In an effort to streamline its business and reduce debt, Australia’s largest gas and power retailer Origin Energy has announced plans to divest its conventional oil and gas exploration assets through an IPO on the ASX in 2017.
Origin will group these assets into a new listed company called NewCo. These combined assets have an estimated value in the $2.5 to 2.8 billion range, based on a forecast of $50/$70 crude oil prices. At that valuation, proceeds of between $1.8 to $2.0 billion are expected to be allocated back to Origin.
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Considering the uncertain outlook for global oil prices going into 2017, Origin’s strategy appears to be reasonable but isn’t a game changer in terms of its share price valuation.
With the current share price trading around the high of the year at $6.58, we consider this news to be neutral to bullish. However, with crude oil prices unlikely to trade above $60.00 in the near-term, the $7.00 level could cap gains over the medium-term.
