Annual-Report-2011.Pdf

Aspiring always to lead strategy performance growth

Annual Report 2011 contents

1. A message from your Chairman and Managing Director 1 2. Management Discussion and Analysis 4 3. Directors’ Report 25 4. Lead Auditor’s Independence Declaration 31 5. Remuneration Report 32 6. Board of Directors 54 7. Executive Management Team 56 8. Corporate Governance Statement 58 9. Financial Statements 61 10. Directors’ Declaration 129 11. Independent Auditor’s Report 130 12. Share and Shareholder Information 132 13. Exploration and Production Permits and Data 134 14. Five Year Financial History 138 15. Glossary of Terms 139 A message from your chairman and managing director

Fellow shareholder We are pleased to report that 2011 has been a year in which Origin has continued to take major steps in the development of its business and delivered strong underlying business performance. We successfully secured two major opportunities to consolidate market leading positions, which are already having a significant impact on Origin’s business. These opportunities will underpin further growth in the short, medium and long-term.

In December 2010, we announced the acquisition of a portfolio of NSW Underlying earnings per share, calculated from Underlying Profit, energy businesses, making Origin Australia’s leading energy retailer with increased 10 per cent to 71.0 cents per share on a weighted average one of the country’s largest and most flexible portfolios of owned and capital base of 948 million shares. contracted generation. The acquisition has provided strong initial The Board has declared a final fully franked dividend of 25 cents per contributions to underlying earnings and cash flows. share, taking total dividends for the year to 50 cents per share, in line In July 2011 following the close of the reporting period, Australia Pacific with the 2010 financial year. We also provided a Dividend Reinvestment LNG made a Final Investment Decision in respect of a one train Plan at a 2.5 per cent discount. Origin’s full year dividend of 50 cents per 4.5 million tonnes per annum Coal Seam Gas (CSG) to Liquefied Natural share represents a payout ratio of 70 per cent of Underlying earnings Gas (LNG) project with infrastructure to support a second LNG train. per share. We remain committed to a dividend policy of the higher Origin’s 42.5 per cent share of the first phase of the project requires of 50 cents per share or a 60 per cent payout of Underlying Profit. investment of around US$6 billion over the next four years. The dividend will be paid on 29 September 2011 to shareholders Financially, we face a challenging external environment. While economic of record on 2 September 2011. conditions were strong in developing countries and Australia, financial markets in developed countries exhibited extreme volatility and Prudent capital management uncertainty. In the policy sphere, we have witnessed a rigorous and high As a consequence of the opportunities completed during the year, Origin profile debate over the potential introduction of a carbon price in undertook a number of major capital raising activities in both debt and Australia. We were also faced with extreme weather and natural equity markets. conditions, with tragic consequences for communities, from record floods in Queensland to earthquakes in Christchurch. During March and April, $2.3 billion was raised through equity markets via a 1 for 5 pro rata entitlement offer to partly fund the NSW acquisition. Syndication of a $2.15 billion and US$350 million bank 15 per cent growth in Underlying Profit debt facility was completed in April 2011, and a further €500 million Origin delivered a strong financial performance for the 2011 (approximately $675 million) of hybrid capital securities was raised financial year. in June 2011. We reported 15 per cent growth in Underlying Profit to $673 million, driven by significant contributions from the newly acquired NSW energy businesses as well as from investments Origin has made in its Generation and Exploration and Production businesses during the past two years. The growth in Underlying Profit is accompanied by a 32 per cent increase in Underlying EBITDA to $1.78 billion and a 64 per cent increase in Operating Cash Flow After Tax to $1.59 billion, demonstrating the strength of Origin’s underlying business. Origin reported Statutory Profit for the year of $186 million, down from $612 million in the prior year. A number of items including transition and transaction costs, impairments and a decrease in the fair value of financial instruments resulted in the decrease in Statutory Profit(1).

(1) A full reconciliation from Statutory Profit to Underlying Profit is provided in the MD&A available at ht tp://reports.originenergy.com.au.

Managing Director, Grant King and Chairman, Kevin McCann

1 A message from your chairman and managing director (continued)

The funds raised will meet ongoing capital expenditure requirements Developments in carbon policy of the business and strengthen Origin’s balance sheet ahead of the In July 2011, the Australian Government released its Clean Energy Future company’s contribution to the Australia Pacific LNG project. Debt and plan and the details of its proposed carbon pricing mechanism. The equity markets showed strong support for these initiatives. proposed scheme is due to commence from 1 July 2012 with an interim Origin has an active capital management program designed to hold three-year, fixed-price period of $23 per tonne of CO2, then moving to sufficient liquidity to cover forward contributions to Australia Pacific a market-based floating price on 1 July 2015. Around 500 of Australia’s LNG, and the growth and capital requirements of the balance of largest emitters, including Origin, will be liable under the scheme. Origin’s business. The proposed scheme strikes a reasonable balance between a carbon Origin has also underwritten up to 100 per cent of the interim and final price high enough to bring about real progress in reducing carbon dividends up to and including the period ending 31 December 2012. emissions and provide adequate safeguards for households who will pay the increases in costs necessary to bring about this change. Strong underlying business performance Origin has positioned its business over many years to provide flexibility Growth in Origin’s Underlying EBITDA and Operating Cash Flow After to respond to a carbon pricing regime. We will remain engaged with Tax demonstrates strong performance from the existing business and policy makers and regulators to ensure Origin remains well positioned benefits flowing through initial or increased contributions from a to respond to the proposed carbon price. number of new developments and acquisitions. Exploration and Production Underlying EBITDA increased 30 per cent Outlook or $75 million to $325 due to higher average commodity prices together Origin has funded a number of projects and acquisitions in recent years with a full year contribution from Kupe, a larger share of Otway and which will contribute to Underlying EBITDA performance in the coming higher production from BassGas and Australia Pacific LNG, which was year, including: partially offset by lower production from onshore assets and higher •• a full year contribution from the acquisition of the Integral Energy and exploration expense. Country Energy retail businesses; Generation Underlying EBITDA increased 80 per cent or $145 million to •• a full year contribution from the GenTrader arrangements covering $327 million reflecting the increase in Origin’s owned and contracted the Eraring and Shoalhaven power stations and a contribution from generation capacity from 1,710 MW to 5,310 MW, including a full year the Mortlake Power Station which is expected to commence contribution from the Darling Downs Power Station and four months’ commercial operations during the first half of FY2012; contribution from the GenTrader arrangements for Eraring and •• increased contribution from the Exploration and Production business Shoalhaven power stations. due to lower levels of planned exploration expense versus the prior Retail Underlying EBITDA increased 38 per cent or $217 million to year; and $785 million. This was primarily due to the first four months’ contribution •• improved profitability of Contact in New Zealand as the Stratford from the acquired Integral Energy and Country Energy retail businesses Power Station and the Ahuroa Gas Storage project deliver flexibility in NSW, effective management of the energy portfolio and growth in to the company’s energy supply portfolio. non-commodity sales, predominantly solar. Depreciation and amortisation expense will continue to increase as Contact Energy Underlying EBITDA decreased $1 million to $345 million. capital intensive assets come on line or provide a full year’s contribution. Higher generation volumes and increased wholesale electricity prices in Underlying net financing costs will also increase due to funding for the New Zealand resulted in a NZ$14 million increase in Underlying EBITDA NSW acquisition and completed developments. As Australia Pacific LNG reported by Contact. The foreign exchange impact of a strengthening is a development project, interest expense associated with its funding is Australian Dollar against the New Zealand Dollar resulted in a marginal excluded from the guidance of Underlying Profit. decrease in the Australian Dollar Underlying EBITDA. Origin’s Underlying effective tax rate is expected to remain above 30 per cent due to the non-deductibility for tax purposes of amortisation associated with the Eraring GenTrader arrangements. Based on the current assessment of operations and prevailing market conditions, Origin anticipates Underlying EBITDA to increase by around 35 per cent and Underlying Profit to increase by around 30 per cent for FY2012 when compared with the prior year.

2 A message from your chairman and managing director (continued)

Growth opportunities Board and people In July 2011, Origin committed to fund its 42.5 per cent share of the The health and safety of our people and contractors is Origin’s first US$14 billion of estimated capital expenditure for the first phase of priority. This year, we reported a company-wide Total Recordable the Australia Pacific LNG project incorporating one train of 4.5 million Incident Frequency Rate (TRIFR)(1) of 6.0, an increase from 5.6 in the prior tonnes per annum capacity and infrastructure of a second train. Capital year. Many of Origin’s business units showed a positive change reflecting has also been committed to develop the Te Mihi geothermal project in their commitment to improving safety, however a number of our New Zealand through Origin’s shareholding in Contact, and Origin will colleagues still sustained injuries while at work. We continue to focus fund the continued upgrade of capacity at Eraring Power Station. These on the challenge of improving safety performance. commitments will continue to drive growth in the medium term. Consistent with the ongoing growth of our business, the Origin team Origin is also pursuing a number of opportunities which will expand the has also grown. At the end of the financial year, Origin had a total of scale and diversity of the business and provide earnings growth in the 5,213(2) employees, an increase of 821 people on the prior year, reflecting medium to long-term. expanded operations and project activities. Origin’s options to expand its generation capacity, include the We would like to extend our gratitude to fellow Directors. In the past 12 development of Australia’s largest wind farm at Stockyard Hill in Victoria months, your Board met 11 times and held several workshops to consider and options to convert some open cycle gas turbine sites to highly operational and strategic matters of relevance to Origin. The Board also efficient combined cycle gas turbines. visited some of our key projects and operations which will play an In addition, Origin is pursuing a range of low carbon emission and important role in Origin’s future growth. renewable energy opportunities in growing offshore markets. These On a final note, we would also like to thank the people and businesses include exploration and development of geothermal resources, in Chile and associated with Origin – from our customers and partners, to our Indonesia, assessment and development of hydro resources such as the employees and investors, to the communities in which we live and work. potential Purari Hydro Project in Papua New Guinea and exploration for In a year of so many achievements for Origin, you have all played a role gas in the Canterbury Basin in New Zealand, in South East Asia and Kenya. in the company’s continued growth and success. Since first listing in 2000, Origin has demonstrated the ability to deliver sustained growth in earnings which has resulted in long-term growth in shareholder value. Based on the opportunities available to the company, Origin continues to target long-term growth in Underlying Earnings Per Share of 10 to 15 per cent per annum on average.

Communities H Kevin McCann Grant King We are interested in new ways to create benefits for communities, and Chairman Managing Director last year, to celebrate the 10th anniversary of Origin’s listing on the ASX, we established the philanthropic Origin Foundation. With a focus on education, the Foundation made 12 grants to the value of $4 million in its inaugural year, as well as taking steps to improve our employee giving program, Give2. The Foundation will develop further community partnerships in the coming year. We acknowledge that the development of the CSG industry has attracted community and media attention in Australia. Our operations are heavily regulated by the Queensland and Australian governments and we are committed to operating in an environmentally responsible manner. Origin has CSG operations only in Queensland, where we are experienced in extracting gas from coal seams. For 15 years we have been working with local communities to develop these resources sustainably. Our approach is based on genuine consultation and open communication with landowners and local communities. CSG is a clean and efficient resource which fuels low carbon power generation in Australia and LNG for customers in Asia. LNG also contributes to reducing carbon emissions globally. In the year ahead we will proactively address misinformation about drilling practices and the impact of our operations on water resources. In these areas, we are committed to protecting the environment and the activities of communities.

(1) TRIFR measures the total number of recordable injuries that occur per million hours worked on a rolling 12-month basis. Recordable injuries include lost time cases, restricted work cases and medical treatment cases. (2) Excludes Contact Energy employees.

