Origin Energy. Analyst Workshop, 19 June 2012

Transcription

1 Origin Energy Analyst Workshop, 19 June 2012

2 Important Notice This presentation does not constitute investment advice, or an inducement or recommendation to acquire or dispose of any securities in Origin, in any jurisdiction (including the USA). This presentation is for information purposes only, is in a summary form, and does not purport to be complete. This presentation does not take into account the investment objectives, financial situation or particular needs of any investor, potential investor or any other person. No investment decision should be made in reliance on this presentation. Independent financial and taxation advice should be sought before making any investment decision. Any statements in this presentation in the nature of forward looking statements, including statements of current intention, statements of opinion and predictions as to possible future events are not statements of fact and there can be no certainty of outcome in relation to the matters to which the statements relate. These 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. Those risks, uncertainties, assumptions and other important factors are not all within the control of Origin and cannot be predicted by Origin and include changes in circumstances or events that may cause objectives to change as well as risks, circumstances and events specific to the industry, countries and markets in which Origin and its related bodies corporate, joint ventures and associated undertakings operate. They also include general economic conditions, exchange rates, interest rates, the regulatory environment, competitive pressures, selling price, market demand and conditions in the financial markets which may cause objectives to change or may cause outcomes not to be realised. None of Origin or any of its respective 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 statements. The forward looking statements in this presentation reflect views held only at the date of this presentation. In addition, statements about past performance are not necessarily indicative of future performance. Subject to any continuing obligations under law or the ASX Listing Rules, Origin and the Relevant Persons disclaim any obligation or undertaking to disseminate after the date of this presentation any updates or revisions to any forward looking statements to reflect any change in expectations in relation to any forward looking statements or any change in events, conditions or circumstances on which such statements are based. No representation or warranty, express or implied, is or will be made in relation to the accuracy or completeness of the information in this presentation and no responsibility or liability is or will be accepted by Origin or any of the Relevant Persons in relation to it. In particular, Origin does not endorse, and is not responsible for, the accuracy or reliability of any information in this presentation relating to a third party. All references to "$" are references to Australian dollars unless otherwise specified. All references to debt refer to interest-bearing debt. A reference to Contact is a reference to Contact Energy of New Zealand, currently a 53.0% subsidiary of Origin. A reference to Australia Pacific LNG or APLNG is a reference to Australia Pacific LNG Pty Limited, an incorporated joint venture in which Origin currently holds a 42.5% interest. A reference to the NSW energy assets or NSW acquisition is a reference to the Integral Energy and Country Energy retail businesses and the Eraring GenTrader arrangements. 2

3 Important Notice (continued) A reference to FID 1 is a reference to the Final Investment Decision on the first phase of APLNG s two train CSG to LNG project taken on 28 July A reference to FID 2 is a reference to a Final Investment Decision on the second phase of APLNG s two train CSG to LNG project, which has not been taken. A reference to NEM is a reference to Australia s National Electricity Market. All comparative data is in relation to either the year ended 30 June 2011 or the 6 months ended 31 December 2010 as indicated, unless otherwise stated. Certain comparative amounts may have been reclassified to conform with the current year s presentation. Origin s Interim Financial Statements as at 31 December 2011 are presented in accordance with Australian Accounting Standard Board requirements including Segment results which are used to measure segment performance. Segment results, underlying consolidated profit and the components of these measures are disclosed in note 2 to the 31 December 2011 Interim Financial Statements and are disclosed on a basis consistent with the information provided internally to the Managing Director. This presentation also includes certain non-ifrs measures including Group Operating Cash Flow After Tax (OCAT) and Productive Capital, these measures, along with Segment result and Underlying Consolidated profit are used internally by management to assess the performance of Origin s business, make decisions on allocation of resources, and assess operational management. The measures have been provided in this presentation to enable further insight into the financial performance of the Origin business. The items excluded from Segment results and Underlying Consolidated Profit are determined on a consistent and unbiased basis each financial period. A reconciliation and description of the items that contribute to the difference between Statutory Profit and Underlying Profit is provided on page 6 and further information regarding the non-ifrs Underlying Profit measures is included in the glossary on page 49. Non-IFRS measures have not been subject to audit or review. Refer to the Glossary on page 49 for a definition of the key terms used in this presentation. 3

4 Introduction and safety procedures Karen Moses, Executive Director Finance & Strategy 4

5 Agenda 1. Financial overview 2. Energy Markets 3. Australia Pacific LNG Accounting 4. Australia Pacific LNG Operations 5. Exploration and Production (ex-csg) 5

6 Financial overview Presenter: Gary Mallett, Group Financial Controller 6

7 Agenda 1. Segment reporting 2. Revenue and EBITDA 3. Depreciation and amortisation 4. Share of equity accounted investees 5. Net financing costs 6. Capitalised interest 7. Income tax expense 8. Non-controlling interests 9. Items excluded from segment result and underlying consolidated profit 10. Group OCAT, OCF, productive capital and returns 7

8 Extract from December 2011 Interim Results Presentation Refer to Appendix 1 Glossary on page 49 for a description of Statutory EPS, Underlying EBITDA, Underlying EBIT, Underlying Profit, Underlying EPS and Group OCAT. 8 Source: Page 9, Investor Presentation from Interim Results for the half year ended 31 December 2011.

9 Extract from December 2011 Interim Results Presentation 9 Refer to Appendix 1 Glossary on page 49 for a description of Underlying Profit. Source: Page 10, Investor Presentation from Interim Results for the half year ended 31 December 2011.

10 Extract from December 2011 Interim Results Presentation 10 Refer to Appendix 1 Glossary on page 49 for a description of Underlying EBITDA. Source: Page 14, Investor Presentation from Interim Results for the half year ended 31 December 2011.

11 Segment reporting Origin announced revised reporting segments in February 2012 The new segment reporting format was used for the presentation of Origin s interim financial results for the six months ended 31 December 2011 and will be used for the presentation of Origin s full year financial results for the 12 months ending 30 June The revised reporting segments reflect changes in the Origin business following the Final Investment Decision (FID) on the first phase of the Australia Pacific LNG export project, the deepening integration within Origin s Energy Markets business between the retail and generation activities, and increased development opportunities outside of existing operations Greater clarity is provided around segment net financing, income tax and items excluded from segment result and underlying consolidated profit Origin s reporting segments Segment Energy Markets Exploration and Production Australia Pacific LNG Contact Energy Corporate Business Description Australian energy retailing, associated products and services; power generation in Australia; and LPG operations in Australia, the Pacific, Papua New Guinea and Vietnam Gas and oil exploration and production in Australia, New Zealand and international areas of interest Origin s investment in Australia Pacific LNG including current domestic operations and the Australia Pacific LNG coal seam gas to LNG export project Origin s investment in its 53.0% owned New Zealand subsidiary, Contact Energy Ltd, involved in energy retailing, associated products and services and power generation in New Zealand Corporate activities that are not allocated to other operating segments and business development activities outside of Origin s existing operations Source: Page 1, Market release 16 February 2012 Changes to Origin Segmental Reporting. 11

12 December 2011 segment report segment results December 2011 segment disclosure (note 2a) 12 Refer to Appendix 1 Glossary on page 49 for a description of Segment Result, Underlying EBITDA, Underlying EBIT and Underlying Profit. Source: Page 14, December 2011 Interim Financial Statements.

13 December 2011 segment report segment assets and liabilities December 2011 segment disclosure (note 2a) Source: Page 15, December 2011 Interim Financial Statements. 13

14 Restatement of June 2011 segment underlying EBITDA and EBIT The reported segment earnings before interest, tax, depreciation and amortisation (EBITDA), and segment earnings before interest and tax (EBIT) for the 12 months ended 30 June 2011 were restated as presented below As previously reported 12 months ended 30 June 2011: A$ Million Segment EBITDA New segment reporting 12 months ended 30 June 2011: Segment EBIT Exploration & Production Generation Retail Contact Energy Total 1,782 1,194 A$ Million Segment EBITDA Segment EBIT Energy Markets 1, Exploration & Production Australia Pacific LNG Contact Energy Corporate (68) (66) Total 1,782 1,194 Refer to Appendix 1 Glossary on page 49 for a description of Underlying EBITDA and Underlying EBIT. 14 Source: page 4, Market release 15 June 2012 Restatement of reporting segments for financial year ended 30 June 2011.

15 Reconciliation of June 2011 segment underlying EBITDA and EBIT Restated June 2011 segment Earnings before interest, tax, depreciation and amortisation (EBITDA) and Earnings before interest and tax (EBIT) Refer to Appendix 1 Glossary on page 49 for a description of Underlying EBITDA and Underlying EBIT. 15 Source: Page 5, Market release 15 June 2012 market release Restatement of reporting segments for financial year ended 30 June 2011.

