2018
Annual
Report
“ To me,
good energy
is energy you
can rely on.”
Conway Blacker
Origin Plant Technician,
Quarantine Power Station
Adelaide
Annual Report 2018
Featured on our front cover is Conway Blacker
Conway is a plant technician at our Quarantine Power
Station in Adelaide, South Australia.
Conway is part of the team responsible for maintaining
the gas-powered electricity generation facility.
Contents
3
Contents
Welcome to the 2018 Annual Report
Year at a glance
Directors' Report
Operating and Financial Review
Remuneration Report
Lead Auditor’s Independence Declaration
Board of Directors
Executive Leadership Team
Corporate Governance Statement
Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Share and Shareholder Information
Exploration and Production Permits and Data
Annual Reserves Report
Five Year Financial History
Glossary and Interpretation
4
7
8
12
58
89
90
92
94
101
167
168
174
176
178
184
188
4
A message from Gordon and Frank
Welcome to the 2018 Annual Report
“ Good energy.
It’s both our
new brand
position and
a statement
that embodies
our intent in
everything
we do.”
Early in the year, when we were preparing
our first major rebrand in our 18-year history,
we asked ourselves, what does Origin stand
for? And what do we want to be known
for among our customers, our people, our
shareholders and the broader community?
And as we thought about the pivotal role
we play every day, delivering energy to
customers large and small, we thought
about what sets us apart from the pack.
This year, good energy was represented
in many forms. It was delivering flat or
falling power prices for customers. It was
delivering on our priorities to reduce debt
and improve our business performance.
It was also leading on climate change,
by committing to halve our emissions by
2032 in line with the Paris Agreement.
We discuss these and many other matters
throughout this report.
It’s called ‘good energy’. It’s both our
new brand position and a statement that
embodies our intent in everything we do.
Bringing this to life are the more than 5,000
people who work in our diverse business.
Conway Blacker, a Plant Technician at
our Quarantine Power Station in Adelaide,
is one of our people who is passionate about
our delivering for our customers. We’d like
to thank Conway for appearing on the cover
of this report and detailing what good energy
means to him.
Progress on our commitments
We have continued to focus on strengthening
our balance sheet and improving returns.
We met our debt reduction target through
asset sales, disciplined capital management
and more efficient operational performance.
The divestment of Lattice Energy and
Acumen contributed to a reduction in debt
of $1.6 billion, with adjusted net debt now
sitting below $6.5 billion.
Annual Report 2018 Welcome to the 2018 Annual Report
5
We will also maintain our focus on
getting energy right for our customers,
communities and planet, to allow us to
earn the confidence of our stakeholders
to deliver the energy of the future.
We look forward to speaking with many of
you at our forthcoming AGM on 17 October.
Thank you for your continued support.
Gordon Cairns
Chairman
Frank Calabria
Chief Executive Officer
In FY2018 we performed strongly across
our operations, with earnings growth in both
the Integrated Gas and Energy Markets
businesses. By reducing debt and lifting
business performance, we have put Origin
in a much stronger financial position,
making us more resilient to cycles in
commodity prices.
However, as we have not yet reached our
target capital structure, the Board decided
not to pay a dividend for FY2018. We did
not take this decision lightly, as we are fully
aware of the importance of dividends to
our shareholders.
At our full year results announcement on
16 August, we advised that, subject to Board
approval and no material adverse changes
in business conditions, our medium-term
outlook supports dividends in FY2019.
We look forward to updating you on these
prospects at our AGM.
What we’re doing for customers
Energy affordability has been a big focus
for us this year. The closure of two large
power stations at relatively short notice
resulted in a surge in wholesale electricity
prices in 2017. In response, we significantly
boosted output at Eraring, which helped
put downward pressure on prices. This
contributed to flat or falling tariffs flowing
through to Origin customers in New South
Wales, Queensland, South Australia and the
Australian Capital Territory from 1 July 2018.
We believe we have turned the corner on
prices, with significant renewable supply due
to come online by 2020, further reducing
wholesale electricity prices. We expect to
pass these savings on to customers.
Improved business performance
The improved performance in both
our Energy Markets and Integrated Gas
businesses increased underlying earnings
before interest, taxes, depreciation and
amortisation (EBITDA) to $2.95 billion,
a 36 per cent increase on last year’s result.
Our power generation and gas portfolios
drove growth in Energy Markets. A 14 per
cent increase in output at Eraring Power
Station, coupled with higher wholesale
electricity prices and natural gas sales
contributed to the improvement in Energy
Markets Underlying EBITDA to $1.8 billion.
The Integrated Gas business has made
strong progress on plans to reduce operating
and capital costs. At Australia Pacific LNG,
a full year of operations from both LNG
trains and higher commodity prices drove
record production and earnings. Australia
Pacific LNG also hit the milestone of
delivering net cash flows back to Origin of
$363 million. Overall, Integrated Gas delivered
an Underlying EBITDA of $1.3 billion.
Outlook
There is no doubt that the political and
regulatory environment within which we
operate is changing quickly. The outlook for
our business that we gave at our full year
results was premised on market conditions
and the regulatory environment not
materiality changing.
On that basis, we said Energy Markets
Underlying EBITDA is expected to be
in the range of $1.5 billion to $1.6 billion.
This lower outlook for FY2019 is due to
increased competition in the retail market
and because of our decision to absorb
the 3 per cent electricity price increase
in New South Wales from 1 July.
We also said that Energy Markets
underlying earnings will be impacted by
our changed treatment of certain electricity
hedge premiums, which were previously
outside of underlying earnings. While this
decision changed the presentation of
underlying earnings, it had no impact on
our statutory profit or net cash flow and
as a consequence, the ability of our
company to perform.
In our gas business, we said we expect
continued capital and operating cost
savings will be offset by higher one-off
costs associated with changes in scope
from FY2018, increased exploration activity
and higher infrastructure spend. Australia
Pacific LNG is on track to become a low-
cost operator, allowing us to compete
better in a global market increasingly
dominated by US shale. Australia Pacific
LNG’s production is expected to be steady
with FY2018, at 660-690 petajoules.
We are confident that our improved
position enables us to meet the
challenges in front of us.
Origin people and purpose
We were pleased to welcome Samantha
Stevens to our executive leadership team as
head of Corporate Affairs earlier in the year.
Samantha is an important addition to Origin
as we respond to the heightened focus
on the energy sector, driven by concerns
about affordability and reliability.
We introduced a new purpose, values and
behaviours to guide our efforts in making
energy more affordable, smarter, easier
and more sustainable for our customers.
The future
We know the energy market is set to
face ongoing scrutiny and with this comes
discussion of greater regulation. On behalf
of our customers and shareholders, we will
continue to contribute constructively to
the policy debate.
6
Our purpose
Getting energy
right for our
customers,
communities
and planet.
Year at a glance
7
Shareholders
This year, Origin made
good progress towards
reducing debt and improving
business performance.
Statutory Profit
Underlying EBITDA
Underlying Profit
$218M
from a loss of
$2.4 billion last year
$2.9B
$774 million
(continuing operations)
$838M
$438 million
(continuing operations)
Nil dividend in FY2018
Adjusted Net Debt down
Improved safety performance
with our lowest ever
Outlook supports
dividends in FY2019
(Subject to Board approval and
no material adverse changes in
business conditions)
$1.6B
TRIFR of 2.2
Outlook
Energy Markets
Integrated Gas
Exploration activities
Underlying EBITDA
$1.50–$1.60 billion
Australia Pacific LNG
FY2019 production
660–690 PJ (100%)
Beetaloo Basin, NT
Ironbark, QLD
8
Directors’
Report
For the year ended 30 June 2018
In accordance with the Corporations Act
2001 (Cth), the Directors of Origin Energy
Limited (Company) report on the Company
and the consolidated entity Origin Energy
Group (Origin), being the Company and
its controlled entities for the year ended
30 June 2018.
The Operating and Financial Review and
Remuneration Report form part of this
Directors’ Report.
1. Principal activities
During the year, the principal activity
of Origin was the operation of energy
businesses including:
• exploration and production of natural gas;
• electricity generation;
• wholesale and retail sale of electricity and
gas; and
• sale of liquefied natural gas.
On 31 January 2018, Origin completed the
sale of Lattice Energy, the name given to the
upstream conventional oil and gas business.
There were no other significant changes in
the nature of these activities during the year.
2. Review of operations
and future developments
A review of the operations and results of
operations of Origin during the year, the
financial position of Origin and the business
strategies and prospects for future financial
years, is set out in the Operating and
Financial Review, which forms part of
this Directors’ Report.
3. Significant changes
in the state of affairs
Capital management
Origin completed the $1,585 million sale of
Lattice Energy on 31 January 2018, with an
economic effective date of 1 July 2017. After
adjusting for settlement of the acquisition
by Lattice Energy of Benaris’ interest in the
Otway basin, close out of oil forward sale
agreements, transaction costs, adjustments
and taxes, the balance of approximately
$1 billion was used to pay down debt.
The sale of Acumen, Origin’s retail metering
business, was completed on 19 June 2018
with proceeds of $267 million also used to
pay down debt.
In June 2018 Origin redeemed its
€500 million Capital Securities due 2071
at their first call date (16 June 2018), in
accordance with the terms of the securities.
Origin also completed the extension of
approximately $4 billion of syndicated loan
facilities with new 4, 5 and 7 year maturities
at reduced funding margins.
Adjusted net debt reduced by $1.6 billion
to $6.5 billion driven by operating cash
flows, proceeds from asset sales and net
cash flows from Australia Pacific LNG, all
of which were more than sufficient to fund
capital expenditure and interest payments.
The events described above and those
disclosed in the Financial Statements
represent the significant changes in the
state of affairs of Origin for the year ended
30 June 2018.
4. Events subsequent
to balance date
No matters or circumstances have
arisen since 30 June 2018, which have
significantly affected, or may significantly
affect the Company’s operations, the results
of those operations or the Company’s state
of affairs in future financial years.
The following significant changes in the
state of affairs of the Company occurred
during the year:
5. Dividends
Australia Pacific LNG
In July 2017, Australia Pacific LNG completed
the 90-day operational phase of the two-train
project finance lenders’ test, producing more
than 10 per cent above nameplate capacity.
The remaining US$3.4 billion of shareholder
guarantees relating to Australia Pacific LNG’s
US$8.5 billion project finance facility were
released in August 2017.
No Dividends were paid during the year
by the Company and the Directors have
determined that no final dividend will be
payable for the year ended 30 June 2018.
6. Directors
The Directors of the Company at any time
during or since the end of the financial year are:
Gordon Cairns
Chairman
Frank Calabria
Managing Director and
Chief Executive Officer
John Akehurst
Non-executive Director
Maxine Brenner
Non-executive Director
Teresa Engelhard
Non-executive Director
Bruce Morgan
Non-executive Director
Scott Perkins
Non-executive Director
Steven Sargent
Non-executive Director
7. Information on Directors
and Company Secretaries
Information relating to current Directors’
qualifications, experience and special
responsibilities is set out on pages 90-91.
The qualifications and experience of the
Company Secretaries are set out below.
Andrew Clarke
Group General Counsel and
Company Secretary
Andrew Clarke joined Origin in May 2009
and is responsible for the company secretarial
and legal functions. He was a partner of
a national law firm for 15 years and was
Managing Director of a global investment
bank for more than two years prior to joining
Origin. Andrew has a Bachelor of Laws (Hons)
and a Bachelor of Economics from the
University of Sydney, and is a member of the
Australian Institute of Company Directors.
Helen Hardy
Company Secretary
Helen Hardy joined Origin in March 2010.
She was previously General Manager,
Company Secretariat of a large ASX listed
company, and has advised on governance,
financial reporting and corporate law at a
Big 4 accounting firm and a national law firm.
Helen is a Chartered Accountant and
Chartered Secretary and a Graduate Member
of the Australian Institute of Company
Directors. She holds a Bachelor of Laws and
a Bachelor of Commerce from the University
of Melbourne, and is admitted to legal
practice in New South Wales and Victoria.
Annual Report 2018 Directors' Report
9
8. Directors’ meetings
The number of Directors’ meetings, including Board committee meetings, and the number of meetings attended by each Director during
the financial year are shown in the table below:
Board Meetings
Committee Meetings
Scheduled
Additional
Audit
Health,
Safety and
Environment
(HSE)
Nomination
Remuneration
& People
Risk
Directors
J Akehurst
M Brenner
G Cairns
F Calabria
T Engelhard
B Morgan
S Perkins
S Sargent
H
10
10
10
10
10
10
10
10
A
10
10
10
10
10
10
10
10
H
3
3
3
3
3
3
3
3
A
3
3
3
3
3
2
3
3
H
–
4
4
–
3
4
4
–
A
–
4
4
–
3
4
4
–
H
5
–
5
5
–
5
–
5
A
5
–
5
5
–
5
–
5
H
1
1
1
–
–
1
1
–
A
1
1
1
–
–
1
1
–
H
–
–
6
–
6
–
6
6
A
–
–
6
–
6
–
6
6
H
4
4
4
–
–
4
4
–
A
4
4
4
–
–
4
4
–
H Number of scheduled meetings held during the time that the Director held office or was a member of the committee during the year.
A Number of meetings attended.
The Board held ten scheduled meetings, including a two-day strategic review meeting and three additional meetings to deal
with urgent matters. There were also seven Board or Committee workshops to consider matters of particular relevance. In addition,
the Board conducted visits of Company operations at various sites and met with operational management during the year.
9. Directors’ interests in Shares, Options and Rights
The relevant interests of each Director as at 30 June 2018 in the shares and Options or Rights over such instruments issued
by the companies within the consolidated entity and other related bodies corporate at the date of this report are as follows:
Directors
J Akehurst
M Brenner
G Cairns
F Calabria
T Engelhard
B Morgan
S Perkins
S Sargent
Ordinary shares held
directly and indirectly
Options over ordinary
shares
Deferred Share Rights
(DSR) over ordinary Shares
Performance Share Rights
(PSR) over ordinary shares
71,200
22,117
163,660
191,905
–
47,143
30,000
31,429
–
–
–
–
–
–
–
–
–
1,430,2101
216,2142
271,8952
–
–
–
–
–
–
–
–
–
–
–
–
Exercise price for Options and Rights:
1 227,065: $15.65; 570,150: $6.78; 231,707: $5.67; 401,288: $7.37.
2 Nil.
No Director other than the Managing Director and Chief Executive Officer participates in the Company’s Equity Incentive Plan.
10
Options and Rights granted by Origin
Non-executive Directors do not receive Options or Rights as part of their remuneration. The following Options and Rights were granted to
the Managing Director and Chief Executive Officer and the five most highly remunerated officers (other than Directors) of the Company
during the year ended 30 June 2018:
J Briskin
A Clarke
G Jarvis
M Schubert
L Tremaine
Options
86,910
77,683
93,219
83,769
81,441
DSRs
23,340
25,347
25,993
18,945
335,875
PSRs
27,477
24,560
29,471
26,484
24,415
Each of these awards was made in accordance with the Company’s Equity Incentive Plan as part of the relevant executive’s remuneration.
Further details on Options and Rights granted during the financial year, and unissued shares under Options and Rights, are included in
Section 5 of the Remuneration Report.
No Options or Rights were granted since the end of the financial year.
Origin shares issued on the exercise of Options and Rights
Options
No Options granted under the Equity Incentive Plan were exercised during or since the year ended 30 June 2018, so no ordinary shares
in Origin were issued as a result.
Rights
3,822,999 ordinary shares of Origin were issued during the year ended 30 June 2018 on the vesting and exercise of Deferred Share Rights
(DSRs) granted under the Equity Incentive Plan. No amount is payable on the vesting of those DSRs and, accordingly, no amounts remain
unpaid in respect of any of those shares.
Since 30 June 2018, 228,709 ordinary shares were issued on the vesting of DSRs granted under the Equity Incentive Plan.
No amount is payable on the vesting of those DSRs and, accordingly, no amounts remain unpaid in respect of any of those shares.
Annual Report 2018 Directors' Report
11
14. Proceedings on
behalf of the Company
The Company is not aware of any
proceedings being brought on behalf of
the Company, nor any applications having
been made in respect of the Company
under section 237 of the Corporations Act
2001 (Cth).
15. Rounding of amounts
The Company is of a kind referred to in
ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191
dated 24 March 2016 and in accordance
with that class order, amounts in the
financial report and Directors’ Report have
been rounded off to the nearest million
dollars unless otherwise stated.
16. Remuneration
The Remuneration Report forms part of this
Directors’ Report.
10. Environmental
regulation and
performance
The Company’s operations are subject
to environmental regulation under
Commonwealth, State, and Territory
legislation. For the year ended 30 June 2018,
the Company’s Australian operations recorded
some environmental incidents arising from
Origin’s activities including those where
Origin was the operator of a joint venture.
These incidents resulted in environmental
impacts mostly with a moderate and
temporary nature. Regulators were notified
of reportable environmental incidents.
For FY2018, the Company recorded
no formal notices or penalties from a
regulator arising from Origin’s activities
as compared to the 12 notices received
in FY2017. However, for Australia Pacific
LNG, where Origin is the operator, one
infringement at Spring Gully was received
for $12,615. Appropriate remedial actions
have been taken or are being undertaken
in response to the notice and reportable
environmental incident.
11. Indemnities and
insurance for Directors
and Officers
Under its constitution, the Company may
indemnify current and past Directors and
Officers for losses or liabilities incurred
by them as a Director or Officer of the
Company or its related bodies corporate
to the extent allowed under law. The
constitution also permits the Company
to purchase and maintain a Directors’ and
Officers’ insurance policy. No indemnity has
been granted to an auditor of the Company
in their capacity as auditor of the Company.
The Company has entered into agreements
with current Directors and certain former
Directors whereby it will indemnify those
Directors from all losses or liabilities in
accordance with the terms of, and subject
to the limits set by, the constitution.
The agreements stipulate that the Company
will meet the full amount of any such liability,
including costs and expenses to the extent
allowed under law. The Company is not
aware of any liability having arisen, and no
claim has been made against the Company
during or since the year ended 30 June
2018 under these agreements.
During the year, the Company has paid
insurance premiums in respect of Directors’
and Officers’ liability, and legal expense
insurance contracts for the year ended
30 June 2018.
The insurance contracts insure against
certain liability (subject to exclusions) of
persons who are or have been Directors or
Officers of the Company and its controlled
entities. A condition of the contracts is that
the nature of the liability indemnified and
the premium payable not be disclosed.
12. Auditor independence
There is no former partner or director of
KPMG, the Company’s auditors, who is
or was at any time during the year ended
30 June 2018 an officer of the Origin
Energy Group. The auditor’s independence
declaration for the financial year (made under
section 307C of the Corporations Act (Cth))
is attached to and forms part of this Report.
13. Non—audit services
The amounts paid or payable to KPMG
for non-audit services provided during
the year was $1,558,000 (shown to
nearest thousand dollar). Amounts paid
to KPMG are included in F7 to the full
financial statements.
Based on written advice received from the
Audit Committee Chairman pursuant to a
resolution passed by the Audit Committee,
the Board has formed the view that the
provision of those non-audit services by
KPMG is compatible with, and did not
compromise, the general standards of
independence for auditors imposed by
the Corporations Act 2001 (Cth). The
Board’s reasons for concluding that the
non-audit services provided by KPMG did
not compromise its independence are:
• all non-audit services provided were
subjected to the Company’s corporate
governance procedures and were either
below the pre-approved limits imposed
by the Audit Committee or separately
approved by the Audit Committee;
• all non-audit services provided did
not, and do not, undermine the
general principles relating to auditor
independence as they did not involve
reviewing or auditing the auditor’s
own work, acting in a management
or decision making capacity for the
Company, acting as an advocate for
the Company or jointly sharing risks
and rewards; and
• there were no known conflict of interest
situations nor any other circumstance
arising out of a relationship between
Origin (including its Directors and
officers) and KPMG which may impact
on auditor independence.
12
Annual Report 2018
Operating and
Financial Review
For the year ended 30 June 2018
1. About Origin
Energy Markets
Leading
energy retailer
Growing
renewable supply
Large and flexible
gas supply
4.2 million gas,
electricity and LPG
customer accounts
From ~ 13% of Origin’s
generation mix today to
more than 25% by 2020
Contracted gas supply
beyond 2022
Significant
generation portfolio
Brownfield generation
growth opportunities
~ 7,000 MW with
fuel and geographic
diversity
To increase generation
flexibility and capacity
and integrate storage
Operating and Financial Review
13
Integrated Gas
Upstream operator and 37.5 per cent shareholder in APLNG
Australia’s largest
CSG reserves base
Largest LNG facility on
the Australian east coast
Supplier to domestic
and export markets
2P reserves of
12,453 PJ1
(APLNG 100%)
9 mtpa
nameplate capacity
Supplier of ~ 30% of
domestic east coast gas
demand in 2018
~ 8.6 mtpa LNG export
contracts to 2035
Other exploration and development interests
Surat Basin (Ironbark)
Beetaloo Basin
Browse Basin
Discontinued Operations
On 31 January 2018, Origin completed the sale of Lattice Energy which is treated
as a discontinued operation (along with Jingemia and the Darling Downs Pipeline in
the comparative period). Financial information in this report focuses on continuing
operations. Refer to note E4 of Origin’s Financial Statements for further detail.
1
At 30 June 2018. For further information refer to Origin’s Annual Reserves Report for the year ended 30 June 2018 on page 178 of this report. Some of APLNG’s reserves
and resources are subject to reversionary rights and an ongoing royalty interest in favour of Tri-Star. Refer to section 6 for further information.
14
Operations
Browse Basin
Annual Report 2018
Beetaloo Basin
225k
213k
Adelaide
Bowen Surat Basin
696k
176k
Gladstone
LNG Export
Brisbane
1200k
284k
Sydney
Melbourne
545k
471k
Hobart
South East Queensland
Gladstone
Bowen
Surat
Basin
Roma
Brisbane
Exploration acreage
Generation
Origin upstream acreage
Gas
APLNG upstream acreage
Pumped hydro
Pacific Islands LPG
Rabaul
Port Moresby
Honiara
Production facility
APLNG pipeline
Office
Solar (contracted)
Wind (contracted)
Coal
Under construction
LPG seaboard terminal
Electricity customer accounts
Natural gas customer accounts
Apia
Tafuna
Rarotonga
Port Villa
Suva
Origin also has one LPG seaboard terminal in Cam Ranh, Vietnam.
Operating and Financial Review
15
Financial highlights
Statutory Profit
Underlying Profit –
continuing operations
Underlying EBITDA –
continuing operations
$218M
Up $2.4b vs FY2017
$838M
Up $438m or 110% vs FY2017
$2,947M
Up $774m or 36% vs FY2017
Net Cashflow from Operating
and Investing Activities
Underlying ROCE –
continuing operations
$2,645M
Up $1,267m or 92% vs FY2017
8.4%
Up 3% vs FY2017 and
in line with H1 FY2018
$1.6B
Adjusted Net Debt
down to $6.5b
Operational highlights
Generation output
at Eraring
APLNG production
(100%)
Net proceeds from
asset sales
15.9 TWH
Up 2 TWh or 14% vs FY2017
676 PJ
Up 67 PJ or 11% vs FY2017
$1.5B
Energy Markets
natural gas sales
Cash flow
from APLNG
Capex – continuing
operations
281 PJ
Up 32 PJ or 13% vs FY2017
$363M
Up $533m vs FY2017
$328M
16
Annual Report 2018
FY2019 guidance
Energy Markets
Underlying EBITDA
APLNG Operating
Breakeven
Corporate costs
$1.5 –
$1.6B
$1.74 – $1.84b before
adjusting for a change
in treatment of certain
electricity hedge premiums
and NSW revenue forgone
US$22–
26/BOE
$60 –
$65M
APLNG Distribution
breakeven
Capex (excluding APLNG)
US$39 –
44/BOE
$385 –
$445M
Growth Opportunities
Energy Markets
Integrated Gas
• Growing renewables
>1,000 MW by FY2020
• Entering stage 2
in the Beetaloo
• Brownfield generation
– Increased flexibility
and capacity
– Pumped hydro
and batteries
• Retail adjacencies and
new products
• Growing rooftop solar
– Targeting liquids
rich plays
• Entered FEED for
Ironbark Stage 1
– Targeting first gas
in FY2021/22
– Assessing alternative
strategic options
Operating and Financial Review
17
Climate
Energy Markets
0.75tCO2-e/MWh from owned and
contracted power generation
Intensity consistently below the NEM
(TCO2-e/MWh)
0.95
0.90
0.85
0.80
0.75
0.70
6
1
0
2
Y
F
7
1
0
2
Y
F
8
1
0
2
Y
F
NEM
Origin
5%
in Scope 1 and Scope 2 operated
emissions due to increased output
at Eraring to help fill the supply gap
following brown coal generation closures
Integrated Gas
5.2tCO2-e/TJ from APLNG
gas production
IG emissions intensity (Scope 1 & 2)
(TCO2-e/TJ)
7
6
5
6
1
0
2
Y
F
7
1
0
2
Y
F
8
1
0
2
Y
F
TCFD
recommendations
adopted
Methane emissions from operated
infrastructure: 0.1% of production
Key targets
Out of coal by
2032
Renewables
> 25%
of capacity by 2020
50%
in Scope 1 & 2
emissions by 2032
25%
in value chain Scope 3
emissions by 2032
18
Annual Report 2018
Customers, communities and people
Customers
More affordable
Smarter and easier
More sustainable
Increased electricity
supply to put downward
pressure on prices
Giving customers control
• Usage Buster
• Home HQ
• Savernator
#1 Provider
for Business Solar
Sunwiz, June 2018
Tariffs flat or reducing
3% electricity price
increase absorbed
in NSW
Highest ever Interaction
NPS up 5.6 points from
FY2017 to
21.7
1,200 MW
of new renewable supply
committed since March 2016
Communities
People
99.9%
of Eraring water is recycled
$236M
spent directly with
regional suppliers
$23M
awarded by Origin
Foundation since
establishment in 2010
‘ Best Company
Indigenous
Procurement
Initiative’
2018 Queensland
Resources Council
Origin’s lowtest Total Recordable Injury
Frequency Rate (TRIFR)
6
5
4
3
2
.
2
4
6
1
0
2
Y
F
2
3
.
7
1
0
2
Y
F
2
2
.
8
1
0
2
Y
F
Employee engagement
3% to 61%
Women in senior roles
3% to 32%
Operating and Financial Review
19
2. Strategy and prospects
Leading the transition to a cleaner, smarter and customer-centric energy future
Connecting customers to the energy and technologies of the future
Leading customer
experience and
solutions
Accelerate towards
clean energy
Embrace a
decentralised and
digital future
Low cost operator
Develop resources
to meet growing
gas demand
Disciplined capital management
Employees
Customers
Shareholders
Communities
Origin operates in an evolving energy market shaped by the trend towards decarbonisation, decentralisation of supply and digitisation of
customer interactions. Our strategy is driven by the following assumptions:
• Replacement of coal with growth in renewables and gas as a partner of renewables will support emission reductions;
• The advancement of technology and consumer desire for greater control will result in an increase in distributed generation and storage
at a lower cost; and
•
Increasing digitisation will result in more connected homes and businesses and will change all aspects of operations and interactions
with customers.
Our strategic priorities are designed to deliver value in the changing energy world by:
Leading customer experience and solutions •
Transforming the customer experience to one which is more affordable, smarter, easier and
more sustainable e.g. Savernator, Usage Buster and Solar Boost products
Accelerating towards clean energy
Embracing a decentralised and
digital future
Becoming a low-cost operator
Developing resources to meet growing
gas demand
•
•
•
•
•
•
•
Providing innovative and digitally enabled products that match customer preferences
e.g. HomeHQ and mobile app
Targeting renewables to be greater than 25 per cent of generation mix by 2020, supported by
Australia’s largest peaking gas fleet
Offering consumers, businesses and communities access to the latest technology in distributed
generation and storage and connected and digitally enabled solutions
Reducing the cash operating cost of our upstream gas operations to compete in a global market
increasingly dominated by US Shale
Reducing Energy Markets cost to serve
Focus on streamlining processes across the business
Meeting demand domestically and in Asia through our interest in APLNG and
other unconventional gas resources, particularly the Beetaloo Basin
We will deliver our strategy within a disciplined capital management framework and our success will be measured by outcomes achieved
for our key stakeholders.
We believe the transition to a low carbon economy presents more opportunities than risks for Origin given our focus on growth through
renewable generation and natural gas. We have joined more than 315 other companies in adopting the Financial Stability Board’s Taskforce
on Climate related Financial Disclosures (TCFD). Refer to section 5 for disclosures that are aligned with these recommendations.
20
Prospects
Energy Markets
Over the past 18 months, the Australian energy market has been characterised by high wholesale electricity and gas prices which
have flowed through to customers, increased levels of competition particularly in retail electricity and a changing and uncertain
regulatory environment.
We have acted to put downwards pressure on prices by increasing the supply of gas and electricity, including committing to contracting
approximately 1,200 MW of new renewables since March 2016, 133 MW of which was online at 30 June 2018 and launching improved
offers and low rate concession products for customers. We have advocated for energy policy that addresses the issues of affordability,
emissions reduction and reliability, and to that end, we have actively supported the National Energy Guarantee which we believe can
address these objectives.
We expect:
• a further reduction in average wholesale electricity prices as more renewable supply enters the market, which should flow through to
lower bills and provide relief for customers;
• gas prices linked to international LNG prices; and
• the retail market to remain competitive.
Our Actions:
• optimising our flexible generation portfolio based on customer demand and market price signals;
• driving a leading customer experience and efficient cost structure through our digital first approach where we seek to simplify the
experience of buying energy for our customers and create new sources of value; and
• maximising the supply of gas to customers as well as supporting energy security through gas-fired generation from our competitive
wholesale gas portfolio.
We have a number of opportunities to invest in generation flexibility that are dependent on market signals and regulatory certainty which
can be quickly implemented at the appropriate time.
We have been actively working with governments to address concerns about energy affordability and reliability. We support the objectives
of the National Energy Guarantee as a practical way to reduce carbon emissions, maintain system reliability and improve affordability.
We will consult with the government on the ACCC’s report into the electricity market and support the intention to prioritise
recommendations that will directly reduce bills for customers without distorting the market or limiting investment and innovation.
Integrated Gas
We are on track to deliver a cost out program at APLNG that includes more than $500 million per annum reduction in sustain capex and
opex from the baseline provided in November 2017. This is expected to deliver an operating breakeven of 10 per cent above the downstream plant’s 9 mtpa nameplate
capacity. APLNG successfully completed the project finance lenders’ tests in FY2018, releasing the remaining US$3.4 billion of shareholder
guarantees in August 2017.
Planned maintenance was successfully completed during the second half of FY2018 on both LNG trains with excess gas volumes during
this period directed to the domestic market and to the other LNG counterparties. Production from operated fields averaged 1,410 TJ/d
over the year compared to 1,225 TJ/d for the same period last year.
APLNG announced an agreement to supply an additional 41 PJ of gas to Origin for the domestic market over 14 months commencing
November 2017, playing a significant role in supplying gas to the Australian east coast market.
APLNG acquired various CSG interests from Tri-Star in 2002 that are subject to reversionary rights and an ongoing royalty in favour of
Tri-Star. Refer to section 6 for disclosure relating to Tri-Star litigation associated with these CSG interests and for a description of other
risks and mitigants with respect to APLNG’s gas reserves, resources and deliverability.
4
As per EnergyQuest EnergyQuarterly, June 2018. Some of APLNG’s CSG reserves and resources are subject to reversionary rights and an ongoing interest in favour of
Tri-Star. Refer to section 6 for further information.
32
Other operations
Beetaloo (Northern Territory)
Origin has a 70 per cent interest in exploration permits over 18,500 km2 in the Beetaloo Basin. This is a compelling exploration opportunity
with four stacked, unconventional hydrocarbon plays identified and a booked contingent resource of 6.6TCF (100 per cent) relating to the
Velkerri B shale dry gas play. Origin is entering Stage 2 appraisal targeting the Kyalla and Velkerri shale liquids rich gas plays. The Scientific
Inquiry into Hydraulic Fracturing in the Northern Territory released its Final Report in April 2018, allowing the Northern Territory government
to lift the moratorium on fracking. Origin continues to work with the government on implementation of the 135 recommendations from the
inquiry and engage with stakeholder groups, including those directly connected to the project area.
Ironbark (Surat Basin, Queensland)
The Ironbark development has entered FEED for Stage 1 development with a revised multi-stage field development plan, initially targeting
the high permeability sweet spot (Undulla Nose extension) in the North West sector of the tenement. Successful testing of low permeability
drilling techniques at APLNG, which could be applied to Ironbark, provide the potential for development of additional resource. Origin is
considering various options to bring the Ironbark gas to market and the FEED process is expected to inform an optimum path for development
of the resource in the future.
Financial Summary
Segment Summary
Year Ended 30 June
Continuing Operations
Earnings
Share of APLNG EBITDA
Origin only commodity hedging
Other Origin only costs
Underlying EBITDA
Origin Depreciation and amortisation
Share of APLNG ITDA
Underlying EBIT
Interest income
Underlying Profit
Cash flow
Underlying EBITDA
Non-cash APLNG Underlying EBITDA (equity accounted)
Other Non-cash items in Underlying EBITDA(a)
Change in working capital
Other
Cash flow from operating activities
Capital expenditure
Net disposals
Net cash from/(to) APLNG(b)
Net cash flow from operating and investing activities
2018
($m)
1,405
(111)
(43)
1,251
(22)
(1,194)
34
227
261
1,251
(1,405)
66
(54)
(20)
(164)
(21)
–
287
101
2017
($m)
Change
($m)
Change
(%)
859
(98)
(14)
747
(19)
(925)
(197)
199
2
747
(859)
116
(8)
(77)
(81)
(31)
403
(297)
(7)
546
(13)
(29)
504
(3)
(269)
231
28
259
504
(546)
(50)
(46)
57
(83)
10
(403)
584
108
64
13
207
67
16
29
n/a
14
13,971
67
64
(43)
575
(74)
102
(32)
n/a
n/a
(1,635)
(a) Includes $64 million related to amortisation of oil hedge premiums paid for in the prior year (FY2017: $117 million).
(b) Excludes $76 million loan proceeds (FY2017: $127 million) included in financing cash flows.
Annual Report 2018 Operating and Financial Review
33
Underlying EBITDA
Movements in Integrated Gas Underlying EBITDA – continuing operations ($m)
106
214
(63)
(13)
(29)
289
747
Share of APLNG
(+$546 million)
Origin only costs
(-$42 million)
1,251
FY2017
LNG Volume
LNG Price
Domestic Revenue
APLNG
Commodity
Origin Other
FY2018
opex/other
hedging
Integrated Gas Underlying EBITDA increased by $504 million to $1,251 million primarily reflecting increased production and higher
commodity prices.
APLNG opex/other includes $41 million relating to the exploration write-off of ATP663 (Gilbert Gully) and increased purchases and
volume related costs ($63 million), partially offset by net capitalised earnings from prior year ($32 million).
Commodity hedging reflects slightly lower oil hedging costs of $95 million, inclusive of premiums ($102 million in FY2017) offset by
increased costs associated with LNG hedging of $16 million ($4 million gain in FY2017).
Origin Other includes lower cost recoveries relating to Origin’s upstream operatorship of APLNG.
APLNG Production and Sales
(Origin share) (PJ)
APLNG Domestic Price
(A$/GJ)
APLNG LNG Price
(US$/MMBTU)
0
5
4
.
8
1
0
2
Y
F
4
0
3
.
7
1
0
2
Y
F
0
9
7
.
8
1
0
2
Y
F
8
4
6
.
7
1
0
2
Y
F
6
5
1
3
7
7
1
0
2
Y
F
9
8
1
4
6
8
1
0
2
Y
F
8
4
1
0
8
7
1
0
2
Y
F
8
7
1
7
7
8
1
0
2
Y
F
Production (PJe)
Sales (PJe)
Domestic
Directed to LNG
Origin’s share of APLNG production increased by 25 PJ or 11 per cent to 254 PJ reflecting a full 12 month contribution from Train 2.
The average realised domestic gas price increased 48 per cent to $4.50/GJ reflecting a reduction in sales of low priced gas under
legacy contracts and higher market prices.
34
Cash flow
APLNG uses of cash (A$m)
APLNG generated Free Cash Flow of $2.6 billion (APLNG 100 per cent) at an
effective oil price of US$56/bbl in FY2018. After servicing project finance interest
and principal, net cash flow available for distribution was $1.3 billion (Origin’s
37.5 per cent share: $482million). Refer to Appendix 3 for additional detail.
Increased production and higher commodity prices combined with a reduction
in capital expenditure resulted in net cash from APLNG to Origin of $363 million,
compared to a $170 million contribution from Origin to APLNG in FY2017.
This is slightly lower than the share of distributable cash flow generated as
cash was retained by APLNG for scheduled project finance repayments.
6,000
5,000
4,000
3,000
2,000
1,000
$1.3 billion
distributable
cash flow
$2.6 billion
Free Cash
Flow
Year Ended 30 June
100% APLNG (A$m)
Capital expenditure – Sustain
Capital expenditure – E&A
Operating expenses – pre-capitalisation
Less: Spot LNG & domestic revenue
Operating breakeven
Operating breakeven (US$/boe)
Project finance interest
Project finance principal
Distribution breakeven
Distribution breakeven (US$/boe)
Sales Volumes
Domestic and Spot LNG (PJ)
Contract LNG volumes (PJ)
Contract LNG volumes (mmboe)
7
1
0
2
Y
F
8
1
0
2
Y
F
Distributable cash flow
Project finance principal
Project finance interest
Capital expenditure
Working capital and other
Operating costs
2018
@ 0.78 AUD/USD
1,105
65
1,673
(1,345)
1,498
21
418
915
2,831
39
248
432
57.0
APLNG FY2018 distribution breakeven of US$39/boe is US$6/boe lower than FY2018 guidance of US$45/boe driven by:
• Operated well cost savings of US$2/boe with cost per well reducing to $1.9 million from $2.4 million;
• Changes to scope and timing of non-operated activity (US$2/boe); and
• Higher spot LNG and domestic revenue from higher volumes sold at favourable realised prices (US$2/boe).
Operating expenses were in line with expectations and reflect gas purchases to support the lenders test and redundancy costs.
Annual Report 2018 Operating and Financial Review
35
5. Climate change disclosures
Origin unequivocally supports the Paris Climate Accord and other measures to reduce carbon emissions. We support Australia’s 2030
target and the objectives of the proposed National Energy Guarantee, and have advocated for more ambitious targets for the electricity
sector over time, including a transition to net zero emissions by 2050 or earlier.
The disclosures below reflect the adoption of the recommendations made by the Financial Stability Board’s Taskforce on Climate-related
Financial Disclosures (TCFD).
Governance
Board
HSE risk controls
Executive leadership team
Strategy
•
•
•
•
•
•
•
•
Considers, reviews and monitors climate-related risks and opportunities as part of investment
considerations, regular financial and operational performance reviews.
Risk and HSE committees meet at least quarterly.
Monitors and oversees progress on targets aimed at addressing climate related issues and
considers climate related risks and opportunities at least annually as part of the Company’s
strategic planning process.
Outlines the requirements for managing climate related risks and impacts including carbon emissions.
Further detail on the risk management framework can be found in section 6 of this Operating and
Financial Review.
Strategic planning: monitor climate change risks via risk, assurance and compliance meetings.
Track, report and escalate risks to the appropriate level of management within Origin based on
the assessed level of risk and the agreed escalation protocols.
The Executive General Manager, Integrated Gas and the Executive General Manger, Future
Energy and Business Development are responsible for identifying, quantifying and managing
climate related risks and reporting these to the Board and the Risk and HSE Committees.
As a leading Australian integrated energy company, climate related risks and opportunities are a core feature of our strategy.
We have a five pillar approach to drive decarbonisation of our business.
1) Exit coal-fired power generation by 2032;
2) Significantly grow renewables in our portfolio;
3) Utilise our strong gas position as a lower emissions generation firming fuel;
4) Empower customers with cleaner, smarter energy solutions; and
5) Demonstrate leadership in climate change advocacy.
Origin is positioned to prosper in a low carbon economy and our long term planning is based on ensuring resilience and
generating value under a number of carbon reduction scenarios.
Our wholesale generation portfolio is not only resilient but well placed to prosper in a low carbon world:
• Eraring is our only coal-fired power station
• Short generation – provides flexibility to add low cost renewables to our portfolio without stranding assets
•
Increasing renewables exposure – targeting renewables reaching 25 per cent of generation mix by 2020
• Gas peaking fleet – sufficient capacity to support our increased uptake of renewables
• Strong gas supply – gas is the only fossil fuel to grow under IEA’s 450 scenario.
36
In October 2017, Origin released a scenario analysis that demonstrated the value of its wholesale electricity generation portfolio increases
in scenarios reflecting both Australia’s Nationally Determined Contribution (NDC) and the Paris Climate Accord goal of limiting global
average temperature increases to below 2°C above pre-industrial levels. The impacts of these scenarios on the value of the company’s
wholesale generation portfolio are expressed in the following chart.
Origin Climate Change Scenarios – Net Present Value
NDC scenario
2°C scenario
V
P
N
n
i
e
g
n
a
h
c
n
o
o
i
l
l
i
b
$
1.5
1.3
1.1
0.9
0.7
0.5
0.3
-0.1
-0.3
-0.5
U
A
B
l
a
o
c
△
l
e
b
a
w
e
n
e
r
&
s
a
g
△
C
D
N
:
1
o
i
r
a
n
e
c
S
l
a
o
c
△
l
e
b
a
w
e
n
e
r
&
s
a
g
△
C
2
:
2
o
i
r
a
n
e
c
S
Under both scenarios, the value of Origin’s gas and renewables portfolio increases as demand for these low emission assets grows. While
the value of Eraring decreases, it retains a net positive value and is an important asset to ensure reliability and affordability of power in the
short to medium term. Refer to ASX release dated 18 October 2017.
Our gas portfolio is also well positioned for a lower carbon world:
• Domestically Origin’s gas position can partner with renewables to provide low emission firming
• APLNG makes an important contribution to lowering the carbon intensity of energy consumption in Asia
The vast majority of APLNG gas reserves are sold under 20 year take or pay contracts to major Asian counterparties on an oil-linked
basis and as such the most material valuation sensitivity relates to oil price fluctuations. Origin’s long term oil price assumption used for
impairment testing is US$67/bbl (real) from 2022. A decrease of US$1/bbl in isolation would lead to a decrease of US$375 million in
Origin’s investment in APLNG (from a carrying value of $5,988 million as at 30 June 2018).
Climate related risk management
Climate change and associated regulatory change are core considerations of Origin’s strategy and our risk management process.
The climate change risks and opportunities considered focus on those that impact the price, supply and use of energy globally and
domestically. Other climate change risks around water availability and severe weather events are also considered. Origin’s risk management
framework supports the identification of climate related risks, further details of which can be found in section 6 of this Operating and
Financial Review.
Material strategic decisions, including those associated with climate change, are formulated by management and approved by the Board.
Risks and opportunities associated with climate change are prioritised according to the magnitude and likelihood of the risk or opportunity.
Management considers a range of climate related risks as part of its risk identification process. These risks are reported to the Risk
Committee in terms of their magnitude and likelihood of occurrence.
Origin’s Supplier Code of Conduct was developed throughout FY2018 and will be implemented over the next year. It requires that
suppliers ensure their practices consider the impact on the social and environmental sustainability of the communities in which they
operate. This requirement will be operationalised through sourcing processes and supported through Origin’s HSE management system.
Annual Report 2018
Operating and Financial Review
37
Metrics & targets
During FY2018, operated Scope 1 & 2 carbon emissions increased to 20,079 ktCO2-e due to a full year’s contribution from APLNG Train
Two and increased output from the Eraring black coal-fired power station. Eraring power station is a major contributor to reliability and
security of electricity supply following the closure of the Hazelwood brown coal-fired power station in Victoria.
Further metrics on climate change are detailed in section 1 of the OFR.
In December 2017, Origin announced a commitment to a company wide, independently verified target of a 50 per cent reduction in
Scope 1 & 2 emissions5 and a 25 per cent reduction in value chain Scope 3 emissions6 by 2032, both from 2017 baseline levels. We remain
committed to and confident in achieving these targets through the continued investment in renewable supply and our commitment to exit
coal-fired generation by 2032.
We are targeting renewables to comprise more than 25 per cent of our generation mix by 2020 – up from 13 per cent today.
The chart below shows the contracted renewable projects from 2018 to 2020.
Origin’s Growth in Renewable Capacity in 2020
(committed as at 30th June 2018)
2,000.0
W
M
1,500.0
1,000.0
500.0
l
s
e
b
a
w
e
n
e
r
d
e
t
c
a
r
t
n
o
c
8
1
Y
F
*Partially online at 30 June 2018.
)
D
L
Q
l
(
*
r
a
o
s
e
r
a
C
l
l
)
A
S
(
*
r
a
o
s
a
a
g
n
u
B
l
)
D
L
Q
(
l
r
a
o
s
s
n
w
o
D
g
n
i
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r
a
D
l
l
i
H
d
r
a
y
k
c
o
t
S
)
D
L
Q
(
l
r
a
o
s
m
a
e
r
d
y
a
D
)
I
C
V
(
d
n
w
i
5
Excluding APLNG Train two, Origin will review the inclusion of Train two emissions in our target baseline during FY2019.
6
Excluding LNG exports.
38
6. Risks related to Origin’s future financial prospects
The scope of operations and activities means that Origin is exposed to risks that can have a material impact on our future financial
prospects. Material risks, and the company’s approach to managing them, are summarised below.
Risk management framework
Origin’s risk management framework supports the identification, management and reporting of material risks. Overseen by the Board and
the Board Risk Committee, the framework incorporates a ‘three lines of defence’ model for managing risks and controls in areas such as
health and safety, environment, finance, reputation and brand, legal and compliance and social impacts. All employees are responsible
for making risk-based decisions and to manage risk within approved limits.
During the year, the Board Risk Committee endorsed a consolidated set of financial, operational and strategic risk appetite statements.
Three lines of defence
Line of defence
Responsibility
First line
Lines of business
Second line
Oversight functions
Third line
Internal audit
Material risks
Identifies, assesses, records, prioritises, manages and
monitors risks.
Primary Accountability
Management
Provides the risk management framework, tools and systems
to support effective risk management.
Management
Provides assurance on the effectiveness of governance, risk
management and internal controls.
Board, Board Committees and Management
The risks identified in this section have the potential to materially affect Origin’s ability to meet its business objectives and impact its future
financial prospects.
These risks are not exhaustive and are not arranged in order of significance.
Strategic risks
Strategic risks arise from uncertainties that may emerge in the medium to longer term and, while they may not necessarily impact on
short-term profits, can have an immediate impact on the value of the company. These risks are managed through continuous monitoring
and reviewing of emerging and escalating risks, ongoing planning and the allocation of resources and evaluation from management and
the Board.
Risk
Competition
Consequences
Management
Origin operates in a highly competitive retail environment
which can result in pressure on margins and customer losses.
•
Competition also impacts Origin’s wholesale business, with
generators competing for capacity and fuel and the potential
for gas markets to be impacted by new domestic gas resources,
LNG imports and the volume of gas exports.
Technological developments/
disruption
Distributed generation is empowering consumers to own,
generate and store electricity, consuming less energy from
the grid. Technology is allowing consumers to understand and
manage their power usage through smart appliances, having
the potential to disrupt the existing utility relationship with
consumers. Advances in technology have the potential to
create new business models and introduce new competitors.
•
•
•
Our strategy to mitigate the impact of this
risk on our retail business is to effectively
manage customer lifetime value and build
customer loyalty and trust by delivering
simple, seamless and personalised
customer experiences and offering
innovative and differentiated products
and services.
