LIQUEFIED NATURAL GAS LIMITED
ABN 19 101 676 779
ANNUAL REPORT
FOR THE YEAR ENDED
30 JUNE 2017
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LIQUEFIED NATURAL GAS LIMITED
ABN 19 101 676 779
TABLE OF CONTENTS
TABLE OF CONTENTS .............................................................................................................................. 2
CORPORATE DIRECTORY........................................................................................................................ 3
CHAIRMAN’S LETTER .............................................................................................................................. 4
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER’S REPORT .......................................... 6
DIRECTORS’ REPORT ............................................................................................................................. 18
CORPORATE GOVERNANCE STATEMENT ........................................................................................ 54
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ............................. 70
STATEMENT OF FINANCIAL POSITION .............................................................................................. 71
STATEMENT OF CHANGES IN EQUITY ............................................................................................... 72
STATEMENT OF CASH FLOWS ............................................................................................................. 73
NOTES TO THE FINANCIAL REPORT................................................................................................... 74
DIRECTORS’ DECLARATION ................................................................................................................ 94
AUDITOR’S INDEPENDENCE DECLARATION ................................................................................... 95
INDEPENDENT AUDITOR’S REPORT ................................................................................................... 96
ASX ADDITIONAL INFORMATION..................................................................................................... 100
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CORPORATE DIRECTORY
LIQUEFIED NATURAL GAS LIMITED
ABN 19 101 676 779
DIRECTORS
Paul J Cavicchi, Non-Executive Chairman
Gregory M Vesey, Managing Director / Chief Executive Officer
Leeanne K Bond, Non-Executive Director
Philip D Moeller, Non-Executive Director
Richard J Beresford, Non-Executive Director
D Michael Steuert, Non-Executive Director
COMPANY SECRETARY
Kinga Doris, General Counsel and Joint Company Secretary
Andrew Gould, Joint Company Secretary
REGISTERED OFFICE
45 Ventnor Avenue
West Perth, WA, 6005
Telephone: +61 (0) 8 9366 3700
Facsimile: +61 (0) 8 9366 3799
Email: LNG@LNGlimited.com.au
Website: www.lnglimited.com.au
PRINCIPAL PLACE OF BUSINESS
1001 McKinney, Suite 600
Houston, Texas 77002, USA
Phone: +1 713 815 6900
Facsimile: +1 713 815 6905
AUDITORS
Ernst & Young
The Ernst & Young Building
11 Mounts Bay Road
Perth, WA, 6000
SOLICITORS
Johnson Winter & Slattery
Level 4 167 St Georges Tce
Perth, WA 6000
BANKERS
ANZ Banking Group
77 St Georges Terrace
Perth, WA, 6000
SHARE REGISTER
Link Market Services Limited
Locked Bag A14
Sydney NSW 1235
Telephone (within Australia): 1300 554 474
Telephone (outside Australia): +61 1300 554 474
Facsimile: +61 2 9287 0303
ASX CODE
LNG
OTC ADR CODE
LNGLY
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CHAIRMAN’S LETTER
To my fellow shareholders,
During the past year, the LNGL Board has continuously endeavored to achieve success in our development
efforts and to achieve increased value in our shareholder price. To this end, we have seen significant progress
in obtaining all outstanding permits necessary for both the Magnolia LNG and Bear Head LNG projects. We have
extended and amended our $1.5 billion equity commitment and updated our construction contract for the
Magnolia LNG project. In addition, we renewed several necessary ancillary agreements.
LNGL have performed well in these disciplines for which we have direct control. However, we continue to face
difficulty driven by market dynamics in concluding long term credit worthy supply offtake agreements for our
projects. These agreements are necessary to provide the long-term revenue for our facilities so that we may
finish financing the capitalization and construction of our projects. Our shareholders readily perceive this fact
as the first question they ask is always, “When will we sign offtake agreements?”
The answer is couched in both simple and more complicated terms. One simple aspect is that there is much
oversupply in the world market today. As with basic economics, oversupply depresses prices and customers
purchase for shorter terms. They resist committing to long term contracts at higher prices that would initiate
new capacity construction. These factors impact us negatively.
The favorable aspect is that LNG demand is growing rapidly. LNG represents a clean and less expensive
alternative to oil and coal consumption in most all parts of the world. Recent expert analysis projects the LNG
market to reach equilibrium in approximately 2022. Given the financing and construction cycle of five years,
prudent buyers will benefit from entering the market soon to purchase new offtake. By procuring offtake now
on a long-term basis they are assured of meeting their own demand before the supply fundamentals reverse
and become dramatically less favorable price wise to them. So, the next wave of buying should be sooner than
later. The Managing Director and Chief Executive Officer Report will provide the more complicated details to
this dilemma as well as the many competitive advantages that our projects possess in the marketplace.
Under the market conditions above, the LNGL Board and Company continue to believe that Magnolia LNG is best
positioned in the LNG market to achieve a positive final investment decision (FID) and move to construction and
operation. The LNGL Board remains confident in our team to deliver this outcome and thereby realize increased
shareholder value.
BOARD DEVELOPMENTS
The LNGL Board recognizes its duty to work with management in effectively managing the Company’s liquidity.
We have continually directed the Company to minimize cash expenditures to the core needs of our staff and
projects. To show solidarity with this effort, effective July 1, 2017, Non-Executive Directors (NED) agreed to a
nominal decrease of 10 percent in cash fee remuneration. Reduction of the cash component of NED pay has
the effect of also reducing by ten percent the notional value of rights issued to the NEDs under the NED Rights
Plan. This reduction is on top of the nominal 20 percent cash fee reduction taken by the NEDs in the previous
year, meaning Directors fees have reduced by about 28 percent over the past two years.
CORPORATE AND LISTING DOMICILE
Recently, the Board requested management to explore the possibility of redomiciling the Company to the U.S.
along with a listing on either the New York Stock Exchange or NASDAQ. Our shareholders know that the focus
of our development efforts is in North America and that the capital markets are strong there. Therefore, the
LNGL Board believes that such a transaction may be of benefit to the Company and its shareholders. The Board
has not specified a timetable for a decision on a potential transaction. Further details will be announced once
analysis is completed and decisions are made. We acknowledge and value the historic support of our Australian
shareholders and their importance in determining the structure and timing of any proposed transaction,
including whether the Company will remain listed on the ASX and for how long. Any proposal will be subject to
approval of the Company’s shareholders.
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CONCLUSION
On behalf of the Board, we thank you, our Shareholders, for your continued support and we look forward to
continuing our progress in the next fiscal year.
I am pleased to introduce the Annual Report for the year ending June 30, 2017.
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Paul J Cavicchi
Chairman
September 14, 2017
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MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER’S REPORT
This past year was marked as a period of significant transition, both inside Liquefied Natural Gas Limited (LNGL
or Company) and within the global LNG industry. It was also dominated by disruptive events that no one could
have conceived or fully predicted. Against this backdrop, I write to you with a sense of purpose and optimism
regarding LNGL’s prospects for success.
Global political developments including Brexit, the U.S. presidential election, and constitutional referendums
and political outcomes in European countries surprised many. Strengthening business fundamentals appear to
support accelerating global economic growth but remain tempered by other geopolitical challenges and
hostilities. Despite pro-business policies arising from some of the year’s political outcomes and positive rhetoric
regarding the LNG industry by the U.S administration, simple inaction or overhang of protectionism may still
impede progress.
As anticipated, previously sanctioned new LNG supply ramped up at projects from the U.S. to Australia during
the year. New countries opened their doors to LNG as a preferred source of energy. Markets explored the
virtues of LNG for non-traditional applications such as marine bunkering and long-haul transportation fuels that
supplement traditional uses for LNG. At the same time, project delays and plant outages kept supply growth
partially subdued.
In 2016, global LNG demand grew by approximately six percent, to about 260 million tonnes per annum (mtpa)
from 245 mtpa in 2015. By 2022, global demand is anticipated to approach 400 mtpa, a remarkable increase in
demand.
On the supply side, Australia’s 2016 LNG exports grew to approximately 58 mtpa. U.S. Gulf Coast projects were
second in terms of supply growth with exports of 3.5 mtpa. Traditional LNG exporters – such as Nigeria, Yemen,
Trinidad, Malaysia, and Algeria – exported reduced volume due to security issues, lower gas production, and
growing domestic demand. New supply growth, principally from Australia, the U.S. Gulf Coast, and Southeast
Asia, will continue to increase into 2018 and 2019 as previously sanctioned projects come on-line.
Most LNG marketing transactions in the year centered on the re-marketing of volumes by legacy capacity
holders, marketing of excess capacity and/or cargoes, and traded volumes, all largely priced at or near marginal
cost economics. In the end, LNG prices remained below the cost of new supply as new demand growth worked
towards rebalancing the current oversupplied market. Spot LNG prices in Asia and Northwest Europe did rise in
winter months due to extended cold weather, peaking at around $6.00, but prices have settled near $5.50 in
Asia and at about this level in Northwest Europe as of June 30, 2017. Brent price, an important budgetary
business driver for many LNG buyers, remains bearish fluctuating from a high of around US$56/bbl to as low as
US$46/bbl, before closing at around US$48/bbl at June 30, 2017.
In this current oversupplied global LNG business cycle, commodity prices, economic drivers, and psychological
factors buoy a wait-and-see strategy by most global LNG buyers. The events of the past year are a stark
reminder of how quickly expectations and conditions can change and the importance of focusing on the things
we control.
It is not lost on me that the dominant question on everyone’s mind is timing – when can we expect offtake sales
and when do we expect to take FID on our projects? On these points, I cannot provide absolute certainty. I am
confident that management’s priority is in signing offtake agreements with investment-grade counterparties in
sufficient volume to realize a positive FID, financial close, and a move to construction and operation of LNGL’s
projects as soon as feasible.
Our development focus is in North America which is blessed with a prolific natural gas resource unlocked by the
advent of expanding shale resource development. Through technological advances in the upstream industry,
the cost to find and produce this bountiful resource is low relative to the cost of other global resource options.
The dependability of long-term and low-cost natural gas feedstock is coveted by LNG buyers. Natural gas
supplies from North American sources therefore mitigate and satisfy buyer concerns.
Since LNG 18 in Perth, the Company has consistently stated its expectations that global supply and demand
would begin to rebalance by around 2022 when demand is expected to approach 400 mtpa. Most published
third-party assessments of global LNG markets coalesce around this timeframe. This requires new supply
sources at that time to sustain the balance against growing demand thereafter. To serve this forecasted demand
and given the lead time required to achieve first gas at a new liquefaction facility, construction on new projects
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must begin in the 2018 to 2019 timeframe, with offtake contracting and FIDs occurring ahead of construction
start dates.
Globally, there is almost 900 mtpa of proposed new liquefaction capacity. North America accounts for
approximately 660 mtpa of this amount. Most of these proposals, particularly higher-cost greenfield
developments, face significant challenges due to economics, regulatory issues, time to market, and other
factors. With numerous projects competing for offtake contracts, only the most regulatory mature and cost-
effective proposals are likely to succeed. Most will never be built.
Importantly, during 2016 only 5.9 mtpa of incremental LNG capacity reached FID – 70 percent below 15 year
averages. 2017 will likely be even quieter for new supply FIDs. Per industry commentators, only 10 percent of
the 900 mtpa of proposed new capacity has the potential to reach FID prior to the end of 2019. As a further
subset, only a small percentage of these projects are currently fully permitted from a U.S. Federal Energy
Regulatory Commission (FERC) and U.S. Department of Energy (DOE) (or equivalents) perspective and have the
corporate backing required to progress to sanction and into construction. Given these circumstances, the
number of projects capable of delivering LNG into 2022 are very limited.
This current constricted trough of new entrant investment decisions creates LNGL’s opportunity to lead the next
wave of LNG supply sources. It is incumbent upon us to prove to buyers that Magnolia LNG is the project of
choice.
As we all know, offtake capacity agreements require two parties, a willing buyer and a willing seller. Terms of
these arrangements must balance both the buyer’s need for competitively priced gas into their end markets and
the seller’s need to achieve financial close and provide a return of and on capital deployed. In today’s market,
there are more willing sellers than buyers, which is a contributing factor as to why there have been no long-term
LNG offtake contracts of size signed since early 2014. The current LNG oversupply allows buyers time to probe
sellers on their willingness to diversify from traditional pricing structures, to adjust contract tenors, and to agree
other buyer friendly terms. These efforts have slowed long-term contracting activity.
The situation has been further challenged by the sheer number of sellers seeking to engage in offtake
negotiations with buyers. The reality is that nothing can prevent hopeful developers from proposing offtake
terms to buyers despite the immaturity of the associated projects and unsubstantiated pricing constructs. These
speculative proposals cloud the commercial landscape for buyers looking to contract for new LNG volumes with
viable projects on bona-fide terms and conditions.
In this highly competitive market, buyers face the challenge of assessing both the economic opportunity of a
proposal as well as the probability that a developer’s proposal achieves a positive FID and becomes operational.
For a willing buyer, long-term liquefaction offtake agreements represent financial commitments in the billions
of dollars, which is a significant commitment for any company to make. When considering these issues and the
magnitude of the financial commitment offtake contracts introduce, buyer’s diligence is understandable and
patience on the part of sellers is a virtue.
During the year, LNGL undertook a very detailed assessment of the competition in comparing their strengths
and weaknesses to Magnolia LNG, which culminated in an investor presentation made on March 31, 2017. It
elaborates on a competitive basis why Magnolia LNG remains the best economic choice for LNG supply. Most
of the content in that presentation has been subsequently validated through disclosures made by many of the
competitors contained in our study. However, these competitors continue to speak about ranges of EPC costs
that are yet to be determined, using words such as “target”, “expectation”, or “approximation”. Not only do
most of these disclosures lack executed contracts in support of their claims, they also fail to encapsulate the all-
in costs to construct. Depending on the project, significant incremental capital may be needed for flood
protection, waterway dredging, pipeline construction, installed generation capacity, and similar other costs
required to ultimately produce LNG. These costs require a return on the capital employed that must be financed.
This means these costs must either be passed through to the LNG buyers and included in offtake pricing, or
result in lower returns to the developer that threaten the viability of achieving project financial close. Based on
our analysis, I remain steadfast in my belief that LNGL’s technology, projects, and people represent the most
certain, economic, and real business partner for prospective LNG buyers.
Upon acquiring rights to the Magnolia LNG site in 2012, the LNGL team meticulously positioned the Company to
seize on the current market opportunity. Few developers are as well positioned as Magnolia LNG to
unequivocally state that they are ‘shovel ready’ and to provide offtake pricing without reservation or conditions
precedent. Our competitive advantages of regulatory certainty, site selection attributes, operational reliability,
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production efficiency, environmental impact, and full life-cycle cost and economics differentiate Magnolia LNG
as the best positioned North American liquefaction development project capable of delivering first gas in 2022.
Since joining LNGL in April 2016, my focus has been on refining our strategy to ensure we are best positioned to
exploit our competitive advantages, with emphasis on marketing project capacity to LNG buyers and structuring
financeable contracts. We believe many of our competitive advantages are sustainable in support of our three-
path execution strategy for participating in global LNG projects.
This brings me full circle back to my confidence in LNGL’s prospects for success. Most of the relevant data
indicate a rebalancing of global LNG supply and demand around 2022. Although the population of potential new
LNG capacity is very large, the number of projects truly capable of delivering first gas in 2022 is quite small.
Natural gas is undeniably a substantial source of supply in the global energy mix and prospects for further market
expansion are positive. In this context, specific competitive advantages for LNGL are easily enumerated,
including:
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LNGL has up to 20 mtpa of development project capacity fully permitted;
• Magnolia LNG is shovel ready with EPC, equity financing, and regulatory processes contracted or approved;
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LNGL’s construction timeline currently fits with a 2022 first gas delivery;
OSMR® is a low-cost, scalable next generation LNG liquefaction technology that provides a full-cycle
economic advantage shared by LNGL and offtake buyers, with no additional technology risk relative to other
proposed projects;
The proliferation of natural gas production in the U.S. provides a dependable basis for long-term, low-cost
feedstock gas supply for LNG production;
Bear Head LNG has demonstrated its ability to be the most economic, long-term gas monetization plan for
the Western Canadian Sedimentary Basin in British Columbia and Alberta; and
LNGL’s commercial offerings aim to provide an acceptable balance between cost of gas required by buyers
and return on capital required by shareholders.
In short, within the liquefaction development company landscape, LNGL is indeed one of the best positioned to
achieve a positive FID and move to construction and operation. I am confident in our team to deliver this
outcome.
In 2017, the Company solidified its position as a premier provider of LNG liquefaction solutions. However, we
remain short of our goal of realizing FID on our projects, and our share price underperformed. Therefore, in
addition to concentrating on marketing Magnolia LNG capacity, the Company made three key decisions in the
last quarter of the fiscal year being:
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Initiation of exploratory efforts into redomiciling the Company to the U.S. accompanied by a listing of the
Company’s shares on either the New York Stock Exchange or NASDAQ;
Execution of an Amended and Restated Equity Commitment Agreement with Stonepeak Infrastructure
Partners (Stonepeak), a New York headquartered infrastructure fund, relating to equity financing of the
Magnolia LNG projects; and
Exiting the Fisherman’s Landing LNG project.
We recognize the focus required to deliver the final pieces needed to progress to a positive FID, financial close,
construction, and operation of our projects. The immediate future operating environment in our industry is
challenging and unpredictable, but our priority remains to deliver sufficient investment-grade offtake
agreements to take FID. We shall execute these efforts in a safe, efficient, and fiscally responsible manner, and
I firmly believe we will succeed.
FISCAL 2017
Our immediate focus is on signing sufficient investment-grade offtake agreements to take FID, and move to
financial close, construction, and operation of Magnolia LNG and then Bear Head LNG. We remain vigilant in
managing our cash position in a fiscally responsible manner, and we remain on track to extend this cash position
through the end of 2018, consistent with our cash management plan.
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The following key highlights 1 realized during the year reflect the advanced status of our North American
liquefaction projects as well as progress on other Company milestones.
Mr. Paul J Cavicchi became Chairman of LNGL’s Board of Directors with the previous Chairman, Mr. Richard
J Beresford, remaining on the Board as a Non-Executive Director
The LNGL Board authorized the Company’s management team to explore the possibility of redomiciling the
Company to the United States of America along with a listing on either the New York Stock Exchange or
NASDAQ
FERC issued its Order on Rehearing fully reaffirming its April 15, 2016 authorization of the proposed
Magnolia LNG export facility
Magnolia LNG received its Notice to Proceed (NTP) from the FERC to commence Initial Site Preparation
activities for the Magnolia LNG project
DOE granted the Magnolia LNG project authorization to export liquefied natural gas from the U.S. to
countries with which the U.S. has not entered into a free trade agreement (Non-FTA), supplementing the
existing approval to export to free trade agreement (FTA) countries
Magnolia LNG extended the validity period of its binding engineering, procurement, and construction (EPC)
contract with KSJV (a KBR – SKE&C joint venture led by KBR) through December 31, 2017
Magnolia LNG entered into a Ground Lease for the Magnolia LNG project with the Lake Charles Harbor and
Terminal District
Magnolia LNG and Stonepeak signed an Amended and Restated Equity Commitment Agreement (ECA) that
provides Magnolia LNG with certainty of equity funding at a lower cost of capital than the previous
agreement
Magnolia LNG and Meridian LNG Holdings Corp further extended certain conditions precedent for the
Meridian LNG offtake agreement from 31 December 2016 to 30 November 2017. All other provisions of the
governing agreements not specifically amended by this extension remain in full force and effect
The Nova Scotia Environment (NSE) approved Bear Head LNG’s Greenhouse Gas and Air Emission
Management Plan
Transport Canada’s TERMPOL Review Committee completed their review of the Bear Head LNG TERMPOL
report
Bear Paw Pipeline Corporation Inc. (Bear Paw), an indirect wholly owned subsidiary of LNGL, received Nova
Scotia Utility and Review Board approval to construct a 62.5 km natural gas pipeline from Goldboro, Nova
Scotia to the proposed Bear Head LNG liquefied natural gas export facility in Point Tupper, Richmond
County, Nova Scotia
Bear Paw received its environmental assessment (EA) approval from the NSE
LNGL announced its exit from the Fisherman’s Landing LNG project
BUSINESS DISCUSSION AND ANALYSIS
The following discussion and analysis of our operations, financial condition, and results of operations should be
read in conjunction with our financial statements and the related notes to those statements included elsewhere
in this Annual Report. In addition to historical financial information, the following discussion and analysis
contains forward-looking statements that involve risks, uncertainties, and assumptions. Our results and the
timing of selected events may differ materially from those anticipated in these forward-looking statements
because of many factors.
1 Includes announcements post June 30, 2017
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THE COMPANY
LNGL is an Australian public company based in Perth, Western Australia. Founded in 2002, the Company listed
on the Australian Stock Exchange (Code: LNG) in 2004, and on the U.S. over-the-counter market in 2014 (OTC
ADR: LNGLY).
Our Vision is to be the world's premier provider of mid-scale LNG liquefaction solutions.
The Company is developing LNG export terminal projects in the United States and in Canada having combined
aggregate design production capacity of nearly 20 mtpa. Our portfolio consists of 100 percent ownership of the
following companies:
• Magnolia LNG LLC (Magnolia LNG), an 8 mtpa or greater LNG export terminal development in Lake Charles,
Louisiana, U.S.;
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Bear Head LNG Corporation Inc. (Bear Head LNG), an 8-12 mtpa LNG export terminal development at Point
Tupper in Richmond County, Nova Scotia, Canada;
Bear Paw Pipeline Corporation Inc. (Bear Paw Pipeline), that is proposing to construct and operate a 62.5
km gas pipeline lateral to connect gas supply to Bear Head LNG; and
LNG Technology Pty Ltd, owner of LNGL's patented optimized single mixed refrigerant (OSMR® Technology)
liquefaction process technology.
Our mission is to create value by delivering safe, reliable, energy-efficient, and flexible mid-scale natural gas
liquefaction solutions to our customers at the industry’s lowest full cycle cost, while minimizing our ecological
impact.
Our focused approach distinguishes LNGL as a pure LNG infrastructure investment opportunity.
Our business model applies the Company’s wholly owned and developed OSMR® LNG process technology, which
centers on delivering four key principles: the industry’s lowest full cycle cost; optimized plant energy efficiency;
shortened development and construction schedules; and an overall smaller ecological impact footprint,
including reduced carbon emissions, with no additional technology risk relative to other proposed projects.
We apply a three-path execution strategy to realize our Vision.
Path 1: Develop projects using our OSMR® Technology Solutions
Path 2: Use OSMR® Technology Solutions to gain entry into new and existing third-party projects
Path 3: License the OSMR® technology to third-parties
The Company's 'Energy Link' strategy is to safely develop mid-scale LNG export terminals to link proven gas
reserves with existing LNG buyers. We aim to remain at the forefront of approach to LNG development and
processing technology to ensure the Company's LNG terminal development projects are world competitive in
terms of capital and operating costs, operating efficiencies, and ecological impact. We seek to ensure our
neighboring communities benefit from our operations on an enduring basis while we minimize and mitigate any
potential impact of our presence.
Our approach to site selection and project development reflects the importance placed on existing
infrastructure, land access, gas supply, regulatory regime, and other similar differentiating key business drivers.
We look to contract on a fixed-price, turnkey basis using LNG industry experienced EPC contractors. The modular
construction approach and consistent use of EPC contractors allows repeatability with respect to the OSMR®
liquefaction trains, further improving economics.
Our preference for modular fabrication translates into inherently safer construction and reduced on-site labor
while providing a high degree of quality and schedule control.
LNGL conducts business in an ethical, fair and honest manner. We are committed to participating in the highly
competitive global LNG industry with the highest degree of integrity, absent use of any corrupt practices to
obtain a business advantage. We aim to secure and safeguard an appropriate “License to Operate” in all our
operations and do so through active engagement with our host communities and key stakeholders.
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We are continually evaluating additional growth opportunities that would benefit from our ‘Energy Link’
strategy.
MAGNOLIA LNG PROJECT, LAKE CHARLES, LOUISIANA, U.S.
Project Overview
The Magnolia LNG project comprises the proposed development of an 8 mtpa or greater LNG export project on
a 115-acre site, adjacent to an established LNG industrial canal (along the Calcasieu River shipping channel) in
the Lake Charles District of Louisiana. The project plan includes development of four LNG production trains of 2
mtpa or greater each. Each train will employ the Company’s wholly owned and patented OSMR® Technology.
KSJV is undertaking EPC contracting efforts, with KBR leading the joint venture team. The project will be
constructed under a fixed price, turnkey EPC contract.
Feed gas supply will originate from the highly liquid U.S. Gulf Coast gas market via multiple gas suppliers. Gas
supply will be delivered to the site through interconnections to the extensive U.S. Gulf Coast natural gas pipeline
system. Magnolia LNG has an executed precedent agreement for a 20-year binding pipeline capacity agreement
with Kinder Morgan Louisiana Pipeline LLC to deliver gas to the site for the full 8 mtpa of the project.
The site lease is with the Lake Charles Harbor and Terminal District, encompassing a 30-year lease agreement,
with options for Magnolia LNG to extend the lease term.
Project Permits and Approvals
Magnolia LNG is shovel ready, having received all required regulatory approvals and permits necessary to initiate
job site activities and to export LNG to both FTA and Non-FTA countries.
Engineering Procurement and Construction Contract
In November 2015, MLNG and KSJV signed the binding lump sum turnkey (LSTK) EPC contract for construction
of a 4 train, 8 mtpa or greater LNG export facility. Key contract specifics follow.
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US$4.354 billion LSTK price, validity to 31 December 2017
Full wrap LSTK EPC contract
EPC contract scope includes:
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Siemens and Chart costs (compressors, cold boxes, turbines)
– Mobilization and de-mobilization costs
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Capital spares and contractor provided insurances
Profit, risk/liability funds, escalation, and contingency amounts
LSTK plant design utilizes LNGL’s patented OSMR® Technology
EPC guaranteed 92 percent feed gas energy efficiency, LNG plant/utilities fuel gas consumption of eight
percent or less
Scope:
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Four LNG production trains each with design capacity of 2 mtpa or greater
Two 160,000m3 full containment LNG storage tanks
Ship, barge & truck loading, supporting infrastructure, and all required post-FID approvals and licenses
Final design capacity shall be based on closing design at FID
Expectation for EPC guaranteed production of 7.6 mtpa
Owner’s and other costs are estimated at 13.5 percent to 15.5 percent of EPC cost, which include Owner’s
engineer, regulatory, permitting and environmental costs, commissioning gas, O&M mobilization and other
minor contracts, and internal costs capitalized from financial close. Key contractors and sub-contractors
associated with Magnolia LNG construction and operation include KBR, SK E&C, Chart, Siemens, Clough/CH·IV,
and EthosEnergy. Total cost of the plant construction will include incremental costs associated with capitalized
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interest, financing fees, and lender’s contingency amounts, which amounts will be determined at financial close.
LNG Offtake Agreements
Magnolia LNG signed a binding agreement with Meridian LNG Holdings Corp for firm capacity rights for up to 2
mtpa on 22 July 2015. The agreement terms were subsequently extended through November 2017.
Marketing of Magnolia LNG capacity continues with several investment-grade, as well as some non-investment
grade counterparties. Substantially all the offtake negotiations are for initial 20-year terms under liquefaction
tolling agreements (LTA) or sales and purchase agreements (SPA).
Equity Commitment
In June 2017, certain wholly owned subsidiaries of LNGL and Stonepeak signed an amended and restated ECA
and have updated the associated Magnolia LLC Agreement (LLC Agreement). The amended ECA and LLC
Agreements replace the existing Stonepeak agreements signed in October 2013 in their entirety.
The ECA governs the relationship, cooperation, rights, and obligations between Stonepeak and LNGL through
Financial Close of Magnolia LNG. The LLC Agreement sets out the respective rights and obligations of Stonepeak
and LNGL relating to Magnolia LNG from Financial Close, including the governance, construction, operation,
allocation of profits, distribution of post-debt service cash flows, and other related matters.
The ECA represents the definitive documentation under which investment funds managed by Stonepeak will
acquire Mandatorily Redeemable Preferred Interests (Preferred Interest) in the Magnolia LNG project. Proceeds
will be used as equity to fund a portion of the costs of constructing and placing into service the Magnolia LNG
project located in Lake Charles, Louisiana, U.S. Stonepeak’s investment is scheduled to close following a positive
FID on Magnolia by LNGL, with definitive debt financing agreements thereafter in front of Financial Close.
Key terms of the ECA include:
• Approximately US$1.5 billion of equity contribution
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Tenor of 12 years from Magnolia financial close
Fixed coupon, with pay-in-kind provisions during construction
• Redeemable in full (principal and any accrued but unpaid dividends) after 12 years
•
Call provisions, at Magnolia LNG’s option, beginning three years following the post-construction commercial
operations date (COD) at progressively lower premiums to par
• Normal liquidation preference, pre-emptive rights, and other preferred interest protection features
The Preferred Interest has no conversion features into either Magnolia or LNGL equity instruments.