16 Revenue and EBITDA Refer to Appendix 1 Glossary on page 49 for a description of Underlying EBITDA. Source: Page 14, December 2011 Interim Financial Statements.. No revenue is reported for Australia Pacific LNG as the investment is equity accounted Sales between segments are eliminated on consolidation and are captured in the Intersegment sales elimination line Intersegment pricing is determined on an arm s length basis. Exploration and Production intersegment sales elimination represents the sale of gas and LPG to the Energy Markets segment 16

17 Items between EBITDA and Segment Result December 2011 segment disclosure (note 2a) Refer to Appendix 1 Glossary on page 49 for a description of Segment Result, Underlying EBITDA, Underlying EBIT and Underlying Profit. 17 Source: Page 14, December 2011 Interim Financial Statements.

18 Depreciation and amortisation Depreciation and amortisation is charged on: - Property, plant and equipment - Software and acquired customer contracts (included within intangible assets) Depreciation and amortisation is charged over the useful economic life of the asset Assets are primarily depreciated on a straight line basis except for sub surface assets (within the producing areas of interest category) which are amortised based on units of production Capital work in progress assets are not depreciated until they are ready for use The following slides on Depreciation and Amortisation reference Origin s results for the 12 months ended 30 June 2011 unless otherwise noted, as detail of property, plant and equipment and intangibles asset cost bases is not required to be disclosed in the Interim Financial Statements. 18

19 Assets subject to depreciation and amortisation at 30 June 2011 The At cost line includes certain assets that are not yet ready for use and therefore not being depreciated/ amortised e.g. Mortlake power station assets and Retail Transformation assets as at 30 June 2011 Goodwill at cost is not amortised, it is tested annually for impairment 19 Source: Pages 38 and 41, June 2011 Financial Statements.

20 Depreciation and amortisation disclosure within the financial statement notes 20 Source: Pages 39 and 41, June 2011 Financial Statements.

21 Depreciation and amortisation disclosure within the financial statement notes (continued) Profit (note 3) at 30 June 2011 Source: Page 29, June 2011 Financial Statements. 21

22 Depreciation and amortisation within the segment note for December December 2011 segment disclosure (note 2a) 22 Refer to Appendix 1 Glossary on page 49 for a description of Segment Result, Underlying EBITDA, Underlying EBIT and Underlying Consolidated Profit. Source: Page 14, December 2011 Interim Financial Statements.

23 Segment assets at December 2011 December 2011 segment disclosure (note 2a) Source: Page 15, December 2011 Interim Financial Statements. 23

24 Share of equity accounted investees For accounting purposes: Associates are those entities over which the consolidated entity exercises significant influence, but not control over the financial and operating policies Joint ventures are those entities over whose activities the consolidated entity has joint control In the financial statements investments in associated and jointly control entities are accounted for using equity accounting principles Origin records its share of the net assets and results of the equity accounted investee in: one line in the Income Statement and Statement of Financial Position; and two lines in the segment note Since 31 December 2011, Origin acquired an interest in Energia Austral SA (3 April 2012). The investment will be equity accounted 24

25 Extract of equity accounted investees from the Financial Statements $million Share of net profit Investment carrying amount Equity accounted investment Activity Place of incorporation Share of EBITDA ITDA Australia Pacific LNG CSG Australia 11 (4) 7 5,736 Oakey Generation Australia 3 (1) 2 - (1) CUBE Cogeneration Australia 7 (4) 3 37 Bulwer Island Cogeneration Australia Transform Solar Solar technology Australia 4 (2) PNG Energy Developments Limited Hydro PNG OTP Geothermal Geothermal Singapore (2) - (2) 8 Kubu Energy Resources CSG exploration Botswana Energia Andina SA Geothermal Chile Statutory Total 25 (11) 14 5,988 Australia Pacific LNG items (4) (8) (12) excluded from segment result Rounding - (1) (1) Underlying Total 21 (20) 1 (1) Oakey was classified as an available for sale asset in the 31 December 2011 interim financial statements. On 18 January 2012, Contact Energy exited its 25 per cent shareholding in Oakey Power Holdings Pty Limited through a selective capital reduction and share cancellation Refer to Appendix 1 Glossary on page 49 for a description of Segment Result. 25 Source: Page 19, December 2011 Interim Financial Statements.

26 Specific APLNG disclosure Further detail of Australia Pacific LNG is provided in note 6(b) of the 31 December 2011 Interim Financial Statements 26 Refer to Appendix 1 Glossary on page 49 for a description of Segment Result and Underlying EBITDA. Source: Page 22, December 2011 Interim Financial Statements.

27 Equity accounted investees Income Statement Disclosure Origin's share of the results of equity accounted investees are presented in one line - Share of results of equity accounted investees Represents Origin s share of the net profit after tax of equity accounted investees Source: Page 7, December 2011 Interim Financial Statements. 27

28 Equity accounted investees Statement of Financial Position disclosure Origin's share of the net assets of equity accounted investees, acquisition costs and related own costs are presented in one line Investments accounted for using the equity method Statement of financial position line items of equity accounted investees are not presented on a line by line basis in Origin s financial statements. The net position is show in one line in Origin s Statement of Financial Position Source: Page 8, December 2011 Interim Financial Statements. 28

29 Equity accounted investees Segment note disclosure Origin s share of the results of equity accounted investees are presented in two lines - Underlying EBITDA and Share of interest, tax, depreciation and amortisation of equity accounted investees (ITDA) in the segment note. This enables segment disclosure of consolidated Group Underlying EBITDA including share of equity accounted investees. Underlying EBITDA Includes Origin s share of EBITDA of equity accounted investees 29 Refer to Appendix 1 Glossary on page 49 for a description of Segment Result, Underlying EBITDA, Underlying EBIT and Underlying profit. Source: Page 14, December 2011 Interim Financial Statements.

30 Equity accounted investees Segment note asset disclosure Origin s equity accounted investees carrying value is presented in one line Investments accounted for using the equity method. This reconciles to the Statement of Financial Position disclosure. Source: Page 15, December 2011 Interim Financial Statements. 30

31 Equity accounted investees Cash Flow disclosure Origin s cash payments to equity accounted investees Cash calls resulting in an increased investment included here Origin s cash contribution to APLNG. Source: Page 11, December 2011 Interim Financial Statements. 31

32 Net financing costs disclosure Source: Page 17, December 2011 Interim Financial Statements. 32

33 Net financing costs Net interest expense includes: Interest income Interest on drawn debt Commitment fees on committed undrawn facilities Upfront establishment fees and transaction costs Interest on effective hedging instruments (interest rate swaps) Interest expense reflects both the accrued interest cost and the systematic amortisation of fees and transaction costs 33

34 Capitalised Interest Interest is capitalised for the funding of qualifying assets Qualifying assets are those assets being developed or constructed which take longer than 6 months to complete Examples of qualifying assets for which interest has been capitalised in the recent history include: Darling Downs Power Station Bass Gas Uranquinty Power Station Cullerin Range Wind Farm Contact Stratford Power Station & Te Mihi geothermal development Retail Transformation Ironbark Mortlake Power Station Capitalisation ceases when an asset is no longer a qualifying asset 34

35 Capitalised Interest (continued) Origin operates a centralised group debt portfolio to fund the majority of whollyowned assets The debt and related interest expense that is used for capitalised interest is determined as follows: 1. Debt facilities, and the related interest cost, which are for specific assets are accounted for individually (with interest on the debt for specific assets capitalised where the assets are qualifying assets, otherwise recognised in the Income Statement) - e.g. Contact, APLNG related and Uranquinty 2. The remaining non-specific facilities then form the group portfolio from which interest is capitalised for all other qualifying assets Interest cost is determined based on the weighted average effective interest rate of the relevant debt instruments/facilities The rate is applied to the cumulative capital expenditure of each qualifying asset each month Where the cumulative capital expenditure of all qualifying assets is greater than the total drawn principal on the relevant debt instruments, the amount of interest capitalised to each qualifying asset is reduced on a pro-rata basis back to the total drawn principal level 35

36 Income tax expense Refer to Appendix 1 Glossary on page 49 for a description of Underlying profit and Statutory profit. Source: Page 12, Management Discussion and Analysis December Statutory effective tax rate was 18 per cent mainly due to the non assessable gain arising on dilution or Origin's interest in the Australia Pacific LNG joint venture Underlying effective tax rate was 30 per cent Petroleum Resource Rent Tax will impact future income tax expense 36

37 Fundamentals of Petroleum Resource Rent Tax (PRRT) PRRT is a project-based tax applied at the rate of 40%, and is payable only when a project s Cumulative PRRT Assessable Receipts are greater than Cumulative Allowable Expenditures. Each year any un-deducted Expenditures are carried forward, receiving an Uplift each year - Exploration Costs: Uplift is Long Term Bond Rate + 15% - General Expenditure: Uplift is Long Term Bond Rate + 5% - PRRT Starting Base: Uplift is Long Term Bond Rate + 5% - Historical costs > 5 years before a Production Licence is awarded: Uplift is GDP Factor % (similar to CPI) Any PRRT paid is deductible for corporate income tax. Where PRRT has been paid in respect of a project, it can also be reclaimed against expenditure related to the closing down of that project 37

