to deliver output between 15.5 terawatt hours and 16 terawatt hours (TWh) in FY18 up from the earlier provided range of 14.6TWh-15.3TWh. The plant has been said to be running better in view of the high wholesale prices. ORG also updated the market that the group aims to have renewable output to be 25% of its generation mix by 2020, up from the existing figure of 10%; and the same are expected to triple by 2020 at the back of the 1200 MW commitment of new supply since March 2016, while coal power generation is flagged to be put to closure by early 2030s.
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Step Change Cost Reduction (Source: Company Reports)
ORG has also given a further pump-up by stating to have $500 million a year in cost reductions at Australia Pacific LNG export project in Queensland in next one and a half years along with an aim to have an operating breakeven oil price of less than $US24 a barrel, which is significantly down from $US30 expected for this year. While APLNG is exceeding expectations, work for Ironbank with regards to reassessing the field development plan is on. The group is also on track to have net debt slip below $7 billion by June 2018, basis the sale of its conventional oil and gas business Lattice Energy and other such anticipated divestments of non-core assets.
Fortescue Metals Group Ltd
Pressure on raising product discounts: Fortescue Metals Group (ASX: FMG) seems to be under pressure with regards to raising the discounts for its higher-grade iron ore in China, where a cut back in steel production has been levied in order to curb the rising pollution, particularly during winter months. It has been reported that discount for FMG’s December delivered product having 58.3% iron content was being raised to 29% up from 25.5% in November. The discount for product with 56.7% iron content was kept steady at 40% for December. It is anticipated that the group would be forced to continue with raising the discount at least until March 2018. FMG had recently indicated that the average price realisation for iron ore would widen to between 70% and 75% during FY18, and wider discounts have been labelled by the company to be only cyclical in nature owing to the ‘artificially caused market condition’.
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