LNGL owns 100 percent of the common interest in Magnolia LNG pre- and post-financial close. LNGL’s share of
annual cash distributions from Magnolia LNG will be after payment of debt service and the fixed-return
obligations under the Preferred Interest. LNGL’s equity share of Magnolia LNG’s distributable cash flow is
primarily dependent on total capital cost of the project (inclusive of EPC, Owner’s, and debt financing costs), as
well as the average pricing of the offtake agreements executed for Magnolia LNG’s 8 mtpa of capacity.
Detailed
information on
www.lnglimited.com.au under “Assets”.
the Magnolia LNG project
is available on
the Company’s website:
BEAR HEAD LNG PROJECT, POINT TUPPER, NOVA SCOTIA, CANADA
Project Overview
In July 2014, the Company announced, and subsequently closed in late August 2014, the acquisition of 100
percent of Bear Head LNG Corporation from a subsidiary of Anadarko Petroleum Corporation for US$11.0
million.
Bear Head LNG is a proposed 8 - 12 mtpa LNG export terminal in Nova Scotia. The site is located on the naturally
deep waters of the Strait of Canso in Point Tupper, Richmond County, Nova Scotia. Prior owners completed
engineering work, and developed the Bear Head LNG site in the early 2000s, and these improvements have been
maintained and are part of the assets Bear Head LNG is leveraging in its project plans and design.
12
Bear Head LNG has received all the required 10 initial Canadian federal, provincial, and local regulatory approvals
to construct a liquefied natural gas export facility, as well as commercial approvals important to gas supply and
export destinations.
In March 2016, Bear Head LNG reached agreement to purchase an additional 72 acres of land, directly adjacent
to its existing 255-acre site for the LNG export facility, from Nova Scotia Business Inc. The acquisition of the
additional land (for C$450,000) enables Bear Head LNG to increase the capacity of the LNG facility from a
nominal 8 mtpa up to 12 mtpa in 2024, as per Bear Head LNG’s approval from the National Energy Board (NEB).
KBR has developed Phase I front end engineering and design (FEED) for the export terminal. Bear Head LNG is
looking to gain design and development efficiencies by using KBR to perform FEED as a means of leveraging the
Magnolia LNG design work. This approach is consistent with LNGL’s ‘Energy Link’ strategy.
Feed gas supply is expected to come from a combination of Canadian and U.S. producers.
The Bear Head LNG export terminal location is about half the shipping distance to major European markets
compared to U.S. Gulf Coast ports. It is also closer than its North American competitors, including those in British
Columbia, to several other major LNG markets including burgeoning natural gas markets in the Middle East,
Western Asia (including India), and South America.
Bear Paw Pipeline
Bear Paw is proposing to construct and operate a 62.5 km (38.8 mile) natural gas pipeline to supply natural gas
to the Bear Head LNG export terminal. The Bear Paw project will connect gas supply sources near Goldboro,
Nova Scotia, to the liquefaction export facility.
A pipeline assessment corridor has been identified for routing purposes that focuses on public safety and
minimization of impacts to the environment, landowners, and stakeholders. This assessment corridor is
approximately 100 meters wide for most of the length, and wider in areas where additional environment and
engineering information is needed. The width required for the construction period will be reduced to
approximately 35 meters in most areas. The pipeline corridor parallels an existing pipeline right-of-way
wherever possible. The project will include a required compressor station to deliver specific and constant
natural gas pressure to Bear Head LNG.
Project Permits and Approvals
Bear Head LNG requires Canadian federal, provincial, and local regulatory approvals to construct the proposed
export project. All 10 required initial permits are approved and in place as listed below.
•
•
•
•
•
•
•
•
•
•
EA Approval from the NSE
Permit to Construct from the Nova Scotia Utility and Review Board (UARB)
Navigable Waters Protection Act Authorizations (Federal Government)
Transport Canada Canadian Environmental Assessment Agency (CEAA) Screening (Federal Government)
Fisheries and Oceans Canada CEAA Screening (Federal Government)
Authorization for Works or Undertakings Affecting Fish Habitat (Federal Government)
Environment Act Water Approval – Wetland Infill (Government of Nova Scotia)
Part V of the Environment Act, approval to construct gas plant export facility (NSE)
Development Permit (Municipality of Richmond County)
Beaches Act Clearance (Government of Nova Scotia)
Canada's NEB has approved Bear Head LNG's application for authority to export up to 8 mtpa of LNG from
Canada starting in 2019, with expanded authority allowing import of up to 14.2 billion cubic meters of natural
gas per annum from the U.S., which would be sufficient to export up to 12 mtpa of LNG from Canada in 2024.
Both licenses are for a period of 25 years.
Bear Head LNG has also received NSE approval of its Greenhouse Gas and Air Emission Management Plan as well
as Governor in Council approval for the license to import natural gas from the U.S. and the license to export LNG
from the Bear Head LNG project site.
13
Bear Paw has received EA approval from the NSE and its “Permit to Construct” the natural gas pipeline and
related facilities pursuant to the Pipeline Act from the UARB.
The DOE has granted Bear Head LNG authority to export LNG derived from U.S. produced natural gas to both
FTA and Non-FTA countries. The DOE has also granted Bear Head LNG authority to export U.S. natural gas to
Canada, allowing export of up to 440 bcf per year of U.S. natural gas to Canada. Finally, in tandem with the non-
FTA export permit, DOE determined that Bear Head LNG does not require DOE’s authorization for Canadian
natural gas to pass through U.S. pipelines (in transit) on its way to the export facility in Nova Scotia.
Gas Supply
Natural gas supply for LNG exports from Bear Head LNG is expected to come from producers in Canada and the
U.S. Bear Head LNG continues to market capacity to all three potential gas paths: U.S., offshore Nova Scotia,
and Western and Central Canada.
During fiscal 2017, Bear Head LNG worked with TransCanada Pipelines in a route study analysis to further explore
the viability of transporting natural gas from TransCanada’s Alberta system (NGTL) to the Bear Head LNG site.
Study deliverables included routing, system design, capital and operation cost estimates, indicative rate ranges,
schedule estimates, and risk analyses. Based on outcomes from this work in combination with indicative Bear
Head LNG tolling rates, the Company is confident that a west-to-east ‘all Canada solution’ represents a cost
competitive marketing alternative for Alberta and British Columbia natural gas producers. The Bear Head LNG
‘all Canada solution’ gives producers access to LNG markets at a globally competitive free-on-board (FOB) cost,
providing an economically beneficial alternative to West Coast Canada LNG or selling production at AECO index
prices. Discussions with major Western Canadian resource holders has confirmed interest in exploring the Bear
Head LNG option.
Northeast U.S. pipeline projects intended to move Marcellus / Utica shale gas production east have been
cancelled or deferred. These decisions may have detrimental effects on gas supplies available for export from
the U.S. to Canada through the Maritimes & Northeast Pipeline system. The Company continues to explore
other gas paths to move Marcellus / Utica supplies to the Bear Head LNG site.
Bear Head LNG continues to monitor offshore Nova Scotia upstream development, which has slowed somewhat
as investors in offshore Nova Scotia upstream opportunities deal with capital constraints arising from lower
global commodity prices.
Detailed information on the Bear Head LNG and Bear Paw projects is available on the Company’s website:
www.lnglimited.com.au under “Assets”.
OSMR® PATENTS and LNG TECHNOLOGY PTY LTD
LNG Technology Pty Ltd designed and patented the optimized single mixed refrigerant (OSMR®) LNG liquefaction
process. OSMR® Technology is a low cost, highly efficient, ecologically friendly, robust and low risk technology
that has the potential to benefit many future LNG projects.
The OSMR® Technology combines several well-proven, existing industrial technologies into one integrated
system. Integration of these primary components comprise the core liquefaction process which creates a design
configuration resulting in an efficient conversion of natural gas into LNG, with no additional technology risk
relative to other proposed projects.
The following primary components comprise the core liquefaction process:
•
•
•
•
The single mixed refrigerant (SMR) liquefaction process is at the heart of the OSMR® Technology, which
optimizes the SMR process with ammonia pre-cooling
Use of ammonia as a pre-cooling refrigerant, having superior refrigeration properties to propane, allows for
smaller condensers, exchangers, and general plant size
Gas turbine waste heat steam generation (combined cycle) providing motive power to the ammonia
refrigeration system reducing the amount of power purchased from the grid or the amount of feed gas used
to fuel gas-fired plant turbines
A closed loop ammonia refrigeration circuit, driven by steam recovered from waste heat mentioned above,
pre-cools the mixed refrigerant and directly cools inlet air to the gas turbines thus increasing their output
and efficiency
14
•
Highly efficient gas turbines drive the mixed refrigerant compressors
These technologies, applied and proven in other industries, integrate within the OSMR® Technology to generate
performance improvements, resulting in a design that is relatively simple to design, construct, operate, and
maintain.
The Company continues with its international patent applications, which cover two engineering design features
(being the basis of the Company’s OSMR® process), entitled “A Method and System for Production of Liquid
Natural Gas” and “Improvements to the OSMR® Process” (applications only filed in Australia and U.S.). The
Company is also progressing a patent application over another wholly developed and owned process, entitled
“Boil-off Gas Treatment Process and System”. Advancement of global patent protection allows the Company
to develop opportunities worldwide.
For further information about OSMR® liquefaction process technology, including a paper on “OSMR® Liquefaction
Process for LNG Projects” please refer to the Company’s website: www.lnglimited.com.au under “Assets”.
FISHERMAN’S LANDING LNG PROJECT, QUEENSLAND, AUSTRALIA
In May 2017, the Company announced its decision to exit the Fisherman’s Landing LNG project. After many
years without success in securing long-term economic gas supply that would be needed to proceed with project
construction, a strategic decision was made to exit the project. The Company is completing efforts to relinquish
the site to the Gladstone Ports Corporation and notify other relevant regulators. These actions are not believed
to have a material impact on the Company’s current cash management plan.
CORPORATE
Exploration of U.S. Redomicile and Listing
The Board requested management to explore the possibility of redomiciling the Company to the U.S. along with
a listing on either the New York Stock Exchange or NASDAQ. The Board now believes that such a transaction
may be of benefit to the Company and its shareholders as the Company progresses toward the development of
its projects in North America. Management is in the process of completing its diligence relative to this request.
This decision was influenced by our steps to exit Fisherman’s Landing LNG during the year but other
considerations have greater Board and management focus. These considerations include:
•
•
•
•
Alignment with the Company’s North American project focus;
Valuation and potential for new investor interest;
Closer association with other LNG development companies on U.S. exchanges; and
Attracting and retaining outstanding talent.
At this stage, the Board has not specified a timetable for a decision on the potential transaction. Further details
will be announced once any decisions are made, and once the structure and timing of any proposed transaction
have been determined, including whether the Company will remain listed on the ASX. Any proposal will be
subject to approval of the Company’s shareholders.
Funding sources and Liquidity Management Plan
Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their
obligations as and when they fall due. At June 30, 2017, except for payables, the Group had no debt (2016: nil),
and its activities are primarily funded from cash reserves from ordinary share issues, interest revenue, and
research and development concession rebates. Most cash reserves are held in term deposit with the ANZ
Banking Group and Westpac Banking Corporation, with funds transferred as necessary to the Group’s working
accounts to meet short-term expenditure commitments.
Starting in the 3rd quarter of fiscal 2016, the Company initiated an integrated plan to address the impact of
slowing LNG industry conditions, which have negatively affected the Company’s efforts to sell offtake capacity
in its projects. The liquidity management plan (LMP) includes:
•
•
Commercial focus on signing binding offtake agreements for Magnolia LNG;
Placing on hold our EPC and related contract expenditures;
15
•
Finishing residual engineering, regulatory, and permitting work on our projects;
• Maintaining the projects in “ready mode” to enable fast track ramp-up once sufficient levels of binding
offtake agreements are signed; and
•
Prudently managing our cost base.
Through applying our LMP, the Company estimates that the existing cash position can sustain the company
through the end of 2018. Should offtake capacity be sold in sufficient quantities to progress one or more of its
projects to financial close, the Company anticipates reimbursement of a portion of its development costs
through project financing proceeds. The Company estimates that this reimbursement would provide sufficient
incremental liquidity to maintain operations to first LNG. In the event that offtake sales continue to lag, new
sources of liquidity available to the Company include sales of new LNGL ordinary shares, sales of equity in its
projects, outright sales of a project, and monetization of the OSMR® liquefaction technology.
In the event that external events limit the Company’s access to new sources of liquidity, the Company maintains
the ability to further reduce its cash outflow as most of the Company’s costs are discretionary.
Financial results
During the financial year, net assets of the Company and its controlled entities (the LNGL Group) decreased by
A$26.5 million, from A$81 million as at July 1, 2016 to A$54.4 million as at June 30, 2017, primarily reflecting
the slowing of the Company’s development activities as it works to procure offtake sales.
The Company’s policy is to expense all development expenditure until such time as the Board is satisfied that all
material issues in relation to a project have been adequately identified and addressed, to the extent possible,
and it is probable that the project will achieve final investment decision and proceed to construction, within a
reasonable period. Currently, LNGL is expensing 100 percent of its development expenditures. Development
expenditures expensed in fiscal 2017 totaled A$12.4 million compared with A$89.3 million expensed during fiscal
2016.
LNGL Group’s net loss after income tax for the year ended June 30, 2017 totaled A$29.3 million, which compared
with a loss of A$115.2 million in the year ended June 30, 2016. The 2017 fiscal loss included the aforementioned
project development costs of A$12.4 million, A$2.5 million of share-based payment expenses, and A$13.6
million in administration, corporate, and compliance costs in the period.
The decreasing loss from ordinary activities and the net loss for the period reflect the impact of the LMP.
As at 30 June 2017, the LNGL Group had A$40.3 million (cash and cash equivalents) plus A$4.2 million of other
financial assets.
RISKS AND UNCERTAINTIES
The business activities of LNGL are subject to various risks and uncertainties that may affect the future
performance of LNGL’s results of operations and financial condition. While many of the risk factors are largely
beyond the control of LNGL and its Board, LNGL will seek to mitigate the risks where possible and economically
viable. LNGL is subject to risks that are specific to LNGL and its businesses, risks that are specific to the LNG
industry at-large, and general business risks. The following represent examples of such risks (the list is not
exhaustive).
Risks specific to LNGL include available liquidity to maintain its operations, a myriad of project development
risks, future financing requirements at both corporate and project levels, dependency on key contractors and
corporate alliances, counterparty and credit risks, key personnel risks, and technology and intellectual property
risks. Industry specific risks include fluctuations in demand for LNG globally, industry competition, prices paid
for liquefaction capacity, the availability of gas feedstock and pipeline capacity outright as well as the need for
such feedstock and capacity to be at economically competitive prices, government policy and regulation,
evolving health and environmental policies and regulations, industrial dispute risks, availability of qualified
construction and operations workforce, and country risks. General business risks include economic cycles,
commodity price fluctuations, foreign currency and interest rate exposures, general legal and taxation matters,
and other similar factors.
16
OUTLOOK
As emphasized throughout this discussion, we are focused on signing additional legally binding investment-grade
offtake agreements that enable FID on Company projects. If further significant delays in achieving this outcome
occur, the Company will need to supplement its current liquidity position with new sources of capital.
I take this opportunity to thank my fellow directors and all members of our management and staff. I especially
wish to express my appreciation for their ongoing support and dedication to help progress and develop the
Magnolia LNG and Bear Head LNG projects for our shareholders.
Finally, I wish to acknowledge our loyal shareholders that have supported LNGL throughout the year. It is a
privilege to serve as chief executive of a great company with world-class potential, talented employees, and a
commitment to delivering value to our shareholders.
Gregory M. Vesey
Managing Director and Chief Executive Officer
September 14, 2017
17
Your directors submit their report for the fiscal year ended June 30, 2017.
DIRECTORS’ REPORT
DIRECTORS
The names and details of the Company’s directors in office at any time during the financial year and until the
date of this report are as follows. Directors were in office the entire period unless otherwise stated.
Effective November 17, 2016, Mr. Paul J Cavicchi became chairman of the LNGL Board, replacing Mr. Richard J
Beresford. Mr. Beresford remained on the Board as a Non-Executive Director from that date.
Mr. Paul J Cavicchi, Non-Executive Director
Residence: Houston, Texas, USA
Education and certification: BSCE, Tufts University; MSCE, University of Massachusetts; MBA, Colgate Darden
School of Business Administration at the University of Virginia
Board Committee membership:
Board of Directors
Compensation
Corporate Governance and Nominating
Safety, Sustainability, People, and Culture
Chair
Member
From Nov 2017
From Oct 2014
From Oct 2015
Oct ’14 – Oct ‘15
---
---
From Jan 2016
Oct ’15 – Mar ‘17
Experience: Mr. Cavicchi has over 30 years’ experience in the international energy industry across a range of
gas and power projects, including development and construction of LNG infrastructure. His most recent
position was Executive Vice President of GDF SUEZ Energy North America, Inc., a subsidiary of GDF SUEZ
Energy International, where he supervised and directed all business development efforts for GSENA in the
United States, Canada and Mexico. Previously, he held the roles of President & CEO of SUEZ Renewable Energy
NA, LLC, and before that President and CEO of SUEZ Energy Generation North America, Inc.
Independent: Yes
Other directorships and affiliations:
No other directorships
Registered Professional Engineer, State of New Hampshire, USA
Skills contributed to the LNGL Board include:
•
•
•
•
•
Project management
Legal and regulatory
•
•
Risk management
Business strategy
Health and safety
• Mergers and acquisitions
•
•
•
International experience
Contracts and negotiation
Finance
Government and Community
Relations
•
Environmental and
sustainability matters
• Marketing and business
development
Project engineering,
construction, and execution
Mr. Gregory Matthew Vesey, Managing Director and Chief Executive Officer
Residence: Houston, Texas, USA
Education and certification: BBA, Northwestern State University of Louisiana
Board and Committee memberships:
Board of Directors
Chair
---
Member
From Apr 2016
Board Committee membership: None, attends Board Committee meetings as an invitee
18
Experience: Mr. Vesey held senior executive roles in the international energy sector through a career spanning
35 years with Chevron and Texaco. Most recently he was President of Chevron Natural Gas & Vice President,
Gas Supply and Trading from 2011 to 2015. In this role, he was responsible for Chevron’s Global LNG, natural
gas, and natural gas liquids marketing and trading activity, and was based in Houston. Previously as President
of Chevron Global Power Company, he led a business unit which held a portfolio of commercial power plants
and projects in the US, Asia, Middle East, and Europe. Prior to that he led Chevron Technology Ventures for
five years where he was responsible for creating a portfolio of new opportunities in technology
commercialization, emerging energy, and Chevron's venture capital investing.
Independent: No
Other directorships and affiliations:
Junior Achievement of Southeast Texas (since 2004) – Chairman 2011 - 2013
Alley Theatre in Houston (since 2010)
Skills contributed to the LNGL Board:
•
•
•
•
•
Technology and innovation
Legal and regulatory
•
•
Risk management
Business strategy
Project management
• Mergers and acquisitions
•
•
•
International experience
Contracts and negotiation
Audit and accounting
Government and community
relations
Corporate governance
•
•
Project engineering,
construction, and execution
• Marketing and business
development
Health and safety
Mr. Richard Jonathan Beresford, Non-Executive Chairman
Residence: Perth, Western Australia
Education and certification: FAIE, FAICD, BSc (Mechanical Engineering), and MSc (Technology and
Development).
Experience: Mr. Beresford has over 30 years' experience in the international energy natural gas and
renewable energy industries. He spent 12 years with British Gas plc, including three years in London managing
a portfolio of Asia-based downstream gas and power generation investments, and four years in Jakarta as
Country Manager, Indonesia. He joined Woodside Petroleum Limited in 1996 where he became
General Manager, Business Development, moving to Managing Director of Metasource, Woodside's green
energy subsidiary through 2001. Other experience includes the role of Head of Gas Strategy and Development
for CLP Power Hong Kong Limited from January 2005 to March 2007 leading negotiations for LNG supply to its
power plants.
Independent: Yes
Board and Committee memberships:
Chair
Member
Board of Directors
Compensation
Nov ’10 – Nov ‘17
From Feb 2004
Nov ‘10 – Oct ‘15
From Jun 2004
Corporate Governance and Nominating
Nov ’10 – Dec ‘15
From Sep 2007
Safety, Sustainability, People, and Culture
Audit
Other directorships and affiliations:
Eden Innovations Ltd. (since 2007)
Clearer Sky Pty Ltd (since 2001)
Green Rock Energy Limited (September 2008 to April 2015)
---
---
Oct ’15 – Jan ‘16
May ‘04 – Oct ‘15
19
Skills contributed to the LNGL Board:
•
•
•
Technology and innovation
• Risk management
Legal and regulatory
• Business strategy
Project management
• Mergers and acquisitions
•
•
•
International experience
Contracts and negotiation
Finance
• Government and community
•
relations
Environmental and
sustainability matters
• Marketing and business
development
•
Corporate governance
• Health and safety
Ms. Leeanne Kay Bond, Non-Executive Director
Residence: Brisbane, Australia
Education and certification: BE (Chem), MBA, FIEAust, RPEQ, FAICD
Board and Committee memberships:
Chair
Member
Board of Directors
Compensation
Corporate Governance and Nominating
---
---
---
From Oct 2009
From Nov 2010
Nov ‘10 – Jan ‘16
Safety, Sustainability, People, and Culture
From Oct 2015
---
Audit
Nov ‘10 – Oct ‘15
From Oct 2015
Experience: Ms. Bond is a professional company director with board roles in the energy, minerals, and
engineering services sectors. She has qualifications in engineering and management, and 30 years experience
across a broad range of industrial sectors including energy, minerals, infrastructure, and water resources.
From 1996 to 2006, Ms. Bond held a number of management roles with Worley Parsons in Queensland,
Australia, including General Manager Hydrocarbons and Development Manager.
Independent: Yes
Other directorships and affiliations:
Clean Energy Finance Corporation (since 2017)
Queensland Building and Construction Commission (since 2016)
Engineers Australia (since 2016)
Snowy Hydro Limited (since 2015)
Territory Generation (since 2014)
JKTech Pty Ltd (since 2013)
Breakthrough Energy Pty Ltd (since 2006)
Other ASX listed companies in the last 3 years – Coffey International Limited
Skills contributed to the LNGL Board include:
•
Technology and innovation
• Risk management
• Auditing and accounting
• Business strategy
•
Project management
• Health and safety
•
•
•
International experience
Contracts and negotiation
Finance
• Government and Community
Relations
•
Corporate governance
•
•
Environmental and
sustainability matters
• Marketing and business
development
Project engineering,
construction, and execution
20
Philip D. Moeller, Non-Executive Director
Residence: Washington D.C., USA
Education and certification: BA in Political Science, Stanford University
Board Committee membership:
Board of Directors
Chair
---
Member
From Dec 2015
Corporate Governance and Nominating
From Jan 2016
---
Audit
Safety, Sustainability, People, and Culture
---
---
From Jan 2016
From March 2017
Experience: Mr. Moeller is currently Executive Vice President, Business Operations Group and Regulatory
Affairs with the Edison Electric Institute. He served as a Commissioner of the Federal Energy Regulatory
Commission (FERC) from July 2006 to October 2015. While serving on the Commission he focused on policies
that encourage the construction of additional electric transmission and interstate natural gas infrastructure,
and policies promoting well-functioning wholesale markets. From 1997 through 2000, Mr. Moeller served as
an energy policy advisor to US Senator Slade Gorton (R-Washington). Prior to joining Senator Gorton's staff,
he served for nearly ten years as the Staff Coordinator for the Washington State Senate Committee on Energy,
Utilities and Telecommunications. Before becoming a Commissioner, Mr. Moeller headed the Washington,
D.C., office of Alliant Energy Corporation, an electric and natural gas utility company based in Madison,
Wisconsin. Prior to Alliant Energy, Mr. Moeller worked in the Washington office of Calpine Corporation.
Independent: Yes
Other directorships and affiliations: none
Skills contributed to the LNGL Board include:
•
•
•
Corporate governance
Legal and regulatory
Health and safety
•
•
•
Risk management
Business strategy
Environmental and
sustainability
Mr. D Michael Steuert, Non-Executive Director
Residence: Roanoke, Texas, USA
•
•
Contracts and negotiation
Corporate governance
Education and certification: BBA and MBA, Carnegie Mellon University; post-graduate training at both
Harvard University and Pennsylvania’s Wharton School of Business
Board Committee membership:
Board of Directors
Audit
Chair
---
Member
From Feb 2015
From Oct 2015
Feb ‘15 – Oct ‘15
Safety, Sustainability, People, and Culture
---
From Jan 2016
Experience: Mr. Steuert has nearly 40 years of international finance management experience. His most recent
position was as Chief Financial Officer and Senior Vice President and Controller of Fluor Corporation. Mr.
Steuert was previously CFO of Litton Industries, CFO of GenCorp Inc., and, prior to that, held developmental
controllership and treasury positions in US and Europe with TRW Inc.
Independent: Yes
Other directorships and affiliations:
Weyerhaeuser Corporation (since 2004)
Great Lakes Dredge and Dock Company (since 2016)
Kurion Inc. (2012 to 2016)
21
Skills contributed to the LNGL Board include:
•
Project management
• Risk management
• Mergers and acquisitions
• Audit and accounting
•
•
International experience
Corporate governance
•
Finance
Company secretary
•
Project engineering,
construction, and execution
Ms. Kinga Doris and Mr. Andrew Gould currently share duties as Company Secretary.
Ms. Kinga Doris’ role with LNGL is General Counsel and Joint Company Secretary. She performs Secretary duties
for the Board and Board’s Compensation Committee, and Governance and Nominating Committee, respectively.
Mr. Gould’s role with LNGL is Group Development Manager and Joint Company Secretary. Mr. Gould performs
Secretary duties for the Board’s Audit Committee and Safety, Sustainability, People, and Culture Committee.
DIRECTORS MEETINGS
During the year, eleven Board of Directors’ meetings were held. The number of meetings attended by each
committee member director and the number of meetings held during the financial year follows. The chart does
not capture attendance by directors at committee meetings where said director is not a member of that
committee.
Board of
Directors
Compensation
Committee
Audit
Committee
Corporate
Governance and
Nominating
Committee
Safety,
Sustainability,
People, and
Culture
Committee
Total meetings
Director attended:
Paul J. Cavicchi
Gregory M. Vesey
Richard J. Beresford
Leeanne K. Bond
Philip D. Moeller
D. Michael Steuert
F. Maurice Brand
11
11
11
10
11
11
11
1
3
3
---
3
3
---
---
---
3
---
---
---
3
3
3
---
2
2
---
2
---
2
---
---
1
1
---
---
1
---
1
---
Directors were eligible to attend all meetings held during the year, except:
(i) Mr. F. Maurice Brand resigned from the Board on 29 July 2016.
SHARES, OPTIONS, AND PERFORMANCE RIGHTS
Shares
At June 30, 2017, there were 512,979,962 (2016: 503,977,606) common shares on issue.
Performance Rights
At June 30, 2017, there were 12,131,299 (2016: 16,582,858) un-issued ordinary shares under Performance
Rights pursuant to issuances under the Company’s Incentive Rights Plan.
22
No Rights issued in July 2014 vested at June 30, 2017. On July 6, 2016, the Company reported that 6,245,402
Performance Rights vested relating to a January 2014 Rights issue. A total of 6,224,720 ordinary shares were
issued because of that vesting.
NED Rights totaling 73,111 vested in November 2016 with 66,499 ordinary shares issued upon vesting.
In January 2017, 952,992 Performance Rights vested with 952,137 ordinary shares issued upon vesting.
On July 11, 2017, the Company disclosed the issuing of 5,205,000 Incentive Rights to eligible employees.
Through September 14, 2017, 1,428,687 Incentive Rights were forfeited by employees that left the Company.
Following these events, there were 13,633,476 un-issued ordinary shares under Incentive Rights issued pursuant
to the Company’s Incentive Rights Plan. There are approximately 12.2 million Incentive Rights remaining
available for issuing under the plan.
Options
At June 30, 2017, there were no un-issued ordinary shares under options.
During fiscal year 2017, 1,759,000 (2016: 810,000) options were exercised, at an average exercise price of $0.38
(2016: $0.25).
OPERATING AND FINANCIAL REVIEW
Refer to the Managing Director and Chief Executive Officers’ Report for further information.
DIVIDEND
The Company’s Board of Directors do not recommend the payment of a dividend and no amount has been paid
or declared by way of a dividend to the date of this report.