We endeavour to mitigate the impact
of this risk on our wholesale business
by sourcing competitively priced
fuel to operate our generation fleet
and optimising flexibility in our fuel,
transportation and generation portfolio.
Origin actively monitors and participates in
technological developments through local
and global start-up accelerator programs,
trialling new energy technology and
exploring investments in new products
or business models.
In parallel, Origin is growing its distributed
generation and home energy services
businesses and endeavouring to mitigate
the impact of this risk on its core energy
businesses by offering superior service
and innovative products and reducing
cost to serve.
Annual Report 2018 Operating and Financial Review
39
Changes in demand for energy
Changes in energy demand driven by price, consumer
behaviour, mandatory energy efficiency schemes, government
policy, weather and other factors can reduce Origin’s revenues
and adversely affect Origin’s future financial performance.
Regulatory policy
Origin has broad exposure to regulatory policy change and
other government interventions including energy markets,
climate change policy, gas development and royalties and tax
policy. Changes to policy and other government interventions
will impact financial outcomes and, in some cases, change
the commercial viability of existing or proposed projects or
operations. Specific areas subject to review and development
include retail price regulation, the National Energy Guarantee,
domestic gas market interventions and the Petroleum
Resources Rent Tax.
Climate change
Climate change impacts many parts of Origin’s business.
Key risks and opportunities include ongoing decarbonisation
of energy markets, decreased demand for fossil fuels in some
markets, reduced lifespan of carbon-intensive assets, changes
to energy market dynamics caused by the intermittency of
renewables and community demand for lower-carbon sources
of energy.
•
•
•
•
•
•
•
•
Origin is partially mitigating the impact
of this risk by applying advanced data
and analytics capability to smart meter
data to better predict customer demand
and enable Origin to develop data based
customer propositions.
Origin contributes to the policy process
at all levels of government by actively
participating in public policy debate,
proactively engaging with policy makers
and participating in public forums, industry
associations, think tanks and research.
Origin advocates directly with key
ministers and shadow ministers to achieve
sound policy outcomes aligned with our
commercial objectives.
Origin actively promotes the customer
and economic benefits publicly that
flow from our activities in deregulated
energy markets.
Our strategy for transitioning to a carbon
constrained future is focused on growth
in renewables, gas and cleaner, smarter
customer solutions. Origin has prepared
for a range of decarbonisation scenarios.
Origin has committed to significantly
growing supply of renewable generation,
including 1,200 MW of committed
large scale solar and wind energy since
March 2016.
Origin uses the flexibility in its gas supply
and peaking generation capacity to
manage the intermittency of renewables.
Committed to halving emissions by 2032
in a science-based target.
40
Financial risks
Financial risks are the risks that directly impact the financial performance and resilience of Origin.
Consequences
Management
Risk
Commodity
Foreign exchange and
interest rates
Origin has a long term exposure to international oil, LNG and
gas prices through the sale of gas and LPG, and its investment
in APLNG. Pricing can be volatile and downward price
movements can impact cash flow, financial performance,
reserves and asset carrying values.
Prices and volumes for electricity that Origin sources to
on-sell to customers are volatile and are influenced by many
factors that are difficult to predict. Long term fluctuations
in coal and gas prices also impact the margins of Origin’s
generation portfolio.
Origin has exposures through principal debt and interest
payments in foreign currency long term borrowings, through
the sale and purchase of gas and LPG, and through its
investments in APLNG and the company’s foreign operations.
Interest rate movements and foreign exchange fluctuations
could lead to a decrease in Australian dollar revenues or
increased payments in Australian dollar terms.
Liquidity and access to
capital markets
Origin’s business, prospects, and financial flexibility could be
adversely affected by a failure to appropriately manage its
liquidity position, or if markets are not available at the time of
any financing or refinancing requirement.
Credit and counterparty
Some counterparties may fail to fulfil their obligations
(in whole or part) under major contracts.
•
•
•
•
•
•
•
•
Commodity exposure limits are set by
the Board to manage the overall financial
exposure that Origin is prepared to take.
Origin’s commodity risk management
process monitors and reports performance
against defined limits.
Commodity price risk is managed through
a combination of physical positions and
derivatives contracts.
Risk limits are set by the Board to manage
the overall exposure.
Origin’s treasury risk management process
monitors and reports performance against
defined limits.
Foreign exchange and interest rate risks
are managed through a combination of
physical positions and derivatives.
Origin actively manages its liquidity
position through cash flow forecasting and
maintenance of minimum levels of liquidity
as determined under Board approval limits.
Counterparty risk assessments
are regularly undertaken and where
appropriate, credit support is obtained
to manage counterparty risk.
Operational risks
Operational risks arise from inadequate or failed internal processes, people or systems or from external events.
Risk
Consequences
Management
Safe and reliable operations
Environmental
Malfunctioning plant, major infrastructure failure, incorrect
application of procedures, unsafe practices, a physical
security breach, or a cyber-attack may lead to the loss of lives,
asset damage, environmental damage and other impacts to
third parties.
A production outage or constraint, network or IT systems
outage, would affect Origin’s ability to deliver electricity and
gas to its customers. A serious incident or a prolonged outage
may also damage Origin’s financial prospects and reputation.
An environmental incident or Origin’s failure to consider and
adequately mitigate the environmental, social and socio-
economic impacts on communities and the environment has
the potential to cause environmental impact, community
action, regulatory intervention, legal action, reduced access
to resources and markets, impacts to Origin’s reputation and
increased operating costs.
•
•
•
•
•
•
Core operations are subject to
comprehensive operational, safety and
maintenance procedures and directives.
Origin personnel are adequately trained
and licensed to perform their operational
activities.
Origin maintains an extensive insurance
program to mitigate consequences by
transferring financial risk exposure to third
parties where commercially appropriate.
Origin engages with communities to
understand, mitigate and report on
environmental and social risks associated
with its projects and operations.
At a minimum, the management of
environmental and social risks meets
regulatory requirements. Where practical,
their management extends to the
improvement of environmental values and
the creation of socio-economic benefits.
A dedicated Board Committee oversees
health, safety and environment risk. The
Committee receives quarterly reporting of
the highest rated environmental risks and
mitigants, and reviews significant incidents
and near misses.
Annual Report 2018 Operating and Financial Review
41
Risk
Cyber security
Consequences
Management
A cyber security incident could lead to a breach of privacy,
loss of and/or corruption of commercially sensitive data, and/or
a disruption of critical business processes. This may adversely
impact customers and the company’s business activities.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
A dedicated cyber risk team, reporting
directly to the executive responsible for
Risk, is responsible for implementing a
Board-approved cyber strategy.
Our cyber strategy improves preparedness
for four scenarios: external intrusion
leading to data theft or disruption;
ransomware attacks; insiders stealing or
disclosing data; and deliberate system
manipulation.
External cyber security specialists
are regularly employed to assess
our cyber security profile, including
penetration testing.
Employees undertake compulsory cyber
awareness training, including how to
identify phishing emails and keep data
safe, and are subject to a regular program
of random testing.
APLNG employs established industry
procedures to identify and consider areas
for exploration to mature contingent and
prospective resources.
APLNG monitors reservoir performance
and adjusts development plans
accordingly and/or acquires reserves from
alternate sources.
APLNG is progressing an exploration
campaign to test high materiality plays
that, if successful, could mitigate the
deliverability risk.
APLNG is also progressing commercial
arrangements for long term gas supply,
and has the ability to substitute gas or
LNG to meet contractual requirements
if required
Origin’s Purpose, Values and Code of
Conduct guide conduct and decision
making across Origin.
A refresh of Company Values was
deployed during the period throughout
the company.
All Origin’s people are trained every two
years in Origin’s Code of Conduct, and
we conduct training for Insider Trading,
privacy, anti-bribery and corruption and
anti-competition and consumer law
Conduct risk is identified as a material risk
within Origin’s risk management framework
and is regularly reported to the appropriate
Board Committee. Controls specific to the
different parts of Origin’s business are the
accountability of Business Units and are
subject to Internal Audit.
Origin enforces a number of standards
across its various joint venture interests.
Enterprise-wide joint venture governance
and management standards are being
revised to provide a more consistent
approach to managing Origin’s
joint ventures.
Origin actively monitors and participates
in its joint ventures through participation
in their respective boards and governance
committees.
APLNG gas reserves, resources
and deliverability
There is uncertainty about the productivity, and therefore
economic viability, of resources and developed and
undeveloped reserves. As a result, there is a risk that actual
production may vary from that estimated, and in the longer
term, that there will be insufficient reserves to supply the full
duration and volumes to meet contractual requirements.
As at 30 June 2018, APLNG’s total resources are estimated
to be greater than its contractual supply commitments on a
volume basis. However, under certain scenarios of production
and deliverability of gas over time, there is a risk that the rate of
gas delivery required to meet APLNG’s committed gas supply
agreements may not be able to be met for the later years in the
life of existing contracts.
Conduct
Unethical business practice or failure to comply with Origin’s
Values may affect Origin’s risk profile by impacting its business
operations, financial prospects or reputation, particularly with
customers and community stakeholders.
Joint venture
Third party joint venture operators may have economic or other
business interests that are inconsistent with Origin’s own and
may take actions contrary to the company’s objectives, interests
or standards. This may lead to potential financial, reputational
and environmental damage in the event of a serious incident.
APLNG reversion
See page 42.
42
Australia Pacific LNG reversion
In 2002, APLNG acquired various CSG interests from Tri-Star that are subject to reversionary rights and an ongoing royalty in favour
of Tri-Star. If triggered, the reversionary rights require APLNG to transfer back to Tri-Star a 45 per cent interest in those CSG interests for
no additional consideration. The reversion trigger will occur when the revenue from the sale of petroleum from those CSG interests, plus
any other revenue derived from or in connection with those CSG interests, exceeds the aggregate of all expenditure relating to those
CSG interests plus interest on that expenditure, royalty payments and the original acquisition price.
The affected CSG interests represent approximately 21 per cent of APLNG’s 3P CSG reserves (as at 30 June 2018) .
Tri-Star served proceedings on APLNG in 2015 claiming that reversion occurred as early as 1 November 2008 following ConocoPhillips’
investment in APLNG, on the assertion that the equity subscription monies paid by ConocoPhillips was revenue for purposes of the trigger.
Tri-Star has also claimed in the alternative that reversion occurred in 2011 or 2012 following Sinopec’s investment in APLNG. These claims
are referred to in this document as Tri-Star’s ‘past reversion’ claims.
Tri-Star has made other claims in these proceedings against APLNG. These relate to other aspects of the reversion trigger (including as to
the calculation of interest) and the calculation of the royalty payable by APLNG to Tri-Star. The outcome of these other claims may impact
on when reversion may occur in the future but will not result, if determined in favour of Tri-Star, in reversion having already occurred.
APLNG denies these claims and filed its defence and counter-claim in April 2016. Tri-Star responded with its reply and answer to APLNG’s
defence and counter-claim in March 2018.
If Tri-Star’s past reversion claims are successful, then Tri-Star may be entitled to an order that reversion occurred as early as 1 November
2008. If the court determines that reversion has occurred, then APLNG may no longer have access to the reserves and resources that
are subject to Tri-Star’s reversionary interests and may need to source alternative supplies of gas (including from third parties) to meet its
contracted commitments. There are also likely to be a number of further complex issues that would need to be resolved as a consequence
of any such finding in favour of Tri-Star. These matters will need to be determined by the court (either in the current or in separate
proceedings) or by agreement between the parties, and they include:
• ownership and/or rights to access certain infrastructure;
• the terms under which some of the affected CSG interests will be operated where currently there are no joint operating
agreements in place;
• the amount of Tri-Star’s contribution to the costs incurred by APLNG in exploring and developing the affected CSG interests between
the date of reversion and the date of judgment, which APLNG has stated in its defence and counter-claim are in the order of $3.1 billion
(as at 31 December 2015); and
• the consequences of APLNG having dealt with Tri-Star’s reversionary interests, between the date of reversion and the date of judgment,
including the gas produced from them. Tri-Star has, in its reply and answer:
–
–
estimated the value of such gas to be $2.06 billion (as at 31 December 2017) and approximately $1.08 billion per annum
thereafter; and
alleged that it should be entitled to set-off the value of such gas from any amount owing to APLNG arising from its counter-claim for
contribution to the costs incurred by APLNG in exploring and developing the affected CSG interests between the date of reversion
and the date of judgment.
Tri-Star has also commenced proceedings against APLNG which allege that APLNG breached three CSG joint venture agreements by
failing to offer Tri-Star (and the other minority participants in those agreements) an opportunity to participate in the “markets” alleged to
be constituted by certain of its LNG and domestic gas sales agreements, including the Sinopec and Kansai LNG sale agreements entered
into by APLNG in 2011 and 2012. Tri-Star has alleged that it should have been offered participation in those sales agreements for its share
of production from those three CSG joint ventures referable to both its small participating interests and its reversionary interests in those
joint ventures.
Tri-Star is seeking damages and/or an order that APLNG offer Tri-Star (and the other minority participants in those CSG joint venture
agreements) the opportunity to participate in those sales agreements for their proportionate share of production from those three CSG
joint ventures. APLNG will defend the claims.
If APLNG is not successful in defending all or some of the claims being made in the proceedings by Tri-Star, APLNG’s financial
performance may be materially adversely impacted and the amount and timing of cash flows from APLNG to its shareholders, including
Origin, may be significantly affected.
If APLNG is successful in defending Tri-Star’s past reversion claims, the potential for reversion to otherwise occur in the future in
accordance with the reversion trigger will remain.
Annual Report 2018 Operating and Financial Review
43
7. Important information
Forward looking statements
This Operating and Financial Review (OFR) contains forward looking statements, including statements of current intention, statements of
opinion and predictions as to possible future events and future financial prospects. Such statements are not statements of fact and there
can be no certainty of outcome in relation to the matters to which the statements relate. Forward looking statements involve known and
unknown risks, uncertainties, assumptions and other important factors that could cause the actual outcomes to be materially different from
the events or results expressed or implied by such statements, and the outcomes are not all within the control of Origin. Statements about
past performance are not necessarily indicative of future performance.
Neither the Company nor any of its subsidiaries, affiliates and associated companies (or any of their respective officers, employees or
agents) (the ‘Relevant Persons’) makes any representation, assurance or guarantee as to the accuracy or likelihood of fulfilment of any
forward looking statement or any outcomes expressed or implied in any forward looking statement. The forward looking statements in
this OFR reflect views held only at the date of this report and except as required by applicable law or the ASX Listing Rules, the Relevant
Persons disclaim any obligation or undertaking to publicly update any forward looking statements, or discussion of future financial
prospects, whether as a result of new information or future events.
Non-IFRS financial measures
This OFR and Directors’ Report refer to Origin’s financial results, including Origin’s Statutory Profit and Underlying Profit. Origin’s Statutory
Profit contains a number of items that when excluded provide a different perspective on the financial and operational performance of
the business. Income Statement amounts, presented on an underlying basis such as Underlying Profit, are non-IFRS financial measures,
and exclude the impact of these items consistent with the manner in which senior management reviews the financial and operating
performance of the business. Each underlying measure disclosed has been adjusted to remove the impact of these items on a consistent
basis. A reconciliation and description of the items that contribute to the difference between Statutory Profit and Underlying Profit is
provided in section 3.2 of this OFR.
Certain other non-IFRS financial measures are also included in this OFR. These non-IFRS financial measures are used internally by
management to assess the performance of Origin’s business and make decisions on allocation of resources. Further information
regarding the non-IFRS financial measures is included in the Glossary of this Annual Report. Non-IFRS measures have not been subject
to audit or review. Certain comparative amounts from the prior corresponding period have been re-presented to conform to the current
period’s presentation.
44
Appendix 1 – Consolidated financial supplementary data
Underlying profit
Year Ended 30 June
Continuing operations:
Energy Markets underlying EBITDA
Integrated Gas underlying EBITDA
Corporate underlying EBITDA
Underlying EBITDA
Underlying depreciation and amortisation
Underlying share of ITDA
Underlying EBIT
Underlying interest income – MRCPS
Underlying net financing costs – other
Underlying profit before income tax
and non-controlling interests
Underlying income tax expense
Non-controlling interests’ share of underlying profit
Underlying profit
Underlying earnings per share
Discontinued operations:
Underlying profit
Total operations:
Underlying profit
Discontinued operations
2018
($m)
2017
($m)
Change
($m)
Change
(%)
1,811
1,251
(115)
2,947
(381)
(1,194)
1,372
227
(497)
1,102
(261)
(3)
838
47.7¢
1,492
747
(66)
2,173
(344)
(925)
904
199
(483)
620
(217)
(3)
400
22.8¢
319
504
(49)
774
(37)
(269)
468
28
(15)
482
(44)
–
438
24.9¢
184
150
34
1,022
550
472
21
67
74
36
11
29
52
14
3
78
20
–
110
109
23
86
On 31 January 2018, Origin completed the $1,585 million sale of Lattice Energy to Beach Energy. Lattice Energy earnings have been
classified as a discontinued operation in the current and prior period, along with the Darling Downs Pipeline and Jingemia asset in
Western Australia in the prior period.
Year Ended 30 June
Underlying EBITDA
Underlying depreciation and amortisation
Underlying EBIT
Underlying financing costs
Underlying income tax expense
Underlying profit
Items excluded from underlying profit
2018
($m)
270
–
270
(8)
(78)
184
(246)
2017
($m)
357
(133)
224
(12)
(62)
150
(324)
Change
($m)
(87)
133
46
4
(16)
34
78
Change
(%)
(24)
(100)
21
(33)
26
23
(24)
Annual Report 2018 Operating and Financial Review
45
Cash flow
Year Ended 30 June
Movements (continuing operations)
Underlying EBITDA
Non–cash items in Underlying EBITDA(a)
Movement in debtors
Movement in creditors
Movement in inventory
Movement in green certificates and prepayments
Change in working capital
Electricity hedge premiums (excluded from Underlying Profit)
Oil Puts premium paid
Other
Tax (refund received)/paid
Cash flows from operating activities (continuing operations)
Discontinued operations
Total cash flows from operating activities
Capital expenditure
Net cash from/(to) APLNG(b)
APLNG – reserve accounts
Net disposals
Interest income excl MRCPS
Cash flows from investing activities (continuing operations)
Discontinued operations – cash flow from investing activities
Total cash flows from investing activities
Net cash flows from operating and investing activities (NCOIA)
Net proceeds/(repayment) of debt
Electricity Futures Collateral
Operator cash call movements
Oil forward sale agreements
Close out of FX hedges
APLNG – loan proceeds(c)
Interest paid
Dividends paid
2018
($m)
2,947
(1,269)
(240)
144
(76)
(73)
(245)
(160)
–
(82)
(38)
1,153
140
1,293
(328)
287
–
1,485
2
1,445
(94)
1,352
2,645
(1,675)
(170)
(81)
(265)
(56)
76
(474)
(2)
2017
($m)
2,173
(743)
(380)
11
14
177
(178)
(133)
(64)
(104)
53
1,005
284
1,289
(323)
(170)
(127)
887
1
267
(178)
89
1,378
(974)
6
12
–
–
127
(540)
(2)
Change
($m)
Change
(%)
774
(526)
140
133
(89)
(250)
(67)
(27)
64
22
(91)
148
(145)
4
(5)
457
127
598
1
1,177
85
1,263
1,267
(700)
(176)
(93)
(265)
(56)
(51)
66
–
36
71
(37)
1,181
(648)
(142)
38
21
(100)
(21)
(172)
15
(51)
0
2
(269)
(100)
67
100
440
(47)
1,419
92
72
n/a
n/a
n/a
n/a
(40)
(12)
n/a
93
Total cash flows used in financing activities
(2,647)
(1,371)
(1,276)
(a) Non-cash items in Underlying EBITDA includes the contribution from equity accounted APLNG operations ($1,405 million; FY2017 $859 million) partly offset by
a provision increase for legacy site remediation ($70 million), amortisation of oil hedge premiums paid for in the prior year ($64 million; FY2017: $117 million) and
exploration expense ($2 million; FY2017 nil).
(b) APLNG net cash flow includes the receipt of $227 million interest on MRCPS and the receipt of $134m from APLNG buy-back of MRCPS less a $74 million contribution
to APLNG in H1 FY2018.
(c) APLNG – loan proceeds ($76 million) represents cash generated by APLNG as part of its normal business operations deposited to a project finance debt service reserve
accounts. Upon issuance of a bank guarantee to APLNG by Origin the cash was distributed to Origin by way of a loan.
46
ROCE calculation
As at
Net Assets – continuing operations
including:
Investment in APLNG
MRCPS issued by APLNG
Non–cash fair value uplift
Adjusted net assets – continuing operations
Origin Adjusted Net Debt
Net derivative liabilities
Origin’s share of APLNG net debt (project finance less cash)
Capital employed – held for sale
Capital employed
Origin’s underlying EBIT – continuing operations
Origin’s equity share of APLNG interest and tax
Dilution depreciation adjustment
Adjusted EBIT – continuing operations
Adjusted EBIT – discontinued operations
Adjusted EBIT
Average capital employed – continuing operations
Average capital employed – discontinued operations
Average capital employed
Underlying ROCE – continuing operations
Underlying ROCE
30 Jun 2018
($m)
30 Jun 2017
($m)
11,828
10,088
5,988
3,620
(28)
5,463
3,609
(30)
11,800
10,058
6,496
830
3,272
–
8,111
565
3,642
1,330
22,398
23,707
1,372
503
2
1,877
271
2,148
22,387
665
23,052
8.4%
9.3%
903
324
47
1,275
224
1,499
23,174
1,741
24,914
5.5%
6.0%
Key financials impacted by change in treatment of certain electricity hedge premiums
Year Ended 30 June
Origin – continuing operations:
Underlying EBITDA
Underlying EBIT
Underlying Profit
Underlying ROCE
Adjusted Net Debt/Underlying EBITDA(a)
Energy Markets segment:
Wholesale energy costs
Underlying EBITDA
Underlying EBIT
2018
As reported
($m)
2018
Adjusted
($m)
2017
As reported
($m)
2017
Adjusted
($m)
2,947
1,372
838
8.4%
3.4x
2,787
1,212
726
7.7%
3.7x
2,173
903
400
5.5%
5.4x
2,032
762
301
4.9%
6.0x
(3,237)
(3,397)
(2,629)
(2,770)
1,811
1,453
1,651
1,293
1,492
1,167
1,351
1,026
(a) FY2017 Adjusted Net Debt/Underlying EBITDA is calculated on a total operations basis.
Annual Report 2018 Operating and Financial Review
47
Proportionate earnings and free cash flow
The following analysis demonstrates Origin’s earnings and free cash flow on a proportional line by line consolidated basis, rather than
on an equity accounted basis as required by accounting standards.
Presenting the earnings on a proportional consolidated basis highlights the Group’s EBIT excluding the impact of APLNG’s interest and
tax and highlights the Group’s interest and tax including its share of APLNG’s interest and tax costs.
Earnings
Year Ended 30 June 2018
Revenue
Operating costs
Underlying EBITDA –
continuing operations
Underlying depreciation and
amortisation
Underlying share of ITDA
Underlying EBIT –
continuing operations
Interest associated
with MRCPS
Net financing costs
excluding MRCPS
Underlying income
tax expense
Non–controlling interest
Underlying Profit –
continuing operations
Energy
Markets
($m)
Integrated
Gas ex–APLNG
($m)
Corporate
($m)
Total Origin
ex–APLNG
($m)
Share
of APLNG
($m)
Proportionate
Total
($m)
14,344
(12,533)
1,811
(359)
–
1,453
–
–
–
–
1,453
260
(415)
(155)
(22)
4
(173)
227
–
–
–
54
–
(115)
(115)
–
–
(115)
–
(497)
(261)
(3)
(876)
14,604
(13,062)
1,542
2,073
(668)
1,405
16,677
(13,730)
2,947
(381)
(695)
(1,076)
4
1,165
227
(497)
(261)
(3)
631
–
710
(227)
(193)
(83)
–
207
4
1,876
–
(691)
(344)
(3)
838
$1,165 million + $207 million = $1,372 million (Origin reported EBIT from continuing operations).
Presenting the cash flow on a proportional consolidated basis highlights the Group’s cash generating ability on an unlevered basis without
the impact of APLNG’s project debt.
Cashflow
Year Ended 30 June 2018
Underlying EBITDA
Non–cash items in
Underlying EBITDA
Change in working capital
Electricity hedge premiums
Tax/Other
Cash flow from operating
activities – continuing
operations
Total capital expenditure
Free Cash Flow – continuing
operations
Energy
Markets
($m)
Integrated
Gas ex–APLNG
($m)
Corporate
($m)
Total Origin
ex–APLNG
($m)
Share
of APLNG
($m)
Proportionate
Total
($m)
1,811
–
(137)
(160)
(26)
1,487
(302)
1,185
(155)
66
(54)
–
(20)
(164)
(21)
(185)
(115)
70
(53)
–
(72)
(170)
(5)
(175)
1,542
136
(245)
(160)
(120)
1,153
(328)
825
1,405
41
(13)
–
(14)
2,947
177
(257)
(160)
(134)
1,419
2,573
(439)
981
(767)
1,806
APLNG generated $981 million of free cash flow (Origin share) with an effective oil price of US$56/bbl.
48
Reconciliation of Adjusted Net Debt
Origin has US dollar and Euro foreign currency denominated debt. This foreign currency debt is hedged into either AUD or USD using
cross currency interest rate swap (CCIRS) derivatives. Accounting standards require the foreign currency debt and the linked CCIRS
derivatives to be disclosed in different lines on the Statement of Financial Position (Balance Sheet). Foreign currency debt is translated at
the current market spot rate and classified as interest-bearing liabilities, whilst the associated CCIRS derivatives are measured at current
market rates (fair value) and are classified as either derivative assets or derivative liabilities on the Statement of Financial Position. It is the
combination of the interest-bearing liabilities and the CCIRS derivative assets or liabilities that reflect the Company’s Adjusted Net Debt
position or the quantum of funds the Company is required to repay upon maturity of the debt.
As at 30 June 2018, Origin’s interest-bearing liabilities on the Statement of Financial Position were $7,439 million. The impact of the
associated CCIRS recorded within net derivative assets on the Statement of Financial Position reduces Adjusted Net Debt by $793 million.
Adjusted Net Debt of $6,496 million decreased $1,615 million compared to the prior period.
Issue
Currency
Issue
Notional
Hedged
Currency
Hedged
Notional
AUD $m
30 Jun 2018
AUD $m
30 Jun 2018
AUD $m
30 Jun 2018
AUD
USD
USD
EUR
EUR
NZD
149
703
800
2,700
500
141
AUD
USD
AUD
AUD
USD
AUD
AUD debt
USD Debt left in USD
USD debt
swapped to AUD
EUR debt
swapped to AUD
EUR debt
swapped to USD
NZD debt
swapped to AUD
Total
Cash and cash equivalents
Adjusted Net Debt
Interest–
bearing
liabilities
Debt and
CCIRS fair value
adjustments
Adjusted
net debt
149
703
853
149
952
1,081
–
–
(228)
149
952
853
3,691
4,340
(649)
3,691
646
125
788
129
88
(4)
7,439
(793)
876
125
6,646
(150)
6,496
Annual Report 2018 Operating and Financial Review
49
Financial instruments and fair value adjustments
Derivative asset/(liability)
Balance Sheet Impact
Income Statement Impact
($m)
30 Jun 2018
30 Jun 2017
in derivatives
Inc/(dec)
Inc/(dec)
in other
net assets
Total inc/(dec)
in net assets
Gain/(loss)
included in
Underlying
Profit
Gain/(loss)
excluded from
Underlying
Profit
Oil and gas
Forward oil sale
Oil and gas hedges
Other commodity hedges
Electricity
Electricity swaps
and options
Power purchase
agreements
Environmental derivatives
FX and interest rate
Foreign
exchange contracts
Foreign currency
debt hedges
Interest rate swaps
–
(68)
14
(54)
(290)
35
1
(254)
290
(103)
13
201
13
306
(294)
(405)
(325)
(80)
(123)
(515)
(25)
(44)
(249)
(301)
805
(6)
550
(19)
294
(8)
(15)
(313)
(98)
(472)
52
511
2
565
294
(314)
(108)
1
(421)
86
104
0
190
(65)
(510)
0
(575)
(806)
(24)
(210)
14
(220)
(208)
24
(98)
(282)
(13)
1
2
(10)
(512)
11
(84)
14
(59)
24
104
0
128
(3)
0
0
(3)
66
Fair value changes in other financial assets/liabilities
Increase/(decrease) in fair value of financial instruments (Note A1(b))
Reconciliation of net derivative liability to financial statements
Derivative financial
assets (Note C5)
Derivative financial
liabilities (Note C5)
1,639
1,296
(1,658)
(1,609)
Net derivative liability
(19)
(313)
(35)
(126)
0
(161)
(232)
(80)
(98)
(410)
(10)
1
2
(7)
(578)
(46)
(624)
50
Oil and gas derivatives
Origin is exposed to fluctuations in the oil price through its gas portfolio, as well as indirectly through its investment in APLNG, and utilises
a variety of oil and gas derivatives to manage this price risk. Origin’s gas hedging consists primarily of swaps that fix the price to be paid
under oil-linked gas purchase contracts. The value of these derivatives increases when market oil prices exceed the agreed swap price.
Much of the hedging is carried out through put options executed by Origin that establish a minimum price Origin will receive on oil-linked
LNG sales. The value of these options declines in periods of rising oil and gas prices as payouts are less likely to be received.
Electricity derivatives
Origin generates approximately half of the total electricity volume it sells. As such it is exposed to fluctuations in wholesale electricity
prices in respect of the electricity that must be purchased to meet retail and business customer demand. To manage this risk Origin
utilises a variety of derivatives including swaps, options, power purchase arrangements and forward purchase contracts. The value
of these derivatives declines when forward electricity prices are forecast to decrease as the electricity purchase costs to be paid by
Origin exceed expected market prices.
Currency and interest rate derivatives
Origin utilises a variety of funding derivatives to manage the exposure to foreign exchange and interest rate risk on its debt portfolio.
A significant portion of the debt portfolio is Euro denominated and cross currency interest rate swap derivatives have been used to hedge
that debt to AUD or USD. Although Origin has an Australian functional currency, a portion of the foreign debt is swapped to USD as a natural
offset to the investment in APLNG which is USD functional and will deliver USD distributions. The value of these currency derivatives
increases in periods where the Euro strengthens against the Australian dollar. Also included in this portfolio, are foreign exchange contracts
executed in prior periods to monetise the value that had accrued in certain cross currency interest rate swap derivatives. In aggregate,
the value of the foreign exchange contracts, which will cash settle over the period to 2023, are not subject
to foreign exchange fluctuations.
Annual Report 2018 Operating and Financial Review
51
Appendix 2 – Energy Markets supplementary data
Energy Markets
Revenue reconciliation
The table below reconciles the difference between segment revenue and customer revenue disclosed in the Electricity, Natural gas,
LPG and Solar & Energy Services tables.
Year Ended 30 June
2018
($m)
2017
($m)
Energy Markets Segment Revenue
14,344
13,558
Less pool and other revenue:
Internal Generation
Renewable PPAs
Other PPAs
Pool revenue
Other(a)
Total Customer Revenue
(1,907)
(2,073)
(190)
(80)
(2,177)
(111)
12,056
(144)
(200)
(2,418)
(127)
11,014
Change
($m)
786
166
(46)
120
241
16
1,042
Change
(%)
6
(8)
32
(60)
(10)
(13)
9
(a) Other revenue includes ancillary services, transmission use of system and other items which are partially offset in cost of energy
Electricity
Volume summary
Year Ended 30 June
2018
2017
Change
Change
Volumes sold (TWh)
Retail
Business
Total
Retail
Business
Total
NSW
Queensland
Victoria
South Australia
Total volumes sold
8.4
4.9
3.2
1.2
17.7
9.2
4.0
4.8
1.8
19.8
17.6
8.9
8.0
3.0
37.5
9.0
5.2
3.4
1.1
18.6
9.1
5.4
4.8
1.7
21.1
18.1
10.6
8.2
2.8
39.7
TWh
(0.5)
(1.7)
(0.2)
0.2
(2.2)
%
(3)
(16)
(2)
7
(5)
52
Financial summary
Year Ended 30 June
Revenue ($m)
Retail
(consumer & SME)
Business(a)
Cost of
goods sold ($m)
Network costs
Wholesale
energy costs
Generation
operating costs
Energy
procurement costs
Gross profit ($m)
Gross margin %
$ Gross profit
per customer
2018
8,573
5,262
3,311
(6,868)
(3,417)
(3,237)
$/MWh
228.7
297.9
167.0
(183.2)
(91.1)
(86.3)
2017
8,085
5,065
3,020
(6,660)
(3,828)
(2,629)
(215)
(5.7)
(202)
(3,452)
(92.1)
(2,831)
1,705
19.9%
637
45.5
1,426
17.6%
521
$/MWh
203.8
272.4
143.3
(167.9)
(96.5)
(66.3)
(5.1)
(71.4)
35.9
Change
%
Change
($/MWh)
24.9
25.5
23.7
(15.3)
5.4
(20.0)
(0.6)
(20.7)
9.4
6
4
10
(3)
11
(23)
(6)
(22)
20
13
22
(a) Includes externally contracted generation
Electricity supply
Year ended
30 June 2018
Eraring
Darling Downs
Osborne(d)
Uranquinty
Mortlake
Mount Stuart
Quarantine
Ladbroke Grove
Roma
Shoalhaven
Internal Generation
Pelican Point
Renewable PPA’s
Owned and
Other Generation
Nameplate
Capacity
(MW)
Equivalent
Reliability
Factor(b)
Capacity
Factor
Electricity
Output
(GWh)(c)
Type(a)
Pool Revenue
($m)
Pool Revenue
($/MWh)
2,880
Black Coal
644
180
664
566
423
224
80
80
CCGT
CCGT
OCGT
OCGT
OCGT
OCGT
OCGT
OCGT
240
Pump/Hydro
92.6%
99.3%
100.0%
100.0%
99.5%
99.7%
98.6%
99.5%
99.0%
97.0%
62.8%
37.3%
81.1%
9.7%
25.8%
0.3%
9.6%
24.0%
4.3%
4.7%
15,854
1,331
2,107
1,279
565
1,280
10
189
168
30
99
154
132
62
157
1
31
24
3
12
5,981
240
953
7,174
96.0%
41.2%
21,581
1,907
CCGT
Solar/Wind
n/a
27.9%
38.1%
1,512
2,333
25,426
190
2,097
83
74
103
110
124
123
165
145
107
121
88
81
88
(a) OCGT = Open cycle gas turbine; CCGT = Combined cycle gas turbine.
(b) Availability for Eraring = Equivalent Availability Factor (which takes into account de-ratings).
(c) Electricity output is measured at the node.
(d) Origin has a 50 per cent interest in the 180 MW plant and contracts 100 per cent of the output.
Annual Report 2018 NSW
Queensland
Victoria
South Australia
External
volumes sold
Internal sales
(generation)
Total volumes sold
Financial summary
Year Ended 30 June
Revenue ($m)
Retail
(consumer & SME)
Business
Cost of
goods sold ($m)
Network costs
Energy
procurement costs
Gross profit ($m)
Gross margin %
$ Gross profit
per customer
Operating and Financial Review
53
Natural Gas
Volume summary
Year Ended 30 June
2018
2017
Change
Change
Volumes sold (PJ)
Retail
Business
Total
Retail
Business
9.5
3.1
24.9
5.5
22.3
83.7
53.0
12.4
31.8
86.8
77.9
17.9
9.4
2.9
25.6
5.1
23.4
69.1
40.9
11.5
Total
32.8
72.0
66.5
16.6
PJ
(1.0)
14.8
11.4
1.3
43.1
171.4
214.4
43.1
144.9
187.9
26.5
66.6
281.0
61.5
249.4
5.2
31.6
%
(3)
21
17
8
14
8
13
2018
2,644
1,097
1,547
(1,995)
(764)
(1,231)
649
24.5%
578
$/GJ
12.3
25.5
9.0
(9.3)
(3.6)
(5.7)
3.0
2017
2,154
1,030
1,124
(1,627)
(709)
(918)
528
24.5%
478
$/GJ
11.5
23.9
7.8
(8.7)
(3.8)
(4.9)
2.8
Change
%
Change
($/GJ)
0.8
1.6
1.2
(0.6)
0.2
(0.8)
0.2
23
6
38
(23)
(8)
(34)
23
0
21
Electricity and Natural Gas operating costs
Year Ended 30 June
Cost to maintain ($ per average customer(b))
Cost to acquire/retain ($ per average customer(b))
Elec & Natural Gas Cost to Serve ($ per average customer(b))
Maintenance Costs ($m)
Acquisition & Retention Costs(c) ($m)
Elec & Natural Gas cost to serve ($m)
2018
(124)
(46)
(171)
(455)
(170)
(624)
2017(a)
Change
Change
(%)
(109)
(36)
(146)
(406)
(135)
(541)
(15)
(10)
(25)
(48)
(35)
(83)
14
27
17
12
26
15
(a) FY2017 has been re-stated to reflect changes in the allocation of certain items.
(b) Represents Cost to Serve per average customer account, excluding serviced hot water accounts.
(c) Customer wins (FY2018: 631,000; FY2017: 552,000) and retains (FY2018: 1,894,000; FY2017: 1,509,000).
54
LPG
Year Ended 30 June
Volumes (kt)
Revenue ($m)
Cost of Goods Sold ($m)
Gross Profit ($m)
Operating Costs ($m)
Underlying EBITDA ($m)
2018
450
654
(434)
220
(129)
91
2017
448
628
(418)
211
(122)
88
Change
Change
(%)
2
26
(16)
9
(7)
3
01
4
4
4
6
3
As at 30 June 2018, Origin had 370,000 LPG customer accounts, down from 382,000 customer accounts at 30 June 2017.
Solar and Energy Services
Year Ended 30 June
Revenue
Cost of Goods Sold
Gross Profit
Operating Costs
Underlying EBITDA
Future Energy
Year Ended 30 June
Operating Costs
Investments
Electricity and Natural Gas retail and business customer accounts
2018
($m)
185
(99)
85
(76)
10
2018
($m)
(19)
9
2017
($m)
148
(74)
74
(69)
5
2017
($m)
(14)
2
Change
($m)
Change
(%)
37
(25)
11
(7)
5
25
34
15
10
90
Change
($m)
(6)
7
Change
(%)
36
350
As at
Customer Accounts
(‘000)
NSW(a)
Queensland
Victoria
South Australia(b)
Total
30 June 2018
30 June 2017
Electricity
Natural Gas
Total
Electricity Natural Gas
1,200
696
545
225
284
176
472
213
2,666
1,145
1,483
872
1,018
438
3,811
1,213
752
553
198
262
168
478
203
2,716
1,112
3,828
Total
1,475
920
1,031
401
Change
8
(48)
(14)
37
(17)
(a) Australian Capital Territory (ACT) customers are included in New South Wales.
(b) Northern Territory and Western Australia customers are included in South Australia.
Annual Report 2018 Operating and Financial Review
55
Appendix 3 – Integrated Gas supplementary data
APLNG production and sales volumes
Year Ended 30 June
Volumes (PJ)
Production volumes:
Operated
Non-operated
Total production
Purchases
Liquefaction/inventory
Sales volumes
Natural Gas sales volumes
LNG sales volumes
Realised price (A$/GJ)
Natural Gas
LNG
APLNG underlying financial performance
Year Ended 30 June
($m)
Operating revenue(a)
Operating expenses
Underlying EBITDA
Depreciation and amortisation
MRCPS financing expense
Net financing expense
Income tax (expense)/benefit
Underlying ITDA
Underlying profit(b)
2018
2017
100% APLNG
Origin share
100% APLNG
Origin share
515
162
676
45
(41)
680
205
475
4.50
9.60
193
61
254
17
(15)
255
77
178
168
61.125
229
9
(9)
228
80
148
447
163
610
23
(25)
608
214
394
3.04
8.16
2018
2017
100% APLNG
Origin share
100% APLNG
Origin share
5,528
(1,782)
3,746
(1,853)
(605)
(515)
(222)
(3,195)
551
2,073
(668)
1,405
(695)
(227)
(193)
(83)
(1,198)
207
3,754
(1,465)
2,289
(1,614)
(626)
(326)
87
(2,479)
(190)
1,408
(549)
859
(605)
(235)
(122)
32
(930)
(71)
(a) Includes commodity revenue as reported in the Quarterly Production Report, plus other revenue of $46 million (Origin share: $16 million) in FY2018 and $8 million
(Origin share: $3 million) in FY2017. FY2017 operating revenue is net of $130 million (Origin share: $49 million) of revenue capitalised prior to the recognition of earnings
from Train 2 in November 2016.
(b) Origin’s share of APLNG Underlying Profit differs to note E1.2 of Origin’s financial statements (FY2018: $211 million; FY2017: $66 million loss) due to an elimination
of APLNG depreciation related to capitalised MRCPS interest. Refer to note E1.2 of Origin’s financial statements for details.
56
Australia Pacific LNG breakeven operating cash costs (100%)
Year Ended 30 June
Operated opex(a)
APLNG Corporate opex
Purchases
Downstream opex
Royalties and tariffs(b)
Non-operated opex
Other
Total operating costs
2018
($m)
649
43
262
227
179
199
113
1,673
2017
($m)
681
36
146
213
182
204
80
1,541
Change
($m)
Change
(%)
(32)
7
116
14
(3)
(5)
33
132
(5)
19
79
7
(2)
(2)
41
9
(a) Production from operated areas during the period was 515 PJ, equating to unit operating costs of $1.26/GJ.
(b) Reflects royalties paid at breakeven prices. Actual royalties and tariffs included in underlying EBITDA amount to $239 million (FY2017: $187 million).
APLNG capital expenditure (100%)
Year Ended 30 June
Operated sustain(a)
Exploration & Appraisal
Operated SIB
Downstream
Non-operated
2018
($m)
762
65
105
49
189
2017
($m)
922
80
138
155
79
Total capital expenditure
1,169
1,373
(205)
(a) FY2018 includes drilling of 273 vertical wells, costs of fracture stimulation, infrastructure spend and drilling of other non-standard wells.
Change
($m)
Change
(%)
(159)
(17)
(33)
(106)
111
(17)
(21)
(24)
(68)
141
(15)
Annual Report 2018 Operating and Financial Review
57
APLNG cash flow (100%)
Year Ended 30 June
Underlying EBITDA
Change in working capital/other
Sustain capital expenditure
Exploration and appraisal expenditure
Free cash flow
Repayment of project finance
Project finance interest
Distributable cash flow
Loan advanced to Origin
Loans (advanced to)/paid by other shareholders
MRCPS interest
MRCPS buy-back
Shareholder cash calls
Net increase/(decrease) in cash and cash equivalents
2018
($m)
3,746
40
(1,105)
(65)
2,617
(915)
(418)
1,284
(76)
33
(603)
(360)
198
476
2017
($m)
2,289
(168)
(1,293)
(80)
748
(299)
(421)
29
(127)
(210)
(608)
–
1,377
461
Change
($m)
Change
(%)
1,457
207
189
15
1,869
(616)
3
64
(124)
(15)
(19)
250
206
(1)
1,256
4,392
51
242
5
(360)
(1,180)
15
(40)
(115)
(1)
n/a
(86)
3
58
Remuneration
Report
For the year ended 30 June 2018
Letter from the Chairman of the
Remuneration and People Committee
On behalf of the Remuneration and People Committee (RPC) and
the Board, I am pleased to present the Remuneration Report for the
year ended 30 June 2018.
During the year we implemented a simpler remuneration framework geared
to enhance executive share ownership and to better align the interests
of the executives with our shareholders. The work of simplification and
refinement is a continuing one in which the RPC regularly reviews both
the operation and outcomes of the framework to assure its fitness for
purpose in a constantly changing business context.
Significant progress has been made in FY2018 on our twin priorities
of reducing debt and improving returns. The sale of Lattice Energy
was successfully completed, contributing a net $1 billion towards debt
reduction, and underlying profit increased substantially. Over the period,
the Australia Pacific LNG project lenders’ test was completed, production
and revenue increased, and we began implementing a simpler lower
cost operating model. Despite intense competition, our Energy Markets
performance improved, with contributions to this growth by both our
electricity and gas businesses. Our renewable energy supply increased,
and we trialled new technologies and introduced new products to improve
our customer experience. We continue to position the company for
a cleaner and smarter energy future.
The company’s share price rose by over 46 per cent in FY2018, and
over two years has risen over 74 per cent, reflecting the strength of our
recent progress against our priorities. Annual Short Term Incentive (STI)
outcomes for FY2018 have climbed above their targets (as detailed in
tables 3 and 4), reflecting this progress and improvement. At the same
time, FY2018 represented the sixth successive year of zero vesting and
forfeiture of all Long Term Incentive (LTI) awards. This reflects that while
recent performance has been strong, the long-term performance
(as shown in the 3-year Total Shareholder Return (TSR)) is still
unsatisfactory. Our remuneration framework ensures that reward and
performance are linked to both short and long-term outcomes.
Our Remuneration Report this year is more focused, reflecting the
changes and simplifications being made to the remuneration framework.
Scott Perkins
Chairman, Remuneration and People Committee
Contents
The Remuneration Report for the 12 months
ended 30 June 2018 (FY2018, the Period)
forms part of the Directors’ Report. Except
as otherwise noted it has been prepared in
accordance with the Corporations Act 2001
(Cth) (the Act) and in compliance with AASB
124 Related Party Disclosures, and audited as
required by section 308(3C) of the Act. The
report is divided into the following sections:
1. People covered by the report
2. Remuneration outcomes for FY2018
3. Executive remuneration policy
and structure
4. Remuneration governance
5. Statutory disclosures
6. Loans and other transactions
with Key Management Personnel.
Annual Report 2018 59
1. People covered by the Remuneration Report
The Remuneration Report discloses the remuneration arrangements and outcomes for people listed in table 1, who are those individuals
who have been determined as Key Management Personnel as defined by AASB 124 Related Party Disclosures.
Table 1: KMP
Name
Non-executive Directors (NEDs)
Position and board committees
Term as KMP in FY2018
G Cairns
J Akehurst
M Brenner
T Engelhard
B Morgan
S Perkins
S Sargent
Executive Director
F Calabria
Other KMP
J Briskin
G Jarvis
G Mallett
M Schubert
L Tremaine
Independent Chairman
Nomination (Chair); Audit; Risk; Remuneration and People;
Health, Safety and Environment
Independent Director
Health, Safety and Environment (Chair); Risk; Nomination
Independent Director
Risk (Chair); Audit; Nomination
Independent Director
Remuneration and People; Audit (since September 2017)
Independent Director
Audit (Chair); Risk; Health, Safety and Environment; Nomination
Independent Director
Remuneration and People (Chair); Audit; Risk; Nomination
Independent Director
Origin Foundation (Chair); Remuneration and People;
Health, Safety and Environment
Chief Executive Officer (CEO)
Executive General Manager, Retail
Executive General Manager, Energy Supply and Operations
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Acting Chief Financial Officer
KMP role until 9 July 2017
To 9 July 2017
Executive General Manager, Integrated Gas
Full year
Chief Financial Officer
Appointed KMP Monday 10 July 2017
From 10 July 2017
The term Executive KMP is a reference to the Executive Director plus Other KMP.
Although focused on the remuneration arrangements and outcomes for the KMP listed in table 1, the report also provides a perspective
across the broader Executive Leadership Team (ELT). The term ‘senior executives’ in this report is a collective reference to Other KMP plus
non-KMP members of the ELT.
Remuneration Report 60
2. Remuneration outcomes for FY2018
This section summarises remuneration outcomes for FY2018 and provides commentary on their alignment with company outcomes.
