LIQUEFIED NATURAL GAS LIMITED
ABN 19 101 676 779
ANNUAL REPORT
FOR THE YEAR ENDED
JUNE 30, 2018
1
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 ................................................................... 5
DIRECTORS’ REPORT ...................................................................................................................................... 14
REMUNERATION REPORT (AUDITED) ............................................................................................................. 25
CORPORATE GOVERNANCE STATEMENT ........................................................................................................ 52
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME ..................................................... 67
STATEMENT OF FINANCIAL POSITION ............................................................................................................ 68
STATEMENT OF CHANGES IN EQUITY ............................................................................................................. 69
STATEMENT OF CASH FLOWS ......................................................................................................................... 70
NOTES TO THE FINANCIAL REPORT ................................................................................................................ 71
DIRECTORS’ DECLARATION ............................................................................................................................ 92
AUDITOR’S INDEPENDENCE DECLARATION .................................................................................................... 93
INDEPENDENT AUDITOR’S REPORT ................................................................................................................ 94
ASX ADDITIONAL INFORMATION ................................................................................................................... 98
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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,
We are pleased to report to our shareholders that liquefied natural gas (LNG) demand is in a period of rapid
expansion. Strong global economies coupled with demand for cleaner fuels is driving this growth.
For LNG suppliers, the 2017/18 winter market ended on a high basis, with Asian LNG prices close to $US10 per
million BTU. These higher prices were achieved even with the global LNG market absorbing approximately 30
million tonnes per year of additional supply. These outcomes were in stark contrast to 2016/17 forward market
forecasts thereby indicating acceleration in LNG demand and potentially future supply constraints.
These positive market indicators continued throughout 2018 with seasonally robust spot LNG prices, a
strengthening European natural gas market, and an overall stronger energy market globally. These factors all
contribute to a business environment supportive of new LNG investment reflecting the following emergent
themes:
• Gas displaces coal;
•
Increasing global electrification;
• Non-traditional markets view gas as a preferred fuel;
• Gas and LNG play an important role in lowering the carbon intensity of economic growth;
• Gas provides reliable power that supports renewables; and
• As gas demand grows; LNG demand grows faster.
With increasing demand and unsustainably low numbers of recent financial investment decisions (FIDs) for new
liquefaction facilities globally, a tighter LNG market will unfold. As such, we believe Liquefied Natural Gas Limited
is extremely well positioned to bring new LNG supply to the market in a timely manner.
Our Magnolia LNG project is the most mature of all the competing U.S. Gulf Coast greenfield LNG
projects. Likewise, our Bear Head LNG project is fully permitted and is looking to partner with producers to
export gas to global markets. In addition, our OSMR® liquefaction technology provides environmental attributes
coveted by the evolving global gas markets. Coupled with the industry knowledge and project execution
experience of our team, we are excited by the current opportunities.
We are now working extremely hard to progress our projects to a positive financial investment decision. The
combination of the “shovel-ready” Magnolia LNG project with increasingly supportive market conditions fuels
our confidence to achieve success. We anticipate to contract facility off-take from world class credit worthy
companies and to begin construction of the project.
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, 2018.
Paul J Cavicchi
Chairman
Houston, Texas U.S.
September 21, 2018
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MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER’S REPORT
Meeting increasing global energy demand while reducing ecological impacts is challenging. Even assuming
significant future gains in efficiency, the world’s demand for energy is expected to grow by 30% between now
and 2040, driven by an increasing global population, economic growth, and increased urban populations. Rising
demand is expected to be concentrated in China, India, Africa, the Middle East, and South-East Asia. Today’s
energy mix is responsible for two-thirds of global greenhouse gas emissions, and has a significant impact on air
quality, particularly in densely populated urban areas.
The global drive is to cut greenhouse gas emissions and improve air quality, while meeting energy needs. To do
this, a transformation of the global energy system is occurring across power generation, industry, transport, and
climate control systems. Natural gas is a key component in providing more and cleaner energy around the world.
Gas emits between 45% and 55% lower greenhouse gas emissions than coal when used to generate electricity.
Compared to coal plants, modern natural gas-fired power plants also emit less than one tenth of the pollutants.
Natural gas – both pipeline and LNG – supports the integration of variable renewable power generation because
it can quickly compensate for dips in solar or wind power supply and rapidly respond to sudden increases in
demand. The rapid growth of LNG is helping increase energy supply, security, diversity, and flexibility.
Demand for LNG was strong in 2017 with a clear “pull” from countries instead of a push of volumes seeking a
home. This was like 2016, but during 2017 the demand pull was from legacy gas and LNG importers in Asia and
Southern Europe; whereas 2016 was characterized by a pull from new areas of demand. Asian demand grew by
more than 17 million tonnes, beating industry predictions for the year. That is nearly as much as the total volume
that Indonesia, the world’s fifth largest exporter, produced in 2017. There was also significant demand from
Southern Europe, which imported an additional 10 million tonnes, double the forecasts. There was a decline in
the number of LNG deliveries to North West Europe, a sign that LNG volumes were “pulled” into other countries
with higher netbacks for suppliers. Japan remains the world’s largest LNG importer, followed by China, which
eclipsed South Korea for the first time.
In China, government initiatives to increase gas use are taking effect. New Chinese energy policies targeting
urban air pollution, coal power retirements and reliability for renewables are expected to create additional
natural gas and LNG demand upside. LNG imports have filled over 50% of gas demand growth in China over the
last two years, and this is expected to continue until the pipeline from Russia and domestic supply comes online
in the early 2020s. The Chinese government targets gas having a 15% share of the energy mix by 2030, up from
6% in 2017. Much of this growth is likely to come from LNG imports.
In South Korea, policy shifts away from coal and nuclear power have caused a surge in LNG demand. In India,
LNG import capacity is expected to increase rapidly through to 2021, removing potential logistical constraints
on demand growth. Seasonal price spikes, particularly in the northern hemisphere winter, continue to expose
buyers to significant price risk. Recent spot prices in Asia further reflect a tightening of the supply / demand
imbalance as spot prices have remained in double digits since the first of the year.
With emergent demand upside and potential delays for new projects under construction, the market is
tightening earlier than many forecasters anticipated. Following the wave of investment from 2011 to 2015, FIDs
on LNG projects have nearly stopped. As LNG projects generally take more than four years to start production,
new supply will not be ready until well into the next decade.
By taking FID at Magnolia LNG, LNGL will represent an early entrant into this rising demand profile.
FISCAL 2018
We continue to focus 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 consistent with our cash management plan.
We are pleased to have completed a share sale to a subsidiary of IDG Energy Investment, which is an affiliate of
IDG Capital, a leading Chinese-based investment firm. The transaction provided LNGL with a significant increase
in liquidity that supports our continuing marketing efforts.
We remain confident in our strategy and approach.
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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.
THE COMPANY
Liquefied Natural Gas Limited (LNGL) is an Australian public company based in Perth, Western Australia.
Founded in 2002, LNGL listed on the Australian Stock Exchange (Code: LNG) in 2004, and on the U.S. over-the-
counter market in 2014 (OTC ADR: LNGLY).
The Company is developing LNG export terminal projects in the United States and in Canada having combined
aggregate design production capacity of 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.;
• 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®) liquefaction
process technology.
VISION, MISSION, VALUES, STRATEGY
Our Vision is to be the world's premier provider of mid-scale LNG liquefaction solutions.
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.
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. We embrace
as core values the virtues of a safe and diverse workplace; a performance culture that awards integrity,
innovation, and respect for others; and a business approach that partners with all stakeholders to deliver our
strategy while minimizing impacts to the ecology.
This focused approach distinguishes LNGL as a pure LNG infrastructure investment opportunity.
Our business model applies LNGL’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; and
Path 3: License the OSMR® technology to third-parties.
LNGL'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 LNG development and processing technology to
ensure LNGL’s LNG terminal development projects are world competitive in terms of capital and operating costs,
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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.
We are continually evaluating additional growth opportunities that would benefit from our 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 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 LNGL’s wholly owned and patented OSMR® technology. KSJV, a
joint venture between KBR and SK E&C, is undertaking EPC contracting efforts with KBR leading the joint venture
team. The project will be constructed under a fixed price, turnkey EPC contract.
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 capacity of the project. Feed gas supply
will originate from the highly liquid U.S. Gulf Coast gas market via multiple gas suppliers and delivered to the
site through interconnections to the extensive U.S. natural gas pipeline system.
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
Magnolia LNG and KSJV have agreed a binding lump sum turnkey (LSTK) EPC contract for construction of the
LNG export facility. Key contract specifics follow.
• US$4.354 billion LSTK price, validity to December 31, 2018
•
Scope:
–
–
–
–
–
Four liquefaction trains having capacity of 2.0 mtpa per train or greater
Two 160,000m3 full containment LNG storage tanks
Ship, barge & truck loading, supporting infrastructure, and all required post-FID approvals and licenses
Expectation for EPC guaranteed production of 7.6 mtpa
EPC guaranteed 92 percent feed gas energy efficiency, LNG plant/utilities fuel gas consumption of eight
percent or less
LSTK plant design utilizing LNGL’s patented OSMR® technology
Full wrap LSTK EPC contract, jointly and severally guaranteed by the KSJV and its individual joint venture
partners
EPC contract scope includes:
–
Siemens and Chart costs (compressors, cold boxes, turbines)
•
•
•
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– Mobilization and de-mobilization costs
– Capital spares and contractor provided insurances
– Profit, risk/liability funds, escalation, and contingency amounts
•
Final design capacity shall be based on closing design at FID
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
interest, financing fees, and lender’s contingency amounts, which amounts will be determined at financial close.
Equity Commitment
Equity financing for Magnolia LNG shall be provided pursuant to the terms and conditions in the Amended and
Restated Equity Commitment Agreement (ECA) with Stonepeak Infrastructure Partners (Stonepeak). The ECA
governs the relationship, cooperation, rights, and obligations between Stonepeak and LNGL through Financial
Close of Magnolia LNG. Operations will be conducted pursuant to the terms and conditions of the associated
Magnolia LLC Agreement (LLC Agreement), which addresses 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. 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;
•
•
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; and
• 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 capacity.
Detailed information on the Magnolia LNG project is available on LNGL’s website: www.lnglimited.com.au under
“Assets”.
BEAR HEAD LNG PROJECT, POINT TUPPER, NOVA SCOTIA, CANADA
Bear Head LNG Project Overview
Bear Head LNG is a proposed 8 - 12 mtpa LNG export terminal on a 327-acre site in Point Tupper, Richmond
County, Nova Scotia, located on the naturally deep, ice free waters of the Strait of Canso. 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.
Bear Head LNG has received all the required 10 initial Canadian federal, provincial, and local regulatory approvals
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to construct a liquefied natural gas export facility, as well as commercial approvals important to gas supply and
export destinations.
KBR has developed Phase I front end engineering and design (FEED) for the export terminal. 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 Project Overview
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. All required permits and approvals for construction have been
granted.
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. The project will include a required
compressor station to deliver specific and constant natural gas pressure to Bear Head LNG.
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 Nova Scotia Environment (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 National Energy Board 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.
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 U.S. Department of Energy (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.
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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: Western and Central Canada,
U.S., and offshore Nova Scotia.
Feed gas supply to Bear Head LNG requires construction of incremental long-haul pipeline capacity to connect
to onshore production sources in Western and Central Canada. New pipeline capacity is also required to connect
to other North American gas sources to enable full capacity production at Bear Head LNG. The construction of
this pipeline capacity is dependent upon Bear Head LNG’s ability to partner with pipeline companies and
producers having sufficient sources of liquidity to underpin pipeline capacity development and construction.
Bear Head LNG has worked with pipeline companies in route study analyses to explore the viability of
transporting natural gas from TransCanada’s Alberta system (NGTL) to the Bear Head LNG site. Based on
outcomes from this work in combination with indicative Bear Head LNG tolling rates, LNGL 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. LNGL 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 LNGL’s website:
www.lnglimited.com.au under “Assets”.
FISHERMAN’S LANDING LNG
On April 17, 2018, LNGL announced execution of a Share Sale Agreement with LNG Queensland Pty Ltd
(Queensland) for the sale of all the shares of LNGL’s wholly-owned subsidiary, Gladstone LNG Pty Ltd to
Queensland. In return, LNGL received a total of US$1,000,000 and the right to an additional $4 million payment
contingent upon future development by Queensland of an LNG project at the Fisherman’s Landing Gladstone
site. LNGL exited development of the Fisherman’s Landing LNG project effective with closure of the transaction.
OSMR® PATENTS and LNG TECHNOLOGY PTY LTD
LNG Technology Pty Ltd designed and patented the 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.
OSMR® combines multiple elements in an advantageous configuration that LNGL believes achieves industry-
leading levels of capital and operating cost, energy efficiency, system reliability, and associated lower air
emissions. There is no untested equipment, theoretical technical advances, or “black box” applications
contained in the OSMR® technology design or implementation strategy.
OSMR® was originally designed and patented for application in Australia for liquefying lean feed gas streams
produced from coal seam gas resources in Eastern Australia. As a result, the OSMR® technology is very adaptable
for use in all types of natural gas producing areas, including areas having very lean feed gas streams or low liquid
content pipeline quality gas at the plant inlet, such as in the U.S. Gulf Coast.
OSMR® is fundamentally a single mixed refrigerant (SMR) liquefaction process currently in use in approximately
70% of global LNG liquefaction operations today. The traditional and industry proven SMR process is optimized
in four primary areas:
1.
Independent 2-in-1 liquefaction train systems;
10
2. Use of ammonia to pre-chill the mixed refrigerant;
3. Use of a combined cycle gas turbine energy recovery system; and
4. A boil-off gas (BOG) handling system that repurposes the BOG into LNG.
OSMR® technology’s design maximizes the utilization of well-proven supplier and industry standards to avoid
custom-designs. Modular construction in established and experienced fabrication yards improves project
quality, provides a high degree of schedule control, and represents an inherently safer construction
methodology. Fabrication yard construction in the global region leverages the most competitive fabrication
costs at the time the project executes, isolating the project from localized or regional cost bubbles. Utilizing
modular fabrication reduces the extent of site temporary facilities and temporary laydown requirements,
substantially reducing the overall construction costs and required access to land.
Each train consists of five modules. Each module is largely self-contained, substantially reducing the number of
interconnects between modules upon arrival at the site. The five modules align in the following configuration:
Module 1 – Pretreatment and heavy hydrocarbon removal;
Module 2 – Ammonia refrigeration;
Module 3 – Ammonia refrigeration;
Module 4 – Liquefaction; and
Module 5 – Liquefaction.
The combination delivers an independent 2-in-1 parallel liquefaction design - two cold box sets, two SMR coolant
loops, and associated independent drivers, which enhance system reliability and operational flexibility. OSMR®
technology’s system process follows, with the key optimized SMR components bolded for emphasis.
• Amine system
• Dehydration units
• Mercury guard beds
• Turbo-expander
removes unwanted
hydrocarbons & BTX
• Flexible turndown
matches 2-in-1
liquefaction design
• > 20% more efficient than propane systems
• Closed-loop ammonia system
• Driven by combined-cycle steam power
• Limited on-site ammonia storage
• Ammonia attributes:
‒ Superior thermodynamic qualities
‒ Zero GWP and zero ODP
‒ Non-flammable and non-explosive
‒ Toxicity managed with proven systems
(EPA/OSHA)
• SMR process (> 70% of global
capacity)
• Independent 2-in-1 system
• High availability with superior
flexibility and turndown
• Inlet air cooled gas-fired
turbines
• Single stage compressor
• Standard-sized Chart coldboxes
• BOG re-capture
LNGL continues with its international patent applications, which cover two engineering design features (being
the basis of LNGL’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.). LNGL 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 LNGL 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 LNGL’s website: www.lnglimited.com.au under “Assets”.
11
CORPORATE
Funding sources and Liquidity Management Plan
At June 30, 2018, LNGL had A$22.5 million in cash and cash equivalents on deposit and $28.2 million in short-
term investments. These funds are considered sufficient to meet LNGL’s obligations as they come due through
mid-year 2020, assuming the current average monthly cash outlay. The increase in cash and cash equivalents in
the period primarily reflects the May 2018 equity raise of A$28.2 million, before transaction costs, through
issuance of 56,444,500 ordinary shares at A$0.50 per ordinary share to a related entity of IDG Capital, Mulliner
Investment Limited.