ENVIRONMENTAL REGULATION AND PERFORMANCE
Magnolia LNG project
Pursuant to Section 3(a) of the Natural Gas Act and Part 153 of FERC’s regulations, the Magnolia LNG project
submitted a Formal Application for the authorization to site, construct, and operate liquefaction and export
facilities at its proposed site near Lake Charles, Louisiana, United States on April 30, 2014. During the ensuing
months, Magnolia LNG prepared responses to FERC’s data requests covering various clarifications of the
engineering, environmental, and safety aspects of the project. On 30 April 2015, FERC issued a Schedule of
Environmental Review (SER) for the Magnolia LNG and Lake Charles Expansion (i.e. KMLP) projects. The FERC
subsequently issued a Draft Environmental Impact Statement (DEIS) on July 17, 2015, the Final Environmental
Impact Statement (FEIS) on November 13, 2015, and MLNG’s FERC Order on April 15, 2016. On November 24,
2016, the FERC issued its Order on Rehearing fully reaffirming its April 15, 2016 FERC Order. On May 5, 2017,
the Company announced that Magnolia LNG had received its NTP from FERC.
In parallel with the FERC timeline, the Magnolia LNG project applied for and received approvals and permits
associated with other federal, Louisiana state and local environmental, safety, and related requirements,
including the Louisiana Department of Environmental Quality air permit received in April 2016 and the Louisiana
Department of Natural Resources coastal use permit received in September 2016. The US Army Corps of
Engineers Section 404 and Section 10 permits (permit to dredge a water of the US and place dredged material,
and construction of marine facilities) are also in hand.
As at the date of this report, Magnolia LNG has all required environmental, safety, and related permits and
approvals required to commence construction of liquefaction and export facilities at its site in Lake Charles,
Louisiana, USA.
There have been no known breaches of environmental regulations to which Magnolia LNG is subject.
Bear Head LNG project
Bear Head LNG Corporation has received all ten (10) initial federal, provincial, and local regulatory approvals
needed to construct an LNG export facility at Point Tupper, Richmond County, Nova Scotia Canada. These
include approval by the NSE of its updated provincial EA for the development of a nominal 8 mtpa export facility
at Point Tupper, Richmond County, Nova Scotia in accordance with Section 40 of the Environment Act and
23
subsection 13(1)(b) of the Environmental Assessment Regulations. During the year, Bear Head LNG received
NSE approval for its Greenhouse Gas and Air Emission Management Plan.
Transport Canada’s TERMPOL Review Committee has completed its review of Bear Head LNG Corporation Inc.’s
Bear Head LNG TERMPOL report. The TERMPOL review process is a technical review of marine terminal systems
and transshipment sites. It is a voluntary review of the proposed shipping route and marine terminal, but
mandated under the separate environmental assessment process, and identifies navigational and marine
transportation-related recommendations to support a safe shipping environment.
BHLNG received NSE approval for its Greenhouse Gas and Air Emission Management Plan.
There have been no known breaches of environmental regulations to which Bear Head LNG is subject.
Bear Paw Pipeline project
Bear Paw has received its EA approval from the NSE. Other potential key regulatory requirements to obtain
prior to construction include the Fisheries Act dealing with installation of pipeline through watercourses,
Navigation Protection Act dealing with impact on navigation at marine crossings, and the UARB license to
operate. Bear Paw is progressing work to obtain these permits and approvals.
There have been no known breaches of environmental regulations to which Bear Paw is subject.
Fisherman’s Landing LNG project
The Company exited the Fisherman’s Landing LNG project during the year. Management is currently working
with regulators to complete the regulatory exit process.
24
REMUNERATION REPORT (AUDITED)
Introduction from the Compensation Committee...................................................................................... 25
Overview ..................................................................................................................................................... 26
Compensation Committee role and responsibilities .................................................................................. 27
Remuneration framework design and considerations ............................................................................... 27
Company and industry context................................................................................................................... 33
Remuneration policies and practices impacting KMP remuneration ......................................................... 33
KMP during the reporting periods .............................................................................................................. 34
Parameters and weighting of fixed and variable executive KMP remuneration ........................................ 34
Historical issuances and vesting outcomes ................................................................................................ 37
Details of the executive KMP STI plan ........................................................................................................ 38
Details of the executive KMP LTI plan ........................................................................................................ 39
Company performance ............................................................................................................................... 40
Links between performance and reward.................................................................................................... 40
Summary of contractual provisions for executive KMP ............................................................................. 43
Executive KMP remuneration ..................................................................................................................... 44
NED KMP remuneration design .................................................................................................................. 45
NED Rights Plan details ............................................................................................................................... 46
NED remuneration ...................................................................................................................................... 48
Changes in KMP held equity ....................................................................................................................... 49
Use of independent consultancy in support of Compensation Committee ............................................... 51
End of Remuneration Report ...................................................................................................................... 51
Introduction from the Compensation Committee
As shareholders ourselves, and stewards of the remuneration program, the Compensation Committee’s primary
focus is developing a remuneration strategy that accomplishes the goal we all have to increase shareholder value
in long-term and sustainable ways. To that end, each year we review our remuneration program to align the
program with current market intelligence, our remuneration philosophy, and our business strategy. After careful
review of our remuneration program, we want to highlight some of the key considerations underlying LNGL’s
remuneration trends.
As more fully described in the Chairman’s Letter and the Managing Director and Chief Executive’s Report, current
global LNG market dynamics have slowed the Company’s progress in procuring offtake contracts in sufficient
volume to move to financial close and construction of its projects. LNGL has clearly de-risked its projects
substantially over the past few years, achieving many major milestones. However, with the need for offtake
sales still outstanding, LNGL made the difficult decision to exit the Fisherman’s Landing LNG project in 2017 with
the intent to focus on its North American projects.
Today, the Company is conducting business at reduced staffing levels that are predominantly based in North
America with about 80 percent of full time employees being U.S.-based including all executive KMP. Now more
than ever, the guiding principles utilized by the Compensation Committee in designing LNGL’s remuneration
philosophy is key to achieving our shared goal to increase shareholder value. These principles are:
•
The need to attract, hire, and retain high-caliber experienced executives and personnel to ensure successful
transition from development stage to construction and operation of our LNG development projects;
25
•
•
The need to balance remuneration expectations and best practice between Australia and North America;
and
The need to align executive reward and shareholder investment outcomes.
As we reviewed the impact current market conditions are having on the LNG industry, it was clear there was
increasing risk of loss of key personnel resulting in part to the lack of equity ownership by Company staff in LNGL.
Committee members believe that staff ownership of equity in our Company represents the best shareholder
alignment and retention mechanisms available to the Compensation Committee.
We engaged with our independent compensation consultants (Korn Ferry Hay Group) and conducted an
extensive assessment and evaluation of all aspects of our remuneration program. We met as a committee
multiple times with our consultant to review current market remuneration data, to assess remuneration
programs employed within and outside the LNG industry, and evaluated multiple proposals for changes to our
remuneration program. We assessed shareholder feedback and took account of your observations about our
remuneration program, particularly as it relates to the plan’s effectiveness and alignment with LNGL’s strategy
and business goals. Shareholder input was invaluable to the Compensation Committee and the Board in this
undertaking. Our process targeted learning more about what types of meaningful changes would address the
diverse stakeholder concerns, balancing market remuneration intelligence, shareholders’ desires, and the risk
of losing key personnel that are required to deliver the increased share value we all desire.
The following report details the key changes implemented by the Committee that reflect the continuing
evolution of the Company’s remuneration philosophy within the challenging global LNG industry. The primary
changes implemented include:
•
•
•
•
A further 10 percent reduction in cash fees paid and notional value of share rights allocated to the NEDs
under the NED Rights Plan;
Further refinement of our performance-based remuneration strategy that links short-term incentive cash
award (STI) payments to milestones deemed achievable by the Board within a twelve-month assessment
cycle, while applying value-based vesting criteria in our long-term incentive award (LTI) plan that aims to
align employee vesting realization with shareholders’ long-term goal of increased share value;
Continuation of a program of issuance of Retention Rights that vest over a specified timeframe, in keeping
with North American remuneration practices and as an effort to increase shareholdings by our staff that we
believe will reduce the risk of loss of key personnel over time while aligning staff and shareholder goals; and
Increased STI percentages to executive KMP consistent with market data provided by the Committee’s
compensation consultant.
Overview
This audited Remuneration Report outlines the remuneration arrangements in place and outcomes achieved for
LNGL’s key management personnel (KMP). LNGL’s KMP are those people who have a meaningful capacity to
shape and influence the Company’s strategic direction and performance through their actions, either collectively
(in the case of the Board) or as individuals acting under delegated authorities (in the case of employee KMP).
KMP have the capacity to affect LNGL’s performance and the returns delivered to shareholders; thus, it is critical
to design and implement remuneration policies for KMP that support the business strategy and align the
interests of executive KMP with those of shareholders. As an ASX listed public company, the Board must strike
a balance regarding the appropriateness of the remuneration arrangements in place and its requirement to hire
and retain the leadership talent required to successfully transition the Company from its current ‘developer’
stage to an operator of one or more LNG export facilities. Key areas impacting remuneration design include:
•
•
•
•
The need to attract high-caliber experienced executives and personnel to ensure successful development,
construction, and operation of our LNG development projects;
Differences in remuneration expectations and best practice between Australia and North America;
Provision of an attractive value proposition as a tool for retention in the context of current industry
challenges; and
Alignment of executive reward and shareholder value outcomes.
26
Such considerations provide the context in which the Board makes its executive remuneration decisions. These
guiding principles were integral in setting the current and prospective remuneration framework. Executive
incentive arrangements are designed to ensure ongoing alignment with LNGL’s strategic direction and core
values, which drive long-term value creation and shareholder returns.
Compensation Committee role and responsibilities
The role of the Compensation Committee is to ensure that remuneration policies implemented are designed to
enhance corporate and individual performance to the benefit of LNGL’s shareholders. That is the development,
maintenance, and application of the Remuneration Policy and Clawback Policy and its implementation for the
purposes of making recommendations to the Board to align KMP and shareholder interests regarding KMP
remuneration matters. The Compensation Committee is also responsible for advising the Board on procedures
that must be undertaken in relation to the governance of remuneration (such as the calculation of grants of
incentives, review of performance conditions, and receipt of independent advice). Under its charter, the
Compensation Committee is composed of at least two members with the majority being independent directors.
The role and responsibilities of the Compensation Committee are summarized in the Corporate Governance
Policy, which is available on the Company website. The Compensation Committee’s charter is also available on
the website at www.lnglimited.com.au.
Remuneration framework design and considerations
Remuneration design is intended to enhance corporate and individual performance to the benefit of LNGL’s
shareholders. An ongoing challenge is to design a remuneration framework that is appropriate to hire, motivate,
and retain executive KMP whilst maintaining alignment with shareholders throughout all life-cycle stages of a
company’s activities. In doing so, the Compensation Committee takes account of many factors having influence
on design decisions including: shareholder observations on remuneration design in general and with regards to
LNGL’s design specifically; local market conditions in the countries, industry, and region in which LNGL operates;
the current life-cycle status of the Company; the current state of the global LNG industry; and observations from
independent consultancy.
Specific to pre-revenue stage businesses, design aspects must concentrate on balancing the need to attract and
retain an experienced and capable management team having the skills required to move the Company’s projects
to FID and into operation, against traditional remuneration designs employed by ‘operating stage’ companies
familiar to most investors.
The Compensation Committee intentionally deviates from commonplace remuneration practices applied at
most public companies in ‘operating stage’ where KMP are accountable for the strategic growth of the business
and management of operating assets, cash flow, and profit and loss. Unlike these companies, LNGL is a pre-
revenue stage entity, strongly focused on achievement of strategic milestones that will lead to a fully operational
and revenue producing company. The Compensation Committee balances these strategic milestones with long-
term incentive metrics tied to the performance of LNGL’s share price relative to the ASX All Ordinaries
Accumulation Index to align KMP’s incentive compensation targets with the performance of LNGL’s share price.
Comparing LNGL’s share performance to an index recognizes there are currently no pre-revenue “peer”
companies that are comparable to LNGL for purposes of relative share price performance comparisons. The
remuneration framework will evolve in support of later stages in LNGL’s business life cycle once project
construction and operation commence.
Remuneration framework
The following summarizes the key components of LNGL’s remuneration arrangements.
•
•
•
A fixed remuneration component, consisting of base salary and related benefits, that aligns with industry
peers, validated through external compensation studies performed for the Compensation Committee by
external consultants engaged by the Board.
A STI component, computed as percentages of base pay with individual payout amounts linked to
achievement of specific annual corporate and individual milestones and personal performance.
A LTI component consisting of Incentive Rights, the vesting of which links to relative market adjusted total
shareholder return (MATSR) measured over 3-year performance periods.
27
–
The MATSR component assesses the total shareholder return performance of LNGL shares relative to
that of the ASX All Ordinaries Accumulation Index (XAOAI) over the applicable measurement period,
with vesting determined on a sliding scale as defined in the Incentive Rights invitation letters specific
to each issue tranche.
•
A LTI component consisting of Retention Rights that time vest over a period designated at issuance date.
In accordance with both the STI and LTI plan documents, the Board retains discretion to increase or decrease
the level of award or vesting (irrespective of Vesting Conditions being achieved or not), including by reference
to the performance of the Company or any Participating Employer generally or in relation to specific matters
including issues relating to workplace safety, health, and environment.
The Board may also vest any Incentive Rights early in circumstances where it considers it appropriate and
reasonable to do so.
In preparing this report, the Board has endeavored to provide sufficient detail and transparency so that investors
can form their own views about the appropriateness of the remuneration arrangements in place. While
remuneration arrangements for KMP are complex and involve a variety of components and performance
measures, the report contains summaries intended to give investors an understanding of how these components
link together to form total remuneration for each KMP.
Approach to remuneration framework design
To assure the relevance and appropriateness of the remuneration framework, the Compensation Committee
considers changes to the Company’s remuneration policy and disclosures each year. The aim is to implement
framework changes in line with current market best practice, reflecting a natural evolution of the remuneration
program design to effectively support the progress of near and long-term business strategy. That said and taking
into consideration the overall market dynamics and ever-changing LNG industry landscape and regulatory
requirements, the Compensation Committee continued evolution of LNGL’s remuneration practices in the
current year with the assistance of the independent compensation consultant, Korn Ferry Hay Group.
Annually, the Board approves all fiscal year corporate goals to which the STI parameters apply, approves the
Managing Director and Chief Executive officer’s scorecard, reviews other executive KMP scorecards, and
approves all LTI Incentive Rights issuances.
The Company has sought to provide guidance in this report regarding changes to its remuneration practice that
will take effect with commencement of the fiscal 2018 reporting period and the forecasted effects of such
changes on KMP remuneration. Summary elements of the fiscal 2018 remuneration program and how they
compare with the fiscal 2017 program follow.
Pay Element
Fiscal 2017 Program
Fiscal 2018 Program 1
STI
CEO: 80 percent corporate metrics, 20
percent individual metrics
CEO: 80 percent corporate metrics, 20
percent individual metrics
Other KMP: 60 percent corporate
metrics, 40 percent individual metrics
Other KMP: 60 percent corporate
metrics, 40 percent individual metrics
STI target percentages
CEO – 60 percent
COO – 25 percent
CEO – 60 percent
COO – 35 percent
LTI
General Counsel – 25 percent
General Counsel – 30 percent
CFO – 25 percent
CDO – 25 percent
CFO – 30 percent
CDO – 30 percent
60% Performance Rights with vesting
tied to LNGL’s total shareholder return
relative to XAOAI’s total shareholder
return
60% Performance Rights with vesting
tied to LNGL’s total shareholder return
relative to XAOAI’s total shareholder
return
28
40% Retention Rights with “cliff vest”
over three-years
40% Retention Rights with “ratable
vest” over two-years for all employees
other than the MD/CEO whose vesting
period is a three-year “cliff vest”
No Gate Condition but vesting levels
capped if negative LNGL TSR
No Gate Condition but vesting levels
capped if negative LNGL TSR
1 The fiscal 2018 program reflects anticipated compensation arrangements as contemplated at July 1, 2017
In addition, the Company maintains KMP share ownership (SOG) guidelines. Applicable SOGs follow.
Role
Minimum Ownership
Holding Requirement
CEO
5x Base Pay
COO, General Counsel, CFO
and CDO
2.5x Base Pay
Other executive officers
designated by the
Compensation Committee
2.5x Base Pay
NEDs
3x annual Board cash retainer
Each executive officer must retain
75% of all net shares (post tax) that
vest under the LTI plan until the
ownership
share
minimum
requirements
achieved.
Guidelines are expected to be met by
June 30, 2023.
are
If the executive officer is promoted to
a position that has a higher ownership
requirement, the higher standard shall
apply as of the date of promotion.
Timing of attaining the guidelines are
dependent on the individual situation.
Guidelines are expected to be met by
June 30, 2021.
Executive KMP remuneration structure and instruments
Executive remuneration arrangements are designed to strike an appropriate balance between fixed and variable
components. ‘At risk’ incentive awards, consisting of annual performance-based cash payments and long-term
equity-based issues, are designed to promote alignment between employees and LNGL’s shareholders.
The mix of fixed and variable remuneration is designed to ensure alignment between executive performance,
LNGL’s business strategy, and long-term shareholder wealth creation. The remuneration mix varies between
employee KMP depending on an individual’s role and responsibilities.
The following table provides a summary of the Company’s remuneration structure (applying to executive KMP)
and the integration of each component.
29
Remuneration component
How determined?
When paid?
Fixed remuneration
STI award
n
o
i
t
a
r
e
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a
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r
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LTI award
Performance Rights
milestone-based
LTI award
Performance Rights
MATSR-based
LTI award Retention
Rights
Fixed remuneration is based on the scope of the
individual’s role and his/her level of knowledge,
skill, and relevant experience. Fixed remuneration
levels are reviewed annually. The Compensation
Committee uses external consultants to gain insight
into regional market remuneration data in support
of its annual review of KMP fixed remuneration.
STI payments are paid at the Board’s discretion and
are determined based upon delivery of a
combination of corporate and individual goals.
Target and stretch percentages and relative
weightings used in determining individual STI
percentages derived from achievement of corporate
and individual goals are role level specific.
Corporate goals (applicable to all employees STI
annual plans) and all executive KMP goals
(corporate and individual) are Board approved,
typically at the beginning of each annual
measurement period.
LTI Award issues are equity-based and measured
over a period of sufficient length to promote
sustained performance to align with shareholder
interests.
Performance Rights are either milestone-based or
MATSR-based.
Milestone-based Performance Rights have binary
outcomes, meaning the applicable rights either vest
or not in the measurement period dependent on
realization of the specific milestone.
MATSR-based Performance Rights assess the total
shareholder return performance of LNGL shares
relative to that of the XAOAI over the applicable
measurement period, vesting on a sliding scale
dependent on the relative returns.
LTI award other
Incentive Rights
instruments
Retention Rights are service time-based incentive
rights, vesting over a stated period of continuous
employment. These are used primarily for
employee retention purposes.
Ratably throughout
each fiscal year.
Paid annually on a
calendar year basis,
typically in January for
the prior calendar
year’s performance.
Performance Rights
are issued annually on
a fiscal year basis, with
a minimum 3-year
measurement period
and are cliff vesting.
Retention Rights vest
over continuous
employment during
the specified service
period with issues
made on a fiscal basis.
The Company’s Incentive Rights Plan provides
flexibility for issue of other types of equity-based
instruments but none are outstanding at this time.
Perquisites
Specific by individual KMP and are approved by the
Board.
Per the specific
arrangement
i
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p
a
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y
-
w
d
e
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The Board of Directors retain discretion to increase or decrease the level of award or vesting (irrespective of
Vesting Conditions being achieved or not) under both the STI and LTI plan documents
30
Responses to shareholder and governance adviser feedback
The Board welcomes dialogue with investors around LNGL’s remuneration framework. Responses to feedback
from the 2016 Annual Report, Annual General Meeting, and shareholder discussions follows.
Feedback
Response
The relative TSR measure has index
concentration concerns and the
vesting mechanics introduce risk.
There is potential payout of MATSR
despite negative absolute TSR.
There is elimination of achievement
of strategic milestones as a basis for
LTI awards; conversely, only non-
financial milestones impact STI
awards.
Adjustments to the focus and
quantum of remuneration have
continued to be made to align to the
US market, despite a 2015 vote
against the remuneration report.
The Board believes that a tranche of the LTI being linked with share
price performance helps align management and shareholder
interests. Given that LNGL straddles the resource and utility sectors
on the ASX, and the fact that LNGL is a pre-revenue development
company versus an operational company, there is no statistically
robust ASX-listed comparator group. The Board considers that the
best compromise is to use MATSR, with the index being the ASX All
Ordinaries Accumulation Index.
Regarding a negative absolute TSR, the Board will apply its
discretion to ensure alignment between LTI and shareholder
outcomes. Given that LNGL’s stock is thinly traded and factors
beyond performance can have a significant impact on LNGL’s share
price (such as a major shareholder selling some of its holdings) the
Board believes the best approach to determine vesting in the
context of positive MATSR performance combined with a negative
absolute TSR is to evaluate circumstances at the end of the
performance period in determining whether to exercise its negative
discretion to reduce the value of the awards.
At this stage of Company maturity, outcomes relative to the
strategic milestones directly correlate in changes to financial
metrics. If the milestones are met, the financial metrics improve; if
the milestones go unmet then financial metrics likely weaken. The
Board believes that at this lifecycle stage, combining milestone
metrics with financial metrics in defining the Vesting Conditions for
an LTI tranche has the potential for an unintended leveraging effect
on payout if the strategic milestones are met; conversely, payout
may be punitive if the strategic milestones remain unmet. Likewise,
the Board believes it inappropriate to have combined milestone and
financial targets for the STI program now for similar reasons.
Consistent with these concerns, the Board chose to apply only
market-based financial metrics in the determination of MATSR LTI
awards and milestone metrics in the determination of STI awards.
The Board believes this approach best aligns the remuneration
framework with shareholder interests.
About 80 percent of the Company’s workforce is U.S-sourced,
including 100 percent of the executive KMP. During 2017, the
Company exited its Australia project and is currently assessing a
change in domicile to the U.S. These factors have significantly
influenced the Compensation Committee’s decisions regarding
remuneration framework design.
The introduction of Retention Rights
as a material component of LTI.
Please refer to the following section for the Compensation
Committee’s rationale regarding this issue.
Executive pay relative to
performance, particularly in 2016 STI
payout
Please refer to the following section for the Compensation
Committee’s rationale regarding this issue
31
Excessive remuneration to Non-
Executive Directors (NED), which
includes the issue of rights.
Relatively high level of non-audit fees
to auditor
Please refer to the following section for the Compensation
Committee’s rationale regarding this issue.
E&Y is used for non-audit services due to its familiarity with the
Company’s structure, operations, and strategy. Management
believes E&Y is best placed to provide efficient, timely, and cost-
effective counsel, which is a particularly important decision aspect
given the Company’s focus on liquidity management. Management
intends to broaden the use of other supporting consultants in the
future as the business strengthens financially. The Board supports
this decision.
Prospective adjustments to the remuneration framework
In reviewing KMP remuneration arrangements, the Compensation Committee implemented the following
changes in consultation with its outside consultant, Korn Ferry Hay Group:
•
•
•
Use of Retention Rights as a component of LTI and adjusting the vesting period for the 2018 Retention Rights
from a “cliff vest” three-year vesting period to vesting ratably (50/50) over a two-year period for issues
made to executive KMP other than LNGL’s Managing Director and Chief Executive Officer;
Increased executive STI target percentages to executive KMP other than LNGL’s Managing Director and
Chief Executive Officer; and
Reduced the cash component of NED pay by an incremental 10 percent, which is in addition to the nominal
20 percent cash reduction taken by these Directors in the previous year, the effect of which also reduces
the notional value of rights issued to the NEDs under the NED Rights Plan. The cash component reductions
over the past two years reduced Director cash fees by about 28 percent.
Rationale for the above changes made to the remuneration framework follows.
Use of service-based Retention Rights and associated vesting period
Use of service-based retention awards to promote retention of KMP is important to the Company as it executes
its business strategy through the current adverse industry market conditions. The Compensation Committee
views use of Retention Rights for a portion of the LTI remuneration framework as aligned with shareholder
interests. Fundamentally, Company KMP and other personnel deliver the milestones that, if successful, translate
into improved shareholder value. A loss of skilled and experienced KMP and other employees impact the
likelihood for milestone success and thus realization of an improving share price that benefits shareholders.
The Compensation Committee notes that remuneration practices in Australia discourage the use of service-
based stock awards as these can lead to misalignment with shareholder interests. While common practice in
Australia is for executives to purchase stock on the open market or defer bonus payments to acquire stock, these
approaches are not prevailing market practices to facilitate retention in the U.S. In LNGL’s case, the staff of LNGL
is about 80% U.S. sourced. In evaluating this issue, the Compensation Committee, with input from its
independent compensation consultant, considered that most U.S. public companies issue time-vested equity
awards to facilitate executive retention. Included in this list of evaluated U.S. public companies were Cheniere
Energy and more recently Tellurian, which are two of LNGL’s competitors on the U.S. Gulf Coast. The
Compensation Committee also observed that stock ownership among LNGL’s executive KMP was low for many
executives who have performed services for LNGL for several years due to low vesting in prior LTI issues.
In evaluating fiscal 2018 retention award issues the Compensation Committee desired to increase executive
KMP stock holdings on an accelerated timeframe to provide executives with exposure to share holdings as the
Company executes on its strategic objectives during a challenging market environment, aligning those
executives’ economic interests with LGNL’s shareholders. Given the continuing weak market conditions in the
LNG industry, which hamper efforts to sign offtake contracts, the Compensation Committee desired to maximize
the retention impact of its 2018 time-vested awards for executive KMP.
The Compensation Committee further determined that LNGL’s Managing Director and Chief Executive Officer,
who joined the Company in 2016, does not have low stock holdings relative to his tenure and that the existing
LTI design adequately balances performance and retention for the Managing Director and Chief Executive
Officer. For these reasons, the 2018 vesting period for most personnel is over two-years with shares vesting
32
ratably (50% in June 2018 and 50% in June 2019) while vesting for the Managing Director and Chief Executive
Officer’s 2018 Retention Rights vesting period is a “cliff vest” over three-years (June 2020).
Executive STI targets
The Board received comments regarding the STI metrics prior to fiscal 2016 including LNGL’s share price (and
executive KMP benefitted from increasing share prices under the plan) while the 2016 STI did not include stock
price in a year in which LNGL’s share price decreased. In designing the STI plan for fiscal 2017 and 2018, the
Compensation Committee continued to exclude LNGL’s share price as a metric notwithstanding the potential for
a share price increase as market conditions improve. As the Compensation Committee evaluated STI design and
the evolution of the design it determined that one-year share price targets could potentially incentivize
executive KMP to increase share price through short-term actions that may not necessarily align with long-term
value creation. In contrast the LTI plan metrics have evolved to focus on share-price metrics (MATSR).
In view of U.S. market compensation trends and through consultation with its independent compensation
adviser, the Compensation Committee increased executive KMP target STI awards for 2018 (as contemplated at
July 1, 2017) as follows:
Managing Director and Chief Executive Officer – no change, remaining at a target of 60 percent of base
Chief Operating Officer – 40 percent increase, to a target of 35 percent of base
General Counsel and Joint Company Secretary – 20 percent increase, to a target of 30 percent of base
Chief Financial Officer – 20 percent increase, to a target of 30 percent of base
Chief Development Officer – 20 percent increase, to a target of 30 percent of base
The Board assesses KMP performance for STI payment purposes based on the achievement of the agreed
milestones for the year and individual contributions. The Board retains discretion on the value of STI awards
paid to Company personnel including the KMP.
In making these adjustments, the Compensation Committee considered that LNGL’s target bonus targets as a
percentage of base salary for executive KMP are generally below market and LTI issues are currently below
market given LNGL’s low share price. The adjustments to the target STI awards is intended to increase the
weighting of executive KMP compensation toward variable (at-risk) compensation, in line with U.S. pay practices.
NED compensation levels
In support of the Company’s liquidity management plan, NED cash fees were reduced a further 10 percent from
the previous year. This reduction is on top of the nominal 20 percent reduction taken by the NEDs in the previous
year. A reduction in cash compensation also reduces the quantum of rights issued under the NED Rights Plan as
such allocation is determined as a percentage of base cash retainer.
Company and industry context
A thorough discussion of Company and industry context are contained in the Chairman’s Letter and Managing
Director and Chief Executive Officer Report, respectively.
Remuneration policies and practices impacting KMP remuneration
Remuneration and Clawback Policies
KMP remuneration is reviewed annually in the context of individual and business performance, and relevant
comparative information.
LNGL’s Remuneration Policy aims to fairly and responsibly award employees consistent with market conditions
ensuring that the Company:
•
•
•
•
Provides competitive rewards that attract, motivate, and retain employees of the highest caliber;
Sets demanding levels of performance which are clearly linked to each individual’s remuneration;
Structures remuneration at a level that reflects each individual’s duties and accountabilities;
Benchmarks remuneration against appropriate comparator groups;
33
•
•
Aligns incentive rewards with the creation of value for shareholders; and
Complies with applicable legal requirements and appropriate standards of governance.