2.1 Five-year company performance and remuneration outcomes
Table 2 summarises key financial and non-financial performance for the company from FY2014 to FY2018, grouped and compared with
short-term and long-term remuneration outcomes.
Table 2: Five-year performance history
Earnings and cash flow
Revenue $m
Revenue $m (continuing activities1)
Statutory profit $m2
Statutory EPS cents2,3
Underlying profit $m
Underlying profit $m (continuing activities1)
Underlying EPS cents3
Underlying EPS cents3 (continuing activities1)
Net cash from/(used in) operating and investing
activities (NCOIA)
STI award outcomes (table 5)
2014
2015
2016
2017
2018
14,518
12,363
530
42.1
713
604
56.7
48.0
14,147
11,893
(658)
(52.1)
682
603
54.0
47.7
(1,087)
(2,081)
12,174
11,456
(628)
(39.8)
365
286
23.2
18.1
1,215
14,107
13,646
(2,226)
(126.9)
550
400
31.3
22.8
1,378
14,883
14,604
218
12.4
1022
838
58.2
47.7
2,645
Executive KMP outcome (% of $ target)
111.1
81.0
43.8
91.7
129.1
Returns
Share price3 (closing at 30 June, $)
Dividends (cents)
Annual TSR (%)
3-year rolling TSR4 (CAGR % pa)
Underlying ROCE5 (% pa)
LTI outcomes
LTI vesting % in the year
LTI forfeit % in the year
12.79
50.0
20.6
0.9
na
0
100
10.47
50.0
(15.0)
2.8
na
0
100
5.75
10.0
(42.0)
(18.5)
na
0
100
6.86
0.0
19.3
(14.2)
6.0
0
100
10.03
0.0
46.2
(2.6)
9.3
0
100
1 Excludes Contact Energy (2014–2016) and Lattice Energy (2016–2018).
2 2016 statutory profit and statutory EPS have been restated to reflect adjustments as noted in 2017 financial statements.
3 EPS and share price have been re-stated for the bonus element of the rights issue completed in October 2015.
4
Using a three-month (60 trading days) volume weighted average price (VWAP) to 30 June, reflecting the LTI methodology
for calculating TSRs for Origin and the comparator group companies.
5 Reporting for ROCE commenced FY2017.
Table 2 shows that overall awarded STI outcomes have varied from 43.8 per cent to 129.1 per cent of target over the last five years.
The specific performance metrics supporting the Executive KMP results for FY2018 STI are provided in section 2.2.
There has been no vesting of LTI for any executive since 2011 (when vesting occurred for grants allocated in 2008). The forfeiture of
this awarded remuneration reflects share price underperformance in recent years and underlines the strong linkage between company
performance and remuneration outcomes. More recently performance has improved. The share price has increased by over 74 per cent
over the last two years, and over 46 per cent over the last year.
Annual Report 2018 61
2.2 STI awards and scorecard details for FY2018
The STI program operates on an annual financial year cycle, using a scorecard made up of key performance indicators (KPIs). Before the
commencement of the performance year, targets are set for each KPI at three levels — threshold, target and stretch. Achievement at the
target level is scored at 100 per cent, with threshold achievements at one-third (33 per cent) of target, and outperformance achieving
the stretch level is scored at 167 per cent.1
Unless the threshold level is achieved, the award for the KPI is zero. The stretch performance level is set on the basis of significantly
exceeding budget and operational targets. Between target and threshold, and between threshold and stretch, outcomes are calculated
on a proportionate basis.
For FY2018 the scorecard was weighted 60 per cent to financial KPIs and 20 per cent each to Customer and People KPIs.
Table 3 shows the CEO’s scorecard, targets and outcomes for FY2018.
Threshold
33%
Target
100%
Stretch
167%
Weight
%
Score
% Target
Result
%
Table 3: CEO scorecard for FY2018
Target
Actual
CEO Scorecard KPIs
Financial (60%)
Underlying EPS (c)
Net cash from operating and investing activities
(NCOIA) excluding Lattice net proceeds ($m)
Lattice net proceeds ($m)
Energy Markets EBITDA ($m)
FY18 APLNG operating breakeven ($m)
41.6
608
934
1,679
2,381
46.3
675
983
1,745
2,268
50.9
58.2
743
1,575
1,032
1,070
1,810
1,811
2,155
1,493
Customer (20%)
Strategic NPS (T1 refers to #1 Tier 1)
T1 or >-16
T1 & -10
T1 & -6
Customer value – retail gross margin ($m)
Customer value – customer net movement
-13
880
–50k
940
–35k
990
1,082
–20k
–15k
15
10
5
15
15
167
167
167
167
167
25.1
16.7
8.3
25.0
25.0
60
167.0
100.1
10
7.5
2.5
20
67
167
167
6.7
12.5
4.2
105.0
23.4
People (20%)
People, culture and HSE Measures2
100.9
20
100.9
20.2
Business scorecard result (% target)
100
143.7
% Fixed Remuneration3
143.7
123.0
1
In earlier years this was expressed as threshold and target representing 20 per cent and 60 per cent of maximum respectively.
2 Measures include engagement and culture metrics, total recordable injury frequency rate, significant incidents, process safety and environmental reportable incidents.
3
The difference between target (100 per cent) and stretch (167 per cent) KPIs is 67 points, and the CEO’s opportunity difference is 20 points (110 per cent FR at target,
130 per cent FR at maximum). Therefore, for a 143.7 per cent scorecard outcome, the calculation as per cent FR equals 110 + {20 x (143.7-100)/67)} = 123.0 per cent FR.
Table 5 shows this represents 111.8 per cent of the dollar target opportunity. These conversions will not be necessary from FY2019 forward as the CEO’s opportunity levels will
be aligned with the rest of the organisation as detailed in table 9.
Remuneration Report 62
Scorecards for Other KMP follow the same structure, where financial KPIs represent at least 60 per cent of the overall weighting,
customer KPIs represent between 15 per cent and 25 per cent, and business unit KPIs are incorporated in addition to the Group targets.
Table 4 summarises the outcomes for Other KMP for FY2018.
Table 4: Other KMP scorecard summaries for FY2018
Other KMP Scorecards
J Briskin (EGM, Retail)
G Jarvis (EGM, Energy Supply & Operations)
M Schubert (EGM, Integrated Gas)
L Tremaine (Chief Financial Officer)
Threshold
33%
Target
100%
Stretch
167%
147.1
145.1
138.3
142.1
The scorecard outcomes range from 138.3 per cent to 147.1 per cent of target. These dollar results are summarised in table 5 which shows the
STI outcomes for all Executive KMP.
2.3 LTI allocations for FY2018
LTI allocations for FY2018 have been set at the standard (target) level. In the absence of reasons to exercise its discretion to deviate from
usual practice (which it has done from time to time when circumstances warranted), the Board has determined that 2018 allocations will
be at the standard role-based level. Vesting outcomes depend on future performance against the performance hurdles.
The allocation of equity for the CEO is subject to shareholder approval.
As foreshadowed in the 2017 Remuneration Report, the 2018 and future allocations are wholly based on face value methodology.
Previously the allocation was based on a mixture of fair and face value. Opportunity levels have been adjusted to reflect this change
without materially altering the allocation value to the executive, as set out in table 11.
2.4 Variable pay outcomes
Table 5 summarises variable pay awards (STI and LTI) made to Executive KMP for FY2018 and FY2017, including the proportions between
cash and conditional deferred elements.
The level of STI deferred has increased from 35.6 per cent to the 50 per cent level, reflecting one of the changes made for FY2018
to have all Executive KMP subject to deferral of half their STI award. Overall the proportion of deferred remuneration increased from
68.5 to 76.4 per cent.
Annual Report 2018 63
2.5 Actual pay received
In line with general market practice a (non-AIFRS) presentation of actual pay received is provided in table 6 in addition to the statutory
requirements (table 18). This gives shareholders another perspective of actual remuneration outcomes, albeit one that includes
remuneration derived from prior years.
In addition to Fixed Remuneration (FR) and the cash component of STI, actual pay received includes equity that has vested from equity
grants made in prior periods, whether from Deferred STI or from LTI vesting.
The value of Deferred STI that vests, even though it is not subject to further performance conditions, depends on the company’s share
price at the time of vesting. This ensures that the original award value is exposed to increases or decreases in share price over the
deferral period.
With respect to LTI awards table 6 shows no value crystallised in FY2018 (or FY2017) from prior year LTI allocations, and those amounts
previously reported as statutory remuneration were forfeited during the year. These remuneration outcomes reflect that the company’s
performance in recent years has not reached sustained levels at which executives derive any value from the LTI component of their
remuneration package.
These results underline the strong alignment that exists between executive remuneration and both short-term and sustained long-term
company performance.
Remuneration Report 64
65
Table 5: Variable pay (STI and LTI) awarded for the period
Name
Executive Director
F Calabria
Other Executive KMP
J Briskin
G Jarvis
M Schubert
L Tremaine
Former Executive KMP
G King
G Mallett
D Baldwin
Total
FR base
($)1
Target
(% FR)
Target STI
($)
Scorecard
(%)
STI Award
(%FR)
STI Award
(% Target)
STI Award
($)
Maximum
STI (% FR)
STI Award
(% of maximum)2
Target LTI
(% FR)
LTI Award
(%FR)
LTI Award
($)3
% of
STI deferred
% of
variable deferred
STI
LTI
Deferral
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
1,700,000
1,700,000
675,000
384,750
724,000
412,680
724,000
108,650
980,769
–
–
760,000
11,346
590,000
–
951,740
2018
4,815,115
2017
4,907,820
110
110
66
66
66
66
66
56
1,870,000
1,870,000
445,500
253,935
477,840
272,369
477,840
60,844
100
980,769
–
–
90
45
45
–
78
–
–
684,000
5,106
265,500
–
742,357
4,257,055
4,149,005
143.7
128.2
147.1
115.8
145.1
120.3
138.3
115.0
142.1
–
–
0.0
0
134.5
–
100.0
123.0
118.5
97.1
76.5
95.8
79.4
91.3
64.4
142.1
–
–
0
0
60.5
–
78.0
111.8
107.7
147.1
115.8
145.1
120.3
138.3
115.0
142.1
–
–
0.0
0
134.5
–
100.0
129.1
91.7
130
130
110
110
110
110
110
92.5
167
–
–
150
75
75
–
130
2,091,000
2,014,500
655,331
294,142
693,346
327,580
660,853
69,949
1,393,673
–
–
0
0
357,098
–
742,357
5,494,203
3,805,626
94.6
91.2
88.3
69.5
87.1
72.2
83.0
69.6
85.1
–
–
0.0
0
80.7
–
60.0
88.7
63.3
180
180
90
90
90
90
90
90
120
–
–
180
60
60
–
120
128
137
180
165
3,060,000
2,805,000
90
90
90
90
90
90
607,500
346,275
651,600
371,412
651,600
97,785
120
1,176,923
–
–
0
0
60
–
0
128
81
–
–
0
0
354,000
–
0
6,147,623
3,974,472
50.0
50.0
50.0
33.3
50.0
33.3
50.0
33.3
50.0
–
–
–
0.0
33.3
–
–
50.0
35.6
79.7
79.1
74.1
69.4
74.2
68.7
74.8
72.2
72.9
–
–
–
–
66.5
–
–
76.4
68.5
1
2
3
The FR base is the reference to Fixed Remuneration (FR) applicable for STI and LTI calculations, pro-rata for part year KMP periods. The FR base excludes acting and
temporary allowances that may be included in FR more generally.
Where the STI award is less than 100 per cent of the maximum, the difference is forfeited. Awards are calculated with reference to the target. The ratio between maximum
and target STI is 1.67 times, except for the CEO where the ratio is 1.18. Awards expressed relative to target are consistent between executives, but when expressed as
a percentage of maximum the CEO appears proportionally higher relative to other executives because of his different ratio. This inconsistency will be eliminated from
FY2019 (see table 9).
The LTI award allocation is conditional pay subject to performance hurdles over periods of 3-5 years. The awards may vest (partially or fully) or they may lapse without
value in a future period. LTI for 2017 has been re-stated to align with the full face-value allocation commenced in 2018. The number of instruments held has not changed.
The allocation value was originally expressed in a mixture of accounting fair value and face value and is now expressed wholly in terms of face value
(see table 11 ‘Allocation Amount’).
Remuneration ReportAnnual Report 2018 66
Table 6: Actual pay received in the period ($) – non-AIFRS
Name
Executive Director
F Calabria
Other Executive KMP
J Briskin
G Jarvis
M Schubert
L Tremaine
Former Executive KMP
G King
G Mallett
D Baldwin
Total
Variable pay (STI + LTI) received
Fixed
Remuneration1
STI cash2
Deferred
STI vested3
LTI vested4
Total
remuneration
received5
Equity
forfeited6
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
1,700,000
1,045,500
213,380
1,498,461
1,007,250
158,714
675,000
327,666
101,870
339,225
196,095
0
724,000
346,673
156,882
373,209
218,387
0
724,000
330,427
213,771
100,479
46,633
980,769
696,837
–
–
680,319
71,346
–
–
0
0
0
0
–
–
174,793
0
849,078
238,065
48,968
–
–
–
942,484
742,357
162,567
4,875,115
2,747,103
685,903
4,783,255
2,448,787
545,042
0
0
0
0
0
0
0
0
0
–
–
0
0
0
–
0
0
0
2,958,880
(157,741)
2,664,425
(1,755,705)
1,104,536
(41,757)
535,320
0
1,227,555
(104,317)
591,596
1,268,198
147,112
1,677,606
–
–
0
0
0
0
–
–
855,112
(6,245,275)
71,346
0
1,136,111
(411,555)
–
–
1,847,408
(2,000,352)
8,308,121
(303,815)
7,777,084
(10,412,887)
1
2
3
F Calabria was in two different roles during FY2017. Pro-rata for KMP periods for L Tremaine and G Mallett (FY2018) and for G King and D Baldwin (FY2017).
G Mallet’s FR includes allowances paid for acting in the role of CFO.
For FY2018, STI cash represents half of the STI award (for FY2017, except for the CEO, it was two-thirds of the award, and for D Baldwin it was the whole award).
The STI cash is allocated to the earning year even though it is physically paid after the end of that year.
Deferred STI vested in FY2018 was from grants awarded in 2013, 2014 and 2015; vests in FY2017 arose from grants in 2014 and 2015. The vested value is calculated as
the number of vested securities multiplied by the closing price of Origin ordinary shares on the day of vesting.
4
LTI vested represents the value of LTI awards from prior years that vested wholly or partially during the year. No LTI awards vested in FY2018 or FY2017.
5 Total remuneration received is the sum of FR plus STI cash, plus the value of Deferred STI and LTI that vested during the Period.
6
The value of equity forfeited relates to previously awarded equity that was forfeited during the year (i.e. the relevant grants realised no benefit). The forfeited value
represents original value that was attributed to remuneration in the year of the grant. Only one LTI tranche (October 2013 Options) was tested during FY2018
(resulting in 100 per cent forfeit).
Annual Report 2018 67
3. Executive remuneration policy and structure
3.1 Key features
The key elements of the executive remuneration framework are summarised in table 7 and shown schematically in table 8.
Table 7: Key elements of the executive remuneration framework
Parameter
Objectives
Benchmark peer groups
Details
(1) To attract, motivate and retain high-calibre individuals from diverse backgrounds and industries. This is
achieved by setting remuneration in two components. Fixed Remuneration is the first component and is
set to be competitive in the broad market, and a Variable Remuneration component that offers attractive
rewards when company and personal performance is high or outstanding; and
(2) To align the interests of executives with those of shareholders through executive share ownership, thus
exposing executives to company performance outcomes as experienced by shareholders generally. This
is achieved by integrating performance benchmarks and equity elements into the Variable Remuneration
structure such that reward levels reflect actual performance over time. The most senior executives (those
who have the greatest influence on company outcomes) are exposed to proportionately higher levels of
at-risk remuneration and higher proportions of equity.
Below executive level, the prime benchmarking reference is through job evaluation methodology matched to
grade levels sourced through Korn Ferry Hay Group’s market data. For more senior roles, positions are matched
across relevant peer organisations (based on similar market capitalisation or operational scale and scope).
When recruiting externally, the company has regard to wider industry comparisons and to the S&P/ASX-50
in order to access the best people from a diverse talent pool.
Fixed Remuneration (FR)
Fixed Remuneration (FR) comprises cash salary, employer contributions to superannuation and salary sacrifice
benefits. Further details are provided in section 3.2.
Variable Remuneration (VR)
Variable Remuneration is awarded on a contingent basis depending on outcomes against defined targets.
It is divided into two elements, a short-term incentive (STI) and a long-term incentive (LTI), which depend
respectively on annual and long term performance measures.
The STI program is described in detail in section 3.3.
The LTI program is described in detail in section 3.4.
Total Remuneration (TR)
The sum of FR, STI and LTI represents total remuneration (TR). It is intended that when VR is awarded at
target levels, the TR will reflect “at target” TR for the benchmark populations. Additionally, when performance
is exceptional, it is intended that executives well established in their roles will have the potential for TR to be
at or above the 75th percentile of the benchmark population.
Remuneration Report 68
Table 8: FY2018 remuneration framework and timelines (ELT)
Grant
Year 1
Year 2
Year 3
Year 4
Fixed remuneration
ASX-50 and other relevant
benchmarks
STI earning year
cash award (50% of STI)
60% Financials (including EPS, NCOIA,
EBITDA, opex)
equity award (50% of STI)
20% Customer (strategic NPS etc)
20% People (safety, engagement,
gender etc)
LTI
Pre-grant service contribution
Equity Grant
Vest
Conditional Vest
3.2 Fixed Remuneration
STI deferral (2 years)
Performance share rights
Half with 3-year ROCE hurdle
Half with 3-year relative TSR hurdle
1-year post-vest
holding lock
>
Ongoing minimum
shareholding requirement
FR (cash salary, employer contributions to superannuation and salary sacrifice benefits) takes into account the size and complexity of the
role, and the know-how, skills and experience required to be successful in it. To be market competitive, roles are benchmarked annually
with reference to comparable roles in the peer groups and achieving median for FR over time.
FY2018 FR for Executive KMP is shown in tables 5 and 6. Following a benchmark review, FR for the CEO will increase from $1,700,000 to
$1,800,000 effective for FY2019, and an average increase of 3.7 per cent will apply to other ELT roles. This review also took into account
that the incumbents are becoming more established in the roles that were created in the executive team restructure of December 2016.
The CEO’s base remuneration is below the benchmark median of peer organisations and is intended to move closer to median over time
subject to performance and prevailing benchmarks.
3.3 STI plan details
STI awards are calculated on the basis of achievement of various KPIs defined annually by the Board. These KPIs reference both annual
financial results and other measures that reflect organisational health and predict superior long term performance. STI awards are delivered
half in cash and half deferred into equity for two years which is contingent on ongoing employment with satisfactory service over that
period. Any trading in the resulting shares is further subject to the Executive Minimum Shareholding Requirement (MSR) requirements
described in section 3.6.
A detailed description of the STI plan operation is provided in table 9, with table 10 setting out the arrangements for the deferred element
of STI awards.
Annual Report 2018
69
Table 9: STI plan details
Parameter
Name
Objective
Details
Short Term Incentive Plan (STIP)
To align superior outcomes for shareholders with remuneration outcomes for executives and employees;
to reward performance; to be competitive in the broad market and to offer attractive levels of reward for
out-performance. STIP is a key element in the overall remuneration objective to attract, motivate and retain
high-calibre individuals.
Type
Annual awards based on annual objectives delivered half in cash and half in deferred equity (see table 10).
Opportunity amount
The STI opportunity level varies according to the executive’s role, generally increasing with role size and
accountability and the capacity to influence business outcomes. For FY2018 the levels were:
Role
CEO
CFO
Other Executive KMP
Next level executives
*See below for FY2019 changes for CEO
0
0
0
0
% of Fixed Rem
Min
Target
110*
100
66
Max
130*
167
110
45-60
75-100
Deferral
Approval
The opportunity levels are set with reference to the benchmarks in table 7 such that target outcomes align
with median market outcomes, and when performance is at its highest there is opportunity to reach the
75th percentile of that market.
The CEO and senior executives have one-half of their STI award deferred on the terms and conditions set out
in table 10 below.
The KPIs and the outcomes for Executive KMP are approved by the Board on advice from the RPC.
The CEO makes recommendations to the RPC in respect of his direct reports.
Payment and superannuation
The portion of an STI award that is not deferred (see table 10) is paid in cash (less applicable tax and required
superannuation contribution) approximately three months after the end of the financial year in which it was earned.
Service and behavioural
conditions
The award of STI is subject to ongoing employment with satisfactory performance throughout the performance
period and, in addition, through to the end of any applicable deferral periods (see Deferral below).
Adherence to Origin’s values and behavioural standards is a requirement for achieving satisfactory performance.
Failure to do so will result in disqualification from incentive awards and may jeopardise continued employment.
A more formalised measurement of behaviours is being introduced for FY2019 and this will be incorporated
more specifically into remuneration assessment. The Board retains discretion to vary formulaic outcomes to
ensure all relevant matters are taken into account when determining appropriate levels of remuneration within
the maximum prescribed levels.
Cessation and good leavers
No STI award is made where the Service Conditions have not been met in full, except in limited “good leaver”
circumstances.
Changes for FY2019
“Good leaver” circumstances are those where cessation of employment arises in consequence of death,
disability, redundancy, genuine retirement or other exceptional circumstances as approved by the Board.
STI awards are settled wholly in cash (no deferral) where payment is in circumstances of a good leaver
cessation.
Previously awarded but unvested deferred awards vest at cessation of employment in good leaver
circumstances, unless the Board determines otherwise.
Following an extensive benchmarking exercise taking account of CEO tenure and performance, the STI range
for FY2019 will be reduced to 100 per cent FR at target and increased to 167 per cent at maximum. This aligns
with relevant benchmarks and accords with the desired balance between FR and variable remuneration, and
the pay for performance principle that underscores the remuneration framework. Importantly, the benefit of
this change is delivered only where outcomes are high (above target).
This change will align the CEO and CFO opportunity levels. In addition, all Executive KMP will share the same
outperformance opportunity (stretch at 1.67 times target).
Remuneration Report 70
Table 10: STI deferral details
Parameter
Objective
Proportion
Details
There are two main objectives of deferral and the use of an equity instrument. The first is to subject a portion
of awards based on annual results to a further time-test in the market, and the second is to align the interests
of management and shareholders through share ownership. As deferred awards are forfeited on resignation
during the deferral period, they also act as a retention mechanism.
The CEO and all senior executives are currently subject to deferral of 50 per cent of their STI award.
Deferral is triggered where the amount subject to deferral exceeds a threshold ($2000 for FY2018).
Deferral period
The deferral period is just over 2 years from the end of the financial year to which the STI award relates:
Grant date
FY2018 STI awards
STI performance period
Vesting/release date
August 2018
(October 2018 for CEO*)
1 July 2017 to
30 June 2018
August 2020 (the second
trading day after the release of
the FY2020 full year results)
*Subject to shareholder approval
Instrument
Deferred STI is awarded in the form of Deferred Share Rights (DSRs) and/or Restricted Shares (RS). A DSR is
the right to a fully paid share in the company subject to the fulfilment of the Service Condition. A RS is a share
subject to a holding lock which corresponds to the Service Condition.
Allocation basis and
pricing period
Grant
DSRs and RSs are granted to executives for no cost as they represent part of the recipient’s
remuneration package.
The Board may award in alternative forms (including cash or deferred cash) where appropriate to do so.
Allocation of Deferred STI awards is at face value, calculated as the 30-day VWAP to the 30th of June
immediately preceding grant. The number of DSRs or RSs allocated is the Deferred STI amount ($) divided by
the face value, rounded to the nearest whole number.
The Board’s recommendation for the CEO’s Deferred STI equity award is submitted for approval1 at the
first AGM following the end of the financial year, and the equity grant is made as soon as practicable after
shareholder approval has been obtained.
Deferred STI equity grants to other executives are made as soon as practicable after Board approval,
which is generally at the end of August following the end of the financial year.
Dividends and voting rights
DSRs carry no dividend entitlements or voting rights. Restricted shares carry dividend entitlements and
voting rights.
Vesting, release and exercise
DSRs vest and Restricted Shares are released on meeting the Service Conditions (or as described in the
Cessation and Good Leaver provisions above). Exercise of DSRs is automatic on vesting and there is no
exercise price. Share disposals are subject to the minimum shareholding requirement (section 3.6).
Changes for FY2019
The preferred allocation vehicle for deferred STI equity granted after 1 July 2018 will be in the form of
Restricted Shares. The intention will be to purchase the shares on market (unless circumstances arise where
the Board determines otherwise), which ties the share award to current rather than future share price.
1
Where the CEO’s Deferred STI equity allocation is purchased on market, which from 2018 is the Board’s preferred approach, shareholder approval is not required.
However, in the interests of good governance and to preserve flexibility to issue shares where it may be appropriate to do so, the Board’s practice is to seek
shareholder approval.
3.4 LTI plan details
LTI awards are provided in the form of equity allocations which are made annually according to role size and influence on long-term
performance. The equity may vest in the future subject to the executive meeting service and performance obligations, and the company
meeting or exceeding three-year performance hurdles. There is a further one-year holding lock such that the overall deferral period is four
years. Any trading in vested equity is further subject to the Executive Minimum Shareholding Requirement (MSR) requirements described
in section 3.6. A detailed description of the LTI plan operation is provided in table 11.
Annual Report 2018 71
Table 11: LTI plan details
Parameter
Details
Name
Objective
Type
Long Term Incentive Plan (LTIP)
The objective is to align the interests of executives with those of shareholders. If shareholders do well, executives are
rewarded. Conversely, where shareholders do not do well, neither does the executive. In combination with the holding lock
(see below) and the Minimum Shareholding Requirement (section 3.6), the plan achieves alignment through increased
executive share ownership. Unvested equity is forfeited if the executive resigns before the end of the performance period,
therefore the LTI also serves as a retention tool.
LTI is conditional equity that may or may not vest (crystallise) in the future. Vesting is subject to the company meeting
or exceeding long-term performance conditions (set out below), and, in addition, conditional on the executive meeting
service and performance obligations.
Allocation basis and
pricing period
The basis of LTI awards and allocation is on the face value of an Origin share calculated as the 30-day VWAP to and
including the last trading day of the financial year immediately preceding the year the award is granted.
Grant
The Board’s recommendation for the CEO’s LTI equity award is submitted for approval at the first AGM following the end
of the financial year, and the equity grant is made as soon as practicable after shareholder approval has been obtained.
LTI equity grants to other executives are made as soon as practicable after Board approval, which is generally at the end
of August following the end of the financial year.
Allocation amount
The value of the allocation is role-based reflecting role accountability and influence on long-term company performance.
As foreshadowed in the 2017 Remuneration Report, Options were discontinued effective from FY2018 awards and the
basis of allocation has been changed from partly Face Value (for PSRs) and partly Fair Value (for Options) to entirely Face
Value. The Board, having taken external advice to ensure that the change was made on a remuneration-neutral basis, has
applied an overall gross-up factor of 50 per cent to the previous standard or target allocation level.1
Role
CEO
CFO
Other Executive KMP
Next level executives
% of Fixed Rem allocated
on a Face Value basis
180
120
90
60-75
Awards are considered soon after the end of each financial year, and take into account demonstrated performance
and long-term commitment as assessed at that time (this is the “pre-grant service contribution” referred to in table 8).
The Board may determine that the allocation should be varied up or down (including to zero).
The benchmarks used to determine the allocation levels are described in the Total Remuneration section of table 7.
Allocation approval
Annual LTI allocations for Executive KMP are approved by the Board on advice from the RPC. The CEO makes
recommendations to the RPC in respect of his direct reports.
Instruments
Dividends and
voting rights
Performance Share Rights (PSRs) are the standard vehicle for all LTI awards made after 18 October 2017.
A PSR is a right to a fully paid ordinary share in the company, subject to the fulfilment of performance and service
conditions. The PSRs are granted at no cost because they are awarded as remuneration.
PSRs carry no dividend entitlements or voting rights.
Performance and
deferral period
The deferral period is approximately 4 years, made up of a 3-year performance period (three financial years) followed by
a holding lock of approximately 13½ months:
Grant date
FY2018 LTI awards
August 2018
(October 2018
for CEO*)
*Subject to shareholder approval
Base date (Start of
performance period)
Test date (End of
performance period)
Vested Shares
Holding Lock
1 July 2018
30 June 2021
The second trading day
after the release of the
FY2022 full year results
in August 2022
The pre-grant service contribution (see table 8 and Allocation Amount above) is additional to and not counted in the
performance or deferral period.
1
The gross-up required for changing from fair value to face value allocation was determined to be approximately 100 per cent based on consideration of external advice.
As this change applied to one-half of the original LTI structure (the Options tranche) the overall gross-up was set at 50 per cent. The CEO’s LTI remuneration from
appointment was expressed as an opportunity range with a target 110 per cent FR and a maximum cap of 130 per cent FR, on the basis of mixed allocations (face value
and fair value). In moving to a standard allocation expressed wholly on the basis of face value, the mid-point of the old range (120 per centFR) has been grossed-up by
50 per cent (i.e. to 180 per cent FR).
Remuneration Report 72
Parameter
Details
Service and behavioural
conditions
In addition to the performance conditions below, unvested LTI awards will ordinarily be forfeited if the holder does not
remain in ongoing employment with satisfactory service through to the end of the performance period. Satisfactory service
includes adherence to Origin’s values and behavioural standards.
Performance
condition 1
One half of the LTI award has a relative Total Shareholder Return (TSR) hurdle. Relative TSR has been chosen because it
directly reflects returns to shareholders and aligns executive reward to that return.
Vesting occurs only where Origin’s TSR over the performance period places it above the 50th percentile of the
S&P/ASX-50 companies as defined at the start of the performance period.
Half of the PSRs in this tranche vest if the 50th percentile is exceeded, and all of the PSRs in this tranche vest if Origin’s TSR
achieves or exceeds the 75th percentile, with straight-line vesting between.
The S&P/ASX-50 has been chosen as the comparator group because, in the absence of a sufficient number of operationally
similar and direct competitors, it represents the most meaningful group with which Origin competes for shareholder
investment and executive talent.
For awards to be granted in 2018 (referable to FY2018 service) consideration was given to the inclusion of a share price
growth condition, however following consultation it was decided not to do so as the absolute measure conflicted with the
operation of the relative return measure.
Performance
condition 2
One half of the LTI award has a Return on Capital Employed (ROCE) condition. The choice of ROCE reflects the
importance of prudent capital allocation and the need to generate sufficient returns over that capital employed over time.
ROCE is referenced to EBIT divided by average capital employed. Adjustments to statutory EBIT are considered in restricted
circumstances. Circumstances that would result in impairment related adjustments include for example where such
impairments cannot reasonably be said to be the responsibility of current management. Determination of the appropriate
cost of capital during the performance period follows established capital asset pricing model norms. Adjustments to these
targets may be warranted, at the Board’s discretion, to appropriately reflect the impact of corporate actions such as M&A
or major projects which, while in shareholders’ long term interests, may adversely impact near-term ROCE.
For awards granted in 2017, the ROCE performance condition was in two parts. First, the simple average of actual ROCE
outcomes over the performance period must meet or exceed the simple average of the annual targets set in advance
by the Board. In addition, for any vesting to occur, the actual ROCE must also meet or exceed Origin’s overall weighted
average cost of capital (WACC) in either of the last two years of the performance period. If both of these targets are
achieved, half of the relevant PSRs vest. If the WACC hurdle is exceeded by two percentage points or more,
then all of the relevant PSRs vest, with straight line proportionate vesting in between.
For awards to be granted in 2018, the ROCE approach has been refined to better recognise the differing capital
characteristics between the Integrated Gas and Energy Markets businesses. Accordingly average actual ROCE outcomes
will need to exceed average annual ROCE targets which are reflective of delivering WACC for each business, and will
be tested separately, and vest separately, for the two businesses (half of the ROCE tranche will be allocated to each).
Meeting or exceeding the ROCE targets will result in half of the relevant PSRs vesting, while exceeding the targets by two
percentage points or more will result in all of the relevant PSRs vesting, with straight line proportionate vesting in between.
In exceptional circumstances (for example an LTI recipient residing in an international jurisdiction, or where it is
inappropriate to provide shares) the Board may determine to cash settle an award.
Generally, unvested LTI awards held at cessation of employment will be forfeited on the date of cessation.
“Good leaver” circumstances are those where cessation of employment arises in consequence of death, disability,
redundancy, genuine retirement or other exceptional circumstances as approved by the Board.
In good leaver circumstances, unvested LTI awards may be held ‘on foot’ subject to their original Performance Conditions
and other terms and conditions being met (except for the waived Service Condition), or dealt with in an appropriate
manner determined by the Board.
Cash awards
Cessation and
good leavers
Minimum and
maximum value
The minimum value of the PSRs is zero. This will be the case where awards are not made, or where service conditions
are not met, or where performance conditions are not met and there is no vesting. The maximum present-day value is
the present-day face value based on full vesting. The actual future value will of course depend on the future share price
and the level of vesting.
Pricing period
The pricing period for allocation is the 30-day VWAP up to and including the last trading day of the financial year
immediately preceding grant.
Vesting and exercise
PSRs vest according to the level at which each of the Performance Conditions have been met. Exercise of PSRs is
automatic on vesting and there is no exercise price. Shares allocated after vesting are subject to a holding lock, and,
more generally, disposals are also subject to the minimum shareholding requirement (section 3.6).
Legacy Options
In addition to PSRs, legacy awards that remain unvested or unexercised as at the date of this Report include seven series
of Options granted between 22 October 2014 and 18 October 2017. An Option is the right to a fully paid ordinary share on
payment of an exercise price.
All of the legacy Options have a Relative TSR performance condition, against a peer group of either S&P/ASX-100 (2014 and
2015 series), or (for 2016 and 2017 series) on the basis of a market capitalisation reference (the ten companies immediately
larger and smaller than Origin) plus AGL, Oil Search, Santos and Woodside (if they were not already in that group).
The legacy Options have performance periods varying between four and five years, with exercise prices as tabulated in table 20.
Annual Report 2018 73
3.5 Remuneration range, mix and deferral
The possible range of remuneration outcomes and their mix is summarised in tables 12–15, using the following definitions:
Minimum
FR plus zero STI awarded, and zero LTI awarded (or zero LTI vested outcome)
Target
FR plus Target STI awarded, plus LTI allocated at full face value with 50% vesting
Maximum
FR plus Maximum STI awarded, and LTI allocated at full face value with 100% vesting
For the CEO, the range is shown below for both FY2018 and for FY2019. The FY2019 data incorporates a change to Fixed Remuneration
(refer section 3.2) from 1 July 2018, and to STI opportunity levels (refer table 9). The CEO’s Total Remuneration will increase by 2.4 per cent
at target outcomes with a potential increase of up to 15.4 per cent for the achievement of outstanding (stretch) results.
Table 12: Remuneration range ($)
CEO
FR
STI
LTI
Total
FY2018
FY2019
Minimum
Target
Maximum
Minimum
Target
Maximum
1,700,000
1,700,000
1,700,000
1,800,000
1,800,000
1,800,000
0
0
1,870,000
2,210,000
1,530,000
3,060,000
0
0
1,800,000
3,006,000
1,620,000
3,240,000
1,700,000
5,100,000
6,970,000
1,800,000
5,220,000
8,046,000
The make-up of the package at these different delivery levels is summarised in table 13:
Table 13: Remuneration range ($’000)
Fixed (FR)
Cash STI
Deferred STI
LTI
Dashed lines indicate conditional variable pay that is subject to forfeiture
FY18
minimum
FY19
FY18
target
FY19
FY18
maximum
FY19
1,700
(100%)
1,800
(100%)
1,700
(34%)
1,800
(35%)
1,700
(24%)
1,800
(22%)
935
(18%)
900
(17%)
935
(18%)
900
(17%)
1,530
(30%)
1,620
(31%)
1,105
(16%)
1,105
(16%)
5,100
5,220
3,060
(44%)
6,970
1,503
(19%)
1,503
(19%)
3,240
(40%)
8,046
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Remuneration Report 74
Tables 14 and 15 show the remuneration ranges applying in FY2018 for the Chief Financial Officer and the average of other Executive KMP.
Table 14: Remuneration range ($)
CFO
Other average KMP
Minimum
Target
Maximum
Minimum
Target
Maximum
1,000,000
1,000,000
1,000,000
708,000
708,000
708,000
0
0
1,000,000
1,670,000
600,000
1,200,000
0
0
467,280
778,800
318,600
637,200
1,000,000
2,600,000
3,870,000
708,000
1,493,880
2,124,000
FR
STI
LTI
Total
Table 15: Remuneration range and mix ($’000)
CFO
minimum
1,000
(100%)
Other KMP
minimum
708
(100%)
CFO
target
1,000
(39%)
500
(19%)
500
(19%)
600
(23%)
2,600
Other KMP
target
CFO
maximum
1,000
(25%)
835
(22%)
835
(22%)
1,200
(31%)
3,870
Other KMP
maximum
708
(47%)
708
(34%)
234
(16%)
234
(16%)
319
(21%)
1,494
389
(18%)
389
(18%)
637
(30%)
2,124
0
1,000
2,000
3,000
4,000
0
500
1,000
1,500
2,000
The proportion of at-risk pay and the proportion of pay that is deferred and conditional (subject to forfeiture) increases with the seniority of
the role, and also with the level of payout.
3.6 Minimum shareholding requirement (MSR) for senior executives
Effective from 1 July 2017, there is a requirement for the CEO and all senior executives to build and maintain a minimum shareholding in
the company. An additional disposal restriction applies until the MSR is met1. The MSR is an equity holding equivalent to two times annual
FR for the CEO, and one times annual FR for senior executives, and is expected to be met within four years. Executive KMP shareholdings
are shown in table 21.
3.7 Malus and clawback
The STI and LTI arrangements are subject to malus and clawback provisions that enable the company to reduce or claw back awards
where it is appropriate to do so.
The Board retains wide discretion to adjust formulaic incentive outcomes up or down (including to zero) prior to their finalisation.
Malus refers to the exercise of downward discretion. The Board has, from time to time, applied malus to ensure that overall outcomes
were aligned to both benchmarks and to the overall circumstances of the company (for example, it awarded zero STI and LTI allocations
for some executives in both FY2015 and FY2016, even though some of the relevant performance conditions had been met).
Clawback refers to the Board’s power to recover awards or payments that have been made, granted or vested (including the forfeiture of
unvested equity awards, or the demand of the return of shares or the realised cash value of those shares) where the Board determines that
the benefit obtained was inappropriate (for example, as a result of fraud, dishonesty or breach of employment obligations by the recipient
or any employee of the Group). The Board has not encountered circumstances in this or prior periods that have required the application
of the clawback provisions.
1
The restriction is in addition to any other trading or holding lock restriction, and generally applies to shares vested from incentive plans after the policy was introduced,
except to the extent required to meet taxation obligations. Unvested equity that is not subject to performance hurdles may be counted towards the MSR.
Annual Report 2018
75
3.8 No hedging
The company’s policy requires that employees cannot trade instruments or other financial products that limit the economic risk of any
securities held under any equity-based incentive scheme. Non-compliance may result in summary dismissal.
3.9 Change of control
If a change of control occurs prior to the vesting of share rights that are not subject to performance hurdles the Board has discretion to
bring forward vesting dates where it considers it appropriate to do so.
If a change of control1 occurs prior to the vesting of LTI that is subject to performance hurdles, provided the executive has held the relevant
instruments for at least 12 months as at the change of control, the Board has discretion to bring forward testing against the performance
conditions as at the date of the change of control, and vesting may occur to the extent that the relevant performance conditions
have been met.
3.10 Capital reorganisation
On a capital reorganisation, the number of unvested share rights and Options held by participants may be adjusted in a manner
determined by the Board to minimise or eliminate any material advantage or disadvantage to the participant. If new awards are granted,
they will, unless the Board determines otherwise, be subject to the same terms and conditions as the original awards.
3.11 Other equity/share plans
The company operates a universal employee share plan in which all full-time and part-time employees can be awarded up to $1,000
worth of company shares on an annual basis. As foreshadowed in last year’s report, the arrangements are being amended to encourage
greater share ownership across the company. For FY2018 eligibility for the award was expanded by removing the conditional safety hurdle
and reducing the service requirement from twelve to six months. The company is planning to introduce a salary sacrifice and matching
mechanism to begin in FY2019.
For the FY2018 award, shares will be purchased on-market during late August for allocation to employees on a restricted basis (the shares
cannot be traded until the earlier of cessation of employment or three years). Directors are not eligible for the general employee share plan.
To help preserve shareholder value, retention plans may be used selectively to retain key people. The RPC regularly assesses the risk of the
Group losing key people in areas of intense market activity, for example critical employees who manage core activities or have skills that
are being actively solicited in the market.
Where appropriate the RPC may consider putting in place deferred payment arrangements to reduce the risk of critical loss. Key people
may be offered DSRs or deferred cash payments subject to the condition of remaining in ongoing employment with the company through
to a nominated date and achieving personal performance targets over that period. Where DSRs are used for this purpose they represent
the same equity vehicle described in table 10 for deferred STI, but their purpose is for retention and the vesting period will vary according
to the specific circumstances.
No deferred cash or retention DSRs were provided to KMP during the current or the prior period.
From time to time it may be necessary to offer deferred equity to replace similar or equivalent equity that an executive forfeits when
leaving another employer to take up employment with the company. ‘Sign-on’ equity of this sort, where required, is targeted to the
particular circumstances and will have vesting periods matching those circumstances. Table 20 identifies that such sign-on equity was
granted to L Tremaine in FY2018.
1
Change of control is defined as a person/entity acquiring more than 50 per cent of the relevant interest in the company pursuant to a takeover bid that has become
unconditional, or when a person/entity otherwise acquires more than 50 per cent of a relevant interest in the issued capital of the company.
Remuneration Report 76
3.12 Remuneration and contractual details for Executive KMP
Table 16 sets out the main employment terms and conditions for Executive KMP as at 30 June 2018.
Table 16: Executive service agreements and remuneration terms
Basis of contract
Ongoing (no fixed term)
Ongoing (no fixed term)
CEO
Other KMP
Notice period
12 months by either party, or shorter notice
by agreement.
Up to six months by either party or shorter notice
by agreement.
Termination benefits
for cause
Termination benefits
for resignation
Termination benefits
for other than
resignation or cause
No notice for misconduct or breach of contract.
No notice for misconduct or breach of contract.
Statutory entitlements only
Statutory entitlements only
Notice as above or payment in lieu of notice that is
not worked; current-year STI forfeited; all unvested
equity lapses; statutory entitlements
Notice as above or payment in lieu of notice that is
not worked; current-year STI forfeited; all unvested
equity lapses; statutory entitlements
Notice worked (or payment in lieu of any portion
not worked); pro rata STI for the period worked
(no deferral applicable); all unvested equity lapses
unless held ‘on foot’ in accordance with Equity
Incentive Plan Rules (in cases of death, disability,
genuine retirement or extraordinary circumstance);
and statutory entitlements
Notice worked (or payment in lieu of any portion
not worked); pro rata STI for the period worked (no
deferral applicable); all unvested equity lapses unless
held ‘on foot’ in accordance with Equity Incentive
Plan Rules (in cases of death, disability, bona fide
redundancy, genuine retirement or extraordinary
circumstance); and statutory entitlements
Payment in accordance with the company’s general
redundancy policy of three weeks FR per year of
service with a minimum of 18 weeks and a maximum
of 78 weeks
Remuneration
As set out in table 12. Remuneration is regularly
reviewed to align with policy and benchmarks.
As set out in table 12. Remuneration is regularly
reviewed to align with policy and benchmarks.
Annual Report 2018 77
4. Remuneration governance
4.1 Role of the Board and its Remuneration and People Committee
The full Board has oversight of Origin’s remuneration arrangements. It is accountable for the remuneration of executives and of NEDs,
and the policies and processes governing both.
The Remuneration and People Committee (RPC) operates under a Charter published on the company’s website at originenergy.com.au.
The RPC, through its chairman, provides advice and makes recommendations to the full Board on remuneration for NEDs and for ELT
members, and also for all equity arrangements and grants regardless of level. The RPC has delegated authority to approve remuneration
arrangements for Origin people outside these groups.
As identified in table 1, the RPC has four members (including its chairman) who are all independent NEDs. The RPC’s Charter requires
a minimum of three NEDs. In addition, there is a standing invitation to all Board members to attend the RPC’s meetings. The RPC met
formally six times during the Period.
4.2 External advisors
The RPC has established protocols for engaging and dealing with external advisors, including those defined as remuneration consultants
for the purposes of the Act. The protocols are to ensure independence and the avoidance of conflicts of interest.
The protocols require that remuneration advisors are directly engaged by the RPC and act on instruction from its Chairman. Reports
must be delivered directly to the RPC Chairman. The advisor is prohibited from communication with company management except as
authorised by the Chairman, and limited to the provision or validation of factual and policy data. The advisor must furnish a statement
confirming the absence of any undue influence from management.
During the Period the RPC engaged external advisors to conduct practice reviews and benchmarking exercises, and it also received
general market trend information from a variety of commercial and industry sources. It did not seek or receive any remuneration
recommendations within the definition of the Act.
4.3 Remuneration policy and structure for NEDs
NED remuneration is designed to ensure independence by setting fees that are fixed and not dependent on company results.
There are no bonus or incentive-based payments. This ensures that NEDs are able to independently and objectively assess both
executive and company performance.
On 18 October 2017 shareholders approved setting the aggregate cap for overall NED remuneration at $3,200,000 per annum, prior
to that it had last been approved in 2013 (at $2,700,000). The increase was approved to provide the Board with sufficient flexibility to
appoint additional directors, and it also recognised that there had been a decrease in the number of executive directors and an increase
in the number of NEDs.
Board and committee fees take into account market rates for similar positions at relevant Australian organisations (those of comparable size
and complexity) that fairly reflect the time commitments and responsibilities involved. Per diem fees may also be paid on occasions where
approved special work is undertaken outside of the expected commitments. No per diem fees were paid during the Period.
The Origin Chairman receives a single fee that is inclusive of committee activities, while other NEDs receive a NED Base Fee and separate
fees for their role on specific committees, other than the Nomination Committee, which is considered within the NED Base Fee. All fees
include superannuation contributions.
As reflected in table 17, which sets out the structure and level of NED fees, there is no change to the fees to apply during FY2019.
Fees were last increased in FY2013 (fees for the Risk Committee were introduced in FY2016).
Remuneration Report 78
Table 17: NED and committee fees ($)
FY
2018
2019
Board — Chairman (inclusive of committee fees)
677,000
677,000
NED Base Fee (exclusive of committee fees)
196,000
196,000
Audit — Chairman
Audit — Member
Remuneration and People — Chairman
Remuneration and People — Member
57,000
57,000
29,000
29,000
47,000
21,000
47,000
21,000
Health, Safety and Environment — Chairman
42,000
42,000
Health, Safety and Environment — Member
21,000
21,000
Risk — Chairman
Risk — Member
Nomination — Chairman
Nomination — Member
Origin Foundation — Chairman
42,000
42,000
21,000
21,000
nil
nil
nil
nil
nil
nil
4.4 Minimum shareholding requirement (MSR) for NEDs
To align the interests of the Board and shareholders, NEDs are required to build and then maintain a minimum shareholding in the company.
The MSR for the Chairman was raised effective from 1 July 2017 from one times the NED Base Fee to two times the NED Base Fee,
and for all other NEDs it is one times the NED Base Fee.
The MSR must be reached within three years of appointment, or, where the requirement has been increased, within two years of the
increase. At the date of this Remuneration Report, all NEDs either met the minimum requirement or were on track to meet it within the
required time. Details on NED shareholdings are included in table 21.