38 PRRT Projects and Starting Base A petroleum project under PRRT comprises: - Production licence area; and - Operations and facilities for the recovery and processing of petroleum from the production licence area, and adjacent storage Both Origin and Australia Pacific LNG have PRRT projects Onshore projects that are transitioning into the PRRT receive a shield in the form of a Starting Base, which can be calculated in 4 ways: - Look Back method (all capex and opex costs in the 8 years prior to 1 May 2010, plus Uplift) - Market Value as at 1 May Book Value method - Default Coal Seam Gas method (in limited circumstances) Significance of the 1 May 2010 date: It is the last day prior to the Federal Government s Resource Tax announcements on 2 May

39 Financial Statement impact of PRRT PRRT is required to be accounted for as an income tax Any deferred tax impact arising on inception of the PRRT legislation for Origin s projects will be recognised through income tax expense as a benefit in the Income Statement with a corresponding Deferred Tax Asset at 30 June 2012 Origin will record its share of Australia Pacific LNG s PRRT balances through its share of ITDA from equity accounted investees (in the Income Statement) and its investment in equity accounted investees (in the Statement of Financial Position) at 30 June 2012 Origin s future effective tax rate is unlikely to be 30% per cent and may be volatile period on period 39

40 Non-controlling interests Refer to Appendix 1 Glossary on page 49 for a description of Underlying Profit. Source: Page 13, Management Discussion and Analysis - December Origin s non-controlling interests are listed in Note 29 of the financial statements for the 12 months ended 30 June 2011 Contact Energy, Origin s 53 per cent owned subsidiary is the most significant contributor to non-controlling interests Entities with non-controlling interests are accounted for as a subsidiary and the noncontrolling interest is disclosed in a separate line in the Income Statement and Statement of Financial Position Origin also records non-controlling interests for some of its Pacific and South East Asian LPG entities where it has control but does not own 100 per cent 40

41 Non-controlling interests Income Statement Disclosure 100% of results are included in Origin s Income Statement, with the non-controlling interest recorded in the Non-controlling interests line Source: Page 7, December 2011 Interim Financial Statements. 41

42 Non-controlling interests Statement of Financial Position and Statement of Cash Flow Disclosure Disclosure in Statement of Financial Position: 100% of the entity s Statement of Financial Position is included in Origin s Statement of Financial Position. The non-controlling interest is recorded within equity Source: Page 9, December 2011 Interim Financial Statements. Disclosure in Statement of Cash Flows: 100% of the entity s cash flows are included in Origin s Statement of Cash Flows 42

43 Items excluded from segment result and underlying consolidated profit December 2011 segment disclosure (note 2a) Refer to Appendix 1 Glossary on page 49 for a description of Segment Result, Underlying EBITDA, Underlying EBIT and Underlying profit. 43 Source: Page 14, December 2011 Interim Financial Statements.

44 Basis of Preparation Origin s Financial Statements are prepared in Accordance with Australian Accounting Standards Origin s Income Statement records Statutory Profit representing net profit after tax The segment note included in the Financial Statements includes a Segment result measure and an Underlying consolidated profit measure and a reconciliation to Statutory Profit Origin discloses Segment Result and Underlying consolidated profit on a basis consistent with the information that is provided internally to the Managing Director. The information is provided to enable further insight into the financial performance of the Origin business The items excluded from Segment result and Underlying consolidated profit are determined on an unbiased and consistent basis period on period, and presented to enable reconciliation between Statutory profit and Underlying consolidated profit 44

45 Description of items excluded from segment result and underlying consolidated profit Item excluded from underlying consolidated profit Australia Pacific LNG related items Fair value of financial instruments Impairment of assets and subsequent reversals Description - Net gain on dilution of Origin s investment in Australia Pacific LNG - Net financing costs incurred by Origin in funding Australia Pacific LNG (the interest would otherwise be capitalised except for the investment being held as an equity accounted investee) - Origin s share of the unwinding of discounted receivables within Australia Pacific LNG (shareholder loans receivable) - Origin s own foreign currency gain/loss in relation to Australia Pacific LNG funding - Origin s share of Australia Pacific LNG s foreign currency gain/loss in relation to funding The change in the fair value of financial instruments that are effective economic hedges but do not qualify for hedge accounting An impairment is recognised where an asset s carrying amount exceeds its recoverable amount 45

46 Description of items excluded from segment result and underlying consolidated profit (continued) Item excluded from underlying consolidated profit Other Tax and non-controlling interests Description A number of items do not fit into the previous categories and are included in an other category. Other items may include: - Net gain on dilution of Origin s investments excluding Australia Pacific LNG (e.g. Transform Solar) - Transition and transaction costs associated with the acquisition and integration of newly acquired businesses and/or large business structural changes e.g. NSW acquisition, Retail Transformation - Origin s share of tax arising on the foreign currency translation of the long term tax bases recorded in Australia Pacific LNG - Tax arising on the foreign currency translation of the long term tax bases recorded in Origin s Exploration and Production activities in New Zealand - Tax and non-controlling interest associated with the above items excluded from segment result and underlying consolidated profit 46

47 Group operating cash flow after tax (OCAT) Refer to Appendix 1 Glossary on page 49 for a description of Underlying EBITDA, Capital Expenditure, Group OCAT, Group OCAT Ratio, Free cash flow and Productive Capital. 47 Source: Page 12, Investor Presentation from Interim Results for the half year ended 31 December 2011.

48 Group OCAT and Group OCAT Ratio Origin uses Group OCAT and Group OCAT Ratio as an internal measure of the cash generating performance of the business Key differences between Group OCAT and statutory cash flows from operating activities is Group OCAT includes stay in business capex, Origin s share of Australia Pacific LNG s OCAT, adjustments for the sale of assets and excludes transition and transaction costs Group OCAT ratio Measures Origin s cash returns generated from productive funds employed within operations Calculated on a 12 month weighted average basis Group OCAT ratio = (Group OCAT interest tax shield)/productive capital Interest tax shield adjustment accounts for the reduction in tax due to interest paid Refer to Appendix 1 Glossary on page 49 for a description of Group OCAT, Group OCAT Ratio and Productive Capital. 48

49 Productive Capital Measures funds employed by Origin in the operating assets of the business, including Origin s share of Australia Pacific LNG productive capital, excluding capital work in progress for exploration expenditure and projects under development, which are not yet operational Calculated on a 12 month weighted average basis to match the operating asset base to operational cash flows. For example Darling Downs became operational on 1 July At 31 December 2010 productive capital included 50% of the Darling Downs cost base to match 6 months of return, and at 30 June % of the cost based was included to match 12 months return Reconciliation of Net assets to Productive capital Net assets Less: Cash Hedge and derivative assets Development and exploration and evaluation assets Capital Work in Progress Origin s share of Australia Pacific LNG equity accounted investment Non productive equity accounted investments e.g. PNG Energy Developments, Energia Andina, OTP Geothermal and Kubu Energy Resources Add: Debt Loan from Australia Pacific LNG Hedge Derivative Liabilities Origin s share of Australia Pacific LNG productive capital Productive capital (12 month weighted average) 49 Refer to Appendix 1 Glossary on page 49 for a description of Productive Capital.

50 Operating Cash Flow (OCF) Segment returns are calculated on a pre tax basis and are measured using operating cash flow (OCF) as opposed to Group OCAT. Calculated on a 12 month weighted average basis OCFR ratio Measures Origin s segment cash flow returns generated from productive funds employed in operations OCFR ratio = Operating cash flow (OCF)/Productive capital 50 Refer to Appendix 1 Glossary on page 49 for a description of Productive capital and OCFR. Source: Page 16, Investor Presentation from Interim Results for the half year ended 31 December 2011.