LNGL maintains a clawback policy that is applicable to incentive compensation received by KMP in the event of
gross misconduct or in connection with an accounting restatement due to material non-compliance with any
financial reporting requirements or material erroneous data. LNGL’s Clawback Policy is intended to satisfy the
requirements of Principle 8 of ASX Corporate Governance Council’s Principles and Recommendations on
Australia, as well as Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
Section 304 of the Sarbanes-Oxley Act of 2002 in the US.
A copy of these policies may be found on LNGL’s website at www.lnglimited.com.au.
KMP during the reporting periods
Name
Title
Fiscal 2017
Fiscal 2016
Non-Executive Director Key Management Personnel
Paul J. Cavicchi
Richard J. Beresford
Leeanne K. Bond
Philip D. Moeller
D. Michael Steuert
Chairman
NED
NED
NED
NED
Executive Key Management Personnel
Gregory M. Vesey
Managing Director & Chief Executive Officer
John Baguley 1
Chief Operating Officer
Kinga Doris
General Counsel & Joint Company Secretary
X
X
X
X
X
X
X
X
X
X
X
X
X
From Dec 7 2015
X
From Apr 4 2016
X
From Sep 1 2015
X
From Dec 1 2015
Michael R. Mott
Anthony Gelotti 2
F. Maurice Brand 3
Chief Financial Officer
Chief Development Officer
Executive Director
To Jul 29 2016
X
1 Mr. Baguley was promoted to Chief Operating Officer in June 2017. He was formerly Chief Technical Officer for LNGL
2 Mr. Gelotti left the Company in July 2017 and ceased his role as an executive KMP effective July 1, 2017.
3 Mr. Brand was the founder and former Managing Director and Chief Executive Officer of LNGL. He voluntarily stepped down from his role
with the Board on 29 July 2016.
X – Individual was a KMP during the entire applicable 12-month fiscal period.
Parameters and weighting of fixed and variable executive KMP remuneration
The following set of charts and graphs provide insight into the parameters and comparable weightings of fixed
and variable remuneration targets for executive KMP. Such information provides insight into the Compensation
Committee’s approach to aligning KMP remuneration with shareholder interests.
Applying target incentive remuneration percentages in each fiscal period, target relative percentage weighting
of fixed to variable remuneration for LNGL’s executive KMP in each period follows.
34
Fiscal
Year 1
Percentage % 2
10 20 30 40 50 60 70 80 90 100
Managing Director and Chief Executive Officer
2018
Other executive KMP, weighted average
2017
2016
2018
2017
2016
32%
32%
50%
43%
46%
68%
68%
50%
57%
54%
63%
37%
Fixed remuneration
Variable remuneration
1 The 2018 fiscal year information is forecasted based on current Board approvals and consideration
2 Percentages are based on annualized pay and effective target incentive compensation in each period
Target and stretch percentages for executive KMP under applicable STI and LTI plans in the designated fiscal
periods follow.
Managing Director and Chief Executive Officer
Other executive KMP, in aggregate average 2
Fiscal
Year of
Award 1
2018
2017
2016
2018
2017
2016
STI Plan
LTI Plan
Target
Stretch
Target
Stretch
60%
60%
25%
30 - 35%
25%
120%
120%
50%
50%
50%
150%
150%
75%
100%
75 - 100%
20 - 25%
40 - 50%
0 - 75%
n/a
n/a
150%
n/a
n/a
n/a
1 The 2018 fiscal year information is forecasted based on current Board approvals and consideration
2 In certain periods, KMP were ineligible for incentive awards under plan rules due to individual employment start dates
In all reporting periods, LTI issues under the shareholder approved Incentive Rights Plan made to all employees
(including executive KMP) consisted of differing instrument types. The following chart reflects the theoretical
incentive issues at target level made in each year allocated to each instrument type.
Incentive Rights Plan Instrument Types Issued at Target Levels
Fiscal Year 1
Milestone-Based Rights
MATSR-Based Rights
Retention Rights
2018
2017
2016
0%
0%
50%
60%
60%
50%
40%
40%
0%
1 The 2018 fiscal year information reflects the 2018 issue year Incentive Rights invitation letter
Subject to Rule 14.2 of the Incentive Rights Plan, the Board may in its absolute discretion increase or decrease
the level of vesting irrespective of performance in relation to a Vesting Condition.
LTI Vesting Conditions applicable to all Performance Rights issued in the periods (including those issued to
executive KMP) follows.
MATSR-based LTI issuances
MATSR-based Performance Rights will partially or fully vest if the Company’s total shareholder return (TSR) is
equal to or greater than 100% of the MATSR of the XAOAI during the Measurement Period, computed by dividing
LNGL’s TSR by XAOAI’s TSR. The fiscal 2018 and fiscal 2017 MATSR-based issuances utilized the same vesting
criteria as follows.
35
Fiscal 2018 and 2017 MATSR-based Performance Rights
LNGL TSR relative to XAOAI TSR 1
Fiscal Year 2018 2
Fiscal Year 2017
Measurement Period
Less than 100%
Threshold vesting – 100% (LNGL’s and XAOAI’s TSR
percentages are equal)
Jul ‘17 – Jun ‘20
Jul ‘16 – Jun ‘19
0%
25%
0%
25%
>100% < 200% (LNGL’s TSR percentage is > than XAOAI but
less than double)
Linear
Interpolation
Linear Interpolation
Target vesting – 200% or greater (LNGL’s TSR percentage is
more than double)
100%
100%
1 If TSR is less than 0%, the Performance Right payout will be the lower of the linear interpolation calculation amount or 50% of the maximum
award amount
2 The 2018 fiscal year information reflects to 2018 issue year Incentive Rights invitation letter
The fiscal 2018 and 2017 MATSR-based Performance Rights will partially or fully vest as outlined in the chart
below. These issuances were made at prices of $0.59/share and $0.87/share, respectively. Under these LTI
tranches, if TSR during the Measurement Period is negative (below 0%), the Performance Right payout will be
the lower of the linear interpolation calculation amount or capped at 50% of the maximum award amount.
The fiscal 2016 MATSR-based issuance applies the following vesting criteria.
Fiscal 2016 MATSR-based Performance Rights
LNGL TSR relative to XAOAI TSR
Measurement Period
Less than or equal to 100%
Threshold vesting – above 100% but below 150%
Target vesting – 150%
Target vesting – from 150% to but below 200%
Stretch – 200% of more
Fiscal Year 2016
Jul ‘15 – Jun ‘18
0%
Pro rata 0% up to
50%
50%
Pro rata 50% to
100%
100%
The fiscal 2016 MATSR-based Performance Rights issues included a Gate Condition requiring LNGL’s TSR over
the measurement period to be greater than nil. The price at date of issuance for the fiscal 2016 MATSR-based
Performance Rights was $3.99/share, which established a floor price for assessing TSR for this issue tranche. If
at the measurement date, LNGL’s share price is less than the $3.99/share price, no rights shall vest regardless of
the LNGL TSR performance relative to the XAOAI TSR during the applicable measurement period.
Vesting of the fiscal 2016 milestone-based Performance Rights is challenged. LNGL must procure sufficient
investment-grade offtake and financially close the listed projects within the above timelines to enable a vesting
decision by the Board under the fiscal 2016 milestone Performance Rights issuance. The challenge to realizing
these milestones reflects the current over supply of LNG in the global market-place, among other factors.
Retention Rights LTI issuances
The Compensation Committee implemented the use of Retention Rights as a component of the LTI program in
the last two tranche issuances (2018 and 2017).
36
Fiscal Year 1
Measurement Period
Vesting terms
Retention Rights
2018
Not applicable
2017
Not applicable
Two-year vesting period realized ratably applicable to most
employees, meaning that 50% of the Retention Rights vest at
June 30, 2018 and the remaining 50% of the Retention Rights vest
at June 30, 2019. The MD/CEO Retention Rights issuance has a
vesting period of three-years with a “cliff vest” meaning the
Retention Rights vest only if the individual remains in service with
the Company at the end June 2019.
Three-year “cliff vest” for all employees, generally meaning that
the Retention Rights vest only if the employee remains in service
with the Company at the end June 2019
2016
Not applicable
Not applicable
1 The 2018 fiscal year information reflects the 2018 issue year Incentive Rights invitation letter
Milestone-based LTI issuances
Milestone-based targets in recent LTI tranche issuances follows.
Milestone-based Performance Rights
Fiscal Year 1
Measurement Period
Milestone(s)
2018
2017
Not applicable
Not applicable
Not applicable
Not applicable
2016
1 Jul 2015 – 30 Jun 2018
Financial close of BHLNG (or a project of at least the same
potential value to the Company) achieved during the
Measurement Period; and
Determination by the Board, in its reasonable opinion, that
financial close of MLNG (or a project of at least the same
potential value to the Company) has been achieved within the
Measurement Period
1 The 2018 fiscal year information reflects the 2017 issue year Incentive Rights invitation letter
To ensure sufficient allocable shares are reserved from the share pool under the applicable shareholder
approved Incentive Rights Plan if vesting at stretch is realized, actual issues in each year by instrument type were
as follows. The increased percentage in MATSR-based incentive rights issued in fiscal 2016 over the theoretical
target level of 50% milestone-based and 50% MATSR-based reflect the issuing of the MATSR rights at a stretch
level to reserve available pool shares should vesting at stretch occur.
Incentive Rights Plan Instrument Types Actually Issued
Fiscal Year 1
Milestone-Based Rights
MATSR-Based Rights
Retention Rights
2018
2017
2016
0%
0%
33%
60%
60%
67%
40%
40%
0%
1 The 2018 fiscal year information reflects the 2018 issue year Incentive Rights invitation letter
Historical issuances and vesting outcomes
During fiscal 2015, LNG made two issuances of Performance Rights, each with a milestone-based component
and a MATSR-based component. One of the issuances was made in relation to the LTI that was intended to be
issued during the fiscal 2014 period as part of fiscal 2014 remuneration following approval of the Incentive Rights
37
Plan by shareholders at the 2013 AGM. The Board determined that the measurement period should start on
January 1, 2014 so as not to unfairly disadvantage employees. The second issuance applied to fiscal 2015
remuneration, having an issuance date effective July 1, 2014.
The measurement date associated with the Performance Rights for the fiscal 2015 remuneration program ended
on June 30, 2017. All rights (2,532,823 Performance Rights) lapsed un-vested on this date.
The Measurement Date issue applicable to the fiscal 2014 period ended on June 30, 2016. Under terms of this
issuance, the milestone-based Performance Rights did not vest as the target milestone (MLNG financial close)
was not met, but the MATSR-based Performance Rights (having an issue day price of $0.3048) did vest at stretch,
conferring entitlement of a total 6,245,402 Performance Rights into 6,224,720 LNGL common shares to the
eligible employees. Of this amount, executive KMP identified in the fiscal 2014 period (all Australian-based
employees) were conferred entitlement to a total of 3,430,946 Performance Rights or 3,425,420 LNGL common
shares.
Details of the executive KMP STI plan
Aspect
Measurement
period
Award
opportunities
Key performance
indicators (KPIs),
weighting and
performance goals
Award assessment
and payment
Description
Calendar year (1 January to 31 December)
Award opportunities are based on percentages of individual Base Pay, annually
approved by the Board in response to Compensation Committee recommendations
Typically, at or near the beginning of each Measurement Period, the Board approves
the content of all executive KMP scorecards, determining such content is consistent
with LNGL’s then current strategy and business objectives, and which assigned
individuals carry direct control or influence over; thus, linking individual scorecards to
shareholder interests
KPIs relate to attainment of specific scorecard goals, providing a mix of corporate
performance targets, and individual goals including business plan, health and safety,
organizational, and people and culture targets
Percentage weightings are assigned to each goal for each individual participant,
emphasizing the relative importance of each KPI area commensurate with the
individuals’ role and accountabilities
include a mix of project-related development tasks,
KPIs typically
including
commercial negotiations, opportunity identification, approvals and permitting goals,
contracting, and project funding milestones
The Board determines the level of the annual STI payment made to the Managing
Director and Chief Executive Officer, and approves the level of STI payments made to
the other executive KMPs and employees
Annual STI payments are typically determined at the end of the Measurement Period
Payments are provided in the form of cash, unless otherwise determined by the Board
Board discretion
The Board retains discretion to increase or decrease the level of award under the STI
plan documents
Cessation of
employment during
a Measurement
Period
In general, employees must remain employed by the Company to the date STI
payments are made to receive such payment
Employees dismissed for cause receive no STI payment in the period of termination
Cessation of employment due to resignation forfeits an individual’s right to an STI
payment in the period of resignation
38
Details of the executive KMP LTI plan
Aspect
Description
The Incentive Rights Plan Rules specify that Incentive Rights will be either:
▪ Performance Rights, which vest subject to the satisfaction of conditions related to
performance
▪ Retention Rights, which vest subject to continuous employment
Form of rights
▪ Other instrument types
Upon vesting, an Incentive Right confers an entitlement to the value of an LNGL
ordinary share
Without the approval of the Board, Incentive Rights may not be sold, transferred,
mortgaged, charged or otherwise dealt with or encumbered
The Board retains discretion to determine the value of LTI to be offered each year
pursuant to overall available Rights for issuance as approved by shareholders
Determined by the Board and provided / specified in the applicable Invitation Letter
LTI value
Measurement
period
The Board has discretion to set vesting conditions for each offer
Performance Rights
vesting conditions
The Board retains discretion to modify LTI vesting outcomes when it is determined
that awards vesting is inconsistent with shareholder outcomes and Company
performance over the Measurement Period
Performance Rights that do not vest lapse
The Board has discretion to set vesting conditions for each offer
Retention Rights
vesting conditions
Retention rights will vest in full if the employee remains actively employed on the last
date of the measurement period
The Board retains discretion to modify LTI vesting outcomes
Re-testing
The practice of re-testing is not permitted; LTI issues that do not satisfy the vesting
conditions at the end of the measurement period lapse
Exercise of vested
Incentive Rights
Vested shares received under the Incentive Rights Plan may be exercised, subject to
full compliance with LNGL’s Securities Trading Policy
KMP retention
periods
The Board has discretion by notice in a Rights Invitation to require a Participant to hold
any Shares issued under the Plan for a specified period beyond the vesting date
Cessation of
employment
If the employment of a participant ceases due to termination for Cause or Resignation
all Unvested Incentive Rights lapse
If the employment of a Participant ceases due to termination Without Cause the
Unvested Incentive Rights are subject to the following:
(a) All Unvested Retention Rights, if any, issued to the Participant shall vest pro-rata;
(b) All Unvested milestone-based Performance Rights will be determined based on
whether the milestones were met prior to termination; and
(c) All Unvested Performance Rights based on TSR or MATSR shall lapse
Change-of-control
All Unvested Incentive Rights issued under the Plan shall, subject to certain conditions,
immediately vest upon a change of control. The Board may in its absolute discretion
remove any dealing restrictions regarding the sell or transfer of Incentive Rights
39
Company performance
The following table summarizes LNGL’s leading financial performance and shareholder value metrics over the
most recent five financial years.
Change in
shareholder value
over I year
Change in
shareholder value
over 3 years
Date
Revenue
Development
Expenditures After-tax loss
Share
price at
June 30
Share price
change
Dividends
Amount
%
Amount
%
$ in thousands, except share prices, dividends and percentages
30 Jun ‘17
$
367
$
12,423
$
(29,312) $ 0.56
$
(0.16)
$
---
$
(0.16)
(22)%
$ (1.58)
(78)%
30 Jun ‘16
30 Jun ‘15
30 Jun ‘14
30 Jun ‘13
569
668
275
190
89,289
(115,112)
71,885
(86,307)
20,099
(24,665)
5,873
(13,407)
0.72
3.81
2.14
0.12
(3.09)
1.67
2.02
(0.21)
---
---
---
---
(3.09)
(81)%
0.60
500%
1.67
78%
3.49
1072%
2.02
1683%
1.79
511%
(0.21)
(63)%
(0.19)
(61)%
For discussion of these results, please refer to the Managing Director and Chief Executive Report and the audited
financial statements contained elsewhere in this annual report.
Links between performance and reward
Annually, the Board approves goals, milestones, and targets for the Managing Director and Chief Executive
Officer, and reviews the goals, milestones, and targets of the other executive KMP. The Board assesses these
based on the then current status of the enterprise and strategic business plans of the Company. Most of these
goals, milestones, and targets in fiscal 2017 (and 2016), respectively, focused on ‘development stage’ activities
reflecting the Company’s current business stage. The other executive KMP scorecards align with the Managing
Director and Chief Executive Officer’s goals, milestones, and targets, adjusted to reflect each individual KMP’s
direct control or influence over each of the specific goals, milestones, and targets. This process aims to link each
executive KMP scorecard to shareholder interests.
The following is the agreed scorecard and weightings for the Managing Director and Chief Executive Officer for
calendar year 2018, which scorecard shall be used to assess performance relative to fiscal 2018 STI payments.
Performance Measure
Business (80%)
Governance (5%)
2018 Scorecard 1
•
•
•
•
•
Signing of 4 MTPA in binding offtake agreements with an investment grade
counterparty for MLNG (50%)
–
Stretch - Signing 8 MTPA
Consistent with the level of offtake marketing success, develop a firm
commitment for the next capital infusion to support LNGL through 2021
(30%)
–
Stretch – Bring in new funding of at least $100 million
Develop a comprehensive Takeover Defense Plan
Ensure the company operates in compliance with all laws and regulations
Support the efforts of the Board Governance and Audit Committees
Health and safety (10%)
• Operate the company safely with no recordable injuries or lost-time
incidents
•
Support the efforts of the Board Safety, Sustainability People & Culture
Committee
40
People and culture (5%)
•
•
•
•
Implement changes to Commercial Team and improve overall function
Assess implementing actions for the closure of the Perth office by year-end
Develop and implement a successful retention plan for staff
Support the efforts of the Board Compensation Committee
1 The 2018 fiscal year information is forecasted based on current Board approvals and consideration
The Managing Director and Chief Executive Officer’s fiscal 2017 scorecard and weightings follows; which
scorecard was used to assess performance relative to fiscal 2017 STI payments.
Performance Measure
Business (80%)
2017 Scorecard
•
•
•
•
Signing offtake agreement(s) with investment-grade counterparties
Obtain all remaining permitting for MLNG and BHLNG
Select a BHLNG gas path and progress agreement to the Board’s
satisfaction for approximately 5 mtpa
Achieve financial cost reduction
Organizational (5%)
Establish and implement the Corporate Leadership Team, develop charter and
begin functioning as the main operating committee of the Company
Health and safety (10%)
Operate the Company safely with no recordable injuries or lost-time incident
People and culture (5%)
Implement a simplified organization structure with relevant personnel changes
The Board assessed 2017 KMP performance as meeting most of the agreed goals, milestones, and targets, with
the significant exception being the signing of offtake agreements. Due to the importance of offtake sales, the
Board once again emphasized this milestone in the fiscal 2018 goals. Clearly, KMP’s focus is on selling offtake
capacity to enable progress to financial close and construction of its projects. The current LNG business
environment is having a negative impact on realization of this key deliverable.
The Managing Director and Chief Executive Officer’s calendar year 2016 scorecard and weightings follows; which
scorecard was used to assess performance relative to fiscal 2016 STI payments.
Performance Measure
Business (55%)
Organizational (25%)
Health and safety (10%)
People and culture (10%)
2016 Scorecard
Approval, permitting, contracting and opportunity targets in relation to
Magnolia LNG, Bear Head LNG and LNG International
Progress corporate restructuring of the LNGL Group and succession planning,
identification and appointment of Magnolia LNG President, establishment and
Board approval for LNG Technology Business Plan, and the execution of a
strategic alliance with a global EPC contractor
Establish top down emphasis of HSSE within LNG and its contractor
relationships, and the introduction and institutionalization of the HSSE
management framework to establish LNG’s approach and expectations
regarding health, safety, security and environment
Setting and monitoring of KPIs for executive KMP based upon individual
performance and contributions, continuous improvement of communication
between senior management and the board, implementation and continuous
improvement of internal systems and risk reporting mechanisms, demonstration
of support and adherence to executive behavioral objectives, and continued
compliance with ASX Listing Rules and ASIC regulatory obligations
The Board assessed 2016 KMP performance as meeting or exceeding most of the agreed goals, milestones, and
targets, with the significant exception being the signing of offtake agreements with investment-grade
counterparties in sufficient quantities to take a FID on any of the Company’s projects. Realization of required
41
permits to site, construct, and operate both MLNG and BHLNG, receiving NEB and DOE approval for export to
Non-FTA countries from BHLNG, and the execution of a LSTK EPC contract with KSJV were viewed as significant
positive accomplishments in the period.
Failure to deliver the commercial offtake agreements weighed down LNGL’s share price, which underperformed
in the period. The share price transitioned from a high of $4.08/share in July 2015 to a low of A$0.47/share,
before closing at $0.72/share at 30 June 2016. Share performance was also negatively influenced by macro
factors impacting the energy industry in general and the LNG industry specifically. These factors were
considered by the Board in their deliberations of actual incentive compensation paid to executive KMP in the
period. The following chart reflects actual STI and LTI issued to executive KMP during each applicable period.
Actual ‘At Risk’ Incentive Remuneration Percentages Relative to Executive KMP Base Pay
STI Payments 1
LTI Issues 2
Fiscal year
2018
2017
2016
2018
2017
2016
Payment or issue date
Managing Director and Chief Executive Officer3
Other executive KMP, weighted average
Jan
2019
---
---
Jan
2017
25%
19%
Dec
2015
Jul
2017
Jul
2016
Jul
2015
39%
149%
117%
66%
21%
90%
72%
75%
1 STI payments are discretionary. The measurement date for STI is a calendar year and the Compensation Committee shall make a
recommendation to the Board regarding fiscal 2018 payments at the end of calendar year 2017. In certain periods, STI paid to KMP were
pro-rated under plan rules due to individual employment start dates
2 The LTI percentages are computed as the total fair value of rights issued in the year (priced as at invitation letter date) divided by KMP
Base pay. In certain periods, KMP were ineligible for LTI awards under plan rules due to individual employment start dates.
3 The 2018 LTI issue to the MD & CEO is estimated based on the proposed rights issuance allocation. Issuance is expected in December 2017
following the November AGM.
Because of these actual STI and LTI awards and salaries paid in the respective periods, the actual relative
percentage weighting of fixed to variable remuneration for LNGL’s executive KMP follows.
Fiscal
Year 1
2017
2016
2017
2016
Percentage % 2
10 20 30 40 50 60 70 80 90 100
36%
64%
54%
48%
52%
46%
52%
48%
Managing Director and Chief Executive Officer
Other executive KMP, weighted average
Fixed remuneration
Variable remuneration
1 Forecasted 2018 information is not reflected as actual STI and salary is unknown
2 Percentages are based on actual pay, actual STI and, in the case of LTI, amounts computed as the total fair value of rights issued in the year
(as at invitation letter date) in each applicable period
The following table discloses the value of LTI incentives issued to executive KMP in fiscal 2018, 2017, and 2016,
respectively, accompanied by estimates of related current and future period accounting expense.
Tranche
Managing Director and Chief Executive officer 1
Estimated value
at issue date 3
Fiscal 2017
accounting
expense
Max value to be
expensed in
future years
Fiscal 2018 MATSR
Fiscal 2018 Retention
Estimated fiscal 2018 issuance
$
$
$
158,400
406,400
564,800
---
---
---
$
$
434,002
289,335
723,337
42
Fiscal 2017 MATSR
Fiscal 2017 Retention
Fiscal 2016 MATSR
Fiscal 2016 Retention
Fiscal 2015 MATSR
Fiscal 2015 Milestone
Total as at June 30, 2017
Other Executive KMP in aggregate 2
Fiscal 2018 MATSR
Fiscal 2018 Retention
Estimated fiscal 2018 issuance
Fiscal 2017 MATSR
Fiscal 2017 Retention
Fiscal 2016 MATSR
Fiscal 2016 Milestone
Fiscal 2015 MATSR
Fiscal 2015 Milestone
Total as at June 30, 2017
$
$
$
$
$
$
$
$
$
152,640
380,800
---
---
---
---
533,440
277,200
711,200
988,400
233,280 $
595,200
937,229
611,627
485,718
303,574
3,166,628
$
47,817
119,291
---
---
---
---
167,108
---
---
---
73,078
186,455
312,410
203,876
183,650
(188,793)
770,676
$
$
$
$
$
$
104,823
261,509
---
---
---
---
366,332
512,306
171,981
684,287
160,202
408,745
312,410
203,874
---
---
1,085,231
1 Effective 4 April 2016, Mr. Vesey replaced Mr. Brand as MD & CEO. Mr. Vesey did not receive a Rights issue in fiscal 2016. The 2018 MD
& CEO value applies to Mr. Vesey and is an estimate pending issuance following the November 2017 AGM and is valued at the expected
issuance price for this purpose.
2 Other Executive KMP reflect LTI issues associated with each designated KMP as at the date of each respective issue. Fiscal 2015 amounts
reflect Rights issued to Mr Baguley. Fiscal 2016 amounts reflect issues made to Mr. Mott and Mr. Baguley (Ms. Doris and Mr. Gelotti
received zero issues in fiscal 2016). Fiscal 2017 amounts reflect issues to Mr. Mott, Mr. Baguley, Ms. Doris and Mr. Gelotti, respectively.
Mr Gelotti left the company in July 2017 and was no longer a KMP at July 1, 2017. The Fiscal 2017 expense reflects the adjustments
associated with Mr Gelotti’s departure. The fiscal 2018 amounts reflect Rights issued Mr Baguley, Mr Mott, and Ms Doris and are valued
at the Rights issuance price for this purpose.
3 Amounts are based on shares issued and generally on prices as at the invitation letter date for each applicable tranche.
Summary of contractual provisions for executive KMP
The following table outlines contractual provisions for current executive KMP.
Current KMP Contractual Provisions
Name
Role
Base Salary in
Denomination
of Contract
Base Salary in
Australian
Dollars 1
Contract
Duration5
Contractual
Severance
Period
Notice Period
Gregory M Vesey
John Baguley 4
Kinga Doris
MD &
CEO
COO
General
Counsel
$ 635,000 $ 846,667
Evergreen
12 months
12 months 3
430,000
335,012
573,333
1 Dec 2018
90 days
446,683
31 Aug 2018
90 days
90 days
90 days
CFO
411,690
548,920
Michael R Mott
1 All US-denominated balances are translated at 0.75/1.
2 Primary term
3 Following primary term
4 Upon financial close of MLNG, Mr. Baguley’s base salary increases to US$500,000. Mr. Baguley previously held the role of Chief Technical
Officer and was promoted to Chief Operating Officer in June 2017.
5 Pursuant to contract terms, the contract renews automatically annually unless the Company provides notice of termination. Such term
has been defined herein as ‘Evergreen’
12 months
Evergreen
90 days
43
Executive KMP remuneration
The following table provides a detailed breakdown of the components of actual remuneration received for each of the executive KMP in the reporting periods calculated in
accordance with applicable accounting standards. All US-denominated balances are translated at 0.75/1.
Executive KMP Actual Remuneration in the Reporting Periods
Fixed remuneration
STI
LTI
Total remuneration
Fiscal
Year
Salary
Super-
annuation
contribution
Other
benefits
Amount % of TRP
Amount
% of TRP
Amount 5
% of TRP
Total
remuneration
package (TRP)
Termination
benefits
Change in
accrued
leave
2017 $ 846,667
$
---
$ 42,576 $ 889,243
69%
$
226,667
18%
$
167,108
13%
$
1,283,018
$
---
$
Name
Position
Gregory M Vesey
MD/CEO 1
2016
208,953
---
10,265
219,218
100%
F. Maurice Brand
Exec Director 1
2017
70,417
4,904
---
75,321
2016
817,309
35,000
57,839
910,148
John Baguley
COO 2
Kinga Doris
General Counsel 3
Michael R Mott
CFO
2017
549,937
2016
546,196
2017
435,441
2016
353,715
2017
548,920
2016
546,196
Anthony Gelotti6
CDO 4
2017
533,333
2016
313,162
---
---
---
---
---
---
---
---
32%
30%
61%
51%
74%
92%
53%
33,423
583,360
63,710
609,906
31,639
467,080
25,031
378,746
34,910
583,830
48,238
594,434 57%
163,045
35,278
568,611
78%
93,333
22,892
336,054
100%
---
---
---
162,185
0%
---
5%
---
160,509
1,942,998
123,467
13%
243,402
95,109
8%
482,094
95,467
15%
64,883
35,000
115,333
8%
11%
16%
13%
0%
---
397,507
273,801
64,833
---
0%
68%
65%
26%
41%
10%
0%
36%
27%
9%
0%
219,218
---
235,830
1,259,214
3,015,331
950,229
1,187,109
627,430
413,746
1,096,670
1,031,280
726,777
336,054
---
---
---
---
---
---
---
---
---
---
---
---
49,899
---
---
---
---
---
---
---
---
1 Effective 4 April 2016, Mr. Vesey replaced Mr. Brand as MD & CEO. At this date, Mr. Brand became an Executive Director, remaining as an executive KMP until his resignation in July 2016. Mr. Brand’s fiscal 2016
compensation was earned partly as MD & CEO and partly as an executive KMP. All amounts earned are reflected on the single line Executive Director. Mr. Brand stepped down from his role on 29 July 2016. Payments
made to Mr. Brand in fiscal 2017 reflect his settlement agreement upon his resignation. These payments are not reflected in this chart.