LNGL is continuing to execute under the liquidity management plan (LMP) originally implemented in December
2015. Through applying our LMP, LNGL estimates that the existing cash position can sustain the company
through mid-year calendar 2020 at current average monthly cash outflow.
Should offtake capacity be sold in sufficient quantities to progress one or more of its projects to financial close,
LNGL anticipates reimbursement of a portion of its development costs through project financing proceeds. LNGL
estimates that this reimbursement would provide sufficient incremental liquidity to maintain operations to first
LNG. In the event offtake sales need more time to secure, new sources of liquidity available to LNGL 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 external events limit LNGL’s access to new sources of liquidity,
LNGL maintains the ability to further reduce its cash outflow as most expenditures are discretionary.
Financial results
During the financial year, net assets of LNGL and its controlled entities increased by A$6.0 million, from A$54.4
million as at July 1, 2017 to A$60.4 million as at June 30, 2018, primarily reflecting operating results for the
period in combination with the A$28.2 million of proceeds from the sale of 56,444,000 ordinary shares.
LNGL’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 2018 totaled A$11.4 million compared with A$12.4 million expensed during fiscal 2017.
LNGL’s net loss after income tax for the year ended June 30, 2018 totaled A$22.8, which compared with a loss
of A$29.3 million in the year ended June 30, 2017. The 2018 fiscal loss included the aforementioned project
development costs of A$11.4 million, A$1.2 million of share-based payment expenses, and A$12.3 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.
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.
12
OUTLOOK
As emphasized throughout this discussion, we are focused on signing additional legally binding investment-grade
offtake agreements that enable FID on our projects.
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 who 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 21, 2018
13
Your directors submit their report for the fiscal year ended June 30, 2018.
DIRECTORS’ REPORT
DIRECTORS
The names and details of LNGL’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.
Mr. Paul J Cavicchi, Non-Executive Chairman
Residence: Houston, Texas, U.S.
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. Most recently Mr.
Cavicchi’s served as Executive Vice President of GDF SUEZ Energy North America, Inc. (GSENA) from 2009 to
2014. Prior to that Mr. Cavicchi had been President and CEO of SUEZ Renewable Energy NA, LLC from 2007 to
2008, and before that President and CEO of SUEZ Energy Generation North America, Inc., from 2005 to 2006.
Mr. Cavicchi served as Division President of Tractebel Project Development Inc. from 1995 to 2004, and Vice
President, Venture Development of American Tractebel Corporation from 1991 to 1995.
Independent: Yes
Other directorships and affiliations:
No other directorships
Registered Professional Engineer, State of New Hampshire, U.S.
Skills contributed to the LNGL Board include:
•
•
Project management
• Risk management
Legal and regulatory
• 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, U.S.
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
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,
14
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. Prior to that he led Chevron Technology Ventures
from 2001 to 2006 where he was responsible for creating a portfolio of new opportunities in technology
commercialization, emerging energy and Chevron's venture capital investing. Mr. Vesey served on the board
of Natural Gas Supply Association of America from 2011 to 2015 and served as chairman from 2013 to 2015.
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
• Risk management
Legal and regulatory
• Business strategy
•
•
International experience
Contracts and negotiation
Project management
• Mergers and acquisitions
• Audit and accounting
• Government and community
•
relations
Project engineering,
construction, and execution
• Marketing and business
development
•
Corporate governance
• Health and safety
Mr. Richard Jonathan Beresford, Non-Executive Director
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. Mr. Beresford also serves as a director of Eden Energy Limited (ASX: EDE) from
2007. Mr. Beresford held the position of Executive Chairman of Green Rock Energy Limited (ASX: BKT), a Perth
based energy explorer and developer from 2012 to 2015. Prior to his appointment as Executive Chairman he
was the Managing Director and a non-executive director from 2008 to 2012. Prior to that Mr. Beresford was
Head of Gas Strategy and Development of CLP Power Hong Kong Limited from 2005 to 2007. Prior to that Mr.
Beresford spent five years with Woodside Petroleum Limited and 12 years with British Gas Plc.
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:
Bombora Wave Power Pty Ltd (from October 2017)
Eden Innovations Ltd. (May 2007 to May 2018)
Clearer Sky Pty Ltd (since 2001)
Skills contributed to the LNGL Board:
---
---
Oct ’15 – Jan ‘16
May ‘04 – Oct ‘15
•
•
Technology and innovation
• Risk management
Legal and regulatory
• Business strategy
•
•
International experience
Contracts and negotiation
15
•
Project management
• Mergers and acquisitions
•
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:
QADO Services Pty Ltd (from May 2018)
Synertec Corporation Limited (from August 2017)
Clean Energy Finance Corporation (since 2017)
Queensland Building and Construction Commission (since 2016)
Snowy Hydro Limited (since 2015)
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
16
Philip D. Moeller, Non-Executive Director
Residence: Washington D.C., U.S.
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 currently serves as the Executive Vice President, Business Operations Group and
Regulatory Affairs with the Edison Electric Institute. Prior to that Mr. Moeller served as Commissioner of the
Federal Energy Regulatory Commission (FERC) from 2006 to 2015. Prior to serving on the Federal Energy
Regulatory Commission he headed the Washington office of Alliant Energy from 2002 to 2006, worked as the
Director of Federal Relations of Calpine Corporation from 2001 to 2002, and served on the Washington, D.C.
staff of Senator Slade Gorton from 1997 to 2001. Prior to that he was the staff coordinator of the Washington
State Senate Energy, Utilities and Telecommunications Committee from 1987 to 1997.
Independent: Yes
Other directorships and affiliations: none
Skills contributed to the LNGL Board include:
•
•
Corporate governance
• Risk management
Legal and regulatory
• Business strategy
• Health and safety
•
Environmental and
sustainability
Mr. D Michael Steuert, Non-Executive Director
Residence: Roanoke, Texas, U.S.
•
•
•
Contracts and negotiation
Corporate governance
Cybersecurity
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
Safety, Sustainability, People, and Culture
Compensation
Chair
---
Member
From Feb 2015
From Oct 2015
Feb ‘15 – Oct ‘15
---
---
From Jan 2016
From Apr 2018
Experience: Mr. Steuert has nearly 40 years of international finance management experience. Mr. Steuert
also serves on the board of directors of Weyerhaeuser Corporation since 2004; and Great Lakes Dredge and
Dock Company since January 2017. Mr. Steuert served on the board of Prologis, Inc. from 2003 to 2015 and
Kurion Inc. from 2012 to 2016. Mr. Steuert’s most recent executive position was as Chief Financial Officer and
Senior Vice President and Principal Accounting Officer of Fluor Corporation from 2001 until his retirement in
2012. Previously Mr. Steuert has been CFO of Litton Industries from 1999 to 2001; Chief Financial Officer and
Senior Vice President of GenCorp Inc. from 1990 to 1999; and prior to that, held developmental controllership
and treasury positions in U.S. and Europe with TRW Inc.
Independent: Yes
Other directorships and affiliations:
Weyerhaeuser Corporation (since 2004)
Great Lakes Dredge and Dock Company (since 2016)
17
Kurion Inc. (2012 to 2016)
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 Corporate Governance and Nominating Committee.
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, ten 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
10
10
10
10
10
10
10
6
6
---
6
6
---
---
4
---
---
---
4
4
4
2
2
---
2
---
2
---
2
---
---
---
2
2
2
All Directors were eligible to attend all meetings held during the year.
SHARES, OPTIONS, AND PERFORMANCE RIGHTS
Shares
At June 30, 2018, there were 570,146,456 (2017: 512,979,962) common shares on issue.
Incentive Rights
At June 30, 2018, there were 11,532,273 (2017: 12,131,299) un-issued ordinary shares under Rights granted
pursuant to LNGL’s Incentive Rights Plans. The outstanding Rights include Performance Rights, Retention Rights,
and NED Rights. The following chart provides a rollforward of total Rights granted, forfeited / lapsed, vested,
and remaining outstanding for the three years in the reporting period ending June 30, 2018.
18
Grant Date
Nov 2014
Nov 2015
Nov 2016
Nov 2017
Type
NED
NED
NED
NED
Status
Settled
Settled
Settled
Open
Grant
Forfeit / Lapse
Vest
Outstanding
77,101
73,111
732,304
776,060
---
---
---
---
77,101
73,111
732,304
---
---
---
---
776,060
Jan 20141 2
Performance
Settled
10,497,590
3,299,195
7,198,395
Performance
Settled
2,591,963
2,591,963
Performance
Settled
3,420,194
3,420,194
Jul 20141
Jul 20151
Jul 20161
Jul 20161
Jul 20171
Performance
Retention
Performance
Jul 20171 3
Retention
Feb 2018
Performance
Feb 2018
Retention
Net Rights outstanding at June 30, 2018
Open
Open
Open
Open
Open
Open
4,129,580
2,530,920
4,083,000
2,722,000
180,000
120,000
746,400
366,637
654,000
402,500
---
---
---
---
---
3,383,180
2,164,283
3,429,000
---
---
---
---
---
839,750
1,479,750
---
---
180,000
120,000
11,532,273
1 Includes Rights issued to Managing Director and Chief Executive Officer granted pursuant to shareholder vote at applicable AGM.
2 Vested rights were distributed to eighteen eligible, predominantly Australian personnel of which only five remain employed by LNGL,
none of whom are KMP.
3 Vested rights include 430,000 allocated to current KMP members.
Options
At June 30, 2018, 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
LNGL’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.
SUSTAINABILITY DEVELOPMENT
Greenhouse gas (GHG) emissions, carbon emissions, carbon efficiency, and energy efficiency are all drawing
increased attention associated with growing concerns about global climate change and associated
environmental damage. LNGL works to avoid, mitigate, and minimize environmental impacts where we do
business, seeking to create mutually supporting economic and environmentally sustainable solutions. We
recognize that climate change and limits on carbon emissions pose potential long-term risks to achieving LNGL’s
Vision.
Natural gas is the hydrocarbon fuel with the lowest carbon emission intensity, emitting lower quantities of
carbon per unit quantity of heat than any other hydrocarbon including coal, oil, oil-based products (i.e. gasoline,
bunker fuel), and propane. Displacing coal with natural gas reduces power plant GHG emissions by
approximately fifty percent, as well as reducing or eliminating the emissions of oxides of nitrogen (NOx), sulphur,
particulates, and mercury. Natural gas is broadly viewed as a “bridge fuel” while the world moves in the direction
of increasing renewables, providing a means to substantially reduce carbon emissions on an immediate basis.
Natural gas also serves a complementary role with renewable energy, providing reliable and fast acting back-up
power during periods when renewable power output becomes limited due to weather conditions or day-night
cycles.
19
The production of LNG from natural gas is highly efficient, with nominally 90-92% of the energy value of the feed
gas delivered into the LNG. LNGL’s patented OSMR® technology offers a range of economic, ecological, and
social benefits, with the objective being reduced capital and operating costs, a smaller environmental footprint,
and simple start-up and operation. OSMR® technology is energy efficient, combining the use of ammonia as a
pre-cooling refrigerant, high efficiency gas turbines, use of combined cycle to further improve gas turbine cycle
efficiency, and low-pressure boil-off gas re-liquefaction into a process delivering the lowest fuel use and CO2
emissions available. Ammonia is classified as a natural refrigerant (naturally occurring in the biochemical
process), with a global warming potential (GWP) of zero and an ozone depletion potential (ODP) of zero, in
addition to being inherently more energy efficient than other commonly used LNG pre-cooling refrigerants. Both
Greenpeace and the United Nations Environment Programme (UNEP) support the use of natural refrigerants
including ammonia. Overall, OSMR® technology results in a minimum two percent improvement in the
liquefaction plant energy efficiency. For an 8 mtpa facility such as Magnolia LNG, this translates into a reduction
in CO2 emissions of 500,000 metric tonnes annually compared to the best conventional technologies.
To address sustainable development broadly including the topic of carbon emissions, LNGL reviewed programs
used globally, including Global Reporting Initiative (GRI), formerly the Carbon Disclosure Project (CDP), Climate
Disclosure Standards Board (CDSB), and Task Force on Climate-related Financial Disclosures (TCFD). LNGL is
currently in the development stage, with no operating assets and consequently most of these global programs
do not align closely with our activities. Based on our review, we have selected the United Nations Division for
Sustainable Development Goals (DSGS) program as the framework for our current sustainability activities.
The United Nations (UN) identifies Sustainable Development as, “Development that meets the needs of the
present without compromising the ability of future generations to meet their own needs.” To this end, in
September 2015, the UN adopted a set of 17 specific Sustainable Development Goals (SDG’s) with a target of
achieving them by the year 2030.
In a similar manner, we seek to understand where our organization has material exposure to economic,
environmental, and social sustainability risks, and how we can manage or intend to manage these risks. The
ability to manage our business in a sustainable manner can result in a substantial impact on our long-team
viability, as well as the long-term impact LNGL has on society and the environment.
Of the 17 SDGs, LNGL has identified six where we believe our performance can directly and positivity impact on
them within the communities where we are working to develop our projects:
Goal 7: Affordable and Clean Energy;
Goal 8: Decent Work and Economic Growth;
Goal 9: Industry, Innovation and Infrastructure;
Goal 11: Sustainable Cities and Communities;
Goal 12: Responsible Consumption and Production; and
Goal 13: Climate Action.
Following is an overview of how we are working within our projects to support these five key topics.
Affordable and Clean Energy
Access to affordable energy underpins economic growth and is essential to the aspiration of ending global
poverty. According to the UN, energy is central to nearly every major challenge and opportunity the world faces
today. Jobs, security, climate change, food production, and improved family incomes all require access to
affordable energy as an essential element to achieve success. Energy is fundamental to transforming lives and
economies. Yet today, one in five people on our planet lack access to modern electricity, and nominally three
billion people rely on wood, coal, charcoal, or animal waste for cooking and heating. While we seek to improve
this imbalance, we must also recognize that inefficient production of energy has been identified as a major
potential contributor to climate change. So as a society we are faced with a need to significantly improve access
to energy as a means to fight poverty, but we must do this in a way which minimizes carbon intensity at the
same time.
We consider our OSMR® natural gas liquefaction technology to be a part of the solution. The patented OSMR®
technology enables LNG to be produced using less energy than conventional technologies, generating lower
greenhouse gas emissions per unit volume of product. The OSMR® technology also results in lower priced
20
facilities and optimized operations costs, enabling cleaner burning natural gas to compete more economically
with coal and oil. Since natural gas generates substantially less CO2, particulate emissions, and other pollutants
than coal and oil do for the same quantity of energy delivered, better economics increase the opportunity to
use natural gas in place of these traditional energy sources, improving our environment. Additionally, while
natural gas is a fossil fuel, the highly flexible nature of natural gas fueled power plants make gas a superior choice
to complement renewable energy to maintain stability in modern power grids during periods of low sunlight or
wind availability.
Decent Work and Economic Growth
According to the UN, sustainable economic growth will require societies to create the conditions that allow
people to have quality jobs that stimulate the economy while not harming the environment. Job opportunities
and decent working conditions are required for the entire spectrum of the working age population. LNGL has
commissioned economic studies associated with our Magnolia LNG project, which can be extrapolated to its
sister project Bear Head LNG as well.
Magnolia LNG is committed to fostering the growth of a skilled local workforce to build a sustainable, mutually
beneficial relationship with the region and state. Magnolia will generate approximately 190 high paying direct
permanent jobs in the City of Lake Charles and the regional southwest Louisiana area. These permanent direct
jobs are expected to generate an additional 1,200 indirect jobs in the region. In the nearer term, the construction
of the Magnolia facilities will require 1,500 craft labor, supervisory and support personnel at the site, as well as
hundreds of jobs in the supplier shops and fabrication yards where Magnolia LNG equipment, materials, and
modules will be produced.
The modular construction strategy adopted as part of the OSMR® technology serves to minimize the “boom-
bust” cycle that too often accompanies major facility development, as the influx of temporary craft labor to
support construction is reduced with quantities of work directed to established module fabrication yards.
The economic impact of Magnolia LNG on southwest Louisiana is substantial. About US$700 million will be
invested in Calcasieu Parish (Parish), which in turn is projected to generate nearly US$1.3 billion in new sales in
the Parish, US$380 million in new household earnings and millions in associated sales tax collections for the
Parish government. Globally, the total direct spend just to deliver Magnolia LNG into operations will approximate
US$6 billion including engineering, procurement, fabrication, construction, Owner’s costs and the cost of
financing construction.
