Orca Gold Inc.
Annual Report 2020

Plain-text annual report

2020 Annual Report A n n u a l R e p o r t 2 0 2 0 O r i g i n E n e r g y L i m i t e d A B N 3 0 0 0 0 0 5 1 6 9 6 “ Good energy is helping Australia transition to a cleaner energy future” Scott Andreas Field Manager East Asset Services Brooke Geary Field Project Engineer Annual Report 2020 Featured on our front cover are Scott Andreas and Brooke Geary Scott is Field Manager East, Asset Services and Brooke is Field Project Engineer, both in our Integrated Gas business. Scott and Brooke work to safely deliver gas to our customers, helping support the transition to a cleaner future. Scott and Brooke were photographed at an Australia Pacific LNG well site at Condabri Central. Origin owns 37.5 per cent of Australia Pacific LNG, and as upstream operator, produces coal seam gas (CSG) from the Surat and Bowen basins in Queensland. Australia Pacific LNG provides ~30 per cent of Australian east coast gas and is a major exporter of liquefied natural gas to Asia. Contents 1 Contents Welcome to the 2020 Annual Report 20-year Timeline About Origin Where We Operate Board of Directors Executive Leadership Team Operating and Financial Review Directors’ Report Remuneration Report Lead Auditor’s Independence Declaration 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 2 4 6 7 8 10 12 49 52 73 75 131 132 140 144 146 152 154 2 2 A message from Gordon A message from Frank Dear Shareholder, Welcome to the 2020 Annual Report. I was elected Chairman of Origin Energy in October 2013. As announced, I will be stepping down at this year’s AGM in October. I looked back at our message to shareholders in the 2014 Annual Report. We commented that our industry was at the forefront of economic, social and political debate. We noted in particular that our challenge every day was to deliver reliable, affordable and cleaner energy. And we bore witness to the substantial change in energy policy settings. How prescient we were, and how tumultuous that seven years has been. But how resilient Origin has demonstrated, in embracing the challenges and transforming its business. We are very different to the company of 2014. We have become a customer obsessed retailer, and our strategic investment in Octopus Energy, I am certain, will be a step change in that journey. We are pivoting to a greener future with gas as the transition fuel and a leading role in renewables. We have demonstrated the financial viability of investing in APLNG, with production costs competitive with US shale gas. We are at the forefront of building IoT propositions to harness data and to connect customers to the latest technology. We look confidently to the future with e-mobility, hydrogen and LNG for transport extending us beyond the core. As a backdrop to all of this we have demonstrated sound capital management, maintaining our investment grade rating, reducing debt, and maintaining our dividend. The externalities have not changed, arguably have got more challenging, but we have focused on what we can control, and shown commitment and resilience. For this I owe a deep well of thanks. Firstly, to a management team, superbly led by Frank. If a Board’s first priority is to appoint the right CEO, we succeeded. Secondly, to a wonderful Board of fellow directors who demonstrate every day the value of our mantra “the obligation to dissent”. This constructive contestability has made for better decisions. And finally, to our shareholders and their proxy advisors. I have enjoyed our regular interactions, listened and learned, and we as a company are the better for their counsel. And so I leave optimistic about the future of Origin. Board renewal has been front of mind for the Board for some time, and after a rigorous chair development and succession program, Scott Perkins was the unanimous choice of his fellow directors. We have worked together closely over the past five years and he and I will ensure a seamless handover. Scott and Frank will form a formidable team, as the leadership of the company, shaping this future. I will cheer from the sidelines. Gordon Cairns Chairman In an extraordinary year, Origin quietly turned 20. In February 2000, Origin was first listed on the ASX and today we are Australia’s number one energy retailer, a significant energy producer and a major contributor to the Australian economy. It has taken a dedicated group of people to create our business, and I thank our more than 5,200 people who represent Origin every day, from the Surat Basin to Sydney, and from Minto to Melbourne. Two of those people are Scott Andreas and Brooke Geary, who are featured on the front cover of this report. Scott and Brooke were photographed at a well site at Condabri Central, in Queensland. As part of our Integrated Gas team, Scott and Brooke work to safely deliver gas to our customers and are also helping Origin as we transition to a cleaner energy future. Our philanthropic foundation also achieved a milestone, celebrating its 10-year anniversary in February. Over this time, the Origin Energy Foundation has provided more than $27 million to good causes across Australia and supported more than 62,000 young people to achieve success in education. I am exceptionally proud of the work the Foundation undertakes to create better lives for young Australians through the power of education. Progress on our commitments In response to significant challenges this year, Origin’s focus has been on maintaining reliable energy supply, keeping our people safe, and supporting our customers and communities. Against this backdrop, Origin’s underlying business performance continued to improve across the year, driving growth in free cash flow, which allowed further debt reduction, disciplined investment in growth opportunities and distributions to shareholders. Origin delivered a stable underlying profit of $1,023 million in FY2020, and our capital structure continued to improve, with adjusted net debt of $5,158 million at 30 June 2020. Through our Integrated Gas business, strong field production helped drive record production for Australia Pacific LNG and a record cash distribution to Origin of $1,275 million. In Energy Markets, electricity gross profit was lower following the introduction of retail price regulation, while we were able to utilise the flexibility of our generation fleet and wholesale gas portfolio to adapt to the reduced demand caused by the pandemic. Importantly, our focus on a safety culture based on learning has yielded strong improvements this year. Our Total Recordable Injury Frequency Rate (TRIFR) reduced to 2.6, from 4.4 the previous year. Annual Report 2020 Welcome to the 2020 Annual Report 33 In keeping with our commitment to progressively decarbonise our business, we have announced a new short-term target to reduce our Scope 1 emissions by 10 per cent on average between FY2021 and FY2023. This reduction will be done from an FY2017 baseline. Our commitment remains to halve our Scope 1 and Scope 2 emissions by 2032 and we are aiming to achieve net-zero emissions across the business by 2050. Supporting customers and communities I am proud of Origin’s efforts to support our customers throughout the year, including in times of bushfires, floods and then the COVID-19 pandemic. Our people have gone above and beyond for our customers; helping with energy bills including payment extensions and access to hardship services. We also passed on lower wholesale costs to customers and further improved our digital platforms to make it easier to engage with us. Over the summer, volunteers through the Origin Energy Foundation provided practical support to bushfire-affected communities cut off from power by assembling over 1,500 portable SolarBuddy lights for distribution. It is this giving back to the community by our people which supports our ‘good energy’ brand position. Our gas exploration in the Beetaloo Basin was paused in March in response to the COVID-19 pandemic to help protect Northern Territory communities and people. The project is expected to resume later this year. Origin remains committed to the Beetaloo which, if successful, has the potential to deliver long-term economic and social benefits for the Northern Territory, Australia and the Asia Pacific region. Our business performance In Integrated Gas, improved field performance contributed to record production of 708 petajoules for Australia Pacific LNG, up four per cent on FY2019. A continued focus on cost reduction resulted in operating and capital costs falling by eight per cent. Underlying EBITDA for Integrated Gas was $1,741 million in FY2020, eight per cent lower than the prior year, primarily reflecting a change in accounting treatment at Australia Pacific LNG. Across Energy Markets, performance was largely driven by a reduction in electricity gross profit, due to lower retail margins following the introduction of the Default Market Offer and Victorian Default Offer. The COVID-19 pandemic also impacted demand in the final quarter, particularly for our commercial customers. Within this challenging environment, we focussed on efficiencies, including reducing our retail cost to serve by $40 million. Underlying EBITDA in Energy Markets was $1,459 million, down $115 million on FY2019. Outlook Origin provided the following guidance at our annual results on 20 August 2020 on the basis that market conditions and the regulatory environment do not materially change, adversely impacting on operations. Considerable uncertainty exists relating to the potential ongoing impacts of COVID-19 and this guidance is subject to any further material impact on demand and customer affordability. Energy Markets Underlying EBITDA is expected to be $1,150- $1,300 million. This guidance reflects lower electricity gross profit due to passthrough of reduced wholesale prices to customers, higher network costs absorbed in the regulated tariffs and lower natural gas gross profit, partially offset by a targeted $70 million reduction in cost to serve. Australia Pacific LNG’s FY2021 production is expected to be lower at 650-680 petajoules, reflecting anticipated reduced demand with strong field capability to increase production to respond to changes in demand. Distribution breakeven is expected to be in the range of US$27-US$31 a barrel. Looking forward In January, Origin welcomed Kate Jordan to our executive leadership team as General Counsel and Executive General Manager, Company Secretariat, Risk and Governance. Kate brings extensive corporate advisory and commercial experience in what is a fast-moving and competitive industry landscape. As you will be aware, our chairman Gordon Cairns, will be retiring from the board in October. Gordon has served as a director since 2007 and as chairman for the last seven years. On behalf of the board and the business, I want to thank Gordon for his tireless dedication to Origin and our direction over the last 13 years. We have achieved a lot in Origin’s first two decades, and I am extremely proud of how our people are delivering on our purpose of getting energy right for our customers, communities and planet. As shareholders, I thank you for being part of our story and hope you feel proud too. I look forward to welcoming many of you to our Annual General Meeting on 20 October, which will be held virtually this year in response to the COVID-19 pandemic. Thank you for your continued support. Frank Calabria Chief Executive Officer 4 20-year Timeline Origin Energy listed Origin Energy listed on the Australian Securities Exchange on 21 February 2000. February 212000 2000 Acquired 51.4% controlling interest in Contact Energy, one of New Zealand’s leading energy retailers and power generators. Commenced development of the Otway gas project in the offshore Otway Basin in Victoria. Invested in the Fairview and Durham Coal Seam Gas (CSG) fields in Queensland, the start of our focus on producing natural gas from coal seams. 2002 2004 2001 2003 2005 Acquired Powercore retail business with over 580,000 Victorian customers. BassGas project approved for construction, opening up new offshore gas resources for Victoria. Acquired 580k customer accounts Acquired 264k customer accounts Spring Gully CSG processing facilities in Queensland commenced production. Opened up new offshore gas resources Mortlake Power Station in Victoria is completed and commenced operations. Acquired a 35% interest in the Beetaloo Basin shale gas resource in Northern Territory. Launched littleBIGidea to encourage young inventors to share their ideas to solve real-world problems. Origin’s first CEO and Managing Director, Grant King, retires. Frank Calabria appointed CEO. The $24.7 billion APLNG project shipped its first cargo of LNG. 2012 2014 2016 2013 2015 2017 Acquired Eraring Power Station and Shoalhaven Pumped Hydro Storage Scheme – two key generation assets in New South Wales. Joined the We Mean Business global climate action coalition – the first company in Australia and first energy company in the world to commit to seven targets to drive emissions reduction across our business. Launched our Reconciliation Action Plan, as a demonstration of our commitment to Indigenous Australians. Booked Australia’s first significant shale gas resource in the Beetaloo Basin. Introduced a new company purpose: Getting energy right for our customers, community and planet. Launched our Origin mobile app, helping electricity and natural gas customers control their energy use and costs. Annual Report 202020-year Timeline 5 Australia Pacific LNG (APLNG) joint venture Became Australia’s largest energy retailer Acquired Uranquinty Power Station, a 640 MW gas-fired peaking station in New South Wales. Formed the multibillion- dollar APLNG incorporated joint venture in Queensland with ConocoPhillips, to commercialise CSG assets. Acquired 1.6m customer accounts Kupe gas project in New Zealand commenced operations. Origin Energy Foundation established to empower young Australians through education – a focus chosen by employees. Darling Downs Power Station in Queensland commenced operations. BassGas project operations commenced, capable of meeting almost 10% of Victoria’s gas needs. 2006 2008 2010 2007 2009 2011 Acquired Sun Retail, adding 800,000 new Queensland customers. Acquired 800k customer accounts Acquired WindPower and its development portfolio, including Stockyard Hill Wind Farm in Victoria. Our first wind farm, Cullerin Range Wind Farm in New South Wales, commenced operations. APLNG welcomes Sinopec as equity partner and foundation buyer of liquid natural gas (LNG) – at the time the largest single CSG to LNG supply agreement ever signed. Launched new Origin Values, guiding the way our people work. Created the Good Energy brand platform and campaign – the first major rebrand in our 18-year history. Acquired 20% interest in UK company Octopus Energy, and an Australian licence for the Kraken customer platform. APLNG exported its 500th cargo. Committed to halve our emissions (Scope 1 and Scope 2) by 2032, in line with the Paris Agreement. >$27m distributed by Origin Energy Foundation since inception. 2018 2020 2019 Launched our Stretch Reconciliation Action Plan, continuing our commitment to advance Australia’s reconciliation efforts. 6 Annual Report 2020 About Origin Origin at a glance Leading integrated energy company 4.2 million customer accounts 5,200 employees Listed on the Australian Securities Exchange in 2000 Electricity, gas and LPG customers across Australia and the Pacific Inclusivity in the workplace, leading parental support Five-pillar approach to decarbonisation Powering Australia 37.5% interest in Australia Pacific LNG Australia’s first science-based emissions targets, aligned with the Paris Agreement 7,400 MW generation portfolio, including 1,400 MW owned and contracted renewables and storage Exporting to Asia and supplying ˜30% of Australian east coast gas demand Supporting Australian communities Driving future energy innovation Exploration and development Over its 10 years, the Origin Energy Foundation has contributed more than $27 million Investing in new technology, start-ups and future fuels 77.5% interest in Beetaloo Basin exploration permits Bringing good energy to everything we say and do.  Where We Operate 7 Where We Operate Browse Basin Browse Basin Browse Basin Browse Basin 14k 14k 14k 14k South East Queensland South East Queensland South East Queensland Gladstone Gladstone Gladstone South East Queensland Bowen/ Surat Bowen/ basins Surat Bowen/ basins Surat basins Bowen/ Surat basins Pacific countries LPG Pacific countries LPG Rabaul Pacific countries LPG Rabaul Lae Beetaloo Basin Beetaloo Basin Beetaloo Basin Beetaloo Basin 239k 211k 239k 211k 239k 211k Cooper Basin Cooper Basin Cooper Basin 239k 211k Cooper Basin Adelaide Adelaide Adelaide Adelaide 645k 181k 645k 181k 645k 181k 645k 181k 1191k 335k 1191k 335k 1191k 335k Bowen/ Surat basins Bowen/ Surat basins Bowen/ Surat basins Bowen/ Surat basins 1191k 335k Melbourne Melbourne Melbourne Gladstone LNG Export Gladstone LNG Export Gladstone LNG Export Brisbane Brisbane Brisbane Gladstone LNG Export Brisbane Sydney Sydney Sydney Sydney 556k 479k 556k 479k 556k 479k Melbourne Hobart Hobart Hobart 556k 479k Hobart Exploration & production acreage Generation Gladstone Brisbane Brisbane Brisbane Origin upstream acreage Exploration & production acreage Exploration & production acreage APLNG upstream acreage Origin upstream acreage Production facility Origin upstream acreage APLNG upstream acreage APLNG pipeline Production facility APLNG upstream acreage Exploration & production acreage Production facility APLNG pipeline Origin upstream acreage Brisbane APLNG pipeline APLNG upstream acreage Production facility APLNG pipeline Gas Generation Generation Gas Gas Pumped hydro Gas Solar (contracted) Pumped hydro Wind (contracted) Pumped hydro Solar (contracted) Generation Coal Solar (contracted) Wind (contracted) Under construction Wind (contracted) Coal Pumped hydro Under construction Solar (contracted) LPG seaboard terminal Under construction Wind (contracted) LPG seaboard terminal Electricity customer accounts LPG seaboard terminal Under construction Natural gas customer accounts Electricity customer accounts Coal Coal Rabaul Port Moresby Lae Pacific countries LPG Lae Port Moresby Port Moresby Rabaul Lae Port Moresby Honiara Honiara Honiara Santo Santo Port Vila Honiara Santo Port Vila Port Vila Labasa Lautoka Labasa Lautoka Labasa Suva Lautoka Suva Electricity customer accounts Natural gas customer accounts LPG seaboard terminal Natural gas customer accounts Apia Electricity customer accounts Natural gas customer accounts Apia Pago Pago Rarotonga Apia Pago Pago Rarotonga Pago Pago Rarotonga Santo Port Vila Lautoka Suva Labasa Suva Apia Pago Pago Rarotonga 8 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 Teresa Engelhard Independent Non-executive Director Tenure 13 years, 2 months Tenure 11 years, 4 months Tenure 6 years, 9 months Tenure 3 years, 10 months Tenure 3 years, 3 months 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 Audit, Health, Safety and Environment, Risk and Remuneration and People committees. Gordon 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 Non-executive Director of Macquarie Group Limited and Macquarie Bank Limited (since November 2014) and World Education Australia (since November 2007). Gordon was previously Chairman of the Origin Energy Foundation, David Jones Limited (March 2014–August 2014) and 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. John’s 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. John is a Director of Human Nature Adventure Therapy Ltd (since February 2018). John was previously Chairman of the National Centre for Asbestos Related Diseases (2009–April 2020), the Fortitude Foundation (2007–April 2020), Transform Exploration Pty Ltd (February 2012–December 2017), Alinta Limited (January 2007–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 Brenner joined the Board in November 2013. She is Chairman of the Risk Committee and a member of the Audit and Nomination committees. Maxine was previously 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. Maxine is a Non-executive Director and Chairman of the Remuneration Committee 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’s 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 & Chief Executive Officer in October 2016. Frank is a member of the Health, Safety and Environment Committee and a Director of the Origin Energy Foundation. Frank first 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 the 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. 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), StartupAUS (since March 2016), and LaunchVic (since July 2020). Teresa started her career at McKinsey & Company in California where she served energy and retail clients. More recently, she focused on energy sector innovation as a Managing Partner at Jolimont Capital. Teresa’s former directorships include Daintree Networks, Planet Innovation Ltd (April 2016–November 2019) and RedBubble Limited (July 2011–October 2017). Teresa holds a Bachelor of Science (Hons) degree from the California Institute of Technology (Caltech), an MBA from Stanford University and is a graduate of the Australian Institute of Company Directors. Annual Report 2020Board of Directors 9 Greg Lalicker Independent Non-executive Director Bruce Morgan Independent Non-executive Director Scott Perkins Independent Non-executive Director Steven Sargent Independent Non-executive Director Tenure 1 year, 4 months Tenure 7 years, 9 months Tenure 4 years, 11 months Tenure 5 years, 3 months Greg Lalicker joined the Board in March 2019. Greg is the Chief Executive Officer of Hilcorp Energy Company, based in Houston, USA. Hilcorp is the largest privately held independent oil and gas exploration and production company in the United States. Greg joined Hilcorp’s leadership team in 2006 as Executive Vice President where he was responsible for all exploration and production activities. He was appointed President in 2011 and Chief Executive Officer in 2018. Prior to working for Hilcorp, Greg was with BHP Petroleum based in Midland, Houston, London and Melbourne as well as McKinsey & Company where he worked in its Houston, Abu Dhabi and London offices. Greg graduated as a petroleum engineer from the University of Tulsa. He also has a Master of Business Administration and a law degree. 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. Scott Perkins joined the Board in September 2015. He is a member of the Audit, Health, Safety and Environment, Nomination, Remuneration and People and Risk committees. Bruce is Chairman of Transport Asset Holding Entity of New South Wales (since July 2020), Sydney Water Corporation (since October 2013), a Director of Redkite, the University of NSW Foundation and Deputy Chair of the European Australian Business Council. 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 a Director of Caltex Australia Ltd (2013 to May 2020) and 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. Bruce has a Bachelor of Commerce (Accounting and Finance) from the University of NSW and is an adjunct Professor of the University. Bruce is a Fellow of the Chartered Accountants Australia and New Zealand and of the Australian Institute of Company Directors. 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. 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) and the New Zealand Initiative (since 2012). Scott was previously a Director of the Museum of Contemporary Art in Sydney (2011–2020) and a Non-executive Director of Meridian Energy (1999–2002). Scott 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 Sargent joined the Board in May 2015. He is Chairman of the Origin Energy Foundation, Chairman of the Remuneration and People Committee and a member of the Health, Safety and Environment, Nomination and Risk committees. 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 services business. 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 is Chairman of OFX Group Ltd (since November 2016) and Deputy Chairman of Nanosonics Ltd (since July 2016). Over recent years Steven has been a Non-executive Director of Veda Group Ltd (2015–2016). Steven holds a Bachelor of Business from Charles Sturt University and is a Fellow with the Australian Institute of Company Directors and a Fellow with the Australian Academy of Technological Sciences and Engineering. 10 Executive Leadership Team Jon Briskin Greg Jarvis Kate Jordan Tony Lucas Executive General Manager, Retail Executive General Manager, Energy Supply and Operations 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, and prior to Origin worked as a management consultant. Greg Jarvis joined Origin in 2002 as Electricity Trading Manager and was appointed Executive General Manager, Energy Supply and Operations in December 2016. Greg is responsible for Wholesale, Trading, Business Energy, Solar, Generation, HSE and LPG. Greg has over 20 years’ experience in the financial and energy markets. General Counsel and Executive General Manager, Company Secretariat, Risk and Governance Kate Jordan joined Origin in March 2020 as General Counsel and Executive General Manager, Company Secretariat, Risk and Governance. Kate leads the legal, company secretariat, risk and internal audit teams. Prior to joining Origin, Kate was Deputy Chief Executive Partner at Clayton Utz, responsible for people and development. Kate has over 20 years’ legal experience across a range of corporate transactions. Executive General Manager, Future Energy and Business Development Tony Lucas joined Origin as Risk Analysis Manager in 2002 and was appointed Executive General Manager, Future Energy and Business Development in December 2016. Tony leads the team responsible for future energy, strategy and technology, ensuring that Origin is well positioned to lead the transition into a low-carbon, technology- enabled world. Tony began his career in the banking industry before moving into the energy sector. Sharon Ridgway Mark Schubert Samantha Stevens Lawrie Tremaine Executive General Manager, People and Culture Executive General Manager, Integrated Gas Executive General Manager, Corporate Affairs Chief Financial Officer Sharon Ridgway joined Origin in 2009 and has been responsible for People and Culture since December 2016. Sharon’s team provides strategic support to the business in key areas such as engagement, diversity, talent management and culture change. Prior to joining Origin, Sharon developed a wide range of experience across operational and human resources roles while working at Dixons, a large European electrical retailer. Mark Schubert joined Origin in April 2015 and was appointed Executive General Manager, Integrated Gas in April 2017. He is responsible for Origin’s Integrated Gas business, which manages the Company’s portfolio of natural gas, LNG and hydrogen interests. Mark has also held a number of senior positions during an 18-year career with Shell, including having direct accountability for developing the world’s first floating LNG facility, Prelude FLNG. 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, and the Origin Energy Foundation. Samantha has more than 20 years’ experience in corporate affairs, mainly in the resources, industrials and financial services sectors. Prior to joining Origin, Samantha headed up corporate affairs for the global mining services company Orica. Lawrie Tremaine joined Origin in June 2017 and as Chief Financial Officer. Lawrie leads the teams responsible for all finance activities, corporate strategy, corporate development, procurement, investor relations and corporate HSE. Lawrie has over 30 years’ experience in financial and commercial leadership, predominantly in the resource, oil and gas, and minerals processing industries having previously worked at Woodside Petroleum and Alcoa. Annual Report 2020 11 12 Operating and Financial Review For the year ended 30 June 2020 This report forms part of the Directors’ Report. 1. Our purpose underpins everything we do Our purpose: Getting energy right for our customers, communities and planet Getting energy right for our customers Our customers are at the heart of everything we do. We are committed to providing ‘good energy’ that is reliable, affordable and sustainable. In FY2020, we: • responded to the COVID-19 pandemic with a commitment to not disconnect or default list residential or small business customers in financial distress until at least 31 October 2020; • extended regulated retail pricing to our customers beyond regulatory requirements; • supported customers experiencing financial hardship, with 33,100 successfully completing our Power On hardship program; • continued to support local businesses with supply from new APLNG acreage dedicated to large manufacturing customers; • improved our Strategic Net Promoter Score (NPS) by eight points to +2 as at 30 June 2020, increasing further to +5 as at July 2020; • continued to support customer take-up of renewable energy, as one of Australia’s leading installers of rooftop solar and providers of GreenPower and Green Gas; and • leveraged our global energy accelerator program, Free Electrons, to partner with start-ups, including OhmConnect and Orison to roll out solutions in demand-side management and storage. Getting energy right for our communities We respect the rights and interests of the communities in which we operate, and consult with them to understand and manage our impact. The Origin Energy Foundation is celebrating its 10th anniversary in 2020. Through grants, volunteering and workplace giving programs, the Foundation contributed more than $2.9 million to the community in FY2020. Origin and its employees donated more than $870,000 to support communities affected by bushfires and drought. This included $300,000 given to the Australian Red Cross and state-based rural fire services, and $100,000 to Drought Angels. We spent $365 million directly with regional suppliers, or 14 per cent of our total spend. We launched our Stretch Reconciliation Action Plan (RAP) in July 2019 to show our commitment to participating in Australia’s reconciliation efforts through targeted activities across learning, procurement and employment. In FY2020, we spent $5.3 million with Indigenous suppliers, exceeding our Stretch RAP target of $5 million. This year, we announced our new three-year community partnership with Netball Australia, supporting players at all levels across the country – from local clubs to the Australian Diamonds. We continue to work closely with the Northern Land Council to engage with and maintain the support of our host Traditional Owners, who are the Native Title holders where we work in the Beetaloo Basin. Customers Strategic NPS FY20 2 FY19 (6) 33,100 Customers successfully completed our Power On hardship program Communities >$2.9M contributed to the community by the Origin Energy Foundation Regional procurement spend as a % of total spend 14% 12% FY19 FY20 Annual Report 202013 Planet Getting energy right for the planet We unequivocally support the Paris Agreement to limit the world’s temperature rise to well below 2°C above pre-industrial levels and pursue efforts to further limit this increase to 1.5°C. Greenhouse gas emissions (mt CO2-e) In line with our decarbonisation strategy, we are: 20.3 18.5 FY19 FY20 Scope 1 Scope 2 61 MW Solar installations, up from 50 MW in FY2019 • committed to lowering Scope 1 and 2 emissions by 50 per cent and Scope 3 emissions by 25 per cent by 2032, approved by the Science Based Targets initiative; • targeting more than 25 per cent of owned and contracted generation capacity from renewables and storage by the end of 2020, subject to development and commissioning timelines; • setting a new target to reduce Scope 1 emissions by 10 per cent on average over FY2021–23 from an FY2017 baseline; • including a new climate change target linked to executive remuneration; and • planning to update our existing science-based target to a 1.5°C pathway with an aim to achieve net zero emissions by 2050. During FY2020, we: • reduced our operational Scope 1 and Scope 2 emissions by 1.8 million tonnes, or 9 per cent; • increased solar installations to 61 MW, up from 50 MW in FY2019; and • published updated scenario analysis evaluating the impact of a 1.5°C carbon reduction pathway on our wholesale and generation portfolio. Our disclosures under the Task Force on Climate-related Financial Disclosure guidelines are set out in our Sustainability Report. Our people People Our people are one of our greatest strengths. Having a diverse and inclusive workplace is key to creating a culture where people thrive, contributing to the success of our business. 75% Staff engagement, our highest ever score Total Recordable Injury Frequency Rate (TRIFR) 4.4 During FY2020, we: • • increased our engagement score from 61 per cent to 75 per cent, placing Origin in the top quartile across Australia and New Zealand; improved our TRIFR score from 4.4 to 2.6; and • were ranked number nine globally in Equileap’s 2019 Gender Equality Global Report & Ranking. During the year, we also enhanced the learning and development options available to our people by launching our Learning and Development Hub. We partnered with a new Employee Assistance Provider to give our people access to free, confidential, independent and professional support. We also launched an online Mental Health and Wellbeing Hub, which provides regular webinars, factsheets, videos, mindfulness exercises and support information. We also recently launched Gender Affirming Support@Origin and a new gender affirming leave policy. 2.6 COVID-19 response FY19 FY20 In response to the COVID-19 pandemic, we focused on the health and safety of our people and the communities in which we operate by maintaining a reliable supply of energy and supporting customers in need. We swiftly transitioned most of our people to working from home, with only people in critical roles remaining at sites, under strict health and safety measures. Our supply chains and operations adapted seamlessly without significant disruptions. Operating and Financial Review14 2. Highlights Financial performance Statutory Profit Underlying Profit Underlying ROCE $1,211M 68.8 cps $1,028M $1,023M 58.4 cps 58.1 cps 9.1% 8.8% $83M 4.7 cps FY19 FY20 FY19 FY20 FY19 FY20 Free Cash Flow (before major growth) $1,539M $1,644M Adjusted Net Debt Final Dividend $514M $5,417M $4,644M 10 cps Unfranked 25 cps total FY2020 dividend (27% of FY2020 Free Cash Flow) FY19 FY20 June 2019 June 2020 Lease liabilities In FY2020, Origin delivered a strong operational and underlying financial result with increased Free Cash Flow underpinning continued debt reduction and disciplined investment in future growth. Underlying Profit was in line with the prior year at $1,023 million, reflecting a stable result from Australia Pacific LNG (APLNG) but a lower contribution from Energy Markets, offset by lower commodity hedging costs in Integrated Gas, lower interest expense and the prior year non-cash remediation provision not repeating. Statutory Profit reduced, driven by non-cash APLNG impairment and onerous contract provision charges that totalled $1.2 billion, reflecting lower oil and LNG price assumptions. Strong Free Cash Flow was driven by record cash distributions from APLNG of $1,275 million and proceeds from the sale of Ironbark of $231 million. This was partially offset by higher Energy Markets working capital and higher tax paid. Adjusted Net Debt was down $773 million excluding the impact of lease liabilities under AASB 16 Leases. Adjusted Net Debt/Adjusted Underlying EBITDA reduced from 2.6x at June 2019 to 2.1x, the lower end of our 2.0–3.0x target range. COVID-19 impacted the business in the final quarter of FY2020, primarily through lower commodity prices and lower electricity and gas demand from small and large business customers, partly offset by a moderate increase in retail demand. APLNG production in the fourth quarter reduced due to lower demand, and activity was paused in the Beetaloo Basin. Due to lagged contract pricing, reduced oil prices in the final quarter are expected to affect APLNG revenue in FY2021. We continued to adopt a disciplined approach to capital management to maintain resilience and maximise returns. In response to the COVID-19 pandemic and a material reduction in commodity prices, we announced a number of cost reduction initiatives across both businesses. On 1 May 2020, we announced a strategic partnership with Octopus Energy, a fast-growing UK retailer, to radically transform our retail operations. Annual Report 202015 Energy Markets performance Underlying EBITDA Operating cash flow $1,459M $1,307M Down $115m or 7% vs FY2019 Down $400m vs FY2019 due to working capital movements 10.2% Underlying ROCE Down 2% vs FY2019 Cost to serve Electricity and gas customer accounts Strategic Net Promoter Score $570M 3,851k +2 Down $40m ($58m after adjusting for AASB 16 Leases and COVID-19) Up 21k vs June 2019 Up 8 points vs FY2019 Energy Markets Underlying EBITDA reduced in FY2020 as higher gas Gross Profit and savings in cost to serve were more than offset by lower electricity Gross Profit. Lower Electricity Gross Profit was driven by the introduction of retail price regulations and lower volumes due to weather, solar uptake and energy efficiency, and the impact of COVID-19. Operating cash flow was lower due to higher working capital, reflecting the timing of collateral deposited with the futures exchange associated with forward electricity hedge positions as part of our electricity risk management. Despite the challenges posed during FY2020 by bushfires, extreme weather events and the COVID-19 pandemic, our power stations continued to supply the market as needed. We successfully returned a Mortlake unit to service ahead of the summer peak demand period and reduced our output in response to lower demand associated with COVID-19. Construction of the 530 MW Stockyard Hill Wind Farm progressed and is targeted by the developer to come online by the end of 2020, subject to development and commissioning timelines. We continue to explore generation expansion opportunities, including grid-scale storage and fast-start gas. While forward wholesale electricity prices are currently below the price needed for investment, our longer- term view remains that as coal generation progressively exits, new firm and flexible generation capacity will be required to complement increasing renewable generation. Retail markets remained competitive throughout FY2020; however, we increased the number of energy customer accounts by 21,000, led by gains in residential gas and community energy services (CES). In addition, we grew our Broadband accounts by 12,000 with a continued focus on balancing share and customer lifetime value. Market churn reduced following the introduction of regulated default tariffs and we maintained a churn rate of 5 per cent below the market. Our retail transformation program is on track and focused on improving customer experience, targeting a market-leading cost position and growing new revenue streams. Our Strategic NPS score increased to +2 as at 30 June 2020, increasing to +5 as at July 2020. We have simplified our product suite and continue to streamline and digitise the customer journey. Customers are increasingly choosing to engage with us through digital channels, with 68 per cent of customers now on e-billing, and service call volumes reduced by a further 8 per cent this year. We are on track to achieve our target of reducing cost to serve by $100 million from FY2018 to FY2021 and growing our Solar, CES and Broadband businesses. On 1 May 2020, we announced a strategic partnership with disruptive energy retailer and technology company Octopus Energy to adopt its globally distinctive operating model and proprietary Kraken platform, as well as taking a 20 per cent equity stake. This partnership will accelerate our retail strategy by delivering superior customer experience, driving a further step change in cost reduction, and opening up further growth opportunities. We are making good progress customising the Kraken platform for the Australian market and are on track to migrate our first customer cohort by the end of the calendar year. Our first group of Energy Specialists have been trained on Octopus Energy’s UK Kraken platform and are supporting its UK customers. Operating and Financial Review16 Integrated Gas performance Underlying EBITDA Cash distributions from APLNG $1,741M $1,275M Down $151m or 8% vs FY2019, Underlying EBIT up $46m Up $301m or 31% vs FY2019, 8.2% Underlying ROCE In line with FY2019 Record APLNG production (37.5%) 265PJ Up 4% vs FY2019 Average realised LNG price Opex and Capex1/GJ US$9.1/ MMBTU Down 10% vs FY2019, down 5% in A$ terms at $12.9/GJ $3.5/GJ Down 13% vs FY2019 Integrated Gas Underlying EBITDA reduced as lower commodity hedging costs were more than offset by a decrease in share of APLNG Underlying EBITDA. This reflected a higher proportion of LNG sales into a weaker spot market, lower domestic sales volumes and average price, and higher costs associated with a change in accounting treatment for dewatering and workovers, which was more than offset by a reduction in ITDA. APLNG delivered record production, reflecting improved field performance with higher well availability and facility reliability. Eurombah Reedy Creek Interconnect (ERIC) pipeline came online in July 2019, improving utilisation of processing capacity. Talinga Orana Gas Gathering Station (TOGGS) came online in July 2020, it compresses and transports gas through the Talinga to Condabri Interconnect Pipeline to utilise processing capacity in Condabri. Total capital and operating expenditure1 decreased by more than $200 million compared with FY2019. This was due to improved field performance resulting in less gas purchases and lower costs associated with well workovers, as well as reduced exploration, lower non- operated activity and lower infrastructure spend. As upstream operator, Origin delivered average operating costs of $1.0/GJ (excluding pipeline and major turnaround costs) and average standard unfracked vertical Surat well costs of $1.2 million. Total operating and capital expenditure in FY2020 was $3.50/GJ.1 The four-yearly maintenance of 15 upstream operated gas processing facility trains was completed in early FY2020. Due to the COVID-19 pandemic, a shutdown of one LNG train planned for May 2020 was deferred to July 2021. During the period: • APLNG delivered record production of 265 PJ (Origin share), shipped its 500th LNG cargo and made record cash distributions to Origin of $1,275 million; • Origin’s share of APLNG 2P (proved plus probable) operated reserves increased 168 PJ or 5 per cent before production, reflecting higher estimated recovery from strong field performance, the inclusion of new areas to reserves and the Ironbark acquisition. This enabled a decision to not participate in less economic non-operated fields; • APLNG executed new contracts for over 100 PJ of gas sales to domestic customers starting in calendar year 2020; • both long-term buyers declared LNG downward quantity tolerance for calendar year 2020; and • the first price review under APLNG’s contract with Sinopec was completed with no change to the contract price. In April 2020, Origin increased its interest in the Beetaloo Basin by 7.5 per cent to 77.5 per cent, in exchange for increasing its carry of its minority partner’s share of costs by $25 million. Testing a liquids-rich gas play, the Kyalla horizontal well was drilled, cased and cemented during the period, before activity was paused due to COVID-19. Subject to COVID-19-related conditions, fracture stimulation of the Kyalla well is planned to resume in Q3/Q4 calendar year 2020, with extended production testing to follow. 