A Non-executive Director Share Plan (NEDSP) was suspended in 2013 (existing participants could no longer make acquisitions) and
closed to new entrants. The NEDSP provided for NEDs to sacrifice annual fees toward the acquisition of shares, which were then acquired
on market by the Trustee of the plan. There is one remaining participant in the NEDSP. A revised Director Share Acquisition Plan is under
consideration for introduction during FY2019.
Annual Report 2018 79
80
81
5. Statutory disclosures
Table 18: Executive KMP statutory remuneration (A-IFRS) ($, except where otherwise indicated)
Short-term benefits
Post-employment benefits
Accounting value of long-term benefits
Totals
Base salary
Cash STI1
Non-monetary
benefits2
Superannuation
Deferred STI3
LTI4
Accrued leave
change
Termination
benefits
Total
remuneration
At Risk
(%)
Share based
(%)
Executive Director
F Calabria
Other Executive KMP
J Briskin
G Jarvis
M Schubert
L Tremaine5
Former Executive KMP
G King6
G Mallett5
D Baldwin6
Total
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
1,646,466
1,045,500
1,471,005
1,007,250
654,936
328,035
684,258
357,798
703,936
97,200
961,091
–
–
673,026
70,486
824,046
–
327,666
196,095
346,673
218,387
330,427
46,633
696,837
–
–
0
0
238,065
–
926,237
742,357
4,721,173
2,747,103
32,826
32,312
10,645
4,375
27,225
15,236
9,848
1,672
10,764
–
–
21,000
963
26,282
–
27,649
92,272
4,677,347
2,448,787
128,526
24,384
27,456
20,064
11,190
27,468
15,411
20,064
3,279
19,678
–
–
7,293
482
25,032
–
16,247
112,140
105,908
1
For FY2018 STI cash represents one half of the STI award. For FY2017 it represents two-thirds of the STI awarded, except for the CEO which was one half. For Former
Executive KMP the STI award may not be subject to deferral. The STI cash is physically paid after the end of the financial year to which it relates, but is allocated to the
earning year. The balance of the STI award is STI deferred.
2 Non-monetary benefits include insurance premiums and fringe benefits such as car parking and expenses associated with travel.
3
4
Deferred STI is that portion of the accounting value of equity granted or to be granted (DSRs) under the STI plan for the current and prior periods attributable to the
reporting period. In following reporting periods the accumulated expense is adjusted for the number of instruments then expected to vest. A ‘bring-forward’ of future-
period accounting expense may occur where a cessation of employment occurs before the normal vesting date.
LTI includes all long-term incentives (i.e. those not awarded under the STI plan) and represents that portion of the accounting value of the awards made, or to be made,
for the current and prior periods, which is attributable to the reporting period. Where instruments vest against a market condition (such as TSR) the application of
accounting rule AASB-2 determines a fair value that takes into account that market condition. This involves assumptions for the volatility of Origin shares and the shares
of all other companies in the comparator group, dividend yields, and the risk-free rate (see note F3(a)(i) to the financial statements). In the case of Options it also includes
assumptions on the timing of exercise. This fair value, amortised over the service/vesting period is used for expensing purposes. The value is not adjusted for the actual
outcome against the market condition. Where instruments vest against a non-market condition (such as ROCE), AASB-2 does not take into account the hurdle. The initial
grant date expense is represented by face value less dividends foregone over the vesting period. True-ups then occur each reporting period for the expected vesting
outcome, based on reasonable and successive forecasts of the final vesting outcome, lastly with a final true-up when the outcome is known. A ‘bring-forward’ of future-
period accounting expense may occur where a cessation of employment occurs before the normal vesting date where prior years’ awards remain on foot at cessation.
At cessation, if unvested Options or PSRs remain on foot then any unvested expense is brought forward, but if forfeited, previously booked expense is reversed. Neither
treatment has any bearing on what the executive may ultimately forfeit or receive. The applicable treatment may not be known at the end of the reporting period even if
a cessation is expected in the near future. At the time of FY2017 reporting, the ‘on-foot/lapse’ position for D Baldwin was unknown. Subsequently the equity lapsed and
previously expensed amounts totalling $1,042,171 (and attributed to KMP remuneration in prior periods) required reversal, this is recorded as an FY2018 adjustment.
5 For FY2018, pro-rata periods for KMP office are: G Mallett 1 July 2017 to 9 July 2017, and L Tremaine 10 July 2017 to 30 June 2018.
6 For FY2017 comparatives, pro-rata periods for KMP office are G King 1 July 2016 to 19 October 2016; and D Baldwin 1 July 2016 to 28 April 2017.
697,375
433,397
187,782
61,343
220,422
81,009
223,244
30,180
612,235
458,546
109,763
35,477
161,139
73,845
121,000
10,123
220,978
1,784,358
–
–
20,796
956
112,805
–
–
–
272,492
4,693
131,850
–
142,087
507,254
1,550,756
2,793,188
881,617
1,489,587
42,500
265,312
68,488
13,903
18,100
37,868
9,042
1,881
12,253
–
–
15,738
142
15,000
–
23,945
150,525
373,647
–
–
–
–
–
–
–
–
–
–
–
4,101,285
3,695,278
1,379,343
650,418
1,485,285
799,554
1,417,561
190,968
3,705,959
–
–
2,173,077
3,183,422
–
–
–
77,722
1,373,080
–
746,019
3,131,795
0
12,167,157
2,919,096
13,024,515
57
51
45
45
49
47
48
46
73
–
–
9
7
35
–
44
58
37
32
24
22
15
26
19
24
21
54
–
–
9
7
18
–
21
36
18
Remuneration ReportAnnual Report 2018 82
Table 19: NED statutory remuneration table ($) (A-IFRS)
Non-executive Directors
Cash fees
Non-monetary
benefits1
Superannuation
Total
remuneration
J Akehurst
M Brenner
G Cairns
T Engelhard
B Morgan
S Perkins
S Sargent
Former Non-executive Directors
H Nugent2
Total
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
238,936
239,368
246,936
247,368
656,936
657,368
221,103
32,894
274,936
275,368
272,936
241,694
217,936
218,368
–
185,216
2,129,719
2,097,644
200
200
200
200
12,749
12,400
200
33
200
200
200
18,209
200
200
–
134
13,949
31,576
20,064
19,632
20,064
19,632
20,064
19,632
20,064
3,272
20,064
19,632
20,064
19,632
20,064
19,632
–
13,301
140,448
134,365
259,200
259,200
267,200
267,200
689,749
689,400
241,367
36,199
295,200
295,200
293,200
279,535
238,200
238,200
–
198,651
2,284,116
2,263,585
1
Non-monetary benefits include insurance premiums and fringe benefits. Changes between current and prior year primarily reflect expenses associated with varying
travel commitments.
2 For FY2017 comparatives, H Nugent pro-rata period for KMP office was 1 July 2016 to 3 March 2017.
Annual Report 2018 83
84
85
Table 20: Details of, and movements in, rights to equity
Rights to equity in the company are granted to Executive KMP only, no NEDs hold rights to equity. This table covers holdings and
movements for rights held (directly, indirectly or beneficially including related parties) over the Period (or KMP portion of the Period),
including grants, transactions and forfeits, by value and by number. Details of the terms and vesting and exercise conditions attaching to
the rights are set out in tables 21 and 22. Awards to L Tremaine represent compensation for equity forfeited from his previous employer
as a consequence of accepting employment with the company, reflecting the timing and vesting patterns of the forfeited instruments.
Type
Held at start1
Grant date
Number
granted
Fair
value2,3
($)
Value ($)
Exercise
price ($)
Vest date3
Expiry date4
No.
vested
No.
exercised
Value at
exercise5 ($)
No.
forfeited6
Value7
($)
Vested
exercisable
at end
Held at
end1
Granted
Vested
Forfeited
Executive Director
F Calabria
Options
1,096,046
18 Oct 2017
401,288
PSRs
DSRs
145,029
18 Oct 2017
126,866
107,921
18 Oct 2017
136,668
Other Executive KMP
J Briskin
Options
17,769
30 Aug 2017
PSRs
DSRs
60,733
30 Aug 2017
25,163
30 Aug 2017
23,340
G Jarvis
Options
229,982
30 Aug 2017
PSRs
DSRs
54,319
30 Aug 2017
42,679
30 Aug 2017
G Mallett
Options
232,270
PSRs
DSRs
54,435
39,510
–
–
–
M Schubert
Options
153,641
30 Aug 2017
PSRs
DSRs
45,652
30 Aug 2017
52,578
30 Aug 2017
L Tremaine
Options
PSRs
DSRs
0
0
0
30 Aug 2017
30 Aug 2017
30 Aug 2017
335,875
86,910
27,477
93,219
29,471
25,993
0
0
0
83,769
26,484
18,945
81,441
24,415
2.30
6.98
7.18
2.50
7.21
7.65
2.50
7.21
7.65
–
–
–
2.50
7.21
7.65
2.52
7.43
7.55
922,962
7.37
22 Aug 2022
23 Aug 2027
885,525
981,731
–
–
23 Aug 2021
2019 to 2021
Vest date
Vest date
0
0
0
0
0
0
28,375
28,375
213,380
67,124
157,741
0
0
0
0
217,275
7.37
22 Aug 2022
23 Aug 2027
198,109
178,551
–
–
23 Aug 2021
26 Aug 2019
Vest date
Vest date
233,047
7.37
22 Aug 2022
23 Aug 2027
212,486
198,846
0
0
0
–
–
–
–
–
23 Aug 2021
26 Aug 2019
Vest date
Vest date
–
–
–
–
–
–
209,423
7.37
22 Aug 2022
23 Aug 2027
190,950
144,929
–
–
23 Aug 2021
26 Aug 2019
Vest date
Vest date
205,231
7.37
23 Aug 2021
23 Aug 2026
181,403
2,536,272
–
–
24 Aug 2020
2018 to 2020
Vest date
Vest date
0
0
0
0
0
0
13,615
13,615
101,870
0
0
0
0
0
0
20,862
20,862
156,882
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
23,639
23,639
213,771
0
0
0
0
0
0
0
0
0
17,769
41,757
0
0
0
0
44,390
104,317
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,430,210
271,895
216,214
86,910
88,210
34,888
278,811
83,790
47,810
232,270
54,435
39,510
237,410
72,136
47,884
81,441
24,415
335,875
1
2
3
4
5
The number of instruments that are held at the start/end of the Period, or, where the holder is KMP for part-year only, on the relevant start/end dates of holding KMP office.
Accounting expense value per instrument at grant date (Black-Scholes Monte Carl for Relative TSR performance conditions; discounted cash flow for DSRs) or
as estimated at first reporting period after grant (ROCE non-market hurdle).
Where the DSRs were granted in three tranches with different vesting dates, the range of vesting dates is shown and the fair value is the weighted average of the
three tranches per instrument.
The expiry date is the same as the vesting date where the terms of the grant apply automatic exercise on vesting. Where there is no automatic exercise on vesting, the
expiry date is the last possible expiry. Rights and options may expire earlier, for example if the rights or options fail to vest on testing, they will lapse on the vesting date.
The value of rights exercised is calculated as the closing market price of the company’s shares on the Australian Securities Exchange (ASX) on the date of exercise, after
deducting any exercise price. The exercise price for PSRs and DSRs is nil. DSRs vesting in the Period were granted on 14 Oct 2013 (vested 16 Oct 2017), 22 Oct 2014
(vested 23 Oct 2017), 22 Oct 2015 (vested 23 Oct 2017) and 7 Dec 2015 (vested 15 Jan 2018).
6
Forfeited Options were granted in October 2013.
7
The value of equity forfeited represents prior year Origin equity allocations that were forfeited during the year (i.e. the relevant grants realised no benefit and
lapsed without value). The forfeited value represents the grant date value that was disclosed and attributed to remuneration at the time of the grant.
Remuneration ReportAnnual Report 2018 86
Table 21: Details of, and movements in, ordinary shares of the company
Holdings and movements for ordinary shares held by KMP (directly, indirectly or beneficially including related parties) over the Period.
Held at start1
Acquired2
Received on
exercise of
Options/PSRs3
Received on
exercise of
DSRs3
Disposed4
Held at end1,5
Position relative
to shareholding
requirement6
Non-executive Directors7
J Akehurst
M Brenner
G Cairns
T Engelhard
B Morgan
S Perkins
S Sargent
71,200
22,117
163,660
0
47,143
30,000
31,429
Executive Director
F Calabria
163,530
Other Executive KMP
J Briskin
G Jarvis
G Mallett
M Schubert
L Tremaine
15,302
14,319
43,282
28,138
0
0
0
0
0
0
0
0
0
134
134
0
134
0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28,375
13,615
20,862
0
0
0
0
0
0
0
0
0
0
0
0
23,639
8,000
0
0
71,200
22,117
163,660
Met
Met
Met
0
On track
47,143
30,000
31,429
Met
Met
Met
191,905
Met
29,051
35,315
43,282
43,911
0
On track
Met
na
Met
On track
1
2
The number of instruments that are held at the start/end of the Period, or, where the holder is KMP for part-year only, on the relevant start/end dates of holding KMP office.
Purchases and transfers in. For Other Executive KMP this includes allotments of fully-paid ordinary shares granted under the general Employee Share Plan (ESP).
Executive Directors do not participate in the ESP.
3 After vesting and after payment of the exercise price (the exercise price for PSRs and for DSRs is nil).
4 Sales and transfers out.
5 Other than options and rights disclosed elsewhere in this Report, no other equity instruments including shares in the company were granted to KMP during the period.
6 Minimum shareholding requirements are set out in sections 3.6 and 4.4. For informative purposes the test applied here uses the 30-day VWAP to 30 June 2018 ($9.80).
7
NEDs are not issued shares under any incentive or equity plans. Acquisitions include purchases of shares on-market, or pursuant to the company’s dividend reinvestment
plan or the August 2016 Entitlement Offer.
Annual Report 2018 87
Table 22: Details of equity granted
The table below lists all unissued shares potentially arising from equity-based incentive grants current at 30 June 2018 held by current
or former employees (including Executive Directors and Executive KMP). Equity-based incentives are not granted to NEDs. No terms
of equity-settled share-based transactions have been altered or modified subsequent to grant. Equity grants that failed to meet their
performance hurdles on their final test dates prior to 30 June 2018 have all been lapsed.
Granted
Options
22 October 2014
22 October 2015
30 August 2016
19 October 2016
30 August 2017
30 August 2017
18 October 2017
Performance Share Rights
22 October 2014
22 October 2015
30 August 2016
19 October 2016
30 August 2017
30 August 2017
18 October 2017
Deferred Share Rights
22 October 2015
7 December 2015
30 August 2016
30 August 2016
30 August 2016
30 August 2017
30 August 2017
30 August 2017
30 August 2017
30 August 2017
30 August 2017
18 October 2017
18 October 2017
18 October 2017
Number Outstanding
Exercise Price
Last possible expiry1
1,909,798
2,199,410
1,484,094
450,000
81,441
949,570
401,288
406,294
1,231,040
1,268,094
129,558
900,375
24,415
126,866
37,746
10,068
1,951,271
38,404
38,404
165,860
93,813
76,202
1,766,650
42,627
35,023
45,556
45,556
45,556
$15.65
$6.78
$5.67
$5.21
$7.37
$7.37
$7.37
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22 October 2021
21 October 2025
28 August 2026
28 August 2026
28 August 2026
23 August 2027
23 August 2027
22 October 2018
21 October 2019
24 August 2020
24 August 2020
23 August 2021
24 August 2020
23 August 2021
22 October 2018
15 January 2019
20 August 2018
26 August 2019
24 August 2020
10 July 2018
10 July 2019
10 July 2020
26 August 2019
24 August 2020
23 August 2021
26 August 2019
24 August 2020
23 August 2021
1
The expiry date is the same as the vesting date where the terms of the grant apply automatic exercise on vesting. Where there is no automatic exercise on vesting,
the expiry date is the last possible expiry. Rights and options may expire earlier, for example if the rights/options fail to vest on testing, they will lapse on the vesting date.
Remuneration Report 88
6. Loans and other transactions with KMP
There were no loans with KMP during the year.
6.1 Other transactions with the consolidated entity or its controlled entities
Transactions entered into during the year with KMP which are within normal employee, customer or supplier relationships on terms and
conditions no more favourable than dealings in the same circumstances on an arm’s length basis include:
• the receipt of dividends from Origin Energy Limited;
• participation in the Employee Share Plan, Equity Incentive Plan and NED Share Plan;
• terms and conditions of employment or directorship appointment;
• reimbursement of expenses incurred in the normal course of employment;
• purchases of goods and services; and
• receipt of interest on Retail Notes.
Certain directors of Origin Energy Limited are also directors of other companies which supply Origin Energy Limited with goods and
services or acquire goods or services from Origin Energy Limited. Those transactions are approved by management within delegated
limits of authority and the directors do not participate in the decisions to enter into such transactions. If the decision to enter into those
transactions should require approval of the Board, the director concerned will not vote upon that decision nor take part in its consideration.
Signed in accordance with a resolution of Directors
Gordon Cairns
Chairman
Sydney, 16 August 2018
Annual Report 2018 Lead Auditor's Independence Declaration
89
Lead Auditor's Independence Declaration
90
Board of
Directors
Gordon Cairns
Independent
Non-executive Chairman
John Akehurst
Independent
Non-executive Director
Maxine Brenner
Independent
Non-executive Director
Frank Calabria
Managing Director and
Chief Executive Officer
Gordon Cairns joined the Board
in June 2007 and became
Chairman in October 2013. He
is Chairman of the Nomination
Committee and a member of
the Risk, Remuneration and
People, Audit and Health, Safety
and Environment committees.
He has extensive Australian
and international experience
as a senior executive, as Chief
Executive Officer of Lion
Nathan Ltd, and has held
senior management positions
in marketing, operations
and finance with PepsiCo,
Cadbury Ltd and Nestlé.
Gordon is Chairman of
Woolworths Group Limited
(since September 2015),
a Director of Macquarie Group
Limited (since November 2014)
and Macquarie Bank Limited
(since November 2014), and
Non-executive Director of
World Education Australia
(since November 2007). He
was previously Chairman of
the Origin Foundation, David
Jones Limited (March – August
2014), Rebel Group (2010 –
2012), Director of The Centre
for Independent Studies (May
2006 – August 2011), Quick
Service Restaurant Group
(October 2011 – May 2017) and
Westpac Banking Corporation
(July 2004 – December 2013).
He was also a senior advisor to
McKinsey & Company.
Gordon holds a Master of Arts
(Honours) from the University
of Edinburgh.
John Akehurst joined the Board
in April 2009. He is Chairman
of the Health, Safety and
Environment Committee and
a member of the Nomination
and Risk committees.
Maxine Brenner joined the
Board in November 2013.
She is Chairman of the Risk
Committee and a member
of the Audit and Nomination
committees.
His executive career was in the
upstream oil and gas and LNG
industries, initially with Royal
Dutch Shell and then as Chief
Executive Officer of Woodside
Petroleum Limited.
He is Chairman of the National
Centre for Asbestos Related
Diseases and of the Fortitude
Foundation, a Director of
Human Nature Adventure
Therapy Ltd (since February
2018), a former Chairman of
Transform Exploration Pty Ltd
(February 2012–December
2017), Alinta Limited (January–
September 2007) and Coogee
Resources Ltd (2008–2009)
and a former Board Member of
the Reserve Bank of Australia
(September 2007–September
2017), Director of CSL Limited
(April 2004–October 2016),
Oil Search Limited (1998–2003),
Securency Ltd (2008–2012),
Murdoch Film Studios Pty Ltd
and the University of Western
Australia Business School.
John holds a Masters in
Engineering Science from
Oxford University and
is a Fellow of the Institution
of Mechanical Engineers.
Maxine is a Non-executive
Director of Orica Ltd (since April
2013) and Qantas Airways Ltd
(since August 2013). She is also
an Independent Director and
Chairman of the Audit and Risk
Committee for Growthpoint
Properties Australia and a
member of the University
of NSW Council.
Maxine was formerly a Managing
Director of Investment Banking
at Investec Bank (Australia) Ltd.
Prior to Investec, Maxine was a
Lecturer in Law at the University
of NSW and a lawyer at Freehills,
specialising in corporate law.
Her former directorships
include Treasury Corporation
of NSW, Bulmer Australia Ltd,
Neverfail Springwater Ltd
(1999–2003) and Federal
Airports Corporation, where she
was Deputy Chair. In addition,
Maxine has served as a Council
Member of the State Library of
NSW and as a member of the
Takeovers Panel.
Maxine holds a Bachelor of Arts
and a Bachelor of Laws.
Frank Calabria was appointed
Managing Director and Chief
Executive Officer in October
2016. Frank is a member of the
Health, Safety and Environment
Committee and a Director of
the Origin Foundation.
Frank joined Origin as Chief
Financial Officer in November
2001 and was appointed
Chief Executive Officer, Energy
Markets in March 2009. In that
latter role, Frank was responsible
for the integrated business within
Australia including retailing and
trading of natural gas, electricity
and LPG, power generation and
solar and energy services.
Frank is a Director of the
Australian Energy Council
and the Australian Petroleum
Production & Exploration
Association. He is a former
Chairman of Australian Energy
Council and former Director
of the Australian Energy
Market Operator.
Frank has a Bachelor of
Economics from Macquarie
University and a Master of
Business Administration
(Executive) from the Australian
Graduate School of Management.
Frank is also a Fellow of the
Chartered Accountants Australia
and New Zealand and a Fellow
of the Financial Services
Institute of Australasia.
Annual Report 2018 Board of Directors
91
Teresa Engelhard
Independent
Non-executive Director
Bruce Morgan
Independent
Non-executive Director
Scott Perkins
Independent
Non-executive Director
Steven Sargent
Independent
Non-executive Director
Teresa Engelhard joined the
Board in May 2017. She is
a member of the Audit and
Remuneration and People
committees.
Teresa has more than 20 years’
experience in the information,
communication, technology
and energy sectors as a senior
executive and venture capitalist.
Teresa is a Non-executive
Director of Wisetech Global
(since March 2018), Planet
Innovation Ltd (since April
2016), StartupAUS (since
March 2016) and Redkite
(since February 2017). Teresa
started her career at McKinsey
& Company in California,
where she served energy and
retail clients. More recently,
she focused energy sector
innovation as a Managing
Partner at Jolimont Capital.
Her former directorships
include Daintree Networks and
Red Bubble Ltd (July 2011–
October 2017).
Teresa holds a Bachelor of
Science (Hons) degree from the
California Institute of Technology
(Caltech) and an MBA from
Stanford University. She is
a graduate of the Australian
Institute of Company Directors.
Bruce Morgan joined the
Board in November 2012.
He is Chairman of the Audit
Committee and a member
of the Health, Safety and
Environment, Nomination
and Risk committees.
He is Chairman of Sydney Water
Corporation (since October
2013), a Director of Caltex
Australia Ltd (since June 2013)
and a Director of Redkite, the
University of NSW Foundation
and the European Australian
Business Council. Bruce has
a Bachelor of Commerce
(Accounting and Finance)
from the University of NSW.
Bruce served as
Chairman of the Board of
PricewaterhouseCoopers (PwC)
Australia between 2005 and
2012. In 2009, he was elected
as a member of the PwC
International Board, serving
a four-year term. He was
previously Managing Partner
of PwC’s Sydney and Brisbane
offices. An audit partner of
the firm for over 25 years, he
was focused on the financial
services and energy and mining
sectors, leading some of the
firm’s most significant clients
in Australia and internationally.
He is a Fellow of the Chartered
Accountants Australia and New
Zealand and of the Australian
Institute of Company Directors.
Scott Perkins joined the Board
in September 2015. He is
Chairman of the Remuneration
and People Committee and a
member of the Audit, Risk and
Nomination committees.
Steven Sargent joined the Board
in May 2015. He is Chairman of
the Origin Foundation and a
member of the Health, Safety and
Environment and Remuneration
and People committees.
Scott is a Non-executive
Director of Woolworths Limited
(since September 2014) and
Brambles Limited (since May
2015). He is Chairman of
Sweet Louise (since 2005),
a Director of the Museum of
Contemporary Art in Sydney
(since 2011) and the New
Zealand Initiative (since 2012).
Scott was previously a Non-
executive Director of Meridian
Energy (1999–2002).
Scott has extensive Australian
and international experience as
a leading corporate adviser. He
was formerly Head of Corporate
Finance for Deutsche Bank
Australia and New Zealand,
and a member of the Executive
Committee with overall
responsibility for the Bank’s
activities in this region. Prior
to that he was Chief Executive
Officer of Deutsche Bank New
Zealand and Deputy CEO of
Bankers Trust New Zealand.
He has a longstanding
commitment to breast cancer
causes, the visual arts and
public policy development.
Scott holds a Bachelor of
Commerce and a Bachelor of
Laws (Hons) from Auckland
University.
Steven is Chairman of OFX
Group Ltd (since November
2016). He is Deputy Chairman
of Nanosonics Ltd (since July
2016) and Non-executive
Director of the Great Barrier Reef
Foundation (since March 2015).
Over recent years Steven has
been a Non-executive Director
of Veda Group Ltd (2015–2016)
and Bond University Ltd
(2010–2016). Steven was also
a member of the Australian
Treasurer’s Financial Sector
Advisory Council, President
of the American Chamber
of Commerce and a Director
on the Board of the Business
Council of Australia and he was
a member of the Australian B20
Leadership Group.
Steven’s executive career
included 22 years at General
Electric, where he led businesses
across the USA, Europe and Asia
Pacific. Steven was President
and CEO of GE Mining, GE’s
global mining technology and
business services. Prior to this
he was President and CEO of
GE Australia, NZ & PNG, where
he had local responsibility
for GE’s Energy, Oil and Gas,
Aviation, Healthcare and
Financial Services businesses.
Steven holds a Bachelor of
Business from Charles Sturt
University and is a Fellow with the
Australian Institute of Company
Directors and the Australian
Academy of a Technological
Sciences and Engineering.
92
Executive
Leadership Team
Jon Briskin
Executive
General Manager,
Retail
Andrew Clarke
Group General
Counsel and
Company Secretary
Greg Jarvis
Executive
General Manager,
Energy Supply and
Operations
Tony Lucas
Executive
General Manager,
Future Energy and
Business Development
Carl McCamish
Executive
General Manager,
Technology, Risk, HSE,
and Transformation
Andrew Clarke joined
Origin in May 2009 and
is responsible for the
company secretarial and
legal functions. He was a
partner of a national law
firm for 15 years and was
Managing Director of a
global investment bank
for more than two years
prior to joining Origin.
Andrew has a Bachelor
of Laws (Hons) and a
Bachelor of Economics
from the University of
Sydney, and is a member
of the Australian Institute
of Company Directors.
Jon Briskin joined
Origin in 2010 and was
appointed Executive
General Manager, Retail
in December 2016.
Jon leads the teams
responsible for energy
sales, marketing, product
development and service
experience for Origin’s
residential and SME
customers.
Jon has held various
roles at Origin, leading
customer operations,
service transformation
and customer experience.
Prior to Origin,
Jon worked as a
management consultant
across financial services,
energy, technology and
government sectors.
Jon holds a Bachelor of
Commerce (Accounting
and Finance) from
Monash University.
Greg Jarvis joined Origin
in 2002 as Electricity
Trading Manager and
was appointed General
Manager, Wholesale,
Trading and Business
Sales in February 2011.
Tony Lucas joined Origin
as Risk Analysis Manager
in 2002 and was
appointed as General
Manager, Energy
Risk Management in
February 2011.
Greg is responsible
for Wholesale, Trading,
Business Energy, Solar,
Generation and LPG.
Holding 20 years’
experience in the
financial markets, with
15 years’ experience in
energy markets, Greg
began his career in the
banking industry in
Australia before moving
to the energy industry
leading wholesale energy
trading functions. He
has a Masters in Applied
Finance and a Bachelor
of Business.
Tony leads the team
responsible for Strategy
and Risk for Energy
Markets. He will also
ensure that Origin is
uniquely positioned
to lead the transition
into a low-carbon,
technology-enabled
world where customers
are empowered with
greater choice by
investing in, incubating
and deploying the best
future energy solutions.
Originally from New
Zealand, Tony began his
career in the banking
industry before moving
to London where he
worked for Lehman
Brothers. He moved to
Australia in 1997 and
worked with Bankers
Trust and Integral
Energy. Tony has an
NZ Diploma in Business
Studies and Master of
Applied Finance.
Carl McCamish joined
Origin in March 2008
and is responsible for
Information Technology,
Company transformation
and risk. Carl was
previously Executive
General Manager
Corporate Development
and subsequently
Executive General
Manager Corporate
Affairs, and more
recently Executive
General Manager,
People & Culture.
Before joining Origin,
Carl was head of strategic
development at the
private equity firm, Terra
Firma. He was previously
Senior Energy Advisor
in the United Kingdom
Prime Minister’s Strategy
Unit. Before that he
worked at McKinsey &
Company management
consultants.
Carl has a Bachelor of
Arts and Laws from the
University of Melbourne
and a Masters in Industrial
Relations and Labour
Economics from Oxford
University where he was
a Rhodes Scholar.
Annual Report 2018
Executive Leadership Team
93
Sharon Ridgway
Executive
General Manager,
People and Culture
Mark Schubert
Executive
General Manager,
Integrated Gas
Samantha Stevens
Executive
General Manager,
Corporate Affairs
Lawrie Tremaine
Chief Financial Officer
Samantha Stevens
joined Origin in March
2018 as Executive
General Manager,
Corporate Affairs.
Samantha is responsible
for Origin’s external affairs,
government and public
policy and employee
communication functions.
Samantha has more than
20 years’ experience
in corporate affairs,
mainly in the resources,
industrials and financial
services sectors.
Sharon Ridgway joined
Origin in 2009 and is
responsible for People
and Culture and The
Origin Foundation.
Sharon was appointed
in 2012 as the Head of
P&C for the Integrated
Gas business unit, before
being appointed as
the General Manager
P&C for Energy
Markets in 2015.
Sharon’s team provide
strategic support to the
business in key areas
such as engagement,
diversity, talent
management and
culture change.
Originally from the UK,
Sharon spent most of
her early career with the
Dixons Group, a large
European electrical
retailer. There she held
a number of operational
roles before being
appointed as the Head
of HR and subsequently
the Head of European
Recruitment. Sharon
holds a Bachelor of
Business Administration
and a Postgraduate
Diploma in HR
Management.
Mark Schubert joined
Origin in April 2015 and
was appointed Executive
General Manager, IG,
in April, 2017. He is
responsible for Origin’s
Integrated Gas business,
which manages the
Company’s portfolio
of natural gas and LNG
interests. Integrated Gas
includes Origin’s interests
in Australia Pacific LNG, as
operator of the upstream
and pipeline components
of the joint venture and
as gas marketing agent.
Mark also held a number
of senior positions during
his 18-year career with
Shell. Most recently Mark
served as General Manager
Production where he had
direct accountability for
developing Prelude FLNG
– the world’s first floating
LNG facility. Mark’s other
roles in Shell included
General Manager Geelong
Refinery and General
Manager Oceania Supply
& Marine. Mark holds a
Masters of Finance and
Financial Law from the
University of London and
a Bachelor of Engineering
(Chemical) from the
University of Sydney.
Lawrie Tremaine joined
Origin in June 2017 and
holds the position of
Chief Financial Officer
Lawrie leads the
teams responsible for
all finance activities,
corporate strategy,
corporate development,
procurement and
investor relations.
Lawrie has over
30 years’ experience in
financial and commercial
leadership, predominantly
in the resource, oil and
gas and minerals
processing industries.
Prior to joining Origin
Lawrie held a number of
senior positions during
his 10 years at Woodside
Petroleum, including
Chief Financial Officer
for over 6 years. Prior to
joining Woodside Lawrie
worked at Alcoa for
17 years, culminating
in 5 years in Tokyo
and Beijing as Vice
President Finance,
Alcoa Asia Pacific.
Lawrie has a Bachelor of
Business from Chisholm
Institute (now Monash
University) and is a
Fellow of CPA Australia.
94
Corporate
Governance
Statement
For the year ended 30 June 2018
Origin is committed to the creation
of shareholder value and meeting the
expectations of stakeholders to practice
sound corporate governance.
independence status, outside interests
and the recommendation of the rest of
the Board on the resolution.
Origin aspires to the highest standards of
integrity, personal safety and environmental
performance. To achieve this, every employee
and contractor is required to act in accordance
with Origin’s governance and business
conduct standards across its operations
in Australia and internationally.
Compliance with the ASX
Corporate Governance Principles and
Recommendations (ASX Principles)
This statement has been approved by the
Board and summarises the Company’s
governance practices which were in
place throughout the financial year ended
30 June 2018. During the financial year
and to the date of this Report, Origin has
complied with all the ASX Principles.
Principle 1: Lay
solid foundations
for management
and oversight
The Board’s roles and responsibilities are
formalised in a Board Charter, which is
available on the Company’s website. The
Charter sets out those functions that are
delegated to management and those that
are reserved for the Board. The Company
Secretary is accountable directly to the
Board, through the Chairman, on all matters
to do with the proper functioning of
the Board.
Before a Director is appointed, Origin
undertakes appropriate evaluations.
These include independent checks of
a candidate’s character, experience,
education, criminal record, bankruptcy
history, and any other factors that
would affect the Company’s or the
individual’s reputation.
Where a candidate is standing for
election or re-election as Director, the
notice of meeting will set out information
on the candidate including biographical
details, qualifications and experience,
At the time of joining Origin, Directors and
senior executives are provided with letters
of appointment, together with key Company
documents and information, setting out their
term of office, duties, rights and responsibilities,
and entitlements on termination.
The performance of all key executives,
including the Managing Director and
Chief Executive Officer, is reviewed
annually against:
• A set of personal financial and
non-financial goals
• Company and Business-Unit
specific goals
• Adherence to the Company’s Purpose
and Values.
The Remuneration and People Committee
and the Board consider the performance of
the Managing Director & Chief Executive
Officer and all members of the Executive
Leadership Team (ELT) when deciding
whether to award performance-related
remuneration through short-term and
long-term incentives for the year completed
and when assessing fixed remuneration
for future periods. Further information on
the outcomes of the FY2018 assessment
of executive remuneration is set out in the
Remuneration Report.
Each year, the Directors review the
performance of the whole Board, Board
committees and individual Directors.
This year, a full review was undertaken
with assistance from an independent
external consultant, covering individual
Director performance, the Board’s and
Committees’ activities and work programs,
time commitments, meeting efficiency and
Board contribution to Company strategy,
monitoring, compliance and governance.
The results of the review were discussed
by the whole Board, and initiatives to
improve or enhance Board performance
and effectiveness were considered
and recommended. Individual Director
feedback was discussed directly between
that Director and the Chairman.
Diversity
Origin’s Diversity and Inclusion policy
applies to all aspects of employment
including recruitment, selection,
promotion, training, remuneration benefits
and performance management. There
are also procedures in place to prevent
and eliminate unlawful discrimination
and harassment.
Origin promotes a culture where managers
and employees proactively apply the
diversity policies and programs through
effective leadership and communication.
The Company has an ‘All Roles Flex’
policy. This challenges the organisation,
both employees and managers, to find
flexibility in any role. The aim is to improve
productivity by further removing barriers
to workplace diversity. This program also
targets greater flexibility for employees
working in roles that are traditionally less
flexible due to shift rosters or remote
locations, such as an operational role
at a power station.
In February 2018, the Workplace Gender
Equality Agency (WGEA) announced
Origin as an Employer of Choice for Gender
Equality again for 2017–2018. During
FY2018, enhancements were made to the
parental leave program. Any employee can
take up to 13 weeks paid parental leave
as the primary care giver in the child’s
first year.
The Board oversees Origin’s strategies
on gender diversity, including monitoring
achievement against gender targets set by
the Board.
Origin’s gender diversity targets are:
1. Continue to deliver equal average pay
for men and women at each job grade
2. Increase the number of women in
senior roles by:
a) Improving our rate of appointment of
women to senior roles by 15 per cent
b) Reducing the gap between male and
female turnover to zero.
Annual Report 2018
Corporate Governance Statement
95
Definition of seniority
2a) Improve our rate of appointment
of women to senior roles to 45 per cent
For the purpose of gender diversity targets,
‘senior roles’ includes all people in Hay Pay
Scale job grades that pay approximately
$150,000 per annum in fixed remuneration.1
We define seniority by reference to
standard Hay Pay Scale job grades, rather
than reporting relationship to the CEO, for
two reasons:
• To make genuine comparisons of
seniority. A large number of senior
people in corporate support areas such
as legal, company secretary, human
resources, strategy and communications
are only two or three levels below the
CEO, while in the operating businesses
there are many roles with significant line
management responsibility that are more
than three levels below.
• To make analysis comparable over time.
Any restructure that changes ELT roles
also changes the reporting relationships
for hundreds of people at lower levels,
making it less valid to accurately
compare progress on gender pay
equality at those levels before and after
the restructure. While Origin does not
use reporting relationship to the CEO to
define Origin’s gender diversity targets,
the gender profile of these cohorts is of
interest to some external stakeholders
and is presented in the cohorts by
gender table below.
Performance against
FY2018 targets
• The percentage of women recruited into
senior roles was 31.5 per cent, which
was well below the target. Performance
against this target was very strong in the
second half of the year with a significant
increase in senior female appointments,
but was overshadowed by poorer
outcomes in the first half.
•
It should be noted that whist the
appointment rate fell (to 31.5 per cent) it
nevertheless was at a higher rate than the
initial incumbency of women in senior
roles (28.9 per cent at the end of FY2017).
2b) Reduce the gap between male and
female turnover to zero
The gap between male and female voluntary
turnover from senior roles reduced to 0.1
percentage points at the end of FY2018,
but the total turnover gap increased to
11 percentage points. Although the total
turnover gap increased, its impact was
favourable to females (male turnover
exceeded female turnover), a consequence
of restructuring in the male-dominated
Integrated Gas business.
As a result of our strong appointment rate
in the first half of the year and our increased
retention of females, our female representation
rate at the end of FY2018 was 32.3 per cent
(up from 28.9 per cent at the end of FY2017).
FY2019 targets
Origin’s diversity targets for FY2019 will be to:
1. Continue to deliver equal average pay
for men and women at each job grade
1. Continue to deliver equal average pay
for men and women at each job grade;
The average difference between male and
female pay across all job grades measured
following each annual remuneration review
has remained below one percentage point.
While the average female pay is higher at
some grades than average male pay; it is
reversed at other grades.
Female representation within Origin (%)
Female representation
Board(a)
CEO-1(b)
CEO-2(c)
Senior roles
Origin Group
2. Increase the number of women in
senior roles by:
a) Improving our rate of appointment of
women to senior roles by 15 per cent
compared to FY2018 (which is an
appointment rate of 36 per cent) and:
b) Reducing the gap between male and
female turnover to zero.
The Board has set itself a target of females being
at least 40 per cent of the Board by 2020.
2018
25.0
22.2
33.8
32.3
37.5
2017
25.0
11.1
26.2
28.9
35.1
2016
25.0
16.7
25.0
27.4
34.9
Principle 2: Structure
the Board to add value
The Board is structured to facilitate the
effective discharge of its duties and to
add value through its deliberations.
In FY2018, the Board had 10 scheduled
meetings, including a two-day strategic
planning meeting. The Board and
committees also had seven separate
scheduled workshops to consider matters of
particular relevance. Outside of scheduled
meetings, the full Board met on three other
occasions to consider urgent matters. In
addition, the Board and individual directors
conducted visits of Company operations
and met with operational management
during the year on various matters. The
Board also undertook visits to the US
and China during the year to meet with
Origin’s current and potential partners.
From time to time, the Board delegates its
authority to non-standing committees of
Directors to consider transactional or other
matters. In the 12 months to 30 June 2018,
four such additional Board committee
meetings were held.
At Board meetings, Directors receive
reports from executive management on
financial and operational performance, risk,
strategy, people, HSE, and major projects
or initiatives in which Origin is involved. In
addition, the Directors receive reports from
Board committees and, as appropriate,
presentations on opportunities and risks
for the Company.
Non-executive Directors also meet without
the presence of the Managing Director and
Chief Executive Officer or other management
to address such matters as succession
planning, key strategic issues, and Board
operation and effectiveness. All Directors
have access to Company employees,
advisors and records. In carrying out their
duties and responsibilities, Directors have
access to advice and counsel from the
Chairman, the Company Secretary and the
Group General Counsel, and are able to
seek independent professional advice at
the Company’s expense, after consultation
with the Chairman.
(a) Board includes Executive and Non-executive Directors.
(b) “CEO-1” is a classification within the WGEA guidelines, which equates to the ELT excluding the CEO
(c) “CEO-2” is a classification within the WGEA guidelines which equates to CEO-1 and their direct reports
who are themselves responsible for managing people
1
The dollar number is approximate because the
boundary is defined by Korn Ferry Hay Group
position grading methodology. The corresponding
market rate varies with time.
96
New Directors undergo an induction program which includes sessions with members of management, the Chairman of the Board,
and Chairs of each relevant Board committee, and visits to key operations to familiarise them with Origin’s business and administration.
Directors also receive continuing education through ongoing briefings and workshops on industry, regulatory or other relevant topics
and attendance at industry or governance conferences.
The Board’s size and composition is determined by the Directors, within limits set by Origin’s constitution, which requires a Board of
between five and 12 Directors. As at 30 June 2018, the Board comprised eight Directors, including seven Non-executive Directors, all of
whom are considered independent by the Board, and the Managing Director & Chief Executive Officer. Of the eight Directors, two are
women. Directors’ profiles, duration of office and details of their skills, experience and special expertise are set out in the Directors’ Report.
The Board seeks to have an appropriate mix of skills, experience, expertise and diversity to enable it to discharge its responsibilities and
add value to the Company. The Board values diversity in all respects, including gender and differences in background and life experience,
communication styles, interpersonal skills, education, functional expertise and problem solving skills.
Together, the Directors contribute the following key skills and experience:
Board skills and experience
Governance
Industry
Diversity
International
Strategy
Financial and risk management
Sustainability
Regulatory and public policy
People
Customer
Disruption
Skills and experience
Low
Moderate
Extensive
Governance
International
Sustainability
A commitment to and experience in setting
best practice corporate governance policies,
practices and standards. Ability to assess the
effectiveness of senior management.
Exposure to international regions either through
experience working in an organisation with
global operations or through management
of international stakeholder relationships.
Understanding of different cultural, political,
regulatory and business requirements.
Experience in programs implementing health,
safety and environment strategies, including
for mental health and physical wellbeing.
Ability to identify economically, socially and
environmentally sustainable developments and
to set and monitor sustainability aspirations.
Industry
Strategy
Regulatory and public policy
Experience in the energy or oil and gas
industries, or upstream or integrated exploration
and production company including in-depth
knowledge of the Company’s strategy, markets,
competitors, operational issues, technology
and regulatory concerns. This includes advisory
roles for these industries.
Senior executive and directorship experience,
dealing with complex business models and
projects. Experience in developing, setting
and executing strategic direction and
driving growth.
Experience in the identification and resolution
of legal and regulatory issues. Experience in
public and regulatory policy, including how
it affects corporations.
Diversity
Financial and risk management
People
Diversity in gender, background, geographic
origin, experience (industry and public, private
and non-profit sectors).
Senior executive experience in financial
accounting and reporting, corporate finance,
risk and internal controls. Experience in
anticipating and evaluating risks that could
impact the business, recognising and managing
these risks through sound risk governance
policies and frameworks.
Experience in building workforce capability,
setting a remuneration framework that attracts
and retains a high calibre of executives, and the
promotion of diversity and inclusion.
Customer
Disruption
Experience in industries which have
high degrees of customer centricity.
Background in an industry that has
faced significant disruptive change.
Annual Report 2018 Corporate Governance Statement
97
The Company’s policy on the independence of Directors requires that the Board is comprised of a majority of independent Directors.
In defining the characteristics of an independent Director, the Board uses the ASX Principles, together with its own considerations of the
Company’s operations and businesses, and appropriate materiality thresholds. Further details of the matters considered by the Board
in assessing independence are contained in the Company’s Independence of Directors policy which is part of the Board Charter and
is available on the Company’s website.
The Board reviews each Director’s independence annually. At its review for the FY2018 reporting period, the Board formed the view that
all Non-executive Directors were independent.
The Board selects and appoints the Chairman from the independent Directors. The Chairman, Mr Cairns, is independent, and his role and
responsibilities are separate from those of the Managing Director & Chief Executive Officer.
Five committees assist the Board in executing its duties relating to audit; remuneration and people; health, safety and environment (HSE);
nomination; and risk. Each committee has its own Charter which sets out its role, responsibilities, composition, structure, membership
requirements and operation. These are available on the Company’s website. Each committee’s Chairman reports to the Board on the
committee’s deliberations at the following Board meeting, where the committee meeting minutes are also tabled. Additional and specific
reporting requirements to the Board by each committee are addressed in the respective committee charters.
Additional information about the Audit Committee, Risk Committee, HSE Committee, and Remuneration and People Committee is
provided in response to Principles 4, 7 and 8 respectively.
A list of the members of each Board committee as at 30 June 2018 is set out below and their attendance at committee meetings during
FY2018 is set out in the Directors’ Report.
Board committee membership as at 30 June 2018
Independent Non-executive Directors
Audit
Rem and People HSE
Nomination
Risk
Tenure
John Akehurst
Chairman
Member
Member
9 years 4 months
Maxine Brenner
Member
Member
Chairman
4 years 9 months
Gordon Cairns
Member
Member
Member
Chairman
Member
11 years 2 months
Teresa Engelhard
Member
Member
1 year 3 months
Bruce Morgan
Chairman
Member
Member
Member
5 years 9 months
Scott Perkins
Member
Chairman
Member
Member
2 years 11 months
Steve Sargent2
Member
Member
3 years 3 months
Managing Director and Chief Executive Officer
Frank Calabria
Member
1 year 10 months
2 Mr Sargent also chairs the Origin Foundation.
The Nomination Committee is comprised of the Chairman of the Board and the Chairman of each other Board Committee, and is chaired
by Mr Cairns. The Nomination Committee held one formal meeting during FY2018 and undertook various activities outside formal
ccommittee meetings to support and advise the Board, including:
• Assessing the range of skills and experience required on the Board and of Directors as part of the Company’s continued consideration
of Board renewal and succession planning
• Reviewing the performance of Directors and the Board
• Reviewing the processes to identify suitable Directors, including the use of professional intermediaries
•
Interviewing potential Board candidates
• Recommending Directors’ appointments and re-elections
• Considering the appropriate induction and continuing education provided for Directors.
When identifying potential candidates, the Nomination Committee considers the current and future needs of Origin and desired attributes
and skill sets for a new Director. Where a candidate is recommended by the Nomination Committee, the Board will assess that candidate
against criteria including background, experience, professional qualifications and the potential for the candidate’s skills to augment the
existing Board and his/her availability to commit to the Board’s activities. If these criteria are met and the Board appoints the candidate
as a Director, that Director will stand for election by shareholders at the following Annual General Meeting (AGM).
Each year the performance of the Directors retiring by rotation and seeking re-election under the constitution is reviewed by the Nomination
Committee (other than the relevant Director), the results of which form the basis of the Board’s recommendation to shareholders. The review
considers a Director’s expertise, skill and experience, along with his/her understanding of the Company’s business, preparation for meetings,
relationships with other Directors and management, awareness of ethical and governance issues, independence of thought and overall contribution.
98
The Nomination Committee and then
the Board reviewed the performance of
Messrs Akehurst, Perkins and Sargent, who
are standing for re-election at the AGM in
October 2018. Each of Messrs Akehurst,
Perkins and Sargent respectively were not
present for their own review. The Board
(with each relevant Director absent) found
that each of Messrs Akehurst, Perkins
and Sargent had been high-performing
Directors and concluded that each should
be proposed for re-election.