Origin Energy Annual Report 2011 3 Management Discussion and Analysis for the year ended 30 June 2011

All figures in this report relate to businesses of the Origin Energy Group, 1.3 Final dividend – 25 cps fully franked being Origin Energy Limited (Company or Origin) and its controlled A final fully franked dividend of 25 cps will be paid on 29 September 2011 entities, for the year ended 30 June 2011 (this year or the current year) to shareholders of record on 2 September 2011. Origin shares will trade compared with the year ended 30 June 2010 (the prior year), except ex-dividend from 29 August 2011. This will bring the total dividend where otherwise stated. attributable to FY2011 to 50 cps and is in line with the prior year. A reference to Contact is a reference to Origin’s subsidiary (52.6 per cent The Dividend Reinvestment Plan (DRP) will apply to this dividend. Origin ownership) Contact Energy Limited in New Zealand. In accordance with will apply a discount of 2.5 per cent to the price of shares issued under Australian Accounting Standards, Origin consolidates 100 per cent of the DRP in respect of the dividend for the period ending 30 June 2011. Contact Energy within its result. A reference to Australia Pacific LNG or Origin has entered an agreement to underwrite up to 100 per cent APLNG is a reference to Australia Pacific LNG Pty Limited in which Origin of the interim and final dividends up to and including the period ending had a 50 per cent equity interest as at 30 June 2011. 31 December 2012. The final dividend for the period ending 30 June 2011 A reference to the NSW acquisition or NSW energy assets is a reference will be fully underwritten. to the Integral Energy and Country Energy retail businesses and the Eraring GenTrader arrangements. 1.4 Underlying Profit – $673 million, up 15 per cent All reference to $ is a reference to Australian Dollars unless specifically Underlying Profit for the year increased 15 per cent or $88 million to marked otherwise. All references to debt are a reference to interest $673 million from $585 million. The result primarily reflects a 32 per cent bearing debt only. Individual items and totals are rounded to the nearest increase in Underlying Earnings Before Interest, Tax, Depreciation and appropriate number or decimal. Some totals may not add down the page Amortisation (Underlying EBITDA) ($436 million) resulting from higher due to rounding of individual components. commodity prices and initial contributions from the acquisition of the Integral Energy and Country Energy retail businesses and the GenTrader Origin’s Statutory Profit contains a number of items in this year and the arrangements, the Kupe development and the increased share in the prior year that do not portray the ongoing performance of the business. Otway Gas Project; and offset by higher exploration expense from an Underlying Profit excludes the impact of these items to better illustrate expanded greenfield exploration program. Increased Underlying EBITDA the business performance of the Company. Each Underlying measure was partially offset by higher Underlying depreciation and amortisation discussed has been adjusted to remove these items from both this year charges predominantly from the Generation and Exploration and and the prior year. A detailed reconciliation and description of the items Production business segments ($122 million); an increase in Underlying that contribute to the difference between Statutory Profit and net financing costs due to higher net debt from acquisitions and capital Underlying Profit is provided in Appendix 1. expenditure ($130 million) and a higher tax expense from higher Underlying profits and a higher Underlying effective tax rate ($84 million). 1. Profit and Dividend Declaration Further details are provided in Section 3. 1.1 Statutory Profit – $186 million, down from $612 million 1.5 Underlying EPS – 71.0 cps, up 10 per cent Origin reported a Net Profit After Tax and Non-controlling interests (Statutory Profit) of $186 million for the year ended 30 June 2011, a decrease Underlying EPS calculated on the Underlying Profit increased by (3) of 70 per cent compared with $612 million reported in the prior year. 10 per cent to 71.0 cps from 64.8 cps on a weighted average capital base of 948 million shares. The key factors contributing to the year-on-year change in the Statutory Profit from $612 million to $186 million included a positive contribution Origin’s full year dividend of 50 cps represents a payout ratio of from higher Underlying Profit (+$88 million) offset by a higher impairment 70 per cent based on Underlying EPS. of assets (-$137 million), a decrease in the fair value of financial instruments 1.6 Reconciliation of Underlying Profit and Statutory Profit (-$150 million) and higher transition and transaction costs related to the acquisition of the Integral Energy and Country Energy retail businesses Statutory Profit for this year and the prior year contain the impact of as part of the NSW privatisation process (-$215 million). a number of items, as shown in the table below, that do not portray the ongoing performance of the business. Further details are provided in Section 1.6 – Reconciliation of Underlying Profit and Statutory Profit. In the year to 30 June 2011, these items amounted to an expense of $487 million. This compared with the year to 30 June 2010 in which 1.2 Earnings per share – 19.6 cps, down from 67.7 cps(1) these items had a benefit of $27 million. Basic earnings per share (EPS) calculated based on Statutory Profit decreased by 71 per cent to 19.6 cents per share (cps) from 67.7 cps(1) in the prior year. The weighted average capital base of 948 million shares increased 44 million shares on the prior year(2), mainly due to the $2.3 billion share issuance related to the pro rata equity offering completed in April 2011.

(1) FY2010 Statutory EPS of 69.7 cps restated to 67.7 cps for the bonus element of the rights issue completed in April 2011. (2) 877,972,404 shares as at 30 June 2010 restated to 903,353,998 for the bonus element of the rights issue completed in April 2011. (3) FY2010 Underlying EPS of 66.6 cps restated to 64.8 cps for the bonus element of the rights issue completed in April 2011.

4 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

Reconciliation of Statutory and Underlying Profit

June 2011 June 2010 Impact Impact After Tax & After Tax & Non- Non- controlling controlling Change Change Interests NPAT Interests NPAT ($m) (%)

Statutory Profit 186 612 (426) (70) Items excluded from Underlying Profit Impairment of assets (160) (23) (137) 596 Gain on dilution of Origin’s interest in subsidiaries – 27 (27) (100) Increase/(decrease) in fair value of financial instruments (140) 10 (150) (1,500) Unwinding of discounts resulting from APLNG receivables and payables 12 39 (27) (69) Transition and transaction costs (235) (20) (215) 1,075 Other 36 (6) 42 700 Less total excluded items (487) 27 (514) (1,904) Underlying Profit 673 585 88 15

A more detailed reconciliation of Statutory Profit to Underlying Profit is provided in Appendix 1.

1.7 Operating Cash flow After Tax (OCAT) – $1,585 million, Based on Origin’s current assessment of operations and prevailing up 64 per cent market conditions, Origin anticipates Underlying EBITDA to increase Group OCAT increased by 64 per cent or $620 million to $1,585 million. by around 35 per cent and Underlying Profit to increase by around This was primarily due to higher Underlying EBITDA. 30 per cent for FY2012 when compared with the prior year. Further details are provided in Section 4. In July 2011, Origin committed to fund its 42.5 per cent share of the US$14 billion of estimated capital expenditure for the first phase of the 1.8 Capital expenditure and divestments – $4,954 million, Australia Pacific LNG project, with the option of progressing to a full up 64 per cent two-train development. Capital has also been committed to develop Total capital expenditure including acquisitions was $4,954 million the Te Mihi geothermal project via Origin’s shareholding in Contact and compared with $3,027 million in the prior year. This includes $1,829 million Origin will fund the continued upgrade of capacity of the Eraring Power stay-in-business and growth capital expenditure and $3,125 million of Station. These commitments will continue to drive growth in the capital expenditure on acquisitions, net of transaction costs. medium term. Further details are provided in Section 5. Origin is also pursuing a number of opportunities, which will expand the scale and diversity of its business and provide earnings growth 2. Outlook in the medium to long term. Origin has several options available to expand its generation capacity. During 2011, Origin invested $5.0 billion in developing and growing its These include the development of Australia’s largest wind farm at business. This included $3.1 billion on the acquisition of the Integral Stockyard Hill and the option to convert some open cycle gas turbine Energy and Country Energy retail businesses and entry into the Eraring sites to highly efficient combined cycle gas turbines. GenTrader arrangements. In addition, in July 2011, Origin committed US$6.0 billion for the first phase of the Australia Pacific LNG project. In addition, Origin is pursuing a range of low carbon emission and This will drive short, medium and longer term growth for Origin. renewable energy opportunities in growing offshore markets. These include exploration and development of geothermal resources, In the coming year, Origin’s Underlying EBITDA will benefit from: particularly in Chile and Indonesia, assessment and development of •• a full year contribution from the acquisition of the Integral Energy hydro resources such as the potential Purari Hydro Project in Papua New and Country Energy retail businesses; Guinea and the exploration for gas particularly in the Canterbury Basin •• a full year contribution from the GenTrader arrangements covering in New Zealand, in South East Asia and Kenya. the Eraring and Shoalhaven power stations and contributions from Since first listing in 2000, Origin has demonstrated the ability to deliver the Mortlake Power Station which is expected to commence sustained growth in earnings which has resulted in long-term growth in commercial operations during the first half of the financial year; shareholder value. Based on the opportunities available to the Company, •• increased contribution from the Exploration and Production business Origin continues to target long term growth in Underlying EPS of 10 to due to lower levels of planned exploration expense versus the prior 15 per cent per annum on average. year; and •• improved profitability in Contact in New Zealand as the Stratford Power Station and the Ahuroa Gas Storage project deliver flexibility to Contact’s energy supply portfolio. Depreciation and amortisation expense will continue to increase as capital intensive assets come on line or provide a full year’s contribution. Underlying net financing costs will increase associated with the funding of the NSW acquisition and completed developments. As Australia Pacific LNG is a development project, interest expense associated with its funding is excluded from the guidance of Underlying Profit. Origin’s Underlying effective tax rate is expected to remain above 30 per cent due to the non-deductibility for tax purposes of amortisation associated with the GenTrader arrangements.

Origin Energy Annual Report 2011 5 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

3. Review of Financial Performance

2011 2010 Change Year ended 30 June ($m) ($m) (%)

(1) FY2010 Underlying EPS of 66.6 cps restated to 64.8 cps for the bonus element of the rights issue completed in April 2011. (2) FY2010 Statutory EPS of 69.7 cps restated to 67.7 cps for the bonus element of the rights issue completed in April 2011.

3.1 External revenue – $10,344 million, up 21 per cent Total external revenue increased by 21 per cent or $1,810 million to $10,344 million. This reflected an increase in external revenues from the Retail business segment ($1,679 million) predominantly associated with the acquisition of the Integral Energy and Country Energy retail businesses and entry into the Eraring GenTrader arrangements, together with increased revenues from the Exploration and Production business segment ($145 million). Further details are available in Section 8. 3.2 Underlying EBITDA – $1,782 million, up 32 per cent For the year ended 30 June 2011, Underlying EBITDA increased 32 per cent or $436 million to $1,782 million. The Underlying EBITDA contributions by business segment are presented in the following table: Underlying EBITDA by business segment

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Exploration & Production 325 250 30 Generation 327 182 80 Retail 785 568 38 Contact 345 346 0 Underlying EBITDA 1,782 1,346 32

6 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

3.3 Underlying depreciation and amortisation – $539 million, up 32 per cent Underlying depreciation and amortisation increased by 32 per cent or $131 million to $539 million. This was primarily due to the higher asset base and increased production associated with the Darling Downs, Eraring and Shoalhaven power stations and the Kupe and Otway gas developments. 3.4 Underlying share of interest, tax, depreciation and amortisation of equity accounted investees – $49 million, up 17 per cent The share of Underlying interest, tax, depreciation and amortisation (ITDA) attributable to equity accounted investees increased 17 per cent or $7 million to $49 million. This was primarily due to an increase of $10 million associated with Origin’s interest in Australia Pacific LNG, which had increased due to additional assets becoming operational during the period and an increase in production in the current year. 3.5 Underlying EBIT – $1,194 million, up 33 per cent For the year ended 30 June 2011, Underlying earnings before interest and tax (Underlying EBIT) increased 33 per cent or $298 million to $1,194 million. The Underlying EBIT contributions by business segment are presented in the following table: Underlying EBIT by business segment

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Exploration & Production 62 48 29 Generation 208 131 59 Retail 710 503 41 Contact 214 214 – Underlying EBIT 1,194 896 33

3.6 Underlying net financing costs – $143 million, up $130 million The net financing costs for the full year comprise an interest expense of $179 million and interest revenue of $36 million compared with interest expense of $126 million and interest revenue of $113 million in the prior year. Capitalised interest was $153 million compared with $156 million in the prior year. 3.7 Income tax expense on Underlying Profit – $316 million, up 36 per cent Underlying income tax expense for the full year increased 36 per cent or $84 million to $316 million reflecting higher Underlying profit before income tax and a higher Underlying effective tax rate of 30 per cent compared with 26 per cent in the prior year. The Underlying effective tax rate was higher than the prior year mainly due to tax benefits in the prior year arising from recognition of previously unbooked capital losses. 3.8 Non-controlling interests share of Underlying Profit – $62 million, down 6 per cent Underlying Profit attributable to Non-controlling Interests decreased 6 per cent to $62 million from $66 million. 3.9 Underlying Profit – $673 million, up 15 per cent Underlying Profit for the year increased 15 per cent or $88 million to $673 million from $585 million.

4. Operating Cash flow After Tax (OCAT) – $1,585 million, up 64 per cent

2011 2010 Change Change Year ended 30 June ($m) ($m) ($m) (%)

Underlying EBITDA 1,782 1,346 436 32 Change in working capital (37) (179) 142 (79) Stay-in-business capex (203) (179) (24) 13 Share of APLNG OCAT less EBITDA 11 18 (7) (39) Exploration expense 118 45 73 162 NSW acquisition related liabilities (128) – (128) – Other(1) 39 16 23 144 Tax paid 3 (102) 105 103 Group OCAT 1,585 965 620 64 Net interest paid (269) (165) (104) 63 Free cash flow 1,316 800 516 64 Productive Capital 11,571 8,423 3,148 37 Group OCAT Ratio(2) 13.0% 10.9% 2.1% 19

(1) The add-back of non-cash equity accounted profits excluding Australia Pacific LNG and movements in provision balances are included within the “Other” line item. (2) Group OCAT Ratio = (OCAT – interest tax shield)/Productive Capital.

One of Origin’s internal measures of performance is its Group OCAT Ratio, which is an indicator of the cash returns the Company is generating from productive funds employed within its operations. The Group OCAT Ratio increased from 10.9 per cent in the prior year to 13.0 per cent due to significant returns from new acquisitions, higher cash generation from existing assets and lower working capital. Details of the contributing factors to this increase are provided following.