To support preparation for this growth, LNGL has partnered with McNeese State University and SOWELA
Technical Community College in Lake Charles, and with Cape Breton University in Nova Scotia to align
engineering and technical education programs with the future needs of our regional projects.
Industry, Innovation and Infrastructure
According to the UN, investments in infrastructure – transport, irrigation, energy and information, and
communication technology – are crucial to achieving sustainable development and empowering communities.
It has long been recognized that growth in productivity and incomes, and improvements in health and education
outcomes require investment in infrastructure.
LNGL’s projects are fundamentally energy infrastructure projects. They enable clean burning natural gas to be
transported from regions of plenty to regions of scarcity. Global natural gas demand and consumption is
predicted to grow substantially during the next 20 – 30 years as more and more regions of the world begin to
access this fuel for power generation, industry, fertilizer production, home heating, and transportation. The
energy infrastructure delivered by LNGL will help to ensure the availability of natural gas remains adequate to
meet demand, and that cost of the natural gas remains competitive with traditional fuels such as coal and oil.
The OSMR® technology is at the heart of this development, enabling LNGL’s plants to be built faster and at lower
cost, further supporting the expansion of natural gas use globally. In 2017, IChemE, the UK-based Institution of
Chemical Engineers, recognized us and our patented LNG liquefaction process with two “Highly Commended”
awards in the Energy and Oil & Gas categories, recognizing the importance our OSMR® technology can play in
the global energy industry of tomorrow.
Sustainable Cities and Communities
We are proud to have had the opportunity to contribute to the communities in which we operate.
21
In Lake Charles, where Magnolia LNG will be built, we have established a Community Action Committee
consisting of volunteer residents of the Southwest Louisiana region to help guide Magnolia LNG’s areas of giving.
Focus areas include civic and human needs in the community while promoting healthy lifestyles, cultural arts
that promote access to underserved students and communities, disaster relief efforts, and environmental,
preservation, and wetland initiatives. The efforts particularly seek to support groups that reflect the diversity
and inclusiveness of the local community.
Magnolia LNG is very proud to have been selected by the Mayor of Lake Charles for receipt of the 2017 Patron
of the Year award for support of the local community. In addition, Magnolia LNG staff support and attend
activities in the region including Calcasieu Parish’s Southwest Louisiana Task force for Growth and Opportunity
(Go Group) who focus on strategic planning associated with regional growth, The Propeller Club who promote
the well-being of the maritime community, and the Calcasieu River Waterway Harbor Safety Committee.
In Houston, LNGL team members have provided support as volunteers to the Houston Food Bank, a non-profit
organization that collects and distributes food to hunger relief charities. Following the devastating floods from
Hurricane Harvey that impacted thousands in the Houston area, our employees and their families were out in
the community helping to clean out homes damaged by the storms.
In Nova Scotia, home to our Bear Head LNG and Bear Paw Pipeline projects, LNGL staff are active in the
community including the region of our project site on Point Tupper, Richmond County, Nova Scotia as well as in
Halifax where our project office is located. This year, Bear Head LNG was proud to be a foundation sponsor for
Grand-Pre’ 2017, a reconciliation and celebration of over 400 years of friendship and alliance between the
indigenous Mi’kmaq people and the Acadians, at the Grand-Pre’ UNESCO World Heritage Site. Bear Head LNG is
a member of the Cape Breton Partnership, the Straights Area Chamber of Commerce, the Maritime Energy
Association, and sponsors local arts, activities, and charities including the Port Hawkesbury ROC Centre, which
assists people with disabilities work towards their hopes and dreams, St. Martha’s Hospital Foundation, and the
Granville Green street concert series.
Responsible Consumption and Production
Achieving sustainable consumption and production patterns requires a strong national framework that is
integrated into national and regional plans, coupled with sustainable business practices and effective
management of hazardous chemicals and wastes, according to the UN mandate. On the US Gulf Coast and in
Eastern Canada, the mature regulatory permitting, monitoring, and reporting framework provides the
foundation for achieving this goal. The design and siting of both the Magnolia LNG and Bear Head LNG projects
are configured and structured to fully comply with all regulatory requirements, to report emissions accurately,
and to enable minimization of waste products from the facilities, as well as to isolate both staff and regional
communities from the impacts of any emissions that do exist.
LNGL’s OSMR® technology inherently supports the objectives of this UN Development Goal through its high
degree of energy efficiency and industry leading emissions profile. This enables our projects to produce LNG
while minimizing the quantity of natural gas consumed in the process while delivering the maximum quantity of
the energy in the natural gas feedstock to the market. The compact modular design concept adopted as part of
the OSMR® technology approach minimizes the physical area required for the facility as well as the size of the
workforce needed at the site. This reduces the extent of temporary facilities necessary to support construction
as well as minimizing the boom-bust impact of temporary construction labor on the regional community. For
Magnolia LNG, dredge spoils generated by the excavation of the marine berth are being used to reinstate
wetland areas lost in a recent hurricane. An innovative start-up and cool-down gas recovery system will
significantly reduce start-up flaring as well as enhancing the overall economic efficiency of the LNGL facilities.
Climate Action
The UN highlights that climate change is now affecting every country on every continent, disrupting national
economies and affecting lives, costing people, communities, and countries dearly. The impact of greenhouse gas
emissions from human activities is still debated but widely identified as a driver of climate change. Climate
change is a global challenge that is not impacted by national borders. Emissions anywhere affect people
everywhere. Movement towards a lower-carbon economy requires international cooperation and coordination
to be effective.
LNGL’s development projects support the transition to a less carbon intensive economy. Although still a fossil
fuel, natural gas is the least intensive, generating nominally half the carbon dioxide emissions per unit quantity
22
of energy delivered than coal, and a third less than oil. Natural gas also emits less sulphur, NOx, particulates, and
other pollutants than those traditional energy sources. Additionally, as identified in the U.S. National Bureau of
Economic Research working paper 22454 (Bridging the Gap: Do Fast Reacting Fossil Technologies Facilitate
Renewable Energy Diffusion; http://www.nber.org/papers/w22454 ), natural gas fired electrical generation
facilities are vital to enable deep penetration of renewable energy into a power grid without jeopardizing grid
stability and reliability. It is clear that natural gas (and by necessity LNG) represents the bridging fuel of choice
required globally to enable progress to a fossil-fuel free global economy.
LNGL’s patented OSMR® technology enables LNG to be produced with lower carbon intensity than traditional
processes. All LNG facilities are efficient, delivering over 90% of the feed gas energy to the market. OSMR®
generates a further improvement in this process. Ammonia, a natural refrigerant with a zero greenhouse gas
potential and zero ozone depletion potential, provides precooling refrigeration 20% more efficient than the
traditional propane refrigerant. Combined cycle gas turbines and low-pressure boil-off gas re-liquefaction
further reduce energy consumed in the natural gas liquefaction process. OSMR® technology’s net result on
greenhouse gas emissions is substantial, representing a reduction in CO2 emissions of 500,000 metric tons/year
from the Magnolia LNG plant capacity when compared to widely used older technologies.
Although LNG export facilities do consume energy and consequently generate CO2 as part of the liquefaction
process, when LNG is used to replace coal burning as is being done in China, Korea, and other places in support
of the Paris Agreement at COP21, the reduction in global CO2 emissions is substantial. The LNG produced in a
facility such as Magnolia LNG will displace 25 million tonnes of coal per year, which will reduce global CO2
emissions by 32 million tonnes annually compared to the emissions from the coal fired power plant. The
equivalent values for a 12 mtpa facility such as Bear Head LNG are displacement of nearly 40 million tonnes of
coal, reducing annual CO2 emissions by 48 million tonnes.
LNGL’s Magnolia LNG and Bear Head LNG projects together represent a reduction in global CO2 emissions of 80
million tonnes every year. This is the equivalent of removing 17 million cars from the road.
LNGL’s OSMR® technology also enables a smaller footprint for our LNG facilities. Magnolia LNG will develop
liquefaction capacity using only 115 acres (47 hectares) of land. The land itself is a dredge spoils disposal site
currently comprised of scrub brush and a few small scattered trees in an industrial park, minimizing impact on
regional wildlife. In addition, spoils from the excavation of the LNG ship berthing pocket on the existing industrial
canal will result in the restoration of up to 100 acres of wetlands washed out by Hurricane Rita in 2005.
In summary, we are proud to be a strong supporter of global sustainability goals as an integrated element of our
project development activities consistent with our stated Vision, Mission, Values, Strategy statements.
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 April 30, 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,
LNGL announced that Magnolia LNG had received its notice to proceed (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 U.S. Army Corps of
Engineers Section 404 and Section 10 permits (permit to dredge a water of the U.S. and place dredged material,
and construction of marine facilities) are also in hand.
23
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, U.S.
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
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 environmental assessment (EA) approval from the NSE and approval from Transport
Canada for the pipeline installation across Milford Haven leaving the Strait of Canso crossing as the final
navigable waters approval underway. Bear Paw also has obtained Letters of Authorizations from Department of
Fisheries and Oceans for Fresh Water and Marine watercourse crossings. Other key regulatory requirements to
obtain prior to construction include the Environment Act – Watercourse Alteration Authorizations dealing with
installation of a pipeline through watercourses, and the UARB license to operate. Bear Paw is progressing work
to obtain these final permits and approvals.
There have been no known breaches of environmental regulations to which Bear Paw is subject.
24
REMUNERATION REPORT (AUDITED)
OVERVIEW ..................................................................................................................................................... 25
INTRODUCTION FROM THE COMPENSATION COMMITTEE ............................................................................ 26
BOARD’S RESPONSE TO THE AGM VOTE ON THE PRIOR YEAR’S REMUNERATION REPORT ............................ 26
RESPONSES TO SHAREHOLDER AND GOVERNANCE ADVISER FEEDBACK ............................................................................. 26
REMUNERATION FRAMEWORK ..................................................................................................................... 27
REMUNERATION AND CLAWBACK POLICIES ................................................................................................................ 28
REMUNERATION DESIGN ......................................................................................................................................... 28
REMUNERATION CONSIDERATIONS ........................................................................................................................... 29
LNGL AND INDUSTRY CONTEXT ................................................................................................................................ 29
KMP DURING THE REPORTING PERIODS ..................................................................................................................... 29
APPROACH TO KMP REMUNERATION FRAMEWORK DESIGN .......................................................................................... 29
EXECUTIVE KMP REMUNERATION STRUCTURE AND INSTRUMENTS ................................................................................. 31
EXECUTIVE KMP REMUNERATION IMPLEMENTATION AND EXECUTION ........................................................ 32
SUMMARY OF CONTRACTUAL PROVISIONS ................................................................................................................. 32
LINKS BETWEEN PERFORMANCE AND REWARD ............................................................................................................ 32
DETAILS OF THE EXECUTIVE KMP STI PLAN ............................................................................................................... 35
DETAILS OF THE EXECUTIVE KMP LTI PLAN ................................................................................................................ 36
VARIABLE REMUNERATION TARGETS ......................................................................................................................... 37
NED REMUNERATION FRAMEWORK, IMPLEMENTATION AND EXECUTION ................................................... 41
NED KMP REMUNERATION DESIGN ......................................................................................................................... 41
NED RIGHTS PLAN DETAILS ..................................................................................................................................... 42
NED INTEREST IN SHARES, OPTIONS, AND PERFORMANCE RIGHTS .................................................................................. 42
FISCAL 2019 ESTIMATED NED REMUNERATION VALUE ................................................................................................ 43
STATUTORY AND FINANCIAL REPORTING ...................................................................................................... 43
LNGL PERFORMANCE............................................................................................................................................. 43
FINANCIAL ACCOUNTING FOR NED RIGHTS AND LTI GRANTS ........................................................................................ 44
EXECUTIVE KMP REMUNERATION ............................................................................................................................ 45
NED REMUNERATION ............................................................................................................................................ 46
CHANGES IN EXECUTIVE KMP HELD EQUITY ............................................................................................................... 47
CHANGES IN NED HELD EQUITY ............................................................................................................................... 48
USE OF INDEPENDENT CONSULTANCY IN SUPPORT OF COMPENSATION COMMITTEE .................................. 49
END OF REMUNERATION REPORT .................................................................................................................. 49
Overview
The Remuneration Report has been prepared in accordance with applicable legislation and corporate
governance guidelines in Australia and audited by Ernst & Young. Australian legislation requires disclosures in
respect of “key management personnel” (KMP) being those persons having authority and responsibility for
planning, directing and controlling LNGL’s activities. The key management personnel are, in addition to the
Directors, a subset of the Corporate Leadership Team who are not directors and who each report to the
Managing Director and Chief Executive Officer. This report is in three parts being the:
• Remuneration Framework
•
Executive KMP Remuneration Implementation and Execution
25
• NED Remuneration Framework, Implementation and Execution
•
Statutory Reporting.
Under Australian legislation, the Remuneration Report is subject to an annual advisory vote at each Annual
General Meeting.
Introduction from the Compensation Committee
On behalf of the Board, we are pleased to present LNG Limited’s Remuneration Report for the fiscal year ended
June 30, 2018. This report demonstrates our ongoing commitment to shareholders to present a simple and
transparent summary of executive remuneration outcomes and how they link to LNGL’s performance.
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. Specifically, this entails
development, maintenance, and implementation of the Remuneration Policy and Clawback Policy for the
purposes of making recommendations to the Board to align KMP and shareholder interests regarding
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 LNGL’s website. The Compensation Committee’s charter is also available on the
website at www.lnglimited.com.au.
Our remuneration philosophy focuses on delivering strong alignment between LNGL’s business strategy and
execution, long-term market performance, and shareholder experience, and our executives’ variable
remuneration outcomes. We also seek to ensure continued attraction and retention of talent in a competitive
employment environment that is primarily U.S. based.
To this end, each year we review our remuneration program and the employment markets in which we operate
in the context of current market intelligence, competitor analysis, the status of our business, our business
strategy, and our remuneration philosophy. A key component of this annual review is assessing shareholder
observations of our remuneration approach and proxy advisor guidance. We value these inputs greatly and
weight our remuneration program design decisions accordingly.
We engage with our independent compensation consultant (Korn Ferry) and conduct extensive assessments and
evaluations of all aspects of our remuneration program. The Compensation Committee meets with our
consultant multiple times each year to review various aspects of our remuneration programs and to evaluate
alignment of those programs with our stated goals.
We take account of all these various inputs and observations regarding our remuneration philosophy in
determining annual changes to the remuneration policy, if any. Such consideration provides the context of
recommendations to the Board regarding executive remuneration decisions and are used as guiding principles
when setting prospective remuneration frameworks by the Compensation Committee. The remuneration
framework will evolve in support of later stages in LNGL’s business life cycle once project construction and
operation commence.
Board’s response to the AGM vote on the prior year’s Remuneration Report
At the annual general meeting (AGM) on November 16, 2017, the Remuneration Report contained in LNGL’s
2017 Annual Report did not receive an affirmative vote from at least 75% of voting shareholders, resulting in a
strike pursuant to the rules of the Corporations Amendment Act 2011. In response to the first strike event, the
Board undertook a review of measures to address shareholder concerns. The 2018 Remuneration Report
reflects actions taken by the Board that focused on its implementation of the existing remuneration policy in the
allocation of fixed and variable compensation to the Executive KMP. At the Compensation Committee’s
recommendation, the Board made no fundamental changes to the existing remuneration framework during the
reporting period.
Responses to shareholder and governance adviser feedback
The Board welcomes dialogue with investors around LNGL’s remuneration framework. Responses to feedback
26
from the 2017 Annual Report, Annual General Meeting, and shareholder discussions follows.
Feedback
Response
CEO pay relative to peer group and
low total shareholder return (TSR)
performance relative to peer group
The relative TSR measure has index
concentration concerns and the
vesting mechanics introduce risk
The use of Retention Rights as a
material component of LTI
STI payout approach and
measurement
Excessive remuneration to Non-
Executive Directors (NED), which
includes the issue of rights
The Board paid no short-term incentive (STI) to the Managing
Director and Chief Executive Officer in fiscal 2018. Further, the
Board materially reduced STI payments made to All Other Executive
KMP as well as the remainder of the workforce to reflect LNGL’s
inability to deliver the STI corporate metrics. Finally, the Board did
not increase any U.S.-based employee fixed remuneration in the
period, although certain Australian-based employees did receive
consumer price index (CPI) base remuneration increases reflective
of existing contractual arrangements.
interests.
