- Origin Energy (ORG) has updated its cost of supply guidance after losing a price review of gas purchased from Beach Energy (BPT)
- The energy company expects a cost of supply increase of $30 million to $40 million in FY21 and an increase of up to $80 million in FY22
- As a result of this, and other challenging market conditions, Origin has downgraded its earnings guidance to between $940 million to $1.02 billion
- The business previously downgraded its profit earnings in February and reported a mixed bag of results during its recent half-year report
- Shares in Origin Energy are trading down 8.72 per cent at $4.29
Origin Energy (ORG) has updated its cost of supply guidance after losing a price review of gas purchased from Beach Energy (BPT).
The review between the two companies was referred to arbitration and the arbitrator has now issued a partial award.
On the basis of that decision, Origin said the new gas price is likely to be materially above its expectations.
Specifically, the energy company expects a cost of supply increase of $30 million to $40 million in FY21 and an increase of up to $80 million in FY22.
As a result of the increase, Origin has downgraded its energy market earnings before interest, taxes, depreciation and amortisation (EBITDA) guidance from $1 billion to $1.4 billion down to $940 million to $1.02 billion.
"We are disappointed in this decision which we believe is wrong, and entirely inconsistent with our prior experience in the gas market," CEO Frank Calabria said.
"This will result in a gas price that does not reflect market prices, and it is, therefore, a very poor outcome," CEO, Frank Calabria said
The energy stock said subdued energy demand and wholesale pricing, along with a lower than expected contribution from Octopus Energy has also prompted the EBITDA downgrade.
Looking ahead, ORG said it's expecting challenging conditions in the energy market to continue into FY22, though it is expecting to benefit from a higher oil price.
Shares in Origin Energy are trading down 8.72 per cent at $4.29 per share at 3:35 pm AEDT.