2 Mr. Baguley was promoted to Chief Operating Officer in June 2017. Mr. Baguley had previously performed the duties of the Chief Technical Officer
3 Ms. Doris was appointed General Counsel and Joint Company Secretary effective 1 September 2015, becoming an executive KMP from that date
4 Mr. Gelotti was appointed Chief Development Officer effective 1 December 2015, becoming an executive KMP from that date
5 LTI amounts contained in this chart reflect actual accounting expense in each fiscal year relating to each specific executive KMP
6 Mr. Gelotti left the Company in July 2017 and ceased his role as an executive KMP effective July 1, 2017
44
NED KMP remuneration design
NED remuneration is generally provided by way of fees and statutory superannuation, if applicable, within an
aggregate shareholder approved NED fee cap. Any proposed increase to the NED fee cap must be approved by
LNGL’s shareholders. NEDs are eligible to receive additional fees for participating or chairing Board committees
in recognition of the additional responsibility and workload in providing specialist advice to the Board.
As part of total remuneration, NEDs are eligible to receive awards under the rules of the LNGL NED Rights Plan,
which is approved by shareholders from time-to-time. Rights issued under the NED Rights Plan are service time-
based rights that do not carry any performance conditions to protect the independence of the NEDs.
In evaluating fiscal 2018 NED compensation structures, the Board, in consultation with its outside consultant
(Korn Ferry Hay Group), reduced their cash and equity retainers by 10 percent. This reduction in combination
with the 20 percent reduction in cash component taken in fiscal 2017 results in an overall 28% reduction in cash
fees over the two-year period. Australian-based NEDs are cash compensated in Australian dollars and US-based
NEDs are cash compensated in US dollars. All rights issuances are denominated based on Australian dollars.
NED Fee Structure 1
Component
Fiscal Year 2018 2
Fiscal Year 2017
Fiscal Year 2016
Base fee – Board chair
$
194,000
$
216,000
$
270,000
Base fee – NED
Committee fee – chair
Committee fee – member
Board Chair NED Rights value as % of fees 2
NEDs Rights value as % of fees 3
86,400
18,000
9,000
57.5%
80%
96,000
20,000
10,000
57.5%
80%
120,000
25,000
12,500
40%
48%
1 Base fee and Committee fees are denominated in the currency based on the domicile of the individual NED. The value of the NED Rights
issued are all denominated in Australian dollars assuming that the applicable reference cash amount (Base fee in 2018 and 2017 and total
fees in 2016) on which the applicable NED Right percentage is multiplied was in Australian dollars.
2 The fiscal 2018-year information is forecasted based on current Board approvals and consideration.
3 The fiscal 2018 Chairman’s target NED Rights value is equal to 57.5% of the Base fee, or a target of A$111,550. The fiscal 2017 Chairman’s
NED Rights value targeted A$124,000 or 57.5% of Base fees. Fiscal 2016 target amount was A$108,000 or 40% of total fees.
4 The fiscal 2018 NED Rights value (non-Chairman) are equal to 80% of the Base fee amount or a target of A$69,120. The fiscal 2016 NEDs
rights value was based on 80% of the Base fee received or A$76,800. Fiscal 2016 target amounts were targeted at 48% of total fees, so
amounts differed based on Board Committee membership.
Based on the above NED fee structure and assuming the current existing Board Committee roles remain in place,
expected NED remuneration for fiscal 2018 is as outlined in the following table.
Board
Audit Committee
SSPC Committee
Governance & Nominating Committee
Compensation Committee
Cavicchi
Beresford
Bond
Moeller
Steuert
US$194,000
A$ 86,400
A$ 86,400
US$ 86,400
US$ 86,400
---
---
---
---
---
---
9,000
9,000
9,000
18,000
9,000
9,000
---
18,000
9,000
---
18,000
9,000
---
---
Target annual share-based award
83,663
69,120
69,120
51,840
51,840
Fiscal 2017 target NED remuneration
US$277,663
A$ 173,520
A$ 191,520
US$174,240
US$165,240
Estimated NED remuneration in A$ 1
A$ 370,217
A$ 173,520
A$ 191,520
A$ 232,320
A$ 220,320
1 The US-based NEDs cash remuneration is paid in U.S dollars. These amounts are translated at 0.75/1 to reflect the US dollar equivalent
target pay for this category of target remuneration.
45
Directors’ interests in shares, options, and performance rights of LNGL as at June 30, 2017 follows.
Number of ordinary
shares
Number of unlisted NED
performance rights
Number of unlisted
options
Director
Paul J. Cavicchi
Gregory M. Vesey
Richard J. Beresford
Leeanne K. Bond
Philip D. Moeller
D. Michael Steuert
NED Rights Plan details
Aspect
Purpose
320,592
700,000
472,225
43,549
66,000
139,575
216,000
1,600,000
129,076
129,076
129,076
129,076
Description
---
---
---
---
---
---
The NED Rights Plan is intended to give effect to that component of the Non-Executive
Director Remuneration Policy that includes salary sacrifice of Board fees into equity in
the Company
This is a separate plan from the employee LTI incentive scheme
Form
The NED Rights Plan currently offers service (share) rights
Rights issued under the plan are service time-based rights
Rights transfer
Issue value
NED Rights may not be sold, transferred, mortgaged, charged or otherwise dealt with
or encumbered without prior Board approval
The Board retains discretion to determine the value of LTI to be offered each year
pursuant to overall available Rights for issuance as approved by shareholders
Vesting condition
Vesting Period determined by the Board and provided / specified in the applicable
Invitation Letter
Upon vesting, a right confers an entitlement to the value of an LNGL ordinary share,
which the Board may determine to pay in shares and/or cash
Exercise of vested
NED Rights
Vested NED Rights may be exercised after receipt of an Exercise Notice and
compliance with LNGL’s Securities Trading Policy
Early termination of
NED term
The NED Rights Plan contains provisions concerning the treatment of vested and
unvested NED Rights if a Plan Participant ceases to be a NED during the Measurement
Period
If a Participant ceases Board service because of Retirement or the occurrence of
another Prescribed Event (as defined under the plan, being death, disablement, etc.),
the NED Rights held by the Participant will be pro-rated for time served
Treatment of the balance of NED Rights will be subject to Board discretion at the end
of the Measurement Period
Early termination of NEDs term, all rights will lapse
Change of control of
the Company
In the event of a change of control unvested NED Rights may vest in the same
proportion as the Share Price has increased since the beginning of the Measurement
Period
Remaining NED Rights would either lapse or some or all may vest at the Board’s
discretion
In relation to shares that have resulted from the vesting of NED Rights, dealing
46
restrictions specified in the Invitation would be lifted
The following table discloses the value of NED Rights issued in fiscal 2017 (and 2016), respectively.
Tranche
Non-executive Directors
Fiscal 2017 Rights
Fiscal 2016 Rights
Total
Value at issue
date
Current year
accounting
expense
Max value to be
expensed in
future years
$
$
435,721
107,471
543,192
$
$
268,595
29,948
298,543
$
167,126
---
$
167,126
NED Rights Plan Rights issued and vested in the periods follows.
NED Rights Plan Rights Issued and Vested
Fiscal Year 2018 1
Fiscal Year 2017
Fiscal Year 2016
Rights issued
Rights vested 2
≤ 776,000
725,000
732,304
66,499
73,111
74,405
1 The fiscal 2018 information is forecasted based on current Board approvals and consideration, using a proxy share price of $0.50 per share
to enable disclosure of the maximum number of Rights that may be issued in fiscal 2018. The actual number of Rights to be issued to the
NEDs will be dependent on a shareholder affirmative vote at the November AGM and share prices at that time
2 The fiscal 2018 Rights vested amount is forecasted based on expectation that each Board member holding these rights will continue in
their role through 30 June 2018.
47
NED remuneration
NEDs are remunerated within the current aggregate NED board fee cap of A$1.5 million, approved by shareholders. The following chart discloses actual NED remuneration
received in fiscal 2017 (and 2016).
NED Remuneration Schedule
Name
Position
Fiscal year
Board fees
Committee
fees
Super -
annuation
Other benefits Equity issue 4
Termination
benefits
Total
remuneration
package
Paul J. Cavicchi 1
Chairman
Richard J. Beresford
Leeanne K. Bond
Philip D. Moeller 2
D Michael Steuert
Madam Grace Yao
NED
NED
NED
NED
NED
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2016
$
231,378
$
22,074
$
---
$
1,832
$
85,429
$
---
$
340,713
165,367
148,867
270,000
96,000
120,000
128,000
92,547
128,000
165,421
75,000
50,242
12,389
---
40,000
42,710
40,000
21,265
40,000
43,078
---
---
---
---
---
---
---
---
---
---
---
---
1,000
---
1,000
---
1,832
---
1,832
---
---
25,951
58,419
70,437
53,804
42,307
47,343
---
53,547
16,063
20,881
---
---
---
---
---
---
---
---
---
---
241,560
220,675
340,437
190,804
205,017
217,175
113,812
223,379
224,562
95,881
1 Mr. Cavicchi was appointed Chairman in November 2016.
2 Mr. Moeller was appointed to the Board in December 2015.
3 Madam Yao resigned from the Board on 19 November 2015.
4 Equity issue amounts contained in this chart reflect actual accounting expense in each fiscal year relating to each specific NED. ‘Face Value’ of equity issue amounts are disclosed on the previous page.
Total cash fees paid NEDs in fiscal 2017 (and 2016) were A$894,204 and A$970,630, respectively. Total NED remuneration in fiscal 2017 (and 2016) totaled A$1,192,746 and
A$1,123,527, respectively. The US-based NED amounts have been translated at 0.75/1 to reflect the Australian dollar equivalent in deriving these amounts.
48
Changes in KMP held equity
Name
Gregory M Vesey
Position
MD/CEO 1
Maurice Brand
Executive Director7
John Baguley
CTO 2
Kinga Doris
General Counsel 3
Michael R Mott
Anthony Gelotti
CFO
CDO 4
Name
Gregory M Vesey
Position
MD/CEO 1
Maurice Brand
Executive Director7
John Baguley
CTO 2
Kinga Doris
General Counsel 3
Michael R Mott
Anthony Gelotti
CFO
CDO 4
Changes in Executive KMP Equity Held
Held at July 1, 2016
Issued during fiscal year
Instrument
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Number
200,000
---
4,800,000
973,790
270,000
406,125
---
---
---
289,742
---
---
Issue price 5
---
0.87
---
---
---
0.87
---
0.87
---
0.87
---
0.87
Number 6
---
1,600,000
---
---
---
600,000
---
600,000
---
600,000
---
600,000
Held at July 1, 2015
Issued during fiscal year
Instrument
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Issue price 5
---
---
4,500,000
1,839,933
---
246,141
---
---
---
---
---
---
Issue price 5
---
---
---
3.99
---
3.99
---
---
---
3.99
---
---
Number
---
---
---
563,345
---
159,984
---
---
---
289,742
---
---
Forfeited in year
Number
Other change
Number
Vested
Number held at
June 30, 2017
---
---
---
---
(246,141)
---
---
---
---
---
---
500,000
---
(4,800,000)
(973,790)
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
700,000
1,600,000
---
---
270,000
759,984
---
600,000
---
889,742
---
600,000
Forfeited in year
Number
Other change
Number
Vested
Number held at
June 30, 2016
---
---
---
---
---
---
---
---
---
---
---
---
200,000
---
300,000
(476,496)
270,000
---
---
---
---
---
---
---
---
---
---
952,992
---
---
---
---
---
---
---
---
200,000
---
4,800,000
973,790
270,000
406,125
---
---
---
289,742
---
---
1 Effective April 4, 2016, Mr. Vesey became MD & CEO.
2 Mr. Baguley was promoted to Chief Operating Officer effective June 2017. Mr. Baguley had previously performed the duties of the Chief Technical Officer. Mr. Baguley holds 67,500 LNGLY ADRs, which translate on
a 1:4 basis into LNGL common stock. The equivalent shares held by Mr. Baguley approximate 270,000 common shares.
3 Ms. Doris was appointed General Counsel and Joint Company Secretary effective September 1, 2015, becoming an executive KMP from that date.
4 Mr. Gelotti was appointed Chief Development Officer effective December 1, 2015, becoming an executive KMP from that date. Mr. Gelotti left the Company in July 2017, ceasing as a KMP effective July 1, 2017.
5 Issue prices disclosed in the above chart reflect the value assigned to each right pursuant to the applicable tranche’s 30-day volume weighted average price (VWAP) at the start of the measurement date. Issue prices
used for accounting purposes reflect application of Australian Accounting Standards Board Standard 2 (AASB 2), and may differ from the issue prices in this chart.
6 The fiscal 2017 Rights issuance was 60 percent MATSR-based performance rights and 40 percent retention rights having a three-year “cliff vest”.
7 Effective July 29, 2016, Mr Brand left the Company. The share and Rights balances held at that date are reflected as Other reductions in the 2017 table representing his elimination as an Executive KMP at that date.
49
Name
Paul J Cavicchi
Richard J Beresford
Leeanne K Bond
Philip D Moeller
D Michael Steuert
Name
Paul J Cavicchi
Richard J Beresford
Leeanne K Bond
Philip D Moeller
D Michael Steuert
Madam Grace Yao
Position
Chairman
NED
NED 1
NED 2
NED
Position
Chairman 1
NED
NED
NED 2
NED
NED 3
Held at July 1, 2016
Issued during Fiscal Year
Forfeited in Year
Other change
Changes in Director KMP Equity Held
Instrument
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Number
7,097
15,148
446,837
27,041
29,428
15,774
---
---
---
15,148
Issue price 4
---
0.595
---
0.595
---
0.595
---
0.595
---
0.595
Number
Number
---
216,000
---
129,076
---
129,076
---
129,076
---
129,076
---
---
---
---
---
---
---
---
---
---
Number
300,000
---
---
---
66,000
---
126,080
---
Held at July 1, 2015
Issued during Fiscal Year
Forfeited in Year
Other change
Instrument
Shares 6
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Number
---
7,771
414,692
32,819
---
20,102
---
---
---
---
---
16,409
Issue price 4
---
1.47
---
1.47
---
1.47
---
---
---
---
---
1.47
Number
Number
Number
---
15,148
---
27,041
---
15,774
---
---
---
15,148
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
10,000
---
---
---
---
---
---
---
Vested
Number held at
June 30, 2017
13,495
(15,148)
25,388
(27,041)
14,121
(15,774)
---
---
13,495
(15,148)
320,592
216,000
472,225
129,076
43,549
129,076
66,000
129,076
139,575
129,076
Vested
Number held at
June 30, 2016
7,097
(7,771)
32,145
(32,819)
19,428
(20,102)
---
---
---
---
---
(16,409)
7,097
15,148
446,837
27,041
29,428
15,774
---
---
---
15,148
---
---
1 Mr. Cavicchi was appointed Chairman in November 2016.
2 Mr. Moeller was appointed to the Board in December 2015.
3 Madam Yao resigned from the Board on 19 November 2015.
4 Issue prices disclosed in the above chart reflect the value assigned to each right pursuant to the date each applicable tranche was approved by shareholders at the Company’s Annual General Meeting. These issue
prices reflect application of Australian Accounting Standards Board Standard 2 (AASB 2).
50
Use of independent consultancy in support of Compensation Committee
In fiscal 2017, Korn Ferry Hay Group was retained by the Board to assist the Compensation Committee regarding
executive compensation. Korn Ferry Hay Group received compensation for their analysis and advisory work that
led to their recommendations. Korn Ferry Hay Group’s 2016 engagement letter totaled US$135,000, of which
US$60,000 was paid during fiscal 2017. In January 2017, Korn Ferry Hay Group’s engagement letter totaled
US$40,000, of which US$30,000 was paid during fiscal 2017, for total fees of US$90,000 paid during fiscal 2017.
Hay Group’s scope of work during fiscal 2017 included the following deliverables.
•
•
•
Providing recommendations on the long-term incentive plan and short-term incentive plan, including
making recommendations in the context of shareholder and proxy advisory feedback on existing programs.
Providing recommendations on NED compensation structures and benchmarking NED compensation using
peer group data and survey data
Providing executive compensation market updates and regulatory updates.
• Assisting in review of LNGL’s annual report and ad-hoc assistance to the Compensation Committee.
In fiscal 2015, the Board engaged Godfrey Remuneration Group (Godfrey) relating to Australian-based
remuneration issues and Longnecker & Associates (Longnecker) to advise on U.S.-based remuneration issues.
Godfrey and Longnecker each received compensation for their analysis and advisory work that led to their
recommendations. The compensation amounts were as follows.
Godfrey Remuneration Group Pty Limited benchmarking and advisory services - A$44,500 +GST
Longnecker & Associates – US$43,000
So as to ensure that KMP remuneration recommendations were free from undue influence from the KMP to
whom they relate, the Company established policies and procedures governing engagements with external
remuneration consultants. The key aspects include:
•
•
KMP remuneration recommendations may only be received from consultants who have been approved by
the Board. Before such approval is given and before each engagement the Board ensures that the
consultant is independent of KMP.
KMP remuneration recommendations are only received by independent NEDs, via the Chair of the
Compensation Committee.
The Board is satisfied that the KMP remuneration recommendations received in fiscal 2016 (and 2015) were free
from undue influence from KMP. The Board has been closely involved in all dealings with the external
remuneration consultants and each KMP remuneration recommendation received during the period was
accompanied by a legal declaration from the consultant to the effect that their advice was provided free from
undue influence from the KMP.
End of Remuneration Report
51
INDEMNIFICATION AND INSURANCE
An Officer’s Protection Deed has been entered with each of the directors (as named in Section 1 of this report)
in office and the Company Secretary at the date of this report. Under the deed, the Company has agreed to
indemnify the directors and the Company Secretary against any claims or for any expenses or costs that may
arise because of work performed in their respective capacities. There is no monetary limit to the extent of the
indemnity.
During the financial year, the Company incurred a premium of $189,857 (excl. GST) (2016: $156,628) in respect
of the primary coverage policy insuring the directors and officers against any liabilities and expenses and costs
that may arise because of work performed in their respective capacities. This amount is not part of the directors’
remuneration disclosed in the Remuneration Report above. As at June 30, 2017, the insurance cover was limited
to $100 million on the primary coverage plus $20 million Side A excess cover.
RISK MANAGEMENT
The Company takes a proactive approach to risk management and seeks to manage risks such as project risk,
contractual risk, compliance risk, and finance risk. The Board has several mechanisms in place to ensure
management’s objectives and activities are aligned with those determined by the Board including:
Board approval of the Company’s strategic plan and objectives;
Board approval of the Company’s annual financial forecasts and operating budgets;
Board approval of all material contracts and agreements;
Board approval of all project developments, where a project is to proceed beyond initial identification and
review, and will be the subject of binding contractual commitments and material expenditure obligations;
Regular review by the Board of the Company’s adherence to and performance against the above items; and
Regular review by the Board of the Company’s risk management process, with improvements introduced
where appropriate.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
Effective November 17, 2016, Mr. Paul J Cavicchi replaced Mr. Richard J Beresford as Chairman of the Board.
Mr. Beresford remains a NED on the Company’s Board.
Mr. David Gardner relinquished his role as Joint Company Secretary on September 2, 2016, and was replaced by
Mr. Andrew Gould from September 3, 2016.
During fiscal 2016, Mr. Gregory M Vesey was appointed Managing Director and Chief Executive Officer effective
April 4, 2016, replacing Mr. F Maurice Brand. Mr. Brand stepped down from the Board on July 29, 2016.
There were no other significant changes in the state of affairs of the Company during the financial year ended
30 June 2017.
SIGNIFICANT EVENTS AFTER BALANCE DATE
None of a material nature.
ROUNDING
The financial report is presented in Australian dollars and amounts contained in the financial report have been
rounded to the nearest $1,000 (unless otherwise stated) under the option available to the Company under ASIC
Corporation’s (Rounding in Financial/Directors’ Reports) Instrument 2016/191. The Company is an entity to
which the Instrument applies.
52
AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES
The directors have received a declaration of independence from the auditors which is included in this Annual
Report following the audited financial statements and appended notes thereto.
Indemnification of auditors
To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young (EY), as part
of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an
unspecified amount). No payment has been made to indemnify EY during or since the financial year.
Non-audit services
The following non-audit services were provided by the Company’s auditor, EY Australia. The directors are
satisfied that the provision of non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit services
provided means that auditor independence was not compromised.
EY Australia received or are due to receive the following amounts for the provision of non - audit services:
Amounts paid or payable to EY (Australia) for:
- tax services and other services
Amounts paid or payable to EY (Australia) related practices for:
- tax services and other services provided by overseas firms
CONSOLIDATED
2017
$’000
$
$
82
223
305
Tax and other services provided by EY Australia and related practices of EY Australia focused on compliance tax
matters and tax planning considerations. Given the nature of the work, the Company considered EY the most
appropriate advisor to work on these matters.
Signed in accordance with a resolution of the directors.
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Houston, Texas USA
September 14, 2017
Gregory M Vesey
Managing Director/Chief Executive Officer
September 14, 2017
53
LIQUEFIED NATURAL GAS LIMITED
CORPORATE GOVERNANCE STATEMENT
The Board is responsible for establishing and maintaining the corporate governance framework of the Group
and is guided by the ASX Corporate Governance Council (CGC) Principles and Recommendations (3rd Edition ASX
Corporate Governance Council March 2014 (3rd Edition Principles)). The Principles and Recommendations set
out corporate governance practices for entities listed on the ASX that in the CGC’s view are likely to achieve
good governance outcomes and meet the reasonable expectations of most investors in most situations.
The Board welcomes the changes in the 3rd Edition Principles that reflects global developments in corporate
governance. This Corporate Governance Statement was current as at June 30, 2017 and has been approved by
the Board.
This Corporate Governance Statement is an opportunity to demonstrate that the Board and management are
attuned to the importance of having proper and effective corporate governance arrangements and to
communicate the robustness of our approach to corporate governance.
During the fiscal 2017 (and 2016) financial year the Company’s practices were compliant with the existing 3rd
Edition Principles, except where noted in the following table:
ASX Corporate Governance – Best Practice Recommendation
Best Practice Recommendation
Comply
Yes / No
Page
Reference
Principle 1 – Lay solid foundations for management and oversight
Page 59
1.1
A listed entity should disclose:
a)
b)
The respective roles and responsibilities of its Board and
management; and
Those matters expressly reserved to the Board and those
delegated to management.
1.2
A listed entity should:
a) Undertake appropriate checks before appointing a person,
or putting forward to security holders a candidate for
election, as a director; and
b) Provide security holders with all material information in its
possession relevant to a decision on whether to elect or re-
elect a Director.
A listed entity should have a written agreement with each
Director and senior executive setting out the terms of their
appointment.
The company secretary of a listed entity should be accountable
directly to the Board, through the chair, on all matters to do with
the proper functioning of the Board.
1.3
1.4
1.5
A listed entity should:
a) Have a diversity policy which includes requirements for the
board or a relevant committee of the board to set
measurable objectives for achieving gender diversity and to
assess annually both the objectives and the entity’s progress
in achieving them;
b) Disclose that policy or a summary of it; and
c) Disclose as at the end of each reporting period the
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
54
LIQUEFIED NATURAL GAS LIMITED
measurable objectives for achieving gender diversity set by
the Board or a relevant committee of the Board in
accordance with the entity’s diversity policy and its progress
towards achieving them, and either:
(i) The respective proportions of men and women on the
Board, in senior executive positions, and across the
whole organization (including how the entity has defined
“senior executive” for these purposed); or
(ii) if the entity
is a “relevant employer” under the
Workplace Gender Equality Act, the entity’s most recent
in and
“Gender Equality
published under that Act.
Indicators”, as defined
1.6
A listed entity should:
a) Have and disclose a process for periodically evaluating the
performance of the Board, its committees and individual
directors; and
b) Disclose, in relation to each reporting period, whether a
performance evaluation was undertaken in the reporting
period in accordance with that process.
Principle 2 – Structure the board to add value
2.1
The Board of a listed entity should have a nomination
committee which:
a) Has at least three members, a majority of whom are
independent directors; and
b) Is chaired by an independent director.
And should disclose:
a) The charter of the committee;
b) The members of the committee; and
c) As at the end of each reporting period, the number of times
the committee met throughout the period and the individual
attendances of the members at those meetings.
If it does not have a nomination committee, disclose that fact
and the processes it employs to address board succession issues
and to ensure that the board has the appropriate balance of
skills, knowledge, experience, independence, and diversity to
enable it to discharge its duties and responsibilities effectively.
2.2
A listed entity should have and disclose a Board skills matrix
setting out the mix of skills and diversity that the Board currently
has or is looking to achieve in its membership.
2.3
A listed entity should disclose:
a) The names of the Directors considered by the Board to be
independent directors;
b) If a director has an interest, position, association or
relationship of the type described in Box 2.3 but the Board
believes it does not compromise the independence of the
Yes
n/a
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
Yes
Yes
Yes
Page 60
55
LIQUEFIED NATURAL GAS LIMITED
2.4
2.5
2.6
director, the nature of the interest, position, association or
relationship in question and an explanation of why the Board
is of that opinion; and
c) The length of service of each Director.
A majority of the Board of a listed entity should be independent
directors.
The chair of the Board of a listed entity should be an
independent Director and should not be the same person as the
CEO of the entity.
A listed entity should have a program for inducting new
directors and provide appropriate professional development
opportunities for directors to develop and maintain the skills
and knowledge needed to perform their role as directors
effectively.
Principle 3– Act ethically and responsibly
3.1
A listed entity should:
a) Have a code of conduct for its directors, senior executives
and employees; and
b) Disclose that code or a summary of it.
Principle 4 – Safeguard integrity in corporate reporting
4.1
The Board of a listed entity should have an audit committee which:
a)
b)
Has at least three members, all of whom are NED’s and a
majority of whom are independent directors; and
Is chaired by an independent director, who is not the chair
of the Board.
And should disclose:
a)
b)
c)
The charter of the committee;
The relevant qualifications and experience of the members
of the committee; and
In relation to each reporting period, the number of times the
committee met throughout the period and the individual
attendances of the members at those meetings.
If it does not have an audit committee, disclose that fact and the
processes it employs that independently verify and safeguard the
integrity of its corporate reporting, including the processes for the
appointment and removal of the external auditor and the rotation
of the audit engagement partner.
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
Page 64
Page 64
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LIQUEFIED NATURAL GAS LIMITED
4.2
The Board of a listed entity should, before it approves the entity’s
financial statements for a financial period, receive from its CEO
and CFO a declaration that, in their opinion, the financial records
of the entity have been properly maintained and that the financial
statements comply with the appropriate accounting standards
and give a true and fair view of the financial position and
performance of the entity and that the opinion has been formed
on the basis of a sound system of risk management and internal
control which is operating effectively.
4.3
A listed entity that has an AGM should ensure that its external
auditor attends its AGM and is available to answer questions from
security holders relevant to the audit.
Principle 5 – Make timely and balanced disclosure
5.1
A listed entity should:
a)
Have a written policy for complying with its continuous
disclosure obligations under the Listing Rules; and
b)
Disclose that policy or a summary of it.
Principle 6 – Respect the rights of security holders
6.1
6.2
6.3
6.4
A listed entity should provide information about itself and its
governance to investors via its website.
A listed entity should design and implement an investor relations
program to facilitate effective two-way communication with
investors.
A listed entity should disclose the policies and processed it has in
place to facilitate and encourage participation at meetings of
security holders.
A listed entity should give security holders the option to receive
communications from, and send communications to, the entity
and its security registry electronically.
Principle 7 – Recognize and manage risk
7.1
A Board of a listed entity should have a committee or committees
to oversee risk, each of which:
a)
Has at least three members, a majority of whom are
independent directors; and
b)
Is chaired by an independent director.
And should disclose:
a)
b)
c)
The charter of the committee;
The members of the committee; and
As at the end of each reporting period, the number of times
the committee met throughout the period and the individual
attendances of the members at those meeting.
If it does not have a risk committee or committees that satisfy a)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
Page 65
Page 65
Page 66
57
LIQUEFIED NATURAL GAS LIMITED
above, disclose that fact and the processes it employs for
overseeing the entity’s risk management framework.