1 Operating cash costs excludes APLNG’s Ironbark acquisition costs and purchases, and reflects royalties paid at the breakeven oil price. Royalties increase as oil price increases. Annual Report 202017 3. Strategy and prospects Our business drivers As a leading integrated energy company, Origin’s earnings drivers are spread across the energy value chain. Our electricity margin is predominantly driven by outperforming the market cost of energy through our generation portfolio (power stations and supply contracts). Although Origin generates less electricity than it sells, a significant portion of its wholesale costs are relatively fixed, and so margins are leveraged to movements in wholesale market prices as they flow through into retail tariffs. In natural gas, Origin’s wholesale margin is driven by a strong gas supply portfolio with pipeline and storage flexibility enabling us to direct gas to where it is most needed. A large portion of supply is under long-term contracts that are either fixed-price or linked to oil and Japan Korea Marker (JKM) prices, some of which reprice to market over time. Profitability in energy retailing is driven by attracting and retaining customers by providing a superior customer experience and low- cost service. Origin is the upstream operator and has a 37.5 per cent interest in APLNG, which is Australia’s largest CSG to LNG project. It is a significant supplier to both domestic gas and international LNG markets, with the majority of volume contracted until approximately 2035. Profitability is underpinned by maintaining a low annual capital and operating cost base relative to revenues. In FY2020, approximately 72 per cent of APLNG gas volume was sold as LNG (of which 93 per cent was under long-term oil-linked contracts). The remaining 28 per cent was sold domestically via a mix of long-term and short-term contracts. This contracting strategy minimises our exposure to the short- term LNG market. Market outlook In the near term, COVID-19 has impacted the outlook for economic growth at the macro level as well as the specific markets in which we operate domestically and internationally. International oil and LNG markets are experiencing reduced demand due to COVID-19, coinciding with a period of LNG oversupply. This has resulted in depressed prices for both commodities in the near term. The domestic electricity and gas markets have also experienced reduced demand due to COVID-19, with electricity demand down 5–10 per cent over the fourth quarter of FY2020 (weather corrected). This coincides with increased supply of renewable energy and lower international gas prices, reducing the near-term outlook for domestic electricity and gas prices. The impact on employment and economic conditions more generally will have implications for our customers, and will affect energy demand and affordability. The path to recovery for the economy and the markets in which we operate will depend on the effectiveness of the health and community responses to contain the virus, and the policy response to mitigate the economic impacts. In the longer term, we continue to expect global trends towards decarbonisation, decentralisation and digitisation will shape energy markets. If anything, we believe the enduring impacts of COVID-19 may accelerate the pace of change. We expect: • continued increases in large- and small-scale renewable energy will maintain downward pressure on average electricity prices, but will also increase volatility and the need for more reliable, dispatchable (‘firming’) capacity such as flexible gas-fired generation and battery storage, which Origin is well placed to supply; • increased electrification over time, particularly in transportation near term; • growth in global demand for gas in power generation, industrial heating, building heating and transportation; • LNG markets to remain oversupplied in the near term, but that new supply will be required from the early 2030s; • east coast domestic gas prices to be impacted by a number of factors, including Asian LNG and international oil prices, procurement and transportation costs; and • retail markets to remain competitive, but with improved transparency due to market reference bill requirements. It is in this context that we continue to evolve our strategy to respond to the short-term impacts of COVID-19 and position our business to capture value in a future shaped by these global trends. Operating and Financial Review18 Our strategy “Connecting customers to the energy and technologies of the future” Our strategy is centred around our core beliefs: Decarbonisation: Replacement of coal by renewables, partnered with firming capacity from gas, pumped hydro and storage will support emission reductions. Decentralisation: Technological advancement and consumer desire for greater control will result in an increase in distributed generation and storage. Digitisation: More connected homes and businesses will change all aspects of operations and customer experience. The right energy Accelerate towards clean energy Low cost operator developing and growing gas resources The right technologies Embracing a decentralised and digital future The right customer solutions Leading customer experience and solutions Underpinned by a commitment to capital discipline The right energy We believe our generation and fuel supply portfolios provide flexibility to adapt and prosper in a changing energy market. We are targeting renewables and storage to account for more than 25 per cent of our owned and contracted generation capacity by the end of 2020, subject to development and commissioning timelines. Accelerate towards clean energy Our renewable target is supported by Origin being the sole off-taker of the 530 MW Stockyard Hill Wind Farm until the end of 2030. Tower components are now on site, and 116 of the 149 turbines have been erected. We own Australia’s largest peaking gas generation fleet, which is well placed to provide firming capacity to support renewables and supply critical peak demand periods during extreme weather events or baseload supply shortages. Coal currently plays a critical role for baseload supply in Australia, but with an ageing fleet and growing renewables driving down average prices and increasing intra-day volatility, the role of coal is diminishing. As coal is retired and use of renewables increases, the market will require investment in reliability. We are progressing a range of brownfield generation opportunities, including fast-start gas and batteries, which would further improve our flexibility and capacity to support the increase in renewables. Subject to market signals and regulatory certainty, we could quickly implement these at the appropriate time. Annual Report 202019 Our Integrated Gas business is anticipating lower short-term demand caused by COVID-19 and lower production accordingly. Strong field performance has enabled reduced development activity and provides the capability to ramp up production in response to demand, if required. APLNG continues to meet the needs of its customers and remains focused on key value drivers such as workover costs, fracture stimulation costs and horizontal wells. Low cost operator developing and growing gas resources Beyond APLNG, our strategy is to scale the low-cost upstream operating model to new development opportunities. In the Beetaloo Basin, we have a 77.5 per cent interest and operatorship of three exploration permits covering 18,500km2. We are currently part way through Stage 2 of a farm-in work program targeting two independent potentially liquids-rich shale gas plays. We are also farming into a 75 per cent interest and operatorship of five permits located in the Cooper– Eromanga Basin in south west Queensland. The staged farm-in work program involves the drilling of up to five exploration wells to be completed by the end of calendar year 2024, targeting both unconventional liquids and gas. The right technologies The energy markets around the world are rapidly transforming towards low-cost renewables and new digital technologies, and Australia is no exception. Continued penetration of decentralised generation and storage, combined with the rise of internet-enabled devices, is changing the way our customers interact with us and use energy at home and in their businesses. We are developing a leading digital platform and analytics capability to connect millions of distributed assets and data points to provide more personalised and value-add services to our customers, both in front of and behind the meter. We have developed a proprietary Virtual Power Plant (VPP) platform to connect, and use artificial intelligence to orchestrate distributed assets such as air conditioning units, batteries, hot water systems and electric vehicle (EV) chargers. Through this platform, we have more than 85 MW from 11,000 connected customers. We expect this to increase as we demonstrate the benefits to both customers and to the grid of optimising these distributed assets at critical times of market volatility. We are also working with other businesses to source technical solutions and capabilities. We are co-founders of the Free Electrons global energy group, which brings together global utilities and leading start-ups looking to deploy new technology. Domestically, we sponsor EnergyLab, Australia’s leading platform for launching energy start-ups. Recent products include Spike (a gamified demand response program that rewards customers for reducing their energy use) and a portable battery product for the home. Origin is also pursuing opportunities in low-carbon technologies such as hydrogen, e-mobility, small- scale LNG and carbon-neutral LNG. In terms of hydrogen, Origin’s integrated energy position provides a unique advantage in producing green hydrogen and ammonia using renewables. Hydrogen and ammonia demand is forecast to grow, allowing countries to reduce emissions and diversify fuel supply. In terms of e-mobility, we provide charging solutions and infrastructure, and are partnering with a fleet management operator to provide an end-to-end solution that will enable businesses to make a seamless transition to EVs. We are also undertaking a smart charging trial aimed at optimising the value for EV drivers and the grid. The right customer solutions Origin is Australia’s largest energy retailer by number of customer accounts, and is well placed to harness opportunities to deliver value to customers in a changing energy landscape. Customers are at the heart of everything we do, and our immediate focus is to transform their experience to make it simple, seamless and increasingly digital. In the near term, we are focused on delivering a superior customer experience, a market leading cost position and growing our product offerings, including solar, CES and broadband. Our strategic partnership with Octopus Energy is expected to fast-track our strategy to deliver a superior customer experience at even lower cost, while opening up future growth opportunities. Embracing a decentralised and digital future Leading customer experience and solutions Operating and Financial Review20 4. FY2021 guidance Guidance is provided on the basis that market conditions and the regulatory environment do not materially change, adversely impacting on operations. Considerable uncertainty exists relating to potential ongoing impacts of COVID-19 and this guidance is subject to any further material impact on demand and customer affordability. Energy Markets Underlying EBITDA Integrated Gas – APLNG 100% Production Capex and opex, excluding purchases(a) Unit capex + opex, excluding purchases(a) Distribution breakeven(b) Integrated Gas – Other Oil/LNG hedging and trading (loss)/gain(c) Corporate Underlying costs Capital expenditure (excluding investments) FY20 FY21 guidance A$m 1,459 1,150–1,300 PJ A$m A$/GJ US$/boe A$m A$m A$m 708 (2,482) 3.5 29 650–680 (2,000)–(2,200) 2.9–3.4 27–31 (92) (59) (500) 50 (75)–(85) (420)–(470) (a) Operating cash costs excludes purchases and reflects royalties payable at breakeven oil prices. (b) FY2020 foreign exchange rate: 0.67 AUD/USD excludes Ironbark acquisition costs; FY2021 foreign exchange rate 0.69 AUD/USD. (c) FY2021 guidance is based on forward market prices as at 17 August 2020. Energy Markets We estimate Energy Markets Underlying EBITDA to be lower than FY2020 at $1,150-$1,300 million driven by: • Electricity Gross Profit reduction of $170-$220 million, reflecting lower wholesale electricity and renewable certificate prices flowing into tariffs, and increased network costs of $40 million that are not recovered in regulated tariffs; • Gas Gross Profit reduction of $100-$150 million, reflecting the roll-off of certain long-term supply and transport capacity sales contracts ($70 million) and repricing of retail and business tariffs; and • Cost to serve savings of approximately $70 million, in line with the target of >$100 million savings from FY2018 (subject to any additional material increase in bad and doubtful debts provisioning). Integrated Gas We estimate reduced APLNG (100 per cent) production in FY2021 of 650–680 PJ, reflecting anticipated lower demand with strong field capability to increase production in response to demand. APLNG is able to further manage sales volumes through flexibility in lifted non-operated production and gas purchases. We estimate total APLNG capex + opex of $2.0-$2.2 billion, reflecting reduced development activity with fewer drilling rigs, reduced workovers and lower infrastructure spend due to TOGGS being online, and lower exploration and appraisal (E&A) spend. APLNG is targeting FY2021 distribution breakeven of US$27–31/boe including US$12/boe in project finance costs. We estimate a net gain on Origin’s oil/LNG hedging and trading positions of $50 million based on current forward prices. Refer to Section 6.2.2 for details. Other Origin only costs are estimated to be similar to FY2020 and include overheads net of recoverables from APLNG, Beetaloo Basin and other costs. Corporate FY2021 Corporate costs are estimated to be $75-$85 million, reflecting higher costs associated with enterprise resource planning (ERP) replacement, FY2020 FX gains and Mortlake self-insurance costs not repeating. Capital expenditure is estimated to be $420-$470 million including $65–$80 million E&A spend, primarily relating to Beetaloo appraisal. This excludes $90-$100 million relating to the Octopus Energy investment. Depreciation and amortisation is estimated to be $50-$60 million higher than FY2020 driven by decommissioning retail IT systems and increased generation restoration provisions. Annual Report 202021 5. Financial update 5.1 Reconciliation from Statutory to Underlying Profit Statutory Profit/(Loss) Items Excluded from Underlying Profit (post-tax): Increase/(decrease) in fair value and foreign exchange movements Oil and gas Electricity Foreign exchange and interest rate derivatives Other financial assets/liabilities Foreign exchange on foreign-denominated financing Disposals, impairments, onerous contracts and business restructuring Total Items Excluded from Underlying Profit (post-tax) Underlying Profit FY20 ($m) FY19 ($m) Change ($m) Change (%) 83 1,211 (1,128) (93) 275 153 85 (46) 86 (3) (1,215) (940) 1,023 139 59 (88) (43) 274 (63) 44 183 1,028 136 94 173 (3) (188) 60 (1,259) (1,123) (5) 98 159 (197) 7 (69) (95) (2,861) (614) (0) Fair value and foreign exchange movements reflect fair value gains/(losses) associated with commodity hedging, interest rate swaps and other financial instruments. These amounts are excluded from Underlying Profit to remove the volatility caused by timing mismatches in valuing financial instruments and the underlying transactions they relate to. • Oil and gas derivatives manage exposure to fluctuations in the underlying commodity price to which Origin is exposed through its gas portfolio, and indirectly through Origin’s investment in APLNG. See Section 6.2.2 for details of Origin’s oil hedging carried out in relation to its investment in APLNG. • Electricity derivatives, including swaps, options and forward purchase contracts, are used to manage fluctuations in wholesale electricity and environmental certificate prices in respect of electricity purchased to meet customer demand.1 • Foreign exchange and interest rate derivatives manage exposure to foreign exchange and interest rate risk associated with the debt portfolio. A significant portion of debt is Euro-denominated and cross-currency interest rate swaps hedge that debt to AUD. • Other financial assets/liabilities reflects investments held by Origin including MRCPS issued by APLNG.2 • Foreign exchange on foreign-denominated financing reflects currency fluctuations on unhedged USD debt. Debt is maintained in USD to offset the USD investment in MRCPS, which delivers USD distributions. Disposals, impairments, onerous contracts and business restructuring are either non-cash or non-recurring items and are excluded from Underlying Profit to better reflect the underlying performance of the business. They include: • a non-cash impairment of $746 million relating to Origin’s carrying value of APLNG. The charge is driven by a reduction in oil price assumptions over the near term and a revised long-term Brent crude oil price assumption of US$60/bbl (real 2020) from FY2026, partially offset by cost reductions from improved field and operating performance. There is no tax impact, as any impact is offset by recognising part of a previously unrecognised deferred tax liability; • a non-cash onerous provision charge of $455 million post-tax relating to a 20-year off-take contract from Cameron LNG. The provision is primarily due to a reduction in JKM LNG sale price assumptions, reflecting medium-term demand and moderately lower long-term prices driven by expected lower US gas liquefaction fees, as well as lower US treasury bond rates; and • transaction costs of $8 million post-tax primarily relating to OC Energy integration and Origin restructuring costs of $6 million. The nature of Items Excluded from Underlying Profit set out in the above table have been reviewed by our auditor for consistency with the description in note A1 of the Origin Energy Financial Statements. 5.2 Accounting changes AASB 16 Leases has been adopted from 1 July 2019, which requires leases to be brought on balance sheet, resulting in a $97 million increase in Underlying EBITDA, more than offset by increases in depreciation and amortisation and financing costs with a net reduction to Underlying Profit after tax of $18 million. A lease liability of $514 million and a right-of-use (ROU) asset of $467 million have been recognised at 30 June 2020. Refer to Appendix 1 and the Overview section of the Origin Energy Financial Statements for details. From 1 July 2019, APLNG dewatering and workover costs have been expensed as incurred within Underlying EBITDA rather than capitalised and amortised. Following a period of embedding steady state operations, these costs are considered ongoing and operational in nature going forward and the change in application of accounting practice reflects this. During commissioning of the project and in the lead up to steady state operations, these amounts were capitalised as they represented costs incurred to bring the assets into their intended state of use. This results in a $107 million reduction in share of APLNG EBITDA, which is more than offset by a $152 million reduction in share of depreciation and amortisation from APLNG. Refer to Appendix 2 and Section 6.2.1 for further information. There has been no change to comparative information for the above accounting changes. 1 2 Under AASB 9, from 1 July 2018, Origin Energy holds MRCPS at fair value, rather than at cost. Operating and Financial Review22 5.3 Underlying Profit Energy Markets Integrated Gas – Share of APLNG Integrated Gas – Other Corporate Underlying EBITDA Underlying depreciation and amortisation Underlying share of ITDA Underlying EBIT Underlying interest income – MRCPS Underlying interest income – Other Underlying interest expense Underlying Profit before income tax and non-controlling interests Underlying income tax expense Non-controlling interests’ share of Underlying Profit Underlying Profit FY20 ($m) 1,459 1,915 (174) (59) 3,141 (509) (1,303) 1,329 174 16 (316) 1,203 (177) (3) 1,023 FY19 ($m) 1,574 2,123 (231) (234) 3,232 (419) (1,504) 1,308 226 8 (388) 1,154 (123) (3) 1,028 Change ($m) Change (%) (115) (208) 57 175 (91) (90) 201 21 (52) 8 72 49 (54) – (5) (7) (10) (25) (75) (3) 21 (13) 2 (23) 100 (19) 4 44 – – Refer to Sections 6.1 and 6.2 respectively for Energy Markets and Integrated Gas analysis. Corporate costs reduced by $175 million, reflecting the prior year non-cash remediation provision increase of $170 million not repeating and $17 million FX gains, primarily relating to hedging USD cash flow received from APLNG. This was partly offset by self-insurance costs of $7 million associated with the Mortlake electrical fault and higher costs associated with ERP replacement of $6 million. Underlying depreciation and amortisation increased by $90 million, largely due to the impact of adopting the new leasing standard. Underlying share of ITDA decreased $201 million, driven by lower APLNG amortisation, reflecting the change in treatment of dewatering and workover costs, which are now directly expensed as incurred ($152 million), and reduced interest expense on project finance due to a lower average interest rate from refinancing activities at APLNG partly offset by a lower AUD/USD exchange rate. Refer to Section 6.2 for further detail. Underlying interest income on MRCPS reduced $52 million, driven by a lower balance following buy-backs by APLNG, partly offset by a lower AUD/USD exchange rate. Underlying interest expense reduced by $72 million, $90 million after excluding the impact from adopting the leasing standard. This reflects a lower net debt balance and a lower average cost of debt due to refinancing activities. Refer to Section 5.6 for further detail. Annual Report 202023 5.4 Cash flows Operating cash flow Underlying EBITDA Underlying equity accounted share of EBITDA (non-cash) Other non-cash items in Underlying EBITDA Underlying EBITDA adjusted for non-cash items Change in working capital Energy Markets – excluding electricity futures collateral Energy Markets – electricity futures collateral Integrated Gas – excluding APLNG Corporate Other Tax paid Cash flow from operating activities FY20 ($m) 3,141 (1,911) 157 1,387 (222) 74 (340) 29 15 – (215) 951 FY19 ($m) 3,232 (2,123) 277 1,386 84 (63) 125 17 5 (35) (110) 1,325 Change ($m) Change (%) (91) 212 (120) 1 (306) 137 (465) 12 10 35 (105) (374) (3) (10) (43) 0 (364) (217) (372) 71 200 (100) 95 (28) Cash flow from operating activities decreased $374 million, primarily due to higher working capital requirements (–$306 million) and higher tax paid (–$105 million) associated with higher taxable income in FY2019. Underlying share of EBITDA (non-cash) reflects share of APLNG ($1,915 million) and Octopus Energy (–$4 million). Other non-cash items include bad and doubtful debts (+$124 million) and share-based remuneration (+$30 million). Working capital increased $222 million, primarily due to collateral deposited with the futures exchange (–$340 million) associated with forward electricity hedge positions that are expected to unwind over time, lower net payables from lower wholesale gas and electricity prices (–$100 million) and higher inventory (–$26 million) driven by coal, partly offset by lower green inventory (+$90 million) and lower Retail and Business Energy net working capital (+$93 million). Investing cash flow Capital expenditure Cash distribution from APLNG Interest received from other parties Investments/acquisitions Disposals Cash flow from investing activities FY20 ($m) (500) 1,275 18 (165) 234 862 FY19 ($m) (341) 974 2 (64) 18 589 Change ($m) Change (%) (159) 301 16 (101) 216 273 47 31 800 158 N/A 46 FY2020 capital expenditure of $500 million comprises: • generation sustain ($208 million), primarily related to major overhauls at Eraring Power Station ($92 million) and Uranquinty Power Station ($29 million), as well as Mortlake Power Station repairs ($41 million); • other sustain ($115 million) including LPG ($26 million), Origin ERP system replacement ($23 million), regulatory market reforms ($20 million) and CES ($7 million); • productivity/growth ($92 million) including Quarantine Power Station upgrade ($14 million), CES ($18 million), Kraken licensing costs ($13 million), LPG ($9 million), digital spend ($8 million), solar ($7 million) and other Energy Markets projects; and • exploration and appraisal spend ($85 million), primarily related to the appraisal program in the Beetaloo Basin. Cash distributions from APLNG amounted to $1,275 million, comprising $181 million of MRCPS interest (down from $229 million in FY2019) and $1,094 million of MRCPS buy-backs (up from $745 million in FY2019). Interest received increased, reflecting a higher cash balance following refinancing in preparation for debt maturities. Investments include initial payments and transaction costs for the equity interest in Octopus Energy ($128 million) and deferred consideration for OC Energy ($14 million). Disposals include sale of Ironbark to APLNG for $231 million. Operating and Financial Review24 Financing cash flow Net proceeds/(repayment) of debt Operator cash call movements On-market purchase of shares Settlement of foreign currency contracts APLNG loan repayment Interest paid Payment of lease principal Dividends paid Total cash flow from financing activities Effect of exchange rate changes on cash FY20 ($m) (1,173) 56 (75) (55) (8) (310) (75) (478) (2,118) (1) FY19 ($m) 185 7 (77) (64) (31) (375) – (165) (520) 2 Change ($m) Change (%) (1,358) 49 2 9 23 65 (75) (313) (1,598) (3) (734) 700 (3) (14) (74) (17) N/A 190 307 (150) Repayment of debt reflects capital market debt repaid from cash held and Free Cash Flow. Operator cash call movements represent the movement in funds held and other balances relating to Origin’s role as upstream operator of APLNG. On-market purchase of shares represents the purchase of shares associated with employee share remuneration schemes and the dividend reinvestment plan. Settlement of foreign currency contracts represents the partial closure of contracts executed in prior periods to monetise the value in certain cross-currency interest rate swap contracts. The value of outstanding contracts as at 30 June 2020 was $156 million. Interest paid reduced by $65 million, comprising lower interest on debt due to refinancing activities ($81 million), partly offset by a $16 million increase in interest paid on lease liabilities. Free Cash Flow Free Cash Flow represents cash flow available to pay dividends, repay debt, invest in major growth projects or return surplus cash to shareholders. This is prepared on the basis of equity accounting for APLNG. The Octopus Energy investment is considered a major growth project and $141 million of associated investing cash flow from consideration payments and capital expenditure has been excluded from FY2020 Free Cash Flow. ($m) FY20 FY19 FY20 FY19 FY20 FY19 FY20 FY19 FY20 FY19 Energy Markets Integrated Gas – Share of APLNG Integrated Gas – Other Corporate Total Underlying EBITDA Non-cash items Change in working capital Other Tax paid 1,459 137 (266) (23) – 1,574 90 62 (20) – 1,915 (1,915) – – – 2,123 (2,123) – – – (174) 11 29 24 – (231) 7 17 (1) – (59) 13 15 (1) (215) (234) 180 5 (15) (110) 3,141 (1,753) (222) – (215) 3,232 (1,845) 84 (35) (110) Operating cash flow 1,307 1,707 Capital expenditure Cash distribution from APLNG (Acquisitions)/disposals Interest received (395) – (165) – (304) – (53) – Investing cash flow (560) (357) Interest paid – – Free Cash Flow including major growth Major growth spend Free Cash Flow 747 141 1,350 – 888 1,350 – – – – – – – – – – – – – – – – – – – – (109) (208) (247) (174) 951 1,325 (94) 1,275 234 – (28) 974 1 – 1,414 946 (10) – (0) 18 8 (9) – 7 2 – (500) 1,275 69 18 (341) 974 (46) 2 862 589 – – (310) (375) (310) (375) 1,305 – 737 (549) – (548) – 1,503 141 1,539 – 1,305 737 (549) (548) 1,644 1,539 Annual Report 202025 5.5 Dividends The Board has determined to pay an unfranked 10 cps dividend in respect of the second half of FY2020, bringing total FY2020 dividends to 25 cps, which represents 27 per cent of Free Cash Flow. The Board exercised discretion to set the payout ratio below the target 30 per cent to 50 per cent of Free Cash Flow. This reflects current and expected future economic and business conditions, particularly lower commodity prices. During FY2020, $141 million was incurred in respect of the strategic partnership with Octopus Energy. This has been treated as major growth expenditure and excluded from Free Cash Flow when measuring the dividend pay-out percentage. The nil franking percentage reflects the current franking credit balance. A low franking balance is expected over FY2021–23 due to realised foreign exchange losses on debt maturities and deducting the remaining tax cost base of Browse Basin exploration permits in the FY2020 income tax return. Refer to Origin Energy Financial Statements note E2 for further details. Origin will seek to pay sustainable shareholder distributions through the business cycle and will target an ordinary dividend payout range of 30 per cent to 50 per cent of Free Cash Flow per annum. Distributions will take the form of franked dividends, subject to the company’s franking credit balance. Free Cash Flow is defined as cash from operating activities and investing activities (excluding major growth projects), less interest paid. Remaining cash flow after ordinary dividends will be applied to further debt reduction, value accretive organic growth and acquisition opportunities and/or additional capital management initiatives. The Board maintains discretion to adjust shareholder distributions for economic and business conditions. The Dividend Reinvestment Plan (DRP) will operate with nil discount and will be satisfied through on-market share purchases. The DRP price of shares will be the average purchase price, rounded to two decimal places, bought on market over a period of 10 trading days commencing on the third trading day immediately following the Record Date. 5.6 Capital management During FY2020, the following capital management initiatives were completed: • refinanced debt to lower rates and increase tenor: – raised €600 million (A$973 million) of 10-year debt at 3.2 per cent fixed interest rate; – raised A$300 million of eight-year debt at 2.7 per cent fixed interest rate; – repaid €500 million (A$939 million) 3.7 per cent effective interest rate debt; – redeemed €1,000 million (A$1,391 million) 7.9 per cent fixed interest rate hybrid obligation; – repaid NZ$141 million (A$125 million) 2.1 per cent effective interest rate debt obligation; and – renegotiated lower rates on a A$500 million bank guarantee facility. • cancelled $718 million in undrawn bank loan facilities that were surplus to requirements. In July 2020, the maturity date of A$1.1 billion of bank debt facilities was extended from FY2023 to a later date in FY2025. Further surplus liquidity of $0.2 billion was cancelled as part of this transaction. Adjusted Net Debt Movements in Adjusted Net Debt ($m) (951) 514 244 478 5,417 (1,267) (69) 292 500 4,644 5,158 Decrease in Adjusted Net Debt excluding leases: $773 million 30 June 2019 Operating cash flow Net cash from APLNG Capex Net acquisitions/ disposals Net interest payments Dividend FX/Other 30 June 2020 excl. leases Lease liabilities 30 June 2020 Operating and Financial Review26 Adjusted Net Debt excluding leases decreased $773 million, driven by strong APLNG cash distribution and operating cash flow. This was partially offset by capital expenditure, dividends, interest payments and foreign exchange/other impacts. After recognition of $514 million in lease liabilities under AASB 16 Leases, Adjusted Net Debt decreased by $259 million to $5,158 million. The increase in reported debt due to adopting AASB 16 will not have any material impact on the company’s credit metrics as lease liabilities were previously included in these metrics. Foreign exchange/other includes on-market purchase of shares ($75 million), payment of lease liabilities ($75 million), settlement of foreign currency contracts ($55 million) and non-cash translation of unhedged USD debt and fees. Origin’s objective is to maintain an Adjusted Net Debt/Adjusted Underlying EBITDA ratio of 2.0–3.0x and a gearing target of 20 per cent to 30 per cent. As at 30 June 2020, this ratio was 2.1x and gearing was 29 per cent, compared to 2.6x and 29 per cent, respectively, at 30 June 2019. Our long-term credit ratings are BBB (stable) from S&P and Baa2 (stable) from Moody’s. Debt maturity profile post debt extension – excluding lease liabilities (A$b) Debt portfolio management Average term to maturity increased from 3.0 years at 30 June 2019 to 3.9 years at 30 June 2020, including the bank debt facility extension in July 2020. The rolling 12-month average interest rate on drawn debt decreased from 5.9 per cent in FY2019 to 4.8 per cent in FY2020. 2.0 As at 30 June 2020, Origin held $1.2 billion of cash and $2.9 billion in committed undrawn debt facilities after adjusting for the debt extension in July 2020. This liquidity position of $4.1 billion is held to meet near-term debt maturities of $1 billion by December 2020 and $1.9 billion maturing in October 2021, and to maintain a sufficient liquidity buffer. 1.5 1.0 0.5 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30+ Loans and bank guarantees – undrawn Loans and bank guarantees – drawn Capital Markets debt and term loan APLNG funding During construction of APLNG, shareholders contributed capital via ordinary equity and the investment in preference shares (termed MRCPS) issued by APLNG. APLNG distributes funds to shareholders firstly via fixed dividends of 6.37 per cent per annum on the MRCPS balance, recognised as interest income by Origin, and secondly via buy-backs of MRCPS (refer to Section 5.4 above). The fair value of MRCPS held by Origin at 30 June 2020 was A$2,109 million. APLNG also funded construction via US$8.5 billion in project finance facilities, signed in 2012. These facilities were partially refinanced in FY2019. The outstanding balance at 30 June 2020 was US$6,386 million (A$9,307 million), net of unamortised debt fees of US$81 million (A$118 million). APLNG’s average interest rate associated with its project finance debt portfolio for FY2020 was 3.6 per cent, and FY2021 is estimated to be approximately 3.1 per cent. As at 30 June 2020, gearing3 in APLNG was 28 per cent, down from 30 per cent at 30 June 2019. 3 Gearing is defined as project finance debt less cash, divided by project finance debt less cash plus equity. Annual Report 2020 27 6. Review of segment operations 6.1 Energy Markets Fuel Supply • • Gas Coal Transportation • Flexible contracted gas transport arrangements Generation • 1 black coal generator • • Australia’s largest gas-fired fleet Growing contracted renewables Networks • Regulated Customers • Retail (consumer and SME) • Business (commercial and industrial) • Wholesale Energy Markets operations Origin’s Energy Markets business comprises Australia’s largest energy retail business by customer accounts, Australia’s largest fleet of gas-fired peaking power stations supported by a substantial contracted fuel position, a growing supply of contracted renewable energy and Australia’s largest power station, the black coal–fired Eraring Power Station. Energy Markets reports on an integrated portfolio basis. Electricity and Natural Gas Gross Profit and retail cost to serve are reported separately, as are the EBITDA of the Solar and Energy Services, Future Energy and LPG divisions, and share of earnings from the 20 per cent equity holding in Octopus Energy Holdings Limited. 6.1.1 Financial summary Underlying EBITDA/EBIT Electricity Gross Profit Natural Gas Gross Profit Electricity and Natural Gas cost to serve LPG EBITDA Solar and Energy Services EBITDA Future Energy costs Share of EBITDA from Octopus Energy Underlying EBITDA Underlying EBIT FY20 ($m) 1,187 744 (570) 83 33 (15) (4) 1,459 974 FY19 ($m) 1,390 715 (610) 68 26 (15) – 1,574 1,173 (110) (67) (26) 88 (59) 40 19 Electricity –$203 million Gas +$29 million 1,574 Change ($m) Change (%) (15) 4 (6) 22 30 – N/A (7) (17) (203) 29 40 15 8 – (4) (115) (199) 1,459 FY19 Retail pricing (DMO/VDO) Volume/ mix Other Wholesale margin Volume Cost to serve Other FY20 Operating and Financial Review 28 6.1.2 Electricity Volume summary Volumes sold (TWh) NSW(a) Queensland Victoria South Australia Total volumes sold FY20 FY19 Retail Business Total Retail Business Total 7.8 4.1 2.9 1.3 16.1 8.7 3.6 3.4 1.7 17.4 16.5 7.7 6.2 3.1 33.5 8.4 4.6 3.1 1.3 17.4 9.4 3.5 4.0 1.9 18.8 17.8 8.1 7.1 3.2 36.2 Change (TWh) Change (%) (1.3) (0.4) (0.9) (0.1) (2.7) (7.3) (5.0) (12.7) (3.1) (7.5) (a) Australian Capital Territory customers are included in New South Wales. Gross Profit summary Revenue ($m) Retail (consumer and SME) Business Cost of goods sold ($m) Network costs Energy procurement costs Gross Profit ($m) Gross margin % FY20 FY19 $m $/MWh $m $/MWh Change (%) Change ($/MWh) 7,509 4,569 2,941 (6,322) (3,142) (3,179) 1,187 15.8% 224.0 283.9 168.8 (188.6) (93.8) (94.9) 35.4 8,264 5,056 3,208 (6,874) (3,287) (3,587) 1,390 16.8% 228.4 290.5 170.7 (189.9) (90.8) (99.1) 38.4 (9) (10) (8) 8 4 11 (15) (6) (4.3) (6.8) (1.9) 1.3 (2.9) 4.3 (3.0) Electricity Gross Profit declined by $203 million4, driven by: • $3/MWh decrease in unit margins (–$136 million) comprising: Sources and uses of electricity (TWh) – –$110 million from the introduction of the DMO and VDO regulated retail pricing tariffs on 1 July 2019; – –$21 million driven by costs associated with unplanned outages at the Eraring and Mortlake plants, net of insurance recoveries; – –$64 million reflecting higher solar feed-in tariffs and discounts to concession customers (–$34 million), and lower green scheme prices in Business tariffs (–$30 million); offset by: – +$59 million margin improvement, including from lower wholesale procurement and fuel costs, and a $33 million release of a rehabilitation provision, partially offset by lower Business tariffs. 40 35 30 25 20 15 10 5 • 2.7 TWh volume decline (–$67 million) relating to lower usage from milder weather, solar uptake and efficiency (–$33 million), COVID-19 impacts (–$26 million) and customer movements relating to large Business and SME tenders (–$8 million). Owned and contracted generation of 22.5 TWh was lower by 2.1 TWh, driven primarily by Eraring Power Station (–2.9 TWh) due to outages and lower output in response to reduced customer demand from COVID-19, and Mortlake Power Station (–0.3 TWh) reflecting the outage in the first half. This was partially offset by Darling Downs Power Station (+1.1 TWh) with more gas available to generation following the roll-off of short-term wholesale gas trading contracts in FY2019. Energy procurement costs decreased with lower volumes. Unit procurement costs reduced by $4.30/MWh, driven by lower wholesale procurement costs, contract prices and fuel costs, offset by higher solar feed-in tariff rates. FY19 FY20 FY19 FY20 Sources Uses Renewables Solar FiT Coal (Eraring) Gas Other Swap contracts Short position Retail Business Losses 4 Includes a $4 million benefit relating to AASB 16 Leases. Annual Report 2020 29 Wholesale energy costs Fuel cost(a) Generation operating costs Owned generation(a) Net pool costs(b) Bundled renewable PPAs(c) Market contracts Solar feed-in tariff Capacity hedge contracts Green Schemes (excl. PPAs) Other Energy procurement costs FY20 FY19 TWh $/MWh $m TWh $/MWh 19.6 19.6 19.6 4.9 2.9 6.0 1.5 50.6 11.0 61.6 61.3 92.1 60.3 117.9 1,132 230 1,363 449 255 508 127 317 569 – 21.8 21.8 21.8 5.0 2.7 7.3 1.2 51.9 10.6 62.4 90.5 93.1 69.6 103.3 35.0(d) 90.9 3,587 38.0(d) 94.4 $m 992 216 1,208 303 264 362 181 342 506 14 3,179 (a) Includes volume from internal generation and contracted from Pelican Point. (b) Net pool costs includes gross pool purchase costs net of pool revenue from generation, gross and net settled PPAs, and other contracts. (c) Bundled PPAs includes cost of electricity and renewable certificates. Market contracts include swap and energy hedge contracts. (d) Volume differs from sales volume due to energy losses of 1.3 TWh (FY2019: 1.8 TWh). Electricity supply Nameplate capacity (MW) FY20 FY19 Change Output Pool revenue Output Pool revenue Output Pool revenue Type(a) (GWh) ($m) ($/MWh) (GWh) ($m) ($/MWh) (GWh) ($m) ($/MWh) Eraring Units 1–4 GT Darling Downs Osborne(b) Uranquinty Mortlake Mount Stuart Quarantine Ladbroke Grove Roma Shoalhaven 2,922 2,880 42 644 180 664 566 423 230 80 80 240 Black Coal OCGT CCGT CCGT OCGT OCGT OCGT OCGT OCGT OCGT Pump/hydro 13,634 – 2,067 703 422 932 4 188 155 17 156 1,065 – 130 58 75 91 0 29 19 2 26 79 – 79 93 125 106 103 153 123 109 135 16,513 – 931 759 333 1,204 9 194 157 24 157 1,494 – 92 105 53 207 1 45 29 3 20 90 – 98 138 160 172 132 232 182 130 130 (2,879) – 1,137 (56) 89 (272) (5) (6) (2) (7) (1) (429) – 39 (47) 22 (116) (1) (16) (10) (1) 6 Internal generation 6,029 18,279 1,495 82 20,281 2,050 101 (2,002) (555) Pelican Point Renewable PPAs 240 1,207 CCGT Solar/wind 1,317 2,871 1,548 2,744 (231) 127 (11) – (19) (45) (35) (66) (29) (79) (59) (21) 6 (19) Owned and contracted generation 7,476 22,467 24,574 (2,106) (a) OCGT = open cycle gas turbine; CCGT = combined cycle gas turbine. (b) Origin has a 50 per cent interest in the 180 MW plant and contracts 100 per cent of the output. Operating and Financial Review30 6.1.3 Natural Gas Volume summary Volumes sold (PJ) Retail Business Total Retail Business Total FY20 FY19 NSW(a) Queensland Victoria South Australia(b) 11.0 3.1 25.2 5.7 22.8 66.9 58.3 10.6 33.8 70.0 83.6 16.2 External volumes sold 45.0 158.6 203.6 10.1 3.3 22.4 5.6 41.4 19.7 92.3 57.5 11.0 29.8 95.5 79.9 16.7 180.5 222.0 Internal sales (generation) Total volumes sold 55.6 259.2 49.4 271.3 Change (PJ) Change (%) 4.0 (25.6) 3.7 (0.4) (18.3) 6.2 (12.1) 13 (27) 5 (2) (8) (4) (a) Australian Capital Territory customers are included in New South Wales. (b) Northern Territory and Western Australia customers are included in South Australia. Gross Profit summary Revenue ($m) Retail (consumer and SME) Business Cost of goods sold ($m) Network costs Energy procurement costs Gross Profit ($m) Gross margin % FY20 FY19 $m $/GJ $m $/GJ Change (%) Change ($/GJ) 2,835 1,163 1,673 (2,090) (796) (1,294) 744 26.3% 13.9 25.8 10.5 (10.3) (3.9) (6.4) 3.7 2,926 1,064 1,862 (2,211) (739) (1,472) 715 24.4% 13.2 25.7 10.3 (10.0) (3.3) (6.6) 3.2 (3) 9 (10) 5 (8) 12 4 7 0.7 0.2 0.2 (0.3) (0.6) 0.3 0.4 Natural Gas Gross Profit increased $29 million, driven by: • $0.4/GJ margin improvement (+$88 million) primarily due to lower average procurement costs from oil/JKM linked supply contracts and shorter-term purchases; and • 18.3 PJ decrease in external sales (–$59 million) due to the roll-off of short-term wholesale trading contracts in Queensland and expiry of C&I contracts and demand impacts from COVID-19 (–$10 million). This was partially offset by higher Retail volumes due to higher customer numbers and cooler weather in Victoria. Sources and uses of gas (PJ) 300 250 200 150 100 50 FY19 FY20 FY19 FY20 Sources Uses Oil/JKM linked Generation Other fixed price Business – Wholesale APLNG – fixed price Business – C&I Retail Annual Report 2020 31 6.1.4 Electricity and Natural Gas cost to serve FY20 FY19 Change ($) Change (%) Cost to maintain ($ per average customer(a)) Cost to acquire/retain ($ per average customer(a)) Electricity and Natural Gas cost to serve ($ per average customer(a)) Maintenance costs ($m) Acquisition and retention costs(b) ($m) Electricity and Natural Gas cost to serve ($m) (121) (38) (159) (434) (136) (570) (a) Represents cost to serve per average customer account, excluding CES accounts. (b) Customer wins (FY2020: 491,000; FY2019: 527,000) and retains (FY2020: 1,396,000; FY2019: 1,796,000). Labour Bad and doubtful debts Other variable costs Retail and Business Wholesale Corporate services and IT Electricity and Natural Gas cost to serve FY20 ($m) (150) (113) (125) (388) (51) (131) (570) (126) (43) (169) (455) (155) (610) FY19 ($m) (173) (80) (158) (411) (62) (136) (610) 5 5 10 21 19 40 (4) (11) (6) (5) (12) (6) Change ($m) Change (%) 23 (33) 33 23 12 5 40 (13) 41 (21) (6) (19) (4) (6) In FY2020, we undertook a number of measures to support customers financially impacted by COVID-19, including pausing late payment fees, default listings and disconnections, and providing payment extensions at a cost of $5 million. Notwithstanding these measures and the broader government and business support in place, we recognised an increase in our bad and doubtful debt provision of $38 million5 related to the risks associated with COVID-19. Overall, Electricity and Natural Gas cost to serve reduced by $40 million, driven by operating cost savings of $58 million and lower leasing charges of $25 million associated with adopting AASB 16 Leases. This was partially offset by $43 million related to the impacts of COVID-19 detailed above. Bad debt expense as a percentage of total Electricity and Natural Gas revenue increased to 1.09 per cent in FY2020, up from 0.71 per cent in FY2019. (19) (34) (5) 43 (25) 610 Transformation activities – $58 million Increasing digitisation • • Targeted marketing and optimised channels • Transforming customer journeys • Leaner operational structure • Automated processes and outsourcing • Corporate services and IT recontracting and lower headcount 570 FY19 Cost to acquire Back office functions Corporate and IT Impacts of COVID-19 Leases FY20 We are on track to deliver the target of $100 million cost reduction by FY2021 from a baseline in FY2018. Planning is underway for a further reduction of $100–$150 million in cash savings by FY2024 following successful implementation of the Octopus Energy’s Kraken platform and operating model. 5 The total increase in bad and doubtful debt provision relating to COVID-19 risks was $40 million, of which $38 million impacted electricity and gas cost to serve and the remainder impacted the Solar and Energy services division. Operating and Financial Review32 Customer accounts As at 30 June 2020 Customer accounts (’000)(c) Electricity NSW(a) Queensland Victoria South Australia(b) Total Average 1,191 645 556 239 2,631 2,624 Natural Gas 335 181 479 225 1,220 1,204 Total Electricity 30 June 2019 Natural Gas Total Change 1,526 825 1,035 464 3,851 3,827 1,193 660 558 229 2,639 2,645 312 182 474 223 1,191 1,157 1,505 842 1,032 451 3,830 3,802 22 (16) 3 13 21 25 (a) Australian Capital Territory customers are included in New South Wales. (b) Northern Territory and Western Australia customers are included in South Australia. (c) Includes 257,000 CES customers (FY2019: 233,000). Although price dispersion and in situ churn have reduced following the introduction of the DMO and VDO, the market remains highly competitive and we continue to take a disciplined approach to share and customer lifetime value. Origin churn decreased to 13.4 per cent during the period, compared to market churn of 18.4 per cent. Period end customers rose by 21,000 overall. Electricity customers fell by 8,000, reflecting a reduction in SMEs of 20,000, primarily relating to large tenders. This was partially offset by growth in embedded network customers as the CES business continues to grow. Natural Gas customers increased by 29,000, driven primarily by gains in New South Wales. Broadband customer accounts increased by 12,000 during the year to a total of 20,000 customer accounts at 30 June 2020. 30 25 20 15 10 5 – (5) (10) (15) (20) Customer movement (’000) 6.1.5 LPG Volumes (kT) Revenue ($m) Cost of goods sold ($m) Gross Profit ($m) Operating costs ($m) Underlying EBITDA ($m) NSW QLD VIC SA Electricity Gas FY20 FY19 Change 417 608 (417) 191 (108) 83 426 674 (470) 204 (136) 68 (9) (66) 54 (13) 28 15 Change (%) (2) (10) (11) (6) (20) 22 Origin is one of Australia’s largest LPG and propane suppliers, procuring and distributing LPG to residential and business locations across Australia and the Pacific. As at 30 June 2020, Origin had 363,000 LPG customer accounts, up from 362,000 customer accounts at 30 June 2019. Gross Profit decreased by $13 million, driven by the impact of COVID-19 on demand, primarily in the Pacific. Both revenue and cost of goods sold decreased due to lower international commodity pricing, which is a key component of pricing to customers. Operating costs decreased $27 million, due to the impact of adopting AASB 16 Leases ($30 million). Underlying operating costs were stable. Annual Report 202033 6.1.6 Solar and Energy Services Revenue CES Gross Profit Solar Gross Profit Other Gross Profit Gross Profit Operating costs Underlying EBITDA FY20 ($m) 298 75 31 5 111 (77) 33 FY19 ($m) Change ($m) Change (%) 216 57 26 6 89 (64) 26 82 18 5 (1) 22 (13) 8 38 32 19 (17) 25 20 27 Origin provides installation of solar photovoltaic (PV) systems and batteries to residential and business customers, and ongoing support and maintenance services. Community Energy Services supplies both electricity and gas to apartment owners and occupiers, and body corporates through embedded networks and serviced hot water. Underlying EBITDA increased by $8 million, primarily driven by growth in CES Gross Profit (+$18 million), in particular the acquisition of OC Energy in February 2019. This was partially offset by increased operating costs (–$14 million), driven primarily by the OC Energy acquisition, and includes a $3 million benefit due to the impact of adopting AASB 16 Leases. 6.1.7 Future Energy Operating costs Investments FY20 ($m) (15) (15) FY19 ($m) (15) (35) Change ($m) Change (%) – (20) N/A (56) Future Energy is focused on new business models to connect distributed assets and data to customers. We have developed a VPP platform that is able to orchestrate millions of distributed assets using artificial intelligence. The VPP has more than 85 MW connected today from more than 11,000 customers and we expect it to grow as the benefits to customers and the grid are realised. We have also developed a leading digital and analytics capability and are actively investing in technology for new customer solutions, both in front of and behind the meter. Operating costs remained flat during the period. The business continues to make small investments in trialling new energy solutions. 6.1.8 Octopus Energy Origin has acquired a 20 per cent interest in Octopus Energy and a licence in Australia to its market-leading customer platform, Kraken. Over the next 24 to 30 months, Origin will transfer its retail electricity and gas customer accounts to the Kraken platform and adopt Octopus Energy’s leading operating model with targeted cash savings of $70–80 million in FY2022 increasing to $100–150 million annually from FY2024. We are making good progress in customising the Kraken platform for the Australian market and are on track to have our first customer cohort migrated by the end of the calendar year. Base functionality for NSW is well progressed and we have moved a small group of ‘family and friends’ onto the platform for further testing. Our first group of Energy Specialists have been trained on the UK Kraken platform and are supporting Octopus Energy’s UK customers. These Energy Specialists are gaining valuable experience in using Kraken and will be transitioning to the Australian platform as we start to migrate the first customer cohort. The $4 million loss as shown in Section 6.1.1 represents our share of EBITDA from Octopus Energy from 1 May to 30 June 2020. The loss in these months represents warmer weather reducing gas demand and increasing net wholesale costs. Operating and Financial Review34 6.2 Integrated Gas Share of APLNG (see Section 6.2.1) Integrated Gas – Other (see Section 6.2.2) Underlying EBITDA Underlying depreciation and amortisation Underlying share of ITDA from APLNG Underlying EBIT 6.2.1 Share of APLNG FY20 ($m) 1,915 (174) 1,741 (29) (1,296) 416 FY19 ($m) 2,123 (231) 1,892 (18) (1,504) 370 Change ($m) Change (%) (208) 57 (151) (11) 208 46 (10) (25) (8) 61 (14) 12 Exploration and appraisal Drilling and gathering Processing and transportation Domestic customers Liquefaction and export customers Origin has a 37.5 per cent shareholding in APLNG, an equity accounted incorporated joint venture. APLNG operates Australia’s largest CSG to LNG export project (by nameplate capacity) with the country’s largest 2P CSG reserves.6 Origin is the operator of the upstream CSG exploration and appraisal, development and production activities. ConocoPhillips is the operator of the 9 mtpa two-train LNG liquefaction facility at Gladstone in Queensland. As APLNG is an equity accounted incorporated joint venture, Integrated Gas reports its share of APLNG EBITDA. The share of APLNG ITDA is recorded as one-line item between EBITDA and EBIT. APLNG acquired various CSG interests from Tri-Star in 2002 that are subject to reversionary rights and an ongoing royalty interest in favour of Tri-Star. These interests represent approximately 20 per cent of APLNG’s 2P CSG reserves and approximately 19 per cent of 3P (proved plus probable plus possible) CSG reserves (as at 30 June 2020). Refer to Section 7 for disclosure relating to Tri-Star litigation associated with these CSG interests. Financial summary – APLNG Profit and Loss ($m) Commodity revenue and other income(a) Operating expenses Underlying EBITDA Depreciation and amortisation MRCPS interest expense Project finance interest expense Other financing expense Interest income Income tax expense Underlying ITDA(b) Underlying Profit FY20 FY19 APLNG 100% 7,100 (1,992) 5,108 (1,863) (463) (372) (102) 40 (708) Origin share 2,662 (747) 1,915 (699) (174) (140) (37) 15 (266) APLNG 100% 7,443 (1,781) 5,662 (2,116) (602) (590) (72) 51 (699) Origin share 2,791 (668) 2,123 (794) (226) (221) (27) 19 (262) (3,468) (1,301) (4,027) (1,510) 1,640 614 1,635 613 (a) Includes commodity revenue plus other income of $19 million (Origin share) (FY2019: $2 million) primarily related to a release of the restoration provision from the relinquishment of the Gilbert Gully permit during FY2020. (b) See Origin Financial Statement note B2.1 for details relating to a $5 million difference between APLNG ITDA and Origin’s reported share. 