Origin Energy has been emerged in a price review for gas purchased from Beach Energy’s Otway Basin fields, located in Victoria and South Australia.
The arbitrator has now issued a partial award and on the basis of that decision the new gas price is likely to be materially above Origin’s expectations and recent comparable wholesale contracts.
The outcome is expected to result in an increase in Origin’s cost of supply of $30-$40 million for the 2021 financial year, increasing further to $60-$80 million in the 2022 financial year.
Origin chief executive officer Frank Calabria said the company is disappointed in the decision.
“We believe it is wrong, and entirely inconsistent with our prior experience in the gas market. This will result in a gas price that does not reflect market prices, and it is therefore a very poor outcome,” Calabria said.
The company also expects a further 8 petajoules of gas supply to undergo a price review in the 2022 financial year related to a contract with Beach Energy from the Cooper Basin.
In February this year Beach Energy received approval to drill up to six development wells and abandon three existing subsea wells in the Otway Basin, Victoria and Tasmania.
The national petroleum regulator approved Beach’s Otway development drilling and well abandonment program within permits VIC/L23 and T/L2.
Beach Energy will commence the program before October 31, 2022 and expects that it will take up to 22 months to complete.
In addition, Origin outlined that challenging operating conditions in energy markets are expected to persist in the 2022 financial year.
Natural gas gross profit is expected to decline due to higher procurement costs as a result of price reviews and increases in the JKM index, as well as lower volumes prices on commercial and industrial sales reflecting current subdued domestic market conditions.
As a result, Origin continues to target significant capital and operating cost savings and mitigating actions.