51 Reconciliation to Return On Assets 51 A performance measure used in the market is Return on Assets Net profit after tax Total assets Add/Less: Less: Net financing costs Total liabilities Income tax expense Net assets Depreciation and amortisation Less: (please see slide 46) Items excluded from Underlying EBITDA Cash Underlying EBITDA Hedge and derivative assets Add/Less: (please see slide 44) Change in working capital Stay-in-business capex Share of APLNG OCAT net of EBITDA Exploration expense NSW acquisition related liabilities Other Tax payments Group Operating Cash Flow After Tax (OCAT) Return on Assets = Net profit/total assets Group OCAT return = Group OCAT/Productive capital The below table reconciles both the numerator and denominator of the Return on Assets performance measure to Origin s OCAT return performance measure: Development and exploration and evaluation assets Capital Work in Progress Origin s share of Australia Pacific LNG equity accounted investment Non productive equity accounted investments e.g. PNG Energy Developments, Energia Andina, OTP Geothermal and Kubu Energy Resources Add: Debt Loan from Australia Pacific LNG Hedge Derivative Liabilities Origin s share of Australia Pacific LNG productive capital Productive Capital (12 month weighted average)

52 Energy Markets Presenters: Frank Calabria, Chief Executive Officer, Energy Markets Kim Josling, General Manager - Commercial 52

53 Agenda 1. Energy Markets Segment 2. Revenue 3. Cost of Energy 4. Cost to Serve 5. Capital 53

54 The Energy Markets segment and Management Discussion and Analysis reporting now reflects how Origin considers the supply chain Revenue Cost of Energy Cost to Serve Capital Includes External customer revenue Network costs Wholesale energy costs Generation operating costs Green compliance costs Servicing and maintaining customers Customer acquisition and retention costs Delivering new product lines Depreciation Amortisation 54

55 Energy Markets optimises its portfolio of customers, energy purchases and generation assets Change Half year ended 31 December 2011 ($'m) ($'m) (%) Total revenue 5,207 3, Underlying EBITDA Underlying EBIT Segment result Items excluded from Segment result 12 (397) N/A Growth capital expenditure (36) Calendar Year ended Productive Capital ($m) 8,009 4,639 Operating Cash Flow ($m) OCFR % 11.2% 17.3% Half year ended 31 December 2011 Natural Gas Electricity Non- Commodity LPG Revenue ($m) 624 (+2%) 3,827 (+78%) 136 (-36%) 350 (+5%) Total COGS ($m) (498) (-1%) (2,897) (+83%) (120) (-34%) (256) (+5%) Gross Profit ($m) 126 (+20%) 930 (+68%) 18 (-42%) 94 (+5%) Total operating costs ($m) Underlying EBITDA ($m) Underlying EBIT ($m) EBIT / Sales (%) (348) (+44%) 820 (+52%) 697 (+53%) 14.1% (13.8% in Dec 2010) Volumes (sold) 68 PJ (-7%) 22 TWh (+57%) N/A 245 kt (-1%) Customer accounts ('000) 950 (+3%) 3,075 (-4%) N/A 355 (-3%) Gross Profit per customer ($) 267 (+1%) 265 (+5%) EBITDA per customer ($) 197 (+2%) 80 (-15%) EBIT per customer ($) 169 (+1%) 43 (-28%) 55

56 Revenue Cost of Energy Cost to Serve Capital Includes External customer revenue 56

57 Revenue by commodity type HY12 Natural Gas Electricity Noncommodity LPG Total Revenue ($m) 624 3, ,937 COGS ($m) (498) (2,897) (120) (256) (3,771) Gross Profit ($m) ,168 External customer revenue Cost of energy by commodity Reconciliation to Energy Markets Segment Revenue $m HY12 Energy Markets Segment Revenue (1) 5,207 Revenue as per above 4,937 Revenue allocated to COGS 270 Revenue items included in COGS Generation pool revenue ($231m) (2) so that cost of energy is reflective of the integrated portfolio Ancillary generation and other revenues Gas swap revenue no margin swaps offset equivalent costs (1) Total Revenue of the Energy Markets segment as disclosed in note 2(a) operating segments of the 31 December 2011 Interim Financial Statements (2) Generation pool revenue as disclosed in the HY2012 Management Discussion and Analysis, section 6.1.2, Internal Generation Portfolio 57

58 Retail Price Tariffs The determination of electricity and gas retail price tariffs varies between states and fuels State Fuel Price Regulator Origin an incumbent? Vic Elec. Deregulated Yes N/A Vic Gas Deregulated Yes N/A NSW Elec. IPART Yes NSW Gas IPART Yes Qld Elec. QCA No Qld Gas Deregulated Yes N/A SA Elec. ESCOSA Yes SA Gas ESCOSA Yes Price Path 3-year price path to 30 June year price path to 30 June year determination to 30 June year price path to 30 June year price path to 30 June 2014 Comments Each retailer is required to publish a standing offer for every tariff in each of the distribution areas Each retailer is required to publish a standing offer for every tariff in each of the distribution areas Network (N) + Retail (R) Approach. Price Changes subject to annual review of wholesale and green charges, and pass through applications N+R Voluntary Transitional Pricing Arrangement Network (N) + Retail (R) Approach Each retailer is required to publish a standing offer for every tariff in each of the distribution areas ESCOSA estimates high case outcomes of cost drivers and sets a ceiling to regulated Price Final regulated price is the weighted increase of all market offers, capped to the ceiling N+R Approach. AER approved Network plus ESCOSA approved retailer component 58

59 Revenue Cost of Energy Cost to Serve Capital Includes Network costs Wholesale energy costs Generation operating costs Green compliance costs 59

60 Risk management is a key factor in managing our cost of energy The Commodity Risk Management System (CRMS) provides the framework for identifying, monitoring and responsibly managing the commodity exposures of Origin Commodity Risk refers to the uncertainty of future value due to changes in commodity prices As an integrated energy company, Origin business units may individually or collectively source or contract energy and/or commodity commitments with external providers, customers or counterparties Origin is committed to having appropriate systems in place to ensure that: material market risks are identified financial impact of these risks are well understood and reported limits are in place to control exposures collective and individual responsibilities and accountabilities are assigned and well understood A Responsible Officer at Origin is defined as an employee or contractor who incurs, identifies, monitors, records, values and/or reports commodity exposures All Responsible Officers are bound by the CRMS and its compliance obligations Reporting through CRMS assures the Board that Origin s commodity exposures are being responsibly managed 60

61 CRMS - Exposures Some specific examples of CRMS commodity exposures across Origin s portfolio: Commodity Description Electricity Electricity purchases or sales Hedge and derivative arrangements Power generation Power purchase agreements Gas & LNG Gas purchase or sale arrangements Transmission purchase or sale arrangements Gas Short Term Trading Market contracts and nominations Hedge contracts/arrangements Carbon Customer carbon sales arrangements Customer or counterparty energy purchase arrangements Carbon hedge arrangements Contracts that include carbon taxes, duties, imposts etc. Oil Physical crude oil products Physical liquid fuel products, including condensate, naphtha and ethane Hedge and derivative arrangements LPG Customer or counterparty energy purchase or sale arrangements Liquid Fuels Liquid fuel commodity purchases (bilateral contracts) required to operate the Eraring GenTrader Agreements Fuel purchases required for the operation of Mt Stuart Power Station Hedge and derivative arrangements Coal Coal purchases and transport arrangements (bilateral contracts) required to operate the Eraring GenTrader Agreements 61

62 CRMS Sources of Commodity Risks Sources of Commodity Risks Price Risk Volume Risk Market Structure Risk Availability Risk Liquidity Risk Credit Risk Force Majure Risk Reputation Risk Regulatory Risk Take or Pay Risk Adverse movements in the price of a commodity Supply or demand differs from forecast Change in the operation of either the physical or financial markets Unexpected outages experienced by Origin s generation plant Hedging contracts are not available, or not available at a reasonable price Default of payment or the failure to perform or supply by a counterparty Contractual clauses enable counterparties to escape their obligations under defined events Event which causes negative public opinion that impacts Origin s reputation Change in business rules or regulations Risk for volumes of gas that it must pay for and is not able to use 62

63 CRMS Risk Capacity and Risk Tests Corporate Risk Capacity Establishes the organisational risk appetite - how much risk Origin is willing to accept for a given return Risk limits are allocated to overall and individual commodities, tests and time frames The CRMS defines the Exposure Limits, in terms of both dollar values and time horizons Risk Tests and Valuation Measures Risk tests and valuation measures have been developed Risk Tests measure exposures against limits under various market conditions and time periods Valuation Measures measure the value of the portfolio against prevailing market prices Risk tests and valuation measures include: Stress ( extreme scenario ) tests 12 months Earnings at Risk Monthly earnings at Risk Mark to market valuation 63

64 Gas cost of goods sold provides analysis on unit gas gross profit and performance of portfolio management Gas HY12 $/GJ Revenue ($m) C&I Mass Markets Cost of goods sold ($m) (498) (7.3) Network costs (188) (2.8) Energy purchase costs (310) (4.6) Gross Profit ($m) Gross Margin (%) 20.2% $ Gross profit per customer 133 Network costs Charges for the transportation and distribution of gas to the customer Energy purchase costs Gas purchase costs Revenue from gas swaps offsets equivalent gas swap costs Environmental schemes Carbon costs will be captured in the future 64

65 Electricity cost of goods sold is a portfolio view of the cost of energy that includes cost of purchased load and generation operating and fuel costs Electricity HY12 $/MWh Revenue ($m) 3, C&I 1, Mass Markets 2, Externally contracted Generation 22 Cost of goods sold ($m) (2,897) (133) Network costs (1,774) (81) Wholesale energy costs (1,017) (47) Generation operating costs (106) (5) Gross Profit ($m) Gross Margin (%) 24.3% $ Gross profit per customer 302 Network costs Charges for the transportation and distribution of electricity to the customer Wholesale energy costs Electricity purchase costs Generation pool revenue Fuel used by the generation portfolio Unwind of PPAs & fair value liabilities relating to NSW acquisition Environmental schemes Carbon costs will be captured in the future Generation operating costs Generation operating and maintenance costs GenTrader arrangements 65