7.2
The Board or a committee of the Board should:
a)
b)
Review the entity’s risk management framework at least
annually to satisfy itself that it continues to be sound; and
Disclose, in relation to each reporting period, whether such
a review has taken place.
7.3
A listed entity should disclose:
a)
b)
If it has an internal audit function, how the function is
structured and what role it performs; or
If it does not have an internal audit function, that fact and
the processes it employs for evaluating and continually
improving the effectiveness of its risk management and
internal control processes.
7.4
A listed entity should disclose whether it has any material
exposure to economic, environmental and social sustainability
risks and, if it does, how it manages or intends to manage those
risks.
Principle 8 – Remunerate fairly and responsibly
8.1
The Board of a listed entity should have a compensation
committee which:
a)
has at least three members, a majority of whom are
independent directors; and
b)
is chaired by an independent director.
And should disclose:
a)
b)
c)
The charter of the committee;
The members of the committee; and
As at the end of each reporting period, the number of times
the committee met throughout the period and the individual
attendances of the members at those meetings.
If it does not have a remuneration committee, disclose that fact
and the processes it employs for setting the level and composition
of remuneration for directors and senior executives and ensuring
that such remuneration is appropriate and not excessive.
8.2
8.3
A listed entity should separately disclose its policies and practices
regarding
the
remuneration of executive directors and other senior executives.
remuneration of non-executive and
the
A listed entity which has an equity-based remuneration scheme
should:
a)
Have a policy on whether participants are permitted to enter
into transactions (whether using derivatives or otherwise)
which limit the economic risk of participating in the scheme;
and
b)
Disclose that policy or a summary of it.
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
Yes
Yes
Yes
Page 68
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LIQUEFIED NATURAL GAS LIMITED
Where the Company has not been compliant with the 3rd Edition Principles, the “if not, why not” explanation
approach has been adopted.
Principle 1 – Lay solid foundations for management and oversight
The Board is responsible for the corporate governance of the Company. The Board guides and monitors the
business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they
are accountable. Responsibility for managing the business of the Company on a day-to-day basis has been
delegated to the Managing Director and Chief Executive Officer and the management team. The Directors’
responsibilities include:
•
Setting the strategic direction and objectives of the Company and establishing defined goals to ensure these
strategic objectives are met;
• Monitoring the performance of management against the established goals and overall strategic objectives
of the Company;
•
•
•
Ensuring that there are adequate internal controls and ethical standards of behavior adopted and complied
with within the Company;
Ensuring that the business risks of the Company are identified and understood, and that appropriate
monitoring and reporting procedures and controls are in place to manage these risks, while acknowledging
that all risks may not be eliminated; and
Ensuring the risk management function includes mechanisms to review and monitor corporate performance
across a broad range of risk and compliance issues affecting assets, business operations, capital expenditure,
capital management, acquisitions, divestitures, finance, occupational health and safety, management,
environmental issues, native title and heritage issues, and corporate governance.
The Compensation Committee monitors the performance of senior executives, which considers the performance
of the executives over the year, and ensures that there are adequate procedures in place for recruitment,
induction, training, remuneration (both short-term and long-term), and succession planning.
Directors clearly understand their corporate expectations at the time of their appointment and formal letters
setout key terms and conditions.
Prior to consideration for appointment as a director of the Company, Directors, management and their delegates
perform appropriate checks. The Company has used international executive search and Board consulting firms
to support its board renewal process. Preferred candidates are shortlisted and recommendations passed to the
Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee
then provides a recommendation to the Board.
Prior to a meeting of members, all shareholders receive material information relevant to a decision on whether
to elect or re-elect a new or retiring director.
The Company has written agreements with all Directors and senior executives setting out the terms of their
appointments and a review of such agreements occurs annually.
The Company Secretary is accountable directly to the Board, via the chair, on all matters of Board function. The
Company Secretary and chair are in frequent communication to progress governance matters and execution of
Board accountabilities.
The Company has issued corporate policies to guide its business execution. Policies relevant to the conduct of
our people include: the Business Principles to guide our core values and behaviors, the Diversity Policy, the
Human Resources Policy, the Health, Safety, Security and Environment Policy, the Anti-Bribery and Anti-
Corruption Policy, the Remuneration Policy, the Information Management and Security Policy, the License to
Operate Policy, and the Social Media Policy all establishing our sustainability protocol. The Duty to Report Policy
manages approach to policy breaches.
These policies are made public through the Company’s website at:
http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 .
59
LIQUEFIED NATURAL GAS LIMITED
At June 30, 2017, the Company employed a total of 27 people (excluding Directors) in Australia and in the United
States. The Company applies, among other considerations, diversity considerations and practices in the
recruitment and development of its staff and Directors.
The gender diversity of the Company’s employees (excluding consultants) and Board at June 30, 2017 follows.
Role
Number of Women
Total Number of Persons
Whole organization
Senior executive positions 1
Board of Directors 2
13
2
1
32
7
6
1 “Senior Executive”, for the purposes of the above table, is defined as those individuals who are responsible for planning, directing and
controlling the activities of the Company as part of the Corporate Leadership Team
2 Includes Executive and Non-Executive directors
The Company is an equal opportunity employer. The internal approach to diversity is that the Company does
not discriminate at any level or for any reason and always selects the most appropriate person for the job.
The Company is not a “relevant employer” under the Workplace Gender Equality Act.
The Board conduct an annual performance review using criteria outlined by the Australian Institute of Company
Directors (AICD) and Sarbanes Oxley. This involves an online survey completed by all Directors considering Board
performance against ‘good governance’ statements. The Board reviews the outputs of the survey in a
subsequent roundtable discussion. The Board then develops action plans to support continuous improvement
in Board processes and Company performance.
The composition of Board committees and individual directors are reviewed and evaluated at least annually.
The Board has established a process for periodically evaluating the performance of its senior executives.
Evaluation of senior executives occurs twice a year based on agreed individual performance objectives against
which the executive’s short-term and long-term incentive remuneration is determined. This includes
compliance with the Company’s corporate governance principles and policies. More information is contained
in the Remuneration Report.
Principle 2 – Structure the Board to add value
The Directors’ Report contained in this annual report includes the Directors’ biographies as well as a summary
skills matrix chart.
Independence
Directors are considered independent when they are independent of management and free from any business
or other relationship that could materially interfere with, or could reasonably be perceived to materially
interfere with, the exercise of their unfettered and independent judgement.
In the context of director independence, “materiality” is considered from both the Company and individual
director’s perspectives. The determination of materiality requires consideration of both quantitative and
qualitative elements. Qualitative factors considered include whether a relationship is strategically important,
the competitive landscape, the nature of the relationship and the contractual or other arrangements governing
it and other factors which point to the actual ability of the director in question to influence the direction of the
Company. An item is presumed to be quantitatively material (unless there is qualitative evidence to the
contrary) if it is equal to or greater than 5% of the appropriate base amount. The basis for the relevant amount
depends on the nature of the item being considered. For example, if a director’s interest in a supplier is being
considered, there would be two amounts to be assessed, the first being the Company’s total purchases from all
suppliers and the second being the total sales to all customers by the relevant supplier.
In accordance with the definition of independence above, and the prescribed materiality thresholds, the
following directors of the Company, with their disclosed term in office, are considered independent directors of
the Company:
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LIQUEFIED NATURAL GAS LIMITED
Name
Independent position
Term on Board
Paul J Cavicchi
Chairman
Richard J Beresford
Non-executive Director
Leeanne K Bond
Philip D Moeller
Non-executive Director
Non-executive Director
D Michael Steuert
Non-executive Director
From Oct 2014
From Feb 2004
From Oct 2009
From Dec 2015
From Feb 2015
Mr. Gregory M Vesey is the Managing Director and Chief Executive Officer at the date of this report. Mr. Vesey
is not considered independent.
The Board has established a Corporate Governance and Nominating Committee that is required to meet at least
annually, to ensure that the Board continues to operate within the established guidelines including, where
necessary, selecting candidates for the position of director. The Corporate Governance and Nominating
Committee is comprised of independent directors consisting of Mr. Philip D Moeller (Chairman), Mr. Paul J
Cavicchi, and Mr. Richard J Beresford.
The number of meetings held by the Corporate Governance and Nominating Committee and the attendance is
outlined in the Directors Report and a summary of the key accountabilities of the Corporate Governance and
Nominating Committee may be found on the Company’s website within its Corporate Governance Policy at
http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 .
Board skills matrix
An appropriate mix of director skills and diversity is required to oversee the Company’s strategic direction,
opportunities, and challenges at all stages of its development. When considering the appointment of new
directors, the Board seeks to recruit individuals with complementary skills, professional qualifications, and
experience. In support of this, the Board applies a skills assessment to guide its succession planning and director
recruitment agenda.
When determining the appropriate mix of skills and diversity amongst directors, the Board considers LNGL’s
strategic objectives and long term shareholder wealth drivers. The following strategy statements summarize
the current direction of the business and influence the skills and experience required at Board level to oversee
its implementation.
•
•
•
To create wealth for shareholders through delivery of competitive LNG liquefaction projects in key markets
throughout the world
To be a leader in the mid-scale LNG sector by safely developing mid-scale, low cost, efficient, and reliable
LNG liquefaction terminals to serve the international energy market’s demand for natural gas
To remain at the forefront of LNG processing technology to ensure that the Company’s LNG plants are world
competitive in operating efficiencies and capital and operating costs
These strategy statements imply a requirement for skills in the areas of energy markets, process technology,
project management, and business development oversight at the Board level.
Board renewal
The Board has regularly reviewed its need for renewal and succession planning considering the Company’s
direction, strategy, and challenges. As LNGL continues to transition from ‘development stage’, where skills in
project development are paramount, to a growth period involving the construction and operation of global LNG
assets, the changing composition of the company Board will reflect this transition.
•
The Board is currently comprised of a majority of NED’s all of whom are classified as independent.
• With LNGL’s focus on North American asset development, the Board make-up is predominantly North
American-based that strengthen the Board’s skills and experience in energy infrastructure, finance, and
regulatory matters having direct knowledge of the energy business in North America.
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LIQUEFIED NATURAL GAS LIMITED
Current Board Skills and Experience
Board skills matrix
The skills and experience mix of the six current directors is summarized in the following table. The Board
considers that those fields where fewer than three directors bring relevant skills and experience would
necessitate external support to the Board from individuals or groups on a contractual basis. As the Company’s
projects move beyond development stage into the construction stage and then into production, the Board will
review additional skills and experience to oversee those activities.
Skills and Experience
Description
Technology and innovation Professional qualifications / experience in the research, development, and
implementation of energy transportation and/or processing technologies.
International experience
Directors that have worked on energy projects in regions and countries where LNG
is currently looking to invest, develop, and operate.
Engineering, construction,
and execution
Practical experience with engineering design and project execution in an executive
or senior manager capacity.
Project management
Individuals that carry relevant experience in project manager or executive director
roles across large scale energy projects.
Finance
Those directors that carry professional qualifications in finance disciplines, exhibit
a high level of financial acumen, and/or carry direct experience in capital market
transactions.
Audit and accounting
Professional qualifications in accounting and risk management, or those directors
with experience in audit chair, CFO, auditor or other senior financial manager
positions.
Risk management
Prior exposure to risk management duties in a managerial or executive capacity
and/or professional risk management qualifications.
Legal and regulatory
Professional qualifications in legal practice, regulatory approvals, and/or prior
experience in corporate legal matters or regulator /industry relations in an
executive or senior manager capacity.
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LIQUEFIED NATURAL GAS LIMITED
Contracts and negotiation Practical and relevant experience in global energy sector contracts, bids, and
commercial negotiations.
Marketing and business
development
Previous experience in a senior manager or executive director capacity supervising
or directing corporate marketing or business planning and development initiatives,
including key client relationship management responsibilities.
Business strategy
Directors that have extensive experience in executive strategy positions, including
previous managing director, chief executive, and/or strategic senior manager roles.
Mergers and acquisitions Directors that have participated in major corporate transactions, including the
acquisition or sale of major energy projects, corporate takeovers, and/or the
acquisition of interests in energy producing assets.
Corporate governance
Directors that are current or former board members of other publicly listed
companies, with emphasis on individuals that currently or formerly chair an audit
or remuneration sub-committee. Private company, not-for-profit and government
sector boards are also considered.
Environmental and
sustainability
Professional training or prior experience managing public company environmental
and social responsibility risks.
Health and safety
Directors that have had management responsibility for the health and safety of
personnel on construction and/or operating plant sites.
Government and
community relations
Prior involvement in government/regulatory body engagement, or experience
working on political action committees, or previous membership on any relevant
state or federal government task force.
Disclosure and engagement
The Board is charged with the responsibility of protecting the interests of LNGL’s shareholders. Through the lens
of this ongoing assessment of its skills, the Board continues to identify desired skills and experience attributes
when reviewing the future director candidate pool. The Company welcomes engagement with shareholders
around the composition of the Board to ensure that it has the skills and experience to oversee the successful
execution of LNGL’s strategy.
The Company has a formal program for inducting new directors. When a new director starts, they are provided
with a Director’s Information Kit which provides guides, policies and papers on:
•
•
•
Duty of care, skill and diligence;
Duty of loyalty and conflicts of interest;
Dealing in the Company’s securities;
• Market disclosure policy;
•
•
•
•
•
Corporate governance policy;
Anti-bribery and anti-corruption policy;
A quick guide to the constitution;
The Company’s Constitution; and
A copy of the 3rd Edition Principles.
Together with the Director’s Information Kit, directors are formally supported by the Managing Director and
Chief Executive Officer, the Company Secretary, and Chairman on all Board meeting related matters. During
2017, the Board expects to receive training on U.S. SEC governance issues and recent trends in mergers and
acquisitions hosted by a U.S.-based law firm. During 2016, director development included in-house training on
Corporate Governance from the National Association of Corporate Governance, which was conducted in
Houston, Texas.
63
LIQUEFIED NATURAL GAS LIMITED
There are procedures in place, agreed by the Board, to enable directors to seek independent professional advice
at the Company’s expense, and directors are encouraged to attend relevant courses to maintain or expand their
individual skills in areas supporting the Company’s strategy.
Principle 3 – A listed entity should act ethically and responsibly
The Board actively promotes ethical and responsible decision-making. The standard of ethical behavior required
of directors is set out in the Director Code of Conduct (Code), which forms part of the Company’s governance
policies. The Board updates the Code as necessary, which ensures that it reflects an appropriate standard of
behavior and professionalism.
The Code requires all directors to uphold the highest levels of integrity, conducting their business in accordance
with the policy.
Please see http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 for the Director
Code of Conduct Policy.
Principle 4 – Safeguard integrity in corporate reporting
Audit Committee
The Board has established an Audit Committee that operates under a Charter approved by the Board. It is the
Board’s responsibility to ensure that an effective internal control framework exists within the entity. This
includes internal controls to deal with the effectiveness and efficiency of significant business processes, the
safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial
information, as well as non-financial considerations. The Board has delegated the responsibility for the
establishment and maintenance of a framework of internal control (including the maintenance of a risk register)
for the management of the Company to the Audit Committee.
The Audit Committee provides the Board with assurance regarding the reliability of financial information for
inclusion in financial reports.
The members of the Audit Committee follow.
Name
Position
D Michael Steuert
Leeanne K Bond
Philip D Moeller
Chairman
Member
Member
All the members are NEDs. Other Board members attend meetings periodically. Management attend meetings
as appropriate, with the CFO attending as a standing invitee. The Board is satisfied that the Audit Committee is
of sufficient size, independence, and technical expertise to discharge its mandate effectively and in line with
CGC Principles.
Within the Directors’ Report the qualifications of the members can be found together with details on the number
of meetings of the Audit Committee held during the year and the attendees at those meetings. The Company’s
Audit Committee charter can be found on the Company’s website within its Corporate Governance Policy at
http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 .
The external auditor was appointed by the Board. The Audit Committee, as part of its charter, is required to
conduct a review, at least annually, in relation to the external auditor. The Audit Committee, amongst other
things, reviews the independence of the auditor and the auditor’s performance, in relation to the adequacy of
the scope and quality of the annual statutory audit, half-year review, and the fees charged. The Company’s
auditors have an ongoing policy of audit engagement partner rotation every five years.
Section 295A of the Corporations Act requires the CEO and CFO function to declare that, in their opinion, the
financial records of the entity, for a financial year have been properly maintained in accordance with the Act
and that the financial statements and the notes for the financial year comply with the accounting standards, and
64
LIQUEFIED NATURAL GAS LIMITED
give a true and fair view of the financial position and performance of the entity. This declaration was made
during the year.
The Company’s external auditors, Ernst & Young, attend the Company’s annual general meeting and are
available to answer questions relevant to the audit from shareholders.
Principle 5 – Make timely and balanced disclosure
The Company’s corporate governance policies include a Market Disclosure Policy, which details the Company’s
commitment to ensuring compliance with market disclosure obligations.
The Company commits to:
•
•
•
Ensuring that shareholders and the market are provided with timely and balances information about its
activities;
Complying with the general and continuous disclosure principles contained in governing exchange rules;
and
Ensuring that all market participants have equal opportunities to receive externally available information
issued by the Company.
Company ASX releases are reviewed by Executive Directors, NEDs, and where applicable senior management
prior to release to ensure:
•
•
•
•
All releases are factually accurate, balanced, and objective;
There is no material omission of information;
Announcements are released in a timely manner; and
Announcements comply with practices and procedures of the ASX Company Announcements Platform.
The Company Secretary ensures that at every Board meeting, continuous disclosure is on the agenda and that
all directors have an opportunity to put forward any information that may need disclosure. On a weekly basis,
the Company Secretary contacts all directors to ensure that they do not have any information or matters that
need disclosure.
Please see http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 for the Company’s
Market Disclosure Policy.
Principle 6 – Respect the rights of security holders
The Company places significant importance on effective communication with shareholders and is committed to
keeping them informed of all major developments that affect the Company. This information is communicated
via:
•
•
•
The Company’s Annual Report and half yearly financial report;
Quarterly cash flow reporting;
Other Company announcements that comply with continuous disclosure obligations in accordance with ASX
Listing Rules;
• Market briefings to assist shareholders and stakeholders to understand key issues;
•
•
•
•
Postings on the Company’s websites;
The Chairman’s address at the annual general meeting;
Shareholder meetings; and
Investor relations presentation/roadshows.
The Company’s website has a dedicated Investors and Media section that is updated regularly displaying all
pertinent Company information including media releases and presentations.
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LIQUEFIED NATURAL GAS LIMITED
Shareholders are encouraged to subscribe to the Company’s electronic email alert that allows them to be
updated with Company announcements at the same time the announcements are released to the ASX.
Shareholders can access email alerts via a dedicated link on the “Investor Welcome” page of the website. The
Company’s announcements are also communicated via its twitter account.
Shareholders can contact the Company directly via an email link and are also able to lodge an “Information
Request” electronically via the Company’s website. Shareholders can receive communications from the
Company’s share registry, Link Market Services. Their contact details can be found within the “Investor FAQs
within the “Investors & Media” section of the Company website.
The Company facilitates and encourages participation at meetings of shareholders and all shareholders are
encouraged to attend in person. The Company holds its meetings in capital cities in Australia and provides
adequate opportunity for shareholders to post questions in advance of a meeting or ask questions at the end of
each meeting.
Principle 7 – Recognize and manage risk
Risk assessment and mitigation processes
The Company’s business strategy is to become a leader in the development of mid-scale LNG liquefaction export
terminals and at the forefront of LNG processing technology designed to ensure its LNG plants are safe and
globally competitive. The technology, scale, and modular nature of LNGL’s plant design seeks to enable
development of low cost, efficient, and reliable LNG liquefaction terminals to serve the international energy
market’s demand for natural gas.
The Company’s Business Principles guide our decisions, actions, and behaviors. Effective management and
oversight of the Company’s risks are critical to the successful implementation of our strategy in addition to
protecting the interests of its shareholders and other key stakeholders, which include our employees, business
partners, and the communities in which the Company operates.
Risk assessment and mitigation processes
Risk management oversight is a key responsibility for the Board and a leading priority for senior managers,
starting with the Managing Director and Chief Executive Officer. The Board oversees the risk appetite and profile
of the Company, ensuring thorough assessment of business development opportunities within the context of its
risk management framework.
The Company has a risk management process based on Standards Australia AS/NZS ISO 31000:2009 Risk
management – Principles and guidelines. The Company’s aim is to achieve best practice in identifying and
assessing key business risks arising from operations and/or from the external business environment generally,
and actively manage these key risks through mitigation plans. The risk management process enables the
Company to make informed decisions on risk acceptance (or otherwise). The Board undertakes periodic
comprehensive reviews and updates of the risk management process. A management prepared risk register is
tabled periodically to the Board of Directors and updated on an ongoing basis.
With the prevailing objective of reducing business threats and sustaining competitive leadership, risk
consequences are continually and consistently reviewed across the following categories, among others: health
and safety; environment; social; financial; technical; commercial; regulatory; legal and compliance.
The Managing Director and Chief Executive Office and the Chief Financial Officer, based on experiential data,
inquiry, observation, and other actions, consider that the Company’s business reporting is founded on a sound
system of risk management and internal controls, and that the system is operating effectively in all material
respects.
The Company does not currently have an internal audit function, but through the Company’s risk management
process, management is satisfied that it can evaluate and continually improve the effectiveness of its risk
management and internal control processes. The need for an internal audit function is kept under review by the
Audit Committee.
The number of meetings held by the Audit Committee and the attendees is outlined in the Directors Report and
a summary of the key accountabilities of the Company’s Audit Committee may be found on the Company’s
website within its Corporate Governance Policy.
66
LIQUEFIED NATURAL GAS LIMITED
http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225.
Safety, sustainability, people and culture
The Safety, Sustainability, People, and Culture Committee (SSPC) oversees Company sustainability risks and
opportunities, and reports these matters to the Board. The SSPC receives regular performance reports from
management, confirms compliance, reviews the adequacy of sustainability management systems, and ensures
appropriate improvement targets and benchmarks. It monitors potential liabilities, changes in legislation,
community expectations, research findings, and technological changes. This information also feeds the risk
management process overseen by the Board. In addition to feedback and monitoring by the SSPC, the Board
receives monthly reports on key risk areas such as health and safety, project development, and potential
environmental challenges.
LNGL recognize the need to take account of changing community attitudes and environmental challenges, and
therefore the Company assesses the environmental and social risks associated with all its projects. Projects are
developed with precautionary engineering and management measures in place to mitigate key environmental
and social risks. On this basis, the Board has endorsed LNGL’s Business Principles and associated Policies
detailing the expectations and obligations applicable to LNGL’s Board, senior management, and workforce.
Safety
An important aspect of LNGL’s risk management framework includes the protection of our people and the
people in surrounding communities in workplace health and safety. Our shared duty is to assure the health,
security, and safety of people, the integrity and safe operation of our assets, and the protection of the
environment. We accomplish this by setting clear expectations including target setting, training of our
workforce, and empowering our workforce to stop work whenever they believe there is a danger to people, the
environment, or the safe operation of our assets. The Company has in-house subject matter experts in process
safety design, occupational safety design, and Occupational Safety and Health Administration (OSHA) regulation
dealing with workplace safety and health in the US. This expertise is specific to the design, construction, and
operation of LNG liquefaction facilities. Effective management of HSSE risk is vital to successful delivery of
LNGL’s strategy, our long-term sustainability, and maintenance of our License to Operate in the communities
where we conduct business.
Environment
We work to avoid, mitigate, and minimize environmental impacts where we do business and we try to create
mutually supporting economic and environmentally sustainable solutions. Our patented OSMR® Technology
offers a range of economic, environmental, and social benefits, with the objective being reduced capital and
operating costs, smaller footprint, and simple start-up and operation. OSMR® Technology is energy efficient,
(e.g., combined cycle power generated from gas turbine waste heat used to drive the refrigeration compressors,
use of the most efficient industrial coolant - ammonia rather than propane throughout the LNG production
process, application of a closed-loop ammonia refrigeration circuit, pre-cooling refrigerant and gas turbine inlet
air that increases production efficiency, etc.) and will operate at a lower GHG intensity compared with traditional
LNG technologies (e.g., EPC guaranteed 92% feed gas production efficiency, LNG plant/utilities fuel gas
consumption of 8% or less).
Social
Community engagement is embedded in our projects. We listen to community concerns, respond to their needs,
and take actions required to help to mitigate the impact of our planned operations. Examples of these activities
include regular participation in local meetings of the Calcasieu Parish Local Emergency Planning Committee and
Environmental Affairs Committee by MLNG personnel in Lake Charles and establishment by BHLNG of
Community Liaison and Fisherman Liaison committees in Port Tupper. The way LNGL conducts business in local
communities is critical to the overall success of the business and the long-term interests of our shareholders. As
the Company continues to develop international LNG projects, we aim to manage the social impacts of our
business activities to positive outcomes in affected local communities. We commit to strengthening the
communities in which we live and work in enduring ways.
In satisfying future international energy demands, the Board and senior management will work to leave a
positive social legacy wherever we operate. Our objective is for our LNG projects to create economic value for
67
LIQUEFIED NATURAL GAS LIMITED
local communities by employing workers; procuring goods and services from local suppliers; investing in local
infrastructure, and regional development.
Regulatory Approval
Detailed and documented approvals exist in respect of the environmental and social regulations associated with
our LNG projects. These approvals have been issued by regulatory bodies following extensive consultation with
communities and other stakeholders. Progress on regulatory approvals and submissions made in support of
these processes are available via LNGL’s website, or direct from the relevant regulators’ websites.
The Company has yet to reach FID on any of its LNG projects, and therefore most of LNGL’s identified
sustainability risks will only become material when project construction commences. Health and safety risks
increase during the construction and operating phases, with a larger workforce in place and a commensurate
increase in exposure to operational hazards. We are working with our contractors to ensure that appropriate
training for employees and contractors across the workforce meets international standards. As the workforce
grows, we are committed to maintaining equality of opportunity, encouraging diversity, and creating a
rewarding work environment for all LNGL’s employees.
Continued change and uncertainty in public policy can be very challenging when making large, long-term
investments for the future. Policy responses to climate change are of special interest to energy providers such
as LNGL. The Company is positioned to contribute to climate change solutions and we support measures to
progressively reduce GHG emissions in line with established climate targets.
As LNGL expands its international footprint, the Company is proactively managing its relationships with local,
regional, and national governments and regulators. We will continue to monitor international and national
policy debates and developments in climate change science to understand possible impacts on our business. In
the medium term, we expect that LNGL will benefit from the focus on reducing the emissions intensity of global
energy production and supply due to our energy efficiency compared to other energy sources and LNG
technologies.
Policies relevant to sustainability
Corporate policies relevant to sustainability include the Business Principles to guide our core values and
behaviours, the Health, Safety, Security and Environment Policy, the License to Operate Policy and the Duty to
Report Policy for managing policy breaches.
These policies are made public through the Company’s website.
http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 .
Principle 8 – Remunerate fairly and responsibly
Compensation Committee
The Board has established a Compensation Committee comprised of an independent Chairman, Mr. Paul J
Cavicchi, Mr. Richard J Beresford, and Ms. Leeanne K Bond, who are all independent NEDs, to supervise
employment management guidelines and policies, and assist in developing and recommending remuneration
arrangements. The Company’s Managing Director and Chief Executive Officer, Mr. Gregory M Vesey, also
attends meetings by invitation. Mr. Vesey is not involved in developing remuneration policies or setting
remuneration packages, nor does he commission research and recommendations provided to the Compensation
Committee by independent remuneration consultants. The Compensation Committee is aware of the need to
remain strictly independent.
A summary of the key accountabilities of the Company’s Compensation Committee may be found on the
Company’s website within its Corporate Governance Policy.
http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 .
Please refer to the Remuneration Report contained elsewhere in this Annual Report for additional remuneration
disclosures.