Principle 3: Act ethically
and responsibly
All Directors and employees are expected
to comply with the law and act with a
high level of integrity. Origin has a Code
of Conduct and a number of policies
governing conduct in pursuit of Company
objectives in dealing with shareholders,
employees, customers, communities,
business partners, suppliers, contractors
and other stakeholders. The Code of
Conduct, together with the Company’s
Purpose and Values, serves as a guide to
Origin’s decision making, behaviours and
actions for its employees.
Origin’s Purpose and Values and a summary
of the Code of Conduct are available on
Origin’s website.
Origin prohibits the offer, payment,
solicitation or acceptance of bribes
and facilitation payments in any form.
It also prohibits the provision of gifts and
gratuities, both directly and indirectly,
to public officials or relatives or associates
of public officials. The giving or receiving
of gifts or hospitality is prohibited in all
circumstances that do not align with
Origin’s Code of Conduct.
Origin encourages individuals to report
known or suspected instances of
inappropriate conduct, including breaches
of the Code of Conduct and other policies
and directives. There are policies and
procedures in place, including procedures
to escalate concerns, designed to protect
employees and contractors from any
reprisal, discrimination or being personally
disadvantaged as a result of their reporting
a concern.
Principle 4:
Safeguard integrity in
corporate reporting
The Board has an Audit Committee
which comprises four Non-executive
Directors, all of whom are independent.
The Chairman of the Board cannot chair
the Audit Committee. The Chairman of
the Audit Committee, Mr Bruce Morgan,
is an independent Director with significant
financial expertise. All members of the
committee are financially literate and the
committee possesses sufficient accounting
and financial expertise and knowledge of
the industry in which Origin operates.
Prior to approval of the Company’s financial
statements for each financial period, the
Managing Director & Chief Executive
Officer and the Chief Financial Officer
give the Board a declaration that, in their
opinion, the financial records have been
properly maintained, that the financial
statements complied with the accounting
standards and gave a true and fair view, and
that their opinion had been formed on the
basis of a sound system of risk management
and internal compliance and control which
was operating effectively.
The Audit Committee oversees the
structure and management systems that
are designed to protect the integrity of the
Company’s corporate reporting. The Audit
Committee reviews the Company’s half
and full year financial reports and makes
recommendations to the Board on adopting
the financial statements. The committee
provides additional assurance to the Board
with regard to the quality and reliability of
financial information. The committee has
the authority to seek information from any
employee or external party.
The internal and external auditors have direct
access to the Audit Committee Chairman
and, following each scheduled committee
meeting, meet separately with the committee
without management present.
The committee reviews the independence
of the external auditor, including the nature
and level of non-audit services provided,
and reports its findings to the Board every
six months.
The names of the members of the
Audit Committee are set out in the table
under Principle 2 and their attendance at
meetings of the committee is set out in
the Directors’ Report.
The external auditor attends the Company’s
AGM and is available to answer questions
from shareholders relevant to the audit.
Principle 5: Make timely
and balanced disclosure
Origin has adopted policies and procedures
designed to ensure compliance with its
continuous disclosure obligations and
make senior management and the Board
accountable for that compliance.
Origin provides timely, full and accurate
disclosure and keeps the market informed
with quarterly releases detailing exploration,
development and production, and half
year and full year reports to shareholders
including in digital format on the
Company’s website. Origin also participates
in industry conferences and hosts investor
briefings that often include material that is
publicly disclosed in advance.
All material matters are disclosed
immediately to the stock exchanges on
which Origin’s securities are listed (and
subsequently to the media, where relevant),
as required by the relevant listing rules. All
material investor presentations are released
to the stock exchanges and are posted
on the Company’s website. Other reports
or media statements that do not contain
price-sensitive information are included on
the Company’s website. Shareholders can
subscribe to an email notification service
and receive notice of any stock exchange
announcements released by the Company.
Both the Continuous Disclosure
policy and the Communications with
Shareholders policy are available on the
Company’s website.
Principle 6: Respect the
rights of shareholders
Origin respects the rights of its shareholders
and has adopted policies to facilitate the
effective exercise of those rights through
participation at general meetings and with
the provision of information about Origin
and its operations.
Origin provides a high standard of
communication to shareholders and other
stakeholders so that they have all available
information reasonably required to make
informed assessments of the Company’s
business value and prospects.
Shareholders can review the financial
and non-financial performance of Origin
via a half year report, shareholder review,
annual report, sustainability report, investor
presentations and annual general meeting
materials. These reports are also available
on the ASX and on Origin’s website.
Shareholders may also request hardcopies.
Annual Report 2018 Corporate Governance Statement
99
Origin has also joined more than 3153 other
companies as a public supporter of the
Financial Stability Board’s Taskforce on
Climate-related Financial Disclosures (TCFD).
The TCFD has developed a set of voluntary
recommendations for companies to disclose
information on how they oversee and manage
climate-related risks and opportunities.
Disclosures in this FY2018 Annual Report
are aligned to these recommendations.
Sustainability reporting is guided by the
Global Reporting Initiative and includes
disclosures of material environmental,
social and governance (ESG) aspects of
the Company’s business activities. This
year, Origin has reported the sustainability
aspects which are considered the most
important to our stakeholders. We have
identified where each of these aspects
aligns with the Sustainable Development
Goals of the United Nation’s 2030 Agenda
for Sustainable Development.
Origin also discloses other ESG information
via regulated National Greenhouse Emissions
Reporting, as well as voluntary disclosure
platforms such as the Carbon Disclosure
Project. Origin regularly engages with
and provides requested information to
research firms. Origin was again included
in the FSTE4Good Index and the Dow
Jones Sustainability Australia Index during
the period.
All communications from, and most
communications to, the Company’s share
registry are available electronically, including
company reports, and shareholders are
encouraged to take up the option of
e-communications.
Origin’s website contains a list of key dates
and all recent announcements, presentations,
past and current company reports and
notices of meetings. Shareholder meetings
and results announcements are webcast
and an archive of these meetings is
published on the Company’s website.
Origin welcomes and encourages
shareholders to attend and participate
in its AGM, either in person, by proxy or
attorney, or by other means adopted by the
Board. At each AGM, the Chairman allows a
reasonable opportunity for shareholders to
ask questions of the Board and the external
auditors. Shareholders who are unable to
attend the AGM can view a webcast of the
meeting (and certain past general meetings)
on the Company’s website.
Origin has a wide stakeholder engagement
program and a dedicated investor relations
function to facilitate effective two-way
communication with investors. The Company
undertakes regular surveys to garner feedback
from investors on how this function is
performing and can be improved.
The Communications with Shareholders
policy is available on Origin’s website.
In addition to shareholders, Origin’s
projects and operations necessitate
interaction with a range of stakeholders
including local communities, business
partners, government, industry,
media, suppliers and non-government
organisations. Origin has a program to
support these stakeholder interactions
and facilitate constructive relationships.
These include:
• Dedicated community advisors to help
facilitate and implement the Company’s
engagement with local communities and
regular dialogue with the communities in
which Origin operates
• A government relations team which
regularly interacts with policy makers
within the jurisdictions of Origin’s
operations, particularly to help develop
sound and stable policy to ensure
business certainty
• Dedicated external affairs team with
regular interaction with media and
NGOs to create a better understanding
of Origin’s business
• Contributing to the formulation of
public policy through submissions to
various enquiries.
Further information on the Company’s
stakeholder engagement program can be
found in the sustainability report under
Stakeholder engagement.
Customers are a central part of Origin’s
engagement, innovation and value creation.
Origin continues to adapt processes,
introduce new products and invest in
technology to provide customers with
greater choice and an improved customer
experience. The sustainability report
provides further information on Origin’s
interaction with its customers.
Principle 7: Recognise
and manage risk
Origin’s approach to risk management
aims to embed a risk-aware culture in all
decision making and to manage risk in a
proactive and effective manner. The Board
has an overarching policy governing the
Company’s approach to risk oversight and
management and internal control systems.
This policy and further information on
Origin’s approach to managing its material
risks is available on the Company’s website.
The Board has an established Risk
Committee to oversee Origin’s policies and
procedures in relation to risk management
and internal control systems. The Risk
Committee is comprised of the Chairman
of the Board and the Chairman of each
other Board committee, and is chaired
by independent Non-executive Director
Ms Maxine Brenner. The Risk Committee
Charter is available on the Company’s
website. The names of the members of
the Risk Committee are set out in the table
under Principle 2 and a record of their
attendance at meetings of the Committee
is set out in the Directors’ Report.
The Company’s risk policies are designed
to identify, assess, manage and monitor
strategic, operational, financial and project
risks and mitigate the impact in the event
that they materialise. The Board has also
approved policies for hedging interest rates,
foreign exchange rates and commodities.
Certain specific risks are covered by
insurance. During the period, the Risk
Committee endorsed a consolidated set
of financial, operational and strategic risk
appetite statements and risk limits, as
delegated by the Board.
Management is responsible for the design
and implementation of the risk management
and internal control systems to manage the
Company’s risks. Management reports to
the Risk Committee on how material risks
are being managed and the effectiveness of
controls in place to mitigate those risks. The
Risk Committee has an annual calendar that
includes regular detailed risk profile reviews.
The Risk Committee reviews the Company’s
risk management framework annually
to satisfy itself that it continues to be
sound. An independent review of the risk
management framework was completed
during the financial year and it found the
framework to be sound. Management
has reported to the Risk Committee
and the Board that, as at 30 June 2018,
the framework is sound based on this
review and the subsequent framework
improvements completed.
3 As at July 2018 per TCFD website.
100
Origin also has an internal audit function
which utilises both internal and external
resources to provide an independent
appraisal of the adequacy and effectiveness
of the Company’s risk management and
internal control systems. The internal audit
function has direct access to the Chairmen
of the Board and each Board committee
and management, and has the right to seek
information. A risk-based approach is used
to develop the annual internal audit plan,
aligning planned internal audit activities to
the Company’s material risks. The internal
audit plan is approved by the Audit, Risk
and HSE Committees annually, and
reviewed quarterly.
In addition to internal audit activities,
second line assurance activity is undertaken
across the business in the management of
risk. The findings of this activity are reported
through to the relevant executive and,
where appropriate, Board committees.
Origin’s approach to the management of
risks and controls reflects the ‘three lines
of defence’ model. The first line of defence
comprises operational business managers
that own and manage risks. The second
line of defence comprises the corporate
functions that oversee, monitor and
challenge risks. The third line of defence
comprises the Origin group internal audit
function that assures compliance with
policies and standards.
The Board’s HSE Committee supports and
advises the Board on HSE matters and
HSE-related risks arising out of the activities
and operations of Origin and its related
companies. The HSE Committee comprises
the Managing Director and Chief Executive
Officer and four independent Non-executive
Directors. The Chairman, Mr John Akehurst,
is an independent Director. The Board
considers that the direct impact the
deliberations of the HSE Committee can
have on the day-to-day operations of Origin
makes it appropriate for the Managing
Director & Chief Executive Officer to be
a member of that committee.
The names of the members of the HSE
Committee are set out under Principle 2
and a record of their attendance at
meetings of the committee is set out in
the Directors’ Report.
Beyond the financial results, Origin is
witnessing changes in community attitudes
and an increased focus on local and
global environmental challenges. Origin
recognises the need for disclosure and
transparency of decision making to help
investors assess both short-term and
long-term risks and prospects.
Origin assesses the environmental and
social risks associated with projects
and operations. Projects are developed
with precautionary engineering and
management measures in place to
mitigate or manage key environmental and
social risks, and operations are managed
using policies and procedures to control
remaining environmental and social risks.
Environmental and social risk management
is subject to periodic audits and assurance.
As one of Australia’s largest power
generators, Origin closely measures,
manages and reports on the greenhouse
gas emissions associated with its
operations. These emissions are governed
by laws and regulations. Management of
emissions extends to the development of
a low-carbon power generation portfolio
including natural gas, wind and solar.
Further information on Origin’s
management and performance in the
social, environmental and economic
aspects in operating its business is
contained in the sustainability report.
Origin measures its reputation, that is,
how Origin is perceived by Australians
(including shareholders) using RepTrak®.
Origin’s reputation performance and
reputation risk issues are periodically
reported to the Board.
In addition to stakeholder measurement
through RepTrak®, Origin also engages
external advisors to provide real-time
monitoring of mainstream and social
media to evaluate the external operating
environment and ensure emerging risks,
issues and shifting public and policy debates
are identified and addressed accordingly.
Quarterly quantitative and qualitative
mainstream media analysis is undertaken
to better understand external trends, and
sentiment and key public influencers.
These insights influence and inform
Origin’s external affairs and stakeholder
engagement strategies, as well as
customer-facing positioning and
community engagement programs.
Principle 8: Remunerate
fairly and responsibly
The Remuneration Report sets out details
of the Company’s policies and practices for
remunerating Directors, key management
personnel and employees.
The Board has a Remuneration and
People Committee which comprises four
Non-executive Directors, all of whom are
independent. The Chairman, Mr Scott
Perkins, is an independent Director. The
names of the members of the Remuneration
and People Committee are set out under
Principle 2 and a record of their attendance
at meetings of the Committee is set out in
the Directors’ Report.
Further information about the Remuneration
and People Committee’s activities is provided
in the Remuneration Report.
The remuneration of Non-executive
Directors is structured separately from
that of the Executive Directors and senior
executives. Information on remuneration
for Non-executive Directors is in the
Remuneration Report.
Origin has established a policy which
governs dealings in its securities. This
precludes any Origin personnel from
engaging in short-term dealings in the
Company’s securities and states that
margin loans should not be entered into if
they could cause a dealing that requires, or
allows for, Origin securities to be disposed
of at a time that would be a breach of the
policy, or is in breach of the general insider
trading provisions of the Corporations
Act. Origin personnel are prohibited from
entering into hedging transactions which
operate to limit the economic risk of any
of their unvested equity-based incentives.
The Dealing in Securities policy is available
on the Company’s website.
The Code of Conduct, Dealings in
Securities policy and other relevant policies
are supported by appropriate training
programs and regular updates.
Information referred to in this Corporate
Governance Statement as being on
Origin’s website may be found at
originenergy.com.au/governance.
Annual Report 2018 Financial Statements
101
Financial Statements
30 June 2018
Primary statements
Income statement
C
Capital, funding and
risk management
F Other information
F1
Contingent liabilities
Statement of comprehensive income
C1
Interest-bearing liabilities
F2 Commitments
Statement of financial position
C2 Derivatives and hedging
F3
Share-based payments
Statement of changes in equity
C3 Risk management
F4
Related party disclosures
Statement of cash flows
C4 Capital management
F5
Key management personnel
Notes to the financial statements
Overview
C5
Fair value of financial assets
and liabilities
C6 Share capital and reserves
A Results for the year
C7 Other comprehensive income
D Taxation
D1
Income tax expense
D2 Deferred tax
E Group structure
E1
Joint arrangements
E2 Business combinations
E3 Controlled entities
E4
Discontinued operations
and disposals
A1
Segments
A2
Income
A3 Expenses
A4 Earnings per share
A5 Dividends
B
Operating assets
and liabilities
B1
Trade and other receivables
B2
Exploration, evaluation and
development assets
B3 Property, plant and equipment
B4
Intangible assets
B5
Provisions
B6 Other financial assets and liabilities
F6 Notes to the statement of cash flows
F7 Auditors’ remuneration
F8 Master netting or similar agreements
F9 Deed of Cross Guarantee
F10 Parent entity disclosures
F11
New standards and interpretations
not yet adopted
F12 Subsequent events
Directors’ declaration
Independent
auditor’s report
102
Annual Report 2018
Income Statement
For the year ended 30 June
Continuing operations
Revenue
Other income
Expenses
Results of equity accounted investees
Interest income
Interest expense
Profit/(loss) before income tax
Income tax benefit
Profit/(loss) for the period from continuing operations
Discontinued operations
Loss from discontinued operations
Profit/(loss) for the period
Profit/(loss) for the period attributable to:
Members of the parent entity
Non-controlling interests
Profit/(loss) for the period
Earnings per share
Basic earnings per share
Diluted earnings per share
Profit/(loss) for the period from continuing operations attributable to:
Members of the parent entity
Non-controlling interests
Profit/(loss) for the period
Earnings per share from continuing operations
Basic earnings per share
Diluted earnings per share
Note
2018
$million
2017
$million
A2
A2
A3
E1
A2
A3
D1
E4
14,604
13,646
253
187
(14,589)
(13,667)
205
229
(500)
202
81
283
(62)
221
218
3
221
(1,912)
224
(553)
(2,075)
26
(2,049)
(174)
(2,223)
(2,226)
3
(2,223)
A4
A4
12.4 cents
(126.9) cents
12.3 cents
(126.9) cents
280
3
283
(2,052)
3
(2,049)
A4
A4
15.9 cents
(117.0) cents
15.9 cents
(117.0) cents
The income statement should be read in conjunction with the accompanying notes set out on pages 107 to 166.
Annual Report 2018 Financial Statements
103
Statement of Comprehensive Income
For the year ended 30 June
Profit/(loss) for the period
Other comprehensive income
Items that will not be reclassified to the income statement
Actuarial gain on defined benefit superannuation plan
Items that may be reclassified to the income statement
Note
2018
$million
2017
$million
221
(2,223)
–
1
Foreign currency translation differences for foreign operations
278
(200)
Available-for-sale financial assets
Valuation loss taken to equity
Cash flow hedges
Changes in fair value of cash flow hedges
Total items that may be reclassified to the income statement
Total other comprehensive income for the period, net of tax
Total comprehensive income for the period
Total comprehensive income attributable to:
Items that will not be reclassified to the income statement
Members of the parent entity
Non-controlling interests
Items that may be reclassified to the income statement
Members of the parent entity
Non-controlling interests
Total comprehensive income for the period
Total comprehensive income for the period attributable
to members of the parent entity arising from:
Continuing operations
Discontinued operations
C2
C7
(6)
(41)
(106)
166
166
387
–
–
–
383
4
387
387
(202)
(443)
(442)
(2,665)
1
–
1
(2,669)
3
(2,666)
(2,665)
462
(79)
(2,332)
(336)
The statement of comprehensive income should be read in conjunction with the accompanying notes set out on pages 107 to 166.
104
Annual Report 2018
Statement of Financial Position
For the year ended 30 June
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivatives
Other financial assets
Assets classified as held for sale
Other assets
Total current assets
Non-current assets
Trade and other receivables
Derivatives
Other financial assets
Investments accounted for using the equity method
Property, plant and equipment (PP&E)
Exploration, evaluation and development assets
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Payables to joint ventures
Interest-bearing liabilities
Derivatives
Other financial liabilities
Provision for income tax
Employee benefits
Provisions
Liabilities classified as held for sale
Total current liabilities
Non-current liabilities
Trade and other payables
Interest-bearing liabilities
Derivatives
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total parent entity interest
Non-controlling interests
Total equity
Note
2018
$million
2017
$million
B1
C2
B6
E4
B1
C2
B6
E1
B3
B2
B4
D2
C1
C2
B6
B5
E4
C1
C2
B5
C6
150
2,537
196
522
208
–
153
3,766
4
1,117
3,683
5,988
3,696
363
5,328
277
35
117
2,278
138
241
86
2,050
101
5,011
4
1,055
3,700
5,463
3,714
858
5,325
35
34
20,491
24,257
20,188
25,199
2,011
221
1,089
424
361
115
175
53
–
1,892
130
133
300
387
52
184
56
720
4,449
3,854
5
6,350
1,234
30
361
7,980
12,429
11,828
7,150
629
4,025
10
8,382
1,309
35
191
9,927
13,781
11,418
7,150
439
3,807
11,804
11,396
24
22
11,828
11,418
The statement of financial position should be read in conjunction with the accompanying notes set out on pages 107 to 166.
Annual Report 2018 Financial Statements
105
Statement of Changes in Equity
For the year ended 30 June
$million
Share
capital
Share-based
payments
reserve
Foreign
currency
translation
reserve
Hedge
reserve
Available-
for-sale
reserve
Retained
earnings
Non-
controlling
interests
Total
equity
Balance as at 1 July 2017
7,150
222
Other comprehensive
income (refer to note C7)
Profit
Total comprehensive
income for the period
Dividends paid
Share-based payments
Total transactions
with owners recorded
directly in equity
–
–
–
–
–
–
Balance as at 30 June 2018
7,150
Balance as at 1 July 2016
7,150
Other comprehensive
income (refer to note C7)
(Loss)/profit
Total comprehensive
income for the period
Dividends paid
Share-based payments
Total transactions
with owners recorded
directly in equity
–
–
–
–
–
–
Balance as at 30 June 2017
7,150
–
–
–
–
25
25
247
197
–
–
–
–
25
25
222
277
(106)
114
277
–
–
–
–
391
314
119
(16)
3,807
22
11,418
(106)
–
–
–
–
13
(6)
–
(6)
–
–
–
–
218
218
–
–
–
(22)
4,025
1
3
4
(2)
–
(2)
24
166
221
387
(2)
25
23
11,828
321
25
6,032
21
14,060
(200)
(202)
–
–
(41)
–
1
(2,226)
(200)
(202)
(41)
(2,225)
–
–
–
–
–
–
–
–
–
–
–
–
114
119
(16)
3,807
–
3
3
(2)
–
(2)
22
(442)
(2,223)
(2,665)
(2)
25
23
11,418
The statement of changes in equity should be read in conjunction with the accompanying notes set out on pages 107 to 166.
106
Annual Report 2018
Statement of Cash Flows
For the year ended 30 June
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers
Cash generated from operations
Income taxes paid, net of refunds received
Net cash from operating activities
Cash flows from investing activities
Acquisition of PP&E
Acquisition of exploration and development assets
Acquisition of other assets
Acquisition of other investments
Interest received from other parties
Net proceeds from sale of non-current assets
Net proceeds from sale of investment in Acumen Energy (refer note E4)
Net proceeds from sale of investment in Lattice Energy (refer note E4)
Australia Pacific LNG investing cash flows
– Investment in equity accounted investees
– Interest received from equity accounted investees
– Proceeds from buy-back of Australia Pacific LNG MRCPS (refer note B6)
– Investment in equity accounted investees (funding of APLNG debt service reserve account)
Net cash from investing activities
Cash flows from financing activities
Proceeds from borrowings(1)
Repayment of borrowings(1)
Interest paid
Early settlement of forward oil sale
Loan from equity accounted investees(2)
Dividends paid to non-controlling interests
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of exchange rate changes on cash
Cash and cash equivalents at the end of the period(3)
Note
2018
$million
2017
$million
16,171
15,263
(14,840)
(14,027)
F6
1,331
(38)
1,293
(314)
(11)
(87)
(10)
2
1
267
1,217
(74)
227
134
–
1,352
1,236
53
1,289
(354)
(65)
(82)
–
1
887
–
–
(389)
218
–
(127)
89
925
2,980
(2,907)
(3,936)
(474)
(265)
76
(2)
(540)
–
127
(2)
(2,647)
(1,371)
(2)
151
1
150
7
146
(2)
151
(1) Comparative amounts have been restated to reflect the net impact of amounts drawn down and repaid within a short period of time to better reflect the nature of the
underlying cash flows.
(2) $76 million (2017: $127 million) represents cash generated by Australia Pacific LNG as part of its normal business operations deposited to a project finance debt service
reserve account. Upon issuance of a bank guarantee to Australia Pacific LNG by Origin the cash was distributed to Origin by way of a loan.
(3) Cash and cash equivalents at the end of the prior period of $151 million includes $34 million of cash and cash equivalents which were classified as held for sale.
The statement of cash flows should be read in conjunction with the accompanying notes set out on pages 107 to 166.
Annual Report 2018 Financial Statements
107
Notes to the Financial Statements
• are presented in Australian dollars;
Key judgements and estimates
• are rounded to the nearest million
dollars, unless otherwise stated, in
accordance with Australian Securities
and Investments Commission (ASIC)
Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191;
• present reclassified comparative
information where required for
consistency with the current year’s
presentation;
In the process of applying the Group’s
accounting policies, a number of
judgements and estimates have been
made. Judgements and estimates which
are material to the financial statements are
found in the following notes:
•
Income (note A2)
• Trade and other receivables (note B1)
• present a change in accounting
• Exploration, evaluation and development
assets (note B2)
• Property, plant and equipment (note B3)
•
Intangible assets (note B4)
• Provisions (note B5)
• Fair value of financial assets and
liabilities (note C5)
•
Income tax expense (note D1)
Estimates of recoverable amounts are
based on an asset’s value in use or fair value
less costs of disposal, using a discounted
cash flow method. This requires estimates
and assumptions to be made about highly
uncertain external factors such as future
commodity prices, foreign exchange rates,
discount rates, the effects of inflation,
climate change policies, supply-and-
demand conditions, reserves, future
operating profiles and production costs.
policy adopted by its parent entity
for the financial year ending 30 June
2018. AASB 2014-9 Equity Method
in Separate Financial Statements
amended AASB127 Separate Financial
Statements to allow entities to use
the equity method of accounting
for investments in subsidiaries, joint
ventures and associates in their separate
financial statements for annual reporting
periods beginning on or after 1 January
2016. Refer to the parent entity
disclosures in note F10;
• adopt all new and amended Accounting
Standards and Interpretations issued
by the AASB that are relevant to the
operations of the Group and effective for
reporting periods beginning on or after
1 July 2017. AASB 2016-2 Amendments
to Australian Accounting Standards –
Amendments to AASB 107, applicable
from 1 January 2017, has been adopted
by the Group. The amendment requires
disclosure of changes arising from
cash flows such as drawdowns and
repayments of borrowings; and non-cash
changes such as acquisitions, disposals
and unrealised exchange differences.
This amendment has no impact on the
accounting policies, financial position or
performance of the Group; and
• do not early adopt any Accounting
Standards and Interpretations that
have been issued or amended but are
not yet effective. Refer to note F11 for
further details.
Overview
Origin Energy Limited (the Company) is
a for-profit company domiciled in Australia.
The address of the Company’s registered
office is Level 32, Tower 1, 100 Barangaroo
Avenue, Barangaroo NSW 2000. The
nature of the operations and principal
activities of the Company and its controlled
entities (the Group) are described in the
Segment information.
The consolidated general purpose financial
statements of the Group for the year ended
30 June 2018 were authorised for issue
in accordance with a resolution of the
directors on 16 August 2018.
The financial statements:
• have been prepared in accordance with
the requirements of the Corporations
Act 2001 (Cth), Australian Accounting
Standards and other authoritative
pronouncements of the Australian
Accounting Standards Board (AASB)
and International Financial Reporting
Standards as issued by the International
Accounting Standards Board;
• have been prepared on a historical cost
basis, except for derivative financial
instruments, environmental scheme
certificates, surrender obligations,
available-for-sale financial assets and
assets and liabilities classified as held
for sale that are carried at their fair
value; and trade and other receivables
that are initially recognised at fair
value, and subsequently measured
at amortised cost less accumulated
impairment losses;
• have been prepared on a going concern
basis. At 30 June 2018, the consolidated
statement of financial position shows
a net current liability position of $683
million. The deficit is primarily caused
by the classification of US144A US$800
million debt as a current liability, with
this due to mature in October 2018.
Notwithstanding the net current liability
position, the Group has reasonable
grounds to believe it will be able to pay
its debts as and when they become due
based on the continued strong cash
flows of the Group’s existing operations,
along with the strong financial profile
of the Group which includes significant
committed undrawn facilities;
108
Annual Report 2018
Financial Statements
109
A Results for the year
This section highlights the performance of the Group for the year, including results by operating segment, income and expenses,
earnings per share and dividends.
A1 Segments
The Group’s Managing Director monitors the operating results of the business using operating segments organised according to the
nature and/or geography of the activities undertaken. This section includes the results by operating segment (A1.1), segment assets
and liabilities (A1.2) and geographical information for revenue and non-current assets (A1.3).
A1.1 Segment result for the year ended 30 June
Energy Markets(1)
Integrated Gas(2)
Corporate(3)
Total continuing
operations
Discontinued
operations(4)
Consolidated
Ref.
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
$million
Revenue
Segment revenue
Eliminations
External revenue
EBITDA
Depreciation and amortisation
Share of ITDA of equity accounted investees
EBIT
Interest income(5)
Interest expense(5)
Income tax benefit/(expense)(6)
Non-controlling interests (NCI)
14,344
13,558
(a)
–
–
14,344
13,558
1,592
(359)
–
1,669
(325)
–
1,233
1,344
260
–
260
633
(22)
(1,192)
(581)
227
88
–
88
(2,701)
(19)
(134)
(2,854)
222
–
–
–
–
–
–
14,604
13,646
–
–
14,604
13,646
(179)
(236)
2,046
(1,268)
–
–
–
–
(179)
(236)
2
(500)
81
(3)
2
(553)
26
(3)
(381)
(1,192)
473
229
(500)
81
(3)
(344)
(134)
(1,746)
224
(553)
26
(3)
Statutory profit/(loss) attributable to members of the
parent entity
Reconciliation of statutory profit/(loss) to segment result
and underlying profit/(loss)
Fair value and foreign exchange movements
LNG-related items pre revenue recognition
Disposals, impairments and business restructuring(7)
Tax and NCI on items excluded from underlying profit
(b)
(c)
(d)
Total significant items
Segment result and underlying profit/(loss)
Underlying EBITDA
1,233
1,344
(354)
(2,632)
(599)
(764)
280
(2,052)
(459)
–
239
(220)
1,453
1,811
20
–
157
177
1,167
1,492
(89)
–
(526)
(615)
261
1,251
19
16
(2,669)
(2,634)
2
747
(3)
–
(63)
343
277
(876)
(115)
13
(68)
(183)
243
5
(769)
(66)
(551)
–
(350)
343
(558)
838
2,947
52
(52)
(2,695)
243
(2,452)
400
2,173
(1) Energy retailing, power generation and LPG operations predominantly in Australia.
(2) Unconventional Gas business including the Group’s investment in Australia Pacific LNG; the results of the Group’s activities as Australia Pacific LNG upstream operator
and management of the Group’s exposure to LNG pricing risk. The results of the Group’s upstream conventional business which are part of the Lattice Energy divestment,
have been classified as discontinued operations.
(3) Various business development and support activities that are not allocated to operating segments.
(4) Further details of discontinued operations are included in note E4.
(5) Interest income earned on MRCPS has been allocated to the Integrated Gas segment relating to the LNG business. Interest expense has been allocated to both the
Corporate and the discontinued operations segments.
(6) Income tax expense for entities in the Origin tax consolidated group is allocated to the Corporate segment with the exception of amounts related to discontinued operations.
(7) Included in the Integrated Gas segment in the prior period is Origin’s share of APLNG’s net impairment expense of $1,846 million, which is stated net of tax.
477
(198)
279
7
–
–
7
–
(8)
(61)
–
(62)
(35)
–
(228)
17
(246)
184
270
824
(363)
461
(79)
(133)
–
(212)
–
(12)
50
–
(174)
82
–
(519)
113
(324)
150
357
15,081
14,470
(198)
(363)
14,883
14,107
2,053
(1,347)
(381)
(1,192)
480
229
(508)
20
(3)
218
(586)
–
(578)
360
(477)
(134)
(1,958)
224
(565)
76
(3)
(2,226)
134
(52)
(3,214)
356
(804)
(2,776)
1,022
3,217
550
2,530
Annual Report 2018 110
Annual Report 2018
A1 Segments (continued)
Explanatory notes to segment results for the year ended 30 June
(a) Segment revenue eliminations
Sales between segments occur on an arm’s length basis. The Upstream conventional business (of which assets relating to the
Lattice Energy divestment have been classified as discontinued operations) sells gas and LPG to the Energy Markets segment.
$million
Gross
Tax and NCI
Gross
Tax and NCI
2018
2017
(b) Fair value and foreign exchange movements
(Decrease)/increase in fair value of financial instruments(1)
LNG foreign currency gain/(loss)
Tax benefit on translation of foreign denominated long-term tax balances
(c) LNG-related items pre revenue recognition
Net financing costs incurred in funding the Australia Pacific LNG project
LNG pre-production costs not able to be capitalised
(d) Disposals, impairments and business restructuring
Gain on sale of Acumen
Recycling of foreign currency translation reserve to income
statement in respect of OE Resources Ltd Partnership(2)
Gain on sale of Jingemia(2)
Loss on sale of Lattice(2)
Gain on sale of Rimu, Kauri and Manutahi (RKM)
Gain on sale of Mortlake Pipeline
Gain on sale of Surat Basin
Gain on sale of Cullerin Range Wind Farm
Loss on sale of OTP Geothermal Pte Ltd
Gain on sale of Javiera solar project(3)
Gain on sale of Darling Downs Solar Farm
Gain on sale of Darling Downs Pipeline
Gain on sale of Stockyard Hill Wind Farm
Capital loss recognition
Tax expense reflecting difference between carrying amount
and tax base of entities sold
(624)
38
–
(586)
–
–
–
239
(27)
7
(10)
–
–
–
–
–
1
–
–
–
–
–
187
(11)
–
176
–
–
–
–
–
(2)
(8)
–
–
–
–
–
–
–
–
–
–
–
207
(73)
–
134
(45)
(7)
(52)
–
–
–
–
1
88
2
12
(1)
2
3
234
60
–
–
Disposals
210
(10)
401
(1) ($35) million (pre-tax) (2017: $82 million (pre-tax)) relates to discontinued operations.
(2) Amounts relating to discontinued operations.
(3) Amount in current period relates to release of escrow balance held in respect of sale of Javiera in 2017.
(63)
22
3
(38)
14
2
16
–
–
–
–
–
(26)
(1)
(4)
–
–
(1)
(71)
(18)
40
(17)
(98)
Annual Report 2018 Financial Statements
111
A1 Segments (continued)
Explanatory notes to segment results for the year ended 30 June (continued)
$million
Gross
Tax and NCI
Gross
Tax and NCI
2018
2017
(d) Disposals, impairments and business restructuring (continued)
Integrated Gas impairments
Ironbark
Lattice Energy(1)
Share of Australia Pacific LNG reversal of impairment of non-current
assets held for sale(2)
Share of Australia Pacific LNG impairment of non-current assets(2)
Browse Basin
Assets held for sale
Corporate
Investment in Energia Austral SpA
Impairments
Transaction costs in respect of the Lattice Energy divestment
Restructuring costs
Share of Australia Pacific LNG restructuring costs(2)
Corporate transaction costs
De-recognition of tax assets relating to divestment of Lattice Energy(1)
Business restructuring
Total disposals, impairments and business restructuring
(1) Amounts relating to discontinued operations.
(514)
(198)
4
(2)
–
–
–
154
25
–
–
–
–
–
–
–
–
(1,846)
(825)
(753)
(114)
(710)
179
(3,538)
(44)
(18)
(8)
(8)
–
(78)
(578)
13
7
–
4
(9)
15
(40)
(17)
–
(20)
–
(77)
184
(3,214)
–
–
–
–
248
226
–
474
12
5
–
6
(21)
2
378
(2) As the Group equity accounts for its share of net profit after tax of Australia Pacific LNG the above amounts are presented post-tax.
112
Financial Statements
113
A1 Segments (continued)
A1.2 Segment assets and liabilities as at 30 June
$million
Assets
Segment assets
Investments accounted for using the equity method
(refer to note E1)
Cash, funding related derivatives and tax assets
Total assets
Liabilities
Segment liabilities
Financial liabilities, interest-bearing liabilities, funding related
derivatives and tax liabilities
Total liabilities
Net assets
Acquisitions of non-current assets
(includes capital expenditure)(1)
Energy Markets
Integrated Gas
Corporate
Total continuing
operations
Total assets and liabilities
held for sale
Consolidated
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
12,447
12,188
745
973
–
–
5,988
3,620
5,463
3,609
12,447
12,188
10,353
10,045
156
–
1,301
1,457
126
13,348
13,287
–
790
916
5,988
4,921
5,463
4,399
24,257
23,149
(3,205)
(2,852)
(695)
(565)
(653)
(467)
(4,553)
(3,884)
(3,205)
(2,852)
9,242
9,336
(695)
9,658
(565)
9,480
(7,876)
(9,177)
(7,876)
(9,177)
(8,529)
(9,644)
(12,429)
(13,061)
(7,072)
(8,728)
11,828
10,088
–
–
–
–
–
–
–
–
1,696
13,348
14,983
–
354
5,988
4,921
5,463
4,753
2,050
24,257
25,199
(720)
(4,553)
(4,604)
–
(7,876)
(9,177)
(720)
(12,429)
(13,781)
1,330
11,828
11,418
329
276
107
396
16
11
452
683
68
113
520
796
(1) The Integrated Gas segment includes $74 million of cash contributions to Australia Pacific LNG at 30 June 2018 (30 June 2017: cash contributions of $388 million).
Annual Report 2018
114
A1 Segments (continued)
A1.3 Geographical information
Detailed below is revenue based on the location of the customer and non-current assets (excluding derivatives, other financial assets and
deferred tax assets) based on the location of the assets.
Revenue
for the year ended 30 June
Australia
Other
Revenue from continuing operations
Australia
New Zealand
Revenue from discontinued operations
Total external revenue
Non-current assets
as at 30 June
Australia
Other
Total non-current assets(1)
(1) Excludes amounts that are classified as held for sale at 30 June 2017.
A2 Income
Income from continuing operations
Revenue(2)
Net gain on sale of assets
Other
Other income
Interest earned from other parties
Interest earned on Australia Pacific LNG MRCPS (refer to note E1)
Interest income(3)
2018
$million
2017
$million
14,476
128
13,515
131
14,604
13,646
198
81
279
318
143
461
14,883
14,107
15,363
15,359
51
39
15,414
15,398
2018
$million(1)
2017
$million(1)
14,604
13,646
237
16
253
2
227
229
167
20
187
2
222
224
(1) Excludes amounts classified as discontinued operations at 30 June 2017 and 30 June 2018. Refer to note E4.
(2) Revenue from the sale of oil and gas by the Integrated Gas segment is recognised when title to the commodity passes to the customer. Revenue from the sale of
electricity and gas by the Energy Markets segment is recognised on delivery of the product. Amount excludes revenue from discontinued operations of $279 million
(2017: $461 million). Note A1 provides segment revenue.
(3) Interest income is recognised as it accrues.
Key estimate: unbilled revenue
At the end of each period, the volume of energy supplied since a customer’s last bill is estimated in determining the unbilled revenue
included in income. This estimation requires judgement and is based on historical customer consumption and payment patterns.
Related to this are unbilled network expenses for unread gas and electricity meters, which are estimated based on historical customer
consumption patterns and accrued at the end of the reporting period. This is recorded within trade and other payables in the statement
of financial position.
Annual Report 2018 Financial Statements
115
A3 Expenses
Expenses from continuing operations
Raw materials and consumables used
Labour(2)
Depreciation and amortisation
Impairment of assets(3)
Decrease/(increase) in fair value of financial instruments
Net foreign exchange (gain)/loss
Other
Expenses(4)
Interest on interest-bearing liabilities
Impact of discounting on long-term provisions
Interest expense
Financing costs capitalised
2018
$million(1)
2017
$million(1)
11,674
11,099
648
381
514
589
(44)
827
618
344
939
(125)
75
717
14,589
13,667
496
4
500
1
550
3
553
2
(1) Excludes amounts classified as discontinued operations at 30 June 2017 and 30 June 2018. Refer to note E4.
(2) Includes contributions to defined contribution superannuation funds from continuing operations of $65 million (2017: $61 million).
(3) Reflects impairments of $514 million (tax benefit $154 million) relating to the Ironbark Cash Generating Unit (CGU). The Ironbark valuation is determined based on an
assessment of fair value less costs of disposal (level 3 fair value hierarchy). Key assumptions in Ironbark’s valuation are reserves, future production profiles, commodity
prices, operating costs and any future development costs necessary to produce the reserves. The pre-tax discount rate, determined as weighted average cost of capital,
that has been applied in determining the recoverable amount of $279 million is 12.7 per cent as at December 2017. The impairment charges resulted primarily from
a reduction in the reported reserves.
(4) Includes operating lease rental expense of $119 million (2017 restated: $101 million) from continuing operations.
116
A4 Earnings per share
Earnings per share based on statutory consolidated profit/(loss)
Basic earnings per share
Diluted earnings per share
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
Basic earnings per share from discontinued operations
Diluted earnings per share from discontinued operations
Earnings per share based on underlying consolidated profit(1)
Underlying basic earnings per share
Underlying diluted earnings per share
Underlying basic earnings per share from continuing operations
Underlying basic earnings per share from discontinued operations
2018
2017
12.4 cents
(126.9) cents
12.3 cents
(126.9) cents
15.9 cents
(117.0) cents
15.9 cents
(117.0) cents
(3.5) cents
(9.9) cents
(3.5) cents
(9.9) cents
58.2 cents
31.3 cents
57.9 cents
31.2 cents
47.7 cents
22.8 cents
10.5 cents
8.5 cents
(1) Refer to note A1 for a reconciliation of statutory profit/(loss) to underlying consolidated profit.
Calculation of earnings per share
Basic earnings per share
Basic earnings per share (EPS) is calculated as profit/(loss) for the period attributable to the parent entity (2018: $218 million profit;
2017: $2,226 million loss) divided by the average weighted number of shares on issue during the period.
Basic earnings per share from continuing operations
Basic EPS from continuing operations is calculated as profit/(loss) for the period from continuing operations attributable to the parent
entity (2018: $280 million profit; 2017: $2,052 million loss) divided by the average weighted number of shares on issue during the period
(2018: 1,757,442,268; 2017: 1,754,489,221).
Diluted underlying earnings per share
Diluted underlying EPS represents profit/(loss) for the period attributable to the parent entity divided by an average weighted number
of shares (2018: 1,765,715,232; 2017: 1,759,929,408) which has been adjusted to reflect the number of shares which would be issued if
all outstanding options, performance share rights and deferred shares rights were to be exercised (2018: 8,272,964; 2017: 5,440,187).
Due to the statutory loss attributable to the parent entity in the year ended 30 June 2017, the effect of these instruments has been
excluded from the 2017 calculation of diluted EPS and diluted EPS from continuing operations, as their inclusion would have the effect
of reducing the loss per share.
A5 Dividends
The Directors have determined not to pay a final dividend for the year ended 30 June 2018 (30 June 2017: nil).
Dividend franking account
Franking credits available to shareholders of Origin Energy Limited for subsequent financial
years are shown below.
Australian franking credits available at 30 per cent
New Zealand franking credits available at 28 per cent (in NZD)
116
304
–
304
2018
$million
2017
$million
Annual Report 2018 Financial Statements
117
B Operating assets and liabilities
This section provides information on the assets used to generate the Group’s trading performance and the liabilities incurred as a result.
B1 Trade and other receivables
The following balances are amounts which are due from the Group’s customers and other parties.
Current
Trade receivables net of allowance for impairment
Unbilled revenue net of allowance for impairment
Other receivables
Non-current
Trade receivables
2018
$million
2017
$million
888
1,288
361
2,537
4
4
728
1,193
357
2,278
4
4
Trade and other receivables are initially recorded at the amount billed to customers. Unbilled receivables represent estimated gas and
electricity services supplied to customers since their previous bill was issued. Trade and other receivables (including unbilled revenue)
reflect the amount anticipated to be collected. The collectability of these balances is assessed on an ongoing basis. When there is
evidence that an amount will not be collected, it is provided for, and then if recovery is not possible it is written off. If receivables are
subsequently recovered, the amounts are credited against other expenses in the income statement when collected.
The Group’s customers are required to pay in accordance with agreed payment terms. Depending on the customer segment, settlement
terms are generally 14 to 30 days from the date of the invoice. Credit approval processes are in place for large customers. All credit and
recovery risk associated with trade receivables has been provided for in the statement of financial position.
Key judgements and estimates
Recoverability of trade receivables: Judgement is required in determining the level of provisioning for customer debts.
Impairment allowances take into account the age of the debt, prevailing economic conditions and historic collection trends.
Unbilled revenue: Unbilled gas and electricity revenue is not collectable until customers’ meters are read and invoices issued.
Refer to note A2 for judgement applied in determining the amount of unbilled gas and electricity revenue to recognise.
The average age of trade receivables is 21 days (2017: 19 days). The ageing of trade receivables that were not impaired at 30 June are
shown below.
Not yet due
1–30 days past due
31–60 days past due
61–90 days past due
91 days past due
The movement in the allowance for impairment in respect of trade receivables
and unbilled revenue during the year is shown below.
Balance as at 1 July
Impairment losses recognised
Amounts written off
Balance as at 30 June
2018
$million
2017
$million
592
140
61
25
70
888
110
88
(84)
114
500
111
46
23
48
728
87
75
(52)
110
118
B2 Exploration, evaluation and development assets
Balance as at 1 July
Additions
Exploration expense – continuing operations
Exploration expense – discontinued operations
Net impairment loss(1)
Transfers to PP&E
Balance as at 30 June(2)
Exploration and evaluation assets
Development assets
2018
$million
2017
$million
2018
$million
2017
$million
858
1,932
19
(3)
(5)
58
–
(64)
(506)
(1,068)
–
363
–
858
–
–
–
–
–
–
–
292
–
–
–
–
(292)
–
(1) Reflects impairment of the Ironbark CGU of $514 million (tax benefit $154 million), of which $506 million relates to exploration and evaluation assets (2017: $243 million
(tax benefit $73 million) relating to assets subsequently transferred to held for sale and disposed and Browse Basin exploration asset of $825 million (tax benefit $248 million)
in the prior period).
(2) The closing balance includes $296 million in relation to Ironbark and $67 million in relation to Beetaloo Basin assets.
The Group holds a number of exploration permits that are grouped into areas of interest according to geographical and geological attributes.
Expenditure incurred in each area of interest is accounted for using the successful efforts method. Under this method all general exploration
and evaluation costs are expensed as incurred except the direct costs of acquiring the rights to explore, drilling exploratory wells and
evaluating the results of drilling. These direct costs are capitalised as exploration and evaluation assets pending the determination of
the success of the well. If a well does not result in a successful discovery, the previously capitalised costs are immediately expensed.
The carrying amounts of exploration and evaluation assets are reviewed at each reporting date to determine whether any of the following
indicators of impairment are present:
• the right to explore has expired, or will expire in the near future, and is not expected to be renewed;
• further exploration for and evaluation of resources in the specific area is not budgeted or planned;
• the Group has decided to discontinue activities in the area; or
• there is sufficient data to indicate the carrying value is unlikely to be recovered in full from successful development or by sale.
Where an indicator of impairment exists, the asset’s recoverable amount is estimated and an impairment is recognised in the income
statement if required.
Key judgement: recoverability of exploration and evaluation assets
Assessment of the recoverability of capitalised exploration and evaluation expenditure requires certain estimates and assumptions to be
made as to future events and circumstances, particularly in relation to whether economic quantities of reserves have been discovered.
Such estimates and assumptions may change as new information becomes available. If it is concluded that the carrying value of an
exploration and evaluation asset is unlikely to be recovered by future exploitation or sale, the relevant amount will be written off to
the income statement.
Upon approval of the commercial development of a project, the exploration and evaluation asset is classified as a development asset.
Once production commences, development assets are transferred to PP&E.