66 Acquired PPAs and Derivatives Acquisition Accounting Acquisition accounting requires all acquired instruments and contractual arrangements to be measured at fair value Process results in the recognition of assets and liabilities on acquisition which are unwound / released over the relevant underlying contractual periods with the release recognised in the income statement Ensures that the financial impact of each instrument in the income statement postacquisition reflects the market prices at the acquisition date Electricity PPAs and Derivatives are measured at fair value against the relevant market observable forward prices at the acquisition date Instruments with a positive fair value ( in the money ) are recognised as financial assets and instruments with a negative fair value ( out of the money ) are recognised as financial liabilities Acquired derivatives are remeasured to fair value each period consistent with the normal fair value requirements for derivatives and where appropriate are designated for hedge accounting purposes 66

67 Environmental Schemes Scheme Characteristics Overview Scheme Certificates States Commodity Acquittal period Acquittal Date Comments Large-scale Renewable Energy Target (LRET) Large-scale Generation Certificates (LGC) All Electricity (Purchase Load) Yearly 14 th Feb Small-scale Renewable Energy Scheme (SRES) Small-scale Technology Certificates (STC) All Electricity (Purchase Load) Quarterly 14 th Feb, 28 th Apr, 28 th Jul, 28 th Oct Victorian Energy Efficiency Target (VEET) Victorian Energy Efficiency Certificate (VEEC) VIC Electricity + Gas (Purchase Load) Yearly 30 th Apr GreenPower GreenPower Accredited Large-scale Generation Certificates (LGC) All Electricity (Sales Load) Yearly 31 st Mar Energy Savings Scheme (ESS) Energy Savings Certificates (ESC) NSW Electricity (Purchase Load) Yearly 18 th Mar Voluntary Carbon Reduction Scheme (VER) Voluntary Emissions Reduction Certificates (VER) All Green Gas (Purchase Load) Yearly Mid-May Acquittal date can vary as VER scheme is administered internally Greenhouse Gas Reduction Scheme (GGAS) NSW Greenhouse Abatement Certificates (NGAC) NSW Electricity (Purchase Load) Yearly 30 th Sep NGAC scheme will end on 30 Jun 2012 Queensland Gas Scheme (QGS) Gas Electricity Certificate (GEC) QLD Electricity (Sales Load) Yearly 30 th Apr Income Statement Note 3 (b) - Environmental schemes costs are recognised in raw material and consumables used within the Total expenses, including net financing costs on the P&L Balance Sheet Note 9 - Environmental certificates are accounted for in Other financial assets, including derivatives Note 17 - Environmental certificate surrender obligations are in Other financial liabilities, including derivatives 67

68 Environmental schemes RET (Renewable Energy Target) The purpose of the RET scheme was to encourage the additional generation of electricity from renewable sources and reduce emissions of greenhouse gases in the electricity sector From 1 Jan 2011, the RET was split into 2 schemes: LRET (Large-scale Renewable Energy Target) Requires annual surrender of LGCs (large scale generation certificates). One LGC is equivalent to 1 MWh of eligible renewable electricity generated from approved renewable energy sources such as solar energy, wind, or landfill gas LRET places a legal requirement on liable entities to create or purchase a set number of LGCs each year calculated using the Renewable Power Percentage (RPP), set annually in the Regulations. In 2012, the RPP is 9.15% of Origin s electricity purchase load Origin fulfils its LRET liability by contracting with renewable energy generators through PPAs and utilising certificates from the Origin s REC Accumulation Registry SRES (Small-scale Renewable Energy Scheme) Requires quarterly surrender of STCs; 35% prior calendar year liability surrendered in April for Q1, followed by 25% in July for Q2 and 25% October for Q3 and then a wash up in February for the actual December end liability One STC is equivalent to 1 MWh of renewable electricity generated by a solar panel, small-scale wind or small-scale hydro system; or electricity displaced by the installation of a solar water heater or heat pump The number of STCs Origin is liable to surrender is calculated using the Small-scale Technology Percentage (STP), published annually by 31 March. In 2012, the STP is 23.96% of Origin s electricity purchase load 68

69 Carbon - Natural Gas Supply Chain Upstream Retailer Customer Incur direct liability for customer emissions Operators incur carbon cost for upstream field emissions Operators recover under operating agreements from owners (JV parties) JV parties recover from buyers under Gas Supply Agreements Operators of Pipelines and Storage Facilities incur carbon cost for emissions Natural Gas Retailer Customer quotes OTN Large customers may manage own liability by quoting Obligation Transfer Number (OTN) Carbon costs recovered through contracts or regulated market tariffs 69

70 Carbon - Electricity Supply Chain Upstream Generator Retailer Customer Fuel Producers pass through carbon cost for field/mine emissions Eg Coal Mine or Gas Producer Generators incur direct costs for generation emissions and will face indirect costs from upstream fuel supply and transport agreements Retailers do not incur direct liability under the CEP Retailer Market Intensity Carbon costs recovered through contracts or regulated market tariffs Fuel Transporters pass through carbon costs for transport emissions e.g. Gas Pipelines, Rail Price for hedges and wholesale pool purchases increase 70

71 Carbon - LPG Supply Chain Upstream Producers pass through carbon costs from production of LPG. Amount is Producer dependent Downstream Retailers incur effective carbon liability through excise at 3.68 cpl Customers LPG Retailers Rate recovered varies by location Customer rates increase to reflect upstream costs & excise levy Suppliers pass through costs due to reduction in Fuel Tax Credit. Amount based on sea voyage 71

72 Working Capital Impact of Carbon Electricity Retail Generally higher working capital required for indirect emissions Trade receivables will contain approximately three months of the pass through of carbon in retail billings and unbilled accounts (mass market customers billed quarterly in arrears), whereas Trade payables will only contain one month of carbon costs (AEMO payments made weekly a month in arrears) Generation Generally lower working capital required for direct emissions Trade receivables from AEMO settled weekly a month in arrears. The carbon liability for direct emissions will be accrued monthly and settled in June of each year for 75% of forecast annual liability and remaining 25% settled in following February 72

73 Working Capital Impact of Carbon continued Gas Retail Generally lower working capital required for direct emissions Mass Market Customers - Trade receivables for billed and unbilled amounts from customers are generally settled quarterly. The carbon liability for direct emissions will be accrued monthly and settled in June of each year (for 75% of forecast annual liability) and remaining 25% settled in following February. So the liability is accumulating in trade payables throughout the year Commercial & Industrial Customers - Trade receivables for billed and unbilled amounts from customers settled monthly. The carbon liability for direct emissions will be accrued monthly and settled in June of each year (for 75% of forecast annual liability) and remaining 25% settled in following February. So the liability is accumulating in trade payables throughout the year Wholesale If carbon cost included in price, then as for Commercial & Industrial above If liability is legally passed through to wholesale customer (via an OTN under the legislation), there is no change to working capital as there is no financial impact 73

74 Origin s non commodity portfolio develops new retail products and business lines to deliver innovative solutions to customers Consumer Products Product Solar PV Heating & Cooling Hot Water E-mobility Smart Solutions Descriptio n (benefit to customer) Simple, cost-efficient solution for consumers Heating & Cooling appliances Simple, cost-efficient solution to replace hot water systems Providing charging solution to consumers and car manufactures to support the introduction of EV s Customers are able to reduce their energy usage Phase Operating Operating Start-Up Start-Up Start-Up Business Products Product Serviced Hot Water Cogent Acumen Gas Powered A/C Energy Solutions Descriptio n (benefit to customer) Simple, cost-efficient solution for developers Cost-efficient trigeneration solution delivering green stars Competitive, insightful, value-adding metering solutions Reduced-cost airconditioning (depending on geography and network constraints) Customers are able to reduce their energy usage Phase Operating Operating / Start Up Start-Up Start-Up Start-Up 74

75 Revenue Cost of Energy Cost to Serve Capital Includes Servicing and maintaining customers Customer acquisition and retention costs Delivering new product lines 75

76 Cost to serve Half year ended 31 December Change ($ millions) Natural Gas, Electricity & non-commodity cost-toserve (excl. TSA unwind) TSA provision unwind (49) - (49) Total Electricity & Natural Gas Operating Costs ($m) Maintenance Costs ($m) Acquisition & Retention Costs ($m) Customer Accounts ('000) 4,025 2,607 1,418 Cost-to-Serve ($ per customer) (1) Cost-to-serve excluding TSA provision unwind ($ per customer) Cost-to-maintain ($ per customer) Cost-to-acquire / retain ($ per customer) (2) Cost per win / retention ($ per win/retain) (1) The total cost relates to operating expenditure incurred across gas, electricity and noncommodity The benefit from the TSA provision unwind is shown separately but is included in the cost to serve calculation Cost-to-acquire/retain are the costs associated with winning new customers and retaining those that have signalled an intention to transfer to a competitor. All other costs relate to cost-to-maintain Half year ended 31 December Change ($ millions) Natural Gas, Electricity & non - commodity operating costs LPG Operating Costs Total Cost per win / retention = Acquisition & retention costs divided by the sum of customer wins (263 thousand; 273 thousand prior half year) and retains (407 thousand; 245 thousand prior half year)