68
LIQUEFIED NATURAL GAS LIMITED
FINANCIAL REPORT CONTENTS
30 JUNE 2017
FINANCIAL REPORT CONTENTS
Financial
Statements
Statement of Profit or Loss and Other Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Page 70
Page 71
Page 72
Page 73
Notes to the Financial Statements
About
this
Report
Page
74
A
Segment Activities
B
Operating Capital
Pages
75 - 82
A1
Segment performance
A2
Segment assets and
Group property, plant
and equipment
Page
82 - 84
B1
Trade and other
receivables
B2
Trade and other
payables
C
Liquidity, Debt and
Capital
Pages
84 - 89
C1
Cash and cash
equivalents &
Other financial assets
C2
Interest bearing
liabilities
D
Other Items
Pages
89 - 93
D1
Events after balance
date
D2
Related parties
A3
Taxes
B3
Employee benefits and
provisions
C3
Financial risk
management
D3
Subsidiaries
A4
Commitments and
contingencies
A5
Dividends paid and
provided for
A6
Earnings/(loss) per
share
C4
Issued capital and
reserves
D4
Share-based payments
D5
Auditor remuneration
D6
Parent entity
information
D7
Other accounting
policies
69
LIQUEFIED NATURAL GAS LIMITED
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
30 JUNE 2017
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
CONSOLIDATED
2017
2016
Note
In thousands ($)
Revenue
Other income
Total revenue and other income
Administrative expense
Finance costs
Project development expenses
Share-based payment expenses
Other expenses
Total expenses
Loss before income tax expense
Income tax expense
Loss after income tax expense
Net loss for the period
Other comprehensive income (loss) for the period:
Foreign currency translation, net of tax
Total comprehensive income (loss) for the period
Loss for period is attributable to:
Non-controlling interest
Equity holders of the parent
Total comprehensive income
Total comprehensive income (loss) for the period:
Non-controlling interest
Equity holders of the parent
Total comprehensive income
$
A1
A1
A1
A1
A1
A1 and D4
A1
$
$
$
$
$
$
$
367
551
918
(13,638)
(1)
(12,423)
(2,518)
(1,539)
(30,119)
(29,201)
(111)
(29,312)
(29,312)
$
$
569
7,286
7,855
(19,372)
(1)
(89,289)
(14,333)
---
(122,995)
(115,140)
28
(115,112)
(115,112)
(381)
$
(78)
(29,693)
$
(115,190)
(2)
(29,310)
(29,312)
$
$
(3)
(115,109)
(115,112)
(2)
(29,691)
(29,693)
$
$
(3)
(115,187)
(115,190)
Loss per share attributable to ordinary equity holders:
Basic loss per share
Fully diluted loss per share
$
A6
A6
$
(0.058)
(0.058)
(0.229)
(0.229)
The above statement of profit or loss and comprehensive income should be read in conjunction with the
accompanying notes.
70
LIQUEFIED NATURAL GAS LIMITED
STATEMENT OF FINANCIAL POSITION
JUNE 30, 2017
STATEMENT OF FINANCIAL POSITION
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Prepayments
Total current assets
Non-current assets
Property, Plant and equipment
Total non-current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Interest-bearing liabilities
Income tax payable
Employee benefits and provisions
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Employee benefits and provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Equity attributable to equity holders of the Parent:
Contributed equity
Reserves
Accumulated losses
Parent interests
Non-controlling interest
Total equity
CONSOLIDATED
2017
2016
In thousands ($)
Note
C1
B1
C1
A2
B2
C2
B3
C2
B3
C4
$
$
$
$
$
$
40,294
114
4,156
400
44,964
12,044
12,044
57,008
2,151
4
---
379
2,534
2
41
43
2,577
54,431
392,875
43,690
(382,012)
54,553
(122)
54,431
$
$
$
$
$
$
67,187
746
4,270
347
72,550
12,006
12,006
84,556
2,586
3
9
930
3,528
6
71
77
3,605
80,951
392,220
41,553
(352,702)
81,071
(120)
80,951
The above statement of financial position should be read in conjunction with the accompanying notes
71
LIQUEFIED NATURAL GAS LIMITED
STATEMENT OF CHANGES IN EQUITY
30 JUNE 2017
STATEMENT OF CHANGES IN
EQUITY
Note
Ordinary
shares
Share options
reserve
Performance
rights
reserve
Redeemable
preference
share reserve
Equity
reserve
Foreign
currency
translation
reserve
Accumulated
losses
Owners of
the parent
Non-
controlling
interest
Total
At 1 July 2016
Loss for the period
Other comprehensive income
Total comprehensive income for the
period
Transactions with owners in their capacity
as owners:
Issue costs on conversion of rights
Exercise of options
Share based payment
At 30 June 2017
At 1 July 2015
Loss for the period
Other comprehensive income
Total comprehensive income for the
Transactions with owners in their capacity
Exercise of options
Share based payment
At 30 June 2016
C4
D4
$ 392,220
---
$
6,078
---
$
29,576
---
$
A6
---
---
(19)
674
---
---
---
---
---
---
C4
C4
D4
$ 392,875
$
6,078
A6
$ 392,021
$
6,078
---
---
---
---
2,518
32,094
15,243
$
$
$
$
---
---
---
199
---
---
---
---
---
---
---
---
---
---
14,333
4,032
---
---
---
---
---
---
4,032
4,032
---
---
---
---
---
$
$
$
In thousands ($)
$
$
$
578
---
---
---
---
---
---
578
578
---
---
---
---
---
1,289
---
(381)
(381)
$
(352,702)
(29,310)
$
---
(29,310)
81,071
(29,310)
(381)
(29,691)
---
---
---
---
---
---
(19)
674
2,518
908
$
(382,012)
$ 54,553
1,367
$
(237,593)
$ 181,726
---
(78)
(78)
---
---
(115,109)
(115,109)
---
(78)
(115,109)
(115,187)
---
---
199
14,333
$
$
$
(120)
(2)
---
(2)
$
80,951
(29,312)
(381)
(29,693)
---
---
---
(19)
674
2,518
(122)
$ 54,431
(117)
$ 181,609
(3)
---
(3)
---
---
(115,112)
(78)
(115,190)
199
14,333
$ 392,220
$
6,078
$
29,576
$
4,032
$
578
$
1,289
$
(352,702)
$ 81,071
$
(120)
$ 80,951
The above statement of changes in equity should be read in conjunction with the accompanying notes.
72
LIQUEFIED NATURAL GAS LIMITED
STATEMENT OF CASH FLOWS
30 JUNE 2017
STATEMENT OF CASH FLOWS
Cash flows from operating activities
Receipts from taxation authorities
Interest received
Research and development tax concession rebate
Payments to suppliers and employees
Net cash flows used in operating activities
Cash flows from investing activities
(Investment in) / proceeds from security deposits classified as
other financial assets
Proceeds from other financial assets
Purchase of property, plant and equipment
Net cash (used in) / provided from investing activities
Cash flows from financing activities
Transaction costs on issue of ordinary shares
Proceeds from the exercise of options
Repayment of finance lease principal
Interest paid
Net cash flows from financing activities
CONSOLIDATED
2017
2016
Note
In thousands ($)
C1
A2
C4
C4
$
497
382
1,050
(27,421)
(25,492)
$
1,196
620
462
(119,408)
(117,130)
---
---
(409)
(409)
(19)
674
(3)
(1)
651
(74)
130,634
(87)
130,473
---
199
(3)
(1)
195
Net increase/(decrease) in cash and cash equivalents
Net foreign exchange differences
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(25,250)
(1,643)
67,187
40,294
13,538
6,678
46,971
67,187
$
C1
$
The above statement of cash flows should be read in conjunction with the accompanying notes.
73
LIQUEFIED NATURAL GAS LIMITED
NOTES TO THE FINANCIAL REPORT
NOTES T O THE FI NANCIAL REPORT
About this report
The financial report of Liquefied Natural Gas Limited (LNGL or Company) for the year ended June 30, 2017 was
authorized for issue in accordance with a resolution of the Directors on September 13, 2017.
The Company is incorporated in Australia and is a for profit company limited by shares, with its shares publicly traded
on the Australian Securities Exchange (ASX). The Company (Parent) is the parent company to several subsidiaries
(collectively the Group).
The nature of the operations and principal activities of the Group are described in the Managing Director and Chief
Executive Officer’s Report.
Basis of preparation
The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements
of the Corporations Act 2001, Australian Accounting Standards, and other authoritative pronouncements of the
Australian Accounting Standards Board.
The financial report complies with Australian Accounting Standards and International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board.
The financial report has been prepared on a historical cost basis, other than available for sale financial assets, if any,
which are measured at fair value.
The financial report is presented in Australian dollars rounded to the nearest $1,000 (unless otherwise stated), under
the option available to the Company under Instrument 2016/191. The Company is an entity to which the instrument
applies.
The financial report comprises the financial statements of the Group and its subsidiaries as at June 30, 2017 (refer to
Section D3). Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to
be consolidated from the date at which the Group ceases to have control.
The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using
consistent accounting policies. All intercompany balances and transactions, including unrealized profits and losses
arising from intra-Group transactions, have been eliminated in full.
Non-controlling interests are allocated their share of the net profit after tax in the consolidated income statement, their
share of other comprehensive income, net of tax, in the consolidated statement of comprehensive income, and are
presented within equity in the consolidated statement of financial position, separately from parent shareholders’
equity.
Going concern
The financial statements have been prepared on the going concern basis, which contemplates the continuity of normal
business activity and the realization of assets and the settlement of liabilities in the normal course of business.
Foreign currency
Both the functional and presentation currency of the Company and its Australian subsidiaries is Australian dollars ($).
Each entity in the Group determines its own functional currency and items included in the financial statements of each
entity are measured using that functional currency. The United States and Canadian subsidiaries’ functional currency is
United States dollars, which is translated to Australian dollar presentation currency. The Indonesian subsidiary’s
functional currency is Indonesian Rupiah, which is translated to Australian dollar presentation currency.
Transactions in foreign currencies are initially recorded in the functional currency of the transacting entity at the
exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at
the reporting date are translated at the rates of exchange ruling at that date. Exchange differences in the consolidated
financial statements are taken to the income statement. Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary
items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair
value was determined.
74
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
The profit or loss of overseas subsidiaries is translated into Australian dollars at the average exchange rate for the
reporting period or at the exchange rate ruling at the date of each transaction.
Key estimates and judgements
Management continually evaluates judgements, estimates, and assumptions based on experience and other factors,
including expectations of future events that may have an impact on the Group. Assumptions made are believed to be
reasonable based on the most current set of circumstances known to management and the information on these items
are found in the areas of the financial report to which the judgements, estimates, and assumptions relate.
A. Segment activities
The Group has identified its operating segments, a component of an entity that engages in business activities from which
it may earn revenue and incur expenses, based on information that is reviewed and used by the executive management
team (the chief operating decision makers) in assessing performance and in determining the allocation of resources.
Financing requirements, including cash, debt balances and finance costs, if any, finance income, and taxes are managed
at a Group level.
The Group has identified the following reportable operating segments.
LNG Infrastructure Segment
Focuses on the identification and progression of opportunities for the development of LNG projects. This includes:
•
•
•
Project development activities from pre-feasibility, detailed feasibility, and advancement of each project to final
investment decision at which time the Group expects to obtain project finance via a suitable mix of debt and equity;
Construction activities; and
Production and sale of LNG via offtake arrangements with external parties.
The LNG Infrastructure reportable operating segment includes the aggregation of the Magnolia LNG project, Bear Head
LNG project, and Fisherman’s Landing LNG project in all reporting periods. In applying the aggregation criteria,
management have made judgements surrounding the economic characteristics of the company’s projects, including
consideration of the macroeconomic environment impacting each individual project, the percentage of consolidated
revenue that the operating segment will contribute, and the regulatory environment the Company’s projects operate
in.
Technology and Licensing Segment
The technology and licensing segment is involved in the development of LNG technology, through research and
development activities, and the advancement of each developed technology to the patent application stage or ability
to commercialize the LNG technology. The business model aims to derive licensing fees or royalties from the utilization
of, or the sub-licensing of the LNG technology. The technology and licensing has been determined as both an operating
segment and a reportable segment.
A1. Segment performance
Revenue
Interest revenue
Revenue is recognized as interest accrues using the effective interest method. Interest accruing on time deposits and
other interest-bearing cash accounts is recognized as earned.
Research & development (R&D) costs and rebate income
Research costs are expensed as incurred. R&D rebate income is recognized when the return is prepared and the amount
can be reliably measured.
75
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Goods and service tax (GST) or equivalent
Revenue, expenses, and assets are recognized net of the amount of GST, except receivables and payables and where
the GST is not recoverable. GST is included in the cash flow statement on a gross basis, with commitments and
contingencies disclosed net.
Wages, salaries, annual leave, sick leave, and long service leave
Expenses and liabilities incurred for wages and salaries, superannuation, non-monetary benefits, and annual leave due
to be settled within 12 months of the reporting date are recognized in respect of employees’ services up to the reporting
date at the amounts due to be paid when the liabilities are settled. The liability for long service leave is recognized and
measured as the present value of expected future payments to be made in respect of services provided by employees
up to the reporting date. These items are applicable only to Australian-based employees.
In 2015, the Group established a defined contribution plan (401(k) Plan) for eligible US employees. The 401(k) Plan
allows eligible employees to contribute up to 100% of their compensation up to the IRS maximum, for which the Group
matches those contributions by up to 3.5 percent.
Segment allocations
Corporate charges
Corporate charges comprise non-segmental expenses such as certain head office expenses, including share based
payments.
Other
Interest revenue, realized foreign exchange gains and losses, corporate expenses, and finance costs are not allocated to
operating segments as they are not considered core to any segment.
The following table shows the revenue and profit or loss information for reportable segments for the fiscal years ended
June 30, 2017 and 2016, respectively.
LNG Infrastructure
Technology & Licensing
Unallocated
Total
2017
2016
2017
2016
2017
2016
2017
2016
R&D concession
$
Net foreign exchange gain
Interest revenue
Inter-segment sales
Total revenue and other income
Inter-segment elimination
Total revenue and other income
Project development costs
$
---
---
---
---
---
---
---
$
---
---
---
---
---
---
---
- Employee comp & benefits
(5,987)
(10,621)
- Defined contribution plans
(81)
(187)
- Consulting fees
- Site options and lease expense
- Other expenses
(2,264)
(75,131)
(2,328)
(1,032)
---
(2,885)
Total project development costs
(11,692)
(88,824)
Finance costs
Corporate charges
Share-based payments
Depreciation
Operating lease payments
Gain/(loss) on sale of PP&E
Net foreign exchange loss
Income tax expense
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
(360)
(62)
---
---
(309)
(731)
---
---
---
---
---
---
---
---
$
---
---
---
---
---
---
---
---
---
---
---
(465)
(465)
---
---
---
---
---
---
---
---
$
551
$
569
$
551
$
569
---
367
---
918
---
918
---
---
---
---
---
---
(1)
6,787
499
---
7,855
---
7,855
---
367
---
918
---
918
6,787
499
---
7,855
---
7,855
---
---
---
---
---
---
(1)
(6,347)
(10,621)
(143)
(2,264)
(2,328)
(1,341)
(187)
(75,131)
---
(3,350)
(12,423)
(89,289)
(1)
(1)
(13,114)
(18,209)
(13,114)
(18,209)
(2,518)
(14,333)
(2,518)
(14,333)
(208)
(316)
(125)
(1,414)
(111)
(232)
(931)
---
---
28
(208)
(316)
(125)
(1,414)
(111)
(232)
(931)
---
---
28
$ (11,692)
$ (88,824)
$
(731)
$
(465)
$ (16,889)
$ (25,823)
$ (29,312)
$(115,122)
76
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Key estimates and judgements –
Project development expenses - Management judgement is required to assess whether development expenses should
be capitalized. In determining whether to capitalize development expenses, management assesses whether all material
issues in relation to a project have been adequately identified and addressed, to the extent possible, and it is probable
that the project will achieve final investment decision and proceed to development, within a reasonable period. As the
above factors have not been satisfied, all development expenditure has been expensed during the financial periods.
Operating lease commitments – Group as lessee - The Group has entered into leases for office premises and determined
that the lessor retains all the significant risks and rewards of ownership of the office premises and thus has classified
the leases as operating leases.
Ground Lease commitment – Magnolia LNG LLC, a wholly owned indirect subsidiary of the Company, executed a Ground
Lease with the Lake Charles Harbor and Terminal District for the land on which Magnolia LNG shall be constructed. Due
in part to the inherent economic life of land as well as the lack of transfer of the risks and rewards incidental to
ownership, the Ground Lease is classified as an operating lease. Obligations under the lease have been guaranteed by
the Group.
A2. Segment assets and Group property, plant and equipment
LNG Infrastructure
Technology and Licensing
Total
2017
2016
2017
2016
2017
2016
In thousands ($)
Segment assets
Australia
Canada
USA
Indonesia
Total segment assets
Intersegment eliminations
Unallocated assets1
Total assets
Unallocated liabilities
$
$
6
11,560
665
---
533
11,180
837
2
$
$
12,231
$
12,552
$
$
2
---
---
---
2
2
---
---
---
2
$
$
8
11,560
665
---
12,233
---
44,775
57,008
415
$
$
535
11,180
837
2
12,554
---
72,002
84,556
1,050
1 Unallocated assets primarily consisted of cash and cash equivalents of $40,294,000 (2016: $67,187,000) and other financial assets
of $4,156,000 (2016: $4,270,000).
Property, Plant and Equipment
Cost and valuation
Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses.
Such cost includes the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is
incurred. Similarly, when each major inspection is performed, the associated cost is recognized in the carrying amount
of the plant and equipment as a replacement only if it is eligible for capitalization. All other repairs and maintenance
are recognized in profit or loss as incurred.
De-recognition and disposal
An item of plant and equipment is de-recognized upon disposal or when no further future economic benefits are
expected from its use or disposal.
Depreciation
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows:
Computer hardware
Computer software
Furniture and fittings
Office equipment
3 to 5 years
3 to 10 years
10 years
5 years
77
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
The assets’ residual values, useful lives, and amortization methods are reviewed, and adjusted if appropriate, at each
financial year-end.
Freehold Land
and Buildings
Plant and
Equipment
CONSOLIDATED
Information
Technology
In thousands ($)
Other
Total
$ 10,964
45
---
---
11,009
409
---
7
$ 11,425
$
$
---
---
---
---
---
---
---
---
---
$ 11,425
11,009
$
$
$
$
$
25
---
---
1
26
---
(25)
(1)
---
19
4
---
1
24
2
(25)
(1)
---
---
2
$
$
$
$
$
$
$
$
$
$
272
22
---
5
299
---
(119)
(6)
174
87
82
---
1
170
66
(84)
(3)
149
25
129
1,024
20
---
28
1,072
---
(165)
(32)
875
59
146
---
1
206
140
(59)
(6)
281
$ 12,285
87
---
34
12,406
409
(309)
(32)
$ 12,474
$
$
165
232
---
3
400
208
(168)
(10)
430
594
866
$ 12,044
12,006
Cost
At July 1, 2015
Additions
Disposals
Exchange differences
At June 30, 2016
Additions
Disposals
Exchange differences
At June 30, 2017
Accumulated depreciation
At July 1, 2015
Depreciation charge for the year
Disposals
Exchange differences
At June 30, 2016
Depreciation charge for the year
Disposals
Exchange differences
At June 30, 2017
At June 30, 2017
At June 30, 2016
Freehold land
In August 2014, the Company acquired a 255-acre site, having significant site work and civil development in place, in
Nova Scotia Canada, as part of the acquisition of Bear Head Corporation for US$11.0 million. The acquisition was
accounted for as an asset acquisition on the basis that the assets acquired do not constitute a business under AASB 3
Business Combinations. An additional undeveloped 72-acres were acquired in March 2016 for C$450,000, with an initial
deposit of C$45,000 paid in June 2016, with the remaining balance of C$405,000 paid in August 2016. The site comprises
industrial-zoned land (252 acres) and deep-water acreage (75 acres). The consideration paid was allocated to the land
acquired.
Intangible assets and goodwill
The Group currently has no intangible assets or goodwill recorded on its balance sheet.
Impairment of non-financial assets
Non-financial assets. Excluding intangible assets, are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the
amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an
asset’s fair value less costs to sell and value in use. To assess impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets
or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are
tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the
impairment may have reversed.
78
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
A3. Taxes
Recognition and measurement
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities. Deferred tax assets and liabilities are measured at tax rates that are expected to apply in the period in
which the liability is settled or the asset is realized. The tax rates and laws used to determine the amount are based on
those that have been enacted or substantially enacted by the end of the reporting period. Income taxes relating to
items recognized directly in equity, if any, are recognized in equity.
Current tax
Income tax expense
Current tax expense
Deferred tax expense
Income tax expense/(benefit)
Reconciliation between tax expense and tax expense calculated per the
statutory income tax rate
Accounting loss before tax
Prima facie tax @ 27.5% (2016: 30%)
Increase in tax expense due to:
Share based payments
Expenditure not deductible for tax purposes
Decrease in tax expense due to:
Non-assessable income
Unrecognized deferred taxes
Income tax expense/(benefit)
CONSOLIDATED
2017
2016
In thousands ($)
$
111
---
111
(28)
---
(28)
(29,201)
(8,030)
(115,140)
(34,352)
356
3
---
7,782
111
$
2,720
10
(150)
31,744
(28)
$
$
Current tax expense is the expected tax payable on the taxable income for the year and any adjustment to tax payable
in respect of previous years.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities
are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all
deductible temporary differences to the extent that it is probable that taxable profits will be available against which
those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the
temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is not
recognized if the taxable difference relates to investments in subsidiaries to the extent that the Group can control the
reversal of the temporary difference and it is not probable to reverse in the foreseeable future.
Offsetting deferred tax
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company and
the Group intends to settle its current tax assets and liabilities on a net basis.
There is no current or deferred tax relating to items that are charged or credited to equity. The following chart provides
a reconciliation of deferred tax liabilities.
79
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Deferred tax liabilities
Accrued income
Gross deferred income tax liabilities
Set-off of deferred tax assets
Net deferred tax liabilities
Deferred tax assets
Tax losses recognized to offset tax liabilities
Set-off of deferred tax liabilities
Deferred tax expense/(benefit)
Tax losses
CONSOLIDATED
Balance Sheet
Profit or Loss
2017
2016
2017
2016
In thousands ($)
$
$
---
---
---
---
$
$
---
---
---
---
$
---
$
(21)
---
---
$
21
---
$
The Group has unutilized tax losses and other deductible temporary differences for which no deferred tax asset is
recognized on the reporting date, which are available for offset against future tax gains subject to continuing to meet
relevant statutory tests. The likelihood of the satisfying the relevant statutory tests in each jurisdiction has not yet been
considered.
Unused revenue losses on which no deferred tax asset has been recognized
Unused capital losses for which no deferred tax asset has been recognized
Unamortized costs for which no deferred tax asset has been recognized
Unrecognized tax benefit in Australia at 27.5%
Unused foreign losses for which no deferred tax asset has been recognized
Unamortized costs for which no deferred tax asset has been recognized
Unrecognized tax benefit in United States at 35%
CONSOLIDATED
2017
2016
In thousands ($)
$
$
$
$
40,959
14,777
31,572
24,010
16,216
175,906
67,243
$
$
$
$
34,198
14,777
31,633
24,182
16,716
162,569
62,750
Unused foreign losses for which no deferred tax asset has been recognized
Unrecognized tax benefit in Canada at 31%
$ 136,594
42,344
$
$ 131,153
40,657
$
Other unrecognized temporary differences
As at June 30, 2017, the Group has temporary differences of $417,202,656 (2016: $403,448,000) for which no deferred
tax asset has been recognized. There is no unrecognized temporary difference associated with the Group’s investments
in subsidiaries (2016: $nil).
Tax consolidation
Effective February 11, 2004, the Company and its 100% owned Australian resident subsidiaries formed a tax-
consolidated group. The head entity, Liquefied Natural Gas Limited and the controlled entities in the tax consolidated
group continue to account for their own current and deferred tax amounts. The Group has applied the separate
taxpayer within the group approach in determining the appropriate amount of current taxes and deferred taxes to
allocate to members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the head entity also recognizes current tax liabilities (or assets)
and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in
the tax consolidated group.
80
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Members of the group agreed a tax sharing agreement for the allocation of income tax expense between members on
June 30, 2011. Tax attributes associated with certain tax group entities may not be available to the tax group. Such
balances are not considered material to the overall carryforward.
Recovery of deferred tax assets
Deferred tax assets arising from deductible temporary differences and tax losses are not recognized as management
does not consider it probable that future taxable profits will be available to utilize those temporary differences and tax
losses. Management judgement is required in assessing whether deferred tax assets and certain deferred tax liabilities
are recognized in the balance sheet. Deferred tax assets, including those arising from un-recouped tax losses, capital
losses, and temporary differences, are recognized only where it is considered more likely than not that they will be
recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation
of future taxable profits depend on management’s estimate of future cash flows. These depend on estimates of future
revenues, operating costs, capital expenditure, dividend, and other project development costs.
Judgements are also required about the application of income tax legislation. These judgements and assumptions are
subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which
may impact the amount of tax losses and temporary differences not yet recognized in the balance sheet
A4. Commitments and contingencies
Capital commitments
At year end, there were no commitments in relation to the purchase of plant and equipment (2016: $nil).
Insurance claims
There are no active or pending insurance claims by the Group as at the date of this report.
Legal claims
There are no legal claims outstanding against the Group as at the date of this report.
Guarantees
Refer to C1 – Cash and cash equivalents and other financial instruments.
Finance lease – the Group as lessee
Refer to C2 – Interest bearing liabilities.
Operating leases
Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease
term.
Group as lessee - The Company leases its corporate and project offices under operating leases.
Ground Lease commitment – Effective April 1, 2017, Magnolia LNG LLC, a wholly owned indirect subsidiary of the
Company, executed a Ground Lease with the Lake Charles Harbor and Terminal District, for 109.54 acres for a term of
30 years, subject to four options to extend the term of the Ground Lease on the same terms and conditions for additional
periods of 10 years each.
Future minimum rentals payable under non-cancellable operating leases as at June 30 are as follows.
Within one year
After one year but not more than five years
More than five years
Aggregate non-cancellable operating lease expenditure at reporting date
CONSOLIDATED
2017
2016
In thousands ($)
$
$
742
2,296
31,701
34,739
$
$
505
437
---
942
81
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
A5. Dividends paid and proposed
There were no dividends paid or proposed during or as at the end of the financial year.
A6. Earnings / (loss) per share
Basic EPS is calculated as net profit or loss attributable to members of the Parent, adjusted to exclude any costs of
servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of
ordinary shares.
Diluted EPS is calculated as net profit or loss attributable to members of the Parent, adjusted for:
•
•
Costs of servicing equity (other than dividends) and preference share dividends;
The after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been
recognized as expenses; and
• Other non-discretionary changes in revenues or expenses during the period that would result from the dilution of
potential ordinary shares.
Divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any
bonus element.
The following data is used in the calculations of basic and diluted earnings per share.
Loss used in calculating earnings per share
For basic earnings per share:
Net loss attributable to ordinary equity holders of the Parent
For diluted earnings per share:
Net loss attributable to ordinary equity holders of the Parent
Weighted average number of shares
CONSOLIDATED
2017
2016
In thousands ($)
$
(29,310)
$
(115,109)
$
(29,310) $
(115,109)
For basic earnings per share:
Weighted average number of ordinary shares for basic earnings per share
For diluted earnings per share:
Weighted average number of ordinary shares adjusted for effect of dilution
509,282,478
503,189,294
509,282,478
503,189,294
B1. Trade and other receivables
Other receivables
GST receivable
R&D rebate receivable
Other receivables
Total current receivables
Recognition and measurement
CONSOLIDATED
2017
In thousands ($)
2016
$
$
47
---
67
114
$
$
131
499
116
746
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective
interest method, less an allowance for impairment.
Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are
known to be uncollectible are written off when identified. An impairment provision is recognized when there is
objective evidence that the Group will be unable to collect the receivable. Financial difficulties of the debtor, default
payments, or debts more than 120 days overdue are typically considered objective evidence of impairment. The amount
82
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
of impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows,
discounted at the original effective interest rate.
Terms and conditions
Other receivables are unsecured, non-interest-bearing, and are usually settled on 30-90 day terms. These receivables
do not contain impaired assets and are not past due. It is expected that these receivables will be received when due.
Fair value and credit risk
Due to the short-term nature of these receivables, the carrying amounts are assumed to approximate fair value. The
maximum exposure to credit risk is the carrying amount of these receivables.
Liquidity risk and credit risk
Details regarding financial risk management are disclosed in C3, which information discusses liquidity and credit risk.
B2. Trade and other payables
CONSOLIDATED
2017
2016
Trade and other payables
Trade creditors and accruals
Other creditors
Total trade and other payables
Recognition and measurement
$
$
$
In thousands ($)
2,120
31
2,151
$
2,505
81
2,586
Trade and other payables are recognized initially at fair value and subsequently measured at amortized cost using the
effective interest method.
Terms and conditions
Trade creditors and accruals are non-interest bearing and are normally settled on 30-day terms. Other creditors are
non-interest bearing and are normally settled within one year.
Fair value
Due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value.
Foreign exchange and liquidity risk
Refer to C3 – Financial risk management.
Project exit
During fiscal 2017, the Company announced its intent to exit the Fisherman’s Landing LNG project. An accrual of
approximately $187,000 was recorded at June 30, 2017 to account for the entire estimated cost to exit the project, with
the corresponding expense recognized as project development expense in the accompanying financial statements.
These costs primarily relate to regulatory and site cleaning and are expected to be expended in the first half of fiscal
2018.