Origin Energy Annual Report 2011 7 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

Group OCAT increased by 64 per cent or $620 million to $1,585 million. •• Exploration and Production – $324 million in total, including: The key drivers of the increase in Group OCAT were: — Ironbark CSG – $78 million (including $57 million of capitalised interest); •• $436 million increase in Underlying EBITDA; — Australia and New Zealand Offshore Exploration $58 million; •• an improvement in working capital which increased by only $37 million compared to a $179 million increase in FY2010. This was primarily due — Australia and New Zealand Offshore Production $57 million; to the timing of creditor payments in Exploration and Production — Australia onshore Exploration and Production $45 million; and ($62 million) and timing of network creditors in Retail ($130 million). — South East Asia $35 million. This has been partly offset by higher debtors in Retail due to increased •• Contact – $341 million in total, including: solar sales; — Te Mihi Geothermal Development – $71 million; •• an increase in exploration expense of $73 million which is added — Wairakei (steam field works and drilling) – $68 million; back to cash flows; — Inventory gas at Ahuroa Gas Storage Facility – $41 million; and •• changes in other items of $23 million mainly due to higher — Enterprise Transformation Project – $38 million. employee-related provisions; and •• a net tax refund of $3 million in FY2011 compared with Capital expenditure on acquisitions totalled $3,125 million for the tax paid of $102 million in FY2010. acquisition of the Integral Energy and Country Energy retail businesses and entering the Eraring GenTrader arrangements, net of transaction This was partly offset by: costs. •• an increase of $24 million in stay-in-business capex, primarily in the Total capital expenditure including acquisitions was $4,954 million Contact and Generation business segments; and compared with $3,027 million(2) in the prior year. •• a total of $128 million for the unwinding of non-cash provisions Following completion of a transaction in late 2008 in which ConocoPhillips relating to the NSW acquisition. This includes the utilisation of the became a 50 per cent shareholder in Australia Pacific LNG, ConocoPhillips provision for the onerous Transitional Services Agreements (TSAs) is funding expenditure by Australia Pacific LNG to a cumulative total of of $35 million and the unwinding of the liability in respect of the $2.3 billion. As at 30 June 2011, $284 million of the $2.3 billion remained acquired power purchase agreements, hedge contracts and green to be spent. rights contracts ($93 million). Origin will start contributing to capital expenditure within Australia Net interest paid was $104 million higher than the prior year, reflecting Pacific LNG following completion of ConocoPhillips’ remaining higher average net debt balances and higher average interest rates. $284 million commitment and utilisation of Sinopec’s $1.8 billion equity Free cash flow available for funding growth and distributions to contribution. On current estimates, Origin will commence contributing shareholders increased by 64 per cent from $800 million to its share of capital expenditure to Australia Pacific LNG in the December $1,316 million. quarter of FY2012. Productive Capital in the business, calculated on a 12 month weighted average basis, increased by 37 per cent to $11,571 million. Major assets 6. Funding and capital management contributing to this increase were a full year inclusion of Darling Downs Power Station, which commenced commercial operation on 1 July 2010; 6.1 Capital management initiatives a four month inclusion of the Integral Energy and Country Energy retail During the year, Origin has undertaken a number of capital management businesses, and Eraring and Shoalhaven power stations; a full year initiatives to fund acquisitions and the ongoing capital expenditure inclusion of Kupe compared with six months in the prior year; and a full requirements of the business while preserving balance sheet strength. year inclusion of an additional 36 per cent interest in the Otway Gas Origin raised $3.3 billion of funding to support the transaction to acquire Project compared with three and a half months in the prior year. the Integral Energy and Country Energy retail businesses, and to enter The combined impact of the increased Group OCAT and Productive into the GenTrader arrangements with Eraring Energy as announced on Capital resulted in a Group OCAT ratio for the year ended 30 June 2011 15 December 2010. The funding facilities included a $2.2 billion bridge of 13.0 per cent compared with 10.9 per cent in the prior year. facility and a three to five year syndicated bank facility. The bridge facility was subsequently refinanced through a number of (1) 5. Capital expenditure – $4,954 million, transactions, including a $2.3 billion pro rata equity entitlement offer up 64 per cent completed in April 2011. In addition, Origin expanded the three to five Capital expenditure on stay-in-business and growth projects was year syndicated bank facility to refinance $900 million of existing bank $1,829 million for the year to 30 June 2011. debt and also accepted oversubscriptions which resulted in the Stay-in-business capital expenditure was $203 million compared with syndication of a $2.15 billion and US$350 million three to five year bank $179 million in the prior year, primarily due to increases in the Generation facility in April 2011. Origin also refinanced a number of small bilateral and Contact business segments reflecting their larger asset bases. facilities during the year. Growth capital expenditure (including capitalised interest) was In June 2011, Origin undertook a €500 million ($675 million) hybrid $1,626 million, 2 per cent lower than in the prior year. This included issue, which was hedged into US Dollars. This instrument obtained expenditure of $35 million or more in the following areas: 100 per cent equity credit from Standard & Poor’s and 50 per cent equity credit from Moody’s. •• Retail – $497 million in total, including: In June 2011, Origin contributed NZ$202 million to Contact’s NZ$351 million — Environmental product certificates – $291 million; and pro rata entitlement offer, increasing its shareholding in Contact to — Retail Transformation – $118 million. 52 . 6 p e r c e n t . •• Generation – $464 million in total, including: — Mortlake Power Station – $230 million; — Eraring Power Station – $56 million; and — Transform Solar joint venture – $38 million.

(1) The capital expenditure below is based on cash flow amounts rather than accrual accounting amounts and includes capitalised interest. (2) FY2010 capital expenditure is restated to conform with the current year’s classification.

8 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

Post 30 June 2011, Origin announced that Australia Pacific LNG would to the institutional offer and $1,155 million related to the retail offer. proceed with the first phase of a two-train CSG to LNG development. Other factors contributing to the increase are Statutory Profit after tax The first phase development will cost approximately US$14 billion and and before Non-controlling Interests of $248 million, $61 million of share Origin’s funding for its contributions will be covered by a range of issuance (DRP) and $18 million from share-based payments. These amounts sources including: are partially offset by $408 million of dividends paid for the full year. •• existing committed undrawn debt facilities and cash totalling Excluding the mark-to-market adjustment for the consolidated around $3.9 billion at 30 June 2011; entity’s financial instruments, adjusted shareholder’s equity increased •• cash flows from Origin’s underlying business; 18 per cent from $11,552 million at 30 June 2010 to $13,639 million •• new debt facilities, which may include the consideration of project at 30 June 2011. financing at the Australia Pacific LNG level; and 6.3.3 Gearing ratios(2) •• up to $1 billion from the underwritten DRP covering the next four The following two tables provide different calculations of the Net Debt dividend payments. to Net Debt plus Equity ratio based on unadjusted and adjusted The underwritten DRP will commence with the final dividend for the positions discussed in Sections 6.3.1. financial year ended 30 June 2011 and will apply a 2.5 per cent discount. Using adjusted values to calculate the Net debt to Net debt plus equity Origin will actively manage its existing debt facilities and, as required ratio removes any short-term volatility caused by changes in fair value of from time to time, will add further debt facilities to ensure sufficient financial instruments and is a better long-term measure of the strength liquidity exists to cover its expected forward contributions to Australia of Origin’s capital structure. Pacific LNG and other capital expenditure required for the balance of Origin’s business. Calculation of Net debt to Net debt plus equity: Origin currently holds BBB+ (stable outlook) and Baa1 (negative outlook) long-term credit ratings with Standard & Poor’s and Moody’s respectively. 2011 2010 ($m) ($m) 6.2 Share capital Net debt as reported 4,060 2,663 During the year, Origin issued an additional 183,838,387 shares raising Equity as reported 13,516 11,438 a total of $2.3 billion. This included 177,100,055 shares issued under the Net debt to (Net debt + equity) 23.1% 18.9% pro rata equity entitlement offer which raised $2.3 billion; 3,929,332 shares issued under the DRP which raised $61 million; and 2,809,000 shares issued as the result of the exercise of long-term incentives which raised Calculation of Adjusted Net debt to (Net debt plus equity) – $18 million. excluding movements in fair value of financial instruments: As a consequence, the total number of shares on issue at 30 June 2011 2011 2010 increased by 183,838,387 shares to 1,064,507,259 from 880,668,872 at ($m) ($m) 30 June 2010. The weighted average number of shares used to calculate basic EPS at Adjusted Net debt 4,283 2,835 30 June 2011 increased by 44,387,901 to 947,741,899 from 903,353,998(1) Adjusted equity 13,639 11,552 as at 30 June 2010. Adjusted Net debt to (Net debt + equity) 23.9% 19.7% 6.3 Net debt and equity 6.3.1 Net debt 6.3.4 Net debt and gearing ratio excluding Contact The net debt(2) for the consolidated entity increased to $4,060 million Origin owns 52.6 per cent of the ordinary shares of Contact and is at 30 June 2011 from $2,663 million at 30 June 2010, a net movement therefore required under the accounting standards to consolidate all of of $1,397 million. Contact’s assets and liabilities in Origin’s Statement of Financial Position. This includes consolidating 100 per cent of Contact’s outstanding debt The calculation of this debt amount includes a favourable mark-to-market obligations. However, under the terms of those debt obligations Origin adjustment of $223 million as at 30 June 2011 compared with a favourable has no liability associated with Contact’s debt. adjustment of $172 million as at 30 June 2010. Favourable adjustments act to decrease the net debt quoted. Excluding Contact’s debt obligations, Origin has an adjusted net debt position as at 30 June 2011 of $3,365 million compared with an adjusted Excluding these mark-to-market adjustments, the “adjusted net debt” net debt position of $1,747 million as at 30 June 2010, a change of for the consolidated entity was $4,283 million at 30 June 2011 compared $1,618 million. with a $2,835 million adjusted net debt balance at 30 June 2010, a net movement of $1,448 million. 7. Risk management The movement in the adjusted net debt of $1,448 million is primarily Origin manages its risk exposure in energy markets through a combination attributable to Origin’s funding requirements for the purchase of the of natural hedges in the business, contracts and financial hedges. Policy Integral Energy and Country Energy retail businesses and the Eraring limits have been approved by the Origin Board for products or financial GenTrader arrangements and for Origin’s ongoing capital expenditure variables for which there is a material risk exposure. Regular reporting program. is provided to the Board to review exposures and compliance with these 6.3.2 Equity limits. Shareholders’ equity increased 18 per cent or $2,078 million from Consistent with this policy framework, Origin undertakes hedging of its $11,438 million at 30 June 2010 to $13,516 million at 30 June 2011. exposure to electricity and natural gas prices, environmental products, oil prices, foreign currency exchange rates and interest rates. The increase of $2,078 million is predominantly due to $2,267 million (net of transaction costs) raised through the pro rata equity entitlement Reaching a FID on Australia Pacific LNG introduces additional exposure offer undertaken in March and April 2011. A total of $1,112 million related to interest rate and foreign currency risk in the short term and oil prices in the longer term.

(1) 877,972,404 shares restated as 903,353,998 increased by the bonus element of the rights issue completed in April 2011. (2) The reported numbers for net debt include interest bearing debt obligations only.

Origin Energy Annual Report 2011 9 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

7.1 Electricity and gas currency hedges. The remaining portion does not have associated In the electricity and gas markets, Origin assesses its policy limits against foreign currency hedges, as this relates to production from the Kupe a combination of profit at risk and extreme events. Origin has arrangements asset, which reports its earnings in US Dollars. in place to cover extreme price and demand events as well as average 7.4 Foreign currency exchange rates forecast demand for the near to mid-term. Origin prudently manages its foreign exchange exposure through 7.2 Environmental products external hedging arrangements where appropriate. Origin is exposed to liabilities from State and Federal based government Origin is primarily exposed to US Dollar exchange rate risk through the environmental schemes. These liabilities accrue during a set of annual sale of commodities, the translation of Origin’s US Dollar denominated compliance periods and are typically related to electricity supply and Exploration and Production activities in New Zealand, the translation demand. An inventory of certificates is accrued during the period in order of US Dollar denominated debt obligations and future committed to meet the expected liability at the end of each compliance period. US Dollar-denominated capital expenditure primarily associated with Origin is aware of the intention of the Federal Government to introduce Origin’s interest in Australia Pacific LNG. New Zealand Dollar exchange the Clean Energy Future Policy Package that places a value on carbon. rate risk arises through the translation of Contact’s earnings to Australia Origin has positioned its business over many years to provide flexibility Dollars. to respond to the imposition of a carbon pricing regime. Origin will remain 7.5 Interest rates engaged with policy makers and regulators to ensure the business remains well positioned to respond to the proposed carbon price. Origin’s consolidated average interest rate paid on debt for the full year was 7.1 per cent. This includes Contact’s New Zealand Dollar 7.3 Oil and condensate denominated debt and Origin’s Australian Dollar, US Dollar and New On an ongoing basis, Origin assesses its anticipated medium-term Zealand Dollar debt obligations. Origin’s average annual interest rate production volumes, current forward oil prices and risk exposure to paid excluding Contact was 7.1 per cent. movement in oil prices. As at 30 June 2011, Origin held cash on deposit and cash equivalents of For the financial year ended 30 June 2011, Origin held hedge contracts approximately $728 million compared with $823 million at 30 June 2010, for 600 thousand barrels in total, of which 180 thousand barrels of oil including Contact. This cash was invested at an average rate of hedges related to production from the Kupe asset. Given Kupe reports 5.1 per cent for FY2011. its earnings in US Dollars, Origin did not have associated foreign currency Approximately 55 per cent of Origin’s consolidated debt obligations are hedges for these volumes. hedged to 30 June 2012 at an average rate of 6.2 per cent including Origin currently has 990 thousand barrels of its anticipated production margin. Excluding Contact, Origin has 47 per cent of its debt obligations hedged for the year to June 2012. Of these hedged barrels, a portion is hedged at an average rate of 6 per cent including margin. This hedge allocated against Australian production and has associated foreign percentage gradually reduces over the following five plus years.