6 As per EnergyQuest Energy Quarterly, June 2020. Annual Report 2020 35 Origin’s share of APLNG Underlying EBITDA decreased by $208 million including a $107 million decrease relating to the change in accounting treatment for dewatering and workover costs (previously capitalised and now directly expensed as incurred). This was partially offset by a $13 million increase related to adopting AASB 16 Leases. Excluding the above accounting impacts, Origin’s share of APLNG Underlying EBITDA decreased $114 million, driven by: • commodity and other revenue decreasing by $129 million as result of a higher proportion of LNG sales into a weaker spot market as well as lower domestic sales volumes and lower average price; and • operating expenses reducing $15 million (after excluding the above accounting impacts of $94 million), primarily driven by lower purchases ($55 million) and other cost reductions ($15 million). This was partially offset by higher royalties and tariffs ($26 million), exploration write-off ($21 million) and higher downstream operating costs ($8 million). See below for further details. The decrease in Origin’s share of depreciation and amortisation reflects the removal of amortisation related to workovers and dewatering of $152 million, partially offset by the impact of a lower AUD/USD exchange rate. Origin’s share of MRCPS interest expense decreased by $52 million due to a lower MRCPS balance following buy-backs by APLNG. This was partially offset by the impact of a lower AUD/USD exchange rate. Project finance interest decreased by $81 million due to a lower average interest rate from refinancing activities, partly offset by the impact of a lower AUD/USD exchange rate. See Section 5.6 for details relating to APLNG funding. APLNG volume summary Volume and price summary Production volumes (PJ) Operated Non-operated Total production Purchases Changes in upstream gas inventory/other Liquefaction/downstream inventory/other Sales volumes (PJ) Domestic gas sales volumes LNG spot sales volumes LNG contract sales volumes Commodity revenue ($m) Natural Gas sales LNG sales Realised price Natural Gas ($A/GJ) LNG (A$/GJ) LNG (US$/mmbtu) FY20 FY19 APLNG 100% Origin share APLNG 100% Origin share 203 62 265 7 (6) (16) 251 70 12 169 2,643 323 2,320 542 165 708 17 (15) (42) 668 187 32 449 7,049 861 6,188 4.61 12.86 9.12 522 157 679 32 1 (36) 676 195 17 464 7,436 983 6,453 5.04 13.42 10.12 196 59 255 12 0 (13) 254 73 7 174 2,789 369 2,420 Origin’s share of APLNG production increased 10 PJ to 265 PJ in FY2020, with improved performance across operated and non-operated assets driven by stronger field and facility performance and the Eurombah Reedy Creek Interconnect pipeline (ERIC) online from July 2019, improving utilisation of processing capacity. This was partially offset by reduced operated production in the final quarter in response to lower demand due to COVID-19. Origin’s FY2020 share of APLNG commodity revenue decreased 5 per cent to $2,643 million with increased production offset by lower purchases and building up of inventory. The average realised LNG price decreased 4 per cent to A$12.86/GJ, reflecting a higher proportion of spot LNG sales. The average realised domestic gas price decreased 9 per cent to $4.61/GJ, driven by reduced short-term sales prices. Operating and Financial Review36 Cash flow – APLNG 100% A$m Underlying EBITDA Non-cash items in underlying EBITDA Change in working capital Other Operating cash flow* Capital expenditure* Capitalised de-watering costs* Interest income* Asset purchases (including Ironbark)/sale proceeds* Loan repaid by/(advanced to) Origin Loans paid by other shareholders Investing cash flow Project finance interest and transaction costs* Repayment of project finance* Other financing activities* Repayment of lease liabilities* Interest on lease liabilities* MRCPS interest MRCPS buy-back Financing cash flow Net increase/(decrease) in cash and cash equivalents Effect of exchange rate changes on cash* Net increase/(decrease) in cash including foreign exchange movement FY20 ($m) 5,108 66 64 4 5,242 (1,038) – 40 (245) 8 6 (1,229) (382) (731) (45) (80) (19) (480) (2,918) (4,655) (642) 104 (538) FY19 ($m) 5,662 (4) (34) (88) 5,536 (1,277) (101) 50 30 31 9 (1,258) (513) (808) (85) – – (611) (1,987) (4,004) 274 113 387 Distributable cash flow* 2,846 2,945 Change ($m) Change (%) (554) 70 98 92 (294) 239 101 (10) (275) (23) (3) 29 131 77 40 (80) (19) 131 (931) (651) (916) (9) (925) (99) (10) N/A (288) (105) (5) (19) (100) (20) N/A (74) (33) (2) (26) (10) (47) N/A N/A (21) 47 16 (334) (8) (239) (3) * Included in distributable cash flow. Distributable cash flow represents the net increase in cash including foreign exchange movements before MRCPS interest and buy- backs and transactions with shareholders. APLNG generated distributable cash flow of $2,846 million (Origin’s 37.5 per cent share: $1,067 million) at an effective oil price of US$68/bbl (FY2019: US$73/bbl) after servicing project finance interest and principal. Cash distributions to Origin were higher at $1,275 million in FY2020, reflecting partial draw down of cash retained at 30 June 2019. APLNG’s cash balance at 30 June 2020 was $1,072 million ($1,610 million at 30 June 2019). Annual Report 202037 Operating cash costs – APLNG 100% Purchases Royalties and tariffs(a) Operated opex(b) Non-operated opex Downstream opex APLNG Corporate/other Dewatering(b) Workovers Total operating expenses per Profit and Loss Add capitalised de-watering costs Other cash items Total operating cash costs FY20 ($m) (89) (502) (561) (202) (248) (105) (106) (179) (1,992) – (63) (2,055) FY19 ($m) (235) (433) (562) (197) (228) (126) – – (1,781) (101) (61) (1,943) Change ($m) Change (%) 146 (69) 1 (5) (20) 21 (106) (179) (211) 101 2 (112) (62) 16 (0) 3 9 (17) N/A N/A 12 (100) (3) 6 (a) Reflects actual royalties paid. At break-even prices royalties and tariffs would have amounted to $96 million (FY2019: $139 million). (b) FY2020 unit operating costs of $1.0/GJ reflects operated opex ($561 million) less pipeline and major turnaround costs ($68 million) plus operated dewatering costs ($76 million) and 542 PJ operated production. Operating expenses increased $211 million, of which $285 million relates to dewatering and workover costs previously capitalised. The remaining decrease of $74 million was primarily driven by lower purchases ($146 million), partially offset by higher royalties and tariffs ($69 million) as a result of a higher royalty rate and increased production. APLNG Corporate/other reduced $21 million, reflecting lower costs due to gas inventory movements ($69 million) and a benefit due to adopting AASB 16 Leases ($35 million). This was partially offset by the exploration write-offs ($56 million), foreign exchange impacts ($22 million) and corporate costs and other ($5 million). Capital expenditure – APLNG 100% Operated upstream – Sustain Operated upstream – Infrastructure Exploration and appraisal Operated stay in business (SIB) Downstream Non-operated Workovers Total capital expenditure Working capital movement Leases classified as financing cash flow Total capital expenditure per cash flow FY20 ($m) (483) (83) (88) (63) (0) (205) – (922) (164) 48 FY19 ($m) (515) (122) (102) (16) (39) (262) (237) (1,293) 16 – (1,038) (1,277) Change ($m) Change (%) 32 39 14 (47) 39 57 237 371 (180) 48 239 (6) (32) (14) 294 (100) (22) (100) (29) (1,125) N/A (19) Capital expenditure decreased by $371 million, of which $237 million relates to workover costs now expensed. The remaining $134 million is driven by a $71 million decrease in operated development costs with completion of the ERIC pipeline, $14 million reduced exploration, $57 million lower non-operated spend due to a reduced level of development activity, $39 million lower downstream spend driven by a $50 million benefit related to settlement of a project construction claim, partially offset by an increase in SIB of $47 million related to purchase of spares for maintenance. Operated upstream – Sustain includes expenditure for drilling, completions, fracture stimulation, gathering network, surface connection, land access and development infrastructure, which occurs over multiple years and is directly related to sustaining production over the medium term. In FY2020, 260 operated wells were drilled (versus 251 in FY2019) including 239 Surat vertical wells (versus 243 in FY2019). 74 wells were fracture stimulated (versus 91 in FY2019) and 267 wells were brought online (vs 266 in FY2019). Working capital increased by $164 million, primarily due to lower capex creditors as a result of lower activity in FY2020. Operating and Financial Review38 6.2.2 Integrated Gas – Other This segment comprises Origin Integrated Gas activities that are separate from APLNG, and includes unconventional exploration interests in the Beetaloo Basin, the south west Queensland Cooper–Eromanga Basin and a potential conventional development resource in the offshore Browse Basin. It also includes overhead costs (net of recoveries) incurred as upstream operator and corporate service provider to APLNG, costs associated with growth initiatives such as hydrogen and small-scale LNG, and costs incurred in managing Origin’s exposure to LNG pricing risk and impacts of LNG trading positions held by Origin. Beetaloo Basin (Northern Territory) Origin has a 77.5 per cent interest in three exploration permits over 18,500 km2 in the Beetaloo Basin. An increase of 7.5 per cent from the previous 70 per cent interest occurred on 7 April 2020, as part of changes to the joint venture agreement with partner Falcon Oil and Gas. Stage 2 appraisal is underway, targeting two independent shale liquids-rich gas plays. Two horizontal appraisal wells are planned to be drilled, fracture stimulated and put on extended production test, with the objective of flowing liquids-rich gas to the surface. Work continued with the regulators and Native Title holders to ensure operations are conducted safely and with transparency around the necessary approvals and consents. • Kyalla liquids-rich gas play – The Kyalla 117 well has been drilled to a total measured depth of 3,809 metres, which includes a 1,579-metre lateral section. Results obtained to date demonstrate good reservoir continuity, conductive natural fractures and continuous gas shows. In March 2020, operations were paused in response to the COVID-19 pandemic. The Ensign rig has been secured and maintained locally and by mid-May all activities were completed on the Kyalla 117 well site. Subject to COVID-19-related conditions, fracture stimulation of Kyalla 117 is expected to resume in Q3/Q4 calendar year 2020, with extended production testing of the well to follow. Results from the production test are expected by the end of the first quarter of calendar year 2021. These results will inform options to either further evaluate this play or commence activities in the Velkerri play. • Velkerri liquids-rich gas play – Construction of the Velkerri 76 well lease pad was completed in early December 2019 and environmental approval to drill and fracture stimulate the Velkerri Flank well was granted in late December 2019. Cooper–Eromanga Basin (Queensland) Origin entered into agreements with Bridgeport Energy to farm into a 75 per cent equity position and operatorship of five permits located in the Cooper–Eromanga Basin in south west Queensland. Origin was included on title in June 2020 and drilling of the first well (Stage 1A vertical) is due to commence in Q4 calendar year 2020. The staged farm-in work program involves drilling up to five exploration wells, to be completed by the end of 2024 targeting both unconventional liquids and gas. Origin will carry Bridgeport’s cost up to $12 million. Financial summary Origin only commodity hedging and trading Other Origin only costs Underlying EBITDA Underlying depreciation and amortisation/ITDA Interest income – MRCPS Underlying Profit/(Loss) FY20 ($m) (92) (82) (174) (24) 174 (23) FY19 ($m) (199) (32) (231) (12) 226 (17) Change ($m) Change (%) 107 (50) 57 (12) (52) 6 (54) 156 (25) 99 (23) (35) Refer to the table following for a breakdown of Origin only commodity hedging and trading costs. Other Origin only costs increased $50 million, including a benefit of $11 million from adopting AASB 16 Leases. The remaining $61 million increase is primarily driven by costs associated with an agreement to reduce Origin’s share of overriding royalty in the Beetaloo Basin ($15 million), a higher proportion of non-recoverable costs, and higher insurance costs. Annual Report 202039 FY2020 hedging and trading summary FY2020 hedging and trading positions realised a $92 million loss compared to a $199 million loss in FY2019. Based on open hedge and trading positions at current forward market prices7, we estimate a net gain on oil hedging and LNG trading in FY2021 of $50 million. $m Hedge premium expense Gain/(loss) on oil hedging Gain/(loss) on LNG hedging/trading Total (a) Based on forward prices as at 17 August 2020. Oil hedging FY19 actual FY20 actual FY21 estimate(a) (34) (81) (84) (199) (29) 8 (72) (92) (9) 99 (40) 50 Origin has entered into oil hedging instruments to manage its share of APLNG oil price risk based on the primary principle of protecting the Company’s investment grade credit rating and cash flows during volatile market periods. For FY2021, Origin’s share of APLNG-related Japan Customs-cleared Crude (JCC) oil price exposure is estimated to be approximately 22 mmboe. As at 31 July 2020, we estimate that 11.4 mmboe has been priced at approximately US$41/bbl before any hedging, based on the contract lags. Origin has separately hedged 6.4 mmbbl primarily using swaps, producer collars and put options of which 3.7 mmbbl has been realised as at 31 July 2020 at an average price of approximately US$55/bbl (see table below). Hedge instruments Brent AUD swaps Brent USD swaps Brent producer collars Brent puts Total hedged LNG hedging and trading Realised as at 31 July 2020 Remaining unrealised Volume Average price Volume Average price 3.1 mmbbl – 0.4 mmbbl 0.2 mmbbl 3.7 mmbbl A$88/bbl – US$35–90/bbl US$35/bbl 1.3 mmbbl 0.4 mmbbl 0.4 mmbbl 0.6 mmbbl 2.7 mmbbl A$66/bbl US$57/bbl US$35–90/bbl US$35/bbl Uncontracted gas volumes produced by APLNG are sold to the domestic and spot LNG markets. To manage price risk associated with LNG spot volumes, Origin entered into forward fixed price hedge contracts with the hedge position fully closed out at a cost of $60 million in FY2020. There are no LNG hedge positions relating to APLNG’s uncontracted sales exposure beyond FY2020. In 2013, Origin established a Henry Hub linked contract to purchase 0.25 mtpa from Cameron LNG for a period of 20 years, with the first cargo delivered to Origin in June 2020. In FY2020, we recognised a non-cash charge of $455 million post-tax relating to an onerous contract provision associated with Cameron LNG. The non-cash charge will be excluded from Underlying Profit in FY2020, with future realised losses or gains accounted for in Underlying Profit. In 2016, Origin established a contract with ENN Energy Trading Company Limited to sell 0.28 mtpa on a Brent oil-linked basis commencing in FY2019 and ending in December 2023. These contracts and derivative hedge contracts that manage the price risk associated with the physical LNG contracts form part of an LNG trading portfolio. We estimate a net loss of $40 million in FY2021 for the combined LNG trading and derivatives portfolio, based on current forward prices.7 7 As at 17 August 2020. Operating and Financial Review40 7. 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 Overseen by the Board and the Board Risk Committee, Origin’s risk management framework supports the identification, management and reporting of material risks. Risks are identified that have the potential to impact the delivery of business plans and objectives. Risks are assessed using a risk toolkit that considers the level of consequence and likelihood of occurrence using consistent risk assessment criteria. The risk framework incorporates a ‘three lines of defence’ model for managing risks and controls in areas such as health and safety, environment (including climate change), finance, reputation and brand, legal and compliance, and social impacts. All employees are responsible for making risk-based decisions and managing risk within approved risk appetite and specific limits. The Board reviews Origin’s material risks each quarter and assesses the effectiveness of the Company’s risk management framework annually, in accordance with the ASX Corporate Governance Principles and Recommendations. Three lines of defence Line of defence Responsibility Primary accountability First line Lines of business Second line Oversight functions Third line Internal audit Identifies, assesses, records, prioritises, manages and monitors risks. 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 Our risk framework supports the identification and management of emerging risks and escalating threats. During FY2020, COVID-19 emerged as a key threat to our operational and financial performance, requiring an ongoing response and management across many of our existing material risks to minimise impacts. Our priorities continue to focus on the health and safety of our people, customers and the communities we operate in. We are ensuring continuity of our operations and supporting activities, including our supply chain, to provide our essential services to our customers and maintain our financial resilience in response to changes in global markets. Material risks 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. Annual Report 202041 Strategic risks Strategic risks arise from uncertainties that may emerge in the medium to longer term and, while they may not necessarily impact short-term profits, can have an immediate impact on the value of the Company. These strategic risks are managed through continuous monitoring and review of emerging and escalating risks, ongoing planning and resource allocation, and evaluation by management and the Board. Risk Consequences Management Competition 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. Technology also allows customers to have increased awareness of the impact of when they consume energy and where that energy may be sourced from. Advances in technology and the abundance of low-cost data acquisition, communication and control has the potential to create new business models and introduce new competitors. Changes in demand for energy Any decrease in energy demand driven by price, consumer behaviour, mandatory energy efficiency schemes, government policy, weather or other factors can reduce Origin’s revenues and adversely affect Origin’s future financial performance. Regulatory policy Conversely, failure to adequately prepare for any increases in future energy demands, including the emergence of new sources of demand, may restrict Origin in optimising our future financial opportunities. Origin has broad exposure to regulatory policy change and other government interventions. Changes in these areas can 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 government subsidies for building new generation or transmission capacity, direct government investment in generation, energy market design, climate change policies, domestic gas market interventions, retail price and consumer protection regulation, and royalties and taxation policy. • 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. Partnering with Octopus Energy, with its proven technology, should drive a differentiated, market-leading customer experience. • We endeavour to mitigate the impact of this risk on our wholesale business by sourcing competitively priced fuel to operate our generation fleet and through efficient operations 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. It is working to mitigate the impact of this risk on its core energy businesses by offering superior service and innovative products and reducing cost to serve. • Origin is partially mitigating the impact of this risk by applying advanced data analytics capability to smart meter data to better predict customer demand and enable Origin to develop data-based customer propositions. • Our strategy of growing our gas reserves, increasing our supply of renewables, and investing in new technology supports Origin’s ability to meet future increases in energy demand. • Origin contributes to the policy process at federal, state and territory governments 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 members of governments, opposition parties and bureaucrats to achieve sound policy outcomes aligned with our commercial objectives. Origin also makes formal submissions to relevant government policy inquiries. • Origin actively promotes the customer and economic benefits publicly that flow from our activities in deregulated energy markets. Operating and Financial Review42 Risk Consequences Management Climate change Climate change impacts many parts of Origin’s business. • Our strategy for transitioning to a carbon–constrained Key risks and opportunities include: • those related to the transition to a low-carbon economy, such as the 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, changing government regulation and climate change policy, and community demand for lower-carbon sources of energy; and • those related to the physical impact of a changing climate, including the impact of changing weather patterns on the demand for energy, and the resilience of our assets to changing and more severe weather conditions. There is also increased risk of climate change-related litigation against Origin and/or regulatory bodies that grant licences or approvals to Origin, which could potentially result in more onerous licence/approval conditions, non-renewal of licences/ approvals or other adverse consequences. future is focused on growth in renewables, gas and cleaner, smarter customer solutions. For Energy Markets, Origin has prepared for a range of decarbonisation scenarios, including scenarios consistent with the Paris Agreement’s goal of holding the rise in global temperatures to a 50 per cent chance of below 1.5°C. • Origin has committed to significantly growing its 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. • Origin is using the framework recommended by the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) for governance oversight and reporting of our climate change risks. • Origin has committed to science-based targets to halve Scope 1 and 2 greenhouse gas emissions and reducing value chain Scope 3 emissions8 by 25 per cent by 2032. • Origin is planning to update its existing science-based targets to a 1.5°C pathway with an aim to achieve net zero emissions by 2050. • Origin has committed to a new short-term emissions target to reduce Scope 1 emissions by 10 per cent on average over FY2021–23 from a FY2017 baseline. Financial risks Financial risks are the risks that directly impact the financial performance and resilience of Origin. Risk Consequences Management Commodity Foreign exchange and interest rates Origin has a long-term exposure to international oil, LNG and gas prices through the sale and purchase of domestic gas, LNG 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. Some of Origin’s long-term domestic gas purchase agreements and APLNG’s LNG sale agreements contain periodic price reviews. Following each review, pricing may be adjusted upwards or downwards, or it may remain unchanged. 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 associated with foreign currency and Australian dollar borrowings, the sale and purchase of gas, LNG and LPG, and through its investments in APLNG and the Company’s other foreign operations. Interest rate and foreign exchange movements could lead to a decrease in Australian dollar revenues or increased payments in Australian dollar terms. • 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. • For each periodic price review, a negotiation strategy is developed, which takes into account external market advice and uses both external and in-house expertise. • 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. 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. • Origin actively manages its liquidity position through cash flow forecasting and maintenance of minimum levels of liquidity as determined under Board-approved limits. Credit and counterparty Some counterparties may fail to fulfil their obligations (in whole or part) under major contracts. • Counterparty risk assessments are regularly undertaken and, where appropriate, credit support is obtained to manage counterparty risk. 8 Incurred within the domestic market; excluding LPG and corporate as their emissions are not material. Annual Report 202043 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 Origin has exposure to reliability or major accident events that may impact our licence to operate or financial prospects. This includes loss of containment, cyber-attack and security incidents, unsafe operations, and natural hazards, events that may result in harm to our people, environmental damage, additional costs, production loss, third-party impacts, and impact to our reputation. • Core operations are subject to a comprehensive framework of controls and operational performance monitoring to manage the design, operational and technical integrity of our assets and associated operational activities. Origin’s standards and controls are designed to ensure we meet regulatory and industry standards in all operations. 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 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. Community concerns regarding environmental and social impacts associated with our activities may also give rise to unrest among community stakeholder groups and activists, which may impact the company’s reputation. A third party’s actions may also result in delays in Origin carrying out its approved development and operational activities. NGOs, landholders, community members and other affected parties can seek to prevent or delay Origin’s activities through court litigation, preventing access to land and extending approval pathway timeframes. 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. Environmental and social Cyber security 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 commitments. As at 30 June 2020, 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. • Origin personnel are appropriately 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 regular reporting of the highest-rated environmental risks and mitigants, and reviews significant incidents and near misses. • Origin engages with its stakeholders prior to seeking relevant approvals for its development and operational activities, and this engagement continues through the life of the project and during operations. • A dedicated cyber risk team is responsible for implementing a Board-approved cyber strategy and continuously improving controls. • 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. APLNG continually takes steps to further strengthen the supply base such as lowering costs and identifying new plays. • APLNG is progressing an exploration campaign that, if successful, could increase long-term supply. • APLNG continues to review business development opportunities for long-term gas supply, and has the ability to substitute gas or LNG to meet contractual requirements if required. Operating and Financial Review44 Risk Conduct Consequences Management Unlawful, unethical or inappropriate conduct that falls short of community expectations could result in penalties, reputational/brand damage, loss of customers and adverse financial impacts. • Origin’s people are trained on the laws and regulations that apply to their activities and operations, and on the processes that underpin compliance with laws and regulations. Origin’s financial prospects and reputation/brand are underpinned by complying with laws and other regulatory obligations (such as privacy, competition and insider trading) and meeting stakeholder commitments. 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. • Origin’s Purpose, Values, Behaviours and Code of Conduct guide conduct and decision making across Origin. • All Origin’s people are trained every two years in Origin’s Code of Conduct, and we conduct training for insider trading, privacy, and competition and consumer law every year. • Conduct risk and compliance are identified as material risks within Origin’s risk management framework and are regularly reported to the Board Risk Committee. Business units are accountable for controls specific to the different parts of Origin’s business and are subject to assurance activities, including Internal Audit. • Origin applies a number of governance and management standards across its various joint venture interests to provide a consistent approach to managing them. • Origin actively monitors and participates in its joint ventures through participation in their respective boards and governance committees. APLNG 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 19 per cent of APLNG’s 3P CSG reserves (as at 30 June 2020), and approximately 20 per cent of APLNG’s 2P CSG reserves (as at 30 June 2020). Tri-Star served proceedings on APLNG in 2015 (‘reversion proceeding’) 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, or a portion of them, was revenue for purposes of the reversion 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 the reversion proceeding against APLNG including by a further amended statement of claim filed by Tri-Star with the leave of the court in September 2019. These relate to other aspects of the reversion trigger (including as to the calculation of interest, calculation of revenue and the nature and quantum of APLNG’s expenditures that can be included), the calculation of the royalty payable by APLNG to Tri-Star, rights in respect of infrastructure, and claims relating to gas sold by APLNG following the alleged reversion dates. APLNG denies these claims and filed its initial defence and counter-claim in April 2016. APLNG filed its amended defence and counter- claim (responding to Tri-Star’s September 2019 amended statement of claim) in May 2020. 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: • 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 $4.56 billion (as at 31 December 2019) if reversion occurred on 1 November 2008; Annual Report 202045 • 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: – estimated the value of such gas which it has been unable to take since the alleged reversion, calculated by reference to the sale of gas as LNG and gas to domestic customers, to be approximately $3.37 billion (as at 31 March 2019) and approximately $1.3 billion per annum thereafter. In the alternative, Tri-Star claims that the value of such gas should be assessed by reference to the revenue derived by APLNG or its affiliates from LNG sales since the alleged reversion, being approximately $2.5 billion, (as at March 2019), or $2.4 billion (as at March 2019) if the proceeds from sale of LNG is determined to be calculated net of liquefaction costs; and – alleged that it should be paid the value of such gas or is otherwise entitled to set-off the value of such gas from any amount owing to APLNG arising from APLNG’s 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; and • if reversion occurred: – the extent of the reversionary interests principally with respect to Tri-Star’s ownership and/or rights to use or access certain project infrastructure; and – the repayment by Tri-Star of the ongoing royalty which has been paid by APLNG since reversion, as a result of its mistake as to the occurrence of the reversion trigger. If APLNG is successful in defending Tri-Star’s past reversion claims in the reversion proceeding, the potential for reversion to otherwise occur in the future in accordance with the reversion trigger will remain. Tri-Star has also commenced proceedings against APLNG (‘markets proceeding’) which allege that APLNG breached three CSG joint operating 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, amongst other things, damages and/or an order that APLNG offer Tri-Star (and the other minority participants in those CSG joint operating agreements) the opportunity to participate in those sales agreements for their proportionate share of production from those three CSG joint ventures. In September 2019, Tri-Star, with the leave of the court, filed a further amended statement of claim in the markets proceeding. Tri-Star has in its amended statement of claim, sought additional relief in respect of: • the nature and scope of the obligations of APLNG as operator pursuant to the CSG joint operating agreements; • Tri-Star’s ownership and/or rights to use or access certain project infrastructure; and • APLNG’s entitlement as operator to charge (both historically and in the future) certain categories of costs under the relevant CSG joint operating agreements. APLNG intends to defend the claims in both proceedings. APLNG filed its defence and counter-claim in the markets proceedings (responding to Tri-Star’s September 2019 amended statement of claim) in April 2020. Tri-Star is required to file its: • amended reply and answer in the reversion proceeding by 30 November 2020; and • reply and answer in the markets proceeding by 18 December 2020. Once the pleadings have closed, the usual court process would involve a period of document disclosure, potentially court-ordered mediation and then finally a hearing. The timing for each of these steps is difficult to predict at this stage. APLNG expects that the two proceedings will be managed in parallel. 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. Operating and Financial Review46 8. 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 refers 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 5.1 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 OFR. Non-IFRS financial 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. Annual Report 202047 Appendices Appendix 1: FY2020 impact of leasing standard AASB 16 Leases has been adopted from 1 July 2019. The effect of this standard is to bring Origin’s leases, primarily commercial offices, LPG terminals, power-generating assets and fleet vehicles, on to the balance sheet. A lease liability of $514 million and a right-of-use (ROU) asset of $467 million have been recognised in the balance sheet at 30 June 2020. In the profit and loss, the ROU asset is depreciated and interest expense is recognised on the lease liability. Previously, lease payments were expensed within Underlying EBITDA. In the cash flow, lease payments are recognised as financing cash flows, split between principal and interest payments. Previously, lease payments were classified as operating cash flows. Renewable power purchase agreement treatment A net derivative liability of $512 million associated with Origin’s renewable PPAs, previously accounted for as financial instruments and fair valued, has been judged to meet the lease definition under AASB 16 Leases and so has been declassified as a financial instrument. However, due to the variable nature of the payments, the lease liability and ROU asset are recognised at nil value and payments continue to be recognised as operating costs. There has been no change to comparative information. Refer to the Overview section of the Origin Energy Financial Statements for further information. The table below removes the impact of AASB 16 Leases from Origin’s FY2020 Profit and Loss for comparative purposes. FY20 reported ($m) Lease adj. ($m) FY20 excl. lease adj. ($m) FY19 reported ($m) Change ($m) Change (%) Energy Markets Integrated Gas – Share of APLNG Integrated Gas – Other Corporate 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 Operating cash flow Investing cash flow Financing cash flow 1,459 1,915 (174) (59) 3,141 (509) (1,303) 1,329 174 (300) 1,203 (177) (3) 1,023 951 862 (2,118) (62)(a) (13) (11) (11) (97) 80 22 5 – 18 22 (4) – 18 91 – (91) 1,397 1,902 (185) (70) 3,044 (429) (1,281) 1,334 174 (282) 1,225 (181) (3) 1,574 2,123 (231) (234) 3,232 (419) (1,504) 1,308 226 (380) 1,154 (123) (3) 1,041 1,028 (177) (221) 46 164 (188) (10) 223 26 (52) 98 71 (58) – 13 1,042 862 (2,209) 1,325 589 (520) (283) 273 (1,689) (11) (10) (20) (70) (6) 2 (15) 2 (23) (26) 6 47 – 1 (21) 46 325 (a) LPG ($30 million), cost to serve ($25 million), Solar and Energy Services ($3 million) and Electricity ($4 million). Operating and Financial Review48 Appendix 2: FY2020 dewatering and workover treatment – APLNG 100% From 1 July 2019, APLNG dewatering and workover costs have been expensed rather than capitalised and amortised. Following a period of embedding steady state operations, these costs are considered ongoing and operational in nature going forward, the change in application of accounting practice reflects this. During commissioning of the project and in the lead up to steady state operations, these amounts were capitalised as they represented costs incurred to bring the assets into their intended state of use. From 1 July 2019, dewatering and workover costs are recognised in the Income Statement as operating expenses within Underlying EBITDA. Previously, future downhole costs for dewatering and workovers were estimated and amortised on a units of production basis. In the cash flow, dewatering and workover costs are recognised within operating cash flow, previously recognised as capital expenditure within investing cash flows. There has been no change to comparative information. The following table shows FY2019 profit and loss with the treatment change for comparative purposes only. FY20 reported ($m) FY19 reported ($m) Dewatering workover adjustment ($m) FY19 adjusted ($m) Change ($m) Change (%) Commodity and other revenue Operating expenses(a) Underlying EBITDA Depreciation and amortisation Net financing costs Income tax expense 7,100 (1,992) 5,108 (1,863) (897) (708) 7,443 (1,781) 5,662 (2,116) (1,213) (699) Underlying ITDA from APLNG (3,468) (4,027) Underlying Profit 1,640 1,635 Operating cash flow Investing cash flow Financing cash flow 5,242 (1,229) (4,655) 5,536 (1,258) (4,004) – (338) (338) 406 – (21) 385 47 (338) 338 – 7,443 (2,119) 5,324 (1,710) (1,213) (720) (3,642) 1,682 5,198 (920) (4,004) (343) 127 (216) (153) 316 12 174 (42) 44 (309) (651) (a) Adjustment comprises workover costs of $237 million and dewatering costs of $101 million in FY2019. (5) (6) (4) 9 (26) (2) (5) (2) 1 34 16 Annual Report 2020Directors’ Report For the year ended 30 June 2020 49 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 2020. The Operating and Financial Review and Remuneration Report form part of this Directors’ Report. 1. Principal activities, review of operations and significant change in state of affairs 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. There have been no significant changes in the nature of those activities during the year and no significant changes in the state of affairs of the Company during the year. The Operating and Financial Review, which forms part of this Directors’ Report, contains a review of operations during the year and the results of those operations, the financial position of Origin, its business strategies, and prospects for future financial years. 2. Events subsequent to balance date 4. Directors and Company Secretary Other than the matters described below, no matters or circumstances have arisen since 30 June 2020, 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 Directors of the Company at any time during or since the end of the financial year, their qualifications, experience and special responsibilities are set out on page 8. The qualifications and experience of the Company Secretary is also set out below: On 2 July 2020, the Group extended $1.1 billion of bank debt facilities from a FY2023 maturity date to a new maturity date in FY2025. A further $0.2 billion of surplus liquidity was cancelled as part of this transaction. Gordon Cairns Independent Non-executive Chairman John Akehurst Independent Non-executive Director Maxine Brenner Independent Non-executive Director On 20 August 2020, the Directors determined a final dividend of 10 cents per share, unfranked, on ordinary shares. The dividend will be paid on 2 October 2020. Frank Calabria Managing Director and Chief Executive Officer 3. Dividends Teresa Engelhard Independent Non-executive Director a) Dividends paid during the year by the Company were as follows Greg Lalicker Independent Non-executive Director 15 cents per ordinary share, fully franked, for the half year ended 31 December 2019, paid 27 March 2020 $ million 264 Bruce Morgan Independent Non-executive Director Scott Perkins Independent Non-executive Director b) In respect of the current financial year, the Directors have determined a final dividend as follows: 10 cents per ordinary share, unfranked, for the year ended 30 June 2020, payable 2 October 2020. $ million 176 The Dividend Reinvestment Plan (DRP) will apply to this final dividend at no discount. Steven Sargent Independent Non-executive Director 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 PwC and Freehills. Helen is a Chartered Accountant, Chartered Secretary and a Graduate Member of the Australian Institute of Company Directors. Helen is a fellow of the Governance Institute of Australia and is the Chair of its NSW Council and a member of its Legislative Review Committee and Communication Committee. She holds a Bachelor of Laws and a Bachelor of Commerce from the University of Melbourne, a Graduate Diploma in Applied Corporate Governance and is admitted to legal practice in New South Wales and Victoria. 50 5. 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 G Lalicker B Morgan S Perkins S Sargent H 10 10 10 10 10 10 10 10 10 A 10 10 10 10 10 10 10 10 10 H 3 3 3 3 3 3 3 3 3 A 3 3 3 3 3 3 3 3 3 H – 4 4 – 4 – 4 4 – A – 4 4 – 4 – 4 4 – H 5 – 5 5 2 – 5 2 5 A 5 – 5 5 2 – 5 2 5 H 3 3 3 – – – 3 3 – A 3 3 3 – – – 3 3 – H – – 5 – 5 – – 5 5 A – – 5 – 5 – – 5 5 H 5 5 5 – – – 5 5 2 A 5 5 5 – – – 5 5 2 H A Number of scheduled meetings held during the time that the Director held office or was a member of the committee during the year. Number of meetings attended. The Board held 10 scheduled meetings, including a one-day strategic review meeting and three additional meetings to deal with urgent matters. There were also four 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. 6. Directors’ interests in shares, Options and Rights The relevant interests of each Director as at 30 June 2020 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: Director G Cairns F Calabria J Akehurst M Brenner T Engelhard G Lalicker B Morgan S Sargent S Perkins Ordinary shares held directly and indirectly Options over ordinary shares Deferred Share Rights (DSR) over ordinary shares Performance Share Rights (PSR) over ordinary shares Restricted shares 163,660 187,340 71,200 28,367 34,421 100,000 47,143 31,429 30,000 – 632,9951 – – – – – – – – 110,7792 – – – – – – – – 958,8722 – – – – – – – – 249,9262 – – – – – – – Exercise price for Options and Rights: 1 231,707: $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. Securities granted by Origin Non-executive Directors do not receive Options or Rights as part of their remuneration. The following securities were granted to the five most highly remunerated officers (other than Directors) of the Company during the year ended 30 June 2020: J Briskin G Jarvis M Schubert L Tremaine A Lucas PSRs 125,762 134,146 134,146 167,682 119,055 Restricted shares 46,689 164,370 52,275 95,090 53,035 Annual Report 2020 Directors' Report 51 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 7 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 2020, so no ordinary shares in Origin were issued as a result. Rights 1,705,133 ordinary shares of Origin were allocated from the Origin Energy Limited Employee Share Trust during the year ended 30 June 2020 on the vesting and exercise of DSRs granted under the Equity Incentive Plan. No amounts were payable on the vesting of those DSRs and, accordingly, no amounts remain unpaid in respect of any of those shares. Since 30 June 2020, 76,202 ordinary shares were allocated from the Origin Energy Limited Employee Share Trust on the vesting of DSRs granted under the Equity Incentive Plan. All shares in the Origin Energy Limited Employee Share Trust were purchased on market. 7. 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 2020, regulators were notified of a total of 31 environmental reportable non-compliances, including voluntary notifications. Of these, two incidents resulted in environmental impacts with a moderate short-term impact to the environment. All other environmental incidents had a minor consequence and were appropriately investigated. In FY2020, the Company received two formal environmental notices from a regulator arising from Origin’s activities. One of these notices resulted in a $15,000 fine for an infringement at the Eraring Power Station within the Energy Markets generation business. The other notice related to a $431 fine for a late submission of an annual return. Remedial actions have been taken or are being undertaken in response to the incidents and notices. All incidents are investigated, and lessons learned captured and shared across the Company. Our Integrated Gas business is currently being investigated by the Queensland Department of Environment and Science for a coal seam gas residue release at our Ramyard and Woleebee sites in early 2020. Clean-up notices were issued in FY2021 but there have been no enforcement actions issued at the time of this Report. Origin is currently working with the regulator on the remediation activities. 8. 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 2020 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 2020. 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. 10. Non-audit services The amounts paid or payable to EY for non-audit services provided during the year was $1,075,000 (shown to the nearest thousand dollars). Amounts paid to EY are included in note G7 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 EY 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 EY 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 EY which may impact on auditor independence. 11. 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). 9. Auditor independence 12. Rounding of amounts There is no former partner or director of EY, the Company’s auditors, who is or was at any time during the year ended 30 June 2020 an officer of the Origin Energy Group. The auditor’s independence declaration for the financial year (made under section 307C of the Corporations Act 2001 (Cth)) is attached to and forms part of this Report. 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. 13. Remuneration The Remuneration Report forms part of this Directors’ Report. 52 Remuneration Report For the year ended 30 June 2020 The Remuneration Report (Report) for the year ended 30 June 2020 (FY2020) forms part of the Directors’ Report. It has been prepared in accordance with the Corporations Act 2001 (Cth) (the Act) and accounting standards, and audited as required by section 308(3C) of the Act. 