Annual Report 2018 Financial Statements
119
B3 Property, plant and equipment
Generation
property, plant
and equipment
Other land
and buildings
Other plant
and equipment
Producing areas
of interest
Capital work
in progress
Total
$million
2018
Cost
Accumulated depreciation
Balance as at 1 July 2017
Additions
Disposals
Depreciation/amortisation
– continuing operations
Net impairment loss(1)
Transfers from inventory
Transfers within PP&E
Transfers to intangibles
Effect of movements in
foreign exchange rates
4,415
(1,298)
3,117
3,241
60
–
(201)
–
17
–
–
–
79
(42)
37
42
15
(15)
(5)
–
–
–
–
–
Balance as at 30 June 2018
3,117
37
2017
Cost
Accumulated depreciation
Balance as at 1 July 2016
Additions
Disposals
Depreciation/amortisation
– continuing operations
Depreciation/amortisation –
discontinued operations
Net impairment loss(1)
Transfers within PP&E
Transfers from Development assets
Transfers to held for sale
Effect of movements in foreign
exchange rates
4,392
(1,151)
3,241
3,327
94
–
(187)
–
–
7
–
–
–
Balance as at 30 June 2017
3,241
79
(37)
42
78
–
(9)
(3)
–
(6)
–
–
(17)
(1)
42
901
(622)
279
226
170
(19)
(57)
(8)
–
14
(48)
1
279
814
(588)
226
1,274
139
(150)
(46)
(51)
(282)
176
–
(822)
(12)
226
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
559
39
–
–
(81)
(207)
–
292
(598)
(4)
–
263
–
263
205
72
–
–
–
–
(14)
–
–
5,658
(1,962)
3,696
3,714
317
(34)
(263)
(8)
17
–
(48)
1
263
3,696
205
–
205
447
66
(68)
–
–
(15)
(183)
–
(42)
–
205
5,490
(1,776)
3,714
5,685
338
(227)
(236)
(132)
(510)
–
292
(1,479)
(17)
3,714
(1) Reflects impairment of the Ironbark CGU of $514 million (tax benefit $154 million), of which $8 million relates to property, plant and equipment.
(2017: Reflects impairments of $510 million (tax benefit $153 million) relating to assets held for sale at 30 June 2017.)
120
B3 Property, plant and equipment (continued)
PP&E is recorded at cost less accumulated depreciation, depletion, amortisation and impairment charges. Cost includes the estimated
future cost of required closure and rehabilitation.
The carrying amounts of assets are reviewed to determine if there is any indication of impairment. If any such indication exists, the asset’s
recoverable amount is estimated and if required, an impairment is recognised in the income statement.
Several different depreciation methodologies are used by the Group. Sub-surface assets relating to producing areas of interest are
amortised on a units of production basis. This method applies an average unit depletion cost to current period production. The proved and
probable reserves (2P), expenditure to date and an estimate of future development expenditure required to develop those reserves are
used to derive the unit depletion cost. Land and capital work in progress are not depreciated. All other assets are depreciated on a straight-
line basis over their useful lives.
The range of depreciation rates for the current and comparative period for each class of asset are set out below.
Generation PP&E
Other land and buildings
Other plant and equipment
Producing areas of interest
%
2–95
0–20
1–50
0–28
At 30 June 2018, the Group reassessed the carrying amounts of its non-current assets for indicators of impairment.
Estimates of recoverable amounts are based on an asset’s value in use or fair value less costs to sell (Level 3 fair value hierarchy).
The recoverable amount of these assets is most sensitive to those assumptions highlighted in the key judgements and estimates below.
Key judgements and estimates
Recoverability of carrying values: Assets are grouped together into the smallest group of assets that generate largely independent cash
inflows (cash generating unit). A Cash Generating Unit’s (CGU) recoverable amount comprises the present value of the future cash flows
that will arise from use of the assets. Assessment of a CGU’s recoverable amount requires estimates and assumptions to be made about
highly uncertain external factors such as future commodity prices, foreign exchange rates, discount rates, the effects of inflation, climate
change policies and the outlook for global or regional market supply-and-demand conditions. In addition, the Group makes estimates
and assumptions about reserves, future operating profiles and production costs. Such estimates and assumptions may change as new
information becomes available. If it is concluded that the carrying value of a CGU is not likely to be recovered by use or sale, the relevant
amount will be written off to the income statement.
Estimation of reserves: Conventional reserves are estimates of the amount of product that can be extracted from an area of interest.
A range of assumptions are used to estimate economically recoverable 2P reserves. As the economic assumptions change from period
to period, and because additional geological information becomes available during the course of operations, estimates of 2P reserves
may change from period to period. These changes could impact the asset carrying values, unit of production depletion calculations,
restoration provisions and deferred tax balances. Refer note E1.2 for information regarding Australia Pacific LNG’s unconventional
reserve estimation policy.
Estimation of commodity prices: The Group’s best estimate of future commodity prices is made with reference to internally derived
forecast data, current spot prices, external market analysts’ forecasts and forward curves. Where volumes are contracted, future prices
reflect the contracted price. Future commodity price assumptions impact the recoverability of carrying values and are reviewed at
least annually.
Estimation of useful economic lives: A technical assessment of the operating life of an asset requires significant judgement.
Useful lives are amended prospectively when a change in the operating life is determined.
Restoration provisions: An asset’s carrying value includes the estimated future cost of required closure and rehabilitation activities.
Refer to note B5 for a key judgement related to restoration provisions.
Future downhole costs: The depletion and amortisation calculation for producing areas of interest depends in part on the estimated
future downhole expenditure required to develop and extract 2P undeveloped reserves. Changes in future downhole expenditure can
therefore impact amortisation recognised. Future expenditure estimates have been based on the proposed development profiles for
the fields.
Annual Report 2018 Financial Statements
121
B4 Intangible assets
Goodwill at cost – Energy Markets
Software and other intangible assets at cost less impairment losses
Less: Accumulated amortisation
Reconciliations of the carrying amounts of each class of intangible asset are set out below.
$million
Balance as at 1 July 2017
Additions
Transfers from PP&E
Disposals
Net impairment loss(1)
Amortisation expense – continuing operations
Balance as at 30 June 2018
Balance as at 1 July 2016
Additions
Disposals
Amortisation expense – continuing operations
Amortisation expense – discontinued operations
Transfers to held for sale
Balance as at 30 June 2017
(1) Amounts relating to discontinued operations.
2018
$million
2017
$million
4,820
1,303
(795)
5,328
4,827
1,169
(671)
5,325
Goodwill
Software
and other
intangibles
Total
4,827
498
5,325
–
–
–
(7)
–
4,820
4,827
–
–
–
–
–
91
48
(10)
(1)
(118)
508
539
72
(1)
(108)
(1)
(3)
91
48
(10)
(8)
(118)
5,328
5,366
72
(1)
(108)
(1)
(3)
4,827
498
5,325
Goodwill is stated at cost less any accumulated impairment losses and is not amortised. Software and other intangible assets are stated
at cost less accumulated amortisation and impairment losses. Amortisation is recognised as an expense on a straight-line basis over the
estimated useful lives of the intangible assets.
The average amortisation rate for software and other intangibles (excluding capital work in progress) was 12 per cent (2017: 12 per cent).
122
B4 Intangible assets (continued)
Key judgement
Carrying values of assets: Refer to note B3 for a key judgement relating to carrying values of assets.
Impairment testing
The recoverable amount of the Energy Markets goodwill has been determined using a value in use model that includes an appropriate
terminal value. The key inputs and assumptions in the calculation of value in use are set out below.
Key input/assumptions
Energy Markets
Period of cash flow projections
Either 40 years, or the life of each Generation asset, based on the Group’s five-year business plan.
The Energy Markets business is considered a long-term business and as such projection of long-term
cash flows is appropriate for a more accurate forecast. The growth rate used to extrapolate cash flow
projections beyond the five year plan ranges between 2.2 per cent to 2.5 per cent.
Customer numbers and customer churn
Based on review of actual customer numbers and historical data regarding movements in customer
numbers and levels of customer churn. The historical analysis is considered against current and
expected market trends and competition for customers.
Gross margin and other operating costs
per customer
Based on review of actual gross margins and cost per customer, and consideration of current and
expected market movements and impacts.
Discount rate
Pre-tax discount rate of 10.3 per cent (2017: 10.3 per cent).
B5 Provisions
$million
Balance as at 1 July 2017
Provisions recognised
Provisions released
Payments/utilisation
Balance as at 30 June 2018
Current
Non-current
Restoration
Other
Total
177
103
(5)
(4)
271
7
264
271
70
140
(13)
(54)
143
46
97
143
247
243
(18)
(58)
414
53
361
414
Restoration provisions are initially recognised at the best estimate of the costs to be incurred in settling the obligation. Where restoration
activities are expected to occur more than 12 months from the reporting period, the provision is discounted using a pre-tax rate that
reflects current market assessments of the time value of money.
At each reporting date, the restoration provision is remeasured in line with changes in discount rates, and changes to the timing or amount
of the costs to be incurred based on current legal requirements and technology. Any changes in the estimated liability in future periods are
added to or deducted from the related asset. The unwinding of the discount is recognised in each period as interest expense.
Key estimate: restoration, rehabilitation and dismantling costs
The Group estimates the cost of future site restoration activities at the time of installation or construction of an asset, or when an
obligation arises. Restoration often does not occur for many years and thus significant judgement is required as to the extent of work,
cost and timing of future activities.
Annual Report 2018 B6 Other financial assets and liabilities
Other financial assets
Current
Environmental scheme certificates
Available-for-sale financial assets
Mandatorily Redeemable Cumulative Preference Shares issued by Australia Pacific LNG (refer to note E1)(1)
Non-current
Available-for-sale financial assets
Mandatorily Redeemable Cumulative Preference Shares issued by Australia Pacific LNG (refer to note E1)(1)
123
2018
$million
2017
$million
153
18
37
208
100
3,583
3,683
58
28
–
86
91
3,609
3,700
(1) The Group has invested in Mandatorily Redeemable Cumulative Preference Shares (MRCPS) issued by Australia Pacific LNG (APLNG) in the amount of US$2,775 million
(converted from USD to AUD using an end of period exchange rate of 0.7384). During the period, APLNG performed a buy-back of MRCPS in the amount of US$102 million
(A$134 million). The non-current financial asset has reduced accordingly, although it is offset by the movement in exchange rate from 0.7689 (June 2017) to 0.7384
(June 2018).
The MRCPS are the mechanism by which the funding for the CSG to LNG Project has been provided by the shareholders of APLNG in proportion to their ordinary
equity interests.
The MRCPS have a fixed rate dividend obligation based on the relevant observable market interest rates and estimated credit margin at the date of issue. The dividend
is paid twice per annum. The mandatory redemption date for the MRCPS is 30 June 2026. Dividends received are recognised as interest. Refer to note A2.
The effective interest rate at 30 June 2018 was 6.37 per cent (2017: 6.37 per cent).
Financial assets are recognised (or derecognised) on the date on which the Group commits to purchase (or sell) the asset.
Other financial assets are designated as available-for-sale if they do not have fixed maturities and fixed or determinable payments,
and are intended to be held for the medium to long term.
The Group’s available-for-sale assets are primarily electricity Settlement Residue Distribution Agreements and shares in listed corporations
held by Origin Foundation Limited.
Other financial liabilities
Current
Environmental scheme surrender obligations
Other financial liabilities
2018
$million
2017
$million
304
57
361
276
111
387
At 30 June 2018, the Group’s other financial liabilities represent deferred option premiums. At 30 June 2017, these liabilities represented
the net amount owed for exchange-traded derivative contracts that had not settled at the reporting date.
The environmental scheme certificates and surrender obligations are initially recorded at fair value which approximates cost.
Subsequently, they are recorded at their market price (i.e. fair value).
Financial Statements
124
C Capital, funding and risk management
This section focuses on the Group’s capital structure and related financing costs. Information is also presented about how the
Group manages capital, and the various financial risks to which the Group is exposed through its operating and financing activities.
C1 Interest-bearing liabilities
Current
Bank loans – unsecured
Capital market borrowings – unsecured
Total current borrowings
Lease liabilities – secured
Total current interest-bearing liabilities
Non-current
Bank loans – unsecured
Capital market borrowings – unsecured
Total non-current borrowings
Lease liabilities – secured
2018
$million
2017
$million
7
1,081
1,088
1
1,089
220
6,124
6,344
6
6
126
132
1
133
787
7,588
8,375
7
Total non-current interest-bearing liabilities
6,350
8,382
Interest-bearing liabilities are initially recorded at the amount of proceeds received (fair value) less transaction costs. After that date,
the liability is amortised to face value at maturity using an effective interest rate method with any gains or losses recognised in the
income statement.
The contractual maturities of non-current borrowings are as set out below.
One to two years
Two to five years
Over five years
Total non-current borrowings
Lease liabilities
2018
$million
2017
$million
915
3,742
1,687
6,344
6
1,044
4,773
2,558
8,375
7
Total non-current interest-bearing liabilities
6,350
8,382
Some of the Group’s borrowings are subject to terms that allow the lender to call on the debt. As at 30 June 2018, these terms had not
been triggered.
Significant funding transactions
On 27 June 2018 the Group completed a $4 billion debt refinancing which extended the previous tenor from a maturity of October 2021
to new 4, 5 and 7 year maturities.
Annual Report 2018 125
C2 Derivatives and hedging
The Group is exposed to risk from movements in foreign exchange, interest rates, and commodity prices including electricity and oil.
As part of the risk management strategy set out in note C3, the Group holds the following types of derivative instruments.
$million
2018
Interest rate swaps(1)
Cross-currency interest rate swaps(2)
Forward foreign exchange contracts(3)
Electricity derivatives(4)
Oil derivatives(5)
Other commodity derivatives
2017
Interest rate swaps
Cross-currency interest rate swaps
Forward foreign exchange contracts
Electricity derivatives
Oil derivatives
Other commodity derivatives
Assets
Liabilities
Current
Non-current
Current
Non-current
–
229
1
50
230
12
522
–
–
–
184
55
2
241
–
642
–
327
142
6
1,117
–
597
–
451
5
2
–
–
–
(51)
(370)
(3)
(424)
–
(229)
(1)
(58)
(12)
–
(6)
(66)
(250)
(841)
(70)
(1)
(1,234)
(8)
(74)
(300)
(621)
(303)
(3)
1,055
(300)
(1,309)
(1) At 30 June 2018, the fixed interest rates varied from 2.25 per cent to 2.27 per cent (2017: 2.25 per cent to 2.84 per cent) and the main floating rate was the Bank Bill
Swap Rate (BBSW). The hedged interest payment transactions are expected to impact profit at various dates between one month and five years from the reporting date.
(2) At 30 June 2018, the fixed interest rates varied from 3.30 per cent to 7.91 per cent (2017: 3.30 per cent to 7.91 per cent) and the main floating rates were BBSW and the
US Dollar London Interbank Offered Rate (LIBOR). The hedged interest payment transactions are expected to impact profit at various dates between one month and five
years from the reporting date.
(3) Predominantly represents forward foreign exchange contracts executed in prior periods to monetise the value accrued in certain cross currency interest rate
derivatives. The contracts will cash settle over the period to 2023, do not incur interest expense and the value of the contracts, in aggregate, is not subject to foreign
exchange fluctuations.
(4) The hedged electricity purchase and sale transactions are expected to impact profit continuously for each half hour period throughout the next 13 years from the
reporting date.
(5) The hedged oil sale and purchase transactions are expected to impact profit continuously throughout the next three years from the reporting date.
Financial Statements 126
C2 Derivatives and hedging (continued)
Derivatives are initially recognised at fair value. If the fair value differs from the transaction price, the difference is deferred in the statement
of financial position and recognised in the income statement over the life of the instrument. The following amounts have been deferred
and/or recognised in the income statement during the year.
Derivative assets
Opening balance
Recognised in the income statement
Reclassified to derivative liabilities
Derivatives derecognised in the period
Derivative liabilities
Opening balance
Recognised in the income statement
Reclassified to derivative assets
Derivatives derecognised in the period
2018
$million
533
(59)
(9)
(54)
411
374
(29)
9
(42)
312
After initial recognition, derivatives are subsequently remeasured at their fair value. The method of recognising any resulting gain or
loss depends on whether the derivative is designated as a hedging instrument and the nature of the item being hedged. Gains or losses
on derivatives that are not designated as hedging instruments are recognised in the income statement and resulted in a $563 million
loss in the year ended 30 June 2018 (2017: $109 million gain). This includes a $35 million loss relating to discontinued operations
(2017: $82 million gain).
Derivatives designated as hedging instruments
The Group designates certain derivatives as either:
• hedges of the fair value of recognised assets, liabilities or firm commitments (fair value hedge);
• hedges of a particular cash flow risk associated with a recognised asset, liability or highly probable forecast transaction
(cash flow hedge); or
• hedges of a net investment in a foreign operation (net investment hedge).
The following table shows the fair value of instruments that have been designated as hedging instruments.
Fair value hedges
Cash flow hedges
(a)
(b)
645
454
484
351
–
(183)
(34)
(65)
Assets
Liabilities
2018
$million
2017
$million
2018
$million
2017
$million
Annual Report 2018 127
C2 Derivatives and hedging (continued)
(a) Fair value hedges
The Group designates certain cross-currency interest rate swaps as fair value hedges of foreign denominated debt. Changes in the
fair value of these derivatives are recorded in the income statement, together with any changes in the fair value of the hedged debt.
The following table shows the changes in the fair values of the hedged debt and related derivatives recognised in the income statement
for the year.
Gain/(loss) on the derivatives
(Loss)/gain on the hedged debt
Derivatives designated as hedging instruments
(b) Cash flow hedges
2018
$million
2017
$million
160
(175)
(15)
(145)
121
(24)
The Group designates certain foreign exchange contracts, electricity derivatives, interest rate swaps, cross-currency interest rate
swaps and oil derivatives in cash flow hedge relationships. The effective portion of changes in the fair value of these derivatives are
recognised in the cash flow hedge reserve (in equity). The gain or loss relating to the ineffective portion is recognised immediately
in the income statement.
Amounts accumulated in the hedge reserve are transferred to the income statement in the periods when the hedged item affects profit
or loss (for instance, when the forecast sale that is hedged takes place). When a hedging instrument expires or is sold, or when a hedge
no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in the hedge reserve at that time remains in the
hedge reserve and is recognised when the forecast transaction is ultimately recognised in the income statement. If a forecast transaction
is no longer expected to occur, the cumulative gain or loss that was reported in the hedge reserve is immediately transferred to the
income statement.
2018
$million
2017
$million
Ineffective portion of the gains on cash flow hedges recognised in the income statement post-tax
–
6
Changes in the fair value of cash flow hedges
Effective portion of the (losses)/gains on cash flow hedges
Gains transferred to sales
Gains transferred to cost of sales
Gains transferred to change in fair value of financial instruments
Losses transferred to finance cost
Tax
Changes in the fair value of cash flow hedges post-tax
(46)
(16)
(131)
(14)
54
(153)
47
(106)
246
(77)
(319)
(198)
60
(288)
86
(202)
Financial Statements 128
C3 Risk management
The Group holds or issues financial instruments for the following purposes:
• Funding: used to finance the Group’s operating activities. The principal types of instruments include syndicated bank loans,
bank guarantee facilities, senior notes, hybrid securities, cash and short-term deposits;
• Operating: the Group’s day-to-day business activities generate financial instruments such as cash, trade receivables and
trade payables; and
• Risk management: to reduce risks arising from the financial instruments described above, the Group holds derivatives such as
forward exchange contracts and interest rate swaps (including cross-currency). In addition, a range of standard and bespoke
financial instruments are held to manage the Group’s exposure to fluctuations in commodity prices.
A number of these financial instruments are recorded at the value that reflects current market conditions, i.e. at fair value.
The Group’s methodology for calculating fair value can be found in note C5.
These risks are managed under policies approved by the Board of Directors. The key financial risks to which the Group is exposed
are explained further in the following sections. They include:
• Credit risk;
• Liquidity risk;
• Market risk (including foreign exchange and price risk); and
•
Interest rate risk.
C3.1 Credit risk
Credit risk is the risk that a counterparty will not fulfil its financial obligations under a contract or other arrangement. In order to manage
credit risk, the Group has credit limits that determine the level of exposure it is prepared to accept with respect to counterparties.
The Group is exposed to credit risk through its normal operating activities, primarily through customer contracts, financing activities,
deposits and the collection risk from arrangements entered into to manage financial risk.
The Group has Board approved credit risk management policies that allocate credit limits to counterparties based on publicly available
credit information from recognised providers where available. Credit policies cover exposures generated from the sale of products and the
use of derivative instruments. The Group also utilises International Swaps and Derivative Association (ISDA) agreements with all derivative
counterparties in order to limit exposure to credit risk through the netting of amounts receivable from and amounts payable to individual
counterparties when a counterparty defaults under the terms of the ISDA. Refer note F8.
The carrying amounts of financial assets, which are disclosed in more detail in notes B1, B6 and C2, best represents the Group’s maximum
exposure to credit risk at the reporting date. The Group holds no significant collateral as security and there are no other significant credit
enhancements in respect of these assets. All financial assets are monitored in order to identify any potential changes in the credit quality.
C3.2 Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group is exposed to liquidity
risk through its ongoing business obligations, its strategy to take advantage of new investment opportunities as they arise and its hedging
activities. The Group has a capital structure that allows it to support these activities. A key element of this structure is the use of committed
undrawn debt facilities.
The Group manages liquidity risk centrally by monitoring operating cash flow forecasts and the degree of access to debt and equity capital
markets. The Group holds a number of debt instruments with varying maturities. The debt portfolio is periodically reviewed to ensure there
is funding flexibility and an appropriate repayment profile.
2018
$million
2017
$million
The Group has the following committed undrawn floating rate borrowing facilities.
Expiring beyond one year(1)
3,474
6,407
(1) As outlined in note C1, the Group refinanced its bank debt facilities during the current period. The amount shown above reflects the committed undrawn balance of the
refinanced facility.
Annual Report 2018 129
C3 Risk management (continued)
C3.2 Liquidity risk (continued)
Set out below are the contractual cash flows of the Group’s derivative and non-derivative financial assets and liabilities, including drawn
borrowings, at reporting date. The cash flows are undiscounted and include items not recorded in the statement of financial position such
as interest and drawn guarantees.
Derivative financial instruments
2018
$million
2017
$million
Derivative
financial
liabilities
Derivative
financial
assets
Net derivative
financial
(liabilities)/
assets
Derivative
financial
liabilities
Derivative
financial
assets
Net derivative
financial
(liabilities)/
assets
(72)
(93)
(335)
(804)
(216)
15
91
495
1,085
257
(57)
(2)
160
281
41
(8)
(18)
(492)
(584)
(514)
30
83
188
1,422
652
22
65
(304)
838
138
2018
$million
2017
$million
Other
financial
liabilities
Other
financial
assets
Net other
financial
(liabilities)/
assets
Other
financial
liabilities
Other
financial
assets
Net other
financial
(liabilities)/
assets
(692)
(713)
(1,993)
(6,589)
(179)
732
1,377
1,632
3,183
–
40
664
(361)
(3,406)
(179)
(1,485)
(691)
(2,556)
(6,717)
(311)
615
1,262
716
2,337
2,312
(870)
571
(1,840)
(4,380)
2,001
$million
Less than one month
One to three months
Three to 12 months
One to five years
Over five years
Non-derivative financial instruments(1)
$million
Less than one month
One to three months
Three to 12 months
One to five years
Over five years
(1) All facilities are deemed to be repaid at the earlier of their contractual maturity date or first call/intended repayment date.
Financial Statements 130
C3 Risk management (continued)
C3.3 Foreign exchange (FX) risk
FX risk is the risk that fluctuations in exchange rates will adversely impact the Group’s result. FX risk arises from future commercial
transactions (including interest payments and principal debt repayments on foreign currency long-term borrowings, the sale and
purchase of oil and gas and the purchase of capital equipment), the recognition of assets and liabilities (including foreign receivables and
borrowings) and net investments in foreign operations. The Group is mainly exposed to fluctuations in the US dollar and the Euro through
its operations (both overseas and in Australia), its financing facilities and through arrangements put in place to manage risk.
As at 30 June 2018, after hedging, the Group is exposed to FX risk on receivables of US$1,324 million (A$1,792 million) (30 June 2017:
US$553 million (A$719 million)).
To manage FX risk, the Group uses forward foreign exchange contracts and cross-currency interest rate swaps. In certain circumstances
borrowings are left in the foreign currency, or swapped from one currency to another, to hedge expected future business cash flows in
that currency.
Significant transactions undertaken in the normal course of operations that are denominated in a foreign currency are managed on
a case-by-case basis.
The table below shows the impact of a 10 per cent change in FX rates (holding all other things constant) on the carrying value of the
Group’s financial instruments at the reporting date. The impacts on profit and equity do not take into account any mitigating actions
that management might take if the rate change occurred.
2018
US dollar
Euro(1)
2017
US dollar
Euro(1)
Impact on post-tax profit
Impact on equity
Increase
Decrease
Increase
Decrease
$million
$million
(104)
1
(65)
9
104
(1)
69
(9)
(112)
(18)
(74)
17
112
18
79
(17)
(1) Represents the ineffectiveness from some fair value hedges of Euro debt that has been swapped to AUD.
Annual Report 2018 131
C3 Risk management (continued)
C3.4 Commodity price risk
Commodity price risk is the risk that fluctuations in commodity prices will adversely impact the Group’s result. The Group is exposed to
fluctuations in electricity, oil, gas and environmental scheme certificate prices.
To manage its price risks the Group utilises a range of financial instruments and derivatives, including fixed-price swaps, options, futures
and fixed price forward purchase contracts. The policy for managing price risk permits the active hedging of price and volume exposures
within prescribed limits. The full hedge portfolio is tested on an ongoing basis against these limits.
The table below shows the impact of a 10 per cent change in commodity prices (holding all other things constant) on the carrying value
of the Group’s financial instruments at the reporting date. The impacts on profit and equity do not take into account any mitigating actions
that management might take if the price change occurred.
2018
Electricity forward price
Oil forward prices
Environmental scheme certificate prices
2017
Electricity forward price
Oil forward prices
Environmental scheme certificate prices
C3.5 Interest rate risk
Impact on post-tax profit
Impact on equity
Increase
Decrease
Increase
Decrease
$million
$million
171
(21)
23
202
9
25
(170)
22
(23)
(202)
(2)
(25)
206
(13)
23
238
28
25
(205)
14
(23)
(238)
(21)
(25)
Interest rate risk is the risk that fluctuations in interest rates adversely impact the Group’s results. Borrowings issued at variable interest
rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
After hedging, the exposure of the Group’s borrowings (excluding lease liabilities) to interest rate changes and the contractual repricing
periods are set out below.
Variable rate borrowings
Fixed interest rate – repricing dates
Six months or less
Six to twelve months
One to five years
Over five years
2018
$million
2017
$million
3,843
2,838
400
–
3,075
114
7,432
1,900
742
2,695
332
8,507
Financial Statements 132
C3 Risk management (continued)
C3.5 Interest rate risk
The Group’s risk management policy is to manage interest rate exposures using Profit at Risk and Value at Risk methodologies.
Exposure limits are set to ensure that the Group is not exposed to excess risk from interest rate volatility.
The Group manages its cash flow interest rate risk by entering into fixed-rate interest rate swap contracts and fixed-rate debt securities,
with rates ranging between 2.25 per cent to 7.91 per cent per annum, at a weighted average rate of 5.75 per cent per annum (2017: 2.25
per cent to 7.91 per cent per annum, at a weighted average rate of 5.29 per cent per annum). Such interest rate swaps have the economic
effect of converting borrowings from floating to fixed rates.
The Group manages its fair value interest rate risk by using fixed-to-floating interest rate swaps. Where possible these are designated to
hedge the interest rate costs associated with underlying debt obligations.
The table below shows the impact of a 100 basis point shift in interest rates (holding all other things constant) on the carrying value of
the Group’s interest-bearing assets and liabilities as at the reporting date. The impacts on profit and equity do not take into account any
mitigating actions that management might take if the rate change occurred.
2018
Interest rates
2017
Interest rates
C4 Capital management
Impact on post-tax profit
Impact on equity
Increase
Decrease
Increase
Decrease
$million
$million
1
8
(6)
(13)
(3)
5
(2)
(10)
The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern so that it can continue to
provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost
of capital.
To maintain or adjust the capital structure, the Group monitors its current and future funding requirements for at least the next five years
and regularly assesses a range of funding alternatives to meet these requirements in advance of when the funds are required.
Key factors considered in determining the Group’s capital structure and funding strategy at any point in time include expected operating
cash flows, capital expenditure plans, maturity profile of existing debt facilities, dividend policy and the ability to access funding from
banks, capital markets and other sources.
The Group monitors its capital requirements through a number of metrics including the gearing ratio. This ratio is calculated as adjusted
net debt divided by total capital. Net debt is adjusted to take into account the effect of FX hedging transactions on the Group’s foreign
currency debt obligations. The Group maintains a gearing ratio designed to optimise the cost of capital while providing flexibility to fund
growth opportunities.
The Group also monitors various other credit metrics including funds from operations to net adjusted debt and EBITDA to
interest expense.
Total interest-bearing liabilities
Less: Cash and cash equivalents
Net debt
Fair value adjustments on FX hedging transactions
Adjusted net debt
Total equity
Total capital
Gearing ratio
2018
$million
2017
$million
7,439
(150)
7,289
(793)
6,496
11,828
18,324
35%
8,515
(151)
8,364
(253)
8,111
11,418
19,529
42%
Annual Report 2018 133
C5 Fair value of financial assets and liabilities
The following table summarises the methods that are used to estimate the fair value of the Group’s financial instruments.
Instrument
Fair value methodology
Financial instruments traded
in active markets
Quoted market prices at reporting date.
Forward foreign exchange contracts
Present value of expected future cash flows using quoted forward exchange rates.
Commodity option contracts which are
regularly traded
Long-term debt and other financial assets
Commodity swaps and non-exchange
traded futures
Interest rate swaps and cross currency
interest rate swaps
Structured electricity derivatives which are
not regularly traded and with no observable
market price
Most recent available transaction prices for same or similar instruments.
Quoted market prices, dealer quotes for similar instruments, or present value of estimated future
cash flows.
Present value of expected future cash flows using market forward prices.
Present value of expected future cash flows of these instruments. Key variables include market
pricing data, discount rates and credit risk of the Group or counterparty where relevant. Variables
reflect those which would be used by market participants to execute and value the instruments.
The valuation models for long-term electricity derivatives reflect the fair value of the avoided
costs of construction of the physical assets which would be required to achieve an equivalent risk
management outcome for the Group. The methodology takes into account all relevant variables
including forward commodity prices, physical generation plant variables, the risk-free discount
rate and related credit adjustments, and asset lives. The valuation models for short-term electricity
derivatives include premiums for lack of volume in the market relative to the size of the instruments
being valued.
Power purchase arrangement electricity
derivatives
The discounted cash flow methodology reflects the difference in the contract price and long term
forecast electricity pool prices which are not observable in the market. The valuation also requires
estimation of forecast electricity volumes, the risk-free discount rate and related credit adjustments.
Oil forward structured derivative instrument
Valued with reference to the observable market oil forward prices, foreign exchange rates
and discount rates. As a result of the structured nature of the instrument, certain risk premium
and credit variables utilised in the valuation model are unobservable.
Valuation methodologies are determined based on the nature of the underlying instrument. To the maximum extent possible, valuations
are based on assumptions which are supported by independent and observable market data. Where valuation models are used,
instruments are discounted at the market interest rate applicable to the instrument.
Key estimate: fair value
To estimate the fair value of financial assets and financial liabilities, the Group uses a variety of methods (outlined in the table above)
and makes assumptions based on existing market conditions at each reporting date.
Financial Statements 134
C5 Fair value of financial assets and liabilities (continued)
The following table provides information about the reliability of the inputs used in determining the fair value of financial assets and
liabilities carried at fair value. The three levels in the hierarchy reflect the level of independent observable market data used in determining
the fair values and are defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical instruments.
• Level 2: other valuation methods for which all inputs that have a significant impact on fair value are observable, either directly (as prices)
or indirectly (derived from prices).
• Level 3: one or more key inputs for the instrument are not based on observable market data (unobservable inputs).
Note
Level 1
$million
Level 2
$million
Level 3
$million
Total
$million
1,388
230
1,639
2018
Derivative financial assets
Environmental scheme certificates
Available-for-sale financial assets
Financial assets carried at fair value
Derivative financial liabilities
Environmental scheme surrender obligations
Financial liabilities carried at fair value
2017
Derivative financial assets
Environmental scheme certificates
Available-for-sale financial assets
Financial assets carried at fair value
Derivative financial liabilities
Environmental scheme surrender obligations
Financial liabilities carried at fair value
C2
B6
B6
C2
B6
C2
B6
B6
C2
B6
21
153
103
277
(15)
(304)
(319)
116
58
113
287
(16)
(276)
(292)
–
15
1,403
(988)
–
(988)
882
–
6
888
(842)
–
(842)
The following table shows a reconciliation of movements in the value of instruments included in Level 3 of the fair value hierarchy.
Balance as at 1 July 2017
Net loss recognised in other comprehensive income
Net gain recognised in revenue line
Net gain recognised in raw materials and consumables used
Net loss recognised in change in fair value of financial instruments
Net cash settlements
Balance as at 30 June 2018
–
–
230
(655)
–
153
118
1,910
(1,658)
(304)
(655)
(1,962)
298
1,296
–
–
298
(751)
–
(751)
58
119
1,473
(1,609)
(276)
(1,885)
$million
(453)
(25)
10
107
(365)
301
(425)
Annual Report 2018 135
C5 Fair value of financial assets and liabilities (continued)
The following is a summary of the main inputs and assumptions used by the Group in measuring the fair value of Level 3 financial instruments.
Discount rates: Based on observable market rates for risk-free instruments of the appropriate term.
Credit adjustments: Applied to the discount rate depending on the asset/liability position of a financial instrument to reflect the risk of
default by either the Group or a specific counterparty. Where a counterparty specific credit curve is not observable, an estimated curve
is applied that takes into consideration the credit rating of the counterparty and its industry.
Forward commodity prices: Including both observable external market data and internally derived forecast data. For oil derivatives,
internally derived data principally relates to the forward price path for Japanese Customs-cleared Crude (JCC) that is not readily
observable in the market. The forward curve for JCC is inferred from the observable Brent oil forward curve. For certain long term
electricity derivatives, internally derived forecast spot pool prices and renewable energy certificate prices are applied as market prices
are not readily observable for the corresponding term.
Physical generation plant variables: Variables that would be used in the valuation of physical generation assets with equivalent risk
management outcomes including new build capital costs, operating costs and plant efficiency factors. For derivatives related to renewable
generation, further assumptions are applied to forecast generation volumes over the life of the instrument.
Liquidity premiums: Applied to allow for the lack of volume in the market relative to the size of the instruments being valued.
Strike premiums: Applied to allow for instances where instruments have different strike prices to those associated with instruments that
have observable market prices.
The use of different methodologies or assumptions could lead to different measurements of fair value. For Level 3 fair value measurements,
a 10 per cent increase or decrease in the unobservable assumptions would have the following effects.
Electricity derivatives
Oil derivatives
2018
Impact on post-tax profit
2017
Impact on post-tax profit
Increase
Decrease
Increase
Decrease
$million
$million
229
(1)
(228)
1
268
(1)
(268)
1
Except as noted below, the carrying amounts of financial assets and liabilities are reasonable approximations of their fair values.
The Group has the following non-current financial instruments which are not measured at fair value in the statement of financial position.
Assets
Other financial assets
Liabilities
Bank loans – unsecured
Capital markets borrowings – unsecured
Carrying value
Fair value
Fair value
hierarchy level
2018
$million
2017
$million
2018
$million
2017
$million
2
2
2
3,583
3,609
3,428
3,115
220
6,124
6,344
787
7,588
8,375
244
6,387
6,631
744
7,959
8,703
The fair value of these financial instruments reflect the present value of estimated future cash flows of the instrument.
Key variables used to determine the present value include:
• market pricing data (for the relevant underlying interest rates, foreign exchange rates or commodity prices);
• discount rates; and
• the credit risk of the Group or counterparty where appropriate.
For these instruments, each of these variables is taken from observed market pricing data at the valuation date and
therefore these variables represent those that would be used by market participants to execute and value the instruments.
Financial Statements 136
C6 Share capital and reserves
Issued and paid-up capital
1,759,156,516 (2017: 1,755,333,517) ordinary shares, fully paid
Ordinary share capital at the beginning of the period
Shares issued:
• 3,822,999 (2017: 1,997,753) shares in accordance with the Long Term Incentive Plans(1)
Total movements in ordinary share capital
2018
$million
2017
$million
7,150
7,150
–
–
7,150
7,150
–
–
Ordinary share capital at the end of the period
7,150
7,150
(1) Relates to shares that have not yet vested.
Terms and conditions
Holders of ordinary shares are entitled to receive dividends as determined from time to time and are entitled to one vote per share at
shareholders’ meetings. In the event of the winding up of the Group, ordinary shareholders rank after creditors, and are fully entitled to
any proceeds of liquidation.
The Group does not have authorised capital or par value in respect of its issued shares.
Nature and purpose of reserves
Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of options, performance share rights and deferred share rights over
their vesting period. Refer to note F3.
Foreign currency translation reserve
The foreign currency translation reserve records the foreign currency differences arising from the translation of foreign operations,
and the translation of transactions that hedge the Group’s net investments in foreign operations.
Hedge reserve
The hedge reserve is used to record the effective portion of the gains or losses on cash flow hedging instruments that have not yet
settled. Where the underlying transaction is recognised in profit or loss, hedge reserve amounts are subsequently recycled to the income
statement at the time the underlying transaction affects profit or loss. Where the underlying transaction results in recognition of an asset,
hedge reserve amounts subsequently form part of the cost of the asset.
Available-for-sale reserve
Changes in fair value and exchange differences arising on translation of investments are taken to the available-for-sale reserve.
Amounts are recognised in profit or loss when the associated investments are sold/settled or impaired.
Annual Report 2018 137
C7 Other comprehensive income
$million
2018
Items that will not be reclassified
to the income statement
Actuarial loss on defined benefit
superannuation plan, net of tax
Items that may be reclassified
to the income statement
Foreign currency translation differences
for foreign operations
Net loss on cash flow hedges
(refer note C2(b))
Available-for-sale financial assets –
valuation loss taken to equity, net of tax
Total other comprehensive income
2017
Items that will not be reclassified
to the income statement
Actuarial gain on defined benefit
superannuation plan, net of tax
Items that may be reclassified
to the income statement
Foreign currency translation differences
for foreign operations
Net loss on cashflow hedges
(refer note C2(b))
Available-for-sale financial assets –
valuation loss taken to equity, net of tax
Total other comprehensive income
Foreign currency
translation
reserve
Hedge
reserve
Available-for-
sale reserve
Retained
earnings
Non-
controlling
interests
Total other
comprehensive
income
–
–
277
–
–
277
277
–
–
(200)
–
–
(200)
(200)
–
–
–
(106)
–
(106)
(106)
–
–
–
(202)
–
(202)
(202)
–
–
–
–
(6)
(6)
(6)
–
–
–
–
(41)
(41)
(41)
–
–
–
–
–
–
–
1
1
–
–
–
–
1
–
–
1
–
–
1
1
–
–
–
–
–
–
–
–
–
278
(106)
(6)
166
166
1
1
(200)
(202)
(41)
(443)
(442)
Financial Statements 138
D Taxation
This section provides details of the Group’s income tax expense, current tax provision and deferred tax balances and the Group’s tax
accounting policies.
D1 Income tax expense
Income tax
Current tax expense
Deferred tax benefit
Under provided in prior years
Total income tax benefit
Income tax expense/(benefit) attributable to:
Profit/(loss) from continuing operations
Loss from discontinued operations
Reconciliation between tax expense and pre-tax net profit
Profit/(loss) from continuing operations before income tax
Loss from discontinued operations before income tax
Income tax using the domestic corporation tax rate of 30 per cent (2017: 30 per cent)
Prima facie income tax expense on pre-tax accounting profit:
– at Australian tax rate of 30 per cent
– adjustment for tax exempt charity (Origin Foundation Limited)
– adjustment for difference between Australian and overseas tax rates
Income tax expense/(benefit) on pre-tax accounting profit at standard rates
2018
$million
2017
$million
174
(195)
1
(20)
(81)
61
(20)
202
(1)
201
60
(17)
(2)
41
77
(158)
5
(76)
(26)
(50)
(76)
(2,075)
(224)
(2,299)
(690)
–
5
(685)
Annual Report 2018 D Taxation (continued)
D1 Income tax expense (continued)
Increase/(decrease) in income tax expense due to:
Lattice disposal
Acumen disposal
Entity wind-up
Impairment expense not recoverable
Capital loss recognition
Recognition of change in net tax loss position
Recognition of cost base on disposal of entities
Share of results of equity accounted investees
Other
Under provided in prior years
Total income tax benefit
Deferred tax movements recognised directly in other comprehensive income
(including foreign currency translation)
Financial instruments at fair value
Property, plant and equipment
Provisions
139
2018
$million
2017
$million
55
(72)
9
–
–
–
–
(60)
6
(62)
1
(20)
(51)
5
(1)
(47)
–
–
–
28
(40)
21
17
574
4
604
5
(76)
(103)
(4)
2
(105)
The Company and its wholly-owned Australian resident entities, which met the membership requirements, formed a tax-consolidated
group with effect from 1 July 2003. The head entity within the tax-consolidated group is Origin Energy Limited. Tax funding arrangement
amounts are recognised as inter-entity amounts.
Income tax expense is made up of current tax expense and deferred tax expense. Current tax expense represents the expected tax
payable on the taxable income for the year, using current tax rates and any adjustment to tax payable in respect of previous years.
Deferred tax expense reflects the temporary differences between the accounting carrying amount of an asset or liability in the
statement of financial position and its tax base.
Key judgements
Tax balances: Tax balances reflect a current understanding and interpretation of existing tax laws. Uncertainty arises due to the
possibility that changes in tax law or other future circumstances can impact the tax balances recognised in the financial statements.
Ultimate outcomes may vary.
Deferred taxes: The recognition of deferred tax balances requires judgement as to whether it is probable such balances will be utilised
and/or reversed in the foreseeable future.
Petroleum Resource Rent Tax (PRRT): PRRT applies to all Australian onshore oil and gas projects, including coal seam gas projects.
The application of PRRT legislation involves significant judgement around the taxing point of projects, the transfer price used for
determining PRRT income, and the measurement of the Starting Base on transition of existing permits, production licences and
retention leases into the PRRT regime. In assessing the recoverability of deferred tax assets, estimates are required in respect of future
augmentation (escalation) of expenditure, the sequence in which current and future deductible amounts are expected to be utilised,
and the probable cash flows used in determining the recoverability of deferred tax assets.
Financial Statements 140
D1 Income tax expense (continued)
Income tax expense recognised in other comprehensive income
$million
Gross
Available for sale assets:
Valuation loss taken to equity
Cash flow hedges:
Reclassified to income statement
Effective portion of change in fair value
Foreign currency translation differences
for foreign operations
Actuarial gain on defined benefit
superannuation plan
Other comprehensive income
for the period
D2 Deferred tax
(10)
–
(153)
278
–
115
2018
Tax
4
–
47
–
–
51
Net
Gross
2017
Tax
Net
(6)
(58)
17
(41)
–
(106)
278
–
166
(534)
246
(200)
2
160
(74)
–
(1)
(374)
172
(200)
1
(544)
102
(442)
Deferred tax balances arise when there are temporary differences between accounting carrying amounts and the tax bases of assets and
liabilities, other than for the following:
• where the difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and
affects neither the accounting profit nor taxable profit or loss;
• where temporary differences relate to investments in subsidiaries, associates and interests in joint arrangements to the extent the Group
is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable
future; and
• where temporary differences arise on initial recognition of goodwill.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised
or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised. Deferred tax assets are reduced if it is no longer probable that the related tax benefit will be realised.
Annual Report 2018 141
D2 Deferred tax (continued)
Movement in temporary differences during the year
Asset/(liability)
$million
1 July 2016
Recognised
in income
Recognised
in equity
Transfers to
held for sale(1) 30 June 2017
Recognised
in income
Recognised
in equity 30 June 2018
Employee benefits
Provisions
Tax value of carry-
forward tax losses
recognised
Property, plant
and equipment
Exploration and
evaluation assets
Financial
instruments at
fair value
APLNG MRCPS
elimination
(refer note E1.2)
Business related
costs (deductible
under s.40-
880 ITAA97)
Other items
Net deferred
tax assets
70
264
(1)
(12)
164
(154)
(361)
(443)
186
273
–
(2)
(1)
4
–
(7)
(149)
–
62
101
9
(249)
(420)
(1)
44
(9)
8
85
(85)
136
270
(125)
103
50
21
57
92
3
2
(14)
158
–
–
1
–
–
–
–
248
53
23
44
35
10
(1)
30
(22)
195
105
(320)
(1) Relates to amounts classified as held for sale at 30 June 2017.
Unrecognised deferred tax assets and liabilities
Deferred tax assets have not been recognised in respect of the following items:
Revenue losses
Capital losses
Petroleum resource rent tax, net of income tax(1)
Acquisition transaction costs
Investment in joint ventures
Intangible assets
Deferred tax liabilities have not been recognised in respect of the following items:
Investment in Australia Pacific LNG(2)
–
1
–
(5)
–
61
146
–
(417)
51
51
309
–
–
–
52
53
22
47
277
2018
$million
2017
$million
42
280
690
57
67
8
53
2
2,459
57
67
8
1,144
2,646
(1,320)
(1,320)
(1,190)
(1,190)
(1) PRRT is considered, for accounting purposes, to be a tax based on income under AASB 112 Income Taxes. Accordingly, any current and deferred PRRT expense is
measured and disclosed on the same basis as income tax. The application of PRRT legislation relies on a forecast of future years expenditure in order to determine
whether the utilisation of the PRRT base will be required. As the forecast indicates that no utilisation is required, no deferred tax asset has been recognised with
respect to PRRT in these financial statements.
(2) A deferred tax liability has not been recorded in respect of the investment in Australia Pacific LNG as the Group is able to control the timing of the reversal of the
temporary difference through its voting rights and it is not expected that the temporary difference will reverse in the foreseeable future.
Financial Statements 142
E Group structure
The following section provides information on the Group’s structure and how this impacts the results of the Group as a whole, including
details of joint arrangements, controlled entities, transactions with non-controlling interests and changes made to the Group structure
during the year.
E1 Joint arrangements
Joint arrangements are those entities over whose activities the Group has joint control, established by contractual agreement and require
consent of two or more parties for strategic, financial and operating decisions. The Group classifies its interests in joint arrangements as
either joint operations or joint ventures depending on its rights to the assets and obligations for the liabilities of the arrangements.
E1.1 Interests in joint ventures
Interests in joint ventures are initially recognised at cost and are subsequently adjusted for changes in the Group’s share of the joint
venture’s net assets.
Joint venture entity
Reporting date
Country of
incorporation
Australia Pacific LNG Pty Ltd(1)
30 June
Australia
Energia Andina Geothermal SpA(2)
Energia Austral SpA(3)
31 December
31 December
Chile
Chile
KUBU Energy Resources (Pty) Limited
30 June
Botswana
PNG Energy Developments Limited
31 December
PNG
Venn Energy Trading Pte Limited
31 March
Singapore
Ownership interest (%)
2018
2017
37.5
49.9
34.0
50.0
50.0
50.0
37.5
49.9
34.0
50.0
50.0
50.0
(1) Australia Pacific LNG Pty Ltd is a separate legal entity. Operating, management and funding decisions require the unanimous support of the Foundation Shareholders,
which includes the Group and ConocoPhillips. Accordingly, joint control exists and the Group has classified the investment in Australia Pacific LNG as a joint venture.
(2) Energia Andina Geothermal SpA (previously named Energia Andina S.A) is a separate legal entity. Key decisions require super majority (four directors) approval,
with the Group entitled to appoint two of the five directors. As a consequence joint control exists and the Group has classified the investment as a joint venture.
Prior to being renamed, Energia Andina S.A was split into two entities and one of those, Andina Solar – Javiera was sold in the prior period.
(3) Energia Austral SpA is a separate legal entity. Key decisions require super majority (four directors) approval, with the Group entitled to appoint two of the five directors.