Given that LNGL
The Board believes that a tranche of the long-term incentive (LTI)
being linked with share price performance helps align KMP and
is a pre-revenue
shareholder
development company versus an operational company and that
there are no direct industry peer comparisons on the ASX, 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 Total Return Index (XAOAI).
Use of service-based retention awards to promote employee
retention is important to LNGL as it executes its business strategy
through the current industry market conditions. Service-based
awards, such as retention rights, are common in the U.S., where our
predominant workforce is located. A shortened vesting period was
employed in 2017 and 2018. It has been employed to accelerate
share ownership by a broad employee base as the Board considers
increasing alignment with shareholders’ interests important. The
Managing Director and Chief Officer’s vesting period remained
unchanged from a three-year period.
The Board employed a formula-based approach in determining STI
allocation by employee in fiscal 2018. The Board paid no STI to the
Managing Director and Chief Executive Officer in fiscal 2018 largely
due to TSR performance. The Board materially reduced STI
payments made to All Other Executive KMP as well as the remainder
of the workforce primarily for failure to deliver executed offtake
agreements (a key corporate deliverable).
The NEDs reduced their cash remuneration for fiscal 2017 and fiscal
2018 by about 28 percent in the aggregate, which reductions also
reduced the annual rights grants received by the NEDs. The Board
decided that no further changes were to be made to prospective
NED compensation levels.
Remuneration framework
LNGL’s Remuneration framework aims to fairly and responsibly award employees consistent with market
conditions and LNGL’s operational performance. An ongoing challenge for the Compensation Committee is the
design of a remuneration framework that is appropriate to hire, motivate, and retain employees consistent with
employment practices in the countries in which they are employed whilst maintaining alignment with
shareholders throughout all life-cycle stages of a company’s activities.
At June 30, 2018, LNGL employed a total of 24 full time employees (FTEs) (excluding Directors), with six personnel
27
residing in Australia (25 percent of FTEs) and eighteen residing in the U.S. (75 percent of FTEs), including all five
Executive KMP (100 percent of Executive KMP).
Remuneration and Clawback Policies
LNGL’s Remuneration Policy reflects the remuneration framework approved by the Board upon
recommendation by the Compensation Committee.
KMP remuneration is reviewed annually in the context of individual and business performance, and relevant
comparative information.
LNGL’s Clawback Policy applies to incentive remuneration 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, and Section 304 of the Sarbanes-Oxley Act of
2002 in the U.S.
A copy of these policies may be found on LNGL’s website at www.lnglimited.com.au.
Remuneration design
The following summarizes the key components of LNGL’s remuneration arrangements.
1. Fixed remuneration component - consists of base salary and related benefits, designed to align with external
market study data. As directed by the Compensation Committee, our independent compensation
consultant engaged by the Board validated external remuneration levels in a study last performed in 2016.
– Remuneration peer group consisted of nine independent upstream E&P companies primarily operating
in the U.S., Australia, Canada and Africa, and one passive investment company with midstream ethanol
investments.
– A separate salary survey applies to Australian employees, none of which are KMP.
– Available benchmark surveys are employed.
2. STI remuneration component - calculated as percentages of base pay with individual payout amounts linked
to achievement of specific annual corporate and individual milestones and personal performance.
3. LTI remuneration component - Incentive Rights consisting of Performance Rights and Retention Rights
– Performance Rights:
Vesting links to relative market adjusted total shareholder return (MATSR) measured over 3-year
performance periods
The MATSR component assesses the total shareholder return performance of LNGL shares relative
to that of the 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.
– Retention Rights:
A LTI component that vests over a service period designated at issuance date.
Under the remuneration framework, the Board retains absolute discretion on all remuneration decisions
including:
• Determining fixed remuneration levels and annual changes thereto for all employees;
• Approving all fiscal year corporate goals to which the STI parameters apply;
• Determining the budget and individual allocation of annual STI awards by individual employee;
• Approving the Managing Director and Chief Executive Officer’s STI scorecard and reviewing the Executive
KMP scorecards for thoroughness and consistency;
• Determining the budget and individual allocation of annual LTI awards by individual employee; and
28
•
The unilateral ability to increase or decrease the level of STI or LTI award or vesting thereof, irrespective of
Vesting Conditions being achieved or not under the applicable terms stated in the plan or invitation letter.
Remuneration considerations
Remuneration design is intended to enhance corporate and individual performance to the benefit of LNGL’s
shareholders. With regards to LNGL’s remuneration framework, local market conditions in the countries,
industry, and region in which LNGL operates; the current life-cycle status of LNGL; the current state of the global
LNG industry; and observations from independent consultancy, stakeholders, and shareholders all represent
important criteria considered by the Compensation Committee in the remuneration framework design.
The Compensation Committee typically applies the STI program to compensate the KMP relative to achievement
of current year strategic milestone and personal goals, while tying realization of LTI award grants to performance
metrics, which compare LNGL’s share price performance relative to the XAOAI. Although it has limitations, the
relative performance metric design applied in the LTI program enables measurement of LNGL share price
performance against a recognizable broad market performance index for determining realization of variable
KMP long-term incentive remuneration. Comparing LNGL’s share performance to XAOAI reflects the lack of
industry peer companies on the ASX that could provide improved comparability. A portion of annual LTI grants
(currently 40 percent) are time-vesting Retention Rights.
LNGL and industry context
A thorough discussion of LNGL and industry context are contained in the Chairman’s Letter and Managing
Director and Chief Executive Officer Report, respectively.
KMP during the reporting periods
Name
Title
Fiscal 2018
Fiscal 2017
Non-Executive Director Key Management Personnel
X
X
X
X
X
X
X
X
X
n/a
X
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
Michael R. Mott
Joe B’Oris 2
Anthony Gelotti 3
Chief Financial Officer
Chief Development Officer
From Nov 27 2017
Chief Development Officer
To Jul 17 2017
1 Mr. Baguley was promoted to Chief Operating Officer in June 2017. He was formerly Chief Technical Officer for LNGL.
2 Mr. B’Oris joined LNGL in November 2017 and became an Executive KMP at that time.
3 Mr. Gelotti left LNGL in July 2017 and ceased his role as an Executive KMP effective July 1, 2017.
X – Individual was a KMP during the entire applicable 12-month fiscal period.
Approach to KMP remuneration framework design
To assure the relevance and appropriateness of the remuneration framework, the Compensation Committee
considers changes to the LNGL’s remuneration policy and disclosures each year. The aim is to implement
framework changes in line with current market practice, reflecting a natural evolution of the remuneration
29
program design to effectively support the progress of near and long-term business strategy.
The 2018 remuneration framework was implemented as stated in the prior year annual report and no changes
were made to the framework for the prospective annual fiscal period. The following summarizes elements of
the fiscal 2019 KMP remuneration program and the fiscal 2018 program deployed.
Pay Element
Fiscal 2018 Program
Fiscal 2019 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 – 35 percent
CEO – 60 percent
COO – 35 percent
LTI
General Counsel – 30 percent
General Counsel – 30 percent
CFO – 30 percent
CDO – 30 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
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”
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 for Performance
Rights but vesting levels capped if
negative LNGL TSR
No Gate Condition for Performance
Rights but vesting levels capped if
negative LNGL TSR
1 The fiscal 2019 program reflects anticipated compensation arrangements as contemplated prospectively from July 1, 2018
LNGL maintains KMP share ownership guidelines (SOGs). Applicable SOGs follow.
Role
Minimum Ownership Guideline
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.
30
Executive KMP remuneration structure and instruments
The following table provides a summary of LNGL’s remuneration framework (applying to Executive KMP) and
the integration of each component.
Remuneration component
How determined?
When paid?
Fixed remuneration
STI award
n
o
i
t
a
r
e
n
u
m
e
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e
b
a
i
r
a
V
l
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 (as currently deployed) are all
MATSR-based.
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 service-based incentive
rights, vesting over a stated period of continuous
employment. These are used primarily for
employee retention purposes.
LNGL’s Incentive Rights Plan provides flexibility for
issue of other types of equity-based instruments,
but none are outstanding at this time.
Monthly 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.
Perquisites
Specific by individual KMP and are approved by the
Board.
Per the specific
arrangement
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n
s
u
p
p
o
r
t
o
f
i
t
s
a
n
n
u
a
l
The Board of Directors retain absolute 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
31
Executive KMP Remuneration Implementation and Execution
The role of the Compensation Committee is to implement remuneration policies that are designed to enhance
corporate and individual performance to the benefit of LNGL’s shareholders and executed consistent with the
remuneration framework. Alignment of remuneration results and shareholders’ outcomes are key to successful
remuneration framework execution.
The following provides details, assessments, and analyses of the implementation and execution of LNGL’s
remuneration framework for Executive KMP.
Summary of contractual provisions
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
Duration3
Contractual
Severance
Period
Termination
Notice
Period 3
Gregory M Vesey
John Baguley 2
Kinga Doris
Michael R Mott
MD &
CEO
COO
GC
CFO
$ 635,000 $ 846,667
Evergreen
12 months
12 months
430,000
573,333
Evergreen
335,012
446,683
Evergreen
90 days
90 days
411,690
548,920
Evergreen
12 months
90 days
90 days
90 days
COO
340,000
Joe B’Oris
1 All U.S.-denominated balances are translated at 0.75/1.
2 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.
3 Pursuant to contract terms, the contract renews automatically annually unless LNGL provides notice of termination. Such term has been
defined herein as ‘Evergreen’.
Evergreen
453,333
90 days
90 days
Each U.S.-based Executive KMP has certain contractual entitlements addressing Change-of-Control events,
which are consistent with the shareholder approval at the 2017 AGM of the Change-of-Control guidelines. The
following chart provides details of KMP Change-of-Control entitlements.
Name
Role
Base Pay
STI
LTI
Other Benefits
Gregory M Vesey
MD & CEO
24 months
Target
All Other
Executive KMP
Various
12 months
Target
Full Vest of then
outstanding Rights
12 months COBRA
coverage
Full Vest of then
outstanding Rights
12 months COBRA
coverage
The shareholder approved Change-of-Control guidelines applicable to the Executive KMP are also applicable to
all U.S.-based employees, as adjusted, to reflect each individual’s role level with LNGL. Associated entitlement
for all other U.S.-based employees is contingent on post Change-of-Control employment status (double-trigger)
and could include a combination of a percentage of base pay and target STI, accelerated LTI vesting, and other
employee benefits typical of Change-of-Control arrangements. The Australian-based Group Development
Manager and Joint Company Secretary shall receive a one-time Service Bonus payment equal to nine-months of
the Employee’s then current base pay per month upon any Change-of-Control event regardless of post Change-
of-Control employment status (single-trigger).
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 All Other Executive KMP, which align with the
Managing Director and Chief Executive Officer’s goals, milestones, and targets, adjusted to reflect each
32
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 2019 STI payments.
Performance Measure
Calendar 2018 Scorecard (Performance Goals for Fiscal 2019)
Corporate (80%)
Business (5%)
•
•
•
•
•
•
Sign 8 mtpa in binding MOUs with investment grade counterparties at
Magnolia (80%)
–
Stretch – Sign 8 mtpa to sales and purchase agreement (SPA) or
liquefaction tolling agreement (LTA)
Complete firm liquidity options available for immediate execution based
on the level of success of Marketing activities (10%)
–
Stretch – Raising liquidity (minimum of $5 million) without dilution in
overall company value
Sign term sheets with credible partners for development of a Bear Head
pipeline solution (10%)
–
Stretch - Sign a full Project Development Agreement for Bear Head
pipeline solution
Cash and expense management
Cash forecast and scenarios
Company exposure and industry reputation
• Develop offtake capacity and gas supply volume management plan
• Develop a plan for “Pathways to Success” and begin implementation of
priority processes
Compliance (5%)
•
Ensure completion of action items for Board improvement plan
• Manage relationships with all shareholders toward a successful vote
Health and safety (5%)
•
•
•
•
Ensure proper Board training is conducted
Implement Takeover Defense Plan and conduct drill
Support the efforts of the Board Corporate Governance and Nominating
and the Audit Committees, respectively
Continue to develop a culture of strong safety awareness and practice
• Operate the company safely with no recordable injuries or lost-time
incidents
• Develop a first draft of a construction safety program
• Develop sustainability plan for LNGL
•
•
Implement a Crisis Management Plan
Support the efforts of the Board Safety, Sustainability, People & Culture
Committee
People and culture (5%)
• Addition of valued team members for marketing and finance
• Revise STI plan and implement changes to evaluation process
•
•
Support the efforts of the Board Compensation Committee
Continued development and retention of employees
33
The Managing Director and Chief Executive Officer’s calendar year 2017 scorecard and weightings follows; which
scorecard was used to assess performance relative to fiscal 2018 STI payments.
Performance Measure
Calendar 2017 Scorecard (Performance Goals for Fiscal 2018)
Business (80%)
•
•
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
Compliance (5%)
• Develop a comprehensive Takeover Defense Plan
•
•
Ensure the company operates in compliance with all laws and regulations
Support the efforts of the Board Corporate Governance and Nominating
and the Audit Committees, respectively
Health and safety (10%)
• Operate the company safely with no recordable injuries or lost-time
incidents
People and culture (5%)
•
•
Support the efforts of the Board Safety, Sustainability People & Culture
Committee
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
The Board assessed calendar 2017 KMP performance as largely failing to meet key goals, milestones, and targets,
with the significant exception being the completion of the Amended and Restated Equity Commitment
Agreement with Stonepeak.
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 2017 STI payments.
Performance Measure
Calendar 2016 Scorecard (Performance Goals for Fiscal 2017)
Business (55%)
• 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
Compliance (25%)
Establish and implement the Corporate Leadership Team, develop charter and
begin functioning as LNGL’s main operating committee
Health and safety (10%)
Operate LNGL safely with no recordable injuries or lost-time incident
People and culture (10%)
Implement a simplified organization structure with relevant personnel changes
The Board assessed calendar year 2016 KMP performance as meeting most of the agreed goals, milestones, and
targets, with the significant exception being the signing of offtake agreements. STI payments in fiscal 2017 were
also adjusted downward from target reflecting this performance.
34
The Managing Director and Chief Executive Officer’s calendar year 2015 scorecard and weightings follows; which
scorecard was used to assess performance relative to fiscal 2016 STI payments.
Performance Measure
Calendar 2015 Scorecard (Performance Goals for Fiscal 2016)
Business (55%)
Approval, permitting, contracting and opportunity targets in relation to
Magnolia LNG, Bear Head LNG and LNG International
Organizational (25%)
Health and safety (10%)
People and culture (10%)
Progress corporate restructuring of LNGL 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 health, safety, security, and environment (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 LNGL’s projects. Realization of required 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.
Details of the Executive KMP STI plan
Aspect
Measurement
period
Award
opportunities
Key performance
indicators (KPIs),
weighting and
performance goals
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
Award assessment
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
35
and payment
All 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 LNGL 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
Change-of-Control
Employees have certain contractual entitlements addressing Change-of-Control events,
which are consistent with the shareholder approval of the Change-of-Control guidelines
approved at the November 2017 AGM, or applicable law
Details of the Executive KMP LTI plan
Aspect
Description
The Incentive Rights Plan Rules specify that Incentive Rights will be:
▪ 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 LNGL performance
over the Measurement Period
Retention Rights
vesting conditions
Board discretion
Performance Rights that do not vest lapse
The Board has discretion to set vesting conditions for each offer
Retention rights will vest in full if the employee remains actively employed on the last
date of the measurement period
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. This discretion applies equally to both Performance
Rights and Retention Rights grants.
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
36
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
Employees have certain contractual entitlements addressing Change of Control
events, which are consistent with the shareholder approval of the Change of Control
guidelines approved at the November 2017 AGM, or applicable law
Variable remuneration targets
Under the current design, no remuneration awards (cash-based or share-based) are linked to an LNGL milestone
of achieving a financial investment decision on any of its projects. The Board believes that such award designs
have the potential for an unintended leveraging effect on payout in the period the strategic milestone is met.
Target and stretch percentages for Executive KMP under applicable STI and LTI plans and individual contractual
arrangements follow (with percentages reflecting percentage of base salary). Historically, actual STI payout and
LTI grants have been substantially less than the target and stretch levels.