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 FY2020. Given the challenging economic and business circumstances, the annual remuneration review – which would have been conducted at the end of FY2020 for employees generally, as well as Executive KMP – was deferred on a Company-wide basis. FY2020 remuneration framework There were no changes to the basic architecture of the remuneration framework during the year. We: • strengthened and formalised processes that ensure alignment with our purpose, strategy, values and behaviours, enhancing the behavioural assessment mechanism to bring additional rigour to the process for modifying STI scorecard outcomes, up or down, based on the individual’s approach and behaviour; • reweighted STI metrics towards those influenced by management, which align with long-term decision making and lead to increased shareholder value (see Section 4.2 for details); • ensured financial and non-financial risks were systematically considered in the overall assessment of STI outcomes; and • took into account formal feedback from the Chairs of the Health, Safety and Environment (HSE), Risk, Audit and RPC committees in determining and approving final performance outcomes for Executive KMP. There were no changes to the structure of Non-executive Director (NED) fees. FY2020 remuneration outcomes Remuneration outcomes for FY2020 reflected a continued improvement in operational performance notwithstanding the challenging external environment due to the COVID-19 pandemic and its associated economic impacts, including a decline in commodity prices. The Short Term Incentive (STI) scorecard outcomes for the year reflected above-target results and in some metrics approached stretch targets. The Chief Executive Officer’s (CEO’s) STI outcome was 83.5 per cent of maximum (FY2019: 68.2 per cent) and the aggregate STI outcome for Executive Key Management Personnel (KMP) was 84.1 per cent of maximum (FY2019: 73.7 per cent). No awards vested under the Long Term Incentive (LTI) Plan during the year. A partial vesting of FY2017 LTI awards is expected in FY2021. When STI targets were set at the beginning of FY2020, the Company could not have foreseen the challenges that arose from a severe bushfire season and the COVID-19 pandemic. Yet the targets were met or exceeded even as the Executive team managed a rapid and effective response, maintaining energy supplies and supporting impacted customers; safeguarding employees and communities; and working collaboratively with all levels of government to support policy objectives. During these challenges, our Executive team was not distracted from achieving strong operational performance. Our Engagement Score rose to the top quartile with a record high result of 75. Safety outcomes improved by 40 per cent as measured by the Total Recordable Injury Frequency Rate (TRIFR). Our people’s safety is our primary focus and we continue to strive for zero harm. Over the year, we also recorded our highest-ever customer Strategic Net Promoter Score (sNPS) and reputation (RepTrak) measures. All areas of STI performance exceeded expectations and enabled Origin to maintain its dividends for shareholders. Annual Report 202053 FY2020 remuneration levels As foreshadowed in the 2019 Remuneration Report, increases in Executive KMP Fixed Remuneration (FR) at the beginning of FY2020 averaged 1.9 per cent compared with approximately 2.4 per cent for the broader organisation. During FY2020, we reviewed benchmarking for our three operational Executive General Managers (EGM Energy Supply & Operations, EGM Integrated Gas and EGM Retail) to reflect changes in the scope and complexity of their roles. Our policy is to have key talent remunerated at the median of comparable roles after three years, subject to performance. The final phase of that process was completed during the year, incorporating the revised benchmarking, and all Executive KMP – except the CEO, see below – are now remunerated in line with this policy. Some of the Executive KMP moved to a 60 per cent STI deferral level during the year. There were no changes to the policy for NED fees for FY2020. FY2021 remuneration As noted, the Company’s general annual remuneration review due to be conducted at the end of FY2020 was deferred, and no standard uplifts will occur early in FY2021 for employees generally or for the CEO or Executive KMP. In the normal course of events, the Board would have considered adjusting the CEO’s remuneration for FY2021 in order to close the policy gap referred to above. However, the CEO asked, and the Board has agreed, to defer consideration of his remuneration for another year. The Board considered this request very carefully in the light of the CEO’s strong performance and the Board’s commitment to remunerating in line with policy and agreed that, in the context of the broader deferral of remuneration reviews and the uncertain external environment, it was appropriate to defer the review until FY2022. The Board, in consultation with its external advisor, undertook a comprehensive assessment of the remuneration framework during FY2020, with a specific focus on ensuring that the LTI Plan (LTIP) structure is fit for purpose. There is increasing concern the LTIP is not adequately achieving its objectives of attracting executive talent, retaining key leaders, aligning with shareholders’ interests and contributing to the generation of executive share ownership. The review concluded that the LTIP is not well suited to the commodity nature or investment profile of the energy industry, and that organisations facing similar business contexts in Australia and the UK have been adopting superior plans. Origin is particularly impacted by rapidly changing market and operating conditions because it has exposures to these issues in upstream and downstream businesses, unlike most organisations domestically or internationally. Furthermore, the review concluded that our current LTIP is failing to adequately achieve any of its objectives in terms of attracting, retaining or generating executive share ownership. During FY2020, the Board implemented special arrangements to secure and retain key talent, which would not have been necessary if the LTIP had been fit for purpose. To date, no Executive who had commenced with the Company in the last decade had received any shares through the LTIP mechanism, posing a fundamental challenge to the objective of building share ownership. The Board considers that Long Term Share Plan (LTSP) models based around Restricted Shares with longer deferral periods are better suited to our business and has been evaluating the opportunities to move in this direction. I look forward to sharing our conclusions in due course. Finally, there will be no changes to the structure or level of NED fees for FY2021. Steven Sargent Chairman, Remuneration and People Committee Remuneration Report54 Report structure The report is divided into the following sections: 1 Key Management Personnel 2 Remuneration link with Company performance and strategy 3 Remuneration framework details 4 Company performance and remuneration outcomes 5 Governance 6 Non-executive Director fees 7 Statutory tables and disclosures 1. Key Management Personnel The report discloses the remuneration arrangements and outcomes for people listed below: individuals who have been determined as Key Management Personnel (KMP) as defined by AASB 124 Related Party Disclosures. Members of the RPC are identified in the last column. Name Role Appointment RPC d r a o B G Cairns J Akehurst M Brenner T Engelhard G Lalicker B Morgan S Perkins* S Sargent* F Calabria L Tremaine J Briskin G Jarvis e v i t u c e x e - n o N e v i t u c e x E Chairman, independent Independent Independent Independent Independent Independent Independent Independent Chief Executive Officer Chief Financial Officer 23 October 2013 29 April 2009 15 November 2013 1 May 2017 1 March 2019 16 November 2012 1 September 2015 29 May 2015 19 October 2016 10 July 2017 ✓ ✓ ✓ Chair Executive General Manager (EGM), Retail 5 December 2016 EGM Energy Supply & Operations 5 December 2016 M Schubert EGM Integrated Gas 1 May 2017 * Scott Perkins was Chair of the RPC until 31 December 2019; Steven Sargent became RPC Chair from 1 January 2020. Steven is also Chair of the Origin Energy Foundation. The term ‘Other Executive KMP’ (abbreviated as ‘Other’ in tables and charts) refers to Executive KMP excluding the CEO. ‘Executive team’ is a broader reference to the Executive Leadership Team (ELT). Annual Report 2020 55 2. Remuneration link with Company performance and strategy 2.1 Overview of remuneration framework Our remuneration framework is designed to support the Company’s strategy and to reward our people for its successful execution. It is designed around three principles, summarised in the diagram below. Strategy Connecting customers to the energy and technologies of the future Leading customer experience and solutions; accelerating towards clean energy; embracing a decentralised and digital future; striving to be a low-cost operator; developing resources to meet growing gas demand; and maintaining disciplined capital management. Remuneration principles Attract and retain the right people Pay fairly Drive focus and discretionary effort The framework secures high-calibre individuals from diverse backgrounds and industries, with the talent to execute the strategy. The framework is market competitive. Outcomes are a function of Company performance, reflect our behavioural expectations and our values, and align with shareholder expectations. The framework encourages Executives to think and act like owners and to deliver against long-term strategies and the short-term business priorities that are expected to drive long-term outcomes. Element Performance measures Link to principles and strategy Remuneration framework Fixed Remuneration (FR) Comprises cash salary, superannuation and benefits. Details in Section 3.1 Variable Remuneration (VR) The majority of remuneration is variable and delivered in deferred equity to reward performance and to align Executive and shareholder interests. Details in Sections 3.2 and 3.6 Short Term Incentive (STI) Annual incentive opportunity, 40–50 per cent paid in cash, 50–60 per cent paid in shares restricted for two years. Details in Sections 3.3 and 3.5 Long Term Incentive (LTI) Granted as performance share rights allocated at face value. These vest at three years and are deferred for a total of four years. Details in Sections 3.4 and 3.5 Determined by the scope of the role and its responsibilities and benchmarked annually against similar roles. Set at competitive levels to attract and retain the right people and to pay fairly. Performance targets set one year in advance across a balanced scorecard (generally 60–65 per cent financial metrics and 35–40 per cent non-financial metrics) with an overriding conduct/behaviour assessment. Annual targets to drive execution of business plans: financial performance, operating efficiency, customer experience, safety, and measures supporting the attraction and retention of the right people. Performance targets set three years in advance, using an internal measure (Origin’s Return on Capital Employed (ROCE)) and an external measure (Origin’s relative total shareholder return). Designed to encourage long-term focus, and build and retain share ownership. Remuneration Report56 2.2 Behavioural assessment Origin believes that observance of our values and behaviours and the quality of the relationships with our customers and the broader community are inextricably linked to the creation of shareholder value. A formal behavioural assessment forms part of our performance management framework. It is based on the Behaviourally Anchored Rating Scale (BARS) methodology that assesses an individual’s performance against specific examples of behaviour required for different roles and levels, rather than against generic descriptors. This adds qualitative and quantitative information into the appraisal process. The behavioural assessment can result in incentive outcomes being adjusted up or down, within the prescribed maximum amount. 2.3 Minimum shareholding requirement for Executive KMP A key objective of the remuneration framework is to promote employee share ownership and to encourage employees to think and act as owners. Equity is therefore a key element of remuneration, representing at least half of STI awards and the whole of LTI awards. This is supplemented by other share plan arrangements, including salary sacrifice, share purchase and matching plans (see Section 3.7). Executive KMP are required to build and maintain a minimum shareholding in the Company, defined as the equivalent of two times FR for the CEO, and as FR for Other Executive KMP. From time to time, the Board determines the minimum shareholding requirement (MSR) as a number of shares based on FR and share price.1 The MSR is currently set at 620,000 shares for the CEO and 130,000 for Other Executive KMP. Until the MSR is reached, disposals are prohibited except as reasonably required to meet Employee Share Scheme taxation liabilities. Once the MSR is reached, disposals are prohibited where they would take the holding below the MSR level, except in extraordinary circumstances approved by the Board. The governance mechanism is through trading restrictions over and above any other trading restrictions that apply. Shares (restricted and unrestricted) and Deferred Share Rights (DSR) (without performance conditions) may be counted towards the MSR, but rights that are subject to performance conditions (including Performance Share Rights) may not be counted. 3. Remuneration framework details 3.1 Fixed Remuneration FR comprises cash salary, employer contributions to superannuation and salary sacrifice benefits. It takes into account the size and complexity of the role, and the skills and experience required for success in the role. FR is reviewed annually, but increases are not guaranteed. Roles are benchmarked to the median of corresponding roles in the reference market, currently made up of approximately 50 organisations listed on the Australian Securities Exchange (ASX).2 In the absence of special factors, new or newly promoted incumbents generally commence below this reference point and move to the median over time. FR may be positioned above this reference point where it is appropriate for key talent retention purposes or where it is necessary to attract and secure key skills to fill a business-critical role. Accordingly, the median positioning may vary between approximately the 40th and 60th percentiles (P40 and P60) of the reference market. 3.2 Total Remuneration Total Remuneration (TR) is the sum of FR and VR. The range of possible VR values is from nil for no award of STI or LTI to a maximum of the total of STI awarded at the maximum level plus the present-day values of the full face value of the LTI award, assuming that 100 per cent of the LTI award will vest. Deferred equity elements (Deferred STI, and LTI) represent present-day values as it is not possible to predict future share prices, which can reduce or increase the ultimate value. TR at target (TRT) includes an STI awarded at the target level (see Section 3.3) plus the present-day full face value of the LTI award, assuming that 50 per cent of the LTI will vest, being the ‘risked expected value’ of Origin’s LTI awards (as detailed in Section 3.4). TR minimum TRT TR maximum (TRM) = = = FR FR FR + + + No STI awarded STI awarded at the target level STI awarded at the maximum level + + + No LTI awarded Full face value awarded; assumes that 50 per cent of the LTI will vest Full face value awarded; assumes that 100 per cent of the LTI will vest TRT is benchmarked to the median of equivalent TRT in the reference market, and the remuneration ‘mix’ (see Section 3.6) makes it possible for TRM (outcomes at their maximum) to achieve the top quartile in the TRT reference market. 1 Generally considering the weighted average share price over the prior year. 2 By way of a guideline, these 50 organisations are the largest by average market capitalisation over two years, after excluding the six largest, Macquarie Group, and those of foreign domicile, and always including AGL, Oil Search, Santos and Woodside. Annual Report 202057 3.3 FY2020 Short Term Incentive Plan details The following is a detailed description of how the STI Plan (STIP) operates. Parameter Details Award basis The annual performance cycle is 1 July to 30 June. Individual balanced scorecards are agreed, with shared Group objectives and targeted divisional objectives. Objectives are set across financial categories (generally 60 to 65 per cent of the weightings) and non-financial categories (generally 35 to 40 per cent). The CEO’s FY2020 scorecard details and outcomes are shown in Section 4.2. Scorecard operation Individual objectives on the scorecard are referenced to three performance levels: threshold, target and stretch (with pro- rating between each). Threshold performance represents the lower limit of rewardable outcome for an individual objective – one that represents a satisfactory outcome, often achieving year-on-year improvement and contribution towards delivery of annual plans but short of the target level. Threshold performance corresponds to 20 per cent of maximum (33 per cent of target). Target represents the expectation for achieving robust annual plans. Stretch performance represents the delivery of exceptional outcomes well above expectations (the maximum, corresponding to 167 per cent of target). ) Maximum 100% m u m i x a m Target 60% f o % ( t l u s e R Threshold 20% Minimum 0% Threshold Target Stretch Increasing performance level → 167% 100% 33% ) t e g r a t f o % ( t l u s e R Opportunity level The opportunity level for all Executive KMP was set to a standard for FY2020, with 100 per cent FR at target and a maximum of 167 per cent FR. FY20 STI opportunity (% of FR) Minimum Target Maximum 0 100 167 Award calculation STIP award ($) = $ FR (at 30 June) ✕ STIP opportunity (% of FR) ✕ Balanced scorecard outcome (% ) ↑ Discretionary modifier incorporating behavioural assessment Assessment Achievement and performance against each Executive’s balanced scorecard is assessed annually as part of the Company’s broader performance review process. The review includes a behavioural assessment under the BARS methodology (see Section 2.2). Directors consider this assessment together with a broader consideration of how outcomes have been achieved, including regulatory compliance, and financial and non-financial risk management. This may lead to a modification of the formulaic scorecard outcome, downward or upward, with the opportunity maximum operating as a cap. Remuneration Report 58 Parameter Details Delivery and timing 40 to 50 per cent cash, paid in August to September following the end of the financial year. 50 to 60 per cent awarded in the form of Restricted Shares (RS) subject to a two-year holding lock, allocated as soon as practicable after Board approval, which is generally at the end of August following the end of the financial year. Prior to FY2018, Deferred STI was awarded in the form of DSRs. RS allocation Number of RSs = Deferred STI amount divided by the 30-day volume weighted average price (VWAP) to 30 June, rounded to the nearest whole number. Service conditions Unless the Board determines otherwise, the whole of the STI award is forfeited if the Executive resigns or is dismissed for cause during the performance year, and any RSs held from prior awards are also forfeited if in their restriction period. Release RSs in respect of FY2020 STI awards will be released on the second trading day following the release of full-year financial results for FY2022, subject to the service conditions being met and the service period completed (or else as described under ‘Cessation of employment’ below). Dividends As the STI has been earned and awarded, RSs carry dividend entitlements and voting rights. Cessation of employment No STI award is made where the service conditions have not been met in full, except where the Board decides otherwise. Typically such cases are limited to death, disability, redundancy or genuine retirement (good leaver circumstances). In such circumstances an STI award in respect of the current year may be wholly in cash, and restrictions on prior RSs may be lifted. Sourcing of RSs The Board’s practice is to purchase shares on market but it may issue shares or make the award in alternative forms, including cash or deferred cash. Governance and MSR After restrictions on RSs are lifted, trading is subject to the MSR (see Section 2.3) and to the malus and clawback provisions in Section 5.5. 3.4 FY2020 Long Term Incentive Plan details The following is a detailed description of how the LTIP operates. Parameter Award basis Details LTIP awards are conditional grants of equity that may vest in the future, subject to the Company meeting or exceeding performance conditions, and subject also to the Executive meeting service and personal conduct and performance requirements. Awards are considered annually. Opportunity and value range The LTIP opportunity level reflects the capacity of the role to influence long-term sustainable growth and performance, and is set with reference to market benchmarks (see Section 3.2). It represents the face value of an equity award and is not discounted for hurdles or for dividends forgone. An award may be granted at a face value anywhere between zero and the maximum in the table below (the Award Face Value). Executive KMP CEO Other Face value LTIP opportunity (% of FR) Minimum Maximum 0 0 180 120 The actual value of an LTIP award depends on the level of vesting and the share price at the time of vesting, neither of which can be determined in advance. The minimum value is zero assuming that none of the award vests, or none is awarded. The maximum value represents the present-day value assuming that 100 per cent of the award vests, ignoring the risks of achieving performance conditions and service requirements. The target value represents the risked or expected value, taking into account the likelihood of achieving the performance conditions. For market-based hurdles, such as Total Shareholder Return (TSR), this can be obtained actuarially. For non-market hurdles, it can be obtained from operational forecasts and estimation of the degree of difficulty in achieving the hurdles, or sometimes from historical results. Origin has determined its vesting expectation is approximately 50 per cent for both its relative TSR and ROCE conditions.3 Behaviour assessment The RPC may take the behaviour assessment referred to in Section 3.3 into account when recommending LTIP awards, or when considering the application of the governance provisions to awards made (see Section 5.5). 3 Expected vesting is a function of the probabilities of achieving each of all possible outcomes. It is typically lower than, and should not be confused with, the probability of any vest occurring. Annual Report 202059 Parameter Details Delivery and timing Performance Share Rights (PSRs): A PSR is a right to a fully paid ordinary share in the Company. PSRs are granted at no cost because they are awarded as remuneration. CEO: The LTIP award is submitted for approval at the Annual General Meeting (AGM) following the end of the financial year, and the equity grant is made as soon as practicable after shareholder approval. Other Executive KMP: LTIP grants are made as soon as practicable after Board approval, which is generally at the end of August following the end of the financial year. PSR allocation Number of PSRs = LTIP Award Face Value divided by the 30-day VWAP to 30 June, rounded to the nearest whole number. Performance period and deferral length The performance period is three financial years (FY2020–22) which, subject to vesting, is followed by a holding lock of one year. The lock on any vested shares will be lifted in August 2023, on the second trading day after the release of the FY2023 full-year results. The total deferral period from grant is approximately four years. Service conditions Unless the Board determines otherwise, unvested PSRs are forfeited if the Executive resigns or is dismissed for cause prior to the end of the relevant vesting period. Performance conditions There are two performance conditions, equally weighted.4 One, Relative Total Shareholder Return (RTSR), is an external hurdle; the other, ROCE, is an internal hurdle. External performance condition and vesting RTSR measures the Company’s TSR performance relative to a reference group of companies assuming reinvestment of dividends. It has been chosen because it aligns Executive reward with shareholder returns. It does not reward general market uplifts; vesting only occurs when Origin outperforms a market reference group. The reference group is based on a group of 50 ASX-listed companies because this represents the most meaningful group with which Origin competes for shareholder investment and Executive talent.5 There is an insufficient number of operationally similar competitors to provide a useful ‘selected’ comparator group. Share prices are determined using three-month VWAPs on the start and end of the performance period. Vesting occurs only if Origin’s TSR over the performance period ranks it higher than the 50th percentile (P50) of the reference group. Half of the PSRs vest on satisfying that condition, and all of the PSRs vest if Origin ranks at or above the 75th percentile (P75). Straight-line pro-rata vesting applies between these two points. Internal performance condition and vesting ROCE has been chosen because it is a profitability ratio that measures the efficiency of profit generation from capital employed. It predicts superior shareholder returns over the long term and reflects the importance of prudent capital allocation to generate sufficient returns. The ROCE tranche is divided into two equally weighted parts, each its own hurdle – Energy Markets (EM) and Integrated Gas (IG) – recognising the differing capital characteristics, risk profiles and growth profiles of each of these businesses. The average ROCE over three years must equal or exceed the average of three annual targets, which are reflective of delivering the weighted average cost of capital for each business. The starting point for the ROCE calculation is statutory earnings before interest and tax (EBIT) divided by average capital employed for the relevant business. Statutory EBIT is adjusted for fair value and foreign exchange movements in financial instruments, which are highly volatile and outside the control of management. Other adjustments to the ROCE calculation may be made in limited circumstances where the Board considers it appropriate to do so. For example, it may be appropriate to adjust EBIT when it is adversely impacted by short-term factors associated with value-creating initiatives (for example, acquisitions). Vesting is independent for the EM and IG parts. In each case, half of the relevant PSRs will vest if the target is met, and all of the relevant PSRs will vest if the target is exceeded by two percentage points or more. Straight-line pro-rata vesting applies between these two points. Full vesting occurs only when both targets are exceeded by two percentage points or more. Dividends PSRs carry no dividend entitlements or voting rights. Vested shares (including RSs) carry dividend entitlements and voting rights. Cessation of employment Unvested LTIP awards will lapse on the date of cessation, unless the Board determines otherwise. Typically such cases are limited to death, disability, redundancy or genuine retirement (good leaver circumstances). In such circumstances, LTIP 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 as determined by the Board. The restriction on vested shares may be lifted at the date of cessation in good leaver circumstances. Sourcing Upon vesting of a part or all of an LTIP award, the Board’s preferred approach is to purchase shares on market, but it may issue shares or make the award in alternative forms, including cash or deferred cash. Governance and MSR After restrictions are lifted on RSs arising from LTIP vesting, trading is subject to the MSR (see Section 2.3) and to the malus and clawback provisions in Section 5.5. 4 Where the number of PSRs to be allocated is an uneven number, the number allocated to the ROCE tranche is rounded to the nearest even number, and the balance of PSRs is allocated to the RTSR tranche. 5 The reference group is set at the commencement of the performance period. For FY2020, it comprised AGL, Amcor, AMP, Ampol (Caltex), ANZ, APA Group, Aristocrat Leisure, ASX Limited, Aurizon, BHP, Brambles, Cochlear, Coles, Commonwealth Bank of Australia, Computershare, CSL Limited, Dexus, Fortescue, Goodman Group, GPT Group, IAG, James Hardie, Lendlease, Macquarie, Medibank Private, Mirvac, National Australia Bank, Newcrest, Oil Search, Qantas, QBE, Ramsay Health Care, Rio Tinto, Santos, Scentre Group, Sonic Healthcare, South32, Stockland, Suncorp, Sydney Airport, Tabcorp, Telstra, Transurban, Treasury Wine Estates, Vicinity Centres, Wesfarmers, Westpac Banking Corporation, Woodside and Woolworths. Companies are not replaced (for example, as a consequence of merger, acquisition or delisting) unless the Board determines otherwise. Remuneration Report60 3.5 Remuneration cycle timelines The following chart summarises the remuneration cycle and timelines. FY2020 Jul 2020 Oct 2020 Aug 2021 Aug 2022 Aug 2023 Aug 2024 Aug 2025 → Fixed remuneration paid through year 1 July 2019– 30 June 2020 STIP performance against annual targets → Cash 40–50% 1 July 2019– 30 June 2020 → Deferred STI 50–60% Restricted Shares allocated LTIP 3-year performance hurdles LTIP allocation confirmed; performance period starts Performance Share Rights granted Release after 2 years MSR Vest after 3 years Holding lock MSR 3.6 Remuneration range and mix The following chart shows the potential remuneration range and corresponding component mix for FY2020. FR STI cash Deferred STI LTI CEO 100% Minimum Other* 100% CEO 34.5% 17.2% 17.2% 31.0% Other* 38.4% 17.3% 21.2% 23.1% CEO 22.4% 18.7% 18.7% 40.2% Target Maximum Other* 25.8% 19.4% 23.8% 31.0% *The average of Other Executive KMP. TR ($’000) 1,831 939 5,310 2,442 8,185 3,635 Deferred equity (Deferred STI plus LTI) makes up a substantial part of TR. At target outcomes, it comprises almost half (CEO: 48.2 per cent; Other Executive KMP: 44.2 per cent) and at maximum outcomes it is more than half (CEO: 58.9 per cent; Other Executive KMP: 54.7 per cent). 3.7 Other equity/share plans The Company operates a universal Employee Share Plan in which all full-time and part-time employees can choose to be eligible for awards of up to $1,000 worth of Company shares annually, or else participate in a salary sacrifice scheme to purchase up to $4,800 of shares annually. Under the $1,000 scheme, shares are restricted for three years or until cessation of employment, whichever occurs first. Shares purchased under the sacrifice scheme are restricted for up to two years or until cessation of employment, whichever occurs first. For every two shares purchased under the salary sacrifice scheme within a 12-month cycle, participants are granted one matching share right at no cost. The matching share rights vest two years after the cycle began, provided that the participant remains employed by the Company at this time. Each matching share right generally entitles the participant to one fully paid ordinary share in the Company, or in certain limited circumstances a cash equivalent payment. The matching share rights do not have any performance hurdles as they have been granted to encourage broad participation in the scheme across the Company, and to encourage employee share ownership. All shares are currently purchased on market. Annual Report 2020 61 Directors are not eligible to participate in the above schemes, but may participate in the NED Share Acquisition Plan by sacrificing Board fees. This plan is intended to facilitate share acquisition, enabling new Directors to meet their MSR obligations. All NEDs currently meet their MSR and no shares were acquired under the scheme in FY2020. Directors regularly assess the risk of the Company losing high-performing key people who manage core activities or have skills that are being actively solicited in the market. Where appropriate, the Board may consider the selected use of deferred payment arrangements to reduce the risk of such critical loss. From time to time, it may be necessary to offer sign-on equity to offset or mirror unvested equity, which a prospective executive must forfeit to take up employment with Origin. 4. Company performance and remuneration outcomes This section summarises remuneration outcomes for FY2020 and provides commentary on their alignment with Company outcomes. 4.1 Five-year Company performance and remuneration outcomes The table below summarises key financial and non-financial performance for the Company from FY2016 to FY2020, grouped and compared with short-term and long-term remuneration outcomes. Five-year key performance metrics FY2016–201 Operational measures Underlying earnings per share (EPS) (cents) Underlying EPS (continuing activities)2 (cents) Net cash from/(used in) operating and investing activities (NCOIA) ($m) Energy Markets Underlying EBITDA ($m) Integrated Gas Underlying EBITDA (total operations) ($m) Adjusted net debt ($m)3 sNPS4 TRIFR5 Female representation in senior roles6 (%) Origin Engagement Score7 STI award outcomes Percentage of maximum8 (%) Return measures Closing share price at end of June ($) Weighted average share price during the year9 ($) Dividends10 (cents per share) Annual TSR (%) Three-year TSR11 (CAGR % p.a.) Group Statutory EBIT ($m) Group Statutory EBIT (continuing activities)2 ($m) LTI outcomes LTI vesting percentage in the year12 (%) FY16 FY17 FY18 FY19 FY20 23.2 18.1 1,215 1,330 386 9,131 (16) 4.2 27 53 31.3 22.8 1,378 1,492 1,104 8,111 (16) 3.2 29 58 58.2 47.7 2,645 1,811 1,521 6,496 (13) 2.2 32 61 58.4 58.4 1,914 1,574 1,892 5,417 (6) 4.5 30 61 58.1 58.1 1,813 1,459 1,741 5,158 2 2.6 32 75 26.3 63.3 88.7 73.7 84.1 5.75 5.67 10.0 (42.0) (18.5) (411) 47 6.86 6.39 0.0 19.3 (14.2) (1,958) (1,746) 10.03 8.55 0.0 46.2 (2.6) 480 473 7.31 7.64 25.0 (26.1) 12.0 1,432 1,432 5.84 6.80 25.0 (17.7) (8.0) 305 305 0 0 0 0 0 1 Except as noted in (2) below, FY2018 and prior year financials shown are those as previously reported. They have not been restated for the presentation of certain electricity hedge premiums, which are included in underlying profit from FY2019, or for the reclassification of futures collateral balances to operating cash flows (previously in financing cash flows in prior periods). A restatement for these factors for FY2018 only was provided in the FY2019 Consolidated Financial Statements at note A1 Segments and in the Statement of cash flows, for indicative comparison purposes only. 2 Excludes Contact Energy (FY2016) and Lattice Energy (FY2016–18). 3 Adjusted Net Debt for FY2020 includes first recognition of lease liability ($514 million) under AASB 16 Leases. 4 sNPS is measured at the business level and is an industry-recognised measure of customer advocacy. 5 TRIFR is the total number injuries resulting in lost time, restricted work duties or medical treatment per million hours worked. 6 Senior roles refers to those with Korn Ferry Hay grade classifications above a level that currently corresponds to a TRT (see Section 3.2) of approximately $180,000 p.a. 7 Employee engagement is measured as a score through an annual Company-wide survey conducted independently. 8 This is the total dollar value of STI awarded for Executive KMP as a percentage of their total maximum STI. The percentage of STI forfeited is this amount subtracted from 100 per cent. 9 For FY2016, the weighted average share price incorporates a restatement for the bonus element of the rights issue completed in October 2015. The opening share price on 1 July 2015 was $10.47. 10 Dividends represent the interim plus final dividends determined for each financial year. For FY2020, this includes the final dividend determined on 20 August 2020 to be paid on 2 October 2020. The amounts paid within each financial year are 35c, 0c, 0c, 10c and 30c, respectively. 11 TSR calculations use the three-month VWAP share price to 30 June, reflecting the testing methodology for relative TSR ranking. 12 No LTI rights vested during FY2020. Options and rights awarded in October 2015 were all forfeited. Remuneration Report62 The remuneration outcomes for FY2020 reflect financial performance approaching stretch levels, and are above target for non-financial performance. The table shows that overall awarded STI outcomes for Executive KMP were 84.1 per cent of maximum for FY2020, and have varied between 26.3 per cent and 88.7 per cent of maximum over the last five years, underlining the variability of STI outcomes with Company performance. No LTI vested during the year. All Options and all PSRs awarded in October 2015 were forfeited. The specific performance metrics for the CEO scorecard, together with individual results for FY2020 STI, are provided in the table on page 63. The Board has adopted governing principles to apply when considering adjustments to financial measures that are used for remuneration purposes. Targets set at the beginning of the year may be subject to events materially outside the course of business and outside the control of the current management, in which case discretion may be required to vary targets or outcomes to reflect the intended purpose and/or actual results and achievements. The governing principles emphasise fairness and symmetry: fairness to shareholders and Executives, and symmetry of treatment between favourable and unfavourable events. In addition to delivering very good operational and financial outcomes against targets set at the beginning of the year, the executive team responded rapidly and performed extremely well to the series of emergency activities triggered in the second half by the bushfire and COVID-19 emergencies, as identified in the Letter from the Chairman at the beginning of this Report. Annual Report 202063 4.2 STI awards and scorecard details for FY2020 STI awards are calculated on the basis of a balanced scorecard using the concepts of setting requirements at threshold, target and stretch achievement levels. The CEO’s FY2020 scorecard was weighted 65 per cent to financial measures and 35 per cent to non-financial metrics (customer, people and strategic). The details and results are set out below. CEO FY2020 STI scorecard Targets and results Measure, rationale and performance Weight Threshold Target Stretch Outcome Origin EPS (underlying) (cps) Measure of Origin’s earnings and profitability Origin NCOIA ($m) Measure of effective cash flow generation Energy Markets EBITDA ($m) Measure of operating performance of the Energy Markets business APLNG production rate (PJ) Ability to keep Australia Pacific LNG (APLNG) assets producing at their maximum capacity (*FY2021–22 average annual) APLNG find and develop cost ($/GJ) Measure of competitiveness APLNG production unit cost ($/GJ) Measure of competitiveness Integrated Gas free cash flow ($m) Measure of effective cash flow generation in Integrated Gas (excluding impact of oil price changes or foreign exchange) Financial measures sub-total Voice of the customer 15% 10% 17.5% 5.6% 5.6% 5.6% 5.7% 65% Strategic, interaction and episodic NPS each achieved stretch targets at record levels 10% Customer innovation Measures of readiness of new customer solutions, including control systems/Internet of Things, Retail 2020 transformation and Business Energy strategy execution Safety and People measures Employee engagement achieved stretch (record) level, group HSE (preventive and safety) targets were exceeded, and the percentage of women in senior roles met target Non-financial measures sub-total TOTAL Adjusted total6 5% 20% 35% 100% 49.5 | 1,055 | 1,401 | 680 | 1.52 | 2.05 | 989 | 33 | 33 | 33 | 33 | 33 | 33 | 6 On a final review of all results, management made modest downward adjustments to the final outcomes. 52.7 | 1,157 | 1,426 | 692 | 1.19 | 1.93 | 1,459 1,070 | 1,086 100 | 100 | 100 | 100 | 100 | 100 | 58.9 58.1 1,342 1,813 1,501 710 707.6 1.10 1.10 1.85 1.87 1,157 158% tgt 167% tgt 129% tgt 158% tgt 167% tgt 150% tgt 112% tgt 167 147.9% tgt 88.6% max 147.9 167 167 167 167 167 167 134 137.1 145.3 147.0 167% tgt 134% tgt 137% tgt 145.1% tgt 86.9% max 147.0% tgt 88.0% max 139.5% tgt 83.5% max Remuneration Report 64 Underlying earnings per share exceeded our target due to a stronger than target result at APLNG, driven by record production and favourable commodity prices, and a higher than target result from Energy Markets, driven by strong performance in our gas business. Strong cash generation was driven by a record cash distribution of $1,275 million from APLNG, and proceeds from the sale of Ironbark of $231 million. APLNG delivered record production, reflecting improved field performance with higher well availability and facility reliability. APLNG production costs were better than target due to improved field performance, resulting in lower gas purchases and lower costs associated with well workovers. Our sNPS score increased to +2, the highest of any Tier 1 provider. We have simplified our product suite and continue to streamline and digitise the customer journey. Customers are increasingly choosing to engage with us through digital channels: 68 per cent of customers now use e-billing, and service call volumes reduced by a further 8 per cent this year. We are on track to achieve our target of reducing the cost to serve by $100 million from FY2018 to FY2021, and are growing our Solar, Community Energy Services (CES) and Broadband businesses. We expect our acquisition of a 20 per cent stake in the fast-growing UK retailer and technology company Octopus Energy will further streamline and improve the customer journey. Our personal safety improved, with our TRIFR falling from 4.4 in FY2019 to 2.6 in FY2020. Our Actual Serious Incidents and Potential Serious Incidents measures, which cover all aspects of HSE performance, both improved from last year. Remuneration awards were approved after consideration of a range of other non-formulaic inputs, including advice from the Risk and Audit committees, providing assurance that management behaviours have been consistent with the Code of Conduct and with the Company’s principles, values and risk appetite (see Section 2.2). The majority of the CEO’s scorecard objectives are shared across Other Executive KMP. However, their weightings will differ according to their specific divisional metrics. This will lead to a degree of variability in outcomes across Executive KMP. For FY2020, the overall scorecard outcomes ranged between 82.3 per cent and 86.8 per cent of maximum, as summarised below. Executive KMP F Calabria L Tremaine J Briskin G Jarvis M Schubert STI award % of maximum % forfeited $’000 83.5 83.7 82.3 86.8 84.9 16.5 16.3 17.7 13.2 15.1 2,554 1,421 1,237 1,333 1,304 4.3 Total pay received in FY2020 In line with general market practice, a non-AASB presentation of actual pay received in FY2020 is provided below, as a summary of real or ‘take home’ pay. AASB statutory remuneration is presented in Table 7-1. Executive KMP FR received STI cash1 DSRs vested2 LTI vested3 Actual pay received F Calabria L Tremaine J Briskin G Jarvis M Schubert 1,831 1,017 835 867 867 1,277 711 495 666 522 478 688 171 191 139 0 0 0 0 0 3,586 2,416 1,501 1,724 1,528 1 STI cash represents 40 to 50 per cent of the FY2020 STI award, with the balance (50 to 60 per cent) deferred into equity. 2 DSRs vested were from Deferred STI grants awarded in 2016 and 2017. The value represents the number of shares vested multiplied by Origin’s closing share price at the time of vesting. 3 LTI vested represents the value of LTI awards from prior years that vested wholly or partially during the year. Options and PSRs awarded in October 2015 were forfeited during the year with nil vesting. Annual Report 202065 5. Governance 5.1 Role of the Remuneration and People Committee The RPC supports the Board by overseeing Origin’s remuneration policies and practices. It operates under a Charter (published on the Company’s website at originenergy.com.au). The RPC met formally five times during the reporting period. Including its Chairman, the RPC has four members, all of whom are independent NEDs (see Section 1 for details). 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. Management may attend RPC meetings by invitation but a member of management will not be present when their own remuneration is under discussion. The following diagram sets out the role of the RPC and its operational relationships with the Board, management, stakeholders and external advisors. Board The Board approves: • Executive remuneration policy • remuneration for the CEO and ELT • STI and LTI targets and hurdles • NED fees • CEO and ELT succession and appointments Remuneration and People Committee The RPC makes recommendations to the Board on the matters subject to its approval (listed above). The RPC approves remuneration scales, movements and equity allocations for employees other than the CEO and ELT. In addition, the RPC stewards and advises the Board and management on remuneration and people matters including: • future leader talent pipelines and development processes • people strategies and culture development • corporate governance and risk matters relating to people and remuneration (including conduct, diversity and gender pay equity) • effectiveness of the remuneration policy and its implementation Management Management provides relevant data and information for RPC consideration (practice insights, and legal, tax, accounting and actuarial advice) and makes recommendations to the RPC concerning remuneration and people matters. Information exchange with other Board committees, notably the Audit and Risk committees, to ensure that all relevant matters are considered before the RPC makes remuneration recommendations and decisions. Consultation with external stakeholders and shareholders Regular dialogue with shareholders and proxy advisors. Independent remuneration advisors The RPC appoints an external independent advisor to assist it with market and governance issues, benchmarking, best practice observations and general advice. Remuneration Report66 5.2 Remuneration advisors The RPC engages external advisors from time to time to conduct benchmarking, advise on regulatory and market developments, and review proposals and reports. Protocols have been established for engaging and dealing with external advisors, including those defined as remuneration consultants for the purposes of the Corporations Act 2001 (Cth) (the Act). These protocols are to ensure independence and avoid 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 communicating with Company management except as authorised by the Chairman, and even then 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. The RPC generally seeks information rather than specific remuneration recommendations within the definition of the Act, and this was the case during FY2020. Guerdon Associates was appointed its advisor during FY2020; however, Guerdon Associates did not provide any remuneration recommendations as defined under the Act. In addition, the RPC makes use of general market trend information from a variety of commercial and industry sources and has access to in-house remuneration professionals who provide it with guidance and analysis on request. The recommendations that the RPC makes to the Board are based on its own independent assessment of the advice and information received from these multiple sources, using its experience and having careful regard to the principles and objectives of the remuneration framework, Company performance, shareholder and community expectations, and good governance. 5.3 Conduct, accountability and risk management As identified in Section 2.2, a BARS methodology for behaviour and conduct assessment is an integral part of the Company’s performance management framework and modification of formulaic incentive calculations. In addition to the BARS tool, the full Board consults with the Chairman of the Audit Committee and the Chief Risk Officer when it formally reviews ELT performance and conduct each year. In addition to considerations of personal behaviour and conduct, the RPC is guided by a set of overarching principles to apply in assessing items or events that impact risk (including non-financial risk) or performance (both positive and negative). This ensures a consistent approach to determining whether discretionary adjustments to incentive outcomes are warranted, to achieve fairness to Executives and shareholders. The RPC and the Board have wide discretionary tools to prevent the award (or retention) of inappropriate benefits, including malus and clawback. Malus Malus refers to the reduction or cancellation of advised awards, or of unvested/unreleased equity or shares; or to a determination to reduce the level of vesting that would otherwise apply, or to extend the existing period of a holding lock or trading restriction. The Board has, from time to time, applied malus. For example, it awarded zero STI and LTI allocations for some Executives in FY2015 and FY2016 to ensure that outcomes were aligned with the overall circumstances of the Company, even though some of the relevant performance conditions had been met and preliminary award advice had been given. Clawback Clawback is a reference to the recovery of benefits after they have been paid, vested or released. The Board has power to exercise clawback to recover or cancel shares arising from equity awards, and to recover cash proceeds from the sale of such shares, or to recover cash awards. Recovery may be limited by law or regulation. There have been no circumstances to date in which the Board has sought to apply clawback. Fraud, dishonesty, gross misconduct, negligence, breach of duties and other serious matters will have consequences additional to the sanctions and provisions referred to above. 