77 Transitional Services Agreement (TSA) Transitional Services Agreements (TSAs) were a mandatory requirement of the recent acquisition of the retail businesses from state governments (Sun Retail, Country Energy and Integral Energy) The TSAs obliged Origin to make payment to the existing operators of these businesses to continue providing a range of services necessary to operate a retail business (eg customer billing, collections, debtor management, call centre, and other customer services) The cost established in the TSAs is greater than the incremental cost Origin would have incurred had they been provided internally Accordingly, the TSAs represent onerous contracts for which appropriate provisions have been raised in accordance with the accounting standards As a result, the TSA provision is released by the appropriate amount each period to the income statement ensuring that the appropriate cost is recognised for accounting purposes 77

78 Energy Markets Underlying EBIT/Sales margins for FY11 are higher than previously reported in the Retail segment % margin % 3.1% 0.8% (0.5%) (0.8%) 12.8% Reported Retail Underlying EBIT/Sales % Margin Jun 11 Generation Corporate Allocation Non-commodity LPG Restated Energy Markets Underlying EBIT/Sales % Margin Jun 11 78

79 HY2012 Underlying EBIT/Sales margin reconciliation % margin % 3.1% 1.0% (0.6%) (0.8%) 13.8% 14.1% Reported Retail Underlying EBIT/Sales % Margin Dec 10 Generation Corporate Allocation Non- Commodity LPG Restated Energy Markets Underlying EBIT/Sales % Margin Dec 10 Energy Markets Underlying EBIT/Sales % Margin Dec 11 79

80 Revenue Cost of Energy Cost to Serve Capital Includes Depreciation Amortisation 80

81 Performance of internal generation portfolio and externally contracted plant Half year ended 31 December 2011 Base Load Eraring (Contracted) 2, % 48% 5, Darling Downs % 49% 1, Peaking Mt Stuart % 0% 1 - Uranquinty % 3% 92 6 Roma % 1% 3 - Ladbroke Grove % 16% 58 3 Quarantine % 3% 48 2 Renewable Cullerin Range % 39% 53 2 Shoalhaven (Contracted) % 3% 28 2 Internal Generation 5,054 7, Externally Contracted (50% share) Nameplate Plant Capacity (MW) Bulwer Island (27) % 57% Osborne (27,28) % 74% Worsley (27) % 90% TOTAL 5,310 Equivalent Reliability Factor Capacity Factor Electricity Output (GWh) Pool Revenue ($m) Origin Holds a 50% Share. For Osborne, Origin holds a 50% share and contracts 100% of the output.

82 Australia Pacific LNG Accounting Presenter: Vaughn Campbell, Manager Group Financial Instruments 82

83 Agenda 1. APLNG Related Disclosures in Origin 31 December 2011 Interim Financial Statements 2. Original Joint Venture Establishment 3. APLNG Shareholder Receivables 4. APLNG Equity Dilution Transactions Origin Level Impacts Dilution Transaction Mechanics within APLNG 5. APLNG Funding APLNG Project Level Funding Origin Level Funding 6. Foreign Exchange APLNG Project Level Origin Level 7. APLNG Accounting During the Project Construction Period 83

84 84 1. APLNG Related Disclosures in Origin 31 December 2011 Interim Financial Statements

85 Income Statement and Statement of Financial Position Source: Page 7, December 2011 Interim Financial Statements Origin s share of APLNG s Income Statement is Disclosed in the Income Statement Source: Page 9, December 2011 Interim Financial Statements The carrying value of Origin s Investment in APLNG and Origin s Interest Free Payable to APLNG are disclosed in the Statement of Financial Position 85

86 Statement of Cash Flows Source: Page 11, December 2011 Interim Financial Statements Represents the value of funds contributed by Origin to APLNG during the reporting period 86

87 Note 2 - Segments APLNG is a separate Segment for which appropriate segment financial data is disclosed 87 Source: Page 14, December 2011 Interim Financial Statements

88 Note 2 - Segments Specific explanations are provided of all APLNG related items which are excluded from Underlying Profit Source: Page 16, December 2011 Interim Financial Statements 88

89 Note 2 - Segments Source: Page 15, December 2011 Interim Financial Statements 89

90 Note 3 - Profit Source: Page 17, December 2011 Interim Financial Statements Note 6 Investments accounted for using the equity method Source: Page 19, December 2011 Interim Financial Statements 90

91 Note 6 Investments accounted for using the equity method Source: Page 21, December 2011 Interim Financial Statements 91

92 Note 6 Investments accounted for using the equity method 92 Source: Page 22, December 2011 Interim Financial Statements

93 Note 10 Commitments Source: Page 27, December 2011 Interim Financial Statements 93

94 Note 12 Other financial liabilities Source: Page 27, December 2011 Interim Financial Statements Origin s interest free loan payable to APLNG in this Note, with the appropriate classifications between current and non-current at the reporting date 94

95 Management Discussion and Analysis Source: Page 49, Management Discussion and Analysis - December 2011 There are a range of items related to APLNG which are excluded from Underlying Profit. The items in the table above are discussed in more detail in the pages which follow 95

96 96 2. Original APLNG Joint Venture Establishment

97 Original APLNG Joint Venture Establishment - Summary 97 Prior to the transaction with ConocoPhillips in October 2008, APLNG was a 100% owned subsidiary of Origin On 29 October 2008, APLNG issued new shares to ConocoPhillips, giving ConocoPhillips 50% of the equity in APLNG The consideration ConocoPhillips provided APLNG for the shares was: 1. An upfront cash payment of US$5bn Exchange rates at the time of completion resulted in APLNG receiving A$7,464m when it converted the proceeds to AUD Following the transaction Origin received A$6,889m in cash from APLNG by way of capital return (A$2,813m), repayment of intercompany loan (A$500m) and loan payable associated with future expected APLNG cash calls (A$3,575m) Origin and ConocoPhillips agreed to share the benefits of the movement in foreign exchange between the date of agreement and the date of completion (total of A$1,150m). Both parties received A$575m in cash as a loan payable associated with future expected APLNG cash calls (Origin s A$575m forms part of the A$3,575m shown above) 2. A commitment to fund the first A$2.3bn of project cash requirements This commitment has now been consumed within the project 3. Contingent proceeds of US$1bn per Train dependent upon FID being achieved and certain financial hurdles being achieved The first contingent payment from ConocoPhillips to APLNG has been deferred and will now be paid when the project pays out an agreed economic return on the total investment to ConocoPhillips in APLNG Deferral of the second contingent payment is dependent on the joint venture reaching a final investment decision on the second train Origin s share remains at US$500m at the time of payment, regardless of further equity dilutions by APLNG

98 Original APLNG Joint Venture Establishment Full details of the original transaction that created the APLNG joint venture are contained in the following publicly available documents: ASX Release 8 September 2008 Origin selects ConocoPhillips in CSG to LNG JV ASX Release 8 September 2008 Presentation Origin selects ConocoPhillips in CSG to LNG JV Page 5, Management Discussion and Analysis for the Financial Year Ended 30 June 2009 Note 11(b), Page 27, Financial Statements for the Financial Year Ended 30 June 2009 The transaction resulted in a $7,385m gain on dilution to Origin which was recognised in the Income Statement, as an Item Excluded from Underlying Profit in the financial year ended 30 June

99 99 3. APLNG Shareholder Receivables

100 APLNG records receivables from Shareholders Source: Note 6(b), Page 22, December 2011 Interim Financial Statements 100 APLNG shareholders have made legally binding commitments to APLNG in proportion to their equity interest The shareholder receivables established at inception of the joint venture were A$3,575m (undiscounted) each for both Origin and ConocoPhillips. The undiscounted receivable from Sinopec on completion of its initial 15% equity interest was A$1,262m (being A$3,575m x 2 / 0.85 x 0.15) The 31 December 2011 balance disclosed in Note 6(b) above includes the appropriate discounted amount for Sinopec in proportion to its 15% equity interest in APLNG from completion of its investment in August 2011 and also includes the repayments made proportionally by all shareholders in the reporting period