Managing Director and Chief Executive Officer
All Other Executive KMP, in aggregate average
Fiscal
Year of
Award 1
2019
2018
2017
2016
2019
2018
2017
STI Plan
LTI Plan
Target
Stretch
Target
Stretch
60%
60%
60%
25%
120%
120%
120%
50%
30 - 35%
60-70%
30 - 35%
25%
50%
50%
150%
150%
150%
75%
100%
100%
75 - 100%
300%
300%
300%
150%
n/a
n/a
n/a
2016
1 The 2019 fiscal year information is forecasted based on current Board approvals and consideration. In certain periods, KMP were ineligible
for incentive awards under plan rules due to individual employment start dates.
20 - 25%
40 - 50%
0 - 75%
n/a
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
2019
2018
2017
2016
Milestone-Based Rights
0%
0%
0%
50%
MATSR-Based Rights
60%
60%
60%
50%
Retention Rights
40%
40%
40%
0%
1 The 2019 fiscal year information reflects the 2018 issue year Incentive Rights invitation letter.
LTI Vesting Conditions applicable to all Performance Rights issued in the periods (including those issued to
Executive KMP) follows.
37
MATSR-based LTI Grants
MATSR-based Performance Rights will partially or fully vest if LNGL’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. MATSR-based issuances in fiscal years 2017 – 2019 (issued in Jul 2016, 2017 and 2018,
respectively) utilized the same vesting criteria as follows.
LNGL TSR relative to XAOAI TSR 1
Metric
Measurement Period
Less than 100%
Threshold vesting – 100% (LNGL’s and XAOAI’s TSR percentages are equal)
>100% < 200% (LNGL’s TSR percentage is > than XAOAI but less than double)
Target vesting – 200% or greater (LNGL’s TSR percentage is more than double)
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.
3 Years from grant Date
0%
25%
Linear Interpolation
100%
The fiscal 2019, 2018 and 2017 MATSR-based Performance Rights will partially or fully vest as outlined in the
above chart. These issuances were priced at $0.52/share, $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.
Retention Rights LTI Grants
The Compensation Committee implemented the use of Retention Rights as a component of the LTI program in
the last three tranche issuances (fiscal 2017 through 2019).
Fiscal Year 1
Measurement Period
Vesting terms
Retention Rights
2018 and 2019
Not applicable
2017
Not applicable
Two-year vesting period realized ratably applicable to most
employees. 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 LNGL at
the end of the measurement period.
Three-year “cliff vest” for all employees, generally meaning that
the Retention Rights vest only if the employee remains in service
with LNGL at the end of the measurement period.
2016
Not applicable
Not applicable
1 The 2019 fiscal year information reflects the 2018 issue year Incentive Rights invitation letter.
Status of the Executive KMP Grants Pursuant to the Incentive Rights Program
Individuals comprising the Executive KMP have changed over time. Incentive rights held by individuals
previously included as Executive KMP that left LNGL were dealt with at the termination date of each individual.
Treatment of the then outstanding LTI grants have been previously disclosed to the ASX.
The following disclosures provide status information on the individuals currently acting as Executive KMP.
The current MD/CEO has received LTI grants annually beginning in fiscal 2016. These rights (both Performance
Rights and Retention Rights) have vesting periods of three-years from grant date reflecting annual measurement
periods on June 30 beginning in 2019. Consequently, the MD/CEO has vested zero LTI rights as at June 30, 2018.
The current COO, CFO, and General Counsel have each received LTI rights grants in the three-year fiscal period
ended June 30, 2018, with a portion of these rights grants also having measurement periods in this three-year
period.
The current CDO received an initial LTI grant (both Performance Rights and Retention Rights) in January 2018,
which have measurement dates after June 30, 2018. Therefore, the current CDO has vested zero LTI rights as at
38
June 30, 2018.
Vesting Results by individual LTI Grant
The fiscal 2015 and fiscal 2016 MATSR-based and Milestone-based Performance Rights (granted in July 2014 and
July 2015, respectively, and vesting at June 30, 2017 and 2018, respectively) both lapsed unvested in their
entirety. A portion of the Retention Rights granted to All Other Executive KMP in 2017 vested at June 30, 2018
resulting in the conversion of a total of 430,000 Retention Rights held by All Other Executive KMP into LNGL
Ordinary Shares.
The following table summarizes the realized and lapsed rights for LTI grants (aggregate Performance Rights,
Milestone Rights, and Retention Rights) held by current Executive KMP having measurement periods that ended
in the fiscal periods 2017 and 2018 (referred to as Reporting Period in the following chart), respectively.
Executive KMP
Member
Grant Year
Measurement Year
2014
2015
2017
2015
2017
COO
CFO
Rights Granted and
Measured in
Reporting Period
246,141
159,984
150,000
2017
2018
2018
Three-year total
556,125
2018
2018
289,742
140,000
Three-year total
429,742
Vested
0
0
150,000
150,000
0
140,000
140,000
General Counsel
2017
2018
140,000
140,000
Outstanding LTI grants (aggregate Performance Rights and Retention Rights including those Rights granted in
July 2018) have measurement periods ending in 2019, 2020, and 2021, respectively. The total LTI rights
outstanding under these grants held by the Executive KMP (split between the MD/CEO and All Other KMP
combined in aggregate) are represented by the black bars in the following graph split by applicable measurement
date. The red bars provide a forecast of future vesting outcomes by applying the following assumptions:
1. Based on the market price of LNGL Ordinary Shares as at June 30, 2018, which indicates that 100 percent of
the outstanding Performance Rights will lapse unvested reflecting the underperformance of LNGL’s TSR to
the XAOAI’s TSR; and
2. The assumption that each current Executive KMP holding Retention Rights will remain employed with LNGL
through the applicable measurement dates and therefore vest in these Retention Rights.
3. The remainder of the All Other Executive KMP retention rights (430,000) granted in 2017 vest in 2019. The
MD/CEO’s Retention Rights granted in 2017 vest in 2020.
4. The Retention Rights granted to the All Other Executive KMP in 2018 vest 50 percent in 2019 and 50 percent
in 2020. The MD/CEO’s Retention Rights granted in 2018 vest in 2021.
Should the LNGL Ordinary Share price improve in the future to levels that result in LNGL TSR outperforming the
XAOAI TSR, then a portion or all of the Performance Rights may vest, subject to Board of Director discretion to
approve, or not, such Performance Rights vesting.
39
Forward LTI Vesting Outcomes Under Current Market Conditions
s
t
h
g
i
R
f
o
.
o
N
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Fiscal 2019 Vest
MD/CEO All Other KMP
Fiscal 2020 Vest
MD/CEO All Other KMP
Total
O/S
Total
O/S
Likely
to
Vest
Likely
to
Vest
Total
O/S
Total
O/S
Likely
to
Vest
Likely
to
Vest
Jan 2021 Vest
MD/CEO All Other KMP
Total
O/S
Total
O/S
Likely
to
Vest
Likely
to
Vest
Jun 2021 Vest
MD/CEO All Other KMP
Total
O/S
Total
O/S
Likely
to
Vest
Likely
to
Vest
Executive KMP Realized Remuneration Value Relative to Target
The following narrative and graphs provide insight into total remuneration value realized by Executive KMP in the
Reporting Period relative to remuneration value that each Executive KMP was eligible to receive in each period
(referred to as Target Remuneration).
Target Remuneration for our Executive KMP exceeded actual or realized value received reflecting underperformance
versus expectations over the period. This means that underperformance by the Executive KMP in achieving annual
goals for STI and the MATSR / Milestone target goals for LTI were not rewarded to Target Remuneration levels,
reflecting alignment with shareholder outcomes which have also underperformed.
The following graphs compare target and actual direct remuneration provided to the Executive KMP for the fiscal years
ending June 30, 2018 and 2017, respectively. The graphs include Executive KMP employed as of June 30, 2018 and
exclude Executive KMP no longer employed by LNGL as of that date. All amounts are shown in U.S. dollars as all the
Executive KMP are U.S.-based employees.
The target remuneration equals the sum of each individual’s base pay, target STI, and the grant date value of LTI
granted the Executive KMP in the specific fiscal year period. The actual or realized remuneration equals the sum of
each individual’s base pay, actual STI paid during the fiscal period, and actual LTI vested during the fiscal period, valued
at the share price on the respective vesting date(s).
Fiscal 2018 Executive KMP Remuneration
2,100,000
1,400,000
$
S
U
700,000
-
CEO
Tar
CEO
Act
COO
Tar
COO
Act
GC
Tar
GC
Act
CFO
Tar
CFO
Act
CDO
Tar
CDO
Act
Salary
STI
LTI
1 The LTI values are based on Rights granted and vesting, respectively, within the reported fiscal year; the Target LTI amounts are based on
grants made in July 2017, while the Actual LTI amounts are based on Rights that vested on June 30, 2018.
2 The CDO was employed beginning December 2017 and was not eligible for STI in fiscal year 2018.
2 Individuals who do not have actual LTI value amounts (MD/CEO and CDO) had no LTI grants eligible for vesting in the fiscal year 2018.
40
3 The STI performance period is a calendar year while LTI performance periods are tied to LNGL’s fiscal year; the actual STI payouts reflected
in this chart were made shortly after the end of the 2017 calendar year.
Fiscal 2017 Executive KMP Remuneration
2,100,000
1,400,000
$
S
U
700,000
-
CEO
Tar
CEO
Act
COO
Tar
COO
Act
GC
Tar
GC
Act
CFO
Tar
CFO
Act
CDO
Tar
CDO
Act
Salary
STI
LTI
1 The LTI values are based on Rights granted and vesting, respectively, within the reported fiscal year; the Target LTI amounts are based on
grants made in July 2016, while the Actual LTI amounts are based on Rights that vested on June 30, 2017.
2 The CDO was not employed in fiscal 2017.
3 Individuals who do not have actual LTI value amounts had no LTI grants eligible for vesting in the fiscal year 2017 or the Rights lapsed
unvested.
4 The STI performance period is a calendar year while LTI performance periods are tied to LNGL’s fiscal year; the actual STI payouts reflected
in this chart were made shortly after the end of the 2016 calendar year.
NED Remuneration Framework, Implementation and Execution
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 membership of 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 preserve the independence of the NEDs.
Australian-based NEDs are cash compensated in Australian dollars and U.S.-based NEDs are cash compensated
in U.S. dollars. All rights issuances are denominated based on Australian dollars.
NED Fee Structure 1
Component
Fiscal Year
2019 2
Fiscal Year
2018
Fiscal Year
2017
Fiscal Year
2016
Base fee – Board chair
$ 194,000
$ 194,000
$ 216,000
$ 270,000
Base fee – NED
Committee fee – chair
Committee fee – member
Board Chair NED Rights value as % of fees 3
NEDs Rights value as % of fees 4
86,400
18,000
9,000
57.5%
80%
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%
41
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 2017 to 2019 and total
fees in 2016) on which the applicable NED Right percentage is multiplied was in Australian dollars.
2 The fiscal 2019-year information is forecasted based on current Board approvals and consideration.
3 The fiscal 2018 and 2019 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 and 2019 NED Rights value (non-Chairman) are equal to 80% of the Base fee amount or a target of A$69,120. The fiscal
2017 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.
NED Rights Plan details
Aspect
Purpose
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
LNGL
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 terminates 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, means all rights will lapse
Change of control
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
restrictions specified in the Invitation would be lifted
NED interest in shares, options, and performance rights
NED’s interests in shares, options, and performance rights of LNGL as at June 30, 2018 follows.
42
Director
Paul J. Cavicchi
Richard J. Beresford
Leeanne K. Bond
Philip D. Moeller
D. Michael Steuert
Number of ordinary
shares
Number of unlisted NED
rights
Number of unlisted
options
534,530
599,239
170,563
193,014
266,589
223,100
138,240
138,240
138,240
138,240
---
---
---
---
---
NED Rights Plan Rights issued and vested in the periods follows.
NED Rights Plan Rights Issued and Vested
Fiscal Year 2019 1
Fiscal Year 2018
Fiscal Year 2017
Rights issued
Rights vested 2
≤ 647,000
765,000
776,060
721,994
732,304
66,499
1 The fiscal 2019 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 2019 Rights vested amount is forecasted based on expectation that each Board member holding these rights will continue in
their role through June 30, 2019.
Fiscal 2019 estimated NED remuneration value
Based on the above NED fee structure and assuming the current existing Board Committee roles remain in place,
expected NED remuneration for fiscal 2019 is as outlined in the following table.
Board
Audit Committee
SSPC Committee
Corporate 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
18,000
9,000
9,000
9,000
---
18,000
18,000
9,000
---
9,000
9,000
---
9,000
Target annual share-based award
83,663
69,120
69,120
51,840
51,840
Target total NED remuneration
US$277,663
A$ 173,520
A$ 191,520
US$174,240
US$174,240
Estimated NED remuneration in A$ 1
A$ 370,217
A$ 173,520
A$ 191,520
A$ 232,320
A$ 232,320
1 The U.S.-based NEDs cash remuneration is paid in U.S dollars. These amounts are translated at 0.75/1 to reflect the U.S. dollar equivalent
target pay for this category of target remuneration.
Statutory and Financial Reporting
LNGL performance
The following table summarizes LNGL’s leading financial performance and shareholder value metrics over the
most recent five financial years.
43
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 ‘18
$
326
$
11,435
$
(22,783) $ 0.58
$
0.02
30 Jun ‘17
$
367
$
12,423
$
(29,312) $ 0.56
$ (0.16)
30 Jun ‘16
30 Jun ‘15
30 Jun ‘14
569
668
275
89,289
(115,112)
71,885
(86,307)
20,099
(24,665)
0.72
3.81
2.14
(3.09)
1.67
2.02
$
$
$
$
---
---
---
---
---
0.02
3.6%
$ (3.23)
(85)%
(0.16)
(22)%
$ (1.58)
(78)%
(3.09)
(81)%
0.60
500%
1.67
78%
3.49
1072%
2.02
1683%
1.79
511%
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.
Financial accounting for NED Rights and LTI grants
The following tables disclose the value of NED Rights and LTI incentives issued by LNGL in fiscal 2018, 2017, and
2016, respectively, as reconciled to the financial accounting share-based expense for LNGL’s Incentive Rights
Plans, and the Rights grants held by personnel type.
Financial accounting expense
reconciliation
Non-Executive Directors in aggregate
Fiscal 2018 NED Rights grant
Fiscal 2017 NED Rights grant
Fiscal 2016 NED Rights grant
Fiscal 2015 NED Rights grant
MD and CEO
Fiscal 2018 Incentive Rights grant
Fiscal 2017 Incentive Rights grant
Fiscal 2016 Incentive Rights grant
Fiscal 2015 Incentive Rights grant
All Other Executive KMP in aggregate
Fiscal 2018 Incentive Rights grant
Fiscal 2017 Incentive Rights grant
Fiscal 2016 Incentive Rights grant
Fiscal 2015 Incentive Rights grant
All other employees in aggregate
Fiscal 2018 Incentive Rights grant
Fiscal 2017 Incentive Rights grant
Fiscal 2016 Incentive Rights grant
Fiscal 2015 Incentive Rights grant
Fiscal 2014 Incentive Rights grant
Share-based payment expense
Rights grants
Non-Executive Directors in aggregate
MD and CEO
All Other Executive KMP in aggregate
All other employees in aggregate
Total Rights grants outstanding
$
$
Fiscal 2018
Fiscal 2017
A$ in thousands
Fiscal 2016
$
223
167
---
---
126
183
---
---
620
213
(95)
1
559
149
(922)
3
---
1,227
$
$
---
269
30
---
---
167
---
---
---
259
516
(5)
---
257
1,237
(212)
---
2,518
$
---
---
78
98
---
---
180
1,763
---
---
516
299
---
---
2,530
8,869
---
14,333
776,060
3,200,000
3,820,000
3,736,213
11,532,273
732,304
1,600,000
2,849,726
6,949,269
12,131,299
74,111
973,790
695,867
14,785,090
16,528,858
44
Executive KMP remuneration
The following table provides a detailed breakdown of the components of remuneration received for each of the Executive KMP in the reporting periods calculated in
accordance with applicable accounting standards. Amounts are in A$ with all U.S.-denominated balances are translated at 0.75/1.