As a consequence joint control exists and the Group has classified the investment as a joint venture. The Group’s ownership interest can change between reporting
periods when equity contributions are made to the joint venture.
Of the above joint arrangements, only Australia Pacific LNG has a material impact to the Group.
Annual Report 2018
143
E1 Joint arrangements (continued)
E1.2 Investment in Australia Pacific LNG Pty Ltd
Australia Pacific LNG’s second LNG train commenced production during the prior period, with revenue recognition for the second train
commencing in November 2016. A summary of Australia Pacific LNG’s financial performance and its financial position for the periods
ended 30 June 2018 and 30 June 2017 follows.
Summary income statement of Australia Pacific LNG
$million
Operating revenue
Operating expenses
Reversal of impairment of non-current assets held for sale
Impairment expense
EBITDA
Depreciation and amortisation expense
Interest income
Interest expense on MRCPS
Other interest expense
Capitalised interest
Income tax (expense)/benefit
Statutory result for the period
Elimination of MRCPS depreciation(1)
Total statutory result for the period
Other comprehensive income
Statutory total comprehensive income
Items excluded from segment result:
Reversal of impairment of non-current assets held for sale
Impairment of non-current assets
Restructuring costs
Total items excluded from segment result
Underlying profit/(loss) for the period
Underlying EBITDA for the period
2018
2017
Total APLNG Origin interest
Total APLNG Origin interest
5,528
(1,811)
16
(8)
3,725
(1,853)
17
(605)
(532)
–
(216)
536
–
536
–
536
11
(5)
(21)
(15)
551
3,746
(1,778)
3,754
(1,465)
–
(7,031)
(4,742)
(1,614)
3
(626)
(495)
166
2,196
(5,112)
(1,917)
–
5
(5,112)
(1,912)
–
–
(5,112)
(1,912)
–
–
(4,922)
(1,846)
–
–
(4,922)
(1,846)
1,397
201
4
205
–
205
4
(2)
(8)
(6)
211
1,405
(190)
2,289
(66)
859
(1) During project construction, interest paid by Australia Pacific LNG (APLNG) to the Group on Mandatorily Redeemable Cumulative Preference Shares (MRCPS)
was capitalised by APLNG. These capitalised interest amounts in APLNG now form part of the cost of APLNG’s assets and these assets have been depreciated since
commencement of operations. During the project construction period, when the Group received interest on the MRCPS from APLNG, it recorded the interest as
income after eliminating a proportion of this interest which related to its ownership interest in APLNG. When the Group now takes up its share of APLNG’s net profit
after tax (NPAT) the result contains an element of depreciation relating to this capitalised interest. As these amounts were previously eliminated by the Group against
its investment at the time the interest was received, an adjustment is made to reverse the impact of this depreciation on APLNG NPAT.
Financial Statements 144
E1 Joint arrangements (continued)
E1.2 Investment in Australia Pacific LNG Pty Ltd (continued)
Carrying value of investment
The carrying amount of the Group’s equity accounted investment in Australia Pacific LNG (APLNG) is reviewed at each reporting date to
determine whether there is any indication of impairment. Where an indicator of impairment exists, a formal estimate of the recoverable
amount is made. APLNG has performed its own impairment assessment and determined that no impairment is required. The Group’s own
assessment of the carrying value identified no impairment.
The recoverable amount of the investment is sensitive to changes in key assumptions. A change in assumption could result in impairment
losses or the reversal of previous impairment losses. The assumptions and the sensitivity of the investment to assumption changes are
described below.
The APLNG valuation is determined based on an assessment of fair value less costs of disposal (based on level 3 fair value hierarchy).
Key assumptions in APLNG’s valuation are reserves, future production profiles, foreign exchange, commodity prices, operating costs
and any future development costs necessary to produce the reserves.
Estimated unconventional reserve quantities in APLNG are based upon interpretations of geological and geophysical models and assessment
of the technical feasibility and commercial viability of producing the reserves. Reserve estimates are prepared which conform to guidelines
prepared by the Society of Petroleum Engineers. These assessments require assumptions to be made regarding future development and
production cost, commodity prices, exchange rates and fiscal regimes. The estimates of reserves may change from period to period as the
economic assumptions used to estimate the reserves can change from period to period, and as additional geological data is generated
during the course of operations. Estimated reserve quantities include a Probabilistic Resource Assessment approach.
Estimates of future commodity prices are based on APLNG’s best estimate of future market prices with reference to external industry
and market analysts’ forecasts, current spot prices and forward curves. Future commodity prices for impairment testing are reviewed
on a six monthly basis. Where volumes are contracted, future prices are based on the contracted price.
Oil prices (Brent oil Nominal, US$/bbl) used by APLNG in its impairment assessment are set out below.
30 June 2018
(1) Escalated at 2.1 per cent from 2023.
2018
76
2019
73
2020
70
2021
71
2022
73
2023(1)
78
Forecasts of the foreign exchange rate for foreign currencies, where relevant, are estimated with reference to observable external market
data and forward values, including analysis of broker and consensus estimates.
The future estimated AUD/USD rates applied by APLNG are represented below.
30 June 2018
2018
0.76
2019
0.76
2020
0.77
2021
0.77
2022
0.77
2023
0.77
The pre-tax discount rate, determined as APLNG’s weighted average cost of capital, adjusted for risks where appropriate, that has been
applied is 11.2 per cent (2017: 10.1 per cent).
Impairment sensitivity
The calculation of fair value less costs of disposal for APLNG is most sensitive to changes in oil price, discount rates and the AUD/USD
foreign exchange rate. Key accounting judgements and estimates used in forming the valuation are disclosed in the previous carrying
value of investment section.
Reasonably possible changes in circumstances will affect assumptions and the estimated fair value of Origin’s investment in APLNG.
These reasonably possible changes include:
• A decrease in oil prices of USD$1/bbl, which in isolation would lead to a decrease of US$375 million in the valuation; and
• An increase in the discount rate of 0.27 per cent in isolation or an increase in the AUD/USD FX rate of 2.6 cents in isolation
from the rates assumed in the valuation would lead to a similar decrease as noted for oil above.
Changes in any of the aforementioned assumptions may be accompanied by changes in other assumptions which may have
an offsetting impact.
Annual Report 2018 E1 Joint arrangements (continued)
E1.2 Investment in Australia Pacific LNG Pty Ltd (continued)
Summary statement of financial position of Australia Pacific LNG
(100 per cent share)
$million
Cash and cash equivalents
Assets classified as held for sale
Other current assets
Current assets
Receivables from shareholders
Property, plant and equipment
Exploration, evaluation and development assets
Other non-current assets
Non-current assets
Total assets
Bank loans – secured
Payable to shareholders (MRCPS)
Liabilities classified as held for sale
Other current liabilities
Current liabilities
Bank loans – secured
Payable to shareholders (MRCPS)
Other non-current liabilities
Non-current liabilities
Total liabilities
Net assets
Group’s interest of 37.5 per cent of APLNG net assets
Group’s own costs
Mandatorily Redeemable Cumulative Preference Shares elimination(1)
Investment in Australia Pacific LNG Pty Ltd
145
2017
747
–
677
1,424
333
2018
1,223
65
607
1,895
394
34,865
33,853
256
2,282
37,797
39,692
872
98
76
841
1,887
9,077
9,556
2,810
21,443
23,330
16,362
351
2,425
36,962
38,386
927
–
–
915
1,842
9,532
9,624
2,413
21,569
23,411
14,975
6,136
5,615
25
(173)
25
(177)
5,988
5,463
(1) The Mandatorily Redeemable Cumulative Preference Shares (MRCPS) are recognised as a financial asset by the Group, and the MRCPS dividend is recognised as
interest revenue in the Group’s income statement. The proportion attributable to the Group’s own interest (37.5 per cent) is eliminated through the equity accounted
investment balance as Australia Pacific LNG has capitalised a portion of interest expense associated with the MRCPS.
Balance sheet amounts are converted from USD to AUD using an end of period exchange rate of 0.7384 (2017: 0.7689).
Australia Pacific LNG is subject to the Petroleum Resource Rent Tax legislation and has an unrecognised deferred tax asset balance
of $6,220 million (100 per cent Australia Pacific LNG) at 30 June 2018 (2017: $5,377 million). Any future recognition of this balance
by Australia Pacific LNG will result in an increase in the Group’s equity accounted investment in Australia Pacific LNG, rather than
wa deferred tax asset, as the Group equity accounts its 37.5 per cent interest.
Financial Statements 146
E1 Joint arrangements (continued)
E1.3 Transactions between the Group and Australia Pacific LNG Pty Ltd
The Group provides services to Australia Pacific LNG including corporate services, upstream operating services related to the
development and operation of Australia Pacific LNG’s natural gas assets, and marketing services relating to coal seam gas (CSG).
The Group incurs costs in providing these services and charges Australia Pacific LNG for them in accordance with the terms of the
contracts governing those services.
Separately, the Group has entered agreements with Australia Pacific LNG to purchase gas (2018: $476 million; 2017: $255 million) and the
Group sells gas to Australia Pacific LNG (2018: $118 million; 2017: $66 million). At 30 June 2018, the Group’s outstanding payable balance
for purchases from Australia Pacific LNG was $56 million (2017: $nil) and outstanding receivable balance for sales to Australia Pacific LNG
was $7 million (2017: $3 million).
The Group has invested in Mandatorily Redeemable Cumulative Preference Shares (MRCPS) issued by Australia Pacific LNG (APLNG).
The MRCPS existing at 1 July 2016 were cancelled and replaced with US$2.8 billion of MRCPS and US$0.8 billion capital contribution.
On 23 April 2018 the MRCPS balance reduced to US$2.7 billion following a US$0.1 billion share buy-back by APLNG. The MRCPS are the
mechanism by which the funding for the CSG to LNG Project has been provided by the shareholders of Australia Pacific LNG in proportion
to their ordinary equity interests. The MRCPS have a fixed rate dividend obligation based on the relevant observable market interest rates
and estimated credit margin at the date of issue. The dividend is paid twice per annum. The mandatory redemption date for the MRCPS is
30 June 2026. The financial asset (loan) reflecting these MRCPS was $3,620 million as at 30 June 2018 (2017: $3,609 million). Dividends
received are recognised as interest. Refer to note A2.
The carrying value of the financial asset at 30 June 2018, as disclosed in note B6, reflects the Group’s view that Australia Pacific LNG
will utilise cash flows generated from operations to redeem the MRCPS for their full issue price prior to their mandatory redemption date.
There are no conditions existing at the reporting date which indicate that Australia Pacific LNG will be unable to repay the full carrying
value. Accordingly the financial asset/(loan) is valued at amortised cost and reflects the cash provided to Australia Pacific LNG.
E1.4 Interests in unincorporated joint operations
The Group’s interests in unincorporated joint operations are brought to account on a line-by-line basis in the income statement and
statement of financial position. These interests are held on the following assets whose principal activities are oil and/or gas exploration,
development and production, power generation and geothermal power technology:
• Bonaparte Basin
• Browse Basin
• Otway Basin
• Geodynamics
• Beetaloo Basin
E2 Business combinations
There were no significant business combinations during the years ended 30 June 2018 and 30 June 2017.
Annual Report 2018
147
E3 Controlled entities
The financial statements of the Group include the consolidation of Origin Energy Limited and controlled entities. Controlled entities are the
following entities controlled by the parent entity (Origin Energy Limited).
Incorporated in
2018
Ownership
interest
per cent
2017
Ownership
interest
per cent
Origin Energy Limited
Origin Energy Finance Limited
Huddart Parker Pty Limited <
Origin Energy NZ Share Plan Limited
FRL Pty Ltd <
B.T.S. Pty Ltd <
Origin Energy Power Limited <
Origin Energy SWC Limited <
BESP Pty Ltd
Origin Energy Eraring Pty Limited <
Origin Energy Eraring Services Pty Limited <
Darling Downs Solar Farm Asset Holding Pty Ltd
Darling Downs Solar Farm Asset Pty Ltd
Origin Energy Upstream Holdings Pty Ltd
Origin Energy B2 Pty Ltd
Origin Energy Petroleum Pty Limited <
Origin Energy Browse Pty Ltd
Origin Energy CSG 2 Pty Limited
Origin Energy ATP 788P Pty Limited
Origin Energy Upstream Operator Pty Ltd
Origin Energy Upstream Operator 2 Pty Ltd
Origin Energy Holdings Pty Limited <
Origin Energy Retail Limited <
Origin Energy (Vic) Pty Limited <
Gasmart (Vic) Pty Ltd <
Origin Energy (TM) Pty Limited <
Cogent Energy Pty Ltd
Origin Energy Retail No. 1 Pty Limited
Origin Energy Retail No. 2 Pty Limited
Horan & Bird Energy Pty Ltd
Origin Energy Electricity Limited <
Eraring Gentrader Depositor Pty Limited
Sun Retail Pty Ltd <
OE Power Pty Limited <
Origin Energy Uranquinty Power Pty Ltd <
NSW
Vic
Vic
NZ
WA
WA
SA
WA
Vic
NSW
NSW
NSW
NSW
Vic
Vic
Qld
Vic
Vic
Qld
Vic
Vic
Vic
SA
Vic
Vic
Vic
Vic
Vic
Vic
Qld
Vic
Vic
Qld
Vic
Vic
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Financial Statements
148
E3 Controlled entities (continued)
Origin Energy Mortlake Terminal Station No. 1 Pty Limited
Origin Energy Mortlake Terminal Station No. 2 Pty Limited
Origin Energy PNG Ltd #
Origin Energy PNG Holdings Limited #
Origin Energy Tasmania Pty Limited <
The Fiji Gas Co Ltd
Origin Energy Contracting Limited <
Origin Energy LPG Limited <
Origin (LGC) (Aust) Pty Limited <
Origin Energy SA Pty Limited <
Hylemit Pty Limited
Origin Energy LPG Retail (NSW) Pty Limited
Origin Energy WA Pty Limited <
Origin Energy Services Limited <
OEL US Inc.
Origin Energy NSW Pty Limited <
Origin Energy Asset Management Limited <
Origin Energy Pipelines Pty Limited <
Origin Energy Pipelines (SESA) Pty Limited
Origin Energy Pipelines (Vic) Holdings Pty Limited <
Origin Energy Pipelines (Vic) Pty Limited <
Origin LPG (Vietnam) LLC
Origin Energy Solomons Ltd
Origin Energy Cook Islands Ltd
Origin Energy Vanuatu Ltd
Origin Energy Samoa Ltd
Origin Energy American Samoa Inc
Origin Energy Insurance Singapore Pte Ltd
Acumen Metering Pty Ltd
Angari Pty Limited <
Oil Investments Pty Limited <
Origin Energy Southern Africa Holdings Pty Limited
Origin Energy Kenya Pty Limited
Origin Energy Zoca 91-08 Pty Limited <
Sagasco NT Pty Ltd <
Sagasco Amadeus Pty Ltd <
Origin Energy Amadeus Pty Limited <
Amadeus United States Pty Limited <
Incorporated in
2018
Ownership
interest
per cent
2017
Ownership
interest
per cent
Vic
Vic
PNG
PNG
Tas
Fiji
Qld
NSW
NSW
SA
Vic
NSW
WA
SA
USA
NSW
SA
NT
Vic
Vic
Vic
Vietnam
Solomon Islands
Cook Islands
Vanuatu
Western Samoa
American Samoa
Singapore
Vic
SA
SA
Qld
Vic
SA
SA
SA
Qld
Qld
100
100
66.7
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
80
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
66.7
100
100
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
80
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Annual Report 2018
149
2018
Ownership
interest
per cent
2017
Ownership
interest
per cent
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
Incorporated in
Vic
Singapore
Singapore
NSW
NSW
NZ
SA
SA
ACT
UK
NZ
NZ
NZ
NZ
NZ
NSW
Vic
Vic
Vic
NZ
NZ
NZ
NZ
NZ
NZ
Vic
Vic
Vic
Vic
Singapore
Victoria
Netherlands
Netherlands
Netherlands
NSW
Vic
NSW
E3 Controlled entities (continued)
Origin Energy Vietnam Pty Limited
Origin Energy Singapore Holdings Pte Limited
Origin Energy (Song Hong) Pte Limited
Origin Future Energy Pty Limited
Origin Energy Metering Coordinator Pty Ltd
Origin Energy Resources NZ (Rimu) Limited
Lattice Energy Limited <
Lattice Energy Resources (Bonaparte) Pty Limited <
Lattice Energy Resources (Perth Basin) Pty Limited <
Lattice Energy Resources (Bass Gas) Limited
Lattice Energy Resources NZ (Holdings) Limited
Kupe Development Limited
Kupe Mining (No.1) Limited
Lattice Energy Resources NZ (Kupe) Limited
Lattice Energy Resources NZ (TAWN) Limited
OE Resources Limited Partnership
Lattice Energy Services Pty Limited
Lattice Energy Finance Limited
Origin Energy VIC Holdings Pty Limited <
Origin Energy New Zealand Limited
Origin Energy Universal Holdings Limited
Origin Energy Five Star Holdings Limited
Origin Energy Contact Finance Limited
Origin Energy Contact Finance No.2 Limited
Origin Energy Pacific Holdings Limited
Origin Energy Capital Ltd<
Origin Energy Finance Company Pty Limited <
OE JV Co Pty Limited <
OE JV Holdings Pty Limited
Origin Energy LNG Holdings Pte Limited
Origin Energy LNG Portfolio Pty Ltd <
Origin Energy Australia Holding BV #
Origin Energy Mt Stuart BV #
OE Mt Stuart General Partnership #
Parbond Pty Limited
Origin Education Foundation Pty Limited
Origin Foundation Limited
Financial Statements
150
E3 Controlled entities (continued)
Origin Renewable Energy Investments No 1 Pty Ltd
Origin Renewable Energy Investments No 2 Pty Ltd
Origin Renewable Energy Pty Ltd
Origin Energy Geothermal Holdings Pty Ltd
Origin Energy Geothermal Pty Ltd
Origin Energy Chile Holdings Pty Limited
Origin Energy Chile S.A. #
Origin Energy Geothermal Chile Limitada #
Nido Energy SpA #
Pleiades S.A
Incorporated in
2018
Ownership
interest
per cent
2017
Ownership
interest
per cent
Vic
Vic
Vic
Vic
Vic
Vic
Chile
Chile
Chile
Chile
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Origin Energy Geothermal Singapore Pte Limited
Singapore
Origin Energy Wind Holdings Pty Ltd
Crystal Brook Wind Farm Pty Limited
Wind Power Pty Ltd
Wind Power Management Pty Ltd
Lexton Wind Farm Pty Ltd
Tuki Wind Farm Pty Ltd
Dundas Tablelands Wind Farm Pty Limited
Origin Energy Hydro Bermuda Limited
Origin Energy Hydro Chile SpA #
Vic
NSW
Vic
Vic
Vic
Vic
Vic
Bermuda
Chile
< Entered into ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 and related deed of cross guarantee with Origin Energy Limited.
# Controlled entity has a financial reporting period ending 31 December.
Annual Report 2018
151
2017
Sagasco South East Inc was deregistered
on 10 October 2016.
Cullerin Range Wind Farm Pty Ltd and
Stockyard Hill Wind Farm Pty Ltd were sold
during the year ended 30 June 2017.
Darling Downs Solar Farm Operating
Holding Pty Ltd, Darling Downs Solar Farm
Asset Holding Pty Ltd, Darling Downs Solar
Farm Asset Pty Ltd and Darling Downs Solar
Farm Operating Pty Ltd were incorporated
during the year ended 30 June 2017.
The following name changes occurred on
1 February 2017:
The following name changes occurred
on 28 June 2017:
Origin Energy Developments Pty Limited
changed its name to Lattice Energy
Resources (Perth Basin) Pty Limited.
Origin Energy Bonaparte Pty Limited
changed its name to Lattice Energy
Resources (Bonaparte) Pty Limited.
Origin Energy Northwest Limited changed
its name to Lattice Energy Resources (Bass
Gas) Limited.
Origin Energy Resources (Kupe) Limited
changed its name to Lattice Energy
Resources NZ (Kupe) Limited.
Origin Energy Pinjar Holdings No. 1 Pty
Limited changed its name to Origin Energy
Upstream Holdings Pty Ltd.
Origin Energy Resources NZ Limited
changed its name to Lattice Energy
Resources NZ (Holdings) Limited.
Origin Energy Pinjar Holdings No. 2 Pty
Limited changed its name to Origin Energy
Upstream Operator Pty Ltd.
Origin Energy Resources NZ (TAWN)
Limited changed its name to Lattice Energy
Resources NZ (TAWN) Limited.
Origin Energy Pinjar No. 1 Pty Limited
changed its name to Origin Energy
B2 Pty Ltd.
Origin Energy Pinjar No. 2 Pty Limited
changed its name to Origin Energy
Upstream Operator 2 Pty Ltd.
Origin Energy Darling Downs Solar Farm
Pty Ltd changed its name to Darling Downs
Solar Farm Pty Ltd on 26 April 2017. Darling
Downs Solar Farm Pty Ltd was sold on
6 April 2017.
On 28 April 2017 Origin Energy Fairview
Transmissions Pty Limited changed its name
to Lattice Energy Services Pty Limited.
Origin Energy Walloons Transmissions
Pty Limited, Origin Energy Wallumbilla
Transmissions Pty Limited and Oil Company
of Australia (Moura) Transmissions Pty Ltd
were sold on 6 June 2017.
Lattice Energy Finance Limited was
incorporated on 26 June 2017.
Origin Energy Pinjar Security Pty Ltd
changed its name to Acumen Metering
Pty Ltd effective from 27 June 2017.
Origin Energy Resources Limited changed
its name to Lattice Energy Limited on
29 June 2017.
E3 Controlled entities
(continued)
Changes in controlled entities
2018
Lattice Energy Limited transferred its
shares in Origin Energy Browse Pty Ltd and
Origin Energy Petroleum Pty Ltd to Origin
Energy Upstream Holdings Pty Ltd on
31 August 2017.
Origin Energy Power Limited transferred
its shares in Darling Downs Solar Farm
Operating Holding Pty Ltd to Origin Energy
Holdings Pty Limited on 27 July 2017.
Darling Downs Solar Farm Operating
Holding Pty Ltd changed its name to
Origin Future Energy Pty Limited on
7 August 2017.
Origin Future Energy Pty Ltd transferred
its shares in Darling Downs Solar Farm
Operating Pty Ltd to Origin Energy
Holdings Pty Ltd on 24 August 2017.
Darling Downs Solar Farm Operating
Pty Ltd changed its name to Origin
Energy Metering Coordinator Pty Ltd on
24 August 2017.
Lattice Energy Resources NZ (Holdings)
Limited transferred its shares in Origin
Energy Resources NZ (Rimu) Limited
to Origin Energy Holdings Pty Ltd on
25 September 2017.
Lattice Energy Limited transferred its
shares in Origin Energy CSG 2 Pty Ltd and
Origin Energy ATP 788P Pty Ltd to Origin
Energy Upstream Holdings Pty Ltd on
26 September 2017.
Origin Foundation Pty Limited changed its
name to Origin Education Foundation Pty
Limited on 11 January 2018.
Origin Foundation Limited was incorporated
on 12 January 2018.
On 31 January 2018 Lattice Energy Limited
ceased to be controlled by the Group
(refer note E4).
Acumen Metering Pty Ltd was sold on
19 June 2018.
Financial Statements 152
E4 Discontinued operations and disposals
E4.1 Discontinued operations
On 6 December 2016 the Group announced its intention to divest the Lattice Energy assets. The associated earnings have been classified
as discontinued operations in the income statement and all related note disclosures for the current and comparative period.
Earnings from the Darling Downs Pipeline and the Jingemia asset in Western Australia have been classified as discontinued operations in
the income statement and all related note disclosures for the comparative period.
for the year ended 30 June
Results of discontinued operations
Revenue
Net (loss)/gain on sale of assets
Expenses
Impairment
Net financing costs
Loss before income tax
Income tax (expense)/benefit
Loss after tax from discontinued operations
Attributable to:
Members of the parent entity
Non-controlling interests
Financing costs capitalised
Cash flows of discontinued operations
Cash flows from operating activities
Cash flows used in investing activities
Net increase in cash and cash equivalents
2018
$million
2017
$million
279
(3)
(71)
(198)
(8)
(1)
(61)
(62)
(62)
–
(62)
1
140
(94)
46
461
234
(154)
(753)
(12)
(224)
50
(174)
(174)
–
(174)
8
284
(178)
106
Annual Report 2018 153
E4 Discontinued operations and disposals (continued)
E4.2 Disposals
On 26 April 2016 the Group entered into a Sale Agreement with Cyclone Energy Pty Ltd for the sale of the Jingemia asset in Western
Australia. Completion of the transaction occurred on 14 July 2017 for cash proceeds of $1. The assets and liabilities disposed primarily
comprised a restoration provision of $7 million, resulting in a pre-tax gain on sale of $7 million, net of transaction costs.
On 28 September 2017 the Group entered into an agreement to sell its conventional upstream oil and gas business, Lattice Energy Limited
(Lattice Energy), to Beach Energy with an economic effective date of 1 July 2017. Completion of the sale occurred on 31 January 2018.
On 24 May 2018 the Group entered into a Share and Asset Sale Agreement with Spark Investment Bidco Pty Ltd and IntelliHUB Operations
Pty Limited for the sale of the Acumen Metering business. Completion of the sale occurred on 19 June 2018.
The assets and liabilities relating to the divestment of the conventional upstream business, Acumen metering business and Jingemia assets
were classified as held for sale at 30 June 2017. All of these assets and liabilities have been disposed of during the year.
Reconciliation of (loss)/gain on sale
Consideration received
Net assets disposed
Gain on sale before income tax expense and reclassification of foreign currency translation reserve
Reclassification of foreign currency translation reserve
(Loss)/gain on sale before income tax expense
Carrying value of net assets disposed
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Exploration and evaluation assets
Intangible assets
Deferred tax assets
Trade and other payables
Provisions and employee benefits
Net assets disposed
Reconciliation of cash consideration
Consideration
Less: settlement of Benaris acquisition transaction (Lattice Energy)
Consideration (net of transaction costs)
Less: Cash and cash equivalents disposed
Consideration (net of cash disposed)
Lattice Energy
2018
$million
1,317
(1,309)
8
(18)
(10)
Acumen
2018
$million
267
(28)
239
–
239
2018
$million
2018
$million
100
150
49
1,384
7
1
255
(158)
(479)
1,309
–
2
1
19
–
10
–
(4)
–
28
2018
$million
2018
$million
1,506
(189)
1,317
(100)
1,217
267
–
267
–
267
Financial Statements 154
F Other information
This section includes other information to assist in understanding the financial performance and position of the Group, or items required to
be disclosed to comply with accounting standards and other pronouncements.
F1 Contingent liabilities
Discussed below are items for which it is not probable that the Group will have to make future payments or the amount of the future
payments cannot be reliably measured.
Guarantees
Bank guarantees and letters of credit have been provided mainly to Australian Energy Market Operator Limited to support the Group’s
obligations to purchase electricity from the National Electricity Market.
Bank guarantees – unsecured
Letters of credit – unsecured
2018
$million(1)
2017
$million(2)
408
–
368
2
(1) Includes unsecured bank guarantees of $9 million related to discontinued operations of which $8 million were cancelled on 3 July 2018 and $1 million are in the process
of being cancelled.
(2) Includes unsecured bank guarantees of $13 million related to discontinued operations.
The Group’s share of guarantees for certain contractual commitments of its joint ventures is shown at note F2. The Group has also given
letters of comfort to its bankers in respect of financial arrangements provided by the banks to certain partly-owned controlled entities.
Joint arrangements
As a participant in certain joint arrangements, the Group is liable for its share of liabilities incurred by these arrangements. In some
circumstances the Group may incur more than its proportionate share of such liabilities, but will have the right to recover the excess
liability from the other joint arrangement participants.
During the period, Australia Pacific LNG (APLNG) made principal repayments of US$713 million and interest payments on the project
finance facility of US$324 million. At 30 June 2018, the total outstanding balance of the project finance facility was US$7,346 million.
In August 2017, the final Project Finance lenders’ tests were passed which removed the remaining project finance guarantees provided by
the Company’s shareholders.
In September 2016, APLNG made a loan to the Group of US$96 million and receipt of this US$96 million from APLNG is shown as
a current payable to joint ventures in the statement of financial position. A further US$60 million was loaned by APLNG to Origin in
September 2017, bringing the total loan amount to US$156 million. These loans were made by APLNG to the Group in accordance with the
terms of the APLNG project financing facility, which allows APLNG to make a loan to a shareholder if the shareholder provides the project
financiers with a letter of credit for the amount of the loan.
The Group continues to provide parent company guarantees in excess of its 37.5 per cent shareholding in Australia Pacific LNG in respect
of certain historical domestic contracts.
Legal and regulatory
Certain entities within the Group (and joint venture entities, such as Australia Pacific LNG) are subject to various lawsuits and claims as well
as audits and reviews by government or regulatory bodies. In most instances it is not possible to reasonably predict the outcome of these
matters or their impact on the Group. Where outcomes can be reasonably predicted, provisions are recorded.
A number of sites owned/operated (or previously owned/operated) by the Group have been identified as contaminated. These properties
are subject to ongoing environmental management programs. For sites where the requirements can be assessed and remediation costs
can be estimated, such costs have been expensed or provided for.
Warranties and indemnities have also been given and/or received by entities in the Group in relation to environmental liabilities for certain
properties divested and/or acquired.
Capital expenditure
As part of the acquisition of Browse Basin exploration permits, the Group agreed to pay cash consideration of US$75 million contingent
upon a project Final Investment Decision (FID) and US$75 million contingent upon first production. The Group will pay further contingent
consideration of up to US$50 million upon first production if 2P reserves, at the time of FID, reach certain thresholds. These obligations have
not been provided for at the reporting date as they are dependent upon uncertain future events not wholly within the Group’s control.
Annual Report 2018 155
F2 Commitments
Detailed below are the Group’s contractual commitments that are not recognised as liabilities as the relevant assets have not yet
been received.
Capital expenditure commitments
Joint venture commitments(2)
Operating lease commitments(3)
2018
$million(1)
2017
$million(1)
87
452
505
72
740
465
The Group leases property, plant and equipment under operating leases with terms of one to 10 years. The future minimum lease
payments under non-cancellable operating leases are shown below.
Less than one year
Between one and five years
More than five years
2018
$million
2017
$million(3)
85
191
229
505
97
186
182
465
(1) Includes $Nil (June 2017: $9 million) of capital expenditure commitments and $Nil (June 2017: $104 million) of joint venture commitments relating to
discontinued operations.
(2) Includes $441 million (2017: $623 million) in relation to the Group’s share of Australia Pacific LNG’s capital, joint venture and operating lease commitments.
(3) Prior year disclosure has been restated by $67 million to reflect additional operating lease arrangements identified during the period.
F3 Share-based payments
This section sets out details of the Group’s share-based remuneration arrangements, including details of the Company’s Equity Incentive
Plan and Employee Share Plan.
The table below shows share-based remuneration expense that was recognised during the year.
Origin Equity Incentive Plan
Origin Employee Share Plan
Ref.
(a)
(b)
2018
$million
2017
$million
25
5
30
25
5
30
Financial Statements 156
F3 Share-based payments
(continued)
Explanatory notes to share-based
payments for the year ended 30 June
(a) Equity Incentive Plan
Eligible employees are granted share-based
remuneration under the Origin Energy
Limited Equity Incentive Plan. Participation
in the plan is at the Board’s discretion and
no individual has a contractual right to
participate or to receive any guaranteed
benefits. Equity incentives granted prior
to 1 July 2018 were offered in the form of
Options and/or share rights; from 1 July
2018 in the form of Share Rights and/or
Restricted Shares.
(i) Short Term Incentive (STI)
STI includes the award of Deferred Share
Rights (DSRs) and/or Restricted Shares,
which vest or are unrestricted where
the employee remains employed with
satisfactory performance for a set period
(generally after two and up to four years).
DSRs do not carry voting or dividend
entitlements. Once vested, a DSR entitles
the holder to one fully paid ordinary share of
the Company. As there is no exercise price
for DSRs, they are exercised automatically
upon vesting. The fair value of DSRs is
recognised as an employee expense
over the related service period. DSRs are
forfeited if the service and performance
conditions are not met. In exceptional
circumstances(1) the DSRs, which represent
a portion of the earned STI within the
employee’s remuneration package, will vest
at cessation unless the Board determines
otherwise. Fair value is measured at grant
date as the market value of an Origin share
less the discounted value of dividends
foregone (two year vesting period: $7.65,
three year vesting period: $7.43 and four
year vesting period: $7.21). As at 30 June
2018, Restricted Shares have not been used
but are expected to be used during FY19.
(ii) Long Term Incentive (LTI)
LTI includes the award of Performance
Share Rights (PSRs) and, prior to 1 July 2018
Options. Neither PSRs nor Options carry
dividend or voting entitlements and will
only vest if certain company performance
conditions and personal performance
standards are met. For grants during FY18
PSRs have a performance period of four
years, and Options have a performance
period of five years.
Half of each LTI award is subject to a market
hurdle, namely Origin’s Total Shareholder
Return (TSR) relative to a Reference Group
of ASX-listed companies identified in the
relevant Remuneration Report.
The remaining half of each LTI award is
subject to an internal hurdle, namely Return
on Capital Employed (ROCE) as set out in
the relevant Remuneration Report.
The number of awards that may vest
depends on performance against each
hurdle, considered separately.
For awards subject to the relative TSR
hurdle, no vesting occurs unless Origin’s
TSR over the performance period is ranked
above the 50th percentile of the Reference
Group. 50 per cent vesting occurs if the
50th percentile is exceeded. Full vesting
occurs if Origin is ranked at or above the
75th percentile of the Reference Group,
with pro-rata vesting between these two
vesting points.
For awards granted in FY16 and FY17
subject to the ROCE hurdle, no vesting
occurs unless Origin achieves two conditions,
the first to meet the average of the annual
target ROCEs, and the second to achieve
Origin’s weighted average cost of capital
(WACC) in either of the last two years of
the performance period.
For awards granted in respect of FY18 that
are subject to the ROCE hurdle, average
actual ROCE outcomes will need to exceed
average annual WACC and will be tested
separately for the Integrated Gas and the
Energy Markets businesses.
In all cases, meeting or exceeding the
ROCE targets will result in half of the
relevant PSRs vesting, while exceeding the
WACC targets by two percentage points
or more will result in all of the relevant PSRs
vesting, with straight line proportionate
vesting in between.
Vested Options may be exercised up to
a maximum of 10 years after grant date.
The exercise price of Options is based
on the weighted average price of the
Company’s shares over a period of 30
trading days referenced to 30 June. As
there is no exercise price for PSRs, once
vested they are exercised automatically.
When exercised, either automatically or
upon payment of the exercise price, a
vested award is converted into one fully
paid ordinary share that carries voting and
dividend entitlements.
The fair value of the awards granted is
recognised as an employee expense,
with a corresponding increase in equity,
over the vesting period. In exceptional
circumstances(1) unvested PSRs or Options
may be held ‘on foot’ subject to the
specified performance hurdles and other
plan conditions being met, or dealt with
in an appropriate manner determined by
the Board. For PSRs or Options subject
to the relative TSR condition fair value is
measured at grant date using a Monte
Carlo simulation model that takes into
account the exercise price, share price at
grant date, price volatility, dividend yield,
risk-free interest rate for the term of the
security and the likelihood of meeting
the TSR market condition. The expected
volatility reflects the assumption that the
historical volatility over a period similar to
the life of the options is indicative of future
trends, which may not necessarily be the
actual outcome. The amount recognised as
an expense is adjusted to reflect the actual
number of awards that vest except where
due to non-achievement of the TSR market
condition. Set out below are the inputs used
to determine the fair value of the PSRs and
Options granted during the year. For PSRs
subject to the ROCE condition, the initial
fair value at grant date is the market value
of an Origin share less the discounted value
of dividends foregone, and the expensing
value is trued-up at each reporting period
to the expected outcome as assessed at
that time.
(1) The Equity Incentive Plan Rules set out the
circumstances as death, disability, redundancy,
genuine retirement, or other exceptional
circumstances approved by the Board.
Annual Report 2018 F3 Share-based payments (continued)
Explanatory notes to share-based payments for the year ended 30 June (continued)
Grant date
Grant date share price
Exercise price
Volatility (per cent)
Dividend yield (per cent)(1)
Risk-free rate (per cent)
Grant date fair value (per award)
(1) Dividend assumptions are the compound average per annum rate over the vesting period (4 years PSRs, and 5 years Options).
157
Options
30-Aug-17
30-Aug-17
18-Oct-17
$7.65
$7.37
40%
1.8%
2.35%
$2.52
$7.38
$7.37
40%
1.8%
2.51%
$2.30
$7.65
$7.37
40%
1.8%
2.43%
$2.50
PSRs
Grant date
Grant date share price
Exercise price
Volatility (per cent)
Dividend yield (per cent)(1)
Risk-free rate (per cent)(2)
Grant date fair value (per award)
30-Aug-17
30-Aug-17
30-Aug-17
18-Oct-17
$7.65
Nil
40%
1.5%
–
$7.43
$7.65
Nil
40%
1.5%
2.11%
$4.80
$7.65
Nil
40%
1.5%
–
$7.21
$7.38
Nil
40%
1.5%
–
$6.98
(1) Dividend assumptions are the compound average per annum rate over the vesting period (4 years PSRs, and 5 years Options).
(2) Where the risk free rate is nil, these PSR tranches are ROCE-tested, therefore the risk free rate is not relevant to their valuation.
Financial Statements 158
F3 Share-based payments (continued)
Explanatory notes to share-based payments for the year ended 30 June (continued)
Equity Incentive Plan awards outstanding
Set out below is a summary of awards outstanding at the beginning and end of the financial year.
Weighted
average
exercise price
Options
PSRs
DSRs
Outstanding at 1 July 2017
9,886,114
$10.35
3,486,357
5,434,657
Granted
Exercised
Forfeited
Outstanding at 30 June 2018
Exercisable at 30 June 2018
1,432,299
$7.37
1,117,385
2,943,713
–
–
–
3,822,999
3,842,812
$12.18
517,100
152,635
7,475,601
$8.84
4,086,642
4,402,736
–
–
–
–
Outstanding at 1 July 2016
18,022,234
$11.99
5,479,633
4,199,028
Granted
Exercised
Forfeited
Outstanding at 30 June 2017
Exercisable at 30 June 2017
2,302,631
$5.58
1,725,214
3,497,212
–
–
–
1,986,376
10,438,751
$12.13
3,718,490
275,207
9,886,114
$10.35
3,486,357
5,434,657
–
–
–
–
The weighted average share price during 2018 was $8.55 (2017: $6.39). The options outstanding at 30 June 2018 have an exercise price
in the range of $5.21 to $15.65 (2017: $5.21 to $15.65) and a weighted average contractual life of 6.9 years (2017: 6.3 years).
For more information on these share plans and performance rights issued to KMPs, refer to the Remuneration Report.
(b) General Employee Share Plan (GESP)
Under the GESP all full-time and permanent part-time employees of the Company who are based in Australia or New Zealand with
at least one year of continuous service at 30 June of the performance year are granted up to AUD $1,000 of fully paid Origin shares
conditional upon the Company meeting certain safety targets. The shares are granted for no consideration. Shares awarded under the
ESP are purchased on-market, registered in the name of the employee, and are restricted for three years, or until cessation of employment,
whichever occurs first. New Zealand employees were able elect to have shares held in trust for three years; as at 30 June 2018 there were
no New Zealand employees and no shares held in trust for them
For the award to be made later in 2018 (referable to FY2018 service) there is no conditional hurdle and the service period qualification has
been reduced to commencement on or after 1 March 2018.
Annual Report 2018 159
F3 Share-based payments (continued)
Explanatory notes to share-based payments for the year ended 30 June (continued)
Details of the shares awarded under the GESP during the year are set out below.
2018
2017
Grant
date
Shares
granted
Cost per
share(1)
Total cost
$’000
28-Aug-17
620,116
$7.43
620,116
26-Aug-16
870,302
$5.51
870,302
4,607
4,607
4,795
4,795
(1) The cost per share represents the weighted average market price of the Company’s shares on the grant date.
F4 Related party disclosures
The Group’s interests in equity accounted entities and details of transactions with these entities are set out in note E1.
Certain directors of Origin Energy Limited are also directors of other companies that supply Origin Energy Limited with goods and
services or acquire goods or services from Origin Energy Limited. Those transactions are approved by management within delegated
limits of authority and the Directors do not participate in the decisions to enter into such transactions. If the decision to enter into
those transactions should require approval of the Board, the Director concerned will not vote upon that decision nor take part in the
consideration of it.
F5 Key management personnel
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
2018
$
2017
$
9,704,215
9,383,880
252,588
240,273
150,525
373,647
–
2,919,096
4,343,944
2,371,204
14,451,272
15,288,100
Loans and other transactions with key management personnel
There were no loans with key management personnel during the year.
Transactions entered into during the year with key management personnel are normal employee, customer or supplier relationships
and have terms and conditions which are no more favourable than dealings in the same circumstances on an arm’s length basis.
These transactions include:
• the receipt of dividends from Origin Energy Limited or participation in the Dividend Reinvestment Plan;
• participation in the Employee Share Plan, Equity Incentive Plan and Non-Executive Director Share Plan;
• terms and conditions of employment or directorship appointment;
• reimbursement of expenses incurred in the normal course of employment;
• purchases of goods and services; and
• receipt of interest on Retail Notes.
Financial Statements 160
F6 Notes to the statement of cash flows
Cash includes cash on hand, at bank and short-term deposits, net of outstanding bank overdrafts.
The following table reconciles profit to net cash provided by operating activities.
Profit/(loss) for the period
Adjustments for:
Depreciation and amortisation
Executive share-based payment expense
Impairment losses recognised – trade and other receivables
Exploration expense
Impairment of assets
Decrease/(increase) in fair value of financial instruments
Gain on sale of assets
Non-cash share of net profits of equity accounted investees
Unrealised foreign exchange (gain)/loss
Amortisation of oil option premiums
Net financing costs
Oil forward sale settlements(pre-early termination)
Electricity hedge premium
Changes in assets and liabilities, net of effects from acquisitions/disposals
– Receivables
– Inventories
– Payables
– Provisions
– Tax balances
– Other
Total adjustments(1)
Net cash from operating activities
2018
$million
2017
$million
221
(2,223)
381
25
88
8
712
624
(234)
(205)
(41)
64
279
(86)
(160)
481
25
75
62
1,692
(207)
(401)
1,912
76
53
341
(141)
(133)
(321)
(487)
(66)
128
(15)
(58)
(51)
1,072
1,293
52
58
(24)
(23)
101
3,512
1,289
(1) Adjustments include amounts that are classified as discontinued operations and held for sale at 30 June 2017. Refer to note E4 for details of cash flows relating to
discontinued operations.
Annual Report 2018 F6 Notes to the statement of cash flows (continued)
Reconciliation of movements of liabilities to cash flows arising from financing activities
$million
Balance as at 1 July 2017
Proceeds from borrowings
Repayment of borrowings/other liabilities(1)
Foreign exchange adjustments
Other non-cash movements
Balance as at 30 June 2018
Liabilities from financing activities
Current
borrowings
Non-current
borrowings
Other financial
(assets)/
liabilities
133
–
(167)
75
1,048
1,089
8,382
925
(2,268)
330
(1,019)
6,350
111
–
(472)
(271)
(20)
(939)
161
Total
8,626
925
(2,907)
134
9
6,500
(1) The movement in other financial (assets)/liabilities includes a $220 million cash repayment of cross-currency interest rate swaps.
F7 Auditors’ remuneration
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and
non-related audit firms.
Audit and review services of the financial reports by:
Auditors of the Group (KPMG)
Other auditors
Other services by:
Auditors of the Group (KPMG)
Accounting advice
Taxation services
Legal services
Lattice related services(1)
Advisory services
Other
(1) This amount relates to IPO transaction, US 144A advisory, accounting advice, legal advisory and taxation services for Lattice Energy.
2018
$’000
2017
$’000
2,360
88
2,448
–
97
37
1,184
61
179
1,558
4,006
3,042
82
3,124
45
65
211
632
–
18
971
4,095
Financial Statements 162
F8 Master netting or similar agreements
The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements.
In general, under such agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in
the same currency are aggregated into a net amount payable by one party to the other.
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position, where the Group has a legally
enforceable right to offset recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability
simultaneously. The Group has also entered into arrangements that do not meet the criteria for offsetting, but still allow for the related
amounts to be offset in certain circumstances, such as a loan default or the termination of a contract.
The following table presents the recognised financial instruments that are offset, or subject to master netting arrangements but not
offset, as at reporting date. The column ‘net amount’ shows the impact on the Group’s statement of financial position if all set-off rights
were exercised.
30 June 2018
Derivative financial assets
Derivative financial liabilities
30 June 2017
Derivative financial assets
Derivative financial liabilities
Amount offset
in the
statement of
financial
position
$million
Amount in the
statement of
financial
position
$million
Gross
amount
$million
Related
amount
not offset
$million
Net
amount
$million
1,893
(1,912)
1,708
(2,021)
(254)
254
(412)
412
1,639
(1,658)
1,296
(1,609)
(678)
678
(414)
414
961
(980)
882
(1,195)
Annual Report 2018 163
F9 Deed of Cross Guarantee
The parent entity has entered into a Deed of Cross Guarantee through which the Group guarantees the debts of certain controlled entities.
The controlled entities that are party to the Deed are shown in note E3.
The following consolidated statement of comprehensive income and retained profits, and statement of financial position comprises the
Company and its controlled entities which are party to the Deed of Cross Guarantee after eliminating all transactions between parties
to the Deed.
for the year ended 30 June
Consolidated statement of comprehensive income and retained profits
Revenue
Other income
Expenses
Share of results of equity accounted investees
Impairment
Interest income
Interest expense
Profit/(loss) before income tax
Income tax expense
Profit/(loss) for the period
Other comprehensive income
Total comprehensive income for the period
Retained earnings at the beginning of the period
Adjustments for entities entering the Deed of Cross Guarantee
Retained earnings at the beginning of the period
Dividends paid
Retained earnings at the end of the period
2018
$million
2017
$million
14,297
13,646
95
393
(13,554)
(12,509)
205
–
228
(544)
727
(65)
662
–
662
(1,912)
(753)
224
(590)
(1,501)
(102)
(1,603)
1
(1,602)
4,232
5,834
(4)
–
4,228
5,834
–
–
4,890
4,232
Financial Statements 164
F9 Deed of cross guarantee (continued)
as at 30 June
Statement of financial position
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivatives
Other financial assets
Assets classified as held for sale
Other assets
Total current assets
Non-current assets
Trade and other receivables
Derivatives
Other financial assets
Investments accounted for using the equity method
Property, plant and equipment
Exploration, evaluation and development assets
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Payables to joint ventures
Interest-bearing liabilities
Derivatives
Other financial liabilities
Provision for income tax
Employee benefits
Provisions
Liabilities classified as held for sale
Total current liabilities
Non-current liabilities
Trade and other payables
Interest-bearing liabilities
Derivatives
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
2018
$million
2017
$million
56
3,146
183
406
208
–
151
4,150
1,966
1,109
4,274
5,988
3,391
–
5,130
152
38
44
3,321
123
240
86
2,050
99
5,963
1,831
1,055
4,614
5,451
2,934
63
5,131
187
34
22,048
26,198
21,300
27,263
2,204
2,544
221
–
182
61
114
118
34
–
130
127
300
387
51
179
33
720
2,934
4,471
8,315
713
1,234
19
321
10,602
13,536
12,662
7,150
622
4,890
8,625
1,016
1,309
34
64
11,048
15,519
11,744
7,150
362
4,232
12,662
11,744
Annual Report 2018 F10 Parent entity disclosures
The following table sets out the results and financial position of the parent entity, Origin Energy Limited.