101 Origin s Shareholder Loan from APLNG Source: Page 27, December 2011 Interim Financial Statements 101 The shareholder loan (ie payable by Origin to APLNG) is interest free The loan was established in October 2008 at the inception of the joint venture The loan was required to be discounted to fair value at inception (as it is interest free) At the Origin level, the unwinding of the discount is disclosed as an Item Excluded from Underlying Profit As at 31 December 2011, the discount had been fully unwound The current and non-current classification is determined each reporting period based on the expectations regarding the timing of repayment at the reporting date Repayments by Origin are disclosed in Origin s Consolidated Statement of Cash Flows and Quarterly Production Report and reflect the movement in the total payable (A$173m decrease in December 2011 half year period)

102 Origin s Shareholder Loan from APLNG Source: Page 11, December 2011 Interim Financial Statements Repayments by Origin are disclosed in Origin s Consolidated Statement of Cash Flows Repayments are also disclosed in the Quarterly Production Report, as illustrated below: 102 Source: Page 15, March 2012 Quarterly Production Report

103 APLNG Equity Dilution Transactions

104 APLNG Dilution Transactions Origin Level Impacts The dilution from the issue of new shares within APLNG, results in gains or losses for Origin on its investment in APLNG which is accounted for using the equity method The gain (or loss) for each separate dilution is calculated as the difference between the share of net assets of APLNG held immediately prior to the dilution and the share of net assets of APLNG held immediately subsequent to the dilution In both the ConocoPhillips transaction in 2008 and the Sinopec transaction in 2011, the carrying value of Origin s share of APLNG s net assets was larger after the dilution and accordingly a dilution gain was recognised in Origin s Consolidated Income Statement, as an Item Excluded from Underlying Profit in each case Transaction Date Dilution Gain to Origin (pre-tax) ConocoPhillips October 2008 $7,385m Sinopec (initial 15%) August 2011 $437m 104

105 Dilution Transactions Mechanics within APLNG New shares have been issued in APLNG for all equity transactions to date (ConocoPhillips and Sinopec transactions) All proceeds are received by APLNG and have been used to fund the project expenditure Sinopec upfront proceeds for initial 15% equity interest in August 2011 were US$1,765m and have been utilised US$1,765m = (US$100m x 15 / (1-0.15)) For transactions subsequent to the original JV creation transaction, proceeds are based on two elements: 1. US$m per % equity interest, as at the recorded date of the transaction 2. Alignment for new % interest of cumulative cash injected by other shareholders between the recorded date of the transaction and the completion date Because APLNG is an incorporated structure, the new equity holder is required to gross up the proceeds to account for the fact that they retain their equity % of the proceeds 105

106 Dilution Transactions Mechanics within APLNG 2 nd Sinopec Equity Transaction New shares are expected to be issued by APLNG Sinopec s equity interest in APLNG increased from 15% to 25% Sinopec actually acquired 13.33% of pre transaction equity, as shown in the table below The additional 3.33% (above 10%) of pre-transaction equity was acquired in order to not dilute the original 15% Gross Up of proceeds will be paid by Sinopec to account for Sinopec receiving 10% of the benefit of the proceeds via its ownership in APLNG Party Pre Dilution Position Post Dilution Position # of shares % Equity # of shares % Equity Origin 100m 42.5% 100m 37.5% ConocoPhillips 100m 42.5% 100m 37.5% Sinopec m 15.0% 39.9m 15.0% Sinopec m 10.0% TOTAL 235.3m 100% 266.5m 100% 106 (266.5m 235.3m) / 235.3m = 13.33%

107 Dilution Transactions Mechanics within APLNG 2 nd Sinopec Equity Transaction Upfront Cash Proceeds Example only to demonstrate the mechanism This slide contains hypothetical values that are for illustrative purposes only Equity Element Subscription: 13.33% x US$110m = US$1,467m [a] Proportionate Contribution for Cumulative Shareholder Funding - Hypothetical example cumulative shareholder funding prior to completion of the 2 nd Sinopec Equity transaction: = US$3,000m 1 - Sinopec Initial 15% Transaction Proceeds: = US$1,765m (refer Slide 105) = US$4,765m 2 [b] Proportionate Contribution (= [b] x 13.33%) = US$635m 2 [c] Total Upfront USD Cash Proceeds = US$2,102m 2 [a] + [c] This value is a hypothetical value for illustrative purposes only 2 This value arises from a calculation using hypothetical amounts and is for illustrative purposes only

108 APLNG Funding

109 APLNG Project Level Funding APLNG has been funded entirely by its own operating cash flows and equity from shareholders to date APLNG has recently secured project level financing for the Downstream Liquefaction Plant and Facilities of US$8.5bn (inclusive of interest and fees) The Project Finance Facilities are subject to customary conditions precedent, including certain government approvals and a final investment decision (FID) being taken on the second phase of the APLNG project All pre-completion interest, fees and transaction costs attributable to the project finance facilities will be capitalised for accounting purposes into the LNG Liquefaction Plant and LNG Facility assets within APLNG The Project Finance has been executed in Australia Pacific LNG Processing Pty Limited (a wholly owned subsidiary of APLNG) which has a USD Functional Currency for accounting purposes 109

110 APLNG Project Level Funding Upon commencement of the Project Finance Facilities, APLNG will be funded with a mix of both debt from the Project Finance Facilities and equity from shareholders The project financing will be progressively drawn up to the time of first LNG with all interest and fees capitalised into the principal balance during this period. Following first LNG, the project finance facility will be fully repaid from project cash flows over the period to 2029 Subject to FID being taken on the second phase of the APLNG project, it is expected that APLNG will be funded in the following hierarchy: 1. Firstly - exclusively via the share subscription proceeds from Sinopec associated with its subscription for the additional 10% equity in APLNG 2. Secondly - exclusively via the Project Finance Facilities until the required debt to equity ratio (as specified in the project finance facilities) is reached in the project 3. Thirdly via a pro rata drawdown on the Project Finance Facilities (subject to the maximum project debt to equity ratio and the US$8.5b facility limit) and cash contributions from APLNG shareholders Origin expects that the credit rating agencies will include Origin s share of the drawn APLNG Project Finance debt when calculating credit metrics 110

111 APLNG Project Level Funding Disclosure in Origin Financial Statements Project Finance will be accounted for by APLNG and the interest and fees will be capitalised in the APLNG Financial Statements Because Origin accounts for its investment in APLNG using the equity method, the APLNG Project Finance Facilities will be captured with the Investments accounted for using the equity method on Origin s Consolidated Statement of Financial Position The equivalent to Note 6(b) from the December 2011 Interim Financial Statements will contain an extract from APLNG s Statement of Financial Position which will contain the Interest bearing liabilities attributable to the Project Finance Facilities at the reporting date 111

112 Funding - Origin Level Origin has significant committed undrawn facilities in place to draw upon to meet future APLNG cash calls The interest Origin pays attributable to funding its share of APLNG shareholder cash calls is disclosed as an Item Excluded from Underlying Profit Source: Page 49, Management Discussion and Analysis - December 2011 The APLNG related interest cannot be capitalised in Origin s accounts as Origin is required to account for its investment in APLNG using the equity method and such investments are not qualifying assets for capitalised interest This amount includes all costs that Origin incurs for drawn and undrawn facilities in place to meet Origin's proportionate share of APLNG shareholder funding 112

113 Foreign Exchange Impacts

114 Foreign Exchange APLNG Project Level Construction Period Two thirds of the project capital expenditure is expected to be denominated in AUD with the balance predominantly USD LNG Operations Period LNG revenues are denominated in USD Operating costs are a mix of AUD and USD, with the majority being AUD APLNG will distribute excess cash in USD to shareholders APLNG Project Finance Facilities APLNG Project Finance Facilities are denominated in USD As the Project Finance is executed in a USD functional currency subsidiary, the retranslation of the facilities to AUD each reporting date will not be recognised in the Income Statement Under the equity method, Origin is required to account for its share of the foreign exchange gains and losses recognised by APLNG for project level foreign currency transactions 114

115 Foreign Exchange Origin Level Construction Period Origin is required to fund shareholder cash calls (in proportion to its % equity) in both AUD and USD based on the currency required by APLNG to meet its capital expenditure commitments LNG Operations Period Expected returns from APLNG will be denominated in USD Finance Facilities Origin has finance facilities denominated in both AUD and USD to fund its share of APLNG shareholder cash calls. As future distributions from APLNG are expected to be denominated in USD, borrowing at the Origin level in USD provides alignment and reduces the exposure to USD at the time of future repayment 115

116 Foreign Exchange Gains and Losses Origin Level Disclosures Source: Page 49, Management Discussion and Analysis - December 2011 Source: Page 16, Note 2(b), December 2011 Interim Financial Statements Foreign exchange gains and losses associated with Origin s share of APLNG Project Level foreign currency transactions and Origin Shareholder Level foreign currency transactions are disclosed as an Item Excluded from Underlying Profit in Origin s Consolidated Financial Statements 116