Executive KMP Remuneration in the Reporting Periods for Accounting Purposes
Fixed remuneration
STI
LTI
Total remuneration
Fiscal
Year
Salary
Super-
annuation
contribution
Other
benefits
Amount % of TRP
Amount
% of TRP
Amount 2
% of TRP
Total
remuneration
package (TRP)
Termination
benefits
Change in
accrued
leave
2018 $ 846,667
$
---
$ 43,947 $ 890,614
74%
$
---
---
$
308,989
26%
$
1,199,603
$
---
$
2017 846,667
---
42,576 889,243
69%
226,667
18%
167,108
13%
1,283,018
2018 549,937
---
40,551 590,488
65%
68,000
8%
243,698
27%
2017 549,937
---
33,423 583,360
61%
123,467
13%
243,402
26%
2018 435,441
---
35,963 471,404
60%
53,333
7%
263,848
33%
2017 435,441
---
31,639 467,080
74%
95,467
15%
64,883
10%
2018 548,920
---
39,758 588,678
67%
88,000
10%
202,423
23%
902,186
950,229
788,585
627,430
879,101
2017 548,920
---
34,910 583,830
53%
115,333
11%
397,507
36%
1,096,670
Name
Position
Gregory M Vesey
MD/CEO
John Baguley
COO
Kinga Doris
General Counsel
Michael R Mott
CFO
Joe B’Oris
CDO 1
2018 267,032
---
31,692 298,724
91%
2017
CDO 1
2018
---
---
---
---
---
---
---
---
---
---
Anthony Gelotti
---
---
---
---
---
---
28,474
---
---
8%
---
---
9%
327,198
---
---
726,777
2017 533,333
---
35,278 568,611
78%
93,333
13%
64,833
1 Mr. B’Oris was appointed Chief Development Officer effective November 27, 2017. He was not eligible for STI in fiscal 2018. Mr. Gelotti left LNGL in July 2017 and ceased his role as an Executive KMP effective July
1, 2017.
2 LTI amounts contained in this chart reflect actual accounting expense in each fiscal year relating to each specific Executive KMP but does not represent actual share value vested by said Executive KMP in each period.
45
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
NED remuneration
NEDs are remunerated within the current aggregate NED board fee cap of A$1.5 million, approved by shareholders. The following chart discloses NED remuneration in the
reporting periods calculated in accordance with applicable accounting standards. Amounts are in A$ with US$ denominated payment amounts translated at a .75/1 exchange
ratio.
NED Remuneration in the Reporting Periods for Accounting Purposes
Name
Position
Fiscal year
Board fees
Committee
fees
Super -
annuation
Other benefits Equity issue 2
Termination
benefits
Total
remuneration
package
Paul J. Cavicchi 1
Chairman
Richard J. Beresford
Leeanne K. Bond
Philip D. Moeller
D Michael Steuert
NED
NED
NED
NED
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$
259,200
$
---
$
---
$
---
$
113,530
$
---
$
372,730
231,378
86,400
148,867
86,400
96,000
115,200
128,000
115,200
128,000
22,074
18,000
12,389
36,000
40,000
36,000
40,000
36,000
40,000
---
---
---
---
---
---
---
---
---
1,832
---
1,000
---
1,000
---
1,832
---
1,832
85,429
69,259
58,419
69,259
53,804
69,259
47,343
69,259
53,547
---
---
---
---
---
---
---
---
---
340,713
173,659
220,675
191,659
190,804
220,459
217,175
220,459
223,379
1 Mr. Cavicchi was appointed Chairman in November 2016.
2 Equity issue amounts contained in this chart reflect actual accounting expense in each fiscal year relating to each specific NED.
Total cash fees paid NEDs in fiscal 2018 (and 2017) were A$788,400 and A$894,204, respectively. Total NED remuneration in fiscal 2018 (and 2017) totaled A$1,178,966 and
A$1,192,746, respectively.
Mr. Beresford’s spouse is employed by the Company under a casual employment service agreement. Remuneration paid to her by LNGL during the fiscal years ending June
30, 2018 and 2017, respectively, and her beneficial ownership in LNGL ordinary shares are disclosed in the “Other transactions and balances with KMP” section of “Footnote
D2. Related parties” in the accompanying audited financial statements on page 86 of this Annual Report.
46
Changes in Executive KMP held equity
Name
Gregory M Vesey
John Baguley
Position
MD/CEO 1
COO 2
Kinga Doris
General Counsel
Michael R Mott
Joe B’Oris
Anthony Gelotti
CFO
CFO 3
CDO 3
Name
Gregory M Vesey
Position
MD/CEO 1
Maurice Brand
Executive Director6
John Baguley
COO 2
Kinga Doris
General Counsel
Michael R Mott
Anthony Gelotti
CFO
CDO 3
Changes in Executive KMP Equity Held
Held at July 1, 2017
Issued during fiscal year
Instrument
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Shares
Rights/Options
Number
700,000
1,600,000
270,000
759,984
---
600,000
---
889,742
---
---
---
600,000
Issue price 4
---
0.59
---
0.59
---
0.59
---
0.59
---
0.54
---
---
Number 5
---
1,600,000
---
750,000
---
700,000
---
700,000
---
300,000
---
---
Forfeited in year
Number
Other change
Number
---
---
---
(159,984)
---
---
---
(289,742)
---
---
---
---
150,000
---
---
---
(34,090)
---
(34,090)
---
---
---
---
(600,000)
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 4
---
0.87
---
---
---
0.87
---
0.87
---
0.87
---
0.87
Number 5
---
1,600,000
---
---
---
600,000
---
600,000
---
600,000
---
600,000
Forfeited in year
Number
Other change
Number
---
---
---
---
(246,141)
---
---
---
---
---
---
500,000
---
(4,800,000)
(973,790)
---
---
---
---
---
---
---
---
Vested
---
---
150,000
(150,000)
140,000
(140,000)
140,000
(140,000)
---
---
---
---
Vested
---
---
---
---
---
---
---
---
---
---
---
Number held at
June 30, 2018
850,000
3,200,000
420,000
1,200,000
105,910
1,160,000
105,910
1,160,000
---
300,000
---
---
Number held at
June 30, 2017
700,000
1,600,000
---
---
270,000
759,984
---
600,000
---
889,742
---
600,000
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.
3 Mr. B’Oris was appointed Chief Development Officer effective November 27, 2017. He was not eligible for STI in fiscal 2018. Mr. Gelotti left LNGL in July 2017 and ceased his role as an Executive KMP effective July
1, 2017.
4 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.
5 The fiscal 2017 Rights issuance was 60 percent MATSR-based performance rights and 40 percent retention rights having a three-year “cliff vest”.
6 Effective July 29, 2016, Mr. Brand left LNGL. 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.
47
Changes in NED held equity
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
Position
Chairman 1
NED
NED
NED
NED
Position
Chairman 1
NED
NED
NED
NED
Held at July 1, 2017
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
320,592
216,000
472,225
129,076
43,549
129,076
66,000
129,076
139,575
129,076
Issue price 2
---
0.500
---
0.500
---
0.500
---
0.500
---
0.500
Number
Number
Number
---
223,100
---
138,240
---
138,240
---
138,240
---
138,240
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
Held at July 1, 2016
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
Number
7,097
15,148
446,837
27,041
29,428
15,774
---
---
---
15,148
Issue price 2
---
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
---
Vested
213,938
(216,000)
127,014
(129,076)
127,014
(129,076)
127,014
(129,076)
127,014
(129,076)
Number held at
June 30, 2018
534,530
223,100
599,239
138,240
170,563
138,240
193,014
138,240
266,589
138,240
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
1 Mr. Cavicchi was appointed Chairman in November 2016.
2 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 LNGL’s Annual General Meeting. These issue prices
reflect application of Australian Accounting Standards Board Standard 2 (AASB 2).
48
Use of independent consultancy in support of Compensation Committee
In January 2018, Korn Ferry was retained by the Board to assist the Compensation Committee regarding
executive compensation. Korn Ferry’s 2018 engagement letter totaled US$20,000, of which $10,000 was paid
during fiscal 2018.
The scope of work during fiscal 2018 included the following deliverables:
•
Provide recommendations on the long-term incentive plan, including making recommendations in the
context of shareholder and proxy advisory feedback.
• Assisting in review of LNGL’s annual report and ad-hoc assistance to the Compensation Committee.
In fiscal 2017, the Board also retained the Korn Ferry to assist the Compensation Committee. Korn Ferry received
compensation for their analysis and advisory work that led to their recommendations. Korn Ferry’s 2016
engagement letter totaled US$135,000, of which US$60,000 was paid during fiscal 2017. In January 2017, Korn
Ferry’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.
Korn Ferry’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.
The Board is satisfied that the KMP remuneration recommendations received in fiscal 2018 (and 2017) 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
49
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, LNGL 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, LNGL incurred a premium of $280,434(excl. GST) (2017: $189,857) 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, 2018, the insurance cover was limited
to $100 million on the primary coverage plus $20 million Side A excess cover.
RISK MANAGEMENT
LNGL 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 strategic plan and objectives;
Board approval of the 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 adherence to and performance against the above items; and
Regular review by the Board of risk management processes, with improvements introduced where
appropriate.
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
In November 2017, Mr. Joe B’Oris replaced Mr. Anthony (AG) Gelotti as Chief Development Officer. As at that
date, Mr. B’Oris became a KMP.
There were no other significant changes in LNGL’s state of affairs during the financial year ended June 30, 2018.
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 LNGL under ASIC
Corporation’s (Rounding in Financial/Directors’ Reports) Instrument 2016/191. LNGL is an entity to which the
Instrument applies.
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, LNGL 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.
50
Non-audit services
The following services were provided by LNGL’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 its services:
Amounts paid or payable to EY (Australia) for:
- audit of LNGL’s financial report
- half-year review
- other assurance services
- other services
Amounts paid or payable to EY (Australia) related practices for:
- tax services and other services provided by overseas firms
CONSOLIDATED
2018
$’000
$
$
73
37
536
25
165
836
Other assurance services relate to PCAOB audit services performed related to a potential U.S. listing of LNGL’s
securities. 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, LNGL considered EY the
most appropriate advisor to work on these matters.
Signed in accordance with a resolution of the directors.
Paul J Cavicchi
Chairman
Houston, Texas U.S.
September 21, 2018
Gregory M Vesey
Managing Director/Chief Executive Officer
Houston, Texas U.S.
September 21, 2018
51
CORPORATE GOVERNANCE STATEMENT
The Board is responsible for establishing and maintaining LNGL’s corporate governance framework and is guided
by the ASX Corporate Governance Council (CGC) Principles and Recommendations (3rd Edition ASX Corporate
Governance Council March 2014 (3rd Edition Principles)).
During the fiscal 2018 (and 2017) financial year LNGL’s practices were compliant with the existing 3rd Edition
Principles, except where noted in the following table. Following the table is a narrative describing LNGL’s
approach to each of the 8 Principles.
ASX Corporate Governance – Best Practice Recommendation
Best Practice Recommendation
Comply
Yes / No
Principle 1 – Lay solid foundations for management and oversight
1.1
A listed entity should disclose:
a) The respective roles and responsibilities of its Board and
management; and
b) 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
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
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
52
(ii) if the entity
is a “relevant employer” under the
Workplace Gender Equality Act, the entity’s most recent
“Gender Equality
in and
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
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.
2.4
2.5
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
n/a
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
Yes
Yes
Yes
Yes
Yes
Yes
53
CEO of the entity.
2.6
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) Has at least three members, all of whom are NED’s and a
majority of whom are independent directors; and
b)
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.
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.
4.2
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:
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
Yes
Yes
54
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)
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)
Review the entity’s risk management framework at least
annually to satisfy itself that it continues to be sound; and
b) 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.
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
n/a
Yes
Yes
n/a
Yes
55
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
n/a
Yes
Yes
Yes
Where LNGL 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 LNGL.
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 appropriate checks are
performed. LNGL uses international executive search and Board consulting firms to support its board renewal
process. Preferred candidates are short-listed 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.
LNGL has written agreements with all Directors and senior executives setting out the terms of their
appointments and a review of such agreements occurs annually.
56
The Company Secretaries are accountable directly to the Board, via the chair, on all matters of Board function.
The Company Secretaries and chair are in frequent communication to progress governance matters and
execution of Board accountabilities.
The Board guides and monitors the business and affairs of LNGL on behalf of the shareholders by whom they
are elected and to whom they are accountable. Directors’ responsibilities include:
•
Setting the strategic direction and objectives of LNGL and establishing defined goals to ensure these
strategic objectives are met;
• Monitoring performance against the established goals and overall strategic objectives;
•
•
•
•
Ensuring there are adequate internal controls and ethical standards of behavior adopted and complied with
within LNGL;
Ensuring that the business risks of LNGL 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;
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; and
Ensuring there are adequate procedures in place for recruitment, induction, training, remuneration (both
short-term and long-term), and succession planning.
LNGL 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 LNGL’s website at:
http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 .
At June 30, 2018, LNGL employed a total of 24 full time employees (FTEs) (excluding Non-Executive Directors),
with six personnel residing in Australia (25 percent of FTEs) and eighteen residing in the U.S. (75 percent of FTEs),
including all five Executive KMP (100 percent of KMP). LNGL applies, among other considerations, diversity
considerations and practices in the recruitment and development of its staff and Directors.
The gender diversity of LNGL’s employees (excluding consultants) and Board at June 30, 2018 follows.
Role
Number of Women
Total Number of Persons
Whole organization
Senior Executive positions 1
Board of Directors 2
11
2
1
29
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 LNGL as part of the Corporate Leadership Team.
2 Includes Executive and Non-Executive directors.
LNGL is an equal opportunity employer. The internal approach to diversity as described in the Diversity Policy is
that LNGL does not discriminate at any level or for any reason including age, gender, disability, ethnicity, marital
or family status, religious or cultural background or sexual orientation, and always selects the most appropriate
person for the job.
LNGL 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 U.S. Sarbanes Oxley Act of 2017. This involves an online survey completed by all Directors
57
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 LNGL performance. The fiscal 2018 Board survey focused on Board and
management interaction. The fiscal 2019 Board Survey currently underway focuses on Board Committee
performance.
The composition of Board committees and individual directors are reviewed and evaluated at least annually.
The Board has delegated to the Managing Director and Chief Executive Officer the authority to manage LNGL on
a day-to-day basis. The Managing Director and Chief Executive Officer has the authority to delegate certain
responsibilities to the Executive Team, which includes:
•
•
•
•
operating LNGL under approved budgets and delegated authorities;
executing corporate strategies and financial plans approved by the Board;
delivering certain goals which are aligned to the overall corporate objective of enhancing shareholder value;
and
ensuring the development of a healthy culture and core values to achieve desired outcomes.
Evaluation of senior executive performance 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 LNGL’s corporate governance principles and policies. More information on the process
itself and the results in the current year are 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 accordance with the definition of independence above, and the prescribed materiality thresholds, the
following directors of LNGL, with their disclosed term in office, are considered independent directors of LNGL.
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 operates within established guidelines including, where necessary, selecting
candidates for the position of director. The Corporate Governance and Nominating Committee is comprised of
independent directors 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. A summary of the key accountabilities of the Corporate Governance and
Nominating Committee may be found on LNGL’s website within its Corporate Governance Policy at
http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 .
58
Board skills matrix
An appropriate mix of director skills and diversity is required to oversee LNGL’s strategic direction, opportunities,
and challenges at all stages of its development and operation. 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 the Board level to
oversee its implementation.
•
•
•
To create wealth for shareholders through delivery of competitive LNG liquefaction projects in key markets
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 LNGL’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 LNGL’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 with emphasis on North American energy industry experience.
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 LNGL’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.
59
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 who 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 who carry relevant experience in project manager or executive director
roles across large scale energy projects.
Finance
Those directors who 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.
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 who have extensive experience in executive strategy positions, including
previous managing director, chief executive, and/or strategic senior manager roles.
Mergers and acquisitions Directors who 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 who 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 identifies desired skills and experience attributes when
60
reviewing the future director candidate pool. LNGL 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.
LNGL 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 LNGL’s securities;
• Market Disclosure Policy;
•
Corporate Governance Policy;
• Anti-Bribery and Anti-Corruption Policy;
• A quick guide to LNGL’s Company 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
2018, the Board received training on U.S. governance issues and recent trends in mergers and acquisitions
hosted by a U.S.-based law firm. Similar training was held in fiscal 2017.
There are procedures in place, agreed by the Board, to enable directors to seek independent professional advice
at LNGL’s expense, and directors are encouraged to attend relevant courses to maintain or expand their
individual skills in areas supporting LNGL’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 LNGL’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 LNGL 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.