Origin Energy Limited
Loss for the period
Other comprehensive income, net of income tax
Total comprehensive income for the period
Financial position of the parent entity at period end
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Share capital
Share-based payments reserve
Foreign currency translation reserve
Hedging reserve
Retained earnings
Total equity
Contingent liabilities of the parent entity
Bank guarantees – unsecured
165
2018
$million
(1,390)
258
(1,132)
1,193
20,164
21,357
3,596
7,118
2017
Restated
$million
(1,934)
(187)
(2,121)
1,517
21,779
23,296
2,373
9,174
10,714
11,547
7,150
7,150
247
379
(13)
2,880
10,643
221
133
(25)
4,270
11,749
213
126
Financial Statements 166
F10 Parent entity disclosures
(continued)
The parent entity has entered into a deed
of indemnity for the cross-guarantee of
liabilities of a number of controlled entities.
Refer to note E3.
The parent entity has also provided guarantees
for certain contractual commitments of its
joint ventures associated with capital projects.
Change in accounting policy
The Group has re-assessed its accounting
policy relating to accounting for interests
in joint ventures in its parent entity. In the
current year, the Group elected to change
the method of accounting to use the equity
method. The parent entity had previously
measured its investments at cost.
The Group believes that this method provides
more relevant information to the users of its
financial statements and that it aligns the
parent entity accounting policy to the Group’s
accounting treatment. The change in the
parent entity has been applied retrospectively
with an opening adjustment of $4.0 billion
recognised as an equity accounted investment
classified under non-current assets and a
corresponding increase in retained earnings
of $3.9 billion and foreign currency translation
reserve of $0.1 billion within equity.
In the current year, the applied equity
accounting method has resulted in an
increase in equity accounted investments of
$525 million with a corresponding increase
in profit of $205 million and foreign currency
translation reserve of $246 million.
F11 New standards and
interpretations not yet adopted
Australian Accounting Standards and
Interpretations that are issued, but not
yet effective, up to the date of issuance
of the Group’s financial statements are
disclosed below. The Group intends to
adopt these standards, if applicable,
when they become effective.
AASB 9 Financial Instruments and
AASB 2014-7 Amendments to Australian
Accounting Standards arising from AASB 9
AASB 9 replaces AASB 139 Financial
Instruments: Recognition and Measurement
and generally simplifies the classification
and measurement of financial instruments,
introduces a new model for calculating
impairment of financial assets, and aligns
hedge accounting more closely with an
entity’s risk management practices.
In the current year, the Group completed
its detailed impact assessment. The key
impacts on the Group’s accounting and
reporting, as outlined below, are based on
currently available information and may
change should further reasonable and
supportable information become available
in 2018 when the Group adopts AASB 9.
The key changes to the Group’s accounting
for and reporting of financial instruments
are outlined below.
• Mandatorily Redeemable Cumulative
Preference Shares (MRCPS) – the
MRCPS issued to the Group by Australia
Pacific LNG are currently held at
amortised cost. Under the new standard
the MRCPS financial asset must be
measured at fair value through profit
and loss. At 30 June 2018, the fair value
of the MRCPS receivable was $3,465
million as compared to a carrying value
of $3,620 million.
• Available-for-sale financial assets – the
Group’s available-for-sale financial assets
include Settlement Residue Distribution
Agreements which are currently held at
fair value through other comprehensive
income. Under the new standard,
changes in the fair value of these
financial assets must be recognised in
profit and loss. Cumulative fair value
losses of $22 million will be reclassified
from reserves to retained earnings on
initial adoption of AASB 9.
AASB 9 introduces an expected credit loss
model for impairment of financial assets
which replaces the existing incurred loss
model. The various methodologies under
which the Group currently calculates trade
receivable and unbilled revenue impairment
allowances have been reviewed and
application of the new credit loss model will
not have a material impact to the Group.
AASB 15 Revenue from Contracts
with Customers
AASB 15 replaces AASB 111 Construction
Contracts, AASB 118 Revenue and related
Interpretations and establishes a five-step
model to account for revenue arising
from contracts with customers. The core
principle of AASB 15 is that revenue is
recognised at an amount that reflects the
consideration to which an entity expects
to be entitled in exchange for transferring
goods or services to customers.
In the current year, the Group completed
its detailed impact assessment which
included review of a representative sample
of revenue contracts and relevant industry
guidance. As a result of the assessment, it
is concluded that there will be no material
adjustments to profit or retained earnings
on adoption of AASB 15.
The revenue and expenses line items in
the income statement will be subject to
immaterial adjustments of equal amounts
due to revised accounting for network
connection fees passed onto customers
in the Group’s retail energy contracts and
gas swap arrangements.
Further reclassification from other income
to revenue may also arise where amounts
recorded in other income are deemed
to constitute contracts with customers
under AASB 15.
AASB 16 Leases
AASB 16 replaces AASB 117 Leases and
related Interpretations. It is effective for the
Group for the reporting period beginning
1 July 2019 and requires lessees to account
for all leases under a single on-balance
sheet model in a similar way to finance
leases under the current standard.
AASB 16 further introduces a new definition
of a lease, which focuses on the right to
control the use of an identified asset.
At the reporting date, the Group has
$505 million of non-cancellable operating
lease commitments. Related information
is disclosed in note F2 of the financial
statements. Upon implementation of the
new standard all lease arrangements will
be recognised on the balance sheet. The
Group has identified certain areas of the
business where further work is required
to understand and assess arrangements
that may contain a lease under the new
definition which are not leases under
the current definition and therefore are
not included in the non-cancellable
operating lease commitment disclosures.
In addition, the Group will need to assess
option or renewal periods identified in
lease agreements. Where such options are
reasonably certain of exercise, payments
in excess of those currently disclosed
as operating lease commitments will be
included in the calculation of the lease
liability and right-of-use asset.
The Group’s detailed impact assessment
is ongoing and a reliable estimate of the
impact is still being determined.
Conceptual Framework for
Financial Reporting
The International Accounting Standards
Board (IASB) issued the revised Conceptual
Framework on 20 March 2018. The
Conceptual Framework sets out a
comprehensive set of concepts for financial
reporting, standard setting, guidance for
prepares developing consistent accounting
policies. The changes to the Conceptual
Framework may affect the application of
IFRS in situations where no standard applies
to a particular transaction or event. The
revised Conceptual Framework is effective
for annual periods beginning on or after
1 January 2020.
The Group has assessed the impact of the
changes to the Conceptual Framework.
It is not expected to have a significant
impact on the amounts recognised in these
financial statements.
F12 Subsequent events
No item, transaction or event of a material
nature has arisen since 30 June 2018 that
would significantly affect the operations of
the Group, the results of those operations,
or the state of affairs of the Group, in future
financial periods.
Annual Report 2018 Directors’ Declaration
167
Directors’ Declaration
1
In the opinion of the Directors of Origin Energy Limited (the Company):
(a) the consolidated financial statements and notes are in accordance with the
Corporations Act 2001 (Cth), including:
(i) giving a true and fair view of the financial position of the Group as at
30 June 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 (Cth).
(b) the consolidated financial statements also comply with International Financial
Reporting Standards as disclosed in the Overview of the consolidated financial
statements.
(c) there are reasonable grounds to believe that the Company will be able to pay its
debts as and when they become due and payable.
2
There are reasonable grounds to believe that the Company and the controlled entities
identified in note E3 will be able to meet any obligations or liabilities to which they
are or may become subject to by virtue of the Deed of Cross Guarantee between the
Company and those controlled entities pursuant to ASIC Corporations (Wholly-owned
Companies) Instrument 2016/785.
3
The Directors have been given the declarations required by section 295A of the
Corporations Act 2001 (Cth) from the Chief Executive Officer and the Chief Financial
Officer for the financial year ended 30 June 2018.
Signed in accordance with a resolution of Directors
Gordon Cairns
Chairman Director
Sydney, 16 August 2018
168
Annual Report 2018 Independent Auditor’s Report
169
170
Annual Report 2018 Independent Auditor’s Report
171
172
Annual Report 2018 Independent Auditor’s Report
173
174
Share and Shareholder
Information
Information set out below was applicable as at 16 August 2018.
As at 16 August 2018, there were:
• 140,775 holders of ordinary shares in the Company; and
• 28 holders of 7,475,601 Options, 94 holders of 4,009,862 Performance Share Rights, and 378 holders of 4,110,423 Deferred Share
Rights granted under the Origin Energy Equity Incentive Plan.
There is not a current on-market buy-back of Origin shares.
During the reporting period 620,116 Origin shares were purchased on-market for the purpose of the Employee Share Plan.
The average price per share purchased was $7.36.
Analysis of shares
Holdings Ranges
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001–99,999,999,999
Totals
Holders
57,826
60,472
13,936
8,325
Total Units
25,745,086
145,507,919
97,746,699
168,683,537
216
1,321,758,534
%
1.463
8.270
5.556
9.587
75.124
140,775
1,759,441,775
100.000
5,346 shareholders hold less than a marketable parcel as at 16 August 2018.
Substantial shareholders
There were no substantial shareholders as disclosed by notices received by the Company as at 16 August 2018.
Top 20 holdings
Shareholder
HSBC Custody Nominees
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Argo Investments Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Number of shares
% of issued shares
528,525,221
372,706,171
130,199,967
100,533,019
34,512,013
25,360,474
10,951,603
10,658,952
8,916,533
6,249,524
30.039%
21.183%
7.400%
5.714%
1.962%
1.441%
0.622%
0.606%
0.507%
0.355%
Annual Report 2018 Share and Shareholder Information
175
Shareholder
AMP Life Limited
Australian Foundation Investment Company Limited
The Senior Master of the Supreme Court
Forsyth Barr Custodians Ltd
HSBC Custody Nominees (Australia) Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited – A/C 2
HSBC Custody Nominees (Australia) Limited
CS Fourth Nominees Pty Limited
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd DRP
Total Securities of Top 20 Holdings
Total of Securities
Shareholder enquiries
Number of shares
% of issued shares
6,167,394
6,000,000
3,580,943
3,570,616
3,363,658
3,358,140
2,463,130
2,277,702
2,267,208
1,767,279
0.351%
0.341%
0.204%
0.203%
0.191%
0.191%
0.140%
0.129%
0.129%
0.100%
1,263,429,547
71.809%
1,759,441,775
For information about your shareholding, to notify a change of address, to make changes to your dividend payment instructions or for
any other shareholder enquiries, you should contact Origin Energy’s share registry, Boardroom Pty Ltd on 1300 664 446. Please note
that broker sponsored holders are required to contact their broker to amend their address.
When contacting the share registry, shareholders should quote their security holder reference number, which can be found on the holding
or dividend statements.
Shareholders with internet access can update and obtain information regarding their shareholding online at originenergy.com.au/investors
Tax File Number
For resident shareholders who have not provided the share registry with their Tax File Number (TFN) or exemption category details,
tax at the top marginal tax rate (plus Medicare levy) will be deducted from dividends to the extent they are not fully franked. For those
shareholders who have not as yet provided their TFN or exemption category details, forms are available from the share registry.
Shareholders are not obliged to provide this information if they do not wish to do so.
Information on Origin
The main source of information for shareholders is the Annual Report and the Shareholder Review. Both the Annual Report and
Shareholder Review will be provided to shareholders on request and free of charge. Shareholders not wishing to receive the
Annual Report should advise the share registry in writing so that their names can be removed from the mailing list.
Origin’s website www.originenergy.com.au is another source of information for shareholders.
Securities Exchange listing
Origin shares are traded on the Australian Securities Exchange Limited (ASX). The symbol under which Origin shares are traded is ‘ORG’.
Voting rights of members
At a meeting of members, each member who is entitled to attend and vote may attend and vote in person or by proxy, attorney or
representative. On a show of hands, every person present who is a member, proxy, attorney or representative, shall have one vote and
on a poll, every member who is present in person or by proxy, attorney or representative shall have one vote for each fully paid share held.
176
Exploration and
Production Permits
and Data
Annual Report 2018 Exploration and Production Permits and Data
177
1. Origin’s interests
Origin held interests in the following permits at 30 June 2018.
Basin/Project Area
Interest
Basin/Project Area
Interest
Basin/Project Area
Interest
Australia
Surat Basin (Queensland)
Talinga/Orana
ATP 788P (Shallows)
ATP 788P (Deeps)
100.0%
*
25.00% *
ATP 692P and PL’s 209,
215, 226, 272, 216(A),
225(A), 445(A)
37.50% *1
Other Surat Basin
ATP 606P and PL’s 297,
403, 404, 407, 408,
405, 406(A), 412(A),
413 and 444(A)
Denison Trough (Queensland)
PL’s 41, 42, 43, 44, 45
54, 67, 173, 183 and 218
ATP 1191 Farm-out
(Production)
and PL’s 450, 451,
457 and 1012
ATP 1191
ATP 1177P
PPL’s 10 and 11
LNG (Gladstone)
PPL’s 162 and 163
PFL 20
18.75% *1
11.25%
*1
18.75%
18.75%
18.75%
1
1
1
18.75% *1
37.50% *1
37.50% *1
PPL’s 171 and 181,
PPL(A)2032
PFL 26
37.50% *1
37.50% *1
ATP 631P and PL’s
281 and 282
Kenya/Argyle/Lauren/Bellevue
PL’s 179, 180, 228,
229 and 263
PL 247
ATP 648 and PL’s 257,
273, 274, 275, 278, 279,
442, 466, 474 and 503
PL 1025
PFL 19
15.23%
11.02%
11.72%
11.72%
11.72%
PPL’s 107, 176 and 2014
15.23%
ATP 663P and PL’s
434(A), 435(A), 436(A),
437(A), 438(A) and 439(A)
ATP 973P and PL’s 265,
266 and 267
ATP 972P and PL’s
469(A), 470(A) and 471(A)
PL 1011
PL 1018
PPL’s 143, 177, 178, 185,
186, 2000 and 2026
1
1
1
1
1
1
34.77% *1
6.79%
1
37.50% *1
37.50% *1
34.77% *1
37.50% *1
37.50% *1
37.50% *1
CSG (Queensland) Fairview
ATP 526P, ATP 2012P**,
ATP(A)2033 and PL’s 90, 91,
92, 99, 100, 232, 233, 234,
235 and 236, PL(A) 1017
Peat
PL 101
Other Bowen Basin
ATP 804P
8.97%
1
ATP 745P and PL’s 420,
421 and 440
Onshore Otway Basin (Victoria)
PPL 2 Ex (Iona Exclusion)
100.00% *
37.50% *1
PPL 8
100.00% *
10.99%
8.94%
1
1
Browse Basin (Western Australia)
WA-315-P, WA-398-P
and TP/28
40.00%
Spring Gully
ATP 592P and PL’s 195,
414, 415, 416, 417, 418,
268 and 419(A)
PL 204
PL 200
PPL 180
35.44% *1
37.40% *1
35.89% *1
37.50% *1
PL’s 219 and 220
37.50% *1
Beetaloo Basin (Northern Territory)
EP 76, EP 98 and EP117
70.00% *
Notes:
* Operatorship
1
Interest held through 37.5 per cent ownership
of Australian Pacific LNG Joint Venture
178
Annual
Reserves Report
1. Reserves and Resources
This Annual Reserves Report provides an update on the reserves and resources of Origin Energy Limited (Origin) and its share
of Australia Pacific LNG, as at 30 June 2018. The information in this report does not include Origin’s share of reserves relating to
Lattice Energy assets. The sale of Lattice Energy to Beach Energy was completed on 31 January 2018, with an economic effective
date of 1 July 2017.
1.1 Highlights
Australia Pacific LNG
• Activity during FY2018 focused on maximising production for supply to the two LNG trains at Curtis Island and to the domestic market,
contributing to:
– a strong production result with Origin’s share of Australia Pacific LNG production increasing by 11 per cent or 25 PJe to 254 PJe
– an increase in Origin’s share of proven reserves (1P) of 11 per cent or 314 PJe before production as a result of development drilling.
After taking into account production, 1P increased by 61 PJe to 2,880 PJe.
• Australia Pacific LNG also continues to focus on maturing its strong resource base with exploration and appraisal activities, as well as
through technology trials and cost saving initiatives underway.
• Following a technical and commercial review of ATP663 (Gilbert Gully), Australia Pacific LNG determined that this acreage has lower
permeability and gas saturation than in other parts of the Surat Basin, making commercial development in this area unlikely, particularly
due to the distance from existing production infrastructure. Accordingly, Australia Pacific LNG intends to divest the permit and has
recorded a downward revision of 215 PJe (Origin’s share) to its 2C contingent resource.
1.2 2P Reserves
Origin 2P reserves by area
2P reserves by area (PJe)
2P
30/06/2017
Acquisition/
divestment
New booking/
discovery
Revisions/
extensions
Production
2P
30/06/2018
Australia Pacific LNG
4,704
Surat/Bowen (unconventional)
– Spring Gully & Denison Asset
– Condabri, Talinga & Orana Asset
– Reedy Creek, Combabula
& Peat Asset
– Non–Operated Assets
Other
Ironbark (unconventional)
Total
606
1,467
1,585
1,046
249
4,953
–
–
–
–
–
–
–
–
–
–
–
–
–
–
219
102
87
59
(254)
4,670
(39)
(100)
(54)
670
1,453
1,590
(29)
(61)
957
(120)
99
–
(254)
129
4,799
Annual Report 2018 Annual Reserves Report
179
Summary of 2P Reserves Movement
Proved plus probable (2P) reserves decreased by 154 PJe (including production) to a total of 4,799 PJe, when compared to 30 June 2017.
The key changes in 2P reserves include:
• 254 PJe decrease due to production
• 99 PJe net increase resulting from revisions / extensions associated with Australia Pacific LNG and Ironbark.
The increase of 99 PJe of 2P reserves before production included movements in the following areas:
• Australia Pacific LNG increased by 219 PJe or 5 per cent due to:
– improvements in forecast estimated recovery from producing areas due to more production data leading to an improved
understanding of field behaviour
– improved economic assumptions
– reductions in future unit costs associated with the cost reduction program that is underway.
•
Ironbark decreased by 120 PJe due to a revision to the field development plan based on experience and updated assumptions
from analogous Australia Pacific LNG fields as announced to the market ASX on 8 February 2018 https://www.asx.com.au/
asxpdf/20180208/pdf/43rf6t5nxl0ycy.pdf.
Additional notes:
• At 30 June 2018, 100 per cent of Origin 2P reserves are unconventional gas.
Origin 2P reserves by development type
2P reserves by development
type (PJe)
Developed
Undeveloped
Total 2P
30/06/2017
Developed
Undeveloped
Total 2P
30/06/2018
Australia Pacific LNG
2,387
2,317
4,704
2,461
2,208
4,670
Surat/Bowen (unconventional)
– Spring Gully & Denison Asset
– Condabri, Talinga & Orana Asset
– Reedy Creek, Combabula
& Peat Asset
– Non–Operated Assets
Other
Ironbark (unconventional)
Total
455
984
486
461
151
483
1,099
606
1,467
1,585
585
1,046
–
2,387
249
2,566
249
4,953
543
988
529
401
–
2,461
126
465
1,061
556
129
2,338
670
1,453
1,590
957
129
4,799
180
1.3 1P Reserves
Proved (1P) reserves increased by 314 PJe or 11 per cent (before production) and 61 PJe after production to a total of 2,880 PJe,
when compared to the previous reporting period, due to development drilling. 100 per cent of 1P reserves are unconventional gas.
Origin 1P reserves by area
1P reserves by area (PJe)
Australia Pacific LNG
Surat/Bowen (unconventional)
– Spring Gully & Denison Asset
– Condabri, Talinga & Orana Asset
– Reedy Creek, Combabula
& Peat Asset
– Non–Operated Assets
Other
Ironbark (unconventional)
Total
1P
30/06/2017
Acquisition/
divestment
New booking/
discovery
Revisions/
extensions
Production
1P
30/06/2018
2,819
497
1,018
532
772
–
2,819
–
–
–
–
–
–
–
–
–
–
–
–
–
–
314
(254)
2,880
95
133
107
(39)
(100)
(54)
(21)
(61)
–
314
–
(254)
553
1,051
585
691
–
2,880
Origin 1P reserves by development type
1P reserves by development
type (PJe)
Developed
Undeveloped
Total 1P
30/06/2017
Developed
Undeveloped
Total 1P
30/06/2018
Australia Pacific LNG
2,387
432
2,819
2,461
419
2,880
Surat/Bowen (unconventional)
– Spring Gully & Denison Asset
– Condabri, Talinga & Orana Asset
– Reedy Creek, Combabula &
Peat Asset
– Non–Operated Assets
Other
Ironbark (unconventional)
Total
455
984
486
461
–
2,387
41
34
46
311
–
432
497
1,018
532
772
–
2,819
543
988
529
401
–
2,461
10
63
56
290
–
419
553
1,051
585
691
–
2,880
1.4 3P and 2C Contingent Resources for Origin Energy
Beetaloo
A material contingent resource announcement of 6.6 Tscf (gross) or 4.6 Tscf (Origin share) for the Beetaloo Basin was provided on
15 February 2017 to the ASX: http://www.asx.com.au/asxpdf/20170215/pdf/43g0qhh87j71bb.pdf. There has been no change to the
contingent resource for the Beetaloo Basin in this reporting period.
On 17 April 2018 the Northern Territory government announced its decision to lift the moratorium on fracking and adopt the recommendations
of the independent scientific inquiry. Origin is working with the NT Government, APPEA and other operators to provide input into the detail
of recommendations before they are implemented and has held initial meetings to start access negotiations.
Ironbark
Ironbark (unconventional) 3P reserves decreased by 443 PJe to 192 PJe and 2C decreased by 44 PJe to 288 PJe. These changes are due
to a revision to the field development plan, as announced to the ASX on 8 February 2018 (https://www.asx.com.au/asxpdf/20180208/
pdf/43rf6t5nxl0ycy.pdf) and follow a detailed assessment of the Ironbark gas field applying updated assumptions consistent with the
technical review of Australia Pacific LNG’s reserves in June 2017.
Annual Report 2018 Annual Reserves Report
181
Appendix A: APLNG Reserves and Resources
Netherland, Sewell & Associates, Inc. (NSAI) has prepared a consolidated report of the reserves and resources held by Australia
Pacific LNG for Non-Operated Assets. The reserves and resources estimates for each property in this report have been independently
estimated by NSAI.
The tables below provide 1P, 2P and 3P reserves and 2C resources for Australia Pacific LNG (100 per cent) and Origin’s 37.5 per cent
interest in these Australia Pacific LNG reserves and resources.
Reserves / resources held by APLNG (100% share)
Reserves/Resource classification
30/06/2017
Acquisition/
divestment
New booking/
discovery
Revisions/
extensions
Production
30/06/2018
1P (proven)
2P (proven plus probable)
3P (proven plus probable
plus possible)
2C (best estimate
contingent resource)
7,518
12,545
13,382
3,956
–
–
–
–
–
–
–
–
837
584
603
(676)
(676)
(676)
7,679
12,453
13,310
(707)
–
3,249
Reserves / resources held by Origin (37.5% in APLNG)
Reserves/Resource classification
30/06/2017
Acquisition/
divestment
New booking/
discovery
Revisions/
extensions
Production
30/06/2018
1P (proven)
2P (proven plus probable)
3P (proven plus probable
plus possible)
2C (best estimate
contingent resource)
2,819
4,704
5,018
1,483
–
–
–
–
–
–
–
–
314
219
226
(254)
(254)
(254)
2,880
4,670
4,991
(265)
–
1,218
The 837 PJe increase in Australia Pacific LNG (100 per cent share) 1P excluding production is due to development drilling.
The 584 PJe increase in Australia Pacific LNG (100 per cent share) 2P excluding production is due to more production data leading to
an increased understanding of estimated forecast recovery from producing areas, accompanied by improved economic assumptions and
reduction in future capital expenditure reflecting the cost reduction program underway.
The 603 PJe increase in Australia Pacific LNG (100 per cent share) 3P excluding production is due to improved understanding of
estimated recovery in producing areas.
The 707 PJe decrease in Australia Pacific LNG (100 per cent share) 2C is primarily due to the planned divestment of ATP663
(Gilbert Gully) resulting in a 573 PJe write-off and some minor reclassification to reserves. There are a number of appraisal activities
presently ongoing that if successful will convert some resources to reserves.
182
Appendix B: Notes Relating
to this Report
a. Methodology regarding Reserves
and Resources
The Reserves Report has been prepared
to be consistent with the Petroleum
Resources Management System (PRMS)
2007 published by Society of Petroleum
Engineers (SPE). This document may be
found at the SPE website: spe.org/industry/
docs/Petroleum_Resources_Management_
System_2007.pdf. Additionally, this
Reserves Report has been prepared to
be consistent with the ASX reporting
guidelines. For all assets Origin reports
reserves and resources consistent with SPE
guidelines as follows: proved reserves (1P);
proved plus probable reserves (2P); proved
plus probable plus possible reserves (3P);
best estimate contingent resource (2C).
Reserves must be discovered, recoverable,
commercial and remaining.
The CSG reserves and resources held
within Australia Pacific LNG’s properties
have either been independently prepared
by NSAI or prepared by Origin. An
independent audit of our CSG reserves
and resources within ATP 788 (Ironbark)
permit has been undertaken by NSAI. The
reserves and resources estimates contained
in this report have been prepared in
accordance with the standards, definitions
and guidelines contained within the
Petroleum Resources Management System
(PRMS) and generally accepted petroleum
engineering and evaluation principles as set
out in the SPE Reserves Auditing Standards.
Origin does not intend to report Prospective
or Undiscovered Resources as defined by
the SPE in any of its areas of interest on
an ongoing basis.
b. Economic test for reserves
The assessment of reserves requires a
commercial test to establish that reserves
can be economically recovered. Within the
commercial test, operating cost and capital
cost estimates are combined with fiscal
regimes and product pricing to confirm
the economic viability of producing
the reserves.
Gas reserves are assessed against existing
contractual arrangements, local market
conditions, as appropriate. In the case
of gas reserves where contracts are not
in place a forward price scenario based
on monetisation of the reserves through
domestic markets has been used, including
power generation opportunities, direct sales
to LNG and other end users and utilisation
of Origin’s wholesale and retail channels to
market. For CSG reserves that are intended
to supply the Australia Pacific LNG CSG to
LNG project, the economic test is based on
a weighted average price across all sales
contracts (including domestic and LNG
contracts), less short run marginal costs for
downstream transport and processing. This
price is exposed to changes in the supply/
demand balance in the market through oil
price-linked LNG contracts.
c. Reversionary Rights
The CSG interests that Australia Pacific
LNG acquired from Tri-Star in 2002 are
subject to reversionary rights. If triggered,
these rights will require Australia Pacific
LNG to transfer back to Tri-Star a 45 per
cent interest in those CSG interests for
no additional consideration. Origin has
assessed the potential impact of these
reversionary rights based on economic tests
consistent with the reserves and resources
referable to the CSG interests and based
on that assessment does not consider that
the existence of these reversionary rights
impacts the reserves and resources quoted
in this report. Tri-Star has commenced
proceedings against Australia Pacific LNG
claiming that reversion has occurred.
Australia Pacific LNG denies that reversion
has occurred and is defending the claim.
Approximately 21 per cent of Australia
Pacific LNG’s 3P CSG reserves as at
30 June 2018 are subject to reversionary
rights. Refer to Section 6 of the Operating
and Financial Review.
d. Information regarding the preparation
of this Reserves Report
The internationally recognised petroleum
consultant NSAI has prepared an
independent audit of the reserves and
resources for the Ironbark asset. The
CSG reserves and resources held within
Australia Pacific LNG’s properties have
either been independently prepared by
NSAI or prepared by Origin. All assessments
are based on technical, commercial and
operational data provided by Origin on
behalf of Australia Pacific LNG.
The statements in this Report relating to
reserves and resources as of 30 June 2018
for Australia Pacific LNG’s interests in Non-
Operated assets are based on information
in the NSAI report dated 31 July 2018 .
The data has been compiled by Mr. Dan
Paul Smith, a full-time employee of NSAI.
Mr. Dan Paul Smith has consented to the
statements based on this information, and
to the form and context in which these
statements appear.
The statements in this Report relating to
reserves and resources for other assets have
been compiled by Simon Smith, a full-time
employee of Origin. Simon Smith is a qualified
reserves and resources evaluator and has
consented to the form and context in which
these statements appear.
e. Rounding
Information on reserves is quoted in this
report rounded to the nearest whole number.
Some totals in tables in this report may not
add due to rounding. Items that round to
zero are represented by the number 0, while
items that are actually zero are represented
with a dash “–”.
f. Abbreviations
bbl
Tscf
barrel
trillion standard cubic feet
CSG
coal seam gas
kbbls
kilo barrels = 1,000 barrels
ktonnes
kilo tonnes = 1,000 tonnes
mmboe
million barrels of oil equivalent
PJ
PJe
petajoule = 1 x 1015 joules
petajoule equivalent
g. Conversion Factors for PJe
CSG
1.038 PJ/Bscf
Annual Report 2018 Annual Reserves Report
183
h. Reference Point
Reference points for Origin’s petroleum
reserves and contingent resources are
defined points within Origin’s operations
where normal exploration and production
business ceases, and quantities of the
produced product are measured under
defined conditions prior to custody transfer.
Fuel, flare and vent consumed to the
reference points are excluded.
k. Qualified Petroleum Reserves and
Resources Evaluators
The material presented in this report is
based on, and fairly represents, information
and supporting documentation prepared
by, or under the supervision of the listed
qualified reserves and resources evaluators.
These individuals have consented to the
statements based on this information, and
to the form and context in which these
statements appear.
i. Preparing and Aggregating
Petroleum Resources
Petroleum reserves and contingent
resources are typically prepared by
deterministic methods with the support
from probabilistic methods. Petroleum
reserves and contingent resources are
aggregated by arithmetic summation by
category and as a result, proved reserves
may be a conservative estimate due to
the portfolio effects of the arithmetic
summation. Proved plus probable plus
possible may be an optimistic estimate
due to the same aforementioned reasons.
Simon Smith
Origin Energy
(Chief Petroleum Engineer)
SPE, EA, RPEQ
Graham Sutherland Origin Energy
SPE, EA, RPEQ
Alistair Jones
Origin Energy
Reneke van Soest
Origin Energy
SPE, EA
SPE
Alexander Cote
Origin Energy
SPE, APEGA, EA
Levi Turner
Origin Energy
Melissa Goodfellow Origin Energy
SPE
SPE
Miguel Tovar
Origin Energy
SPE, EA, RPEQ
j. Methodology and Internal Controls
Lin Xuejun
Origin Energy
The reserves estimates undergo an
assurance process to ensure that they
are technically reasonable given the
available data and have been prepared
according to our reserves and resources
process, which includes adherence to the
PRMS Guidelines. The assurance process
includes peer reviews of the technical
and commercial assumptions. The annual
reserves report is reviewed by management
with the appropriate technical expertise,
including the Chief Petroleum Engineer and
Integrated Gas General Managers.
Erhart Stockhausen Origin Energy
Daus Jamal Asmara Origin Energy
Ali Sani
Origin Energy
SPE
SPE
SPE
SPE
Turaj Nuralishahi
Origin Energy
SPE, EA, RPEQ
Russell Evans
Origin Energy
Samer Mutawe
Origin Energy
Masoud Zadmehr
Origin Energy
SPE
SPE
SPE
Natalie Chadud
Origin Energy
SPE, EA
* SPE: Society of Petroleum Engineers;
AAPG: American Association of Petroleum
Geologists; APEGA: The Association of
Professional Engineers and Geoscientists
of Alberta; EA: Institution of Engineers
Australia; RPEQ: Registered Professional
Engineer of Queensland.
184
Five Year
Financial History
A reconcilation between statutory and underlying profit measures can be found in note A1 of the Origin Consolidated Financial Statements.
Income statement ($m)
Total external revenue
Underlying
EBITDA
Depreciation and amortisation expense
Share of interest, tax, depreciation and
amortisation of equity accounted investees2
EBIT
Net financing costs
Income tax benefit/(expense)
Non-controlling interests
Segment result and underlying consolidated profit
Impact of items excluded from segment result
and underlying consolidated profit net of tax
Statutory
20181
20171
20161
20151
14,883
14,107
12,174
14,147
3,217
(381)
(1,194)
1,642
(278)
(339)
(3)
1,022
(804)
2,530
(477)
(925)
1,128
(296)
(279)
(3)
550
(2,776)
1,696
(624)
(296)
776
(109)
(286)
(16)
365
(993)
2,149
(807)
(62)
1,280
(169)
(349)
(80)
682
(1,340)
2014
14,518
2,139
(732)
(54)
1,353
(192)
(342)
(106)
713
(183)
Profit attributable to members of the parent entity
218
(2,226)
(628)
(658)
530
Statement of financial position ($m)
Total assets
Net debt/(cash)
Shareholders' equity – members/parent entity interest
Adjusted net debt/(cash)3
Shareholders' equity – total
Cash flow
24,257
7,289
11,804
6,496
11,828
25,199
8,364
11,396
8,111
11,418
28,905
9,470
14,039
9,131
14,060
33,367
13,273
12,723
13,102
14,159
30,941
9,134
13,444
9,146
15,129
Net cash from operating and investing activities –
total operations ($m)
2,645
1,378
1,215
(2,081)
(1,087)
Key ratios
Statutory basic earnings per share (cents)4
Underlying basic earnings per share (cents)4
Total dividend per share (cents)
Net debt to net debt plus equity (adjusted) (%)3
Underlying EBITDA by segment ($m)
Energy Markets
Integrated Gas5
Contact Energy
Corporate
General Information
12.4
58.2
–
35
1,811
1,521
–
(115)
(126.9)
31.3
0
42
1,492
1,104
–
(66)
(39.8)
23.2
10
39
1,330
386
61
(81)
(52.1)
54.0
50
48
42.1
56.7
50
38
1,260
1,053
498
487
(96)
570
533
(17)
Number of employees (excluding Contact Energy)
5,565
5,894
5,811
6,922
6,701
Weighted average number of shares4
1,757,442,268
1,754,489,221
1,578,213,157
1,263,960,708
1,255,157,889
Annual Report 2018
Five Year Financial History
185
Income statement ($m)
20181
20171
20161
20151
2014
Integrated Gas8
2P reserves (PJe)
Product sales volumes (PJe)
• Liquified Natural Gas (Kt)
• Natural gas and ethane (PJ)
• Crude oil (kbbls)
• Condensate/naphtha (kbbls)
• LPG (kt)
Production volumes (PJe)
Energy Markets
Generation (MW) – owned and contracted
Generation dispatched (TWh)
Number of customers ('000)
• Electricity
• Natural gas
• LPG
Electricity (TWh)6
Natural gas (PJ)7
LPG (Kt)
4,799
255
3,213
77
–
–
–
254
5,981
20.58
4,181
2,666
1,145
370
37.5
214.4
450
5,788
334
2,668
163
1,209
1,615
144
323
6,011
20.30
4,210
2,716
1,112
382
39.7
187.9
448
6,277
6,260
6,473
228
659
168
1,629
1,403
127
232
6,011
20.10
4,217
2,741
1,089
387
38.1
167.1
458
154
–
128
1,754
1,581
147
148
5,994
19.94
4,266
2,801
1,083
382
37.3
134.7
415
153
–
123
2,036
1,843
160
142
6,010
17.20
4,295
2,876
1,036
383
39.1
96
386
1
2
Includes discontinued operations and assets held for sale unless stated otherwise.
Origin discloses its equity accounted results in two lines: ‘share of EBITDA of equity accounted investees,’ included in EBITDA; and ‘share of interest, tax, depreciation and
amortisation of equity accounted investees,’ included between EBITDA and EBIT.
3
Total current and non-current interest-bearing liabilities only, less cash and cash equivalents, less fair value adjustments on foreign exchange hedging transactions.
4
Prior period adjusted for the bonus element (discount to market price) of the September 2015 rights issue.
5
6
7
The Integrated Gas segment combines the former Exploration & Production and Australia Pacific LNG segments, as announced in August 2015.
FY2015 and FY2014 were restated to better reflect the recognition of volumes, revenues and costs associated with feed-in volumes from solar customers with no impact
on gross profit.
Osborne gas sales were reclassified as internal due to new operational agreement. As a result, FY2015 and FY2014 external sales volumes, revenues and costs were
revised with no impact on gross profit.
8 2018 excludes Lattice Energy (continuing operations basis shown).
186186
Annual Report 2018 187187
Remuneration Report 188
Glossary and
Interpretation
Financial measures
Statutory Financial Measures
Statutory Financial Measures are measures included in the Financial Statements for the Origin Consolidated Group, which are measured
and disclosed in accordance with applicable Australian Accounting Standards. Statutory Financial Measures also include measures that
have been directly calculated from, or disaggregated directly from financial information included in the Financial Statements for the Origin
Consolidated Group.
Term
Statutory Profit/Loss
Meaning
Net profit/loss after tax and non-controlling interests as disclosed in the Income Statement of the
Origin Consolidated Financial Statements.
Statutory earnings per share
Statutory profit divided by weighted average number of shares.
Cash flows from operating activities
Statutory cash flows from operating activities as disclosed in the Statement of Cash Flows in the
Origin Consolidated Financial Statements.
Cash flows from investing activities
Statutory cash flows from investing activities as disclosed in the Statement of Cash Flows in the
Origin Consolidated Financial Statements.
Cash flows used in financing activities
Statutory cash flows used in financing activities as disclosed in the Statement of Cash Flows in the
Origin Consolidated Financial Statements.
External revenue
Revenue after elimination of intersegment sales on consolidation as disclosed in the Income
Statement of the Origin Consolidated Financial Statements.
Net Debt
Total current and non-current interest-bearing liabilities only, less cash and cash equivalents.
Non-controlling interest
Economic interest in a controlled entity of the consolidated entity that is not held by the parent entity
or a controlled entity of the consolidated entity.
Non-IFRS Financial Measures
This document includes certain Non-IFRS Financial Measures. Non-IFRS Financial Measures are defined as financial measures that are presented
other than in accordance with all relevant Accounting Standards. Non-IFRS Financial Measures are used internally by management to assess the
performance of Origin’s business, and to make decisions on allocation of resources. The Non-IFRS Financial Measures have been derived from
Statutory Financial Measures included in the Origin Consolidated Financial Statements, and are provided in this report, along with the Statutory
Financial Measures to enable further insight and a different perspective into the financial performance, including profit and loss and cash flow
outcomes, of the Origin business. The principal non-IFRS profit and loss measure of Underlying Profit has been reconciled to Statutory Profit
in section 3.2 of the OFR. The key Non-IFRS Financial Measures included in this report are defined below.
Term
Meaning
Adjusted Net Debt
Net Debt adjusted to remove fair value adjustments on hedged borrowings.
Adjusted Net Debt/Underlying EBITDA
Adjusted Net Debt/Underlying EBITDA is calculated as Adjusted Net Debt/(Origin Underlying
EBITDA – Share of APLNG EBITDA + net cash flow from APLNG) over the last 12 months.
Average interest rate
Interest expense for the current period divided by Origin’s average drawn debt during the
current period.
Current period
Free Cash Flow
Gearing
Gross Profit
Items excluded from Underlying Profit
Year ended 30 June 2018.
Net cash from operating activities less capital expenditure.
Adjusted Net Debt/Adjusted Net Debt + Total equity
Revenue less cost of goods sold.
Items that do not align with the manner in which the Chief Executive Officer reviews the financial and
operating performance of the business which are excluded from Underlying Profit. Items excluded
from Underlying Profit are categorised as:
•
•
•
Fair value and foreign exchange movements – reflecting the impact of mark to market movements
on financial assets and liabilities from period to period.
LNG related items pre-revenue recognition – primarily comprising net financing costs incurred
(but unable to be capitalised) in funding Origin’s investment in APLNG which relate to the period
prior to revenue recognition for each of the two LNG Trains.
Disposals, impairments and business restructuring – reflecting the impact of actions and decisions
to dispose, acquire, revalue or restructure the company’s assets and business operations.
Annual Report 2018 Glossary and Interpretation
189
Term
MRCPS
MRCPS elimination adjustment
Non-cash fair value uplift
Prior period
Share of ITDA
Total Segment Revenue
Meaning
Mandatorily Redeemable Cumulative Preference Shares.
The interest on MRCPS was capitalised by APLNG prior to commencement of revenue recognition.
As the project is now operational, previously capitalised interest is being unwound through
depreciation. The proportion of the unwind attributable to Origin’s share is eliminated as Origin had
previously eliminated the impact of the capitalised interest through the equity investment balance.
Reflects the impact of the accounting uplift in the asset base of APLNG that was recorded on the
creation of APLNG and subsequent share issues to Sinopec. This balance will be depreciated in
APLNG’s income statement on an ongoing basis and, therefore, a dilution adjustment is made to
remove this depreciation.
Year ended 30 June 2017.
Origin’s share of equity accounted investees interest, tax, depreciation and amortisation.
Total revenue for the Energy Markets, Integrated Gas, Corporate and discontinued operations
segments, including inter-segment sales, as disclosed in note A1 of the Origin Consolidated Financial
Statements.
Underlying earnings per share
Underlying profit/loss divided by weighted average number of shares.
Underlying EBITDA
Underlying share of ITDA
Underlying Profit
Underlying earnings before underlying interest, underlying tax, underlying depreciation and
amortisation (EBITDA) as disclosed in note A1 of the Origin Consolidated Financial Statements.
Share of ITDA (interest, tax, depreciation and amortisation) of equity accounted investees adjusted
for items excluded from underlying profit.
Underlying net profit after tax and non-controlling interests as disclosed in note A1 of the Origin
Consolidated Financial Statements.
Underlying ROCE
Underlying ROCE is calculated as Adjusted EBIT/Average Capital Employed.
•
•
•
Average Capital Employed = Shareholders Equity + Origin Debt + Origin’s Share of APLNG project
finance – Non-cash fair value uplift + net derivative liabilities. The average is a simple average of
opening and closing in any year.
Adjusted EBIT = Origin Underlying EBIT and Origin’s share of APLNG Underlying EBIT + Dilution
Adjustment = Statutory Origin EBIT adjusted to remove the following items: a) Items excluded
from underlying earnings; b) Origin’s share of APLNG underlying interest and tax; and c) the
depreciation of the Non-cash fair value uplift adjustment.
In contrast, for remuneration purposes Origin’s statutory EBIT is adjusted to remove Origin’s share
of APLNG statutory interest and tax (which is included in Origin’s reported EBIT) and certain items
excluded from underlying earnings. Gains and losses on disposals and impairments will only be
excluded subject to Board discretion. The Remuneration Report provides specific details.
Meaning
Proved Reserves are those reserves that analysis of geological and engineering data can be
estimated with reasonable certainty to be commercially recoverable. There should be at least a
90 per cent probability that the quantities actually recovered will equal or exceed the estimate.
The sum of Proved plus Probable reserves. Probable Reserves are those additional reserves which
analysis of geological and engineering data indicate are less likely to be recovered than Proved
Reserves but more certain than Possible Reserves. There should be at least a 50 per cent possibility
that the quantities actually recovered will equal or exceed the best estimate of Proved plus Probable
Reserves (2P).
Proved plus Probable plus Possible Reserves. Possible Reserves are those additional Reserves which
analysis of geological and engineering data suggest are less likely to be recoverable than Probable
Reserves. The total quantities ultimately recovered from the project have at least a 10 per cent
probability of exceeding the sum of Proved plus Probable plus Possible (3P), which is equivalent to
the high estimate scenario.
The best estimate quantity of petroleum believed to be potentially recoverable from known
accumulations by application of development oil and gas projects, but which are not currently
considered to be commercially recoverable due to one or more contingencies. The total quantities
ultimately recovered from the project have at least a 50 per cent probability to equal or exceed the
best estimate for 2C contingent resources.
Barrel of oil equivalent
A generation plant’s output over a period compared with the expected maximum output from the
plant in the period based on 100 per cent availability at the manufacturer’s operating specifications.
Non-Financial Terms
Term
1P reserves
2P reserves
3P reserves
2C resources
Boe
Capacity factor
190
Term
Discounting
Meaning
For Energy Markets, discounting refers to offers made to customers at a reduced price to the
published tariffs. While a customer bill comprises a fixed and a variable portion, Origin’s discounts
only apply to the variable portion. In some cases, these discounts are conditional, such as requiring
direct debit payment or on-time payments.
Equivalent reliability factor
Equivalent reliability factor is the availability of the plant after scheduled outages.
FEED
GJ
GJe
HSE
Joule
kT
kW
kWh
Mtpa
MW
MWh
NEM
NPS
PJ
PJe
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions
TRIFR
TW
TWh
Watt
Interpretation
Front End Engineering Design
Gigajoule = 109 joules
Gigajoules equivalent = 10-6 PJe
Health, Safety and Environment
Primary measure of energy in the metric system.
Kilotonnes = 1,000 tonnes
Kilowatt = 103 watts
Kilowatt hour = standard unit of electrical energy representing consumption of one kilowatt
over one hour.
Million tonnes per annum
Megawatt = 106 watts
Megawatt hour = 103 kilowatt hours
National Electricity Market
Net Promoter Score (NPS) is a measure of customers’ propensity to recommend Origin to friends
and family
Petajoule = 1015 joules
Petajoules equivalent = an energy measurement Origin uses to represent the equivalent energy
in different products so the amount of energy contained in these products can be compared.
The factors used by Origin to convert to PJe are: 1 million barrels crude oil = 5.8 PJe; 1 million barrels
condensate = 5.4 PJe; 1 million tonnes LPG = 49.3 PJe; 1 TWh of electricity = 3.6 PJe.
Direct emissions driven by Origin’s owned and operated business operations, in particular electricity
generation and gas development.
Emissions from the electricity that Origin purchases to undertake activities.
Indirect emissions through Origin’s value chain that are not owned or controlled by Origin.
Total Recordable Incident Frequency Rate.
Terawatt = 1012 watts
Terawatt hour = 109 kilowatt hours
A measure of power when a one ampere of current flows under one volt of pressure.
All comparable results reflect a comparison between the current period and the prior period ended 30 June 2017, unless specifically
stated otherwise.
A reference to APLNG or Australia Pacific LNG is a reference to Australia Pacific LNG Pacific LNG Pty Limited in which Origin holds
a 37.5 per cent shareholding. Origin’s shareholding in APLNG is equity accounted.
A reference to $ is a reference to Australian dollars unless specifically marked otherwise.
All references to debt are a reference to interest bearing debt only.
Individual items and totals are rounded to the nearest appropriate number or decimal. Some totals may not add down the page due to
rounding of individual components.
When calculating a percentage change, a positive or negative percentage change denotes the mathematical movement in the underlying
metric, rather than a positive or a detrimental impact.
Percentage changes on measures for which the numbers change from negative to positive, or vice versa, are labelled as not applicable.
Annual Report 2018 Directory
Registered Office
Level 32, Tower 1
100 Barangaroo Avenue
Barangaroo, NSW 2000
GPO Box 5376
Sydney NSW 2001
T (02) 8345 5000
F (02) 9252 9244
originenergy.com.au
enquiry@originenergy.com.au
Secretaries
Andrew Clarke
Helen Hardy
Share Registry
Shareholders wishing to receive their
shareholder communications electronically,
including annual reports, notices of
meeting, dividend statements and other
company related information should
contact the share registry.
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000
GPO Box 3993
Sydney NSW 2001
T Australia 1300 664 446
T International (+61 2) 8016 2896
F (02) 9279 0664
boardroomlimited.com.au
origin@boardroomlimited.com.au
Auditor
KPMG
Further information about Origin’s
performance can be found on our website:
originenergy.com.au
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