B3. Employee benefits and provisions
CONSOLIDATED
2017
2016
Current provisions
Annual leave
Long service leave
Total current employee benefits and provisions
$
$
In thousands ($)
$
274
105
379
$
488
442
930
83
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Non-current provisions
Long service leave
Recognition and measurement
$
41
$
71
Provisions are recognized when the Group has a present obligation (legal or constructive) because of a past event and
it is probable that an outflow of resources embodying economic benefits, which can be reliably measured will be
required to settle the obligation. Provisions are measured at the present value of management’s best estimate of the
expenditure required to settle the present obligation at the balance date using a discounted cash flow methodology
with the risk specific to the provision factored into the cash flows.
C1. Cash and cash equivalents and other financial assets
CONSOLIDATED
Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Total cash and cash equivalents
Other financial assets
Security deposits
Recognition and measurement
2016
2017
In thousands ($)
38,788
1,506
40,294
$
$
65,906
1,281
67,187
$
$
$
4,156
$
4,270
Cash and cash equivalents in the balance sheet comprise cash at bank, cash in hand, and short-term deposits with an
original maturity of three-months or less, that are readily convertible to known amounts of cash, and which are subject
to an insignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents
include cash and cash equivalents as set out above.
Term deposits, classified as ‘other financial assets’, are classified as held-to-maturity financial assets and are recognized
at fair value and subsequently measured at amortized cost.
Nature and terms
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying
periods of up to 90 days, depending on the immediate cash requirements of the Group, and earn interest at the
respective short-term deposit rates.
Investments in other financial assets are made for varying periods of between 90 and 180 days and earn interest at the
respective term deposit fixed rates. Included in “security deposits” are:
•
•
•
•
A$790,000 security deposit held by the ANZ in relation to the issue of a A$789,263 bank guarantee by the ANZ, in
favor of Queensland’s Department of Environment and Resource Management (DERM), which is a condition of
DERM’s FLLNG environmental authority approval;
A$155,000 security deposit held by the ANZ in relation to the issue of a A$151,106 bank guarantee, by the ANZ, in
favor of DERM, which is a condition of DERM’s environmental authority approval for the FLLNG’s proposed gas
pipeline;
A$104,846 security deposit held by ANZ in relation to the issue of a A$100,000 bank guarantee, by the ANZ, in favor
of Colin St Investments Pty Ltd, pertaining to leasehold improvements of the head office premises;
US$2,000,000 security deposit held by the ANZ in relation to the issue of a US$2,000,000 bank guarantee, by the
ANZ, in favor of KMLP, which is a condition of the Precedent Agreement between the Company’s subsidiary,
Magnolia LNG LLC, and KMLP; and
84
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
•
C$500,000 letter of credit (issued by the Bank of Montreal) provided by the Company’s subsidiary, LNG
International Pty Ltd, in favor of the Nova Scotia Utility and Review Board, as part of the acquisition of Bear Head
Corporation.
Due to the liquidity associated with cash and cash equivalents and short-term nature of the other financial assets,
carrying amounts are deemed to approximate fair values. The maximum exposure to credit risk is their carrying
amounts. Reconciliation of net loss after tax to the net cash flows used in operations follows.
Net loss after income tax
Adjust for non-cash items
Depreciation expense
Share-based payment expense
Unrealized foreign exchange loss/(gain)
Loss on sale of PPE
Adjust for other cash items:
Interest expense
Adjust for changes in assets/liabilities:
Decrease/(increase) in trade and other receivables
(Increase) in prepayments
(Decrease)/increase in trade and other payables
(Decrease)/increase in income tax payable
(Decrease)/increase in provisions
Net cash flows used in operating activities
C2. Interest bearing liabilities
Current
Finance lease liability
Non-current
Finance lease liability
Recognition and measurement
CONSOLIDATED
2017
2016
In thousands ($)
$
(29,312)
$ (115,112)
208
2,518
1,414
125
232
14,333
(6,787)
---
1
1
632
(53)
(435)
(9)
(581)
(25,492)
1,739
(22)
(11,273)
(41)
(200)
$ (117,130)
CONSOLIDATED
2017
In thousands ($)
2016
4
$
2
$
3
6
$
$
$
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and
requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or
assets and the arrangement conveys a right to use the asset. Leases that effectively transfer to the Group substantially
all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the
fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between the finance charges and reduction of the lease liability to achieve a constant rate of interest on
the remaining balance of the liability. Capitalized leased assets are depreciated over the shorter of the estimated useful
life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end
of the lease term. The Group has no capital leases in any reporting period.
C3. Financial risk management
The Group’s management of financial risk aims to ensure net cash flows are sufficient to meet financial commitments
as and when they fall due, and to fund the progression of the Group’s core activity being the identification and
progression of opportunities for the development of LNG projects to facilitate the production and sale of LNG. To
85
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
achieve its objective, the Group may consider raising liquidity through borrowings, sale of interest(s) in its projects, or
the sale of additional equity.
The Group’s principal financial instruments comprise cash and cash equivalents, receivables, term deposits, payables,
and finance leases. The main risks arising from the Group’s financial instruments are interest rate risk, foreign currency
risk, price risk, credit risk, and liquidity risk. These risks arise as part of the normal course of conducting the Group’s
operations. The Board reviews and agrees on policies for managing each of these risks. The Group uses different
methods to measure and manage different types of risks which it is exposed to, including monitoring the Group’s level
of exposure to each form of risk. Ageing analysis and monitoring of specific credit allowances are undertaken to manage
credit risk. Liquidity risk is managed through cash flow monitoring and forecast.
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s cash and term
deposits held with two Australian financial institutions. The interest rate risk is managed by the Group through analysis
of the market interest rates and its exposure to changes in variable interest rates. At balance sheet date, the Group had
the items set out in C1 with exposure to Australian variable interest rate risk.
At June 30, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post-tax
loss and equity would have been affected as follows:
Post tax profit (loss) and equity higher / (lower)
+ 0.5% (50 basis points) (2016: +0.5%)
- 0.5% (50 basis points) (2016: -0.5%)
Foreign exchange risk
CONSOLIDATED
2017
2016
In thousands ($)
$
$
222
(222)
357
(357)
Foreign exchange risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes
in foreign exchange rates. The Group has transactional currency exposures, mainly due to costs incurred in currencies
other than its functional currency, such as United States dollars, Canadian dollars and Indonesian rupiah.
The Company’s current policy is not to implement hedging instruments but to maintain cash in foreign currencies to
protect against the risk of adverse exchange rate movements. When exchange rates are favorable against budget
assumptions the Company will accept the prevailing exchange rate on the date of payment, otherwise the Company will
affect payment from its foreign currency holdings.
At June 30, the Group had the following exposure to US$ and $CDN foreign currency:
CONSOLIDATED
2017
2016
Financial assets
US$ cash and cash equivalents
Financial liabilities
US$ trade and other payables
Net $USD exposure
Financial assets
CDN$ cash and cash equivalents
Financial liabilities
CDN$ trade and other payables
Net $CDN exposure
In thousands ($)
$
29,640
37,551
(964)
28,676
$
(1,561)
35,990
$
$
$
1,170
$
3,309
(57)
1,113
$
(680)
2,629
$
At June 30, had the Australian dollar moved, as illustrated in the table below, with all other variables held constant,
post-tax loss and equity would have been affected as follows:
86
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Post tax profit and equity higher / (lower)
AUD/USD +10% (2016: +10%)
AUD/USD -10% (2016: -10%)
AUD/CDN +10% (2016: +10%)
AUD/CDN -10% (2016: -10%)
CONSOLIDATED
2017
2016
In thousands ($)
$
$
(3,392)
4,146
(101)
124
(4,411)
5,391
(248)
303
Assumptions used in the foreign exchange sensitivity analysis include:
•
•
•
The 10% sensitivity is based on reasonably possible movements over a financial year, after observation of actual
historical rate movement during the past 5-year period;
The translation of net assets in subsidiaries with a functional currency other than A$ has not been included in the
sensitivity analysis as part of the equity movement; and
The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the
next twelve months from balance date.
Credit risk
Financial assets that potentially subject the Group to credit risk consist primarily of cash, trade and other receivables,
and term deposits. The Group places its cash with high quality Australian financial institutions with Standard and Poor’s
credit rating of A-1+ (short term) and AA- (long term). The Group’s exposure to credit risk arises from potential default
of the counterparty, with a maximum exposure equal to the carrying amount of these financial assets.
It is the Group’s policy that customers who wish to trade on unsecured credit terms will be subject to credit verification
procedures. Receivable balances are monitored on an ongoing basis to reduce the Group’s exposure to bad debts. At
balance sheet date, the Group’s credit risk relates mainly to trade and other receivables of $114,000 (2016: $746,000).
Liquidity risk
Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their obligations
to repay their financial liabilities as and when they fall due.
Starting in the 3rd quarter of fiscal 2016, the Company initiated an integrated plan to address the impact of slowing LNG
industry conditions, which have negatively affected the Company’s efforts to sell offtake capacity in its projects. The
liquidity management plan (LMP) included:
•
•
•
Commercial focus on signing binding offtake agreements for Magnolia LNG;
Placing on hold our EPC and related contract expenditures;
Finishing residual engineering, regulatory, and permitting work on our projects;
• Maintaining the projects in “ready mode” to enable fast track ramp-up once sufficient levels of binding offtake
agreements are signed; and
•
Prudently managing our cost base.
Through applying our LMP, the Company estimates that the existing cash position can sustain the company through the
end of calendar year 2018. Should offtake capacity be sold in sufficient quantities to progress one or more of its projects
to financial close, the Company anticipates reimbursement of a portion of its development costs through the project
financing. Management estimates that this reimbursement would provide sufficient incremental liquidity to maintain
operations to first LNG. In the event that offtake sales continue to lag, new sources of liquidity available to the Company
include sales of new LNGL ordinary shares, sales of equity in its projects, outright sales of a project, and monetization
of the OSMR® liquefaction technology.
In the event that external events limit the Company’s access to new sources of liquidity, the Company maintains the
ability to further reduce its cash outflow as most of the Company’s costs are discretionary.
At June 30, 2017, except for payables, the Group had no debt (2016: nil), and its activities are primarily funded from
cash reserves from share issues, interest revenue, and research and development concession rebates. Most cash
87
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
reserves are held in term deposit with the ANZ Banking Group and Westpac Banking Corporation, with funds transferred
as necessary to the Group’s working accounts to meet short-term expenditure commitments.
All financial assets and liabilities (set out in B1, B2, C1 and C2) have a maturity of less than six months except for finance
leases which have maturities which range through 2018.
C4. Issued capital and reserves
Capital management
Management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to
shareholders and benefits for other stakeholders. Management aims to maintain a capital structure that ensures the
lowest cost of capital available to the entity. As the Group has no net debt, it does not monitor any gearing ratio.
The Group is not subject to any externally imposed capital requirements.
Movement in ordinary shares on issue:
At June 30, 2015
Exercise of options (iv)
Vesting of rights (v)
At June 30, 2016
Exercise of options (iv)
Vesting of rights (v)
At June 30, 2017
CONSOLIDATED
Number
In thousands
503,093,201
810,000
74,405
503,977,606
1,759,000
7,243,356
512,979,962
$ 392,021
199
---
392,220
674
(19)
$ 392,875
(i)
(ii)
During the 2016 financial year, 810,000 ordinary shares were issued for cash on the exercise of share options.
Refer to note D4.
During the 2016 financial year, 74,405 ordinary shares were issued for nil consideration on the vesting of 77,101
NED Rights. Refer to note D4.
(iii) During the 2017 financial year, 1,759,000 shares were issued for cash on the exercise of share options. Refer to
note D4.
(iv) During the 2017 financial year, 7,243,356 shares were issued on the vesting of 7,271,505 Rights. Refer to note
D4.
At June 30, 2017, 512,979,962 Company shares were listed for official quotation on the ASX.
Terms and conditions of contributed equity
Voting rights
Each ordinary share entitles its holder to one vote, either in person or by proxy.
Dividends
Ordinary shares have the right to receive dividends as declared and in the event of winding up of the Company, to
participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on
shares held.
Nature and purpose of reserves
The various reserves recorded in equity are set out in the Statement of Changes in Equity. The nature and purpose of
each reserve is as follows.
Share options reserve
The share options reserve is used to record the value of share options issued by the Company and its subsidiaries (refer
to note D4 for further details of the Share Option Plan).
88
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Performance rights reserve
The performance rights reserve is used to record the value of performance rights issued by the Company (refer to note
D4 for further details of the Performance Rights Plan).
Redeemable preference share reserve
The redeemable preference share reserve was used to record the value of the redeemable preference shares previously
issued by the Company. All “B” class redeemable preference shares were fully cancelled and redeemed in 2011.
Equity reserve
This reserve is used to record the gain or loss arising from the sale or acquisition of non-controlling interest to or from
third party investors.
Foreign currency translation reserve
This reserve is used to record foreign exchange differences arising from the translation of the financial statements of
subsidiaries that have functional currencies other than Australian dollars.
D1. Events after balance date
None of a material nature.
D2. Related parties
Ultimate Parent
Liquefied Natural Gas Limited is the ultimate Australian Parent company of the Group.
Key management personnel (KMP) disclosures
CONSOLIDATED
2017
2016
Short-term benefits
Post-employment benefits
Long-term benefits
Share-based payment
$
$
In thousands ($)
3,746
$
---
---
938
4,684
4,405
81
50
2,392
6,928
$
There were no loans made to KMP personnel during the year.
Other transactions and balances with KMP
Directors’ fees for Mr. R.J. Beresford are paid to Clearer Sky Pty Ltd, a company in which Mr. R.J. Beresford is a director.
For the current financial year, the amount paid was $161,256 (excluding GST) [2016: $270,000]. At reporting date, there
were no amounts outstanding [2016: $nil].
Directors’ fees for Ms. L.K. Bond are paid to Breakthrough Energy Pty Ltd, a company in which Ms. L.K. Bond is a director.
For the current financial year, the amount paid was $136,000 (excluding GST) [2016: $162,710]. At reporting date, there
were no amounts outstanding [2016: $nil].
The above payments are disclosed as remuneration in the table in the Remuneration Report.
Transactions with other related parties
There were no transactions with other related parties in the current or prior financial year.
Employees
Contributions to superannuation funds on behalf of employees are disclosed in note A1.
Wahoo Agreement
Concurrent with the acquisition of Bear Head LNG Corporation by the Company, Mayflower LNG Pty Ltd, a wholly owned
subsidiary of the Company, entered into the Payments and Incentives Agreement (Agreement) with Wahoo Midstream
89
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
LLC (Wahoo). Wahoo is owned by individuals who also worked for the Company through February 29, 2016. A
confidential agreement was signed between the principles and the Company effective as of the date of termination of
their employment with the Company.
The purpose of the Agreement was to provide incentive and other payments to Wahoo based on the development of
the Bear Head LNG project in consideration for contributions related to the acquisition of Bear Head LNG by the
Company and to set forth other agreements relating to the development of the Bear Head LNG project. Provisions in
the Agreement outline the term of the Agreement, describe among other things, success fee payments due Wahoo
upon realization of specific milestones, rights held by Wahoo accruing if the Company were to sell all or a part of Bear
Head LNG, and indemnification, representations and warranties, confidentiality, dispute resolution and other similar
clauses common in commercial contracts.
As at June 30, 2017 and through the date of this report, the Company has not recognized within its financial statements
a provision for any success fee payments associated with the Agreement or the Confidential Agreement, given the
obligating events (i.e. the achievement of specific milestones) have not occurred and thus accrual for payment is
inappropriate under applicable accounting standards.
D3. Subsidiaries
The consolidated financial statements include the financial statements of Liquefied Natural Gas Limited and its
controlled entities listed in the following table:
Name
LNG International Pty Ltd
Gas Link Global Limited
LNG Technology Pty Ltd
LNG Management Services Pty Ltd
The following companies are controlled via LNG International Pty Ltd:
North American LNG Pty Ltd (ii)
PT. LNG Energi Utama (i)
Gladstone LNG Pty Ltd
CSG Nominees Pty Ltd
Mayflower LNG Pty Ltd (iii)
Qeshm International LNG Gas (Ltd) (v)
The following company is controlled via LNG Technology Pty Ltd:
Gladstone OSMR Technology Pty Ltd
The following companies are controlled via Mayflower LNG Pty Ltd and
North American LNG Pty Ltd:
LNG Consolidated Holdings (USA) (vi)
LNG Management Services LLC
Pecan Inc. (iv)
Pecan GP Inc.
Pecan LP Inc.
Magnolia LNG Investment LP
Magnolia LNG Holding LLC
Magnolia LNG LLC
Bear Head LNG Corporation Inc.
Bear Head LNG Services LLC
Bear Head (USA) Holdings LLC
Bear Head LNG (USA) LLC
Bear Paw Corporation Inc.
Australia
Australia
Australia
Australia
Australia
Indonesia
Australia
Australia
Australia
Iran
Australia
USA
USA
USA
USA
USA
USA
USA
USA
Canada
USA
USA
USA
Canada
(i) Deregistration of this entity is in progress
(ii) North American LNG Pty Ltd was previously named South Australian LNG Pty Ltd.
Equity interest (%)
2017
100
100
100
100
2016
100
100
100
100
100
95
100
100
100
0
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
95
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
90
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
(iii) Mayflower LNG Pty Ltd was previously named Kimberley LNG Pty Ltd.
(iv) Pecan Inc. was previously named Eagle LNG LLC
(v) Qesham International LNG Gas (Ltd) was deregistered in 2017 and is no longer part of the Group
(vi) LNG Consolidated Holdings (USA) is a general partnership between North American LNG Pty Ltd and Mayflower
LNG Pty Ltd that was established on December 24, 2015
D4. Share-based payments
The Group provides benefits to employees in the form of share-based payments.
The Company has an Incentive Rights Plans (IRP), which provides equity-based incentives to “eligible persons”. The
Company also has a Non-Executive Director Incentive Plan (NED Plan) that provides share-based compensation (NED
Rights) to the non-executive directors.
Recognition and measurement
All compensation under the IRP and NED Plan are accounted for as share-based payments for services provided. The
cost of equity-settled transactions is measured by reference to the fair values of the equity instruments in accordance
with AASB 2 Share-based Payment. The fair value of the rights issued is recognized, together with the corresponding
increase in equity, over the period in which the vesting conditions are fulfilled, ending on the date on which the relevant
employee (or NED) becomes fully entitled to the shares. At each balance sheet date, the Group reassesses the number
of awards that are expected to vest based on probable realization of the applicable vesting conditions. The expense
recognized each year takes account of the most recent estimate. The fair value of the benefit provided is estimated
using the Black-Scholes option pricing technique.
The IRP provides for issuance of a variety of instruments. Currently, issuances under the IRP consist of performance
rights and retention rights (collectively Rights) over the ordinary shares of the Company to “eligible persons”. Rights
issuances and vesting are at the discretion of the Board. “Eligible persons” include directors, full-time employees, part-
time employees, and (subject to compliance with Class Order 03/184, or obtaining other applicable relief from ASIC)
consultants.
Terms and conditions attaching to the IRP
Rights issued under the IRP share the following key terms and conditions:
Expiry is at the discretion of the Board and the options/rights are not transferable;
The Company will not make application to the ASX for Official Quotation of issuances under the IRP, but the
Company will make application to the ASX for quotation of the shares allotted and issued upon any vesting event
within 10 business days after such date;
There are no participating rights or entitlements inherent in the issuances under the IRP and holders will not be
entitled to participate in new issues of capital offered to shareholders during the currency of the options; and
In the event of any reorganization of the issued capital of the Company or prior to the expiry of issuances under the
IRP, the instruments issued the holder will be changed to the extent necessary to comply with the applicable ASX
Listing Rules in force at the time of the reorganization.
Terms differ with respect to the measurement period, the vesting conditions, and other terms of each issued tranche
under the IRP. Specifics accruing to each tranche are described in detail in associated invitation letters provided to the
holders.
The NED Plan provides NED Rights to the non-executive directors, which generally vest over a defined time period
pursuant to terms contained in each invitation letter and as approved by shareholder vote.
The total number of Rights and NED Rights that may be issued to all parties who may participate under the combined
IRP and NED Plan and which have not been exercised or cancelled shall not exceed 5% of the total issued ordinary shares
of the Company at the time of issue of any Rights under these plans.
The non-cash expense recognized for share based payments during the period is $2,518,000 (2016: $14,333,000).
91
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Summary of rights issued under the IRP and NED Plan
The following table shows the combined movements in Rights and NED Rights during the applicable years:
At 1 July 2015
Exercised/vested
Issued in period
Expired or other
At 30 June 2016
Exercised/vested
Issued in period
Expired or other
At 30 June 2017
Weighted
average
exercise price
$
Number of
Rights
No.
13,166,654
$
(77,101)
3,493,305
---
16,582,858
(7,271,505)
7,392,804
(4,572,858)
12,131,299
$
---
---
---
---
---
---
---
---
---
The fair value of the rights issued is estimated on the date of issue using a Monte Carlo Simulation (MCS) considering
the terms and conditions upon which the rights were issued. The MCS model is commonly adopted for share-based
payments with market based vesting conditions such as relative total share return targets. The performance rights have
a zero-exercise price and the contractual life of each right issued is 3 years.
PERFORMANCE RIGHTS
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Weighted average share price at issue date ($)
Model used
Share Option Plan
2017
Nil
88%
1.39 - 1.67%
0.595 – 0.62
MCS
2016
Nil
89%
2.09%
3.62
MCS
A SOP was previously in place where the Company, at the discretion of the Board, issued options over the ordinary
shares of the Company to directors and employees for nil cash consideration. The remaining outstanding options under
the SOP were exercised in fiscal 2017. As of June 30, 2017, there were no remaining options outstanding under the SOP
and no further options will be issued under this plan.
D5. Auditor remuneration
The auditor of the Company is EY Australia. Amounts received or due and receivable by Ernst & Young follows.
CONSOLIDATED
2017
2016
Audit or review of the financial report of the Group
Other services provided to the Group
Total Australian fees
Tax or other non-audit services provided by overseas EY firm
Total fees
$
$
D6. Parent information
Information relating to Liquefied Natural Gas Limited:
In thousands ($)
$
109
82
191
223
414
$
143
30
173
833
1,006
92
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Current assets
Total assets
Current liabilities
Total liabilities
Issued capital
Accumulated losses
Share options reserve
Redeemable preference share reserve
Total shareholders’ equity
Profit/(loss) of the parent entity
Total comprehensive income of the parent entity
Guarantees
Parent Company Only
2016
2017
$
In thousands ($)
4,927
$
24,205
10,144
27,610
7,430
7,443
393,084
(418,283)
37,929
4,032
16,762
(6,066)
(6,066)
7,900
7,959
392,424
(412,216)
35,411
4,032
19,651
(69,618)
(69,618)
The parent entity has not guaranteed the liabilities of its subsidiaries as at 30 June 2017.
Contingent liabilities
There are no active or pending insurance or legal claims outstanding by the parent as at the date of this report.
Contractual commitments
The parent entity does not have any contractual commitments for the acquisition of property, plant or equipment.
D7. Other accounting policies
Since 1 July 2016, the Group has adopted the following Standards and Interpretations, mandatory for all annual
reporting periods beginning on or after 1 July 2016. Adoption of these Standards and Interpretations did not have any
effect on the financial position or performance of the Group.
•
•
•
AASB 2014-4 Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of
Depreciation and Amortisation;
AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting
Standards 2012–2014 Cycle; and
AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101.
Several new standards, amendment of standards and interpretations have recently been issued but are not yet effective
and have not been adopted by the Group as at the financial reporting date. The Group has reviewed these standards
and interpretations, and except for the items listed below for which the final impact is yet to be determined, none of
the new or amended standards will significantly affect the Group’s accounting policies, financial position or
performance.
•
•
•
•
•
AASB 2016-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 107;
AASB 9 Financial Instruments, the Group does not expect that the adoption of AASB 9 Financial Instruments will
have a material effect on the financial statements;
AASB 15 Revenue from Contracts with Customers, and relevant amending standards, the Group did not have any
Revenue that would be impacted by the adoption of AASB 15;
AASB 16 Leases, it is likely that the Group’s operating leases will be brought onto the balance sheet having an impact
on assets and liabilities similar to the extent of the minimum lease payments outlined in note A4; and
AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based
Payment Transactions.
93
LIQUEFIED NATURAL GAS LIMITED
DIRECTOR’S DECLARATION
DIRECTORS’ DECLARATION
In accordance with a resolution of the directors of Liquefied Natural Gas Limited, I state that:
In the opinion of the directors:
(a) the financial statements and notes of the consolidated entity are in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the consolidated entity’s financial position as at June 30, 2017 and of its
performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001;
(b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in
About This Report;
(c) there are reasonable grounds to believe that the consolidated entity will be able to pay its debts as and when they
become due and payable; and
(d) this declaration has been made after receiving the declarations required to be made to the directors in accordance
with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2017.
On behalf of the Board
___________
Paul J Cavicchi
Chairman
Houston, Texas U.S.A.
September 14, 2017
_
_
_
_________________
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
94
LIQUEFIED NATURAL GAS LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
AUDITOR’S INDEPENDENCE DECLARATION
__________________________________________________________________________
95
LIQUEFIED NATURAL GAS LIMITED
INDEPENDENT AUDIT REPORT
INDEPENDENT AUDITOR’S REPORT
__________________________________________________________________________
96
LIQUEFIED NATURAL GAS LIMITED
INDEPENDENT AUDIT REPORT
__________________________________________________________________________
97
LIQUEFIED NATURAL GAS LIMITED
INDEPENDENT AUDIT REPORT
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LIQUEFIED NATURAL GAS LIMITED
INDEPENDENT AUDIT REPORT
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LIQUEFIED NATURAL GAS LIMITED
ASX ADDITIONAL INFORMATION
ASX ADDITIONAL INFORMATION
Additional information required by the ASX and not shown elsewhere in this report is as follows. The information is
current as at September 8, 2017.
a) Distribution of equity securities
(i) Ordinary share capital
▪
512,979,962 fully paid ordinary shares are held by 9,540 individual shareholders.
All ordinary shares (whether fully paid or not) carry one vote per share without restriction and carry the rights
to dividends.
(ii) Performance rights
▪
13,633,476 unlisted performance rights over ordinary shares are held by 41 holders.
The rights do not carry a right to vote. The number of performance rights reported on 12 July 2017 in the
Appendix 3B (14,803,476) has reduced by 1,170,000 due to the forfeiture of Performance Rights by an
Executive who has left the Company.
b) The number of shareholders, by size of holding, in each class of share are:
1 –
1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
The number of shareholders holding less than a
marketable parcel of shares are:
Fully paid
ordinary shares
Number of
holders
Options
Number of
holders
Performance
rights
Number of
holders
2,262
3,112
1,595
2,285
286
9,540
1,725
-
-
-
-
-
-
-
-
1
-
15
25
41
-
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LIQUEFIED NATURAL GAS LIMITED
ASX ADDITIONAL INFORMATION
c)
Twenty largest shareholders
The names of the twenty largest holders of quoted shares are:
Listed ordinary shares
Ordinary shares
Number of
shares
Percentage of
ordinary shares
1
2
3
4
5
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited- GSCO ECA
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
6 Merrill Lynch (Australia) Nominees Pty Limited
7
8
HSBC Custody Nominees (Australia) Limited - A/C 2
BNP Paribas Noms Pty Ltd
9 Mr. Andrew Bruce & Mrs Wendy Bruce
10 Mr. Bassam Abou Chahla & Ms. Cherie Abou Chahla
11
HSBC Custody Nominees (Australia) Limited
12 Mr. Paul Bridgwood
13
14
15
HSBC Custody Nominees (Australia) Limited
SPO Equities Pty Limited >
BNP Paribas Nominees Pty Ltd
16 Garden Verde Pty Ltd
17
18
BNP Paribas Nominees Pty Ltd
Kevin Barry Building Service Pty Ltd
19 National Nominees Limited
20 Mr Phillip John Harvey
Substantial shareholders as at August 31, 2017
Ordinary shareholders
The Baupost Group (Boston)
Valinor Management, LLC (New York)
d) Cash used in operations
92,708,437
48,635,510
47,342,789
44,408,245
24,810,387
24,628,082
15,741,406
11,584,820
8,800,000
8,123,580
4,160,285
3,414,261
3,042,000
2,824,652
2,480,431
1,760,346
1,667,674
1,625,000
1,354,680
1,200,010
18.07
9.48
9.23
8.66
4.84
4.80
3.07
2.26
1.72
1.58
0.81
0.67
0.59
0.55
0.48
0.34
0.33
0.32
0.26
0.23
350,312,595
68.29
Fully paid
Number
Percentage
62,340,529
41,967,223
104,307,752
12.2
8.2
20.4
Since the date of the Company’s admission for official quotation of its shares on the ASX, being September 14, 2004,
the Company and the Group have employed the funds raised, at the time of official quotation, in a manner and for
purposes consistent with that detailed in the Company’s July 2004 Prospectus.
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