8. Operational Review 8.1 Exploration & Production Financial performance

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Total revenue 701 522 34 Underlying EBITDA before exploration expense 443 295 50 Underlying EBITDA 325 250 30 Underlying EBIT 62 48 29

Operational performance

Change Year ended 30 June 2011 2010 (%)

Total Production (PJe) 135 104 30 Total Sales (PJe) 150 117 28 Commodity Sales Revenue ($m)(1) 835 632 32 Proved plus Probable (2P) Reserves (PJe)(2) 7,041 6,207 13

(1) Includes Australia Pacific LNG. (2) Includes Origin 50 per cent share of Australia Pacific LNG reserves as at 30 June 2011. Origin’s share post-Sinopec completion on 9 August 2011 is 42.5 per cent diluting Origin’s 2P reserves by 883 PJe.

Origin’s Exploration and Production business segment reported record annual sales volumes and commodity revenues during the year. Underlying EBITDA for the Exploration and Production business segment increased by 30 per cent or $75 million to $325 million from $250 million in the prior year. This was driven by higher average commodity prices together with a full year contribution from the Kupe development compared with six months in the prior year; a full year contribution of an additional 36 per cent interest in the Otway Gas Project compared with three and a half months in the prior year; higher production from BassGas following an extended maintenance shutdown in the prior year; and a higher contribution from Australia Pacific LNG. These increases were partially offset by a significantly higher exploration expense of $118 million in the current year from an expanded greenfield exploration program compared with $45 million in the prior year and lower contributions from onshore producing assets.

10 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

The Australia Pacific LNG joint venture continued to make substantial progress in both development of the domestic gas supply business and its CSG to LNG export project. Progress on the CSG to LNG project included signing of a binding equity subscription and LNG sales agreements with Sinopec in April 2011 and a FID on the first phase of a two-train CSG to LNG project in late July 2011. In addition, Origin continued to grow its reserves base, with 2P reserves up by 834 PJe or 13 per cent to 7,041 PJe as of 30 June 2011. During the course of the year, production and sales are reported to the market on a consolidated basis, which includes Origin’s 50 per cent share of Australia Pacific LNG. In the financial statements, the financial performance of Australia Pacific LNG is equity accounted. Consequently, revenue and expenses from Australia Pacific LNG do not appear explicitly in the Exploration and Production business segment results. Origin’s 50 per cent share of Australia Pacific LNG’s Underlying EBITDA is included in the Underlying EBITDA of the Exploration and Production business segment. Australia Pacific LNG’s Underlying depreciation, amortisation, interest and tax expense are accounted for between Underlying EBITDA and Underlying EBIT in the line item “Share of interest, tax, depreciation and amortisation of equity accounted investees”. A summary of Australia Pacific LNG’s accounts is provided in Appendix 3. 8.1.1 Production, Sales and Revenues

Origin Upstream APLNG excluding Year ended 30 June 2011 (50%) APLNG Total

Consolidated Production, Sales and Commodity Revenue Production (PJe) 48 87 135 Sales (PJe) 54 96 150 Commodity Revenue ($m) 168 667 835 Statutory Revenue Commodity Sales Revenue ($m) 667 667 Other Revenue ($m) 34 34 Total Revenue ($m) 701 701

Origin Upstream APLNG excluding Year ended 30 June 2010 (50%) APLNG Total

Consolidated Production, Sales and Commodity Revenue Production (PJe) 36 68 104 Sales (PJe) 38 79 117 Commodity Revenue ($m) 125 507 632 Statutory Revenue Commodity Sales Revenue ($m) 507 507 Other Revenue ($m) 15 15 Total Revenue ($m) 522 522

Production Origin’s share of total production was up 31 PJe or 30 per cent to 135 PJe for the full year. Significant contributors to this result included a 36 per cent increase in Origin’s share of production from Australia Pacific LNG (+12.8 PJe), Origin’s increased share of the Otway Gas Project production (+12.3 PJe), a full year from the Kupe Gas Project compared with six months in the prior year (+7.1 PJe), and higher production from BassGas due to greater plant availability (+2.7 PJe). These increases were partially offset by lower production from Origin’s onshore assets in the Cooper, Surat, Perth and Taranaki basins (-4.1 PJe). Excluding Australia Pacific LNG, production increased by 19 PJe or 28 per cent. Further information regarding production, sales volumes and revenues is provided in Origin’s Quarterly Production Report and, in particular, the report for the June Quarter and year to 30 June 2011, available at Origin’s website w w w.originenergy.com.au. Underlying Revenue and Expenses excluding Australia Pacific LNG Total Revenue excluding Australia Pacific LNG increased by 34 per cent from $522 million in the prior year to a record $701 million for the current year. This reflected an increase in sales volumes of 17 PJe or 22 per cent from 79 PJe in the prior year to 96 PJe this year, together with higher average prices across all commodities. Expenses relating to sales and operations excluding Australia Pacific LNG increased by 18 per cent to $321 million from $273 million in the prior year. This increase in expenses was substantially lower than the increase in sales volumes and revenues of 22 per cent and 34 per cent respectively.

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Cost of Goods Sold 70 58 21 Stock movement 1 8 (88) Royalties, tariffs and freight 57 40 43 General operating costs 193 167 16 Sub-total 321 273 18 Exploration 118 45 162 Total Expenses 439 318 38

Origin Energy Annual Report 2011 11 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

For the current year, Cost of Goods Sold was $70 million compared with $58 million in the prior year, reflecting an increase in the volume of third party purchases, predominantly in the Cooper Basin. Stock movement expense was $1 million compared with $8 million in the prior year. Royalties, tariffs and freight increased by $17 million from $40 million to $57 million. This increase is primarily due to an increase in royalties paid by Kupe, which increased production substantially this year and was no longer able to claim construction deductibles against royalty expenses as it had in the prior year. General operating costs increased by 16 per cent or $26 million to $193 million. This compared with a 28 per cent increase in corresponding production volumes. Consequently, Origin’s general costs per unit of production reduced by 10 per cent to $2.22 per GJe. During the year, Origin continued an expanded greenfield exploration program, both domestically and internationally. This included three offshore wells in Australia and New Zealand, four wells in South East Asia and a substantial seismic exploration program. Origin has actively managed its exposure across a number of its exploration areas and recovered back costs in two areas through farmout arrangements in Kenya and in the Canterbury Basin in New Zealand. Expanded exploration activity has led to an increase in exploration expense net of farmout receipts to $118 million before tax, compared with $45 million in the prior year. 8.1.2 Earnings

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Total Revenue 701 522 34 less expenses (439) (318) 38 add Share of Underlying EBITDA of Australia Pacific LNG 63 45 40 Underlying EBITDA 325 250 30 less Depreciation & Amortisation (221) (170) 30 less ITDA Share of Equity Accounted Entities(1) (42) (32) 31 Underlying EBIT 62 48 29

(1) Includes Australia Pacific LNG.

Underlying EBITDA Origin undertakes a full assessment of its reserves on an annual basis Underlying EBITDA increased 30 per cent or $75 million to $325 million. at the end of the financial year. A full statement of reserves attributable This was driven by higher average commodity prices, a full year to Origin at 30 June 2011 is included in Origin’s Annual Reserves Report contribution from the Kupe Gas Project, Origin’s increased share of the released to the ASX on 28 July 2011 and available on Origin’s website at Otway Gas Project, higher production from BassGas due to greater plant w w w.originenergy.com.au/news/article/asxmedia-releases/1322. availability and a 36 per cent increase in production from Australia 8.1.4 Exploration and Production Operations Pacific LNG. These increases were partially offset by lower contributions from Origin’s onshore production assets and significantly higher Australia excluding Australia Pacific LNG exploration expense. Origin’s Australian operations include producing assets in the Bass and Underlying Depreciation and Amortisation Otway basins off the south coast of Victoria, the Cooper Basin in central Australia, the Surat Basin in Queensland and the Perth Basin in Western Underlying depreciation and amortisation charges excluding Australia Australia. Pacific LNG increased 30 per cent or $51 million to $221 million primarily due to a full year of production from Kupe and an increased share in the Collectively, these assets produced 70 PJe net to Origin during the year, Otway project. an increase of 12 PJe or 21 per cent on the prior year. Production for the year included 58 PJ of sales gas, 1.3 million barrels of crude oil and Underlying share of ITDA Share of Equity Accounted Entities condensate and 66 ktonnes of LPG. Origin’s share of Underlying ITDA of Australia Pacific LNG is equity Offshore Australia accounted and included in a single line item between Underlying EBITDA and Underlying EBIT. Origin’s share of Australia Pacific LNG’s Underlying Production from Origin’s offshore Australian assets in the Otway and ITDA expense increased by 31 per cent from $32 million to $42 million, Bass basins was 49 per cent higher than the prior year. This reflected an driven by an increase in Underlying depreciation and amortisation due increase in Origin’s equity interest in the Otway Basin from 31 per cent to to additional assets becoming operational during the period and an 67 per cent and a return to higher levels of production in the Bass Basin increase in production in the current year. following an extended shutdown in the prior year. In the coming year, production from these assets is expected to be 10 per cent to 15 per cent Underlying EBIT lower due to an extended shutdown of the BassGas facilities as phase 1 As a consequence of the changes noted above, Underlying EBIT for the of the Mid-Life Enhancement project is implemented and a 30 day year increased 29 per cent or $14 million to $62 million. planned maintenance shutdown of the Otway facilities. In the Otway Basin, work has continued on the inlet compression project, 8.1.3 Reserves which is expected to be commissioned in the first half of FY2012. The 2P reserves attributable to Origin across its areas of interest at 30 June 2011 totalled 7,041 petajoules equivalent (PJe)(1), an increase of 834 PJe or 13 per cent from 30 June 2010. The overall increase of 834 PJe included additions, revisions and corrections totalling 968 PJe together with production of 135 PJe.

(1) The statements in this Management Discussion & Analysis relating to reserves and resources for other assets have been compiled by Andrew Mayers, a full-time employee of Origin. Andrew Mayers is qualified in accordance with ASX Listing Rule 5.11 and has consented to the form and context in which these statements appear. Origin’s interests in exploration and production tenements (held directly or indirectly) may change from time to time and some of APLNG’s CSG tenements are subject to commercial arrangements under which, after the recovery of acquisition, royalty, development and operating costs, plus an uplift on development and operating costs, a portion of some of the interests may revert to previous holders of the tenements. Origin has assessed the potential impact of reversionary rights associated with such interests based on the economic tests consistent with these CSG reserves and based on that assessment does not consider that reversion will impact the reserves quoted within this report. 12 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