61
Name
Position
D Michael Steuert
Leeanne K Bond
Philip D Moeller
Chairman
Member
Member
All Audit Committee 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. LNGL’s Audit
Committee charter can be found on LNGL’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. LNGL’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
give a true and fair view of the financial position and performance of the entity. This declaration was made
during the year.
LNGL’s external auditors, Ernst & Young, attend LNGL’s annual general meeting and are available to answer
questions relevant to the audit from shareholders.
Principle 5 – Make timely and balanced disclosure
LNGL’s corporate governance policies include a Market Disclosure Policy, which details LNGL’s commitment to
ensuring compliance with market disclosure obligations. The Board and management employ procedures to
ensure compliance with this policy.
Please see http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 for LNGL’s Market
Disclosure Policy.
Principle 6 – Respect the rights of security holders
LNGL places significant importance on effective communication with shareholders and is committed to keeping
them informed of all major developments that affect LNGL. The Market Disclosure Policy highlights the
communication approach taken by LNGL.
Information is disseminated to shareholders and other stakeholders via methods reflecting current corporation
communication practices and compliance with exchange rules. LNGL’s website has dedicated Investors and
Media sections that display all pertinent LNGL information and disclosures timely.
Shareholders are encouraged to subscribe to LNGL’s electronic email alert that allows them to be updated with
Company disclosures. Shareholders can access email alerts via a dedicated link on the “Investor Welcome” page
of the website. LNGL’s announcements are also communicated via its twitter account.
Shareholders can contact LNGL directly via phone or email link and are also able to lodge an “Information
Request” electronically via the “Investors” section of LNGL’s website. Shareholders can also receive
communications from LNGL’s share registry, Link Market Services. Their contact details can be found within the
“Investor FAQs” within the “Investors” section of LNGL’s website.
LNGL facilitates and encourages participation at meetings of shareholders and all shareholders are encouraged
to attend in person. The date of the current year’s AGM is published in the “Event Calendar” within the
62
“Investors” section of LNGL’s website, as well as in the Notice of Meeting. The Chairman encourages
shareholders or their proxy at the AGM to ask questions and make comments about LNGL’s performance. The
Chairman may respond directly to questions or may refer a question to another Director, the Managing Director
and Chief Executive Officer or a member of the Executive Team. Shareholders at the AGM are also given the
opportunity to ask questions to LNGL’s external auditors, Ernst & Young.
Principle 7 – Recognize and manage risk
Risk assessment and mitigation processes
LNGL’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.
LNGL’s Principles, Charters & Policies guide our decisions, actions, and behaviors. Effective management and
oversight of LNGL’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 LNGL 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 LNGL, ensuring thorough assessment of business development opportunities within the context of its risk
management framework.
LNGL has a risk management process based on Standards Australia AS/NZS ISO 31000:2009 Risk management –
Principles and guidelines. LNGL’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 LNGL 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 LNGL’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.
LNGL does not currently have an internal audit function, but through LNGL’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 LNGL’s Audit Committee may be found on LNGL’s website within its
Corporate Governance Policy.
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 LNGL’s 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
63
receives monthly reports on key risk areas such as health and safety, project development, and potential
environmental challenges.
LNGL recognizes the need to take account of changing community attitudes and environmental challenges, and
therefore LNGL 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. LNGL 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.
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. 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 and other stakeholders. As LNGL 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.
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.
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 LNGL’s website.
http://www.lnglimited.com.au/irm/content/corporate-governance.aspx?RID=225 .
Refer also to the Sustainability Development section of the Director’s Report contained elsewhere herein.
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, Ms. Leeanne K Bond and Mr. D. Michael Steuert, who are all independent
64
NEDs, to supervise employment management guidelines and policies, and assist in developing and
recommending remuneration arrangements. LNGL’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 LNGL’s Compensation Committee may be found on LNGL’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.
65
LIQUEFIED NATURAL GAS LIMITED
FINANCIAL REPORT CONTENTS
JUNE 30, 2018
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 67
Page 68
Page 69
Page 70
Notes to the Financial Statements
About
this
Report
Page
71
A
Segment Activities
B
Operating Capital
Pages
72 - 79
A1
Segment performance
A2
Segment assets and
Group property, plant
and equipment
Page
79 - 81
B1
Trade and other
receivables
B2
Trade and other
payables
C
Liquidity, Debt and
Capital
Pages
81 - 86
C1
Cash and cash
equivalents &
Other financial assets
C2
Interest bearing
liabilities
D
Other Items
Pages
86 - 91
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
66
LIQUEFIED NATURAL GAS LIMITED
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
JUNE 30, 2018
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
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
CONSOLIDATED
2018
2017
Note
In thousands ($)
$
A1
A1
A1
A1
A1
A1 and D4
A1
A1 and A3
$
326
1,858
2,184
(12,285)
---
(11,435)
(1,227)
(---)
(24,947)
(22,763)
(20)
(22,783)
(22,783)
$
$
367
551
918
(13,638)
(1)
(12,423)
(2,518)
(1,539)
(30,119)
(29,201)
(111)
(29,312)
(29,312)
Other comprehensive income (loss) for the period:
Foreign currency translation, net of tax
$
302
$
(381)
Total comprehensive income (loss) for the period
$
(22,481)
$
(29,693)
Loss for period is attributable to:
Non-controlling interest
Equity holders of the parent
Total comprehensive income (loss)
Total comprehensive income (loss) for the period:
Non-controlling interest
Equity holders of the parent
Total comprehensive income (loss)
Loss per share attributable to ordinary equity holders:
Basic loss per share
Fully diluted loss per share
A6
A6
$
$
$
$
$
(6)
(22,777)
(22,783)
$
$
(2)
(29,310)
(29,312)
(6)
(22,475)
(22,481)
$
$
(2)
(29,691)
(29,693)
$
(0.044)
(0.044)
(0.058)
(0.058)
The above statement of profit or loss and other comprehensive income should be read in conjunction with the
accompanying notes.
67
LIQUEFIED NATURAL GAS LIMITED
STATEMENT OF FINANCIAL POSITION
JUNE 30, 2018
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
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
2018
2017
In thousands ($)
Note
C1
B1
C1
A2
B2
C2
B3
C2
B3
C4
$
$
22,476
60
28,222
545
51,303
40,294
114
4,156
400
44,964
11,920
11,920
63,223
$
12,044
12,044
57,008
$
$
$
2,396
---
405
2,801
---
14
14
2,815
60,408
$ 420,106
45,219
(404,789)
60,536
(128)
60,408
$
$
$
$
$
2,151
4
379
2,534
2
41
43
2,577
54,431
392,875
43,690
(382,012)
54,553
(122)
54,431
The above statement of financial position should be read in conjunction with the accompanying notes
68
LIQUEFIED NATURAL GAS LIMITED
STATEMENT OF CHANGES IN EQUITY
JUNE 30, 2018
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 July 1, 2017
Loss for the period
$ 392,875
---
A6
$
6,078
---
$
32,094
---
$
Other comprehensive income (loss)
Total comprehensive income (loss) for the
period
Transactions with owners in their capacity
as owners:
Issue costs on conversion of rights
Ordinary share sale, net of costs
Exercise of options
Share based payment
At June 30, 2018
At July 1, 2016
Loss for the period
Other comprehensive income
Total comprehensive income (loss) for the
period
Transactions with owners in their capacity
Issue costs on conversion of rights
Exercise of options
Share based payment
At June 30, 2017
C4
C4
D4
---
---
---
27,231
---
---
C4
C4
C4
D4
---
---
---
---
---
---
---
---
---
---
---
1,227
$
4,032
---
---
---
---
---
---
---
In thousands ($)
$
578
---
---
---
---
---
---
---
908
---
302
302
---
---
---
---
$
(382,012)
(22,777)
$
---
$
54,553
(22,777)
302
(22,777)
(22,475)
(122)
(6)
---
(6)
$
54,431
(22,783)
302
(22,481)
---
---
---
---
---
27,231
---
1,227
---
---
---
---
---
27,231
---
1,227
$ 420,106
$
6,078
$
33,321
$
4,032
$
578
$
1,210
$
(404,789)
$ 60,536
$
(128)
$ 60,408
A6
$ 392,220
$
6,078
$
29,576
$
4,032
$
578
$
1,289
$
(352,702)
$ 81,071
$
(120)
$ 80,951
---
---
---
(19)
674
---
---
---
---
---
---
---
---
---
---
---
---
2,518
---
---
---
---
---
---
---
---
---
---
---
---
---
(381)
(381)
---
---
---
(29,310)
---
(29,310)
(29,310)
(381)
(29,691)
---
---
---
(19)
674
2,518
(2)
---
(2)
---
---
---
(29,312)
(381)
(29,693)
(19)
674
2,518
$ 392,875
$
6,078
$
32,094
$
4,032
$
578
$
908
$
(382,012)
$ 54,553
$
(122)
$ 54,431
The above statement of changes in equity should be read in conjunction with the accompanying notes.
69
LIQUEFIED NATURAL GAS LIMITED
STATEMENT OF CASH FLOWS
JUNE 30, 2018
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 from security deposits classified as other financial
assets
Proceeds on sale of Gladstone LNG Pty Ltd
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from the issue of ordinary shares
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
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
C1
$
CONSOLIDATED
2018
2017
Note
In thousands ($)
$
C1
A2
C4
C4
C4
272
358
144
(22,941)
(22,167)
(25,000)
1,293
---
(23,707)
28,222
(991)
---
---
---
27,231
(18,643)
825
40,294
22,476
$
497
382
1,050
(27,421)
(25,492)
---
---
(409)
(409)
(19)
674
(3)
(1)
651
(25,250)
(1,643)
67,187
40,294
$
The above statement of cash flows should be read in conjunction with the accompanying notes.
70
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, 2018 was
authorized for issue in accordance with a resolution of the Directors on September 21, 2018.
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 $1,000 (unless otherwise stated), under
the option available to the Company under Instrument 2016/191. The Company is an entity to which the instrument
applies.
The financial report comprises the financial statements of the Group and its subsidiaries as at June 30, 2018 (refer to
Section D3). Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to
be consolidated from the date at which the Group ceases to have control.
The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using
consistent accounting policies. All intercompany balances and transactions, including unrealized profits and losses
arising from intra-Group transactions, have been eliminated in full.
Non-controlling interests are allocated their share of the net profit after tax in the consolidated statement of profit and
loss, their share of other comprehensive income, net of tax, in the consolidated statement of comprehensive income,
and are presented within equity in the consolidated statement of financial position, separately from parent
shareholders’ equity.
Going concern
The financial statements have been prepared on the going concern basis, which contemplates the continuity of normal
business activity and the realization of assets and the settlement of liabilities in the normal course of business.
Foreign currency
Both the functional and presentation currency of the Company and its Australian subsidiaries is Australian dollars ($).
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.
71
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.
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.
72
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
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 U.S. employees. The 401(k) Plan
allows eligible employees to contribute up to 100 percent of their compensation up to the IRS maximum, for which the
Group matched those contributions by up to 3.5 percent and beginning on January 1, 2018 by up to 6 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, 2018 and 2017, respectively.
LNG Infrastructure
Technology & Licensing
Unallocated
Total
2018
2017
2018
2017
2018
2017
2018
2017
$
551
$
144
$
R&D concession
$
Net foreign exchange gain
Interest revenue
Gain on sale of Gladstone LNG
Inter-segment sales
Total revenue and other income
Inter-segment elimination
Total revenue and other income
Project development costs
$
---
---
---
---
---
---
---
---
$
---
---
---
---
---
---
---
---
- Employee comp & benefits
(4,244)
(5,987)
- Defined contribution plans
- Consulting fees
- Site options and lease expense
- Other expenses
(92)
(1,094)
(3,519)
(1,303)
(81)
(2,264)
(2,328)
(1,032)
$
---
---
---
---
---
---
---
---
(894)
(91)
---
---
(198)
Total project development costs
(10,252)
(11,692)
(1,183)
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)
---
---
---
---
---
---
---
---
$
144
421
326
1,293
---
2,184
---
2,184
---
---
---
---
---
(---)
---
421
326
1,293
---
2,184
---
2,184
(5,138)
(183)
(1,094)
(3,519)
(1,501)
551
---
367
---
---
918
---
918
(6,347)
(143)
(2,264)
(2,328)
(1,341)
---
367
---
---
918
---
918
---
---
---
---
---
---
(1)
(11,435)
(12,423)
---
(1)
(11,328)
(13,114)
(11,328)
(13,114)
(1,227)
(2,518)
(1,227)
(2,518)
(147)
(810)
---
---
(20)
(208)
(316)
(125)
(1,414)
(111)
(147)
(810)
---
---
(20)
(208)
(316)
(125)
(1,414)
(111)
$ (10,252)
$ (11,692)
$ (1,183)
$
(731)
$ (11,348)
$ (16,889)
$ (22,783)
$ (29,312)
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
73
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
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
2018
2017
2018
2017
2018
2017
In thousands ($)
Segment assets
Australia
Canada
U.S.
Indonesia
Total segment assets
Intersegment eliminations
Unallocated assets1
Total assets
Unallocated liabilities
$
$
7
11,495
663
---
$
6
11,560
665
---
$
12,165
$
12,231
$
$
1
---
---
---
1
$
2
---
---
---
2
$
$
8
11,495
663
---
12,166
---
51,057
63,223
359
$
$
8
11,560
665
---
12,233
---
44,775
57,008
415
1 Unallocated assets primarily consisted of cash and cash equivalents of $22,476,000 (2017: $40,294,000) and other financial assets
of $28,222,000 (2017: $4,156,000).
Property, Plant and Equipment
Cost and valuation
Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses.
Such cost includes the cost of replacing parts that are eligible for capitalization when the cost of replacing the parts is
incurred. Similarly, when each major inspection is performed, the associated cost is recognized in the carrying amount
of the plant and equipment as a replacement only if it is eligible for capitalization. All other repairs and maintenance
are recognized in profit or loss as incurred.
De-recognition and disposal
An item of plant and equipment is de-recognized upon disposal or when no further future economic benefits are
expected from its use or disposal.
Depreciation
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets as follows:
Computer hardware
Computer software
Furniture and fittings
Office equipment
3 to 5 years
3 to 10 years
10 years
5 years
The assets’ residual values, useful lives, and amortization methods are reviewed, and adjusted if appropriate, at each
financial year-end.
74
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Cost
At July 1, 2016
Additions
Disposals
Exchange differences
At June 30, 2017
Additions
Disposals
Exchange differences
At June 30, 2018
Accumulated depreciation
At July 1, 2016
Depreciation charge for the year
Disposals
Exchange differences
At June 30, 2017
Depreciation charge for the year
Disposals
Exchange differences
At June 30, 2018
At June 30, 2018
At June 30, 2017
Freehold land
Freehold Land
and Buildings
Plant and
Equipment
CONSOLIDATED
Information
Technology
In thousands ($)
Other
Total
$ 11,009
409
---
7
$ 11,425
---
---
---
$ 11,425
$
$
$
---
---
---
---
---
---
---
---
---
$ 11,425
11,425
$
$
$
$
$
$
$
$
$
$
$
$
$
$
26
---
(25)
(1)
---
---
---
---
---
24
2
(25)
(1)
---
---
---
---
---
---
---
$
$
$
$
$
$
$
299
---
(119)
(6)
174
---
---
6
180
170
66
(84)
(3)
149
28
---
3
180
---
25
1,072
---
(165)
(32)
875
---
---
33
908
$ 12,406
409
(309)
(32)
$ 12,474
---
---
39
$ 12,513
206
140
(59)
(6)
281
119
---
13
413
$
$
$
400
208
(168)
(10)
430
147
---
16
593
495
594
$ 11,920
12,044
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 statement of financial position.
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. Management have assessed that there were no triggers for impairment at reporting
date.
75
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
Reconciliation between tax expense and tax expense calculated per the
statutory income tax rate
Accounting loss before tax
Prima facie tax @ 27.5% (2017: 27.5%)
Increase in tax expense due to:
Share based payments
Expenditure not deductible for tax purposes
Decrease in tax expense due to:
Unrecognized deferred taxes
Income tax expense/(benefit)
CONSOLIDATED
2018
2017
In thousands ($)
$
$
20
---
20
111
---
111
(22,796)
(6,269)
(29,201)
(8,030)
223
114
356
3
5,952
20
$
7,782
111
$
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.
