Origin Energy reported a softer March quarter, with declines across its core LNG segment and a material downgrade to expected earnings from its fast-growing Octopus Energy stake, underscoring diverging performance across its portfolio.

The key development was a reset in expectations for Octopus Energy. Origin now sees its FY26 share of EBITDA in a range of -A$70 million to +A$30 million, down from prior guidance of up to A$150 million. The downgrade reflects a combination of UK regulatory changes, particularly the scaling back of the Energy Company Obligation scheme, alongside higher gas capacity charges and adverse winter weather, which increased costs and compressed margins despite continued customer growth.

At the same time, the Octopus platform continues to expand structurally. The retail business added roughly 700,000 customers during the quarter, while Kraken, its software and energy management arm, continued scaling globally, including a new partnership targeting the Middle East and North Africa. The planned separation of Octopus and Kraken into standalone businesses remains on track for mid-2026, highlighting Origin’s longer-term strategy to unlock value from the platform.

In Integrated Gas, performance weakened sequentially. Australia Pacific LNG (APLNG) production declined 3% quarter-on-quarter to 164.5 PJ (100% basis), reflecting fewer days in the quarter and ongoing natural field decline. Revenue fell 12% to A$1.855 billion, driven by lower LNG sales volumes and pricing, as well as a stronger Australian dollar compressing realised export prices. Average realised LNG prices edged lower to US$9.51/mmbtu, while domestic gas pricing also declined amid weaker short-term contract volumes.

From a structural standpoint, APLNG’s exposure to oil-linked pricing means recent volatility in global energy markets is not expected to materially affect earnings until FY27 due to contract lags - a key point for investors assessing near-term cash flow resilience. Meanwhile, the project strengthened its financial position through refinancing, reducing borrowing costs and deferring principal repayments into the next decade, improving balance sheet flexibility.

In Energy Markets, trends were mixed but strategically important. Electricity sales volumes rose 4% year-on-year, driven largely by demand from data centres - an increasingly important growth segment in Australia’s power market. Gas volumes, however, dropped sharply, down 32%, reflecting lower trading activity and reduced demand for gas-fired generation as renewables and battery storage continue to displace thermal generation.

Story Continues

Origin also moved to secure fuel supply for its Eraring coal-fired power station, with 75–85% of FY27 coal requirements now contracted or hedged, reducing near-term exposure to commodity price volatility. This comes as the company continues investing in battery storage projects, including Eraring and Mortlake, positioning its generation portfolio for the ongoing energy transition.

Origin’s March quarter highlights a transitional phase: LNG earnings are moderating in the near term due to pricing and production dynamics, while Octopus, despite strong growth, faces short-term profitability pressure. At the same time, structural demand drivers such as data centres and global LNG pricing lag effects point to a more supportive medium-term outlook.

By Charles Kennedy for Oilprice.com

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