Planning activities have also continued for development of the The first phase provides an economically attractive project and allows all Geographe field and for the potential development of the Halladale and the synergies of a two-train project to be captured once further off-take Blackwatch discoveries. Evaluation studies have resulted in a downward agreements are finalised. Australia Pacific LNG is well positioned to revision of approximately 65 PJe in Origin’s reserves position across the progress to a full two-train project, and marketing discussions for the Thylacine and Geographe fields net of production. second LNG train are well advanced with a number of parties. The full In the Bass Basin, preparations for the Mid-Life Enhancement project two-train LNG development will have a capacity of 9 million tonnes per continued. In addition, the Silvereye-1 exploration well was drilled to the annum at an estimated capital cost of US$20 billion, inclusive of phase south of the BassGas facilities but failed to encounter commercial one expenditure. hydrocarbons. Evaluation studies are continuing in relation to discoveries Australia Pacific LNG also increased 2P reserves from 10,143 PJe at at Trefoil and Rockhopper. 30 June 2010 to 11,775 PJe at 30 June 2011, with 3P reserves increasing from 14,598 PJe to 14,742 PJe. Following completion of the subscription Onshore Australia agreement between Australia Pacific LNG and Sinopec, Origin’s share Production from Origin’s onshore assets declined marginally due to the of these reserves has been diluted from 50 per cent to 42.5 per cent. impact of flooding in central Australia and Queensland combined with natural field decline across all three regions. New Zealand Flooding in the Cooper Basin region in late 2010/early 2011 restricted In New Zealand, Origin participates in production from both offshore Origin’s net production of 19 PJe, 7 per cent lower than the prior year, and and onshore assets in the Taranaki Basin. Origin participated in the drilling of only 18 wells compared with 26 wells Origin’s share of production from the offshore Kupe field for the year in the prior year. Origin’s reserves in the Cooper Basin increased by 49 PJe increased by 7 PJe or 84 per cent to 16 PJe, reflecting a full year of net of production. It is anticipated that production levels will decline in production compared with a six month contribution in the prior year. the Cooper Basin in FY2012 as a result of the lower drilling activity in the This included over one million barrels of light oil (condensate) and LPG. current year. Production was constrained due to compressor issues over a part of the During the year, the Operator of the Cooper Basin assets executed an year and a scheduled maintenance shutdown in November 2010. agreement to supply 750 PJ of gas from the Cooper Basin to the GLNG LNG A shutdown for statutory inspection purposes is also scheduled for export project over a number of years. Origin has elected to participate December 2011. in the capital expenditure required to develop supply for this agreement Production from Origin’s onshore Taranaki Basin assets in New Zealand and has reserved the right to take its share of gas for its own use. was 1.3 PJe for the year compared with 1.7 PJe in the prior year. This is Production from Origin’s conventional fields in the Perth and Surat expected to be supplemented in the coming year by production from the basins decreased by 31 per cent to 5 PJe predominantly due to natural successful completion of three horizontal development wells on the field decline and the non-repeat of gas sales from storage in the Surat Manutahi field. Basin. Evaluation of Origin’s 100 per cent owned CSG acreage at Ironbark During the year, two offshore wells were drilled in the Northland Basin in the eastern Surat Basin has resulted in the booking of 118 PJe of 2P reserves. off the North Island of New Zealand to assess the prospectivity of this region. These wells failed to encounter hydrocarbons and were plugged Australia Pacific LNG and abandoned. Looking ahead, planning is continuing for the drilling of The Australia Pacific LNG joint venture has continued to make a deepwater offshore well in the Canterbury Basin off the east coast of substantial progress in both development of the domestic gas supply the South Island of New Zealand, currently expected in the 2012 calendar business and its CSG to LNG export project. year. In addition, Origin and Anadarko renegotiated the terms of their Domestic gas supply increased to 97 PJe for the financial year (Origin existing farmin agreement in relation to the Canterbury Basin such that share 48 PJe). This represented an increase of 36 per cent on the prior Anadarko has paid US$15 million of Origin’s historical costs. year as supply was ramped up to Origin’s Darling Downs Power Station International exploration ventures and supply commenced to the expansion of the Yarwun alumina refinery in Gladstone. Well deliverability continues to exceed expectations with Origin is pursuing exploration activities in a number of international well enhancement activities delivering a record flow rate of 10 terajoules regions where the combination of geological prospectivity and market per day from one well in Spring Gully, and average rates of 1.7 terajoules opportunities provides incentive to explore. Efforts to date have focused per day being achieved at the Talinga development. on a number of countries in South East Asia as well as Kenya on the prospective east coast of Africa. The CSG to LNG export project achieved several major milestones during the year, culminating in the FID on the first phase of a two-train CSG During the year, Origin drilled four exploration or appraisal wells as part to LNG project in late July 2011. This followed the receipt of State and of farmin arrangements for a portfolio of five exploration blocks across Federal approvals of the Environmental Impact Statement; the signing north-east Thailand, Lao PDR and Vietnam. None of these wells of agreements with subsidiaries of Sinopec for both a 15 per cent equity encountered commercial hydrocarbons and all wells were plugged and stake in Australia Pacific LNG and the sale of 4.3 million tonnes of LNG abandoned. Origin also operates Block 121 in the Song Hong Basin in per annum from 2015; the completion of front end engineering and Vietnam where additional seismic data was recorded and evaluation design studies; and completion of all major construction and continued. Planning for a well in 2012 is continuing, and Origin is seeking procurement contracts required to underpin the development. Following to farmout some of its interest in this permit. the FID and completion of the Sinopec equity subscription, Origin’s In Kenya, Origin entered into a farmin agreement with Apache interest in Australia Pacific LNG has been diluted to 42.5 per cent. Corporation whereby Apache reimbursed Origin’s historical costs The first phase FID has initiated development of the first LNG train and amounting to US$13 million, and will meet a component of Origin’s cost infrastructure to support a second train. This will include further of the first well to be drilled in the area. Apache has also assumed development of Australia Pacific LNG’s CSG fields in regional operatorship of the permit. A well is due to be drilled in the permit prior Queensland, the construction of a major gas transmission pipeline to January 2013. to Curtis Island, the construction of LNG facilities and development of associated port infrastructure at an estimated capital cost of approximately US$14 billion.

Origin Energy Annual Report 2011 13 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

8.2 Generation

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Internally Contracted Plant Revenue 437 192 128 Externally Contracted Plant Revenue 37 42 (12) Total Revenue 474 234 103 Underlying EBITDA 327 182 80 Underlying EBIT 208 131 59

Generation volumes

Change Year ended 30 June 2011 2010 (%)

Internally Contracted Sales Volume (TWh) 8.6 1.2 617 Externally Contracted Sales Volume (TWh) 1.0 1.2 (17) Total Sales Volume (TWh) 9.6 2.4 300 Externally Contracted Steam Sold (PJ) 3.7 4.2 (12)

During the year Origin increased its portfolio of owned and contracted generation from 1,710 MW(1) to 5,310 MW. This followed the commencement of commercial operations at the 630 MW Darling Downs Power Station and entry into the GenTrader arrangements with the Eraring and Shoalhaven power stations (+2,970 MW). These assets were integrated into the business successfully and provided the Retail business segment with added flexibility in managing its energy portfolio. The generation fleet will be further enhanced by the completion of the Mortlake Power Station in the first half of FY2012. This will increase Origin’s available generation capacity by a further 550 MW to 5,860 MW. Completion of upgrades to the Eraring Power Station in 2012 will further increase capacity to around 5,930 MW. Revenue and earnings in the Generation business segment are derived through capacity payments from the Retail business segment for the internally contracted power stations and the sale of electricity and steam from the externally contracted cogeneration plants. Capacity payments are also received from the Retail segment for the GenTrader arrangements at Eraring and Shoalhaven. For the internally contracted power stations, pool revenue of $354 million generated from the sale of electricity to the National Electricity Market is captured in the Retail business segment. Of Origin’s three externally contracted plants only one, Worsley, contributes to revenues reported in this segment, with the other two plants, Bulwer Island and Osborne, being equity accounted. Total Revenue increased 103 per cent or $240 million to $474 million as a result of the increased capacity from Darling Downs Power Station and the Eraring GenTrader arrangements. This included $132 million from Darling Downs and $97 million representing four months’ contribution from Eraring and Shoalhaven from 1 March 2011. Underlying EBITDA increased 80 per cent or $145 million to $327 million reflecting the increased generation capacity payments. Underlying depreciation expense increased by 161 per cent or $71 million to $115 million reflecting the increased asset base. Underlying EBIT increased by 59 per cent or $77 million to $208 million. The four month contribution from the Eraring and Shoalhaven power stations was $27 million. 8.2.1 Operational performance Details of the year’s operational performance of Origin’s power generation plants are set out below. Availability and reliability for Origin owned generation was impacted by flood related outage and remedial work under warranty of the steam turbine at Darling Downs. Of the contracted plants, a change to the timing of a major overhaul at Worsley from November to June resulted in a lower than expected equivalent reliability factor of 93 per cent.

Origin Equivalent Nameplate Equity Reliability Capacity Plant Capacity Interest Type Factor(2) Factor Generation Plant (MW) (%) (%) (%)

Cullerin Range 30 100 Internal 98 41 Ladbroke Grove 80 100 Internal 100 19 Mt Stuart 414 100 Internal 100 1 Quarantine 216 100 Internal 97 15 Roma 74 100 Internal 100 6 Uranquinty 640 100 Internal 99 4 Darling Downs 630 100 Internal 88 51 Bulwer Island(3) 32 50 External 99 63 Osborne(3) 180 50 External 100 76 Worsley(3) 120 50 External 93 79 Eraring 2,730 N/A Contracted 96 61 Shoalhaven 240 N/A Contracted 100 3 Osborne 90 N/A Contracted 100 76

(1) Includes 90 MW of contracted capacity from Osborne and equity interests in 1,620 MW of installed capacity. (2) Equivalent reliability factor is the availability of the plant after scheduled outages. (3) Origin holds a 50% equity share. 14 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

The 630 MW Darling Downs Power Station in Queensland successfully The well results indicated higher temperatures (145 degrees Celsius) than commenced commercial operations on 1 July 2010 and generated anticipated but reservoir permeability was below target. Results for the 2,828 GWh for the year at a capacity factor of 51 per cent. well are being evaluated and will help determine the extent of any In December 2010, it was announced that Origin had acquired the further program. contractual rights to the generation dispatched from both the Eraring Internationally, Origin has targeted opportunities in countries on the and Shoalhaven power stations under the GenTrader arrangements, Pacific “Ring of Fire” that have high geothermal potential and a growing as part of the NSW energy privatisation process. The transaction was demand for energy. completed on 1 March 2011 and both plants have been performing well In September 2010, Origin and The Tata Power Company Limited of India, under the GenTrader arrangement since that time. in consortium with PT Supraco Indonesia, were awarded the Sorik Optimal running regimes for the Eraring and Shoalhaven power stations Marapi geothermal concession in Northern Sumatra, Indonesia. Origin have been determined and effectively implemented. Electricity has a 47.5 per cent effective interest in the concession. The concession generation from the Eraring Power Station has exceeded 5,000 GWh. is estimated to support the development of 200-300 MW of geothermal A four week planned refurbishment was undertaken at Shoalhaven power generation. If the exploration and appraisal processes are Power Station reducing availability. Shoalhaven has operated as a successful and appropriate commercial agreements have been secured, peaking power station and generated around 18 GWh of electricity. development is expected to begin in late 2012. 8.2.2 Thermal generation developments and opportunities In May 2011, Origin acquired a 40 per cent interest in Energia Andina S.A. (EASA), Chile’s leading geothermal exploration company. EASA has a First fire testing of the 550 MW open cycle power station at Mortlake portfolio of eight geothermal exploration projects in the northern and in south-western Victoria was completed during July 2011. The Mortlake central regions of Chile. Chile has significant and growing energy demand Power Station is expected to commence operations in the first half of from local industrial and power distribution companies and is estimated FY2012. Once completed and commissioned, the open cycle power station to contain up to 60 per cent of the total Latin American geothermal will supply peaking power to Victoria in times of high electricity demand. resource potential. Origin will work in a collaborative manner with the Origin’s pipeline of gas fired power plant developments includes 3,670 MW other joint venture owner of EASA, Antofagasta Minerals S.A., to further of options covering expansions at existing sites or the development of develop the geothermal potential of the region. new plants. This includes sites at Mortlake in Victoria, Spring Gully and Darling Downs in Queensland, Kerrawary in NSW and Quarantine in Solar South Australia. These options provide flexibility to continue to enhance In December 2009, Origin and Micron Technology, Inc (Micron) formed Origin’s electricity supply portfolio. a 50:50 joint venture, Transform Solar, with a focus on the development of photovoltaic energy based on Origin’s SLIVER technology. Micron is a 8.2.3 Renewable energy development opportunities US listed company and one of the world’s leading providers of advanced Wind semiconductor solutions. The commissioning of the first 20 MW production line, which is being developed in Micron’s US production Origin is continuing to mature a number of potential wind development facilities, is in progress. Work continues towards an expansion decision projects in Eastern Australia. This portfolio of sites includes up to 587 MW to increase production to 50 MW or more expected to occur in FY2012. for which Development Applications have been approved, over 300 MW that are in the advanced planning and permitting stage, 1,200 MW in the Hydro planning and permitting stage and around 1,300 MW undergoing PNG Energy Developments Limited (PNG EDL) is a 50:50 joint venture feasibility studies. between Origin and PNG Sustainable Development Program (PNG SDP). During the year, Origin received planning approval from State and Federal PNG EDL is evaluating the hydro-electric potential of the Purari Hydro authorities for the construction of 157 wind turbines at Stockyard Hill resource at Wabo, in the Gulf Province of Papua New Guinea. Capturing located near Ballarat. The project has a capacity of 300 to 450 MW and an the power of the existing river flows, the project would have the capacity expected capacity factor of 43 per cent. Origin continues to work actively to generate approximately 1,800 MW of renewable baseload electricity. on permitting and community engagement on the Stockyard Hill and PNG EDL, PNG SDP and Origin are in continuing discussions with key other wind farm opportunities. The wind farm design for Stockyard Hill stakeholders including the Papua New Guinean, Australian and is currently being optimised within the constraints of the planning permit. Queensland governments. These discussions follow the Memorandum Geothermal of Cooperation signed in September 2010 between the governments of Papua New Guinea and Queensland, PNG EDL and Origin to support Origin is investigating geothermal development options both within the project. Australia and internationally. Contact is also actively pursuing geothermal A comprehensive review of environmental, sociological and engineering development opportunities in New Zealand to add to its existing capability. aspects is expected to be completed in 2012 with a final investment Within Australia, Origin’s primary investment in geothermal exploration decision on the project expected to be made in 2013. and development opportunities is through the “Deeps” and “Shallows” PNG EDL will be guided by international environmental and social joint ventures with Geodynamics. standards, including those endorsed by the Papua New Guinean and Origin has a 30 per cent interest in the Innamincka Deeps Joint Venture Australian governments, the International Finance Corporation, the with Geodynamics and an equity interest of approximately 6 per cent World Commission on Dams and the International Hydropower in the listed company. During the year, Geodynamics completed the Association. hydraulic fracture stimulation program at Jolokia 1 within the deep granite target. The suitability of these fractures for further enhancement for use as an underground heat exchanges is still being assessed. Origin has a 50 per cent interest in, and operates, the Innamincka Shallows Joint Venture targeting sedimentary rocks above the granite targeted by the Innamincka Deeps Joint Venture. During the year, the Celcius 1 exploration well was drilled to assess the potential of this system.