117 APLNG Accounting During the Project Construction Period

118 APLNG Accounting During the Project Construction Period APLNG s existing domestic business will continue to produce CSG and supply to customers in the domestic market under existing contractual arrangements Costs directly attributable to the CSG to LNG development project will be capitalised where appropriate All other revenues and costs will be recognised in the Income Statement Certain costs, although directly attributable to the CSG to LNG development project, are unable to be capitalised for accounting purposes, including certain LNG marketing costs and certain operating costs incurred prior to first commercial operations of the CSG to LNG Project There are also a range of additional upfront compliance costs being incurred (e.g. for PRRT, carbon etc) which are required to be recognised as expenses in the Income Statement As a result, during the period to first LNG, the Income Statement of APLNG will not purely be reflective of the operating performance of the domestic business. Forecasts which are based on extrapolations of these costs into the future will likely result in higher forecast costs than are actually expected 118

119 Australia Pacific LNG Operations Presenter: David Baldwin, Chief Development Officer 119

120 Australia Pacific LNG Rig Fleet Operation APLNG Rig Fleet Drilling Activity Exploration & Appraisal Rigs provide versatility for varied drilling needs Hybrid Coiled Tube Development Rigs provide for fast & repetitive operations E&A Rig 1 E&A Rig 2 Dev Rig 1 Dev Rig 2 Dev Rig 3+ E&A Wells (Drilling & Completion) Monitoring Bores Development Wells (Drilling) E&A drilling Rigs can also be used for Development drilling Completion Activity Workover Rigs for costeffective operations postdrilling Workover Rig 1 Workover Rig 2 Development Wells (Completion) Well Workover (Remediation) Workover Rig 3+ Well Abandonment 120 Exploration wells are typically to extract core samples for testing in a laboratory. Once drilled, the well is filled with cement and abandoned Appraisal wells are drilled to test production rates. They are tested and either abandoned or suspended to be converted into a development well Development wells are drilled as production wells to produce water & gas

121 CSG Well Construction Many stages involved in the construction and operation of CSG wells. Drilling is just one of the steps required to bring a well on-line. Construction Operation Land Access and approvals Drilling Completion Connection Production Workovers / well interventions Well abandonment 121

122 Land Access and Approvals & Drilling Land Access and approvals Drilling Completion Connection Production Workovers / well interventions Well abandonment Land Access & Approvals Build relationship with landowner and agree compensation All approvals addressed Construction of drilling pad and access roads Level pad ready for drilling Drilling The well is created using a drilling rig that rotates a drill string with a bit attached to drill a hole. Once drilled, the well is logged by lowering instruments into the well to record data. The well is then cased by placing steel casing in the well and cementing to the well bore 122

123 Completion & Connection Land Access and approvals Drilling Completion Connection Production Workovers / well interventions Well abandonment Completion Once the well is drilled, the drilling rig demobilises and leaves the lease in preparation for a completion rig. The completion involves preparing the well to be produced. Typically, CSG wells require artificial lift in the form of a down-hole pump to enable production. Some CSG wells require stimulation to enhance production. This is usually in the form of hydraulic fracturing, cavitation or under-reaming. Connection Once the well is completed it requires connection to the surface facilities and gathering network. The surface facilities include the wellhead and surface equipment to measure & produce gas & water into the buried gathering network. Wells requiring artificial lift will also have pump equipment and a power supply. 123 Separator

124 Well Productivity Land Access and approvals Drilling Completion Connection Production Workovers / well interventions Well abandonment All components of capacity are closely tracked to maximise asset utilisation Wellhead capacity is the best indicator of potential productivity Best measure of potential productivity Ability to turndown/shut-in wells 80 TJ per day Significant variability in turndown situations Capacity Production

125 APLNG Operated Drilling Activity 120 Exploration & Appraisal 100 Talinga Development Phase 1 Development Spring Gully Development 4 Rigs + TopSet 3.5 days/well Wells/Quarter Note: Includes commissioning of the 1 st hybrid coil rig. The first 5 wells were controldrilled to ensure safe start-up Note: Includes commissioning of the 2 nd hybrid coil rig. The first 5 wells were control-drilled to ensure safe start-up 4 Rigs + TopSet 4.6 days/well 4 Drilling Rigs 5.2 days/well 3 Drilling Rigs 5.2 days/well 20 0 Q Q Q Maximum Quarterly Capacity (Phase 1 Development Wells) 125 Notes: Exploration & Appraisal Wells and Spring Gully Development Wells take longer than Phase 1 Development Wells due to different well design. Phase 1 average drilling rate to date is 5.2 days/well. Above chart excludes injection bores, water bores & water rigs.

126 Gas Field Development during construction phase Land Access Wells Drilled Wells Completed Wells Producing 126

127 Infrastructure required for gas ramp: Gas Plant Facilities (GPFs) to compress gas in to a pipeline 15 new sets of compressors (trains) located in 7 plants 1 st set of compressors in Australia, construction awarded, contractor mobilising Water Treatment Facilities (WTFs) to purify water 2 new plants plus utilisation of existing Talinga and Spring Gully plants 1 st water to existing plant at Talinga, pipeline awarded, contractor mobilising High Pressure Pipeline Network (HPN) to domestic market 1 st gas requires a new pipeline connection to the existing network Pipeline contract awarded, contractor mobilising Electrical Distribution Network to power compressors New powerlines and switchyards connected to 275kV state network Electrification contracts awarded, contractor mobilising 1 st gas field located at Condabri near Miles township 127

128 Exploration and Production (ex CSG) Presenter: Stuart Hatton, General Manager, Commercial & Finance (Upstream and Development) 128

129 Agenda 1. Exploration Exploration & Appraisal Area of Interest and Successful Efforts 2. Depreciation and Amortisation Depreciation: Buildings, Plant & Equipment and Producing Areas of Interest Amortisation: Policy and worked example 3. Abandonment costs Policy and worked example Changes in Discount and CPI rates 4. 3rd Party Purchases: Cooper Basin 5. Reconciliations of Capex and Revenue 6. Appendix 129

130 Document References 1. Exploration: Expense $118m (Note 3b, FY2011 Financial Statements) 2. Depreciation & Amortisation (including Restoration) Expense $221m (Note 2a, FY2011 Financial Statements): Exploration & Production Restoration, rehabilitation and dismantling Provision $356m (Note 19, FY2011 Financial Statements) :Total Origin Producing areas of Interest assets $773m (Note 11, FY2011 Financial Statements): Total Origin Exploration & Evaluation assets $965m (Note 12, FY2011 Financial Statements): Total Origin 3. Significant Accounting Policies Exploration and Evaluation assets: (Note 1 (M), FY2011 Financial Statements) Development assets: (Note 1 (N), FY2011 Financial Statements) Property Plant & Equipment: (Note 1 (P), FY2011 Financial Statements) Provisions: (Note 1 (Z), FY2011 Financial Statements Restoration, rehabilitation and dismantling) Accounting Estimates and Judgements: (Note 1 (AL), FY2011 Financial Statements) 4. Exploration and Production : Permits and data (page 134 & 135, 2011 Annual Report) 5. Exploration and Production revenue HY12 Revenue $376m (Note 2a, HY2012 Financial Statements) 6. Exploration & Production Commodity revenue YTD December 11 $357.7m (December 2011 Quarterly Production Report, section 1.3.2) 130

131 Exploration & Appraisal - General Exploration (pre drilling): Expense Seismic Geological, Geophysical & Administration (GG&A) Seismic Evaluation Well Planning Drilling & Appraisal: Capitalise Purchase long lead items Drilling Appraisal Development If unsuccessful Write off to the Income Statement 131

132 Area of Interest Accounting Phases Evaluate Determine whether to explore in an AOI, and where within the AOI Complete once a target for exploration is identified with the AOI Explore Determine the presence of hydrocarbons within an identified target Complete once the first successful exploration well has been drilled Appraise Determine the technical feasibility and economic recoverability of a discovery Complete once a final decision is made to develop the discovery Develop Construct and connect the additional wells and infrastructure to enable production Complete once commissioning has completed and asset is operational Operate Operate the assets to extract the hydrocarbons Complete once all economically recoverable hydrocarbons have been extracted 132

133 Area of Interest Area of Interest (AOI): An individual geological area which is considered to constitute a favourable environment for the presence of a mineral deposit or an oil or natural gas field, or has been proved to contain such a deposit or field (AASB 6: Appendix A) Origin s Exploration and Evaluation Assets policy is in line with the standard AASB 6 Paragraph Aus7.2 An exploration and evaluation asset shall only be recognised in relation to an AOI if the following conditions are satisfied: (a) the rights to tenure of the AOI are current; and (b) at least one of the following conditions is also met: (i) the exploration and evaluation expenditures are expected to be recouped through successful development and exploitation of the AOI, or alternatively, by its sale (ii) exploration and evaluation activities in the AOI have not at the end of the reporting period reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in, or in relation to, the AOI are continuing 133

134 Depreciation and Amortisation Amortise Depreciate Drilling Well Heads ABOVE GROUND Platforms Facilities Pipelines SUBSURFACE 134