5.4 Change of control The Board may determine that all or a specified number of unvested securities will vest or cease to be subject to restrictions where there is a change of control event. 5.5 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. Annual Report 202067 6. Non-executive Director fees 6.1 Remuneration policy and structure for Non-executive Directors NED remuneration comprises fixed fees with no incentive-based payments. This ensures that NEDs are able to independently and objectively assess both Executive and Company performance. Board and committee fees take into account market rates for similar positions at relevant Australian organisations (those of comparable size and complexity) and fairly reflect the time commitments and responsibilities involved. The aggregate cap for overall NED remuneration remains at $3,200,000 p.a., as approved by shareholders on 18 October 2017. The Origin Chairman receives a single fee that includes committee activities, while other NEDs receive a NED Base Fee and separate fees for their roles on specific committees (other than the Nomination Committee, which is considered within the NED Base Fee). All fees include superannuation contributions. The table below summarises the structure and level of NED fees. No change to the fee structure or quantum is proposed for FY2021. NED and committee fees ($’000) Office Board – Chairman (inclusive of committee fees) NED Base Fee (exclusive of committee fees) Audit – Chairman Audit – Member RPC – Chairman RPC – Member HSE – Chairman HSE – Member Risk – Chairman Risk – Member Nomination – Chairman Nomination – Member Origin Foundation – Chairman FY2020 and FY2021 677 196 57 29 47 23.5 47 23.5 47 23.5 nil nil nil 6.2 Minimum shareholding requirement for Non-executive Directors 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 reference for the Chairman is 200 per cent of the NED Base Fee, and for all other NEDs it is 100 per cent of the NED Base Fee. The Board sets the MSR from time to time as a number determined by reference to the NED Base Fee and share price7 (currently set at 28,000 shares, and 56,000 for the Chairman). NEDs are expected to reach the MSR within three years of their appointment and maintain it thereafter while in office. At the date of this report, all NEDs were above the relevant MSR level. Details of NED shareholdings are included in Table 7-3. A NED Share Plan (NEDSP) was approved by shareholders at the 2018 AGM. The NEDSP is a salary sacrifice plan that allows NEDs to sacrifice up to 50 per cent of their annual NED Base Fee to acquire share rights. Each share right is a right to receive a fully paid ordinary share in Origin, subject to the terms of the grant. The plan is intended to facilitate the acquisition of shares for new Directors to ensure they meet the obligations imposed under the MSR. As at the date of the report, and noting that all NEDs have met their MSR obligations, no share rights have been purchased and no shares allotted under the NEDSP. 7 Generally considering the weighted average share price over the prior year. Remuneration Report68 7. Statutory tables and disclosures Table 7-1: Executive KMP and NED statutory remuneration ($’000) Short term Long term PEB1 FR1 Base salary Super- annuation Non- monetary 3 benefits Cash STI Leave 6 2 accrual Matching share rights Share based Totals Deferred STI4 LTI5 RS DSR Total accounting remuneration At risk (%) Share based (%) 41 1,277 39 1,025 (65) 68 – – 1,053 601 180 303 Executive Director F Calabria 2020 1,768 2019 1,710 Other Executive KMP J Briskin G Jarvis M Schubert8 L Tremaine 2020 2019 2020 2019 2020 2019 2020 2019 806 715 820 730 843 752 991 934 21 21 21 21 21 22 21 21 21 21 15 16 34 32 178 12 26 42 495 334 666 394 522 374 711 681 25 28 72 72 44 19 61 41 Executive total 2020 5,228 2019 4,841 105 106 294 3,671 141 2,808 137 228 NEDs J Akehurst M Brenner G Cairns T Engelhard G Lalicker7 B Morgan S Perkins S Sargent 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 245 233 251 241 666 642 239 220 175 54 279 268 274 266 244 212 21 21 21 21 11 21 21 21 21 7 21 21 21 21 21 21 NED total 2020 2,373 2019 2,136 158 154 0.2 0.2 0.2 0.2 18 16 16 0.2 0.2 0.1 0.2 0.2 18 0.2 0.2 0.2 53 17 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 812 812 171 143 199 191 193 179 242 245 5,087 4,579 1,980 1,510 2,305 1,727 2,273 1,623 2,912 2,996 438 194 481 218 465 208 649 407 9 59 10 68 7 58 209 624 3,086 415 1,617 1,628 1,112 1,570 14,557 12,435 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 266 254 272 262 695 679 276 241 196 61 300 289 313 287 265 233 2,583 2,306 65 60 56 48 59 51 52 51 62 65 60 57 – – – – – – – – – – – – – – – – – – 40 37 31 26 30 28 29 27 38 43 35 35 – – – – – – – – – – – – – – – – – – 0.6 – 1.7 0.6 – – 1.7 0.6 4 1.2 – – – – – – – – – – – – – – – – – – 1 FR comprises base remuneration and superannuation (post-employment benefit (PEB)). 2 STI cash represents one half of the STI award. STI cash is 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 Deferred STI. 3 Non-monetary benefits include insurance premiums and fringe benefits such as car parking and expenses associated with travel. 4 Deferred STI is that portion of the accounting value of equity granted or to be granted (RSs and/or DSRs) under the STI plan for the current and prior periods attributable to the reporting period. In the following reporting periods, the accumulated expense is adjusted for the number of instruments then expected to be released or vested. In good leaver circumstances, a bring-forward of future-period accounting expense may occur where a cessation of employment occurs before the normal vesting date. 5 LTI includes all long-term incentives (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. See Note G3 for details on share-based remuneration accounting. 6 Movement in leave provision over the reporting period. Negative movement indicates that leave taken during the year exceeded leave accrued during the current year. FY2019 leave movements have been restated to include annual leave accruals for the relevant reporting period. 7 For FY2019, the pro-rata period for G Laliker was 1 March 2019 to 30 June 2019. 8 A review of prior-year fringe benefits tax returns is being undertaken as at the date of preparation of this Report, which may conclude that the accommodation benefits associated with travel between the Melbourne home base at the time and the Brisbane office in prior years were higher than previously reported and possibly comparable with the value shown here for FY2020. Annual Report 202069 Abbreviations in tables 7-2 through 7-4 DSR – Deferred Share Rights PSR – Performance Share Rights (with performance conditions) PSR (TSR) – Performance Share Rights, relative TSR performance condition PSR (ROCE) – Performance Share Rights, ROCE performance condition RS – Restricted Shares (including those held in trust under the Deferred STI arrangements) MR – Matching Share Rights under the Employee Share Purchase and Matching Rights Plan (see Section 3.7) Table 7-2: Details of equity grants made during the reporting period Equity rights and restricted shares granted to Executive KMP during the reporting period are listed below. There is nil cost to recipients. Type Number granted Grant date fair value ($)1 Exercise price ($) Grant date Vest date2 Expiry date3 Executive Director F Calabria Other Executive KMP J Briskin G Jarvis M Schubert L Tremaine PSR (TSR) PSR (ROCE) RS PSR (TSR) PSR (ROCE) RS MR PSR (TSR) PSRs (ROCE) RS RS4 MR PSR (TSR) PSR (ROCE) RS PSR (TSR) PSR (ROCE) RS MR 226,371 226,371 143,242 62,881 62,881 46,689 190 67,073 67,073 55,000 109,370 346 67,073 67,073 52,275 83,841 83,841 95,090 346 4.49 7.25 8.12 3.82 6.77 7.63 0.47 3.82 6.77 7.63 5.53 0.47 3.82 6.77 7.63 3.82 6.77 7.63 0.47 – – – – – – – – – – – – – – – – – – – 16-Oct-19 16-Oct-19 16-Oct-19 22-Aug-22 22-Aug-22 23-Aug-21 22-Aug-22 22-Aug-22 – 30-Aug-19 30-Aug-19 30-Aug-19 27-Sep-19 30-Aug-19 30-Aug-19 30-Aug-19 8-May-20 27-Sep-19 30-Aug-19 30-Aug-19 30-Aug-19 30-Aug-19 30-Aug-19 30-Aug-19 27-Sep-19 22-Aug-22 22-Aug-22 23-Aug-21 23-Aug-21 22-Aug-22 22-Aug-22 23-Aug-21 2021–25 31-Oct-21 22-Aug-22 22-Aug-22 23-Aug-21 22-Aug-22 22-Aug-22 23-Aug-21 31-Oct-21 22-Aug-22 22-Aug-22 – – 22-Aug-22 22-Aug-22 – 2021–25 – 22-Aug-22 22-Aug-22 – 22-Aug-22 22-Aug-22 – – 1 For MRs, the fair value is per $1 contributed by the Executive. 2 For PSRs, the expiry date is the same as the vesting date. On vesting, PSRs convert to shares with a holding lock of a further one-year period. For RSs, the vest date refers to the date when the trading restriction is lifted. 3 Rights may expire earlier. To the extent that they fail to meet the relevant performance conditions, they will lapse on the vesting date. 4 RSs subject to tenure conditions (see Section 3.7) vesting in five equal (by number) tranches on 30 April in each of the five years from 2021 to 2025. Remuneration Report70 Table 7-3: Details of, and movements in, equity rights and ordinary shares of the Company The following table summarises holdings and movements of rights and ordinary shares held (directly, indirectly or beneficially, including by related parties) over the reporting period (or KMP portion of the period), including grants, transactions and forfeits, by value and by number. See Table 7-4 for further details of the terms and conditions of those rights. Type Held at start1 Granted2/acquired3 Vested Exercised Forfeited5/ disposed6 Number Value ($) Number Number Value4 ($) Number Held at end1,7 Executive Director F Calabria Options PSR DSR RS Shares Other Executive KMP Options J Briskin PSR DSR RS MR Shares G Jarvis Options PSR DSR RS MR Shares M Schubert Options L Tremaine PSR DSR RS Shares Options PSR DSR RS MR Shares NEDs8 Shares J Akehurst Shares M Brenner G Cairns Shares T Engelhard Shares Shares G Lalicker Shares B Morgan Shares S Perkins Shares S Sargent 1,203,145 563,869 176,002 106,684 232,117 86,910 142,214 23,340 33,435 0 40,722 250,427 142,678 25,993 35,375 163 36,061 237,410 138,626 18,945 33,717 55,973 81,441 146,864 170,015 72,500 163 166,309 71,200 28,367 163,660 34,421 100,000 47,143 30,000 31,429 – 452,742 – 143,242 65,223 – 125,762 – 46,689 190 23,852 – 134,146 – 164,370 346 29,623 – 134,146 – 52,275 19,077 – 167,682 – 95,090 346 94,505 0 0 0 0 0 0 0 0 – 2,657,596 – 1,163,125 – – 665,910 – 356,237 1,743 – – 710,303 – 1,024,466 2,310 – – 710,303 – 398,858 – – 887,876 – 725,537 2,310 – – – – – – – – – 0 0 65,223 0 – 0 0 23,340 0 0 – 0 0 25,993 0 0 – 0 – 18,945 0 – 0 0 93,813 0 0 – – – – – – – – – 0 0 65,223 0 – 0 0 23,340 0 0 – 0 0 25,993 0 0 – 0 – 18,945 0 – 0 0 93,813 0 0 – – – – – – – – – 0 0 478,085 0 – 0 0 171,082 0 – – 0 0 190,529 0 0 – 0 – 138,867 0 – 0 0 687,649 0 0 – – – – – – – – – 570,150 57,739 0 0 110,000 0 17,090 0 0 0 0 85,500 25,976 0 0 0 – 83,250 25,292 0 0 23,636 0 0 0 0 0 50,000 0 0 0 0 0 0 0 0 632,995 958,872 110,779 249,926 187,340 86,910 250,886 0 80,124 190 64,574 164,927 250,848 0 199,745 509 65,684 154,160 247,480 0 85,992 51,414 81,441 314,546 76,202 167,590 509 210,814 71,200 28,367 163,660 34,421 100,000 47,143 30,000 31,429 1 The number of instruments that held at the start/end of the reporting period. 2 Rights to equity and restricted shares in the Company granted to Executive KMP during the reporting period under the Equity Incentive Plan, as listed in Table 7-2. These were provided at no cost to the recipients. 3 Purchases and transfers in. For Other Executive KMP this includes allotments of fully paid ordinary shares granted or acquired under the Employee Share Plan, and shares received upon the vesting and exercise of DSRs. Executive Directors do not participate in the General Employee Share Plan (GESP) or the MSP. 4 After vesting and after payment of any exercise price (the exercise price for DSRs is nil). The value of rights exercised is calculated as the closing market price of the Company’s shares on the 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 30 August 2016 (vested 26 August 2019), 30 August 2017 (vested 10 July 2019) and 18 October 2017 (vested 26 August 2019). 5 Forfeited Options and PSRs were granted in October 2015. 6 Sales and transfers out. 7 Rights are automatically exercised on vesting. There were no vested Options as at the end of the period. Other than rights and RSs disclosed elsewhere in this Report, no other equity instruments, including shares in the Company, were granted to KMP during the period. 8 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 2015 Entitlement Offer. Annual Report 202071 Table 7-4: Summary of share rights granted The table below lists all the share rights outstanding at 30 June 2020 that have been granted to current or former employees (including Executive Directors and Executive KMP) under equity-based incentive plans. Equity-based incentives are not granted to NEDs. No terms of equity-settled share-based transactions have been altered or modified subsequent to grant. Share rights that failed to meet their performance hurdles on vesting dates prior to 30 June 2020 have all lapsed. Granted Legacy Options 30 August 2016 19 October 2016 30 August 2017 30 August 2017 18 October 2017 PSRs 30 August 2016 19 October 2016 30 August 2017 30 August 2017 18 October 2017 10 September 2018 17 October 2018 30 August 2019 16 October 2019 DSRs 30 August 2016 30 August 2017 30 August 2017 18 October 2017 18 October 2017 MRs 26 September 2018 27 September 2019 Number outstanding Number outstanding held by KMP Exercise price Earliest vest date1 Last possible expiry date2 1,421,289 450,000 81,441 905,363 401,288 1,166,540 129,558 841,583 24,415 126,866 1,355,077 312,245 1,848,417 452,742 19,667 76,202 26,057 45,556 45,556 373,806 – 81,441 263,898 401,288 143,777 – 24,415 83,432 126,866 317,419 312,245 561,736 452,742 19,667 76,202 – 45,556 45,556 130,065 98,476 312 570 $5.67 $5.21 $7.37 $7.37 $7.37 23 August 2021 23 August 2021 23 August 2021 22 August 2022 22 August 2022 28 August 2026 28 August 2026 28 August 2026 23 August 2027 23 August 2027 – – – – – – – – – – – – – – – – 24 August 2020 24 August 2020 24 August 2020 23 August 2021 23 August 2021 23 August 2021 23 August 2021 22 August 2022 22 August 2022 24 August 2020 24 August 2020 24 August 2020 23 August 2021 23 August 2021 23 August 2021 23 August 2021 22 August 2022 22 August 2022 24 August 2020 10 July 2020 24 August 2020 24 August 2020 23 August 2021 24 August 2020 10 July 2020 24 August 2020 24 August 2020 23 August 2021 31 October 2020 31 October 2021 31 October 2020 31 October 2021 1 The vest date for PSRs granted since 2018 does not include the trading restriction of approximately one year that applies to the shares allocated on vesting. 2 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, to the extent that they do not meet their performance conditions, they will lapse on the vesting date. Remuneration Report72 Table 7-5: Executive service agreements The main terms of executive service agreements at 30 June 2020 are set out in the table below. Item CEO Basis of contract Ongoing Other Executive KMP Ongoing Notice period – 12 months by either party – Six months (three months for J Briskin) by either party Termination benefits for cause Termination benefits for resignation Termination benefits for other than resignation or cause – Shorter notice may apply by agreement – Shorter notice may apply by agreement – No notice in defined circumstances1 – No notice in defined circumstances1 Statutory entitlements only Statutory entitlements only Notice as above or payment in lieu of notice that is not worked; current-year STI forfeited; unvested equity lapses; and statutory entitlements. Notice as above or payment in lieu of notice that is not worked; current-year STI forfeited; unvested equity lapses; 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 Rules2; 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 Rules2; and statutory entitlements. For redundancy, 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 Remuneration is reviewed annually or as required to maintain alignment with policy and benchmarks. Remuneration is reviewed annually or as required to maintain alignment with policy and benchmarks. 1 These circumstances include but are not limited to serious or persistent or wilful misconduct, breach of contract, or conduct likely to seriously injure the reputation of the Company. 2 For example, in cases of death, disability, genuine retirement or extraordinary circumstances, as approved by the Board. Loans to KMP No loans have been made, guaranteed or secured, directly or indirectly, by the Company or any of its subsidiaries, at any time throughout the year, to any KMP including to a KMP related party. Signed in accordance with a resolution of Directors. Gordon Cairns Chairman Sydney, 20 August 2020 Annual Report 2020Lead Auditor’s Independence Declaration 73 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor’s Independence Declaration to the Directors of Origin Energy Limited As lead auditor for the audit of the financial report of Origin Energy Limited for the financial year ended 30 June 2020, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Origin Energy Limited and the entities it controlled during the financial year. Ernst & Young Andrew Price Partner Sydney 20 August 2020 74 Annual Report 2020 Financial Statements 30 June 2020 75 Primary statements Income statement Statement of comprehensive income C Operating assets and liabilities C1 Trade and other receivables G Other information G1 Contingent liabilities G2 Commitments Statement of financial position C2 Exploration and evaluation assets G3 Share-based payments Statement of changes in equity C3 Property, plant and equipment G4 Related party disclosures Statement of cash flows Notes to the financial statements Overview A Results for the year A1 Segments A2 Revenue A3 Other income A4 Expenses A5 Results of equity accounted investees A6 Earnings per share A7 Dividends B Investment in equity accounted joint ventures and associates B1 Interests in equity accounted joint ventures and associates B2 Investment in APLNG B3 Investment in Octopus Energy Holdings Limited B4 Transactions between the Group and equity accounted investees C4 Intangible assets C5 Trade and other payables C6 Provisions G5 Key management personnel G6 Notes to the statement of cash flows G7 Auditors’ remuneration C7 Other financial assets and liabilities G8 Master netting or similar agreements G9 Deed of Cross Guarantee G10 Parent entity disclosures G11 Subsequent events Directors’ declaration Independent auditor’s report D Capital, funding and risk management D1 Capital management D2 Interest-bearing liabilities D3 Contributed equity D4 Financial risk management D5 Fair value of financial assets and liabilities E Taxation E1 Income tax expense E2 Deferred tax F Group structure F1 Controlled entities F2 Business combinations F3 Joint arrangements and investments in associates 76 Income statement For the year ended 30 June Revenue Other income Expenses Results of equity accounted investees Interest income Interest expense Profit before income tax Income tax expense Profit for the year Profit for the year attributable to: Members of the parent entity Non-controlling interests Profit for the year Earnings per share Basic earnings per share Diluted earnings per share Note A2 A3 A4 A5 A3 A4 E1 2020 $m 13,157 54 (13,514) 608 190 (316) 179 (93) 86 83 3 86 2019 $m 14,727 26 (13,953) 632 234 (388) 1,278 (64) 1,214 1,211 3 1,214 A6 A6 4.7 cents 4.7 cents 68.8 cents 68.7 cents The income statement should be read in conjunction with the accompanying notes set out on pages 81 to 130. Annual Report 2020Statement of comprehensive income For the year ended 30 June Profit for the year Other comprehensive income Items that will not be reclassified to profit or loss, net of tax Investment valuation changes Items that can be reclassified to profit or loss, net of tax Translation of foreign operations Cash flow hedges: Reclassified to income statement Effective portion of change in fair value Total other comprehensive income, net of tax Total comprehensive income for the year Total comprehensive income attributable to: Members of the parent entity Non-controlling interests Total comprehensive income for the year 77 Note 2020 $m 2019 $m 86 1,214 E1 E1 3 5 125 4 (493) (361) (275) (279) 4 (275) 341 (122) 223 447 1,661 1,662 (1) 1,661 The statement of comprehensive income should be read in conjunction with the accompanying notes set out on pages 81 to 130. Financial Statements78 Statement of financial position as at 30 June Current assets Cash and cash equivalents Trade and other receivables Inventories Derivatives Other financial assets Income tax receivable 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 and evaluation 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 Other financial liabilities Employee benefits Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total parent entity interest Non-controlling interests Total equity Note 2020 $m 2019 $m C1 D4 C7 C1 D4 C7 A5 C3 C2 C4 E2 C5 D2 D4 C7 C6 C5 D2 D4 C7 C6 D3 1,240 1,959 164 630 479 89 – 105 4,666 18 528 2,225 7,360 4,331 190 5,420 315 40 1,546 2,324 137 472 318 – 254 112 5,163 7 962 3,152 6,960 3,597 98 5,381 380 43 20,427 20,580 25,093 25,743 1,934 202 1,401 466 237 – 234 163 – 4,637 193 5,451 749 16 33 1,313 7,755 12,392 12,701 7,145 716 4,819 12,680 21 12,701 2,006 204 948 384 308 160 189 45 23 4,267 2 6,648 1,119 – 31 527 8,327 12,594 13,149 7,125 1,089 4,915 13,129 20 13,149 The statement of financial position should be read in conjunction with the accompanying notes set out on pages 81 to 130. Annual Report 2020Statement of changes in equity For the year ended 30 June 79 $m Balance as at 30 June 2019 Adoption of AASB 16 (refer to Overview) Balance as at 1 July 2019 Profit for the year Translation of foreign operations Cash flow hedges Investment valuation changes Total other comprehensive income Total comprehensive income for the year Dividends provided for or paid Movement in contributed equity (refer to note D3) Share-based payments Total transactions with owners recorded directly in equity Balance as at 30 June 2020 Balance as at 30 June 2018 Adoption of AASB 9 Balance as at 1 July 2018 Profit for the year Translation of foreign operations Cash flow hedges Investment valuation changes Total other comprehensive income Total comprehensive income for the year Dividends provided for or paid Movement in contributed equity (refer to note D3) Share-based payments Total transactions with owners recorded directly in equity Balance as at 30 June 2019 Contributed equity Share-based payments reserve Foreign currency translation reserve Hedge reserve Fair value reserve Retained earnings Non- controlling interests Total equity 7,125 234 736 – – – 114 – 114 – – (489) – 736 – 124 – – 124 (489) 124 (489) – – – – – – – – 7,125 – 234 – – – – – – – 20 – – – – – – – – (11) 20 (11) 7,145 223 860 (375) 7,150 – 7,150 – – – – – – – 247 – 247 – – – – – – – (25) – – (13) (25) (13) 391 – 391 – 345 – – 345 345 – – – – 13 – 13 – – 101 – 101 101 – – – – 7,125 234 736 114 5 – 5 – – – 3 3 3 – – – – 8 (22) 22 – – – – 5 5 5 – – – – 5 4,915 20 13,149 349 – 349 5,264 83 20 3 13,498 86 – – – – 83 (528) – – 1 – – 1 4 (3) – – 125 (489) 3 (361) (275) (531) 20 (11) (528) (3) (522) 4,819 21 12,701 4,025 (145) 3,880 1,211 – – – – 1,211 (176) – – 24 – 24 3 (4) – – (4) (1) (3) – – 11,828 (123) 11,705 1,214 341 101 5 447 1,661 (179) (25) (13) (176) (3) (217) 4,915 20 13,149 The statement of changes in equity should be read in conjunction with the accompanying notes set out on pages 81 to 130. Financial Statements80 Statement of cash flows For the year ended 30 June Cash flows from operating activities Receipts from customers Payments to suppliers and employees 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 OC Energy(1) Acquisition of other investments Interest received from other parties Net proceeds from sale of non-current assets Australia Pacific LNG (APLNG) investing cash flows – Receipt of Mandatorily Redeemable Cumulative Preference Shares (MRCPS) interest – Proceeds from APLNG buy-back of MRCPS Net cash from investing activities Cash flows from financing activities Proceeds from borrowings Repayment of borrowings Joint venture operator cash call movements Settlement of foreign currency contracts Interest paid(2) Repayment of lease principal Dividends paid to shareholders of Origin Energy Ltd, net of Dividend Reinvestment Plan (DRP) Dividends paid to non-controlling interests Repayment of Debt Service Reserve Account (DSRA) loan to equity accounted investees Purchase of shares on market (treasury shares) 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 Note 2020 $m 2019 $m G6 14,766 (13,600) 1,166 (215) 951 (290) (85) (125) (14) (151) 18 234 181 1,094 862 1,273 (2,446) 56 (55) (310) (75) (475) (3) (8) (75) (2,118) (305) 1,546 (1) 1,240 16,552 (15,117) 1,435 (110) 1,325 (190) (18) (133) (29) (35) 2 18 229 745 589 2,063 (1,878) 7 (64) (375) – (162) (3) (31) (77) (520) 1,394 150 2 1,546 (1) The Group acquired OC Energy in the prior year. The cash outflow of $14 million in the current year relates to deferred consideration on the acquisition. The prior year cash outflow of $29 million was net of cash acquired as part of the transaction. (2) Includes $16 million of interest payments on leases in the current year as a result of the adoption of AASB 16 Leases. The statement of cash flows should be read in conjunction with the accompanying notes set out on pages 81 to 130. Annual Report 2020 81 The Group adopted AASB 16 using the modified retrospective approach. Under this approach, the cumulative effect of adopting the new standard was recognised as an adjustment to the opening balance of retained earnings on 1 July 2019. No restatement of comparative information is required. The Group has taken advantage of recognition exemptions for leases that are less than 12 months and leases for which the underlying asset is of low value. The lease liabilities recognised on transition were measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate at 1 July 2019. The associated right- of-use (ROU) assets for major commercial offices and certain LPG terminals were measured on a retrospective basis as if the new rules had always applied. The remaining ROU assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments as at 30 June 2019. The Group has applied the following practical expedients on transition to AASB 16: • use of a single discount rate for a portfolio of leases with reasonably similar characteristics; • reliance on previous onerous lease assessments. The initial ROU asset has been adjusted by the provision for onerous leases recognised in the statement of financial position at 30 June 2019; • exclusion of leases with a remaining lease term of less than 12 months from 1 July 2019; • exclusion of initial direct costs from measurement of the ROU asset; and • use of hindsight when determining the lease term for contracts containing optional periods. Notes to the financial statements The Group’s operating environment and COVID-19 The Group’s operating environment has been impacted by a significant reduction in commodity prices as well as the COVID-19 pandemic. These factors combined have had wider impacts on consumers, businesses and the overall economy. The Group entered the 2020 financial year in a financially resilient position with significantly reduced upstream costs at APLNG, and materially reduced debt. This has enabled the Group to respond to the pandemic with a focus on safely maintaining energy supply and supporting customers who have been financially affected. To date, there has been no material impact on Origin’s energy supply operations and fuel availability. The economic impacts of the changes in the Group’s operating environment due to oil price and COVID-19 impacts have implications for various line items in the financial statements, including revenue and receivables, equity accounted investments (APLNG), carrying value of non-current assets, provisions, derivatives and other non-financial assets/liabilities. Use of judgements and estimates relating to COVID-19 In the process of applying the Group’s accounting policies, management has made a number of judgements and applied estimates in relation to changes in the Group’s operating environment and the impact of the reduction in commodity prices and COVID-19. The judgements and estimates that are material to the financial report are discussed in the following notes: • A2 – Revenue • B2 – Investment in APLNG • C1 – Trade and other receivables • C3 – Property, plant and equipment • C4 – Intangible assets • C6 – Provisions Adoption of AASB 16 Leases AASB 16 Leases became effective for the Group on 1 July 2019 and requires lessees to account for all leases under a single on–balance sheet model. The Group’s operating lease portfolio predominantly comprises commercial offices, LPG terminals, power generating assets and fleet vehicles. 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 or Origin) are described in the segment information in note A1. On 20 August 2020, the Directors resolved to authorise the issue of these consolidated general purpose financial statements for the year ended 30 June 2020. Basis of preparation 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; and • on a historical cost basis, except for derivatives and other financial assets and liabilities that are measured at fair value. The financial statements: • are presented in Australian dollars; • 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; and • do not early adopt any Accounting Standards and Interpretations that have been issued or amended but are not yet effective. Use of judgements and estimates Preparing the financial statements in conformity with Australian Accounting Standards requires management to make judgements and apply estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions, which are based on historical experience and various other factors believed to be reasonable under the circumstances, form the basis of judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Throughout the notes to the financial statements, further information is provided about key management judgements and estimates that we consider material to the financial statements. Financial Statements82 Overview (continued) Adoption of AASB 16 Leases (continued) Key judgements and estimates applied on adoption of AASB 16 Leases Management judgement has been applied in the application of AASB 16 to the Group’s renewable power purchase agreements (PPAs). Where the use of an asset, such as a wind or solar farm, is considered to be pre-determined, the arrangement is a lease if either the customer has the right to direct the operations of the asset in a manner it determines or the customer designed the asset. Management has determined that Origin’s decision-making rights under its PPAs give the Group the ability to direct the operations of the power plants and that owners are prevented from using the assets in any other way. Accordingly, the renewable PPAs through which the Group takes substantially all the output have been classified as leases under AASB 16. If the renewable PPAs had not been deemed leases, net electricity derivative liabilities of $449 million would have been recognised in the statement of financial position at 30 June 2020. Additionally, a $63 million gain would have been treated as an item excluded from underlying profit, consistent with other fair value movements. Regardless of whether the Group’s renewable PPAs are classified as leases, recognition and measurement of the realised component, being the amount incurred for electricity purchased during the period, is the same. Consistent with prior periods, the realised component is recognised in expenses (refer to note A4) within the income statement. To determine the value of the electricity derivatives that would be recognised were the Group’s renewable PPAs not classified as leases, significant management judgement is required to estimate future generation profiles and forward electricity spot prices relative to the terms of the individual contract for periods up to 15 years. Payments under the Group’s leases of renewable power plants are entirely variable as they depend on the amount of energy produced in each period. Such leases have nil lease liability balances and thus nil ROU asset balances. All payments made under these leases are recognised within operating expenses as incurred. Transition impact at 1 July 2019 The impact on the Group’s statement of financial position at 1 July 2019 is summarised below. As at 1 July 2019 PP&E ROU assets Derivative assets(1) Deferred tax assets Other assets Lease liabilities Derivative liabilities(1) Provisions(2) Retained earnings (net of tax) $m Debit/(credit) (75) 445 (128) (149) (6) (478) 640 100 (349) (1) Derivative assets and liabilities derecognised on adoption of AASB 16 as they relate to PPAs classified as leases under the new standard. (2) Onerous lease provisions are now reflected within the carrying value of ROU assets. A reconciliation of the Group’s undiscounted operating lease commitments at 30 June 2019 to lease liabilities recognised on transition at 1 July 2019 is set out below. As at 1 July 2019 Operating lease commitments disclosed at 30 June 2019 Adjusted for: Discounting at the date of initial application using the Group’s incremental borrowing rate Different treatment of extension options Finance lease liabilities on statement of financial position at 30 June 2019 Other Lease liability recognised as at 1 July 2019 The Group’s weighted average incremental borrowing rate applied on 1 July 2019 was 3.1 per cent. $m 543 (113) 49 7 (1) 485 Annual Report 202083 Items excluded from the calculation of underlying profit are reported to the Managing Director as not representing the underlying performance of the business and thus are excluded from underlying profit or underlying EBITDA. These items are determined after consideration of the nature of the item, the significance of the amount and the consistency in treatment from period to period. The nature of items excluded from underlying profit and underlying EBITDA are: • changes in the fair value of financial instruments not in accounting hedge relationships, to remove the significant volatility caused by timing mismatches in valuing financial instruments and the related underlying transactions. The valuation changes are subsequently recognised in underlying earnings when the underlying transactions are settled; • realised and unrealised foreign exchange gains/losses on debt held to hedge USD-denominated APLNG MRCPS, for which fair value changes are excluded from underlying profit; • redundancies and other costs in relation to business restructuring, transformation or integration activities; • gains/losses on the sale or acquisition of an asset/entity; • transaction costs incurred in relation to the sale or acquisition of an entity; • impairments of assets; and • significant onerous contracts. A Results for the year This section highlights the performance of the Group for the year, including results by operating segment, income and expenses, results of equity accounted investees, earnings per share and dividends. A1 Segments The Group’s operating segments are presented on a basis that is consistent with the information provided internally to the Managing Director, who is the chief operating decision maker. This reflects the way the Group’s businesses are managed, rather than the legal structure of the Group. The reporting segments are organised according to the nature of the activities undertaken and are detailed below. • Energy Markets: Energy retailing and wholesaling, power generation and LPG operations predominantly in Australia. Also includes Origin’s investment in Octopus Energy Holdings Limited (Octopus Energy). • Integrated Gas: Origin’s investment in APLNG, growth assets business and management of LNG hedging and trading activities. For greater transparency, the investment in APLNG is presented separately from the residual component of the segment in the following disclosures. • Corporate: Various business development and support activities that are not allocated to operating segments. Underlying profit and underlying EBITDA are the primary alternative performance measures used by the Managing Director for the purpose of assessing the performance of each operating segment and the Group. Underlying profit and underlying EBITDA are non-statutory (non-IFRS) measures. The objective of measuring and reporting underlying profit and underlying EBITDA is to provide a more meaningful and consistent representation of financial performance by removing items that distort performance or are non-recurring in nature. Financial Statements84 A1 Segments (continued) Segment result for the year ended 30 June Energy Markets Share of APLNG Other(6) Corporate Consolidated Integrated Gas $m Ref. 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 External revenue 12,888 14,293 – – 269 434 – – 13,157 14,727 EBITDA Depreciation and amortisation Share of ITDA of equity accounted investees EBIT Interest income(1) Interest expense(2) Income tax expense(3) Non-controlling interests (NCI) 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 Disposals, impairments, onerous contracts and business restructuring Tax and NCI on items excluded from underlying profit 1,521 (477) 1,492 (401) 1,915 – 2,142 – (1,185) (29) (7) – (1,301) (1,516) 5 2 (18) 6 1,037 1,091 614 626 (1,209) 174 (10) 226 (134) (3) (275) – 2,117 (509) 3,361 (419) – – (1,303) (1,510) (137) 16 (316) (93) (3) (275) 8 (388) (64) (3) 305 190 (316) (93) (3) 1,432 234 (388) (64) (3) 1,037 1,091 614 626 (1,035) 216 (533) (722) 83 1,211 (a) 83 (61) – – 384 271 (73) (11) 394 199 (b) (20) (21) – 13 (1,396) (38) (2) (29) (1,418) (75) 84 9 59 19 84 59 (940) 183 Total significant items 63 (82) – 13 (1,012) 233 Segment underlying profit/(loss)(4)(5) Underlying EBITDA(4)(5) 974 1,173 614 613 (23) (17) (542) (741) 1,023 1,028 1,459 1,574 1,915 2,123 (174) (231) (59) (234) 3,141 3,232 (1) Interest income earned on MRCPS has been allocated to the Integrated Gas – Other segment. (2) Interest expense related to general financing is allocated to the Corporate segment. (3) Income tax expense for entities in the Origin tax consolidated group is allocated to the Corporate segment. (4) Underlying profit and underlying EBITDA are non-statutory (non-IFRS) measures. (5) Underlying EBITDA equals segment underlying profit/(loss) adjusted for: depreciation and amortisation; share of ITDA of equity accounted investees; interest income/ (expense); income tax expense; and NCI. (6) EBITDA in the Integrated Gas – Other segment in the current period includes an impairment expense of $746 million related to the Group’s equity accounted investment in APLNG (refer to note B2.2) and an onerous contract expense of $650 million related to the Cameron LNG purchase contract (refer to note C6). Annual Report 202085 A1 Segments (continued) $m Gross Tax and NCI Gross Tax and NCI 2020 2019 (a) Fair value and foreign exchange movements Increase/(decrease) in fair value of derivatives Net gain from financial instruments measured at fair value Exchange loss on foreign-denominated debt Fair value and foreign exchange movements (b) Disposals, impairments, onerous contracts and business restructuring Capital tax loss recognition – Ironbark Gain on sale of Denison – share of APLNG(1) Gain on sale – Origin LPG (Vietnam) LLC Gain on sale – Energia Austral SpA Loss on sale – Dandenong Cogent assets Disposals Integrated Gas impairments and impairment reversals Impairment – APLNG equity accounted investment(2) Impairment – Ironbark permit areas Impairment reversal – Heytesbury permit areas Corporate impairments Impairment – goodwill and other intangibles on Pleiades investment in Chile Impairments Onerous contracts – Cameron Onerous contracts One-off building lease exit costs Restructuring costs Transaction costs Finalisation of tax position – Lattice Energy divestment Business restructuring Total disposals, impairments, onerous contracts and business restructuring 275 123 (4) 394 – – – – – – (746) – – – (746) (650) (650) – (9) (13) – (22) (83) (37) 1 (119) – – – – – – – – – – – 195 195 – 3 5 – 8 (1,418) 203 (102) 391 (90) 199 – 13 5 5 (2) 21 – (49) 13 (3) (39) – – (19) (29) (9) – (57) (75) (1) The prior period amount is presented post-tax as the Group equity accounts for its share of net profit after tax of APLNG. Refer note B2.1. (2) Refer to note B2.2. 30 (117) 27 (60) 68 – (1) (1) – 66 – 15 (4) – 11 – – 6 8 3 25 42 119 Financial Statements86 A1 Segments (continued) Segment assets and liabilities as at 30 June Integrated Gas Energy Markets Share of APLNG Other Corporate Total continuing operations Total assets and liabilities held for sale Consolidated $m 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 12,567 12,378 – – 687 276 214 133 13,468 12,787 – 254 13,468 13,041 381 – 7,862 7,103 (884) (143) 1 – 7,360 6,960 – – 7,360 6,960 Total assets 12,948 12,378 7,862 7,103 1,912 3,178 2,371 2,830 25,093 25,489 2,109 3,045 2,156 2,697 4,265 5,742 – – – 4,265 5,742 254 25,093 25,743 (3,414) (3,299) – – (1,155) (369) (726) (821) (5,295) (4,489) – (23) (5,295) (4,512) Assets Segment assets Investments accounted for using the equity method (refer to note A5) Cash, funding-related derivatives and tax assets Liabilities Segment liabilities Financial liabilities, interest-bearing liabilities, funding- related derivatives and tax liabilities Total liabilities (3,414) (3,299) – – (1,155) (369) (7,823) (8,903) (12,392) (12,571) Net assets 9,534 9,079 7,862 7,103 757 2,809 (5,452) (6,073) 12,701 12,918 Additions of non- current assets(1) 519 382 – – 95 30 12 7 626 419 (7,097) (8,082) (7,097) (8,082) – – – – – (7,097) (8,082) (23) (12,392) (12,594) 231 12,701 13,149 – 626 419 (1) The Energy Markets segment includes $128 million relating to the investment in Octopus Energy and $13 million relating to the build of the Kraken technology platform following the agreement entered into with Octopus Energy (2019: $58 million relating to the acquisition of OC Energy Pty Ltd). 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. For the year ended 30 June Australia Other External revenue As at 30 June Australia Other Non-current assets(1) (1) The prior period excludes amounts that were classified as held for sale at 30 June 2019. 2020 $m 2019 $m 13,067 90 13,157 14,612 115 14,727 17,317 42 16,050 36 17,359 16,086 Annual Report 2020 A2 Revenue $m 2020 Sale of electricity Sale of gas Pool revenue Other revenue $m 2019 Sale of electricity Sale of gas Pool revenue Other revenue Retail 4,569 1,163 – 45 5,777 5,056 1,064 – 44 6,164 Business and Wholesale 2,941 1,673 1,527 64 6,205 3,208 1,862 2,117 52 7,239 Solar and Energy Services Integrated Gas 81 99 – 118 298 34 90 – 92 216 – 269 – – 269 – 434 – – 434 LPG – 606 – 2 608 – 674 – – 674 87 Total 7,591 3,810 1,527 229 13,157 8,298 4,124 2,117 188 14,727 The Group’s primary revenue streams relate to the sale of electricity and natural gas to retail (Residential and Small to Medium Enterprises), business and wholesale customers, and the sale of generated electricity into the National Electricity Market (NEM). Key judgements and estimates: The Group recognises revenue from electricity and gas sales once the energy has been consumed by the customer. When determining revenue for the financial period, management estimates the volume of energy supplied since a customer’s last bill. The estimation of unbilled consumption requires judgement and is based on various assumptions including: • volume and timing of energy consumed by customers; • allocation of estimated electricity and gas volumes to various pricing plans; • discounts linked to customer payment patterns; and • loss factors. Management also uses unbilled consumption volumes to accrue network expenses incurred by the Group for unread customer electricity and gas meters. The government-imposed lockdown and social distancing restrictions in response to COVID-19 have generally resulted in increased residential household energy consumption as more people stay at home, while businesses have reduced energy consumption in certain industries. Given the unprecedented operating environment, the calculation of unbilled revenue requires significant judgement in estimating the level of energy consumption by customers during the unbilled period to 30 June 2020. The Group uses a backcasting model and volume-matching process to provide a reliable estimate of unbilled revenue as at 30 June 2020. Refer to note C1 for the Group’s consideration of the COVID-19 impact on its cash collection of trade receivables and unbilled revenue. Retail contracts Retail electricity service is generally marketed through standard service offers that provide customers with discounts on published tariff rates. Contracts have no fixed duration, generally require no minimum consumption, and can be terminated by the customer at any time without significant penalty. The supply of energy is considered a single performance obligation for which revenue is recognised upon delivery to customers at the offered rate. Where customers are eligible to receive additional behavioural discounts, Origin considers this to be variable consideration, which is estimated as part of the unbilled process. Business and wholesale contracts Contracts with business and wholesale customers are generally medium to long term, higher-volume arrangements with fixed or index- linked energy rates that have been commercially negotiated. The nature and accounting treatment of this revenue stream is largely consistent with retail sales. Some business and wholesale sales arrangements also include the transfer of renewable energy certificates (RECs), which represent an additional performance obligation. Revenue is recognised for these contracts when Origin has the ‘right to invoice’ the customer for consideration that corresponds directly with the value of units of energy delivered to the customer. Pool revenue Pool revenue relates to sales by Origin generation assets into the NEM, as well as revenue associated with gross settled PPAs. Origin has assessed it is acting as the principal in relation to transactions with the NEM and therefore recognises pool sales on a ‘gross’ basis. Revenue from these sales is recognised at the spot price achieved when control of the electricity passes to the grid. LPG and LNG sales Revenue from the sale of LPG (from Origin’s Energy Markets segment) and LNG (from Origin’s Integrated Gas segment) is recognised at the point in time that the customer takes physical possession of the commodity. Revenue is recognised at an amount that reflects the consideration expected to be received. Financial Statements88 A3 Other income Net gain on sale of assets Fees and services, and other income(1) Other income Interest earned from other parties(2) Interest earned on APLNG MRCPS (refer to note B4) Interest income 2020 $m 1 53 54 16 174 190 2019 $m – 26 26 8 226 234 (1) The current period amount includes $39 million relating to insurance proceeds received to 30 June 2020 for the Mortlake generator asset failure in July 2019. (2) Interest income is measured using an effective interest rate method and recognised as it accrues. A4 Expenses Expenses Cost of sales Employee expenses(1) Depreciation and amortisation Impairment of non-current assets(2) Impairment of trade receivables (net of bad debts recovered) (Increase)/decrease in fair value of derivatives Net gain from financial instruments measured at fair value Net foreign exchange (gain)/loss Onerous contract expense(3) Other(4)(5) Expenses Interest on borrowings Interest on lease liabilities Unwind of discounting on long-term provisions Interest expense 2020 $m 2019 $m 10,732 662 509 764 124 (275) (123) (15) 650 486 13,514 296 18 2 316 12,254 664 419 39 84 102 (391) 89 – 693 13,953 385 – 3 388 (1) Includes contributions to defined contribution superannuation funds of $62 million (2019: $61 million). (2) In the current period, a $746 million impairment was recognised relating to the Group’s equity accounted investment in APLNG (refer to note B2.2), as well as a $19 million impairment relating to the Mortlake generator asset write-off following the electrical fault experienced in July 2019. This was offset by a $1 million impairment reversal relating to the Group’s investment in PNG Energy Development Limited joint venture. (2019: A $49 million impairment was recognised in relation to the Ironbark permit assets, offset by a $13 million impairment reversal in relation to the Heytesbury permit areas, following classification as held for sale. An additional $3 million impairment of goodwill and other intangibles on the Pleiades investment in Chile was recognised.) (3) Refer to note C6. (4) Includes $83 million of cost recoveries (2019: $124 million), which were previously netted against the cost of sales line. (5) The comparative amount includes operating lease rental expense of $81 million. Annual Report 2020A5 Results of equity accounted investees $m 2020 Octopus Energy(1) Gasbot Pty Limited(2) Total associates APLNG(3)(4) PNG Energy Developments Limited Total joint ventures Total 2019 APLNG(3)(4) PNG Energy Developments Limited Total joint ventures Total $m as at Octopus Energy(1) APLNG(3) PNG Energy Developments Limited Gasbot Pty Limited(2) 89 Share of EBITDA Share of ITDA Share of net (loss)/profit (4) – (4) 1,915 – 1,915 1,911 2,142 – 2,142 2,142 (7) – (7) (1,296) – (1,296) (1,303) (1,510) – (1,510) (1,510) (11) – (11) 619 – 619 608 632 – 632 632 Equity accounted investment carrying amount 2020 2019 380 6,978 1 1 7,360 – 6,960 – – 6,960 (1) The Group acquired a 20 per cent interest in Octopus Energy effective 1 May 2020. Included in Octopus Energy’s share of net profit is $5 million (Origin share) of depreciation, relating to the fair value attributed to assets at the acquisition date. Refer to note B3. (2) During the period, the Group acquired a 35 per cent interest in Gasbot Pty Limited and has significant influence over the entity. (3) APLNG’s summary financial information is separately disclosed in note B2. (4) Included in the Group’s share of net profit is $5 million (2019: $6 million) of MRCPS interest income, in line with the depreciation of the capitalised interest in APLNG’s result. MRCPS interest was capitalised by APLNG during the construction period, and therefore eliminated by the Group against its equity accounted investment at that time. Refer to note B2.1. Financial Statements90 A6 Earnings per share Weighted average number of shares on issue – basic(1) Weighted average number of shares on issue – diluted(2) STATUTORY PROFIT Earnings per share based on statutory consolidated profit Statutory profit – $m Basic earnings per share Diluted earnings per share UNDERLYING PROFIT Earnings per share based on underlying consolidated profit Underlying profit – $m(3) Underlying basic earnings per share Underlying diluted earnings per share 2020 2019 1,759,801,186 1,764,776,000 1,758,935,655 1,762,450,733 83 4.7 cents 4.7 cents 1,211 68.8 cents 68.7 cents 1,023 58.1 cents 58.0 cents 1,028 58.4 cents 58.3 cents (1) The basic earnings per share calculation uses the weighted average number of shares on issue during the period excluding treasury shares held. (2) The diluted earnings per share calculation uses the weighted average number of shares on issue during the period excluding treasury shares held and is adjusted to reflect the number of shares which would be issued if outstanding Options, Performance Share Rights (PSRs), Deferred Share Rights (DSRs), Restricted Shares (RSs) and Matching Share Rights (MSRs) were to be exercised (2020: 4,974,814; 2019: 3,515,078). (3) Refer to note A1 for a reconciliation of statutory profit to underlying consolidated profit. A7 Dividends The Directors have determined to pay an unfranked final dividend of 10 cents per share, payable on 2 October 2020. Dividends paid during the year ended 30 June are detailed below. Final dividend of 15 cents per share, in respect of FY2019, fully franked at 30 per cent, paid 27 September 2019 (2019: Nil final dividend) Interim dividend of 15 cents per share, in respect of FY2020, fully franked at 30 per cent, paid 27 March 2020 (2019: 10 cents per share, fully franked at 30 per cent, paid 29 March 2019) Total dividends provided for or paid 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(1) New Zealand franking credits available at 28 per cent (in NZD) (1) Franking credits will arise from tax payments during FY2021 and the franking account will not be in deficit by 30 June 2021. 