76
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
2018
2017
2018
2017
In thousands ($)
$
$
---
---
---
---
$
$
---
---
---
---
$
---
$
---
$
---
---
$
---
---
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 21% (Losses) and 24.46%
(investment in LNG)
CONSOLIDATED
2018
2017
In thousands ($)
$
$
$
45,080
21,753
1,553
18,806
21,840
192,254
$
$
$
40,959
14,777
31,572
24,010
16,216
175,906
$
51,619
$
67,243
Unused foreign losses for which no deferred tax asset has been recognized
Unrecognized tax benefit in Canada at 31%
$ 101,517
31,470
$
$ 136,594
42,344
$
Other unrecognized temporary differences
As at June 30, 2018, the Group has temporary differences of $384,764,824 (2017: $417,202,656) for which no deferred
tax asset has been recognized. There is no unrecognized temporary difference associated with the Group’s investments
in subsidiaries (2017: $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.
77
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 statement of financial position. 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.
The Canadian Revenue Agency has submitted a reassessment notice to Bear Head LNG Corporation outlining a net
reduction of the unused foreign losses carryforward. Bear Head LNG Corporation will appeal the ruling and believes the
item will be resolved in its favor through the appeals process.
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 statement of financial
position.
A4. Commitments and contingencies
Capital commitments
At year end, there were no commitments in relation to the purchase of plant and equipment (2017: $nil).
Insurance claims
There are no active or pending insurance claims by the Group as at the date of this report.
Legal claims
There are no legal claims outstanding against the Group as at the date of this report.
Guarantees
Refer to C1 – Cash and cash equivalents and other financial instruments.
Finance lease – the Group as lessee
Refer to C2 – Interest bearing liabilities.
Operating leases
Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease
term.
Group as lessee - The Company leases its corporate and project offices under operating leases.
Ground Lease commitment – Effective April 1, 2017, Magnolia LNG LLC, a wholly owned indirect subsidiary of the
Company, executed a Ground Lease with the Lake Charles Harbor and Terminal District, for 109.54 acres for a term of
30 years, subject to four options to extend the term of the Ground Lease on the same terms and conditions for additional
periods of 10 years each.
Future minimum rentals payable under non-cancellable operating leases as at June 30 are as follows.
78
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Within one year
After one year but not more than five years
More than five years
Aggregate non-cancellable operating lease expenditure at reporting date
A5. Dividends paid and proposed
There were no dividends paid or proposed during or as at the end of the financial year.
A6. Earnings / (loss) per share
CONSOLIDATED
2018
2017
In thousands ($)
$
$
877
4,511
38,977
44,365
$
$
742
2,296
31,701
34,739
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
2018
2017
In thousands ($)
$
$
(22,777) $
(29,310)
(22,777) $
(29,310)
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
517,550,922 509,282,478
517,550,922 509,282,478
B1. Trade and other receivables
Other receivables
GST receivable
Other receivables
Total current receivables
CONSOLIDATED
2018
In thousands ($)
2017
$
$
35
25
60
$
$
47
67
114
79
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Recognition and measurement
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
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
2018
2017
Trade and other payables
Trade creditors and accruals
Other creditors
Total trade and other payables
Recognition and measurement
$
$
$
In thousands ($)
2,371
25
2,396
$
2,120
31
2,151
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.
80
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
B3. Employee benefits and provisions
Current provisions
Annual leave
Long service leave
Total current employee benefits and provisions
$
$
CONSOLIDATED
2018
2017
In thousands ($)
$
258
147
405
$
274
105
379
Non-current provisions
Long service leave
Recognition and measurement
$
14
$
41
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
Short-term deposits
Security deposits
Total other financial assets
Recognition and measurement
$
$
$
$
2017
2018
In thousands ($)
21,636
840
22,476
$
$
38,788
1,506
40,294
25,000
3,222
28,222
$
$
---
4,156
4,156
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 at June 30, 2018 are made for varying periods of between 90 and 180 days and
earn interest at the respective term deposit fixed rates. Included in “short-term deposits” is:
• A$25,000,000 invested in a short-term (three-month) interest bearing investment with CIBC. The investment has a
term ending on September 28, 2018.
81
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Included in “security deposits” are:
• 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
•
C$500,000 letter of credit (issued by the Bank of Montreal) provided by the Company’s subsidiary, LNG
International Pty Ltd, in favor of the Nova Scotia Utility and Review Board, as part of the acquisition of Bear Head
Corporation.
Due to the liquidity associated with cash and cash equivalents and short-term nature of the other financial assets,
carrying amounts are deemed to approximate fair values. The maximum exposure to credit risk is their carrying
amounts. Reconciliation of net loss after tax to the net cash flows used in operations follows.
CONSOLIDATED
2018
2017
Net loss after income tax
Adjust for non-cash items
Depreciation expense
Share-based payment expense
Net foreign exchange loss/(gain)
Loss on sale of PPE
Adjust for other cash items:
Interest expense
Adjust for changes in assets/liabilities:
Decrease in trade and other receivables
(Increase) in prepayments
(Decrease) in trade and other payables
(Decrease) in income tax payable
(Decrease) in provisions
Net cash flows used in operating activities
C2. Interest bearing liabilities
Current
Finance lease liability
Non-current
Finance lease liability
Recognition and measurement
In thousands ($)
$
(22,783)
(29,312)
$
147
1,227
(421)
---
208
2,518
1,414
125
---
1
54
(145)
(245)
---
(1)
(22,167)
$
632
(53)
(435)
(9)
(581)
(25,492)
$
CONSOLIDATED
2018
In thousands ($)
2017
$
$
---
$
---
$
4
2
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.
82
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
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
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 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) (2017: +0.5%)
- 0.5% (50 basis points) (2017: -0.5%)
Foreign exchange risk
CONSOLIDATED
2018
2017
In thousands ($)
$
$
253
(253)
222
(222)
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 $CDN foreign currency:
CONSOLIDATED
2018
2017
Financial assets
US$ cash and cash equivalents
Financial liabilities
US$ trade and other payables
Net $US exposure
Financial assets
CDN$ cash and cash equivalents
Financial liabilities
CDN$ trade and other payables
Net $CDN exposure
In thousands ($)
$
16,838
29,640
(1,383)
15,455
$
(964)
28,676
$
$
$
1,376
$
1,170
(60)
1,316
$
(57)
1,113
$
83
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
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:
Post tax profit and equity higher / (lower)
AUD/USD +10% (2017: +10%)
AUD/USD -10% (2017: -10%)
AUD/CDN +10% (2017: +10%)
AUD/CDN -10% (2017: -10%)
CONSOLIDATED
2018
2017
In thousands ($)
$
$
(1,898)
2,320
(123)
150
(3,392)
4,146
(101)
124
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 $60,000 (2017: $114,000).
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.
The Company continues to operate in accordance with its liquidity management plan (LMP) begun in the 3rd quarter of
fiscal 2016. During fiscal 2018, the Company undertook two liquidity enhancing events: (i) the sale of 56,444,500 of
ordinary shares for net proceeds totaling $27,231,000 and (ii) sold Gladstone LNG Pty Ltd for proceeds totaling
$1,293,000. With these incremental funds in combination with existing cash on hand and through applying our LMP,
the Company estimates that the existing cash position can sustain the company through mid-2020.
At June 30, 2018, except for payables, the Group had no debt (2017: nil). At June 30, 2018, $25,000,000 was invested
in a short-term (three-month) interest bearing investment with CIBC. The investment has a term ending on September
28, 2018.
Other cash reserves are held in term deposit with the ANZ Banking Group, 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.
84
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Movement in ordinary shares on issue:
At June 30, 2016
Exercise of options (i)
Vesting of rights (ii)
At June 30, 2017
Ordinary shares issued (iii)
Share issue costs (iii)
Vesting of rights (iv)
At June 30, 2018
CONSOLIDATED
Number
In thousands
503,977,606
1,759,000
7,243,356
512,979,962
56,444,500
---
721,994
570,146,456
$ 392,220
674
(19)
$ 392,875
28,222
(991)
---
$ 420,106
(i)
(ii)
During the 2017 financial year, 1,759,000 shares were issued for cash on the exercise of share options. Refer to
note D4.
During the 2017 financial year, 7,243,356 shares were issued on the vesting of 7,271,505 Rights. Refer to note
D4.
(iii) During the 2018 financial year, 56,444,500 ordinary shares were issued for $28,222,000 consideration on a share
placement. The issue costs of the share placement were $991,000.
(iv) During the 2018 financial year, 721,994 ordinary shares were issued for nil consideration on the vesting of
732,304 NED Rights. Refer to note D4.
At June 30, 2018, 570,146,456 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).
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.
85
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
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
2018
2017
Short-term benefits
Post-employment benefits
Long-term benefits
Share-based payment
$
$
In thousands ($)
3,050
$
---
---
1,047
4,097
3,746
---
---
938
4,684
$
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 $104,400 (excluding GST) [2017: $161,256]. At reporting date, there
were no amounts outstanding [2017: $nil].
Mr. Beresford’s spouse is employed by the Company under a casual employment service agreement. Total
remuneration for this individual included cash compensation of A$94,258 in fiscal 2018 (2017: A$128,461) and Rights
vesting in fiscal 2018 under the LTI Plan totaling 3,000 ordinary shares having a vesting date approximate value of
A$1,740 (2017: nil). This individual beneficially owns 48,032 LNGL ordinary shares in total and holds an additional 38,000
Rights under the LTI Plan, which have measurement periods ending in 2019 through 2021.
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 $122,400 (excluding GST) [2017: $136,000]. At reporting date, there
were no amounts outstanding [2017: $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
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
86
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
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, 2018 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, 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 (i)
PT. LNG Energi Utama (ii)
Gladstone LNG Pty Ltd (iii)
CSG Nominees Pty Ltd
Mayflower LNG Pty Ltd (iv)
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) (v)
LNG Management Services LLC
Pecan Inc. (vi)
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.
Equity interest (%)
2017
2018
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
95
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Australia
Australia
Australia
Australia
Australia
Indonesia
Australia
Australia
Australia
Australia
USA
USA
USA
USA
USA
USA
USA
USA
Canada
USA
USA
USA
Canada
(i) North American LNG Pty Ltd was previously named South Australian LNG Pty Ltd.
(ii) Deregistration of this entity is in progress
(iii) Gladstone LNG Pty Ltd was purchased by LNG Queensland Pty Ltd on April 13, 2018 via a Share Sale Agreement for
net cash proceeds of $1.293 million and the right to an additional US$4 million payment contingent upon future
development by the purchaser of an LNG project at the Fisherman’s Landing Gladstone site. The sale was conducted
pursuant to LNGL’s departure from development of the Fisherman’s Landing LNG project.
(iv) Mayflower LNG Pty Ltd was previously named Kimberley LNG Pty Ltd.
(v) 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
(vi) Pecan Inc. was previously named Eagle LNG LLC
87
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
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 $1,277,000 (2017: $2,518,000).
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:
88
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
At July 1, 2016
Exercised/vested
Issued in period
Expired or other
At June 30, 2017
Exercised/vested
Issued in period
Expired or other
At June 30, 2018
Number of
Rights
No.
Weighted
average
exercise price
$
16,582,858 $
(7,271,505)
7,392,804
(4,572,858)
12,131,299
(1,572,054)
7,881,060
(6,908,032)
11,532,273 $
---
---
---
---
---
---
---
---
---
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
2018
Nil
60%
1.39 - 1.67%
0.465 - 0.635
MCS
2017
Nil
88%
1.39 - 1.67%
0.595 - 0.62
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
2018
2017
Audit of the financial report of the Group
Half-year review
Other assurance services
Other services
Total Australian fees
Tax or other non-audit services provided by overseas EY firm
Total fees
$
$
In thousands ($)
$
73
37
536
25
671
165
836
$
72
36
---
82
191
223
414
89
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
D6. Parent information
Information relating to Liquefied Natural Gas Limited:
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
2017
2018
In thousands ($)
$
26,867
46,703
4,927
24,205
7,269
7,283
420,315
(424,084)
39,157
4,032
39,420
(5,801)
(5,801)
7,430
7,443
393,084
(418,283)
37,929
4,032
16,762
(6,066)
(6,066)
The parent entity has not guaranteed the liabilities of its subsidiaries as at June 30, 2018.
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 July 1, 2017, the Group has adopted the following Standards and Interpretations, mandatory for all annual
reporting periods beginning on or after July 1, 2017. Adoption of these Standards and Interpretations did not have any
effect on the financial position or performance of the Group.
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 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.
AASB Interpretation 23 Uncertainty over Income Tax Treatments, and relevant amending standards. The Interpretation
clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes when there is
uncertainty over income tax treatments. Its applicable date is January 1, 2019.
90
LIQUEFIED NATURAL GAS LIMITED
NOTES TO FINANCIAL REPORT
Conceptual Framework for Financial Reporting. The revised Conceptual Framework includes some new concepts,
provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts.
Amendments to References to the Conceptual Framework in IFRS Standards has also been issued, which sets out the
amendments to affected standards in order to update references to the revised Conceptual Framework. The changes
to the Conceptual Framework may affect the application of IFRS in situations where no standard applies to a particular
transaction or event. In addition, relief has been provided in applying IFRS 3 and developing accounting policies for
regulatory account balances using IAS 8, such that entities must continue to apply the definitions of an asset and a
liability (and supporting concepts) in the 2010 Conceptual Framework, and not the definitions in the revised Conceptual
Framework.
91
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, 2018 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 June 30, 2018.
On behalf of the Board
Paul J Cavicchi
Chairman
Houston, Texas U.S.
September 21, 2018
92
LIQUEFIED NATURAL GAS LIMITED
AUDITOR’S INDEPENDENCE DECLARATION
AUDITOR’S INDEPENDENCE DECLARATION
93
LIQUEFIED NATURAL GAS LIMITED
INDEPENDENT AUDIT REPORT
INDEPENDENT AUDITOR’S REPORT
94
LIQUEFIED NATURAL GAS LIMITED
INDEPENDENT AUDIT REPORT
95
LIQUEFIED NATURAL GAS LIMITED
INDEPENDENT AUDIT REPORT
96
LIQUEFIED NATURAL GAS LIMITED
INDEPENDENT AUDIT REPORT
97
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 August 29, 2018.
a) Distribution of equity securities
(i) Ordinary share capital
▪ 570,986,206 fully paid ordinary shares are held by 8,748 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
▪ 16,722,273 unlisted performance rights over ordinary shares are held by 37 holders.
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
2,032
2,894
1,350
2,175
297
8,748
1,271
-
-
-
-
-
-
-
-
-
-
13
24
37
-
98
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
HSBC Custody Nominees (Australia) Limited
2 Mulliner Investment Limited
3
4
5
6
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited-GSCO ECA
J P Morgan Nominees Australia Limited
National Nominees Limited
7 Merrill Lynch (Australia) Nominees Pty Limited
8
9
BNP Paribas Noms Pty Ltd
A&W Bruce Super Fund Pty Ltd
10 Mr. Bassam Abou Chahla & Ms. Cherie Abou Chahla
11
12
13
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
CS Fourth Nominees Pty Limited
14 Garden Verde Pty Ltd
15 Mr. Paul Bridgwood
16 Mr. Andrew Bruce & Mrs Wendy Bruce
17 Warbont Nominees Pty Ltd
18 National Nominees Limited
19
20
BNP Paribas Nominees Pty Ltd
Kevin Barry Building Service Pty Ltd
Substantial shareholders as at August 31, 2018
Ordinary shareholders
The Baupost Group (Boston)
Mulliner Investment Limited (Tortola)
Valinor Management, LLC (New York)
d) Cash used in operations
85,537,472
56,444,500
51,780,690
48,864,031
40,398,870
31,304,137
28,800,614
12,943,992
10,000,000
8,363,580
6,791,339
6,613,686
4,792,499
2,960,493
2,864,261
2,634,000
1,966,660
1,908,502
1,667,674
1,650,000
14.98
9.89
9.07
8.56
7.08
5.48
5.04
2.27
1.75
1.46
1.19
1.16
0.84
0.52
0.50
0.46
0.34
0.33
0.29
0.29
408,287,000
71.50
Fully paid
Number
Percentage
62,340,529
56,444,500
41,967,223
160,752,252
10.9
9.9
7.4
28.2
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.
99