Origin Energy Annual Report 2011 15 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

8.3 Retail

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Total revenue 8,072 6,393 26 Underlying EBITDA 785 568 38 Underlying EBIT 710 503 41

Through the acquisition of the Integral Energy and Country Energy retail businesses on 1 March 2011, Retail increased its customer accounts from 2.9 million to 4.5 million which established Origin as Australia’s leading energy retailer. The GenTrader arrangements for the dispatch of power from Eraring and Shoalhaven power stations also added to Origin’s controlled generation capacity, providing a significant increase in the flexibility of the electricity supply portfolio servicing the Retail business segment. Together with an increase in the contribution from new businesses such as solar rooftop installations, the NSW acquisition has helped drive a 26 per cent increase in total revenue, a 38 per cent increase in Underlying EBITDA and a 41 per cent increase in Underlying EBIT. Within this result, the NSW acquisition contributed revenues of $1,269 million, Underlying EBITDA of $183 million and Underlying EBIT of $175 million. Organically, the Retail business increased revenue by $410 million or 6 per cent and Underlying EBITDA by $34 million or 6 per cent. Further details are provided throughout this section. In addition, the Retail business segment has been implementing a major transformation of its billing systems. A significant milestone in the Retail Transformation Program was achieved in June 2011, with 300,000 South Australian customers transitioned onto the SAP billing platform. Performance has exceeded expectations with call centre average handle times in the new SAP system already consistent with, and in some cases less than, legacy systems. Further migration activities are planned for other States in the coming months. Performance metrics by commodity and variance from prior year

Retail Year ended 30 June 2011 Electricity Natural Gas LPG Solutions

Revenue ($m) 5,349 (+27%) 1,180 (+13%) 670 (+6%) 445 (+128%) Gross Profit ($m) 929 (+43%) 205 (+10%) 166 (+8%) 64 (+21%)

Underlying EBITDA ($m) 710 (+42%) 50 (+0%) 25 (+47%) Underlying EBIT ($m) 662 (+43%) 26 (+5%) 22 (+57%)

Sales – (TWh) 34 (+14%) Sales – (PJ) 142 (+5%) Sales – (ktonnes) 476 (-3%)

Total Sales (PJe) 123 (+14%) 142 (+5%) 24 (-3%) Customer accounts (‘000) 3,214 (+87%) 923 (+6%) 365 (+5%)

The Electricity and Natural Gas businesses benefited from four months’ contribution from the Integral Energy and Country Energy retail businesses. Origin was also able to benefit from sustained periods of low wholesale energy prices particularly in the first half. Further details are provided in Section 8.3.1. LPG increased Underlying EBIT by 5 per cent to $26 million, mainly due to higher LPG prices and lower depreciation. Further details are provided in Section 8.3.3. Origin’s Retail Solutions business increased its contribution substantially, with Revenue more than doubling to $445 million and Underlying EBIT increasing 57 per cent to $22 million. Within Retail Solutions, Origin’s solar business continues to grow, increasing installations from 6,449 in the prior year to 36,840 in the current year. Further details are provided in Section 8.3.4. In addition to the revenue reported in the above table, the external revenue reported in the Retail business segment includes pool revenue from the sale of electricity when Origin’s internal generation plant is dispatched, as well as the pass through of revenue received from sales of gas swaps. Overall, there was an increase in this revenue of $118 million or 38 per cent to $427 million. The net result of pool revenues less capacity payments to the Generation segment and fuel costs is included in the cost of goods sold, together with the cost of procuring other electricity supplies from third parties. Further details are provided in Section 8.3.5.

16 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

8.3.1 Electricity and Natural Gas performance Electricity and Natural Gas margins

2011 Excludes acquisition contract liability Year ended 30 June 2011 unwind 2010 Change

Commodity Revenue ($m) 6,529 6,529 5,254 1,275 Gross Profit ($m) 1,134 1,041 838 203 Underlying EBITDA ($m) 710 617 501 116 Underlying EBIT ($m) 662 569 464 105 Customer Numbers (’000) 4,137 4,137 2,589 1,548 Underlying EBITDA/Sales 10.9% 9.5% 9.5% – Underlying EBIT/Sales 10.1% 8.7% 8.8% (0.1%) $/Customer(1) Gross Profit/Customer 334 323 11 Opex/Customer (136) (130) (6) Underlying EBITDA/Customer 198 193 5

(1) For the per customer metrics, customers acquired through the NSW privatisation process have been apportioned to align with only four months of financial contribution.

At the date of completion of the NSW acquisition, Origin recognised a fair value liability associated with the mark-to-market of acquired power purchase agreements, hedge contracts and green rights contracts. Subsequently, as these contracts are utilised, Origin receives a benefit from the unwind of the liability (“acquisition contract liability”). This appears as a reduction in the cost of goods sold. In the four months to 30 June 2011, this amounted to a benefit of $93 million. Excluding the benefit from unwinding the acquisition contract liability, Electricity and Natural Gas margins were broadly in line with Origin’s Retail business segment in the prior year. On this basis, Origin’s Underlying EBIT to sales margin was 8.7 per cent across its combined businesses, compared with 8.8 per cent in the prior year. Underlying EBITDA per customer increased 3 per cent or $5 to $198 per customer. Electricity Electricity gross profit increased 43 per cent or $277 million to $929 million. The NSW acquisition contributed $250 million of the increase, inclusive of the $93 million benefit described above. The pre-acquisition Electricity business grew gross profit by 4 per cent or $27 million. Mild weather in the summer months and a change in customer mix resulted in an 8 per cent reduction in sales volumes in the pre-acquisition Electricity business. Tariffs increased across all markets, primarily reflecting increased network charges. However, tariffs in NSW and Queensland did not reflect the costs associated with the Small-Scale Renewable Energy Scheme. Effective management of the wholesale electricity portfolio enabled the Electricity business to benefit from sustained periods of low energy prices, particularly in the first half, while protecting against periods of high price volatility. Natural Gas Natural Gas gross profit increased in the year by 10 per cent or $19 million to $205 million. Sales volumes increased 5 per cent or 7 PJ to 142 PJ, driven by higher mass market consumption as a result of colder weather and an increase in customer numbers. Residential tariffs and commercial and industrial prices also increased largely reflecting energy cost increase. The NSW acquisition contributed $2 million to Natural Gas gross profit. Electricity and Natural Gas customer accounts and churn Inclusive of the acquired businesses, Origin’s net customer accounts for Electricity and Natural Gas increased from 2.589 million to 4.137 million (excluding LPG customers), an increase of 1.548 million customers from the prior year. At the time of announcing the acquisition of the Integral Energy and Country Energy retail businesses, customer accounts were quoted based on balances at 30 June 2010 of 1.636 million electricity and gas accounts. Churn within the businesses from 30 June 2010 to 28 February 2011 reduced this number by 51 thousand accounts. On 1 March 2011, Origin therefore added 1.585 million Electricity and Natural Gas customer accounts from the Integral Energy and Country Energy retail businesses. This included 1.4 million accounts in NSW with the balance in Queensland, Victoria and South Australia. Over the course of the year, Origin won an additional 567 thousand accounts across its Electricity and Natural Gas businesses, up from 482 thousand wins in the prior year. However, increased levels of churn resulted in the loss of 604 thousand accounts or a net loss of 37 thousand customer accounts over the year. Market churn in NSW has increased from an average of 12 per cent in the eight months prior to 1 March 2011, to 14 per cent in the four months post completion of the NSW privatisation process. It is anticipated that market churn will continue to increase to levels experienced in other competitive markets, such as Victoria and Queensland.

Origin Energy Annual Report 2011 17 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

Customer account movement from 30 June 2010 to 30 June 2011 (’000)

Electricity & Natural Gas Customer accounts – 30 June 2010 2,589 Integral Energy & Country Energy – 30 June 2010 1,636 Churn prior to acquisition (51) Net customers acquired 1,585 Total wins 567 Total losses (604) Net customer wins/(losses) (37) Customer accounts – 30 June 2011 4,137

Customer accounts by state at 30 June 2011 (’000)

Electricity & Natural Gas Electricity Natural Gas Total 2011 Total 2010 Change Victoria 690 466 1,156 1,150 6 South Australia 158 208 366 360 6 Queensland 834 129 963 827 136 NSW 1,532 120 1,652 252 1,400 Customer accounts – 30 June 2011 3,214 923 4,137 2,589 1,548

Origin’s customer account numbers at 30 June 2011 include approximately 503 thousand signed green energy accounts. This comprises approximately 373 thousand GreenPower electricity and 130 thousand green gas customer accounts, reflecting Origin’s strong market leadership position in this area. Cost-to-serve – Electricity and Natural Gas Origin includes within its Retail cost-to-serve all costs associated with servicing and maintaining customers, all churn and customer acquisition and retention costs and an allocation of corporate costs. The year has seen significant growth and increased business activity in the Retail business. Origin’s cost-to-serve increased substantially with the addition of customers associated with the Integral Energy and Country Energy retail businesses. In addition, Origin continued to invest in people and processes to ensure service levels could be maintained while delivering smooth and successful cut-over of core systems to the SAP billing system. Increased market activity led to higher customer acquisitions and increased call centre activity, while bad debts expense also increased. At the time of the NSW acquisition, Origin entered into TSAs with the NSW distribution network businesses to continue to provide services such as customer billing, collections, debtor management, call centre and other customer services. The services under the TSAs are at a cost which is higher than the incremental cost Origin would have incurred had they been provided internally. Consequently, a provision was raised on acquisition and is being unwound to offset this effect. The unwinding of this provision provided a net benefit of $35 million for the four months, proportionately allocated across Origin’s entire Electricity and Natural Gas customer base. Taking all of the above factors into account, the average cost-to-serve, inclusive of the benefit of the TSAs, increased from $130 per customer to $136 per customer. 8.3.2 Electricity and Natural Gas – NSW acquisition

2011 Excludes acquisition contract liability Year ended 30 June 2011 unwind Commodity Revenue ($m) 1,121 1,121 Gross Profit ($m) 250 157 Underlying EBITDA ($m) 183 90 Underlying EBIT ($m) 175 82 Customer numbers (‘000) 1,538 1,538 Underlying EBITDA/Sales 16.3% 8.0% Underlying EBIT/Sales 15.6% 7.3% $/Customer(1) Gross Profit/Customer 481 302 Opex/Customer (129) (129) Underlying EBITDA/Customer 352 173

(1) For the per customer metrics, customers acquired through the NSW privatisation process have been apportioned to align with only four months of financial contribution, being approximately 520,000 customer accounts.