2020 $m 264 264 528 2019 $m – 176 176 (57) 304 205 304 Annual Report 202091 B Investment in equity accounted joint ventures and associates This section provides information on the Group’s equity accounted investments including financial information relating to APLNG and Octopus Energy. B1 Interests in equity accounted joint ventures and associates Joint ventures and associates Octopus Energy(1) APLNG(2) KUBU Energy Resources (Pty) Limited PNG Energy Developments Limited Gasbot Pty Limited Reporting date Country of incorporation 2020 2019 Ownership interest (per cent) 30 April 30 June 30 June 31 December 30 June United Kingdom Australia Botswana PNG Australia 20.0 37.5 50.0 50.0 35.0 – 37.5 50.0 50.0 – (1) Octopus Energy is a separate legal entity. The Group’s 20 per cent investment is equity accounted as a result of the Group’s active participation on the Board and the Group’s ability to impact decision making, leading to the assessment that significant influence exists. (2) APLNG 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 APLNG as a joint venture. Of the above interests in joint ventures and associates, only APLNG and Octopus Energy have a material impact to the Group at 30 June 2020. B2 Investment in APLNG This section provides information on financial information related to the Group’s investment in the equity accounted joint venture APLNG. B2.1 Summary APLNG income statement for the year ended 30 June 2020 2019 $m Operating revenue Operating expenses EBITDA Depreciation and amortisation expense Interest income Interest expense – MRCPS Other interest expense Income tax expense ITDA Statutory result for the year Other comprehensive income Statutory total comprehensive income(1) Items excluded from segment result Gain on sale of assets – Denison Items excluded from segment result (net of tax) Underlying profit for the year(2) Underlying EBITDA for the year(2) Total APLNG Origin interest Total APLNG Origin interest 7,100 (1,992) 5,108 (1,863) 40 (463) (474) (708) 7,491 (1,781) 5,710 (2,116) 51 (602) (662) (711) 1,915 (699) 15 (174) (177) (266) 2,142 (794) 19 (226) (248) (267) (3,468) (1,301) (4,040) (1,516) 1,640 – 1,640 – – 1,640 5,108 614 – 614 – – 614 1,915 1,670 – 1,670 35 35 1,635 5,662 626 – 626 13 13 613 2,123 (1) Excluded from the above is $5 million (2019: $6 million) (Origin share) of MRCPS interest income that has been recognised by Origin in line with the depreciation of the capitalised interest in APLNG’s result above. MRCPS interest was capitalised by APLNG during the construction period, and therefore eliminated by Origin against its equity accounted investment at that time. This adjustment is disclosed under the ‘Integrated Gas – Other’ segment on the ‘share of ITDA of equity accounted investees’ line in note A1. (2) Underlying profit and underlying EBITDA are non-statutory (non-IFRS) measures. Income and expense amounts are converted from USD to AUD using the average rate prevailing for the relevant period. Financial Statements92 B2.2 Carrying amount of investment in APLNG Impact of oil prices and COVID-19 on carrying value of investments accounted for using the equity method The carrying amount of the Group’s equity accounted investment in 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. The Group’s assessment of the recoverable amount uses a discounted cash flow methodology and considers a range of macroeconomic and project assumptions, including oil and LNG price, AUD/USD exchange rates, discount rates and costs over the asset’s life. The principal change since the Group’s last assessment at 31 December 2019 is a reduction in oil price assumptions over the near term and a revised long-term Brent crude oil price assumption of US$60/bbl (real FY2020) from FY2026, partially offset by cost reductions from improved field and operating performance. As a result, the Group recognised an impairment charge of $746 million against the carrying value of its investment in APLNG as at 30 June 2020 (2019: $nil). The recoverable amount of the investment requires significant judgement and is sensitive to changes in key assumptions. A change in assumption could result in a significantly higher or lower impairment charge recognised at 30 June 2020. The assumptions and the sensitivity of the investment to assumption changes are described below. Oil prices (Brent oil nominal, US$/bbl) used by the Group in its impairment assessment are shown below. 2021 2022 2023 2024 2025 2026(1) 30 June 2020 40 45 50 55 61 66 (1) Escalated at 2 per cent from 2026. 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 shown below. 2021 2022 2023 2024 2025 2026 30 June 2020 0.69 0.69 0.69 0.70 0.70 0.70 The post-tax discount rate applied, determined as APLNG’s weighted average cost of capital, adjusted for risks where appropriate, is 7.4 per cent (2019: 7.4 per cent). 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 on interpretations of geological and geophysical models, and assessment of the technical feasibility and commercial viability of producing the reserves. Reserve estimates are prepared that 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 highly judgemental, particularly with the sudden reduction in pricing during the last quarter of the financial year. The reduced prices are expected to impact FY2021 due to the effect of lagged oil pricing. The Group’s estimate as at 30 June 2020 is based on its 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. Impairment sensitivity The Group’s assessment of the recoverable amount of its investment in 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 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 AU$233 million in the valuation; and • an increase in the discount rate of 0.3 per cent in isolation or an increase in the AUD/USD FX rate of 2 cents in isolation from the rates assumed in the valuation would lead to a decrease of A$233 million in the valuation. Changes in any of the aforementioned assumptions, may be accompanied by changes in other assumptions, which may have an offsetting impact. Annual Report 2020B2.3 Summary APLNG statement of financial position 100 per cent APLNG as at 30 June $m Cash and cash equivalents Assets classified as held for sale Other assets Current assets Receivables from shareholders PP&E(1) Exploration, evaluation and development assets Other assets Non-current assets Total assets Bank loans – secured Payable to shareholders (MRCPS) Other liabilities(2) Current liabilities Bank loans – secured Payable to shareholders (MRCPS) Other liabilities(3) Non-current liabilities Total liabilities Net assets Group’s interest of 37.5% of APLNG net assets Group’s impairment expense Group’s own costs MRCPS elimination(4) Investment in APLNG Pty Ltd(5) 93 2020 2019 1,072 5 775 1,852 370 35,703 531 998 1,610 5 644 2,259 375 35,971 326 1,641 37,602 38,313 39,454 40,572 720 117 689 1,526 8,587 5,398 2,981 16,966 18,492 20,962 7,862 (746) 25 (163) 673 91 761 1,525 9,084 8,078 2,946 20,108 21,633 18,939 7,103 – 25 (168) 6,978 6,960 (1) Includes $429 million of ROU assets in the current period as a result of the adoption of AASB 16 Leases. (2) Includes $64 million of lease liabilities in the current period as a result of the adoption of AASB 16 Leases. (3) Includes $193 million of lease liabilities in the current period as a result of the adoption of AASB 16 Leases. (4) During project construction, when the Group received interest on the MRCPS from APLNG, it recorded the interest as income after eliminating a proportion of this interest that related to its ownership interest in APLNG. At the same time, when APLNG paid interest to the Group on MRCPS, the amount was capitalised by APLNG. Therefore, these capitalised interest amounts form part of the cost of APLNG’s assets and these assets have been depreciated since commencement of operations. The proportion attributable to the Group’s own interest (37.5 per cent) is eliminated through the equity accounted investment balance. (5) Includes a movement of $145 million in foreign exchange that has been recognised in the foreign currency translation reserve. Reporting date balances are converted from USD to AUD using an end-of-period exchange rate of 0.6862 (2019: 0.7012). Financial Statements94 B2.4 Summary APLNG statement of cash flows 100 per cent APLNG for the year ended 30 June $m Cash flow from operating activities Receipts from customers Payments to suppliers and employees Net cash from operating activities Cash flows from investing activities Loan repaid by Origin Loans repaid by other shareholders Proceeds from sale of assets Acquisition of non-current assets Acquisition of PP&E Acquisition of exploration and development assets Other investing activities Net cash used in investing activities Cash flows from financing activities Payments relating to other financing activities Repayment of lease principal Payment of interest on lease liabilities Proceeds from borrowings Repayment of borrowings Payments of transaction and interest costs relating to borrowings Payments for buy-back of MRCPS Payments of interest on MRCPS Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effect of exchange rate changes on cash Cash and cash equivalents at the end of the year 2020 2019 7,321 (2,079) 5,242 8 6 – (245) (1,001) (37) 40 7,538 (2,002) 5,536 31 9 30 – (1,321) (57) 50 (1,229) (1,258) (45) (80) (19) – (731) (382) (2,918) (480) (85) – – 6,346 (7,154) (513) (1,987) (611) (4,655) (4,004) (642) 1,610 104 1,072 274 1,223 113 1,610 Cash flow amounts are converted from USD to AUD using the exchange rate that approximates the actual rate on the date of the cash flows. Annual Report 202095 B3 Investment in Octopus Energy Holdings Limited On 1 May 2020, the Group announced the acquisition of a 20 per cent equity stake in Octopus Energy for a total cash consideration of £215 million ($412 million), of which £65 million was paid upfront and £150 million is deferred over two financial years. Octopus Energy is an energy retailer and technology company incorporated in the United Kingdom and is not publicly listed. The investment in Octopus Energy enables the Group to adopt Octopus Energy’s market-leading operating model and customer platform, Kraken, to fast-track material improvements in customer experience and costs. The following table summarises the financial information of Octopus Energy, as included in its financial statements, adjusted for fair value adjustments at acquisition and differences in accounting policies. The table also reconciles the summarised financial information to the carrying amount of the Group’s interest in Octopus Energy. The information for FY2020 includes the results of Octopus Energy from 1 May to 30 June 2020, following the acquisition of the 20 per cent equity stake. Summary Octopus Energy income statement for the period from 1 May to 30 June $m Statutory and underlying result for the period Other comprehensive income Statutory total comprehensive income(1) 2020 Total Octopus Energy (32) – (32) Origin interest (6) – (6) (1) Excluded from the above is $5 million (Origin share) of amortisation relating to the fair value attributed to assets at the acquisition date. Income statement amounts are converted from GBP to AUD using the average rate prevailing for the relevant period. Summary Octopus Energy statement of financial position as at 30 June $m Current assets(1) Non-current assets Current liabilities(2) Non-current liabilities(2) Net assets Group’s interest of 20% of Octopus Energy net assets Goodwill and fair value adjustments(3) Group’s own costs Group’s carrying amount of the investment in Octopus Energy(4) (1) Current assets includes cash and cash equivalents of $113 million. (2) Includes current financial liabilities and non-current financial liabilities of $237 million and $197 million respectively. (3) Includes goodwill and other fair value adjustments on initial recognition of the Group’s equity accounted investment in Octopus Energy. (4) Includes a movement of $21 million in foreign exchange that has been recognised in the foreign currency translation reserve. Reporting date balances are converted from GBP to AUD using an end-of-period exchange rate of 0.5584. The associate has no contingent liabilities or capital commitments as at 30 June 2020. 2020 1,040 163 (852) (197) 154 31 344 5 380 Financial Statements96 B4 Transactions between the Group and equity accounted investees APLNG Service transactions The Group provides services to APLNG including corporate services, upstream operating services related to the development and operation of APLNG’s natural gas assets, and marketing services relating to coal seam gas (CSG). The Group incurs costs in providing these services and charges APLNG for them in accordance with the terms of the contracts governing those services. Commodity transactions Separately, the Group has entered agreements to purchase gas from APLNG (2020: $339 million; 2019: $475 million) and sell gas to APLNG (2020: $32 million; 2019: $69 million). At 30 June 2020, the Group’s outstanding payable balance for purchases from APLNG was $33 million (2019: $45 million) and outstanding receivable balance for sales to APLNG was $1 million (2019: $3 million). Funding transactions The Group has invested in USD MRCPS issued by APLNG. 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 6.37 per cent fixed-rate dividend obligation based on the relevant observable market interest rates and estimated credit margin at the date of issue. Dividends are paid twice per year and recognised as interest income as they accrue (refer note A3). During the year Origin’s share of the MRCPS balance reduced to US$1.4 billion following APLNG share buy-backs of US$0.7 billion. The mandatory redemption date for the MRCPS is 30 June 2026. The MRCPS are measured at fair value through profit and loss in Origin’s financial statements as disclosed in note C7. The carrying value was $2,109 million as at 30 June 2020 (2019: $3,045 million) reflecting the Group’s view that APLNG will utilise cash flows generated from operations to redeem the MRCPS for their full issue price prior to their mandatory redemption date. In APLNG’s financial statements the related liability is carried at amortised cost. Octopus Energy As part of a broader partnership with Octopus Energy, the Group has entered into an agreement to obtain a licence to utilise Octopus Energy’s market-leading customer platform, Kraken, in Australia. The total fixed consideration under the agreement is £25 million ($48 million), of which £5 million ($9 million) was paid on execution of the agreement and £20 million (A$38 million) is deferred over two financial years. The fixed consideration has been recognised as an intangible asset by the Group at 30 June 2020. A further £25 million ($48 million) could also become payable under the agreement but is contingent on the achievement of certain milestones. The contingent consideration will be capitalised when it becomes payable in the future once the relevant performance criteria have been achieved. The Group has entered into a further agreement to provide a financial guarantee to Octopus Energy’s financiers in respect of a working capital facility entered into by Octopus Energy. Under this agreement, Octopus Energy is required to pay a monthly fee to the Group in respect of the guarantee facility. The guarantee has been accounted for as a Financial Guarantee Contract under AASB 9 Financial Instruments and has been initially recognised at fair value (refer to note C7). During the year, $1 million has been recognised within other income in respect of the financial guarantee income. There were no other transactions between the Group and Octopus Energy during the year ended 30 June 2020. Annual Report 202097 C 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. C1 Trade and other receivables The following balances are amounts 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 Other receivables 2020 $m 618 1,072 269 1,959 8 10 18 2019 $m 735 1,226 363 2,324 7 – 7 Trade and other receivables are initially recorded at the amount billed to customers or other counterparties. Unbilled receivables represent estimated gas and electricity supplied to customers since their previous bill was issued. The carrying value of all receivables (including unbilled revenue) reflects the amount anticipated to be collected. 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, historic collection trends and expectations about future economic conditions. 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 energy revenue to recognise. Credit risk and collectability The Group minimises the concentration of credit risk by undertaking transactions with a large number of customers from across a broad range of industries. Credit approval processes are in place for large customers and all 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. For some debtors, the Group may also obtain security in the form of deposits, guarantees, deeds of undertaking or letters of credit which can be called upon if the counterparty defaults. Debtor collectability is assessed on an ongoing basis and any resulting impairment losses are recognised in the income statement. The Group applies the simplified approach to providing for trade receivable and unbilled revenue impairment, which requires the ‘expected lifetime credit losses’ to be recognised when the receivable is initially recognised. To measure expected lifetime credit losses, trade receivables and unbilled revenue balances have been grouped based on shared credit risk characteristics and ageing profiles. A debtor balance is written off when recovery is no longer assessed to be possible. With the emergence of COVID-19, the government introduced lockdowns and other restrictions to combat the spread of the virus, which has led to job losses and business shutdowns in certain industries. This has placed increased pressure on businesses’ ability to absorb these impacts, and on consumer budgets. Collectively this impacts the Group’s debt collection performance and any expected credit losses. In April 2020, the Group announced a disconnection freeze for its residential and small business customers, including a freeze on default listing of customers in financial stress, and the waiving of all late payment fees during the period. At the date of this report, the Group has not experienced a significant impact on its debt collection as a result of COVID-19. Despite this, there remains future credit risk associated with trade receivable amounts due to: • the impact of the Australian Government stimulus packages and other relief measures coming to an end, including other organisations such as financial institutions recommencing collection activities; • the end of the COVID-19 disconnection freeze introduced by the Group, and the length of time for any impacts to be realised in the customer accounts; and • more broadly, the unprecedented nature of this event, such that historical performance cannot be used in isolation as an indicator of the future. The impacts seen in other countries are not comparable due to different consumer patterns, demographics and responses to COVID-19, including the nature and quantum of government stimulus. Financial Statements98 C1 Trade and other receivables (continued) The Group has performed an assessment of its provision for bad and doubtful debts in accordance with AASB 9 Financial Instruments considering: • current collection performance, including the COVID-19 period when lockdown restrictions and government stimulus measures were in place, and expected credit default frequencies; • regulatory and economic outlook, including forecast unemployment rates and the timing and quantum of government stimulus packages and other relief measures provided by banks and landlords; and • risk profile of customers and industry-specific risk assessments based on actual and forecasted volumes as a measure for credit risk. These considerations require significant judgement. To ensure a more accurate assessment, the Group has increased the segmentation of its SME and large business customers in its modelling of the expected credit loss as at 30 June 2020 by customer type and industry group. Each segment has been reviewed and a credit risk weighting has been applied depending on the extent COVID-19 has impacted the industry group and the level of significantly aged receivables outstanding. Where possible, publicly available information, such as expected default rates, has been applied. For residential customers, a higher allowance for impairment is included for those with significantly aged receivables, including any recent debt associated with those customers. As at 30 June 2020, the allowance for impairment in respect of trade receivables and unbilled revenue is $162 million (2019: $135 million), with $40 million of this amount reflecting the increased potential impact of COVID-19. The average age of trade receivables is 20 days (2019: 21 days). Other receivables are neither past due nor impaired, and relate principally to generation and hedge contract receivables. The ageing of trade receivables and unbilled revenue at the reporting date is detailed below. $m Unbilled revenue Not yet due Less than 30 days 31–60 days past due 61–90 days past due Greater than 91 days 2020 2019 Gross 1,092 387 102 46 40 185 1,852 Impairment allowance (20) (14) (6) (8) (10) (104) (162) Gross 1,233 497 102 65 32 167 Impairment allowance (7) (7) (7) (7) (9) (98) 2,096 (135) 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 Adoption of AASB 9 Impairment losses recognised Amounts written off Balance as at 30 June 135 – 124 (97) 162 114 21 84 (84) 135 Annual Report 2020C2 Exploration and evaluation assets Balance as at 1 July Additions Exploration expense Net impairment loss(1) Transfers to held for sale(2) Balance as at 30 June(3) 99 2019 $m 363 33 (2) (49) (247) 98 2020 $m 98 92 – – – 190 (1) Prior period amount related to impairment of the Ironbark permit areas. (2) The prior period closing balance excludes $247 million in relation to Ironbark permit areas. (3) The current period closing balance primarily relates to the Group’s 77.5 per cent share in the Beetaloo Basin joint venture with Falcon Oil & Gas (Beetaloo asset). The Group acquired an additional 7.5 per cent interest in the joint venture on 7 April 2020, in exchange for increasing its carry of Falcon’s share of costs by $25 million over the coming years. 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 for; • 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. If it is concluded that the carrying value of an exploration and evaluation asset is unlikely to be recovered by future exploitation or sale, an impairment is recognised in the income statement for the difference. 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. 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. Financial Statements100 C3 Property, plant and equipment Owned Right of use Plant and equipment Land and buildings Capital work in progress Plant and equipment Land and buildings $m 2020 Cost(1) Accumulated depreciation(1) Balance as at 30 June 2019 Adoption of AASB 16 Leases(2) Balance as at 1 July 2019 Additions Disposals Modifications to lease terms Depreciation/amortisation Impairment(3) Transfers within PP&E Effect of movements in foreign exchange rates 5,774 (2,331) 3,443 3,268 (44) 3,224 267 (1) – (295) (19) 267 – 194 (51) 143 141 – 141 1 – – (4) – 5 – Balance as at 30 June 2020 3,443 143 2019 Cost Accumulated depreciation Balance as at 1 July 2018 Additions Additions through acquisition of entities Depreciation/amortisation Impairment reversal(4) Transfers within PP&E Transfers to intangibles Transfers to held for sale Effect of movements in foreign exchange rates Balance as at 30 June 2019 5,447 (2,179) 3,268 3,284 122 21 (289) 13 148 (3) (29) 1 3,268 204 (63) 141 149 – – (2) – – – (6) – 141 278 – 278 188 (31) 157 393 – – – – (272) – 278 188 – 188 263 96 – – – (148) (23) – – 188 155 (47) 108 – 127 127 20 (1) 8 (46) – – – 108 – – – – – – – – – – – – – 407 (48) 359 – 318 318 1 – 78 (40) – – 2 359 – – – – – – – – – – – – – Total 6,808 (2,477) 4,331 3,597 370 3,967 682 (2) 86 (385) (19) – 2 4,331 5,839 (2,242) 3,597 3,696 218 21 (291) 13 – (26) (35) 1 3,597 (1) A fixed asset review during the year resulted in a write-off of certain assets which have a remaining book value of nil and determined to not have any future economic benefit to the Group. Consequently, $104 million was written off relating to plant and equipment and $16 million relating to land and buildings. (2) For further information relating to the adoption of AASB 16 Leases, refer to the Overview. (3) Impairment relating to the Mortlake generator asset write-off following an electrical fault. (4) Reversal of the Heytesbury impairment of $13 million. Owned PP&E 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. Annual Report 2020101 C3 Property, plant and equipment (continued) Depreciation is calculated on a straight-line basis so as to write off the cost of each asset over its expected useful life. Leasehold improvements are amortised over the period of the relevant lease or estimated useful life, whichever is shorter. Land and capital work in progress are not depreciated. The estimated useful lives used in the calculation of depreciation are shown below. Buildings, including leasehold improvements 10 to 50 years Plant and equipment 3 to 30 years At 30 June 2020, 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, whichever is higher. The recoverable amount of these assets is most sensitive to those assumptions highlighted in the key judgements and estimates below. Leased PP&E The Group’s leased assets include commercial offices, power stations, LPG terminals and shipping vessels, motor vehicles and other items of equipment. ROU assets are recognised at commencement of a lease. ROU assets are initially valued at the corresponding lease liability amount adjusted for any payments already made, lease incentives received, or initial direct costs incurred when entering into the lease. Where the Group is required to restore the ROU asset at the end of the lease, the cost of restoration is also included in the value of the ROU asset. ROU assets are depreciated on a straight-line basis over the shorter of the lease term or the useful life of the ROU asset. The carrying amounts of ROU 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. Payments under the Group’s leases of renewable power plants are entirely variable as they depend on the amount of energy produced each period. Such leases have nil lease liability balances and thus nil ROU asset balances. All payments made under these leases are disclosed as variable lease expense within note A4. Refer to note D2 for discussion of the recognition and measurement of associated lease liability balances. Key judgements and estimates During the year, management reviewed the recoverable amount of its non-current assets, including assessing the impacts of COVID-19. Significant judgement is required in determining the following key assumptions used to calculate the value-in-use, which has been updated to reflect the increase in uncertainty and the current risk environment: • oil prices • discount rates • domestic gas prices • future cash flows • foreign exchange rates • expected useful life • electricity pool prices Noting this uncertainty, the Group considers the assumptions used in the value-in-use models are appropriate for the purposes of estimating the recoverable amount of non-current assets as at 30 June 2020. Recoverability of carrying values: Assets are grouped together into the smallest group of individual assets that generate largely independent cash inflows (cash generating unit or CGU). A CGU’s 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, regulatory policies, and the outlook for global or regional market supply-and-demand conditions. 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 commodity prices: The Group’s 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 twice 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 C6 for a judgement related to restoration provisions. Lease term: Where lease arrangements contain options to extend the term or terminate the contract, the Group assesses whether it is ‘reasonably certain’ that the option to extend or terminate will be exercised. Consideration is given to all facts and circumstances that create an economic incentive to extend or terminate the contract. Lease liabilities and ROU assets are measured using the reasonably certain contract term. Financial Statements102 C4 Intangible assets Goodwill Software and other intangible assets(1) Accumulated amortisation(1) Reconciliations of the carrying amounts of each class of intangible asset are set out below. $m Balance as at 1 July 2019 Additions(2) Disposals Amortisation expense Balance as at 30 June 2020 Balance as at 1 July 2018 Additions Additions through acquisition of entities Transfers from PP&E Disposals Net impairment loss(3) Amortisation expense Balance as at 30 June 2019 2020 $m 4,818 1,494 (892) 5,420 Goodwill Software and other intangibles 4,818 – – – 4,818 4,820 – – – – (2) – 4,818 563 171 (2) (130) 602 508 119 43 26 (4) (1) (128) 563 2019 $m 4,818 1,407 (844) 5,381 Total 5,381 171 (2) (130) 5,420 5,328 119 43 26 (4) (3) (128) 5,381 (1) An intangible asset review during the year resulted in a write-off of certain assets which have a remaining book value of nil and determined to not have any future economic benefit to the Group. Consequently, $81 million was written off relating to software and other intangible assets. (2) Additions during the period include amounts relating to the build of the Kraken technology platform following the agreement entered into with Octopus Energy, along with amounts relating to the implementation of a new Enterprise Resource Planning system for the Group. (3) Impairment of goodwill and other intangibles on the Pleiades investment in Chile. Goodwill is stated at cost less any accumulated impairment losses and is not amortised. Software and other intangible assets are stated at cost less any accumulated impairment losses and accumulated amortisation. 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 10 per cent (2019: 11 per cent). Key judgements and estimates The Group’s goodwill balance relates exclusively to the Energy Markets segment. The recoverable amount of the Energy Markets goodwill has been determined using a value-in-use model that includes an appropriate terminal value. The value-in-use calculation is sensitive to a number of key assumptions requiring management judgement, including future commodity prices, regulatory policies, and the outlook for the market supply-and-demand conditions. Any impacts of COVID-19 have also been considered in formulating these assumptions. Management does not believe that any reasonably possible changes in these assumptions would result in an impairment. More information about the key inputs and assumptions in the value-in-use calculation are set out below. Key inputs/assumptions Long-term growth rates Energy Markets Cash flows are projected for the life of each generation asset or up to 15 years depending on the relevant business unit. The Energy Markets business is considered a long-term business and as such projections of long-term cash flows is appropriate for a more accurate forecast. The growth rate used to extrapolate cash flows beyond the initial period projected averages 2.5 per cent. Customer numbers This is based on a review of actual customer numbers and historical data regarding levels of customer churn. The historical analysis is considered against current and expected market trends and competition for customers. Gross margin and operating costs This is based on a review of actual gross margins and cost per customer, and consideration of current and expected market movements and impacts. Discount rate The pre-tax discount rate is 9.6 per cent (2019: 9.7 per cent). Annual Report 2020C5 Trade and other payables Current Trade payables and accrued expenses Deferred consideration(1) Other payables Non-current Deferred consideration(1) Other payables 103 2019 $m 2,005 – 1 2,006 – 2 2 2020 $m 1,827 107 – 1,934 193 – 193 (1) Relates to the £150 million deferred cash consideration for the shares acquired in Octopus Energy on 1 May 2020 (refer to note B3) and £20 million deferred cash consideration for the Kraken licence agreement with Octopus Energy (refer to note B4). Both amounts are payable over the next two financial years. C6 Provisions $m Balance as at 30 June 2019 Adoption of AASB 16 (refer to Overview) Balance as at 1 July 2019 Provisions recognised Provisions released Payments/utilisation Unwinding of discounting Effect of movements in foreign exchange rates Balance as at 30 June 2020 Current Non-current Total provisions Restoration(1) Onerous contracts Other(2) Total 428 – 428 274 (39) (4) 2 – 661 – – – 650 – – – (9) 641 144 (100) 44 141 (1) (10) – – 174 572 (100) 472 1,065 (40) (14) 2 (9) 1,476 163 1,313 1,476 (1) The closing balance includes amounts relating to the restoration of the Eraring Power Station site and other generation gas power station locations. Also included within this balance are rehabilitation provisions for contamination at existing and legacy operating sites. (2) The closing balance of other provisions primarily relates to costs for compliance with safety standard requirements relating to the Eraring ash dam wall, costs associated with the new Myuna Bay Recreation Centre facility, and a make good provision relating to existing property leases. 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 risk-free rate that reflects current market assessments of the time value of money. The unwinding of the discount is recognised in each period as interest expense. At each reporting date, the restoration provision is remeasured in line with changes in discount rates, and changes to the timing or amount of costs to be incurred, based on current legal requirements and technology. Any changes in the estimated future costs associated with: • restoration and dismantling are added to or deducted from the related asset; • environmental rehabilitation are expensed in the current period. 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. Financial Statements104 C6 Provisions (continued) Onerous contracts All contracts in which the unavoidable costs of meeting the obligations exceed the economic benefits are deemed onerous and require a provision to be recognised up front. As at 30 June 2020, an onerous contract provision of $641 million (US$440 million)(1) pre-tax was recognised in respect of the Cameron LNG purchase contract, as the forecast sales revenue from the onward supply being estimated to be less than the purchase cost. This is primarily driven by a weaker demand outlook in the short and medium term as a result of the economic slowdown caused by COVID-19, and a lower long-term equilibrium price as a result of more competitive US export project economics. The onerous contract provision is sensitive to a number of key assumptions requiring management judgement, including: future commodity prices, inflation and the US Treasury risk-free bond rate. The provision valuation as at 30 June 2020 includes a long-term JKM LNG price of US$7.15/mmbtu (real FY2020) from FY2026, a long-term Henry Hub gas price of US$2.60/mmbtu (real FY2020) from FY2026, and a range of US Treasury risk-free bond rates that average approximately 0.81 per cent over the term of the contract. A US$1.00/mmbtu increase in the spread between Henry Hub and JKM prices results in a A$213 million (US$146 million) post- tax reduction in the charge. A 1 per cent increase applied to the relevant inflation and discount rate would result in a A$79 million (US$54 million) post-tax reduction in the charge. The Group will review the provision at each reporting date, and any future increases or decreases in the provision will be recognised within the Group’s income statement. The non-cash charge during the year ended 30 June 2020 is recognised within statutory profit but excluded from underlying profit. Future realised losses or gains will be recognised within underlying profit. (1) The balance sheet onerous contracts provision of US$440 million was converted from USD to AUD using the end-of-period exchange rate of 0.6862. The onerous contract expense of $650 million in note A4 is US$440 million converted from USD to AUD using the average rate of 0.676 prevailing for the relevant period. C7 Other financial assets and liabilities $m Current Non-current Current Non-current 2020 2019 Other financial assets Measured at fair value through profit or loss MRCPS issued by APLNG Settlement Residue Distribution Agreement units Environmental scheme certificates Investment fund units Debt securities Measured at fair value through other comprehensive income Equity securities Measured at amortised cost Futures collateral Other financial liabilities Measured at fair value through profit or loss Environmental scheme surrender obligations Measured at amortised cost Futures collateral Financial guarantees(1) 44 34 103 – – – 298 479 234 3 – 237 2,065 26 – 55 17 62 – 2,225 – – 16 16 34 24 244 – – – 16 318 241 67 – 308 3,011 30 – 57 2 52 – 3,152 – – – – (1) Financial guarantee contracts are initially recognised at fair value. Subsequently they are measured at either the amount of any determined loss allowance or at the amount initially recognised less any cumulative income recognised, whichever is larger. The above financial guarantee relates to the working capital facility entered into by Octopus Energy with its financiers, as referred to in note B4, for which the Group has provided a guarantee. Annual Report 2020105 D 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. D1 Capital management The Group’s objective when managing capital is to make disciplined capital allocation decisions between debt reduction, investment in growth and distributions to shareholders, and to maintain an optimal capital structure while maintaining access to capital. Management believes that a strong investment-grade credit rating (BBB/Baa2) and an appropriate level of net debt are required to meet these objectives. The Group’s current credit rating is BBB (stable outlook) from Standard & Poor’s, and Baa2 (stable outlook) from Moody’s. 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, the maturity profile of existing debt facilities, the 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 (target range of approximately 20 to 30 per cent) and an adjusted net debt to adjusted underlying EBITDA ratio (target range of 2.0x to 3.0x). These targets are consistent with attaining a strong investment-grade rating. Underlying EBITDA is a non-statutory (non-IFRS) measure. The gearing ratio is calculated as adjusted net debt divided by adjusted net debt plus total equity. Net debt, which excludes cash held by Origin to fund APLNG-related operations, is adjusted to take into account the effect of FX hedging transactions on the Group’s foreign currency debt obligations. The adjusted net debt to adjusted underlying EBITDA ratio is calculated as adjusted net debt divided by adjusted underlying EBITDA (Origin’s underlying EBITDA less Origin’s share of APLNG underlying EBITDA plus net cash flow from APLNG) over the relevant rolling 12-month period. 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. Borrowings Lease liabilities Total interest-bearing liabilities Less: Cash and cash equivalents excluding APLNG-related cash(1) Net debt Fair value adjustments on FX hedging transactions Adjusted net debt Total equity Total capital Gearing ratio Ratio of adjusted net debt to adjusted underlying EBITDA 2020 $m 6,338 514 6,852 (1,164) 5,688 (530) 5,158 12,701 17,859 29% 2.1x 2019 $m 7,590 6 7,596 (1,512) 6,084 (667) 5,417 13,149 18,566 29% 2.6x (1) This balance excludes $76 million (2019: $34 million) of cash held by Origin, as Upstream Operator, to fund APLNG-related operations. Significant funding transactions The Group undertook a number of capital management activities during the year ended 30 June 2020. These activities have strengthened the capital profile by: • refinancing existing capital market borrowings to extend the weighted average tenor of the Group’s debt portfolio; and • reducing or cancelling surplus committed undrawn syndicated bank loan facilities. A summary of these transactions is shown below. Debt refinancing 16 September 2019 – repaid the €1 billion hybrid Capital Securities at the first call date. The instrument had a swap value of A$1,391 million. 17 September 2019 – issued a €600 million 10-year note under the Euro Medium Term Note (EMTN) program. These notes were swapped to A$973 million. 11 October 2019 – repaid the €500 million seven-year note under the EMTN program. The notes had been swapped to US$646 million (A$939 million). 11 November 2019 – issued a A$300 million eight-year note under the EMTN program. 28 June 2020 – repaid the NZ$141 million 15-year US Private Placement note. The note was swapped to A$125 million. Financial Statements106 D1 Capital management (continued) Bank loan and guarantee facilities 8 November 2019 – renegotiated the existing A$500 million Bank Guarantee Facility and Reimbursement Agreement to new three-year A$375 million and five-year A$125 million facilities. The renegotiation also resulted in lower commitment and usage fees. 20 November 2019 – cancelled A$150 million and US$385 million of undrawn syndicated debt facilities. D2 Interest-bearing liabilities Current Capital market borrowings – unsecured Total current borrowings Lease liabilities – secured Total current interest-bearing liabilities Non-current Bank loans – unsecured Capital market borrowings – unsecured(1) Total non-current borrowings Lease liabilities – secured Total non-current interest-bearing liabilities 2020 $m 1,328 1,328 73 1,401 535 4,475 5,010 441 5,451 2019 $m 947 947 1 948 525 6,117 6,642 6 6,648 (1) The prior period includes €1 billion Capital Securities that were redeemed at their first call date of 16 September 2019. 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. Lease liabilities are initially measured at the present value of future lease payments discounted at the Group’s incremental borrowing rate. Where a lease includes termination and/or extension options, the impact of these options on the amount of future payments is included where exercise of such options is considered reasonably certain to occur. Interest expense is charged on outstanding lease liabilities that reduce over time as periodic payments are made. The lease liability is remeasured when certain events occur, including changes in the lease term or changes in future lease payments such as those resulting from inflation-linked indexation or market rate rent reviews. On remeasurement of lease liabilities, a corresponding adjustment is made to the ROU asset. Payments under the Group’s leases of renewable power plants are entirely variable as they depend on the amount of energy produced each period. Such leases have nil lease liability balances and payments totalling $22 million for energy generation have been recognised within expenses in the financial period. Additionally, $1 million of payments for leases of low-value assets have also been recognised within expenses. The contractual maturity of lease liabilities are disclosed within the liquidity table in note D4. 