Over at Origin, shareholders are backing the company's strategy to pull as many levers as possible to reduce its net debt of $10.3 billion. The levers include cutting costs, selling assets, cutting capital expenditure and possibly cutting dividends.
Investment bankers and some analysts believe that the list of options for fixing the balance sheet should include an equity capital raising, but that would be damaging to existing shareholders.
The potential dividend cuts are something that shareholders have talked about, but in its latest presentation to the market the company said debt reductions would allow Origin to increase dividends and take advantage of opportunities.
Chief executive Grant King has been on the cost cutting drive for some time. He has slashed about $1.3 billion in costs in the past year. Over the past two years the company has slashed its staff by 4000 people.
The first significant asset sale was Contact Energy, which went out the door last month for $1.6 billion.
Origin shareholder Simon Mawhinney of Allan Gray says its high time the company stopped spending growth capital expenditure in its exploration and production (E&P) division.
Mawhinney's analysis of the returns achieved on the E&P growth capex going back to 2007 shows there has been no benefit to shareholders.
Based on his numbers Origin has been spending more money than it has been making for the past seven years in E&P. Worse still, there is not much to show for the capital expenditure over that extended period. Between 2007 and 2015, the E&P reserves have fallen from 87 petajoules to 82 petajoules.
Mawhinney says it is time the company finally drew a line under this waste of shareholders funds.
During its latest financial results Origin said it would cut its growth capex in its existing businesses to about $650 million in 2016. It would seem there are no plans to change that number. Mawhinney argues that the debt reduction priority should include consideration of cutting dividends. He references the recent slashing of dividends by Glencore and the fact its share price rose.
When searching for reasons why Origin spent money for no return, Mawhinney points to the incentives built into the company's remuneration packages. Allan Gray voted against Origin's remuneration report in 2013 and that prompted a clear response from the board.
The latest Origin annual report shows that Origin is changing its remuneration system to "strengthen the alignment between executive and shareholder interests".
Several aspects of the system were changed including strengthening the linkage to capital management.
Previously Origin paid its senior executives short term incentives against a benchmark called OCAT, which is operating cash flow after tax.
The company now pays its STI against a metric called operating cash flow. Also, the company has changed its long term incentives by introducing a total return on capital employed measure on top of total shareholder return. The company also extended the vesting period for shares from three years to four years.
Origin told Chanticleer that if you exclude exploration expenditure, the growth capex in E&P has delivered a return above its weighted average cost of capital (WACC). Origin does not reveal its WACC but Citi has estimated it is 9.5 per cent.
Origin's shares have been smashed over the past year, wiping out about $8billion in market capitalisation. But some believe it has gone too far. The stock is trading at 6.5 times earnings whereas AGL is trading at about 8.5 times
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