Commodity revenue for the four months was $1.1 billion representing 7 TWh of sold volume. Gross Profit was $250 million, which includes the $93 million unwinding of the acquisition contract liability. Underlying EBITDA was $183 million while Underlying EBIT was $175 million. This included a benefit of $6 million from the unwinding of the onerous contract provision relating to the TSAs. Underlying EBIT margins of 7.3 per cent are in line with expectations. Origin anticipates margins in the coming year to be between 8 per cent and 9 per cent, in line with current performance including the recent tariff determination, which recognises the recovery of costs associated with the Small-Scale Renewable Energy Scheme. 18 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

8.3.3 LPG 8.3.6 Retail Transformation Program Sales revenue increased 6 per cent or $36 million to $670 million. This was Origin continues to transform all aspects of its Retail business. This will driven by an increase in volumes and average prices charged to customers result in simplified operating processes and a single integrated SAP as a result of strategic price management and higher international billing and customer management system. The infrastructure will enable benchmark LPG prices. Despite higher prices, retail volumes increased improved data quality, improved customer insights and better use of 12 ktonnes, predominantly in the Australian residential sector. The reduced technology to engage with customers. This will enable Origin to deliver demand for New Zealand wholesale supply volumes due to Kupe coming innovative energy solutions that the changing energy market will require on line has contributed to the overall 3 per cent decrease in volumes while optimising its cost-to-serve. from 492 ktonnes to 476 ktonnes. The first release of the SAP billing system into operation occurred for Higher international benchmark LPG prices resulted in Origin’s average unit 300,000 South Australian customers in June 2011. The migration went product cost increasing by 8 per cent when compared to the prior year. as planned, with data integrity and financial reconciliations exceeding As a result, gross profit for the LPG business increased by $13 million to expectations. Call centre average handle times in the new SAP system $166 million. are already consistent with, and in some cases less than, legacy systems. Operating costs increased $12 million due to investment in people A strong platform has been built for further releases across the customer capability across Australia and Asia Pacific and the impact of natural base and planning is well advanced for migration of Victorian and disasters which resulted in higher logistics costs necessary to maintain Queensland customers through the remainder of this calendar year. customer supply during this difficult period. Acquired NSW customers will be migrated in subsequent years in line with Transition Agreements. Consequently, LPG increased Underlying EBIT by 5 per cent to $26 million. Plans are underway for implementation of commercial and industrial LPG customer accounts increased by approximately 16,000 during the (C&I) customers, as well as for an ongoing upgrade program. year, which includes 5,000 won following the acquisition of Country Energy and Integral Energy. As of 30 June 2011, LPG customer accounts totalled approximately 365,000. 8.3.4 Retail Solutions Origin has continued to progressively invest in creating and developing new business lines to provide a greater range of customer offerings and solutions. The current portfolio includes products such as solar photovoltaic rooftop systems, solar hot water, serviced bulk hot water systems, heat pumps and tri-generation systems for application in the commercial and industrial sector. Revenue for the non-commodity businesses grew by 128 per cent or $250 million to $445 million. The business generated Underlying EBITDA of $25 million, an increase of 47 per cent on the prior year. Underlying EBIT grew to $22 million, an increase of 57 per cent. Origin’s solar business was the key contributor to this growth in revenue and earnings, with 36,840 installations in the year. Since 2009, Origin has installed approximately 47,000 systems, with total installed capacity of more than 70 MW. Despite regulatory uncertainty surrounding the industry, the increasingly competitive cost of solar compared to grid power will ensure strong ongoing contribution from this business. Remaining at the forefront of market and industry trends, Origin is trialling several of the first electric vehicles to arrive in Australia, and in November 2010 sold its first electric vehicle ChargePoint™ to Google. Origin was also successful at delivering tri-generation solutions to the University of NSW and a commercial property in Victoria, and continues to assess opportunities in the market. 8.3.5 Pool and other revenue The External revenue reported in the Retail business segment includes pool revenue from the sale of electricity when Origin’s internal generation plant is dispatched, as well as the pass through of revenue received from sales of gas swaps. This year, the Retail business segment earned pool revenue of $354 million from the sale of 8.6 TWh of electricity. This is a 59 per cent increase in revenue compared with the prior year. The introduction of baseload power from Darling Downs and Eraring was the key contributor to the 7.4 TWh increase in electricity sold. Revenue generated from Darling Downs and Eraring was at an average rate of $31/MWh. The peaking portfolio generated 0.8 TWh of electricity at an average rate of $139/MWh compared with 1.2 TWh at an average rate of $179/MWh in the prior year. Pass through of revenue received from the sales of gas swaps to other retailers decreased by $14 million or 16 per cent to $73 million.

Origin Energy Annual Report 2011 19 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

8.4 Contact Energy Financial Performance

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Total revenue 1,708 1,717 (1) Underlying EBITDA 345 346 0 Underlying EBIT 214 214 –

Operational Performance

Change Year ended 30 June 2011 2010 (%)

Electricity Generated (GWh) 9,843 9,691 2 Customer Electricity Sales (GWh) 8,254 7,674(1) 8 Gas Sales (retail and wholesale) (PJ) 9.9 13.9 (29) LPG Sales (Tonnes) 65,201 70,327 (7) Electricity Customers 447,000 477,000 (6) Gas Customers 60,000 64,000 (6) LPG Customers (including franchisees) 59,000 58,000 2 Total Customers 566,000 599,000 (6)

(1) FY2010 Customer Electricity Sales are restated to conform with Contact’s current classification.

Origin owns a 52.6 per cent interest in Contact of New Zealand and •• The Electricity business segment Underlying EBITDA was NZ$23 million consolidates 100 per cent of Contact in accordance with Australian (6 per cent) higher than the prior period. Increased retail revenue, due accounting standards. The interests attributable to minority to an 8 per cent increase in sales volumes and a 4 per cent increase shareholders are recognised as Non-controlling Interest in the Financial in sales price, was partially offset by increased network and gas costs Statements. and the introduction of carbon taxes through New Zealand’s Emissions A financial report entitled “Management discussion of financial results Trading Scheme. Increased flexibility due to the commissioning of for the year ended 30 June 2011” was issued by Contact to the New Ahuroa Gas Storage and Stratford Peaker Power Station and a lower Zealand Stock Exchange (NZX) on 22 August 2011 and is available on contracted minimum gas take or pay level helped to increase Electricity Origin’s website w w w.originenergy.com.au. That document contains earnings in the second half of FY2011 by 8 per cent on the second half details regarding Contact’s financial and operating performance during of FY2010. the period, including comparisons to the performance of Contact in the •• The Underlying EBITDA contribution from the Other business segment prior year. partially offset the Electricity business segment, primarily due to decreased sales and the introduction of carbon taxes. In consolidating Contact’s results, Origin has used an average exchange rate for the period of NZ$1.30 to the Australian Dollar, compared with Further details on how these market dynamics have impacted the NZ$1.26 to the Australian Dollar for the prior year. Movements in Contact’s financial performance of Contact are available in the reports it has Revenue, Underlying EBITDA and Underlying EBIT between the reporting lodged with the New Zealand Stock Exchange. periods were all positive, however, the strengthening of the Australian Underlying EBITDA reported in Origin’s accounts in Australian Dollars Dollar against the New Zealand Dollar has resulted in flat or negative has decreased by $1 million to $345 million, while Underlying EBIT is in movements in Australian Dollar terms. The commentary below relates line with the prior year at $214 million. to Contact’s performance in New Zealand Dollar terms. Contact’s Underlying EBITDA increased NZ$14 million (3 per cent) in a continued low wholesale price environment and high hydrology. This was primarily due to an increased contribution by the Electricity business segment which was partially offset by a lower contribution from the Other (retail gas, wholesale gas, LPG and meters) business segment. H Kevin McCann Chairman Sydney, 23 August 2011

20 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

9. Origin Energy Key Financials

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Total external revenue 10,344 8,534 21 Underlying EBITDA 1,782 1,346 32 Underlying depreciation and amortisation (539) (408) 32 Underlying share of interest, tax, depreciation and amortisation of equity accounted investees (49) (42) 17 Underlying EBIT 1,194 896 33 Underlying net financing income/(costs) (143) (13) 1,000 Underlying Profit before income tax 1,051 883 19 Income tax expense on Underlying Profit (316) (232) 36 Underlying net profit after tax before elimination of Non-controlling Interests 735 651 13 Non-controlling Interests share of Underlying Profit (62) (66) (6) Underlying Profit 673 585 15 Items excluded from Underlying Profit (487) 27 (1,904) Statutory Profit 186 612 (70) Free cash flow 1,316 800 65 Group OCAT Ratio (year to 30 June)(1) 13.0% 10.9% 19 Productive capital (year to 30 June)(2) 11,571 8,423 37 Capital expenditure (including acquisitions) 4,954 3,027(3) 64 Total assets 26,640 21,834 22 Adjusted total assets(4) 25,569 21,194 21 Net debt/(cash)(5) 4,060 2,663 52 Adjusted net debt/(cash)(4) 4,283 2,835 51 Shareholders’ equity 13,516 11,438 18 Adjusted shareholders’ equity(4) 13,639 11,552 18 Earnings per share – Statutory 19.6¢ 67.7¢(6) (71) Earnings per share – Underlying 71.0¢ 64.8¢(6) 10 Free cash flow per share 123.6¢ 90.8¢ 36 Interim dividend per share 25¢ 25¢ – Final dividend per share 25¢ 25¢ – Total dividend per share 50¢ 50¢ – Net asset backing per share $12.70 $12.99 (2) Adjusted net asset backing per share(4) $12.81 $13.12 (2) Net debt to net debt plus equity 23.1% 18.9% 22 Adjusted net debt to net debt plus equity(4) 23.9% 19.7% 21 Origin Cash (excluding Contact) 692 823 (16) Origin Debt (excluding Contact) (3,949) (2,443) 62 Contact Net Debt (802) (1,042) (23) Total employees (numbers) 5,213 4,392 19 Total Recordable Injury Frequency Rate (TRIFR) 6.0 5.6 7

(1) Group OCAT Ratio = (OCAT – interest tax shield)/Productive Capital. (2) Productive Capital is 12 months average funds employed excluding capital work in progress and including 50 per cent of Australia Pacific LNG. (3) FY2010 capital expenditure is restated to conform with the current year’s classification. (4) Adjusted to exclude the impact of financial instruments. (5) The reported numbers for net debt include interest-bearing debt obligations only. (6) Restated for the bonus element of the rights issue completed in April 2011.

Origin Energy Annual Report 2011 21 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

10. Appendix 1 – Reconciliation of Statutory to Underlying Profit

After Tax & Before Tax Non-controlling Non-controlling Impact Tax Interests Interests Impact NPAT Reconciliation year ended 30 June 2011 ($m) ($m) ($m) ($m) ($m)

Statutory Profit 186 Impairment of assets (214) 54 – (160) Increase/(decrease) in fair value of financial instruments (201) 60 1 (140) Unwinding of discounted loan payable to APLNG (12) 4 – (8) Share of unwinding of discounted receivables within APLNG 20 – – 20 Transition and transaction costs (253) 18 – (235) Change in New Zealand corporate income tax legislation – 2 (1) 1 Tax expense on translation of foreign denominated tax balances – 31 – 31 Share of tax expense on translation of foreign denominated tax balances within APLNG (equity accounted) 4 – – 4 Less total excluded items (656) 169 – (487) Underlying Profit 673 Underlying Basic EPS (cps) 71.0

A number of items are excluded from the Underlying Profit for the year Change in New Zealand corporate income tax legislation to 30 June 2011. Together these items provided an after-tax and ($1 million benefit) Non-controlling Interests cost of $487 million in the year to 30 June 2011. As a result of the change in the New Zealand corporate tax legislation They are excluded from Underlying Profit to better illustrate the from 30 per cent to 28 per cent effective from the year ending 30 June 2012, business performance of the Company. The after tax and Origin has recognised a benefit of $1 million. Non-controlling Interest impacts of these items are described in more detail below. Tax expense on translation of foreign denominated tax balances (benefit of $31 million) Impairment of assets (expense of $160 million) During the period, a benefit of $31 million was recognised for the foreign As advised at the half-year, a review of the carrying amount of the currency translation to US Dollars of the long-term tax assets recorded Company’s assets led to the recognition of an impairment loss of in Origin’s Exploration and Production activities in New Zealand which $154 million after tax in relation to Origin’s 6 per cent direct shareholding have a US Dollar functional currency. in Geodynamics and Origin’s investment in the Innamincka Deeps Joint Venture. A further impairment loss of $6 million after tax was recognised Share of tax expense on translation of foreign denominated tax at 30 June 2011. balances within Australia Pacific LNG (benefit of $4 million) Decrease in fair value of financial instruments During the period, a benefit of $4 million was recognised for the share of (expense of $140 million) the foreign currency translation to US Dollars of the long-term tax assets within Australia Pacific LNG associated with its downstream activities. During the period, a decrease in the fair value of financial instruments, primarily relating to the change in fair value of financial instruments not As a result of these factors, items excluded from Underlying Profit for qualifying for hedge accounting, resulted in an expense of $140 million. the year provided an expense of $656 million before tax and an expense of $487 million after tax and Non-controlling Interests. This compares Unwinding of discounted loan payable to Australia Pacific LNG with a $7 million expense before tax and a $27 million benefit after tax (expense $8 million) and Non-controlling Interests in the prior year as detailed on the A non-cash expense of $8 million being the unwinding of the discounted following page. loan payable to Australia Pacific LNG was recorded for the year. The Please refer to the “Management Discussion and Analysis” report for the amount reflects the nominal interest benefit required to be attributed year ended 30 June 2010 for more details. to the payables, reflective of the unwinding of the original present value discount over the relevant period of the payables. Share of unwinding of discounted receivables within Australia Pacific LNG (benefit of $20 million) A non-cash benefit of $20 million, being Origin’s share of the unwinding of the discounted receivables within Australia Pacific LNG, was recorded for the year. The amount reflects the nominal interest benefit required to be attributed to the receivables reflective of the unwinding of the original present value discount over the relevant period of the receivables. Transition and transaction costs (expense of $235 million) Origin recorded a $235 million expense for the year in relation to transition and transaction costs associated with corporate acquisitions and integration activities. The expense was driven by costs associated with the acquisition of the Integral Energy and Country Energy retail businesses from the NSW Government.