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 2020 $m 2,069 356 2,585 5,010 2019 $m 1,325 2,405 2,912 6,642 Some of the Group’s borrowings are subject to terms that allow the lender to call on the debt in the event of a breach of covenants. As at 30 June 2020, these terms had not been triggered. Annual Report 2020 107 D3 Contributed equity Ordinary share capital Opening balance(1) Shares issued in accordance with the DRP Shares issued in accordance with incentive plans Less treasury shares: Opening balance(1) Shares purchased on market Utilisation of treasury shares on vesting of employee share schemes and DRP 2020 2019 2020 2019 Number of shares $m 1,761,211,071 – – 1,759,156,516 1,769,296 285,259 1,761,211,071 1,761,211,071 (4,809,617) (12,291,634) – (9,611,526) 13,888,321 4,801,909 (3,212,930) (4,809,617) 7,163 – – 7,163 (38) (75) 95 (18) 7,150 13 – 7,163 – (77) 39 (38) Closing balance 1,757,998,141 1,756,401,454 7,145 7,125 (1) The sum of the opening balances of share capital and treasury shares is $7,125 million (2019: $7,150 million) as noted in the statement of changes in equity. Ordinary shares 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. Treasury shares Where the Group or other members of the Group purchase shares in the Company, the consideration paid is deducted from the total shareholders’ equity and the shares are treated as treasury shares until they are subsequently sold, reissued or cancelled. Treasury shares are purchased primarily for use on vesting of employee share schemes and the DRP. Shares are accounted for at a weighted average cost. D4 Financial risk management Overview The Group’s day-to-day operations, new investment opportunities and funding activities introduce financial risks, which are actively managed by the Board Risk Committee. These risks are grouped into the following categories: • Credit: The risk that a counterparty will not fulfil its financial obligations under a contract or other arrangement. • Market: The risk that fluctuations in commodity prices, foreign exchange rates and interest rates will adversely impact the Group’s result. • Liquidity: The risk that the Group will not be able to meet its financial obligations as they fall due. Risk Credit Sources Risk management framework Financial exposure Sale of goods and services and hedging activities The Board approves credit risk management policies that determine the level of exposures it is prepared to accept. It also allocates credit limits to counterparties based on publicly available credit information from recognised providers where available. Notes C1, C7 and D4 disclose the carrying amounts of financial assets, which represent the Group’s maximum exposure to credit risk at the reporting date. The Group utilises International Swaps and Derivative Association (ISDA) agreements to limit exposure to credit risk by netting amounts receivable from and payable to individual counterparties (refer to note G8). See below for further discussion of market risk. Analysis of the Group’s liquidity profile as at the reporting date is presented at the end of this section. Market Purchase and sale of commodities and funding risks Liquidity Ongoing business obligations and new investment opportunities The Board approves policies that ensure the Group is not exposed to excess risk from market volatility. These policies include active hedging of price and volume exposures within prescribed Profit at Risk and Value at Risk limits. The Group centrally manages its liquidity position through cash flow forecasting and maintenance of minimum levels of liquidity determined by the Board. The debt portfolio is periodically reviewed to ensure there is funding flexibility and an appropriate maturity profile. Financial Statements108 D4 Financial risk management (continued) Market risk The scope of the Group’s operations and activities exposes it to multiple markets risks. The table below summarises these risks by nature of exposure and provides information about the risk mitigation strategies being applied. Nature Sources of financial exposure Risk management strategy Commodity price Future commercial transactions and recognised assets and liabilities exposed to changes in electricity, oil, gas, coal or environmental scheme certificate prices Due to vertical integration, a significant portion of the Group’s spot electricity purchases from the National Electricity Market (NEM) are naturally hedged by generation sales into the NEM at spot prices. Foreign exchange Foreign-denominated borrowings and investments (e.g. APLNG MRCPS) and future foreign currency-denominated commercial transactions The Group manages its remaining exposure to commodity price fluctuations beyond Board-approved limits using a mix of commercial contracts (such as fixed-price purchase contracts) and derivative instruments (described below). The Group limits its exposure to changes in foreign exchange rates through forward foreign exchange contracts and cross-currency interest rate swaps. In certain circumstances, borrowings are left in a foreign currency, or swapped from one foreign currency to another, to hedge expected future business cash flows in that currency. Significant foreign-denominated transactions undertaken in the normal course of operations are managed on a case-by-case basis. Interest rate Variable-rate borrowings (cash flow risk) and fixed-rate borrowings (fair value risk) Interest rate exposures are kept within an acceptable range as determined by the Board. Risk limits are managed through a combination of fixed-rate and fixed-to- floating interest rate swaps. Derivatives to manage market risks Derivative instruments are contracts whose value is derived from an underlying price index (or other variable) that require little or no initial net investment, and that are settled at a future date. The Group uses the following types of derivative instruments to mitigate market risk. Forwards A contract documenting the underlying reference rate (such as benchmark price or exchange rate) to be paid or received on a notional principal obligation at a future date. Futures An exchange-traded contract to buy or sell an asset for an agreed price at a future date. Futures are net-settled in cash without physical delivery of the underlying asset. Swaps A contract in which two parties exchange a series of cash flows for another (such as fixed-for-floating interest rate). Options A contract in which the buyer has the right, but not the obligation, to buy (a call option) or sell (a put option) an instrument at a fixed price in the future. The seller has the corresponding obligation to fulfil the transaction if the buyer exercises the option. Structured electricity products A non-standardised contract, generally with an energy market participant, to acquire long-term capacity. These contracts typically contain features similar to swaps and call options. Derivatives are carried on the balance sheet at fair value. Movements in the price of the underlying variables, which cause the value of the contract to fluctuate, are reflected in the fair value of the derivative. The method of recognising changes in fair value depends on whether the derivative is designated in an ‘accounting’ hedge relationship. Derivatives not designated as accounting hedges are referred to as ‘economic’ hedges. Fair value gains and losses attributable to economic hedges are recognised in the income statement and resulted in a $292 million gain for the year ended 30 June 2020 (2019: $107 million loss). Fair value gains and losses attributable to accounting hedges are discussed in the Hedge Accounting section. Annual Report 2020109 D4 Financial risk management (continued) $m Current Non-current Current Non-current Assets Liabilities 2020 Economic hedges Commodity contracts Foreign exchange and interest rate contracts Accounting hedges Commodity contracts Foreign exchange and interest rate contracts 2019 Economic hedges Commodity contracts Foreign exchange and interest rate contracts Accounting hedges Commodity contracts Foreign exchange and interest rate contracts 247 2 249 98 283 381 630 69 6 75 160 237 397 472 258 – 258 43 227 270 528 315 – 315 119 528 647 962 (170) (72) (242) (224) – (224) (466) (220) (107) (327) (57) – (57) (173) (124) (297) (402) (50) (452) (749) (848) (219) (1,067) (52) – (52) (384) (1,119) Hedge accounting The Group currently uses two types of hedge accounting relationships as detailed below. Fair value hedge Cash flow hedge Objective of hedging arrangement To hedge our exposure to changes in the fair value of a recognised asset or liability or unrecognised firm commitment, caused by interest rate or foreign currency movements. To hedge our exposure to variability in the cash flows of a recognised asset or liability, or a highly probable forecast transaction caused by commodity price, interest rate, and foreign currency movements. Effective hedge portion The following are recognised in profit or loss at the same time: – all changes in the fair value of the underlying item relating to the hedged risk; and – the change in fair value of derivatives. The effective portion of changes in the fair value of derivatives designated as cash flow hedges are recognised in the hedge reserve. Hedge ineffectiveness Certain determinants of fair value, such as credit charges included in derivatives or mismatches between the timing of the instrument and the underlying item in the hedge relationship, can cause hedge ineffectiveness. Any ineffectiveness is recognised immediately in profit or loss as a change in the fair value of derivatives. Hedged item sold or repaid The unamortised fair value adjustment is recognised immediately in profit or loss. Amounts accumulated in the hedge reserve are transferred immediately to profit or loss. Hedging instrument expires, is sold, terminated or no longer qualifies for hedge accounting The unamortised fair value adjustment is recognised in profit or loss when the hedged item is recognised in profit or loss. This may occur over time if the hedged item is amortised over the period to maturity. The amount previously deferred in the hedge reserve is only transferred to profit or loss when the hedged item is also recognised in profit or loss. Financial Statements110 D4 Financial risk management (continued) Set out below are the fair values of derivatives designated in hedge accounting relationships at reporting date. 2020 $m Fair value hedges Cash flow hedges Accounting hedges Fair value hedges Assets Liabilities Current Non-current Current Non-current 283 98 381 175 95 270 – (224) (224) – (452) (452) Certain cross-currency interest rate swaps (CCIRSs) have been designated as fair value hedges of the Group’s euro-denominated debt. CCIRSs Nominal hedge volumes Hedge rates Timing of cash flows Carrying amounts Hedging instrument(1) Hedged debt(2) Fair value increase/(decrease) Hedging instrument Hedged debt Hedge ineffectiveness(3) FX and interest EUR 1,550m AUD/EUR 0.69–0.79; BBSW Up to Oct 2021 $m 458 (2,575) $m (17) 14 (3) (1) Hedging instruments are included in the derivatives balance on the statement of financial position. (2) Hedged items are included in Interest-bearing liabilities on the statement of financial position. Included in this value are $38 million of accumulated fair value hedge adjustments. (3) Hedge ineffectiveness is recognised within expenses in the income statement as a change in fair value of derivatives. Cash flow hedges A number of derivative contracts have been designated as cash flow hedges of the Group’s exposure to foreign exchange, interest rate and commodity price fluctuations. Designated derivatives include swaps, options, futures and forwards. The Group’s structured electricity products, though important to the overall risk management strategy, do not qualify for hedge accounting. As such, they are not represented in the summary information below. 2020 FX & interest Electricity Crude oil Propane Nominal hedge volumes EUR 750m 12.3 TWh 10,955k barrels 150k mt Hedge rates $32–$175 US$44–US$72 US$265–US$476 AUD/EUR 0.62–0.81; Fixed 3.2%–6.6% Timing of cash flows – up to Sep 2029 Dec 2023 Jun 2023 Dec 2022 Annual Report 2020D4 Financial risk management (continued) Hedge accounting (continued) Carrying amounts – $m FX & interest Electricity Crude oil Propane Hedging instrument(1) – assets Hedging instrument(1) – liabilities Hedge reserve(2) Fair value increase/(decrease) – $m Hedging instrument Hedged item Hedge ineffectiveness(3) Reconciliation of hedge reserve – $m Effective portion of hedge gains/(losses) Transfer of deferred losses/(gains) to: – Cost of sales – Finance costs – Foreign exchange Tax on above items Change in hedge reserve (post-tax) 52 (50) 67 (63) 64 1 (63) – 2 11 15 (35) 34 (289) 255 (394) 394 – (394) (30) – – 128 (296) 105 (326) 203 (246) 240 (6) (240) 15 – – 68 (157) 2 (11) 9 (9) 8 (1) (8) 7 – – – (1) 111 Total 193 (676) 534 (712) 706 (6) (705) (8) 2 11 211 (489) (1) Hedging instruments are included in the derivatives balance on the statement of financial position. (2) No hedges have been discontinued or de-designated in the current period. (3) Hedge ineffectiveness is recognised within expenses in the income statement as a change in fair value of derivatives. Residual market risk After hedging, the Group’s financial instruments remain exposed to changes in market pricing. The following is a summary of the Group’s residual market risk and the sensitivity of financial instrument fair values to reasonably possible changes in market pricing at the reporting date. Risk Residual exposure Relationship to financial instruments value USD exchange rate – MRCPS financial asset – USD debt – Euro debt and related USD CCIRSs – FX and commodity derivatives with USD pricing Euro exchange rate – Currency basis on the CCIRSs swapping euro debt to AUD Interest rates – Interest rate swaps – Long-term derivatives and other financial assets/ liabilities for which discounting is significant Electricity forward price – Commodity derivatives including structured electricity products Oil forward price – Commodity derivatives REC forward price – REC forwards – Environmental scheme certificates – Environmental scheme surrender obligations A 10 per cent increase/decrease in the USD exchange rate would decrease/increase fair value by $19 million (June 2019: $25 million). A 10 per cent increase/decrease in the euro exchange rate would decrease/increase fair value by $17 million (June 2019: $22 million). A 100 basis point increase/decrease in interest rates would impact fair value by ($43)/$38 million (June 2019: ($14)/$11 million). A 10 per cent increase/decrease in electricity forward prices would increase/decrease fair value by $93/($95) million (June 2019: $264 million). A 10 per cent increase/decrease in oil forward prices would decrease/increase fair value by $54/(52) million (June 2019: $3 million). A 10 per cent increase/decrease in renewable energy certificate forward prices would increase/decrease fair value by $1 million (June 2019: $16 million). Financial Statements112 D4 Financial risk management (continued) Liquidity risk The table below sets out the timing of the Group’s payment obligations, as compared to the receipts expected from the Group’s financial assets, and available undrawn facilities. Amounts are presented on an undiscounted basis and include cash flows not recorded on the statement of financial position such as interest payments for borrowings. 2020 $m Bank loans and capital markets borrowings Lease liabilities Net other financial assets/liabilities Derivative liabilities Derivative assets Less than one year One to two years Two to five years Over five years (1,522) (99) 82 (1,539) (782) 918 136 (2,183) (84) 395 (1,872) (379) 325 (54) (589) (166) 1,494 739 (200) 143 (57) 682 (2,840) (313) – (3,153) (71) 30 (41) (3,194) Net liquidity exposure (1,403) (1,926) The amount of cash and committed undrawn floating rate borrowing facilities expiring beyond one year is $4,059 million. 2019 $m Bank loans and capital markets borrowings Lease liabilities Net other financial assets/liabilities Derivative liabilities Derivative assets Net liquidity exposure Less than one year One to two years Two to five years Over five years (2,692) (1) 1,321 (1,372) (582) 708 126 (1,246) (1,526) (1) 1,194 (333) (360) 518 158 (175) (2,724) (4) 1,287 (1,441) (233) 459 226 (1,508) (4) – (1,512) (471) 304 (167) (1,215) (1,679) The amount of cash and committed undrawn floating rate borrowing facilities expiring beyond one year is $5,301 million. D5 Fair value of financial assets and liabilities Financial assets and liabilities measured at fair value are grouped into the following categories based on the level of observable market data used in determining that fair value: • Level 1: The fair value of financial instruments traded in active markets (such as exchange-traded derivatives and RECs) is the quoted market price at the end of the reporting period. These instruments are included in level 1. • Level 2: The fair value of financial instruments that are not traded in an active market (such as over-the-counter derivatives) is determined using valuation techniques that maximise the use of observable market data. If all significant inputs required to fair value an instrument are observable, either directly (as prices) or indirectly (derived from prices), the instrument is included in level 2. • Level 3: If one or more of the significant inputs required to fair value an instrument is not based on observable market data, the instrument is included in level 3. Annual Report 2020D5 Fair value of financial assets and liabilities (continued) 2020 Derivative financial assets Other financial assets at fair value Financial assets carried at fair value Derivative financial liabilities Other financial liabilities at fair value Financial liabilities carried at fair value 2019 Derivative financial assets Other financial assets at fair value Financial assets carried at fair value Derivative financial liabilities Other financial liabilities at fair value Financial liabilities carried at fair value Note Level 1 $m Level 2 $m D4 C7 D4 C7 20 163 183 (202) (234) (436) 1,004 72 1,076 (944) – (944) Note Level 1 $m Level 2 $m D4 C7 D4 C7 131 298 429 (30) (241) (271) 1,088 57 1,145 (763) – (763) Level 3 $m 134 2,171 2,305 (69) – (69) Level 3 $m 215 3,099 3,314 (710) – (710) The following table shows a reconciliation of movements in the fair value of level 3 instruments during the period. Balance as at 1 July 2019 PPAs derecognised on adoption of AASB 16 Leases (refer to Overview) New instruments recognised in the period Instruments transferred out of level 3 Net cash settlements paid/(received) Gains/(losses) recognised in other comprehensive income Gains/(losses) recognised in profit or loss: – Change in fair value – Cost of sales – Interest income Balance as at 30 June 2020 Valuation techniques used to determine fair values 113 Total $m 1,158 2,406 3,564 (1,215) (234) (1,449) Total $m 1,434 3,454 4,888 (1,503) (241) (1,744) $m 2,604 512 5 (2) (1,214) 6 192 (42) 175 2,236 The various techniques used to value the Group’s financial instruments are summarised in the following table. To the maximum extent possible, valuations are based on assumptions that are supported by independent and observable market data. For instruments that settle more than 12 months from the reporting date, cash flows are discounted at the applicable market yield, adjusted to reflect the credit risk of the specific counterparty. Instrument Fair value methodology Financial instruments traded in active markets Interest rate swaps and CCIRS Quoted market prices at reporting date Present value of expected future cash flows based on observable yield curves and forward exchange rates at reporting date Forward foreign exchange contracts Present value of future cash flows based on observable forward exchange rates at reporting date Electricity, oil and other commodity derivatives (not traded in active markets) Present value of expected future cash flows based on observable forward commodity price curves (where available). The majority of the Group’s level 3 instruments are commodity contracts for which further detail on the significant unobservable inputs is included below Other financial instruments Discounted cash flow analysis Long-term borrowings Present value of future contract cash flows Financial Statements114 D5 Fair value of financial assets and liabilities (continued) Fair value measurements using significant unobservable inputs (level 3) The following is a summary of the Group’s level 3 financial instruments, the significant inputs for which market observable data is unavailable, and the sensitivity of the estimated fair values to the assumptions applied by management. Instrument(1) Unobservable inputs Relationship to fair value Electricity derivatives – Forward electricity spot market price curve – Forward electricity cap price curve – Forecast REC prices – Contract volumes – Generation operating costs A 10 per cent increase/decrease in the unobservable inputs would increase/decrease fair value by $68 million (2019: $299 million). Oil derivatives – Forward Japanese Customs-cleared Crude (JCC) price curve A 10 per cent increase/decrease in the JCC price would decrease/ increase fair value by $2 million (2019: $15 million). MRCPS issued by APLNG – Forecast APLNG free cash flows A 10 per cent improvement/deterioration in the level of APLNG forecast cash flows would impact fair value by $1 million (2019: $3/($4) million. (1) Excludes $63 million (June 2019: $52 million) of unlisted equity securities, and associated share warrants, for which management has assessed the investment cost to be a reasonable reflection of fair value at reporting date. Day 1 fair value adjustments For certain complex financial instruments, such as the structured electricity products, the fair value that is determined at inception of the contract using unobservable inputs does not equal the transaction price. When this occurs, the difference is deferred to the statement of financial position and recognised in the income statement over the life of the contract in a manner consistent with the valuation methodology initially applied. Reconciliation of net deferred gain Balance as at 1 July 2019 Value recognised in the income statement Value derecognised in the period(1) New instruments Balance as at 30 June 2020 Location of net deferred gain Derivative assets Derivative liabilities Balance as at 30 June 2020 $m 573 (55) (492) 76 102 86 16 102 (1) Net deferred gains derecognised on adoption of AASB 16 as they relate to PPAs classified as leases under the new standard. Refer to the Overview. Financial instruments measured at amortised cost Except as noted below, the carrying amounts of financial assets and liabilities measured at amortised cost are reasonable approximations of their fair values due to their short-term nature. Carrying value Fair value hierarchy level 2020 $m 2019 $m Fair value 2020 $m Liabilities Bank loans – unsecured Capital markets borrowings – unsecured Total(1) 2 2 535 4,475 5,010 525 6,117 6,642 557 4,678 5,235 2019 $m 559 6,392 6,951 (1) Non-current interest-bearing liabilities in the statement of financial position include $5,010 million (June 2019: $6,642 million) as disclosed above, and lease liabilities of $441 million (June 2019: $6 million). The fair value of these financial instruments reflects the present value of expected future cash flows based on market pricing data for the relevant underlying interest and foreign exchange rates. Cash flows are discounted at the applicable credit-adjusted market yield. Annual Report 2020115 E Taxation This section provides details of the Group’s income tax expense, current tax provision, deferred tax balances and tax accounting policies. E1 Income tax expense Income tax Current tax expense(1) Adjustments to current tax expense for previous years(1) Deferred tax expense/(benefit) Total income tax expense Reconciliation between tax expense and pre-tax net profit Profit before income tax Income tax using the domestic corporation tax rate of 30 per cent (2019: 30 per cent) Prima facie income tax expense on pre-tax accounting profit: – at Australian tax rate of 30 per cent – adjustment for difference between Australian and overseas tax rates Income tax expense on pre-tax accounting profit at standard rates Increase/(decrease) in income tax expense due to: Share of results of equity accounted investees Impairment of investment in APLNG Capital loss recognition Temporary differences no longer expected to be realised Other Over provided in prior years Total income tax expense Deferred tax movements recognised directly in other comprehensive income (including foreign currency translation) Financial instruments at fair value Other items 2020 $m 3 (34) 124 93 2019 $m 208 (49) (95) 64 179 1,278 54 (1) 53 (182) 224 – – 4 46 (6) 93 (211) 3 (208) 383 (1) 382 (188) – (68) (29) (12) (297) (21) 64 45 – 45 (1) For comparability purposes, the prior year amounts have been reclassified between these two line items to align with the presentation of the current year. The Company and its wholly owned Australian resident entities that 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. Financial Statements116 E1 Income tax expense (continued) Income tax expense recognised in other comprehensive income $m Investment valuation changes Cash flow hedges: Reclassified to income statement Effective portion of change in fair value Translation of foreign operations Other comprehensive income for the year E2 Deferred tax 2020 2019 Gross 6 5 (705) 125 Tax (3) (1) 212 – Net 3 4 (493) 125 Gross 5 (172) 318 341 (569) 208 (361) 492 Tax – 50 (95) – (45) Net 5 (122) 223 341 447 Deferred tax balances arise when there are temporary differences between accounting carrying amounts and the tax bases of assets and liabilities, other than 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; • 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 • 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. Movement in temporary differences during the year Asset/(liability) $m 1 July 2018 Adoption of AASB 9 Recognised in income Recognised in equity 30 June 2019 Adoption of AASB 16 Recognised in income Recognised in equity 30 June 2020 Employee benefits Provisions Tax value of carry-forward tax losses recognised PP&E Exploration and evaluation assets Financial instruments at fair value APLNG MRCPS elimination (refer to note B2.1) Business-related costs (deductible under s.40-880 ITAA97) ROU assets Lease liabilities Other items 61 146 – (417) 51 – 6 – – – 309 47 52 53 – 2 20 – – – – – Net deferred tax assets 277 53 4 56 1 11 69 (26) (2) (10) – – (8) 95 – – – – – 65 208 1 (406) 120 – (30) – 23 – (45) 285 (154) – – – – – 50 43 – 2 12 (45) 380 – – (134) 144 2 (149) 14 310 45 (120) (174) (175) (1) (16) (6) 8 (9) – – – – – 79 488 46 (503) (54) 211 167 – 49 – – – (3) 27 (140) 154 2 315 (124) 208 Annual Report 2020E2 Deferred tax (continued) Unrecognised deferred tax assets and liabilities Deferred tax assets have not been recognised in respect of the following items: Revenue losses – non-Australian Capital losses Petroleum resource rent tax, net of income tax Acquisition transaction costs Investment in joint ventures Intangible assets Deferred tax liabilities have not been recognised in respect of the following items: Investment in APLNG(1) 117 2019 $m 32 213 131 57 67 8 508 (1,611) (1,611) 2020 $m 26 216 118 57 67 8 492 (1,615) (1,615) (1) A deferred tax liability has not been recorded in respect of the investment in APLNG 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. It is possible that the temporary difference could reverse partly or in full at some point in the future, if and when unfranked dividends or capital returns are expected to be paid, or if the investment is expected to be disposed of. Uncertain tax positions In calculating the taxable profit for the year to 30 June 2020, Origin has included a $468 million tax depreciation claim for the remaining tax base of the Browse Basin exploration permits. A tax ruling application has been submitted to the Australian Taxation Office to confirm the appropriateness of the tax treatment. Should the outcome of the ruling be unfavourable and the depreciation claim revert to the annual claim of $46 million over 15 years, the Origin Tax Consolidated Group would have a taxable profit of $272 million instead of a tax loss of $150 million. This is because the deferred tax asset balance would increase while the current income tax receivable balance would decrease by $82 million ($272 million at 30 per cent). Financial Statements118 F 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, associates, controlled entities, transactions with non-controlling interests, and changes made to the Group structure during the year. F1 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). 2020 Ownership interest per cent 2019 Ownership interest per cent Incorporated in Origin Energy Limited Origin Energy Finance Limited Huddart Parker Pty 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 < Origin Energy Upstream Holdings Pty Ltd Origin Energy B2 Pty Ltd Origin Energy Browse Pty Ltd Origin Energy CSG 2 Pty Limited Origin Energy ATP 788P Pty Limited Origin Energy C5 Pty Limited Origin Energy Upstream Operator 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 < OC Energy Pty Ltd < Origin Energy International Holdings 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 < NSW Vic Vic WA WA SA WA Vic NSW NSW Vic Vic Vic Vic Qld Vic Vic Vic SA Vic Vic Vic Vic Vic Vic Qld Vic Vic Qld Vic Vic Vic Vic Vic PNG PNG Tas Fiji Qld NSW NSW SA Vic NSW WA SA USA NSW SA 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 66.7 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 66.7 100 100 51 100 100 100 100 100 100 100 100 100 100 100 Annual Report 2020 119 2020 Ownership interest per cent 2019 Ownership interest per cent Incorporated in NT Vic Vic Vic Solomon Islands Cook Islands Vanuatu Western Samoa American Samoa Singapore SA SA Qld SA SA SA Qld Qld Vic Singapore Singapore NSW Vic NSW NZ Vic Vic Vic Vic Singapore Vic Netherlands Netherlands Netherlands NSW Vic NSW Vic Vic Vic Vic Vic Vic Chile Chile Chile 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – 100 100 100 – – – 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 F1 Controlled entities (continued) 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 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 Angari Pty Limited < Oil Investments Pty Limited < Origin Energy Southern Africa Holdings 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 < Origin Energy Vietnam Pty Limited Origin Energy Singapore Holdings Pte Limited Origin Energy (Song Hong) Pte Limited Origin Future Energy Pty Limited Origin Energy Rewards Pty Ltd Origin Energy Metering Coordinator Pty Ltd Origin Energy Resources NZ (Rimu) Limited Origin Energy VIC Holdings Pty Limited < Origin Energy Capital Ltd < Origin Energy Finance Company Pty Limited < OE JV Co 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 Energy Foundation Ltd 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 # Pleiades S.A 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 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 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. Financial Statements 120 F1 Controlled entities (continued) Changes in controlled entities 2020 Origin Energy ATP 788P Pty Limited was sold on 5 August 2019.(1) Origin Energy Geothermal Singapore Pte Limited was deregistered on 27 August 2019. Origin Foundation Limited changed its name to Origin Energy Foundation Ltd on 23 September 2019. Pleiades S.A was sold on 25 September 2019. Wind Power Management Pty Ltd was deregistered on 26 November 2019. Tuki Wind Farm Pty Ltd was deregistered on 26 November 2019. Dundas Tablelands Wind Farm Pty Ltd was deregistered on 26 November 2019. Origin Energy Mortlake Terminal Station No. 1 Pty Limited changed its name to Origin Energy International Holdings Pty Limited on 21 April 2020. (1) On 5 August 2019 Origin sold its Ironbark asset to APLNG for $231 million. Net nil profit or loss was realised in the period ending 30 June 2020. F2 Business combinations 2020 There were no significant business combinations during the period. 2019 Acquisition of OC Energy Pty Ltd On 1 March 2019, the Group acquired 100 per cent of the formerly privately held OC Energy Pty Ltd under a Share Sale Agreement. Finalisation of the purchase price accounting was completed within the 12-month measurement period, resulting in no significant changes to the provisional fair values presented in the 30 June 2019 Financial Statements. The fair value of the net assets acquired as part of the business combination was $59 million. Purchase consideration of $33 million was paid on the completion date. Considering the acquired cash balance ($4 million), the net cash impact of the acquisition at the reporting date was $29 million. Further payments of $25 million in total were expected to be made after the acquisition date. On 28 February 2020, the Group made a payment of $14 million and expects to pay the remaining holdback amount of $11 million once certain conditions are met. The total consideration is still estimated to be $59 million and the net cash impact after excluding the acquired cash balance to be $55 million. F3 Joint arrangements and investments in associates Joint arrangements are entities over whose activities the Group has joint control, established by contractual agreement and requiring the 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. Associates are entities, other than partnerships, for which the Group exercises significant influence, but no control, over the financial and operating policies, and which are not intended for sale in the near future. Of the Group’s interests in joint arrangements and associates, only APLNG and Octopus Energy have a material impact to the Group at 30 June 2020. Refer to Section B. 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: • Beetaloo Basin • Browse Basin • Innamincka Deeps Geothermal On 7 April 2020, the Group acquired an additional 7.5 per cent interest in the Beetaloo Basin through a farm-in arrangement with Falcon Oil and Gas Australia Limited. This transaction also involved a renegotiation of the Joint Operating Agreement in place, which effectively gives the Group control over key decisions relating to these permits. The Beetaloo Basin is the only material unincorporated joint operation as at 30 June 2020. Annual Report 2020121 G Other information This section includes other information to assist in understanding the financial performance and position of the Group, and items required to be disclosed to comply with accounting standards and other pronouncements. G1 Contingent liabilities Discussed below are items where either it is not probable that the Group will have to make future payments or it is not possible to reliably measure the amount of future payments. Joint arrangements and associates 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. The Group continues to provide parent company guarantees in excess of its 37.5 per cent shareholding in APLNG, in respect of certain historical domestic contracts. In October 2018, Origin and the other APLNG shareholders agreed to indemnify one of APLNG’s long-term LNG customers (following that customer’s election to defer delivery of 30 cargoes over six years (2019–24)) should APLNG fail to supply make-up cargoes to that customer prior to the expiry of the LNG supply contract. The customer will pay APLNG for the deferred cargoes and APLNG expects to resell the gas to other customers, and deliver the deferred cargoes to the long-term LNG customer between 2025 and the end of the LNG supply contract. The indemnity was provided severally in accordance with each shareholder’s proportionate shareholding in APLNG. At the inception of the agreement, any obligation or liability on the part of the shareholders will only be confirmed by the occurrence or non-occurrence of future events, and cannot be measured with sufficient reliability. The Group has entered into a further agreement to provide a financial guarantee to Octopus Energy’s financiers in respect of a working capital facility entered into by Octopus Energy. Under this agreement, the Group is required to make a payment to Octopus Energy’s financiers should Octopus Energy not make payments under the working capital facility. In return, Octopus Energy is required to pay a monthly fee to the Group in respect of the guarantee facility. The guarantee has been accounted for as a Financial Guarantee Contract under AASB 9 and has been initially recognised at fair value (refer to note C7) with reference to the guarantee amount in the facility agreement. During the year, $1 million has been recognised within other income in respect of the financial guarantee income. Legal and regulatory Certain entities within the Group (and joint venture entities, such as APLNG) are subject to various lawsuits and claims as well as audits and reviews by government, regulatory bodies or other joint venture partners. 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 potentially contaminated. For sites where it is likely that a present obligation exists, and it is probable that an outflow of resource will be required to settle the obligation, 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 in 2015, 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 the 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. Bank guarantees There are no contingent liabilities arising from bank guarantees held by the Group required to be disclosed as at the reporting date, as these have either been provided for in the accounts or an outflow of economic benefits is considered remote. The Group’s share of guarantees for certain contractual commitments of its joint ventures is shown at note G2. Financial Statements122 G2 Commitments Detailed below are the Group’s contractual commitments that are not recognised as liabilities as there is no present obligation. On 1 July 2019, the Group adopted AASB 16 Leases, with operating leases now recognised on balance sheet. Refer to the Overview section. Capital expenditure commitments Joint venture commitments(1) Operating lease commitments(2) 2020 $m 109 340 – 2019 $m 63 459 543 (1) Includes $269 million in relation to the Group’s share of APLNG’s capital and joint venture commitments. (2019: $386 million in relation to the Group’s share of APLNG’s capital, joint venture and operating lease commitments.) (2) Refer to the Overview for a reconciliation of the lease liability at the transition date of 1 July 2019 relating to AASB 16. The Group leases PP&E under operating leases. 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 G3 Share-based payments 2020 $m – – – – 2019 $m 90 223 230 543 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 expenses that were recognised during the year. Equity Incentive Plan Employee Share Plan Equity Incentive Plan 2020 $m 30 4 34 2019 $m 21 5 26 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 18 October 2018 were offered in the form of Options and/or Share Rights. Since that date equity incentives are granted in the form of Share Rights and/or Restricted Shares (RSs). Share Rights do not carry dividend or voting entitlements and RSs do. (i) Short Term Incentive Short Term Incentive (STI) includes the award of RSs, which are unrestricted if the employee remains employed with satisfactory performance for a set period (generally after two years). Once unrestricted, the shares are transferred into the employee’s name at no cost. The face value of RSs measured at grant date is recognised as an employee expense over the related service period. RSs are forfeited if the service and performance conditions are not met.(1) (ii) Long Term Incentive Long Term Incentive (LTI) includes the award of Performance Share Rights (PSRs), which will only vest if certain company performance conditions and personal performance standards are met. The PSR grants made in FY2020 have a performance period of three 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, vesting only occurs if Origin’s TSR over the performance period ranks higher than the 50th percentile of the Reference Group. Half of the PSRs vest if that condition is satisfied. All the PSRs vest if Origin ranks at or above the 75th percentile of the Reference Group. Straight-line pro-rata vesting applies in between these two points. (1) The Equity Incentive Plan Rules set out exceptional circumstances, such as death, disability, redundancy or genuine retirement, under which RSs vest at cessation unless the Board determines otherwise. Prior to FY2018, the equity component of STI was awarded in the form of Deferred Share Rights (DSRs). Annual Report 2020123 G3 Share-based payments (continued) For awards granted in FY2017 and FY2018 that are subject to the ROCE hurdle, vesting only occurs if two conditions are satisfied: • the average of the actual annual ROCE outcomes over the performance period meets or exceeds the average of the annual targets set in advance by the Board (Gate 1); and • the actual ROCE in either of the last two years of the performance period meets or exceeds Origin’s pre-tax weighted average cost of capital (WACC) (Gate 2). Half of the relevant PSRs will vest if Gate 1 is met and Origin’s pre-tax WACC is met under Gate 2. All the PSRs will vest if Gate 1 is met and Origin’s pre-tax WACC is exceeded by two percentage points or more under Gate 2. Straight-line pro-rata vesting applies in between. For awards granted in FY2019 and FY2020 that are subject to the ROCE hurdle, half of the ROCE tranche will be allocated to Energy Markets and the other half will be allocated to Integrated Gas. Each tranche will be tested separately and vest separately. Vesting for each tranche only occurs if the average actual annual ROCE outcomes over the performance period for the relevant business meets or exceeds the average of the annual ROCE targets, which are reflective of delivering WACC for the relevant business. Half of the relevant PSRs will vest if the ROCE target is met. All the relevant PSRs will vest if the ROCE target is exceeded by two percentage points or more. Straight- line pro-rata vesting applies in between. As there is no exercise price for PSRs, once vested they are exercised automatically. When exercised, a vested award is converted into one fully paid ordinary share that is subject to a post-vesting holding lock for a set period (generally one year) and also 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 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 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 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 forgone, and the recognised expense is trued up at each reporting period to the expected outcome as assessed at that time. (1) The Equity Incentive Plan Rules provide that Rights and RSs are forfeited on cessation of employment unless the Board determines otherwise. The offer terms provide guidance for the exercise of that discretion, specifically that the Rights and RSs will not normally be forfeited in cases of ‘good leavers’ (such as those ceasing employment due to death, disability, redundancy or genuine retirement). Set out below is a summary of PSRs issued during the financial year. Grant date Grant date share price Exercise price Volatility Dividend yield(2) Risk-free rate(3) Grant date fair value (per award) PSRs 30 Aug 2019 $7.63 Nil 27% 4.0% – $6.77 30 Aug 2019 $7.63 Nil 27% 4.0% 0.70% $3.82 16 Oct 2019(1) 16 Oct 2019(1) $8.12 Nil 26% 4.0% – $7.25 $8.12 Nil 26% 4.0% 0.70% $4.49 (1) These PSR tranches relate to specific Key Management Personnel awards required to be approved by shareholder resolution at the time of the Annual General Meeting. (2) Dividend yield assumptions are based on the average dividend yield rate over the vesting period of three years. (3) 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124 G3 Share-based payments (continued) Equity Incentive Plan awards outstanding Set out below is a summary of awards outstanding at the beginning and end of the financial year. Outstanding at 1 July 2019 Granted Exercised/released Forfeited Weighted average exercise price PSRs DSRs RSs $6.51 – – – 5,126,670 2,346,098 – 1,229,301 1,920,849 – 1,705,133 2,678 1,867,476 3,005,423 256,173 93,153 Options 5,565,803 – – 2,306,422 Outstanding at 30 June 2020 3,259,381 $6.33 6,243,467 213,038 4,523,573 Exercisable at 30 June 2020 – – – – – Outstanding at 1 July 2018 Granted Exercised Forfeited 7,475,601 – – 1,909,798 $8.84 – – $15.65 4,086,642 1,793,349 – 753,321 4,402,736 – 2,380,513 101,374 – 2,059,842 121,425 70,941 Outstanding at 30 June 2019 5,565,803 $6.51 5,126,670 1,920,849 1,867,476 Exercisable at 30 June 2019 – – – – – The weighted average share price during 2020 was $6.80 (2019: $7.64). The options outstanding at 30 June 2020 have an exercise price in the range of $5.21 to $7.37 (2019: $5.21 to $7.37) and a weighted average contractual life of 6.6 years (2019: 7.1 years). For more information on these share plans and performance rights issued to Key Management Personel, refer to the Remuneration Report. Employee Share Plan Under the Employee Share Plan (ESP), all eligible employees have a choice of either participating in the $1,000 General Employee Share Plan (GESP) or the Matching Share Plan (MSP). Under the GESP, all employees of the Company who are based in Australia and have been continuously employed as at 1 March of the performance year, are granted up to $1,000 of fully paid Origin shares conditional on Board approval. The shares are granted for no consideration. Shares awarded under the GESP 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. Under the MSP, all eligible employees may elect to purchase shares via a salary sacrifice arrangement, which commences on 1 October of the performance year. The shares under this plan are allotted quarterly and are subject to trading restriction for a set period (generally two years) or until cessation of employment. The Company matches the purchased shares on a one-for-two basis with allocation of additional Matching Share Rights (MRs) which vest at the same time when the restriction is lifted for the purchased shares. Vesting of MRs is conditional on the employee remaining in continuous employment at that time. MRs are forfeited if the service conditions are not met.(1) (1) The Equity Incentive Plan Rules provide that Rights and Restricted Shares are forfeited on cessation of employment unless the Board determines otherwise. The offer terms provide guidance for the exercise of that discretion, specifically that the Rights and RSs will not normally forfeit in cases of ‘good leavers’ (such as those ceasing employment due to death, disability, redundancy or genuine retirement). Details of the shares awarded under the GESP during the year are set out below. 2020 2019 Grant date Shares granted Cost per share(1) Total cost $’000 3 Sep 2019 528,264 $7.55 528,264 5 Sep 2018 561,126 $8.12 561,126 3,988 3,988 4,556 4,556 (1) The cost per share represents the weighted average market price of the Company’s shares on the grant date. Annual Report 2020G3 Share-based payments (continued) Set out below is a summary of MRs outstanding at the beginning and end of the financial year. Outstanding at 1 July 2019 Granted Exercised/released Forfeited Expired Outstanding at 30 June 2020 Exercisable at 30 June 2020 G4 Related party disclosures 125 MRs 73,999 170,353 9,120 6,691 – 228,541 – The Group’s interests in equity accounted entities and details of transactions with these entities are set out in notes B1 and B4. 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. G5 Key management personnel Short-term employee benefits Post-employment benefits Other long-term benefits Share-based payments 2020 $ 2019 $ 11,619,739 262,538 136,474 5,124,047 9,941,352 255,313 182,927 4,311,013 17,142,798 14,690,605 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 that 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 DRP; • participation in the ESP, 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; and • purchases of goods and services. Financial Statements126 G6 Notes to the statement of cash flows Cash includes cash on hand, at bank and in short-term deposits, net of outstanding bank overdrafts. The following table reconciles profit to net cash provided by operating activities. Profit for the period Adjustments for non-cash ITDA Depreciation and amortisation Net financing costs Tax expense Non-cash share of ITDA of equity accounted investees Adjustments for other non-cash items (Increase)/decrease in fair value of derivatives Increase in fair value of financial instruments Unrealised foreign exchange loss Impairment of assets Gain on sale of assets Impairment losses recognised – trade and other receivables Non-cash share of EBITDA of equity accounted investees Exploration expense Executive share-based payment expense Changes in assets and liabilities: – Receivables – Inventories – Payables – Provisions – Other – Futures collateral Tax paid Total adjustments Net cash from operating activities Reconciliation of movements of liabilities to cash flows arising from financing activities $m Balance as at 30 June 2019 Adoption of AASB 16 Leases Balance as at 1 July 2019 Proceeds from borrowings Modifications to the lease terms Repayment of borrowings/other liabilities Foreign exchange adjustments Reclassification Other non-cash movements Balance as at 30 June 2020 Liabilities from financing activities Current borrowings Non-current borrowings Lease liabilities 948 – 948 – – (946) – 1,326 – 1,328 6,648 – 6,648 1,273 – (1,608) 22 (1,326) 1 5,010 – 478 478 – 111 (75) – – – 514 Other financial (assets)/ liabilities (645) – (645) – – 108 (6) – 103 (440) 2020 $m 2019 $m 86 1,214 509 126 93 1,303 (275) (123) – 764 (1) 124 (1,911) 3 30 217 (26) (180) 663 104 (340) (215) 865 951 419 154 64 1,510 102 (391) 80 39 – 84 (2,142) 2 21 207 58 (175) 179 (115) 125 (110) 111 1,325 Total 6,951 478 7,429 1,273 111 (2,521) 16 – 104 6,412 Annual Report 2020127 G7 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. Amounts received or due and receivable by the auditor of the Parent Company and any other entity in the Group for: Auditing the statutory financial report of the Parent Company covering the Group Auditing the statutory financial reports of any controlled entities Fees for other assurance and agreed-upon-procedures services under other legislation or contractual arrangements Fees for other services Tax compliance(2) Cyber security Advisory services Other Amounts received or due and receivable by affiliates of the auditor of the Parent Company for: Auditing the statutory financial reports of any controlled entities Fees for other services Tax compliance Advisory services Other Total fees to overseas member firms of the Parent Company auditor Total remuneration to Parent Company auditor Auditing of statutory financial reports of any controlled entities by other auditors Total auditors’ remuneration 2020(1) $’000 2019(1) $’000 1,750 173 9 767 155 140 4 1,639 69 136 10 – 181 15 2,998 2,050 69 – – – 69 204 68 4 7 283 3,067 2,333 247 3,314 96 2,429 (1) Amounts in 2019 relate to KPMG, which was the statutory auditor of the Origin Group including controlled entities. EY was appointed on 16 October 2019 at the last Annual General Meeting and have been statutory auditor for the 2020 financial year. (2) This amount relates to the Group’s share of tax compliance work billed. An amount of $701k has been recharged to APLNG in respect of its share and is excluded from this amount. Financial Statements128 G8 Master netting or similar agreements The Group enters into derivative transactions under 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 the reporting date. The net amount column shows the impact on the Group’s statement of financial position if all set-off rights were exercised. 2020 Derivative assets Derivative liabilities 2019 Derivative assets Derivative liabilities Amount offset in the statement of financial position $m Amount in the statement of financial position $m Related amount not offset $m (385) 385 (320) 320 1,158 (1,215) 1,434 (1,503) (650) 650 (398) 398 Gross amount $m 1,543 (1,600) 1,754 (1,823) Net amount $m 508 (565) 1,036 (1,105) G9 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 in the event that one of those entities is wound up. The controlled entities that are party to the Deed are shown in note F1. The following consolidated statement of comprehensive income and retained profits, and statement of financial position, cover the Company and its controlled entities that 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 before income tax Income tax expense Profit for the year Other comprehensive income Total comprehensive income for the year Retained earnings at the beginning of the year Adjustments for entities entering the Deed of Cross Guarantee Retained earnings at the beginning of the year Impact of AASB 9 adoption Impact of AASB 16 adoption Dividends paid Retained earnings at the end of the year 2020 $m 2019 $m 13,000 47 (12,314) 619 (765) 189 (356) 420 (72) 348 – 348 5,433 2 5,435 – 349 (528) 5,604 14,510 26 (13,606) 632 (360) 234 (453) 983 (119) 864 – 864 4,890 – 4,890 (145) – (176) 5,433 Annual Report 2020129 2020 $m 2019 $m 1,042 2,916 152 510 479 89 104 5,292 2,711 525 1,842 6,979 4,060 5,394 360 40 21,911 27,203 2,273 202 74 448 204 2 153 153 1,455 2,950 126 454 318 – 110 5,413 2,135 962 3,161 6,960 3,337 5,309 227 43 22,134 27,547 2,120 204 137 381 275 160 132 56 3,509 3,465 7,204 1,001 729 21 1,269 10,224 13,733 13,470 7,145 721 5,604 8,227 605 1,115 21 484 10,452 13,917 13,630 7,125 1,072 5,433 13,470 13,630 G9 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 Income tax receivable Other financial assets Other assets Total current assets Non-current assets Trade and other receivables Derivatives Other financial assets(1) Investments accounted for using the equity method PP&E(2) 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(3) Derivatives Other financial liabilities Provision for income tax Employee benefits Provisions Total current liabilities Non-current liabilities Trade and other payables Interest-bearing liabilities(4) Derivatives Employee benefits Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity (1) Includes investment in subsidiaries relating to entities outside the Deed of Cross Guarantee. (2) Includes $454 million of ROU assets in the current period as a result of the adoption of AASB 16 Leases. Refer to the Overview. (3) Includes $68 million of lease liabilities in the current period as a result of the adoption of AASB 16 Leases. Refer to the Overview. (4) Includes $433 million of lease liabilities in the current period as a result of the adoption of AASB 16 Leases. Refer to the Overview. Financial Statements130 G10 Parent entity disclosures The following table sets out the results and financial position of the parent entity, Origin Energy Limited. Origin Energy Limited Profit for the year Other comprehensive income, net of income tax Total comprehensive income for the year Financial position of the parent entity at year end Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Contributed equity Share-based payments reserve Foreign currency translation reserve Hedge reserve Retained earnings(1) Total equity 2020 $m 1,167 108 1,275 1,307 19,084 20,391 2,683 5,171 7,854 7,145 223 863 (47) 4,353 2019 $m 1,118 342 1,460 2,668 20,560 23,228 4,677 6,770 11,447 7,125 234 720 (12) 3,714 12,537 11,781 (1) Refer to note A7 for details of dividends provided for or paid of $528 million. 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 F1. G11 Subsequent events Other than the matters described below, no item, transaction or event of a material nature has arisen since 30 June 2020 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. Bank debt facility extension On 2 July 2020, the Group extended A$1.1 billion of bank debt facilities from a FY2023 maturity date to a new maturity date in FY2025. A further $0.2 billion of surplus liquidity was cancelled as part of this transaction. Dividends On 20 August 2020, the Directors determined an unfranked final dividend of 10 cents per share on ordinary shares. The dividend will be paid on 2 October 2020. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2020 and will be recognised in subsequent financial statements. Annual Report 2020131 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 2020 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; and (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 F1 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 2020. Signed in accordance with a resolution of the Directors: Gordon Cairns Chairman Director Sydney, 20 August 2020 132 Independent Auditor’s Report Annual Report 2020 Ernst & Young200 George StreetSydney NSW 2000 AustraliaGPO Box 2646 Sydney NSW 2001Tel: +61 2 9248 5555Fax: +61 2 9248 5959ey.com/auIndependent Auditor's Report to the Members of Origin Energy Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Origin Energy Limited (the Company) and its subsidiaries (collectively the Group), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated income statement, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to the financial statements, including a summary of significant accounting policies, and the directors' declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: a)giving a true and fair view of the consolidated financial position of the Group as at 30 June 2020 and of its consolidated financial performance for the year ended on that date; and b)complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial report. Independent Auditor’s Report 133 Carrying Value of the Australian Pacific LNG (APLNG) Equity Accounted Investment Why significant How our audit addressed the key audit matter At 30 June 2020, the Group’s equity accounted investment in APLNG has a carrying value of $6,978 million after an impairment charge was recorded during the year. COVID-19 has resulted in market disruption and has contributed to a significant decline in oil price during the period and lower forecast oil linked, LNG prices relative to prior periods. The Group considers this to be an indicator of impairment in accordance with the Australian Accounting Standards. The Group has estimated the recoverable amount of its investment, using fair value less cost of disposal (FVLCD). The estimate of FVLCD involves significant judgment and is based on modelling a range of forecast assumptions and estimates which are inherently difficult to determine with precision. Such forecasts include future oil and gas prices, foreign exchange rates, discount rates, production and development costs, and reserves and resources. Oil price is a significant assumption used in the impairment testing and is inherently subjective. In times of economic uncertainty, such as the recent market disruption caused by COVID-19, the degree of subjectivity in determining forecast pricing is higher than it might otherwise be. Changes in this assumption can lead to significant changes in the recoverable amount. Refer to Note B2.2 for key assumptions adopted. This resulted in a post-tax impairment charge of $746.0 million being recorded in the Statement of Comprehensive Income. Due to the significance of this investment to relative to total assets and the inherent complexity and level of judgment required in forecasting future cash flows, we considered this to be a key audit matter. In completing our audit procedures, with the assistance of our valuation specialists, we: -Evaluated whether the methodology applied in determining FVLCD complied with the requirements of Australian Accounting Standards. -Assessed the mathematical accuracy of the valuation model, the recoverable amount calculation and the impairment charge recorded. -Assessed the macroeconomic assumptions adopted, including oil price, gas price and foreign exchange, with reference to broker and analyst data and publicly available peer company information. -Evaluated the discount rate adopted with reference to external market data including government bond rates and comparable company data. -Agreed the production profile, operating cost and capital expenditure forecasts in the impairment model to the optimised Upstream Development Plan (“UDP”), prepared by the Group, in its capacity as the operator of APLNG’s upstream joint venture. -Considered the key assumptions in the UDP including: oComparison of forecast operating costs to APLNG’s recent operating cost history; oConsideration of timing and amount of forecast capital costs with reference to: ▪APLNG’s gas production profile, its existing inventory producing wells and forecast development of production wells; and ▪UDPs from previous financial years; oUnderstood APLNG’s process for gas reserve and resource measurement including its internal technical assurance processes and reconciliation to its most recent independent review of reserves and resources as at 30 June 2019; and oEvaluated the competency, independence and objectivity of the internal and external experts used by the Group to measure its gas reserves and resources. 134 Annual Report 2020 -Compared the timing and amount of rehabilitation and abandonment costs included in the Group’s estimate of FVLCD with those used to measure APLNG’s rehabilitation provision at 30 June 2020 and forecast development of production wells. -Considered the relationship between asset carrying values and the Group’s market capitalisation. -Assessed the adequacy of the associated disclosures in the financial report. Cameron LNG Onerous Contract Provision Why significant How our audit addressed the key audit matter The Group has recognised a $641 million onerous contract provision at 30 June 2020 in relation to its longterm Cameron LNG purchase contract. This is due to the forecast sales revenue from the onward supply of LNG being less than purchase cost under the contract, due to the recent decline in gas prices and economic slowdown caused by COVID-19. As disclosed in Note C6 to the financial statements, the present value assessment performed by the Group involves significant judgement and is highly sensitive to long term future commodity pricing assumptions, inflation rates and government bond rates. We considered this to be a key audit matter given the significance of the provision recognised, together with the high degree of judgment involved in forecasting long term sale revenue and purchase costs over the life of the life of the contract. In completing our audit procedures, with the assistance of our valuation specialists, we: -Assessed whether the Group’s methodology for determining present value met the requirements of Australian Accounting Standards in respect of recognition and measurement of the provision. -Considered the terms of the contract to ensure completeness of unavoidable costs under the agreement, as well as their application in the Group’s assessment. -Assessed the gas price assumptions adopted based on broker and analyst forecasts, market research and consideration of an implied long term price, adjusted for liquefaction and shipping costs. -Considered the cost of purchasing and selling the contracted quantity of LNG with reference to budgets provided by the project operator, contractual rates and external market data. -Assessed the discount rate adopted with reference to long term government bonds with tenures consistent with the forecast timing of cash flows. -Assessed the clerical accuracy of present value calculation for modelling integrity. -Assessed the adequacy of the financial report disclosures. Independent Auditor’s Report 135 Unbilled Revenue Why significant How our audit addressed the key audit matter At 30 June 2020, the Group recognised unbilled revenue of $1,852 million. Unbilled revenue represents the value of energy supplied to customers between the date of the last meter read and the reporting date where no bill has been issued to the customer at the end of the reporting period. The estimation of unbilled revenue is considered a key audit matter due to the complex estimation process and significant audit effort required to address the estimation uncertainty involved by the Group. Key factors that require consideration impacting the complex estimation process includes: -Estimation of customer demand which is impacted by weather and an individual customer’s circumstances. -Application of different customer rates across different regulated and unregulated markets. -Changes in energy consumption patterns compared to the same period in the prior year, particularly as a result of COVID-19. The Group’s disclosures in respect of the unbilled revenue estimation process are included in Note A2 of the financial report. Our audit procedures included the following: -Assessed whether the methodology used to recognise unbilled revenue met the requirements of the Australian Accounting Standards. -Assessed the effectiveness of the Group’s controls governing energy purchased, energy sold and the customer pricing process. -Selected a sample of unbilled revenue transactions based on qualitative and quantitative factors and performed the following procedures: oCompared the historical accuracy of the Group’s unbilled revenue estimate to historical subsequent billings. oAnalysed outliers and data anomalies which should be considered in calculating the Group’s unbilled revenue accrual. oReconciled volumes acquired from AEMO against volumes sold and volumes purchased. oCompared the prices applied to customer consumption with historical and current data. -Evaluated the adequacy of the related disclosures in the financial report including those made with respect to judgements and estimates. Impairment allowance – Trade Receivables and Unbilled Receivables Why significant How our audit addressed the key audit matter An impairment allowance in respect of the Group’s trade receivables and unbilled receivables of $162 million has been recorded at 30 June 2020, with $40 million of this amount relating to an increase in collection uncertainty as a result of the impact of COVID-19. Our audit procedures included the following: -Assessed whether the process for recognising impairment of trade receivables and unbilled receivables met the requirements of Australian Accounting Standards. oAnalysed the ageing of trade receivables and unbilled receivables and the collection and credit history of the Group’s customers. 136 Annual Report 2020 The estimation of the Group’s impairment allowance is considered a key audit matter due to the judgement involved in estimating information available with consideration of past events, current conditions and forecasts of future economic conditions, in particular the impact of COVID-19. The Group’s disclosures in respect of its estimation process are included in Note C1 of the financial report. oEvaluated the Group’s assessment of collectability considering the process to achieve recovery, the likely timing of these processes and events that could delay or impact the collectability. oAssessed the current and forecast economic environment applicable to the Group’s customers to analyse the risk of impairment. oPerformed a sensitivity analysis on the Group’s impairment allowance attributed to COVID-19 by recalculating the allowance with reference to forecast market data such as unemployment rates, and expected default frequency rates, specific to the customers size and risk. -Evaluated the adequacy of the related disclosures in the financial report including those made with respect to judgements and estimates. Information Other than the Financial Report and Auditor’s Report Thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2020 Annual Report other than the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Independent Auditor’s Report 137 Auditor's Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: •Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. •Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. •Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. •Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. •Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. •Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. 138 Annual Report 2020 From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in the directors' report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Origin Energy Limited for the year ended 30 June 2020, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young Andrew Price Partner Sydney 20 August 2020 139139 140 Share and Shareholder Information The information set out below was applicable as at 20 August 2020. Corporate Governance Statement The Company’s Corporate Governance Statement can be found on its website at https://www.originenergy.com.au/content/dam/origin/ about/investors-media/presentations/cgs_4g.pdf Substantial shareholders As at 20 August 2020, the Company received notice of one substantial holder: AustralianSuper Pty Ltd, holding 109,662,324 shares in the Company’s issued capital. Number of equity securities holders and voting rights As at 20 August 2020, there were: • 145,123 holders of 1,761,211,071 ordinary shares in the Company; • 24 holders of 3,259,381 Options, 87 holders of 6,234,794 Performance Share Rights, two holders of 136,836 Deferred Share Rights granted under the Origin Energy Equity Incentive Plan; and • 612 holders of 225,927 Matching Share Plan Rights granted under the Origin Matching Share Plan. 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 ordinary share held. No other equity securities hold voting rights. Please note that the 2020 Annual General Meeting will be held online. This is in line with Australian Government guidelines in relation to COVID-19. Analysis of holdings Fully paid ordinary shares Holdings ranges 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001–999,999,999 Totals Holders Total units 61,422 60,182 14,518 8,768 233 26,674,625 146,217,075 102,660,545 178,666,677 1,306,992,149 % 1.51 8.30 5.83 10.14 74.21 145,123 1,761,211,071 100.00 Annual Report 2020Share and Shareholder Information 141 Options Holdings ranges 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001–999,999,999 Totals Deferred share rights Holdings ranges 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001–999,999,999 Totals Performance share rights Holdings ranges 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001–999,999,999 Totals Matching Share Plan matched rights Holdings ranges 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,001–999,999,999 Totals Unmarketable parcels 8,481 shareholders held less than a marketable parcel as at 20 August 2020. Holders Total units 0 0 0 12 12 24 0 0 0 786,499 2,472,882 3,259,381 Holders Total units 0 0 0 1 1 2 0 0 0 26,057 110,779 136,836 Holders Total units 0 0 3 68 16 87 0 0 27,628 2,787,623 3,419,543 6,234,794 Holders Total units 612 0 0 0 0 612 225,927 0 0 0 0 225,927 % 0.00 0.00 0.00 24.13 75.87 100.00 % 0.00 0.00 0.00 19.04 80.96 100.00 % 0.00 0.00 0.44 44.71 54.85 100.00 % 100.00 0.00 0.00 0.00 0.00 100.00 142 Top 20 holdings Shareholder HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Limited Citicorp Nominees Pty Limited National Nominees Limited BNP Paribas Nominees Pty Ltd BNP Paribas Noms Pty Ltd HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited Argo Investments Limited Australian Foundation Investment Company Limited HSBC Custody Nominees Sargon Ct Pty Ltd BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Netwealth Investments Limited The Senior Master Of The Supreme Court Sargon Ct Pty Ltd Bond Street Custodians Limited AMP Life Limited HSBC Custody Nominees (Australia) Limited BNP Paribas Noms (NZ) Ltd Total securities of top 20 holdings Total of securities Securities exchange listing Number of shares % of issued shares 470,968,427 413,943,765 134,129,573 72,753,365 40,391,742 28,202,692 21,021,195 13,168,219 11,351,603 6,000,000 5,746,127 4,930,426 4,526,347 4,176,792 3,758,868 3,145,733 2,920,439 2,836,999 2,071,356 1,957,838 1,248,001,506 1,761,211,071 26.74% 23.50% 7.62% 4.13% 2.29% 1.60% 1.19% 0.75% 0.65% 0.34% 0.33% 0.28% 0.26% 0.24% 0.21% 0.18% 0.17% 0.16% 0.12% 0.11% 70.86% Origin shares are traded on the Australian Securities Exchange Limited (ASX). The symbol under which Origin shares are traded is ‘ORG’. Escrowed securities There are no securities subject to voluntary escrow as at the date of this Report. On-market buy-back There is no current on-market buy-back of Origin shares. On-market purchases for employee equity plans During the reporting period, 3,868,000 Origin shares were purchased on-market for the purpose of Origin’s employee incentive plans. The average price per share purchased was $5.76. Shareholder enquiries 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 https://www.originenergy. com.au/about/investors-media.html 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 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. The Annual Report 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. Annual Report 2020143 144 Exploration and Production Permits and Data 1 Surat/Bowen Basin Queensland 3 WA 2 NT SA QLD 4 1 NSW Origin Energy Interests Other (Non Origin) Origin permit APLNG permit Production facility Pipeline Pipeline TAS 2 Beetaloo Basin 3 Browse Basin 4 Cooper Basin NT QLD SA WA Annual Report 2020Exploration and Production Permits and Data 145 1. Origin’s interests Origin held interests in the following permits at 30 June 2020. Basin/Project Area Interest Basin/Project Area Interest Basin/Project Area Interest Australia Surat Basin/Ironbark (Queensland) Talinga/Orana ATP 788P (Shallows) 37.50% *1 ATP 788P (Deeps) 9.38% *1 ATP 692P and PL’s 209, 215, 226, 272, 216, 225, 445(A) Other Surat Basin ATP 973P 37.50% *1 ATP 972P and PL’s 469(A), 470 and 471(A) Denison Trough (Queensland) PL’s 43, 44, 45, 183 and 218 (Deeps) 18.75% *1 PPL’s 171, 181 and 2032 37.50% *1 PFL 26 37.50% *1 ATP 1191 Farm-out (Mahalo block), PL’s 1082,1083 11.25% PL’s 450, 451, 457 and 1012 18.75% ATP 1191 and PL(A) 1062 18.75% LNG (Gladstone) PPL’s 162 and 163 PFL 20 37.50% 37.50% Kenya/Kenya East/Bellevue/Anya 1 1 1 1 1 PL’s 179, 180, 228, 229 and 263 PL 247 PL’s 257, 273, 274, 275, 278, 279, 442, 466, 474 and 503 (Shallows) PL 1025 PFL 19 15.23% 11.02% 11.72% 11.72% 11.72% CSG (Queensland) Fairview/Arcadia PPL’s 107, 176 and 2014 15.23% 1 1 1 1 1 1 PL 1084 PL 1011 PL 1018 Combabula/Reedy Creek ATP 606P and PL’s 297, 403, 404, 407, 408, 405, 406(A), 412, 413 and 444(A) PPL 178 Angry Jungle ATP 631P and PL’s 281 and 282 37.50% *1 34.77% *1 33.75% *1 37.50% *1 37.50% *1 34.77% *1 37.50% *1 6.79% 1 ATP 526P, ATP 2012P, and PL’s 90, 91, 92, 99, 100, 232, 233, 234, 235 and 236, PL(A) 1017 ATP 745P, ATP 2033 and PL’s 420, 421 and 440, PL(A) 1059 Spring Gully ATP 592P and PL’s 195, 414, 415, 416, 417, 418, 268 and 419(A) PL 204 PL 200 Peat 8.97% 1 PL 101 Browse Basin (Western Australia) 37.50% *1 TR/7, TR/8, WA-90R, WA-91R, WA-92R 40.00% Other Bowen Basin Beetaloo Basin (Northern Territory) 8.94% 1 ATP 804P 10.99% 1 EP 76, EP 98 and EP117 77.50% * PL’s 219 and 220 ATP 2047 37.50% *1 18.75% 1 Cooper-Eromanga Basin (Queensland) ATP’s 736, 737, 738, 2025, and 2026 75.00% * 35.44% *1 Condabri 37.40% *1 PL’s 265, 266 and 267 37.50% *1 Geothermal (South Australia) 35.89% *1 PL’s 177, 185, 186 and 2000 37.50% *1 PPL 143, 180 and 2026 37.50% *1 GRL 3 Notes: 30.00% * Operatorship 1 Interest held through 37.5 per cent ownership of Australian Pacific LNG Joint Venture 146 Annual Reserves Report For the year ended 30 June 2020 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 Pty Limited (APLNG), as at 30 June 2020. 1.1 Highlights APLNG (Origin 37.5 per cent share) • Strong field performance resulted in an increase in reserves in operated areas. This enabled a decision to not participate in some low-value non-operated fields. During FY2020, APLNG also delivered record production. A detailed breakdown of movements in Origin’s share of APLNG 2P (proved plus probable) reserves is as follows: – 119 PJ upward revision of operated 2P reserves reflecting strong field performance and maturation of resources to reserves; – 48 PJ increase in operated 2P reserves due to the acquisition of Ironbark from Origin; – 104 PJ reduction in non-operated 2P reserves due to a decision to not participate in certain non-operated field developments (–149 PJ), balanced against a 45 PJ reserves increase in other non-operated areas; and – 265 PJ of production (an increase of 4 per cent on 2019) and underpinned by improved operated and non-operated field performance. This was due to higher well availability and facility reliability as well as commissioning of the Eurombah Reedy Creek Interconnect pipeline, which improved utilisation of processing capacity. • Excluding net reductions in non-operated developments, APLNG appraisal and development drilling, along with development feasibility assessment, has resulted in 2P reserves replacement of 90 per cent of production in operated fields over the last three years. • Origin’s share of 1P (proved) reserves has continued to grow, with an increase of 10 per cent or 270 PJ before production as a result of development drilling. After taking into account production, 1P reserves increased 5 PJ to 2,769 PJ. 1P reserves represent 61 per cent of total 3P (proved plus probable plus possible) reserves as at 30 June 2020. • APLNG also continues to mature its strong resource base with further exploration and appraisal activities, as well as technology trials and a continued focus on reducing operating and capital costs. Origin (excluding share of APLNG) • A 129 PJ decrease in other 2P reserves reflects the sale of Ironbark assets to APLNG on 5 August 2019. Ironbark reserves and resources are included within APLNG reserves at 30 June 2020, of which Origin owns 37.5 per cent. Annual Report 2020Annual Reserves Report 147 1.2 2P reserves (Origin share) 2P reserves decreased by 331 PJ (after production) to a total of 4,268 PJ, compared to 30 June 2019. Origin 2P reserves by area 2P reserves by area (PJ) 2P 30/06/2019 Acquisition/ divestment New booking/ discovery Revisions/ extensions Production 2P 30/06/2020 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 4,470 733 1,405 1,475 857 129 4,599 48 – 48 – – (129) (81) – – – – – – – 15 (70) 59 131 (104) – 15 (265) 4,268 (39) (101) (63) (62) 624 1,411 1,542 691 – – (265) 4,268 • Summary of 2P reserves movement – key changes include: – 265 PJ decrease due to production; – net 81 PJ decrease due to the divestment of Ironbark by Origin to APLNG; – 119 PJ net positive revision in operated areas, reflecting: · improved understanding of field behaviour, which resulted in an increase in estimated recovery from producing fields in Combabula, Condabri, Talinga and Orana, partially offset by a decrease in Spring Gully; and · the inclusion of new areas to reserves, including the Peat Flank asset (within Reedy Creek, Combabula and Peat) following successful appraisal activities; and – 104 PJ reduction in non-operated areas, primarily due to the decision by APLNG to not participate in certain future field developments (149 PJ), offset by modest increases in reserves from other non-operated areas (45 PJ). • As at 30 June 2020, developed 2P reserves represented 58 per cent of total 2P reserves. • As at 30 June 2020, 100 per cent of Origin’s share of 2P reserves are unconventional gas. Origin 2P reserves by development type 2P reserves by development type (PJ) Developed Undeveloped 30/06/2019 Developed Undeveloped 30/06/2020 Total 2P Total 2P 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 2,386 2,084 4,470 2,488 1,780 4,268 496 935 577 378 – 2,386 238 469 898 479 129 2,213 733 1,405 1,475 857 129 4,599 442 976 676 394 – 182 435 866 297 – 624 1,411 1,542 691 – 2,488 1,780 4,268 148 1.3 1P reserves (Origin share) 1P reserves increased by 270 PJ or 10 per cent (before production) and increased by 5 PJ after production to 2,769 PJ, when compared to 30 June 2019, due to development drilling. As at 30 June 2020, developed 1P reserves represented 89 per cent of total 1P reserves. The remaining 11 per cent of 1P reserves represents wells that have been spudded but not connected and planned wells that are immediately adjacent to drilled wells. 100 per cent of 1P reserves are unconventional gas. Origin 1P reserves by area 1P reserves by area (PJ) 1P 30/6/2019 Acquisition/ divestment New booking/ discovery Revisions/ extensions Production 1P 30/6/2020 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 2,764 545 967 651 601 – 2,764 Origin 1P reserves by development type – – – – – – – – – – – – – 270 (265) 2,769 (49) 160 173 (14) – 270 (39) (101) (63) (62) 456 1,026 761 526 – – (265) 2,769 1P reserves by development type (PJ) Developed Undeveloped 30/6/2019 Developed Undeveloped 30/6/2020 Total 1P Total 1P 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 2,370 496 935 577 363 – 2,370 1.4 2C Contingent resources for Origin Energy Beetaloo Basin 394 49 32 74 239 – 394 2,764 2,478 545 967 651 601 – 442 975 674 387 – 2,764 2,478 291 14 51 87 139 – 291 2,769 456 1,026 761 526 – 2,769 A material contingent resource announcement of 6.6 Tscf (gross) or 2.3 Tscf (net) for the Beetaloo Basin was provided on 15 February 2017 to the ASX: https://www.asx.com.au/asxpdf/20170215/pdf/43g0qhh87j71bb.pdf Origin increased its interest in the Beetaloo Joint Venture to 70 per cent in May 2017 by acquiring Sasol’s 35 per cent share: https://www.asx.com.au/asxpdf/20170505/pdf/43j1ss71xqbxtc.pdf During FY2020, Origin further increased its interest in the Beetaloo Joint Venture to 77.5 per cent by acquiring 7.5 per cent of the interest owned by Falcon Oil and Gas: https://www.asx.com.au/asxpdf/20200407/pdf/44gs08yfdwfrjp.pdf Refer to the Operating and Financial Review, released on the same date as this report for details of the current status of our Beetaloo Basin asset. Annual Report 2020Annual Reserves Report 149 Appendix A: APLNG reserves and resources Origin, as APLNG Upstream Operator, has prepared estimates of the reserves and resources held by APLNG for operated assets which are detailed in this report. Netherland, Sewell & Associates, Inc. (NSAI) has prepared a consolidated report of the reserves and resources held by APLNG for non-operated assets. The reserves and resources estimates for the non-operated properties in their report have been independently estimated by NSAI. The tables below provide 1P, 2P and 3P reserves and 2C resources for APLNG (100 per cent) and Origin’s 37.5 per cent interest in these APLNG (operated and non-operated) reserves and resources. Reserves and resources held by APLNG (100 per cent share) Reserves/resources classification 30/6/2019 Acquisition/ divestment New booking/ discovery Revisions/ extensions Production 30/6/2020 1P (proven) 2P (proven plus probable) 3P (proven plus probable plus possible) 2C (best estimate contingent resource) 7,372 11,920 12,820 3,107 – 129 192 497 – – – – 719 40 (234) 375 (708) (708) (708) – 7,384 11,381 12,071 3,980 Reserves and resources held by Origin (37.5 per cent in APLNG) Reserves/resources classification 30/6/2019 Acquisition/ divestment New booking/ discovery Revisions/ extensions Production 30/6/2020 1P (proven) 2P (proven plus probable) 3P (proven plus probable plus possible) 2C (best estimate contingent resource) 2,764 4,470 4,808 1,165 – 48 72 187 – – – – 270 15 (88) 141 (265) (265) (265) – 2,769 4,268 4,526 1,493 See details above for movements in 1P and 2P reserves. The 234 PJ decrease in APLNG (100 per cent share) 3P reserves, excluding production, is due to decisions to not participate in some non-operated field developments (–441 PJ), partially offset by improved understanding of estimated recovery in other producing areas. The 873 PJ increase in APLNG (100 per cent share) 2C resources is primarily due to the acquisition of Ironbark and the decision to not participate in some non-operated field developments. A number of appraisal activities are presently ongoing that if successful would convert some further resources to reserves. 150 Appendix B: Notes relating to this report a. Methodology regarding reserves c. Reversionary rights f. Abbreviations and resources The Reserves Report has been prepared to be consistent with the Petroleum Resources Management System (PRMS) 2018 published by Society of Petroleum Engineers (SPE). This document may be downloaded from the SPE website: https://www.spe.org/en/industry/reserves/ 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 resources (2C). Reserves must be discovered, recoverable, commercial and remaining. The CSG reserves and resources held within APLNG’s properties have either been independently prepared by NSAI or prepared by Origin. 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, and 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 APLNG CSG to LNG project, the economic test is based on a weighted average price across domestic, spot 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. 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.1 bbl Tscf CSG kbbls barrel trillion standard cubic feet coal seam gas 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 d. Information regarding the preparation of this Reserves Report 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. i. Preparing and aggregating petroleum resources Petroleum reserves and contingent resources are typically prepared by deterministic methods with 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. j. Methodology and internal controls 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. The CSG reserves and resources held within APLNG’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 APLNG. The statements in this report relating to reserves and resources as of 30 June 2020 for APLNG’s interests in non-operated assets are based on information in the NSAI report dated 4 August 2020. The data has been compiled by Mr John Hattner, a full- time employee of NSAI. Mr John Hattner 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 are based on, and fairly represent, information and supporting documentation prepared by, or under the supervision of, qualified petroleum reserves and resources evaluators who are employees of Origin. This Reserves Statement as a whole has been approved by Mr Simon Smith FIEAust CPEng NER RPEQ, who is a full-time employee of Origin. Mr Simon Smith is Chief Petroleum Engineer, a qualified Petroleum Reserves and Resources Evaluator, a member of the Society of Petroleum Engineers and has consented to the form and context in which these statements appear. e. Rounding Information on reserves quoted in this report are 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: ‘-’. 1 Refer to section 7 of the Operating and Financial Review released to the ASX on 20 August 2020 for further information. Annual Report 2020151 152 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) 2020(1) 2019(1) 2018(1) 2017(1) 2016(1) Total external revenue 13,157 14,727 14,883 14,107 12,174 Underlying EBITDA(2) Depreciation and amortisation expense Share of interest, tax, depreciation and amortisation of equity accounted investees(3) 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 Profit attributable to members of the parent entity Statement of financial position ($m) Total assets Net debt/(cash) Shareholders’ equity – members/parent entity interest Adjusted net debt/(cash)(4) Shareholders’ equity – total Cash flow Net cash from operating and investing activities – total operations ($m) Key ratios Statutory basic earnings per share (cents)(5) Underlying basic earnings per share (cents)(5) Total dividend per share (cents)(6) Net debt to net debt plus equity (adjusted) (%)(4) Underlying EBITDA by segment ($m) Energy Markets(2) Integrated Gas Contact Energy Corporate 3,141 (509) (1,303) 1,329 (126) (177) (3) 3,232 (419) (1,504) 1,308 (154) (123) (3) 1,023 1,028 3,217 (381) (1,194) 1,642 (278) (339) (3) 1,022 2,530 (477) (925) 1,128 (296) (279) (3) 550 (940) 183 (804) (2,776) 1,696 (624) (296) 776 (109) (286) (16) 365 (993) 83 1,211 218 (2,226) (628) 25,093 5,688 12,680 5,158 12,701 25,743 6,084 13,129 5,417 13,149 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 1,813 1,914 2,645 1,378 1,215 4.7 58.1 25 29 1,459 1,741 68.8 58.4 25 29 1,574 1,892 (59) (234) 12.4 58.2 – 36 1,811 1,521 – (115) (126.9) 31.3 - 42 1,492 1,104 – (66) (39.8) 23.2 10 39 1,330 386 61 (81) General Information Number of employees (Excluding Contact Energy) Weighted average number of shares(5) 5,232 5,360 5,565 5,894 5,811 1,759,801,186 1,758,935,655 1,757,442,268 1,754,489,221 1,578,213,157 Integrated Gas(7) 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) 4,268 251 3,258 70 – – – 4,599 254 3,257 73 – – – 4,799 255 3,213 77 – – – 265 255 254 5,788 334 2,668 163 1,209 1,615 144 323 6,277 228 659 168 1,629 1,403 127 232 Annual Report 2020Five-year Financial History 153 Energy Markets Generation (MW) – owned Generation dispatched (TWh) Number of customers (’000) • Electricity • Natural gas • LPG Electricity (TWh) Natural gas (PJ) LPG (Kt) 2020(1) 2019(1) 2018(1) 2017(1) 2016(1) 6,029 18 4,232 2,631 1,220 363 34 204 417 6,029 20 4,192 2,639 1,191 362 36 222 426 5,981 21 4,181 2,666 1,145 370 38 214 450 6,011 20 4,210 2,716 1,112 382 40 188 448 6,011 20 4,217 2,741 1,089 387 38 167 458 (1) Includes discontinued operations and assets held for sale unless stated otherwise. (2) FY2019 includes premiums relating to certain electricity hedges within Underlying Profit. The equivalent amounts in prior years have not been restated in the above table. Had the amounts been adjusted, the impact to underyling EBITDA in each period would have been a reduction in each year is as follows: FY2018 $(160) million; FY2017 $(141) million; and FY2016 $(139) million. (3) 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. (4) Total current and non-current interest-bearing liabilities only, less cash and cash equivalents excluding APLNG related cash, less fair value adjustments on hedged borrowings. (5) Prior period adjusted for the bonus element (discount to market price) of the September 2015 rights issue. (6) Dividends represent the interim and final dividends determined for each financial year. This includes the final dividend for FY2020 determined on 20 August 2020 to be paid on 2 October 2020. The amounts paid within each financial year are 30c, 10c, 0c, 0c and 35c respectively. (7) 2018 excludes Lattice Energy (continuing operations basis shown). 154 Glossary and Interpretation Statutory financial measures Non-IFRS 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 Meaning 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 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 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. Net Debt Non-controlling interest Statutory Profit/Loss Statutory earnings per share Total current and non-current interest-bearing liabilities only, less cash and cash equivalents excluding cash to fund APLNG day-to-day operations. 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. Net profit/loss after tax and non-controlling interests as disclosed in the Income Statement in the Origin Consolidated Financial Statements. Statutory Profit/Loss divided by weighted average number of shares as disclosed in the Income Statement in the Origin Consolidated Financial Statements. 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 5.1. The key non- IFRS financial measures included in this report are defined below. Term AASB Meaning Australian Accounting Standards Board. Adjusted Net Debt Net Debt adjusted to remove fair value adjustments on hedged borrowings. Adjusted Underlying EBITDA Origin Underlying EBITDA – share of APLNG Underlying EBITDA + net cash from APLNG over the relevant 12-month period. Average interest rate Interest expense divided by Origin’s average drawn debt during the period. cps Cents per share. Free Cash Flow Net cash from operating and investing activities (excluding major growth projects), less interest paid. FY20 (current period) Year ended 30 June 2020. FY19 (prior period) Year ended 30 June 2019. Gearing Adjusted Net Debt/(Adjusted Net Debt + Total Equity). Gross Profit Revenue less cost of goods sold. Items excluded from Underlying Profit (IEUP) 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. See Section 5.1 for details. MRCPS Non-cash fair value uplift Mandatorily Redeemable Cumulative Preference Shares. Reflects the impact of the accounting uplift in the asset base of APLNG, which was recorded on 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. Share of ITDA Origin’s share of equity accounted interest, tax, depreciation and amortisation. Total Segment Revenue Total revenue for the Energy Markets, Integrated Gas and Corporate segments, as disclosed in note A1 of the Origin Consolidated Financial Statements. Underlying EPS Underlying Profit/Loss divided by weighted average number of shares. Annual Report 2020Glossary and Interpretation 155 Term Meaning Term Meaning Non-financial terms Underlying EBITDA Underlying earnings before underlying interest, 1P reserves Underlying share of ITDA Underlying Profit/Loss underlying tax, underlying depreciation and amortisation (EBITDA) as disclosed in note A1 of the Origin Consolidated Financial Statements. Share of interest, tax, depreciation and amortisation of equity accounted investees adjusted for items excluded from Underlying Profit. Underlying net profit/loss after tax and non- controlling interests as disclosed in note A1 of the Origin Consolidated Financial Statements. 2P reserves Underlying ROCE (Return on Capital Employed) 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 12-month period. 3P reserves 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. 2C resources Boe C&I DMO ERP GJ JCC Joule Kansai kT Mtpa MW MWh NEM Proved Reserves are those reserves which 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 estimated 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. Commercial and Industrial. Default Market Offer. Enterprise resource planning. Gigajoule = 109 joules. Japan Customs-cleared Crude (JCC) is the average price of crude oil imported to Japan. APLNG’s long-term LNG sales contracts are priced based on the JCC index. Primary measure of energy in the metric system. When referring to the off-taker under the LNG Sale and Purchase Agreement (SPA) with APLNG, means Kansai Electric Power Co. Inc. kilo tonnes = 1,000 tonnes. Million tonnes per annum. Megawatt = 106 watts. Megawatt hour = 103 kilowatt hours. National Electricity Market. 156 Term NPS PJ PJe Meaning Interpretation 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 used to represent the equivalent energy in different products so the amount of energy contained in these products can be compared. All comparable results reflect a comparison between the current period and the prior period, unless otherwise stated. A reference to APLNG or Australia Pacific LNG is a reference to Australia Pacific LNG Pty Limited in which Origin holds a 37.5 per cent shareholding. A reference to Octopus Energy or Octopus is a reference to Octopus Energy Holdings Limited in which Origin holds a 20 per cent shareholding. Origin’s shareholding in APLNG and Octopus Energy 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 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. PPA Power Purchase Agreement. Scope 1 emissions Direct emissions from sources that are owned or operated by Origin, in particular electricity generation and gas development. Scope 2 emissions Emissions from the electricity that we consume to power our offices and operating sites. Scope 3 emissions Sinopec SME TRIFR TW TWh VDO Watt Indirect emissions, other than Scope 2, relating to Origin’s value chain that we do not own or control, including wholesale purchases of electricity from the NEM. LPG and corporate Scope 3 emissions are excluded as their emissions are not material. When referring to the off-taker under the LNG Sale and Purchase Agreement (SPA) with APLNG, means China Petroleum & Chemical Corporation, which has appointed its subsidiary Unipec Asia Co. Ltd. to act on its behalf under the LNG SPA. Small Medium Enterprise. Total Recordable Incident Frequency Rate. Terawatt = 1012 watts. Terawatt hour = 109 kilowatt hours. Victorian Default Offer. A measure of power when a one ampere of current flows under one volt of pressure. Annual Report 2020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 Secretary Helen Hardy 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 F (02) 9279 0664 International (+61 2) 8016 2896 boardroomlimited.com.au origin@boardroomlimited.com.au Auditor EY Sources: Water and energy savings are based on a comparison between a recycled paper manufactured at Arjowiggins Graphic mills versus an equivalent virgin fibre paper according to the latest European BREF data available (virgin fibre paper manufactured in a non- integrated paper mill). CO2 emission savings is the difference between the emissions produced at an Arjowiggins Graphic mill for a specific recycled paper compared to the manufacture of an equivalent virgin fibre paper. Carbon footprint data evaluated by Labelia Conseil in accordance with the Bilan Carbone® methodology. Results are obtained according to technical information and subject to modification. Further information about Origin’s performance can be found on our website: originenergy.com.au 

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