22 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

After Tax & Before Tax Non-controlling Non-controlling Impact Tax Interests Interests Impact NPAT Reconciliation year ended 30 June 2010 ($m) ($m) ($m) ($m) ($m)

Statutory Profit 612 Impairment of assets (33) 10 – (23) Increase/(decrease) in fair value of financial instruments 15 (4) (1) 10 Gain on dilution of Origin’s interest in subsidiaries 38 (11) – 27 Unwinding of discounted loan payable to APLNG (111) 33 – (78) Share of unwinding of discounted receivables within APLNG 117 – – 117 Transition and transaction costs (29) 8 1 (20) New Plymouth asbestos removal/related costs (4) 1 1 (2) Change in New Zealand corporate income tax legislation – 8 (3) 5 Tax expense on translation of foreign denominated tax balances – (9) – (9) Less total excluded items (7) 36 (2) 27 Underlying Profit 585 Underlying Basic EPS (cps) 64.8(1)

(1) FY2010 Underlying EPS of 66.6 cps restated as 64.8 cps reduced by the bonus element of the rights issue completed in April 2011.

11. Appendix 2 – Movements in fair value of financial instruments Summary of movements in financial instruments

Net Assets Change in Net ($m) Assets Balance Sheet June 2011 June 2010 ($m)

Commodity Risk Management (74) 115 (189) Contact (60) (23) (37) Treasury and Other (161) (165) 4 Total (295) (73) (222)

Reconciliation of Statement of Financial Position and Income Statement items associated with movements in financial instruments ($m)

Recognition of “effective” instruments in the Statement of Financial Position (21) Recognised in Equity (Hedge Reserve post tax) (20) Recognised in Deferred Tax Liability (1) Recognition of “ineffective” instruments in the Income Statement (201) Change in net assets (as above) (222)

The fair value of financial instruments as measured against market prices is recorded in the Statement of Financial Position in the financial asset and liability balances. The total decrease in the fair value of financial instruments for the year ended 30 June 2011 was $222 million of which an amount of $21 million qualified for hedge accounting and is recognised in Equity (Hedge Reserve). The balance of $201 million is recognised as an expense in the Income Statement and is attributable to: •• Commodity risk management instruments (expense of $214 million) – predominantly electricity caps and the decrease in market prices of carbon instruments during the period. Of the total of $214 million, $1 million is attributable to Contact and $213 million is attributable to Origin (excluding Contact); and •• Foreign exchange and interest rate risk management instruments (benefit of $13 million) – predominantly due to the appreciation of the Australian and New Zealand Dollars against the US Dollar and Euro during the period partially offset by lower forward interest rates in New Zealand. Of the total benefit of $13 million, a $4 million expense is attributable to Contact and a $17 million benefit is attributable to Origin (excluding Contact). The expense in the Income Statement of $201 million this year compares with a benefit of $15 million in the prior year, which was predominantly attributable to commodity risk management instruments.

Origin Energy Annual Report 2011 23 Management Discussion and Analysis for the year ended 30 June 2011 (continued)

12. Appendix 3 – Investment in Australia Pacific LNG The following table is included in the notes to the statutory accounts and is extended to provide a reconciliation to Australia Pacific LNG’s Statutory Profit. Financial performance

Total Origin’s Total Origin’s APLNG 50% interest APLNG 50% interest ($m) ($m) ($m) ($m) June 2011 June 2010

Operating revenue 336 250 Operating expenses (210) (159) Underlying EBITDA 126 63 91 45 Depreciation and amortisation expense (77) (47) Net financing costs (4) (2) Underlying operating profit before income tax 45 42 Income tax expense (3) (15) Underlying operating profit after tax 42 21 27 14

Operating Performance

Total Origin’s 50% Total Origin’s 50% APLNG interest APLNG Interest (PJe) (PJe) (PJe) (PJe) June 2011 June 2010

Production Volumes 97 48 71 36 Sales Volume 109 54 77 39

The Australia Pacific LNG joint venture increased its production by 36 per cent or 25.6 PJe, from 71.0 PJe to 96.6 PJe. This was primarily due to commencement of commercial operations of new fields and the commencement of supply to the Rio Tinto Alumina contract and ramp up of supply to Darling Downs Power Station. Revenue increased by 34 per cent or $86 million, from $250 million to $336 million, reflecting increased production. Operating expenses increased 32 per cent or $51 million, from $159 million to $210 million, reflecting increased activity in ramping up operation for delivery to domestic contracts. Depreciation and amortisation expenses increased by 64 per cent or $30 million from $47 million to $77 million due to additional assets becoming operational during the period and an increase in production in the current year. Income tax expense decreased as a result of higher expenditure on items qualifying for tax concessions compared to the prior year. Underlying profit after tax increased by 56 per cent or $15 million from $27 million to $42 million.

24 Directors’ Report for the year ended 30 June 2011

In accordance with the Corporations Act 2001, 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 2011.

1. Principal activities During the year, the principal activity of Origin was the operation of energy businesses including: •• exploration and production of oil and gas; •• electricity generation; and •• wholesale and retail sale of electricity and gas.

2. Result Statutory Profit – $186 million, down from $612 million Origin reported a Net Profit After Tax and Non-controlling Interests (Statutory Profit) of $186 million for the year ended 30 June 2011, a decrease of 70 per cent compared with $612 million reported in the prior year. The key factors contributing to the year-on-year change in the Statutory Profit from $612 million to $186 million included a positive contribution from higher Underlying Profit (+$88 million) offset by a higher impairment of assets (-$137 million), a decrease in the fair value of financial instruments (-$150 million) and higher transition and transaction costs related to the acquisition of the Integral Energy and Country Energy retail businesses as part of the NSW privatisation process (-$215 million).

2011 2010 Change Year ended 30 June ($m) ($m) (%) Total external revenue 10,344 8,534 21 Underlying EBITDA 1,782 1,346 32 Underlying depreciation and amortisation (539) (408) 32 Underlying share of interest, tax, depreciation and amortisation of equity accounted investees (49) (42) 17 Underlying EBIT 1,194 896 33 Underlying net financing costs (143) (13) 1,000 Underlying Profit before income tax 1,051 883 19 Income tax expense on Underlying Profit (316) (232) 36 Underlying net profit after tax before elimination of Non-controlling Interests 735 651 13 Non-controlling Interests share of Underlying Profit (62) (66) (6) Underlying Profit 673 585 15 Items excluded from Underlying Profit (487) 27 (1,904) Statutory Profit 186 612 (70) Earnings per share – Underlying 71.0¢ 64.8¢(1) 10 Earnings per share – Statutory 19.6¢ 67.7¢(2) (71)

Reconciliation of Underlying Profit and Statutory Profit Statutory Profit for this year and the prior year contain the impact of a number of items, as shown in the table below, that do not portray the ongoing performance of the business. In the year to 30 June 2011, these items amounted to an expense of $487 million. This compared with the year to 30 June 2010 in which these items had a benefit of $27 million. Reconciliation of Statutory and Underlying Profit

June 2011 June 2010 Impact Impact After Tax & After Tax & Non- Non- controlling controlling Change Change ($millions) Interests NPAT Interests NPAT ($m) (%) Statutory Profit 186 612 (426) (70) Items excluded from Underlying Profit Impairment of assets (160) (23) (137) 596 Gain on dilution of Origin’s interest in subsidiaries – 27 (27) (100) Increase/(decrease) in fair value of financial instruments (140) 10 (150) (1,500) Unwinding of discounts resulting from APLNG receivables and payables 12 39 (27) (69) Transition and transaction costs (235) (20) (215) 1,075 Other 36 (6) 42 700 Less total excluded items (487) 27 (514) (1,904) Underlying Profit 673 585 88 15

Origin Energy Annual Report 2011 25 Directors’ Report for the year ended 30 June 2011 (continued)

3. Review of operations External revenue – $10,344 million, up 21 per cent Total external revenue increased by 21 per cent or $1,810 million to $10,344 million. This reflected an increase in external revenues from the Retail business segment ($1,679 million) predominantly associated with the acquisition of the Integral Energy and Country Energy retail businesses and entry into the Eraring GenTrader arrangements, together with increased revenues from the Exploration and Production business segment ($145 million). Underlying EBITDA – $1,782 million, up 32 per cent For the year ended 30 June 2011, Underlying EBITDA increased 32 per cent or $436 million to $1,782 million. The Underlying EBITDA contributions by business segment are presented in the following table: Underlying EBITDA by business segment

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Exploration & Production 325 250 30 Generation 327 182 80 Retail 785 568 38 Contact 345 346 0 Underlying EBITDA 1,782 1,346 32

Exploration & Production Underlying EBITDA increased by 30 per cent or $75 million to $325 million. This was driven by higher average commodity prices together with a full year contribution from the Kupe development compared with six months in the prior year; a full year contribution of an additional 36 per cent interest in the Otway Gas Project compared with three and a half months in the prior year; higher production from BassGas; and a higher contribution from Australia Pacific LNG; partially offset by significantly higher exploration expense of $118 million in the current year from an expanded Greenfield exploration program compared with $45 million in the prior year and a lower contribution from onshore producing assets. Generation Underlying EBITDA increased 80 per cent or $145 million to $327 million. This reflected the increase in Origin’s owned and contracted generation capacity from 1,710 MW to 5,310 MW, including a full year contribution from the Darling Downs Power Station and four months’ contribution from the GenTrader arrangements for Eraring and Shoalhaven power stations ($43 million). Retail Underlying EBITDA increased 38 per cent or $217 million to $785 million. This was primarily due to the first four months’ contribution from the acquired Integral Energy and Country Energy retail businesses in NSW ($183 million), effective management of the energy portfolio and growth in non-commodity sales, predominantly solar. Contact Underlying EBITDA decreased $1 million to $345 million. Higher generation volumes and increased wholesale electricity prices in New Zealand resulted in a NZ$14 million increase in Underlying EBITDA as reported by Contact. However, the foreign exchange impact of a strengthening Australian Dollar against the New Zealand Dollar resulted in a marginal decrease in the Australian Dollar Underlying EBITDA. Underlying depreciation and amortisation – $539 million, up 32 per cent Underlying depreciation and amortisation increased by 32 per cent or $131 million to $539 million. This was primarily due to the higher asset base and increased production associated with the Darling Downs, Eraring and Shoalhaven power stations and the Kupe and Otway gas developments. Underlying share of interest, tax, depreciation and amortisation of equity accounted investees – $49 million, up 17 per cent The share of Underlying ITDA attributable to equity accounted investees increased 17 per cent or $7 million to $49 million. This was primarily due to an increase of $10 million associated with Origin’s interest in Australia Pacific LNG, which had increased due to additional assets becoming operational during the period and an increase in production in the current year. Underlying EBIT – $1,194 million, up 33 per cent For the year ended 30 June 2011, Underlying EBIT increased 33 per cent or $298 million to $1,194 million. The Underlying EBIT contributions by business segment are presented in the following table: Underlying EBIT by business segment

2011 2010 Change Year ended 30 June ($m) ($m) (%)

Exploration & Production 62 48 29 Generation 208 131 59 Retail 710 503 41 Contact 214 214 – Underlying EBIT 1,194 896 33

26 Directors’ Report for the year ended 30 June 2011 (continued)

Underlying net financing costs – $143 million, up $130 million Developments The net financing costs for the full year comprise an interest expense of Retail Transformation Project – In June 2011, the Retail business $179 million and interest revenue of $36 million compared with interest successfully implemented the first phase of the Retail Transformation expense of $126 million and interest revenue of $113 million in the prior program, with 300,000 South Australian customer accounts transferred year. to the new billing system. Further account migration activities are Capitalised interest was $153 million compared with $156 million in the ongoing. prior year. The events described above and those as disclosed in the financial statements represent the significant changes in the state of affairs Income tax expense on Underlying Profit – $316 million, up of Origin for the year ended 30 June 2011. 36 per cent Underlying income tax expense for the full year increased 36 per cent 5. Events subsequent to balance date or $84 million to $316 million, reflecting higher Underlying Profit before Other than the items described below, no matters or circumstances income tax and a higher Underlying effective tax rate of 30 per cent have arisen since 30 June 2011, which have significantly affected, or may compared with 26 per cent in the prior year. The Underlying effective significantly affect: tax rate was higher than the prior year mainly due to tax benefits in the prior year arising from recognition of previously unbooked capital losses. •• The Company’s operations in future financial years; •• Results of those operations in future financial years; or Non-controlling interests share of Underlying Profit •• The Company’s state of affairs in future financial years. – $62 million, down 6 per cent Underlying Profit attributable to Non-controlling Interests decreased Events in respect of the Australia Pacific LNG joint venture 6 per cent to $62 million from $66 million. On 28 July 2011, Australia Pacific LNG announced that a FID had been approved initiating development of the first phase of a two-train CSG Underlying Profit – $673 million, up 15 per cent to LNG project. The first phase is the development of the first train and Underlying Profit for the year increased 15 per cent or $88 million to infrastructure to support the second train. The project has a construction $673 million from $585 million. period over the next 4 years and total capital expenditure to first gas for the first phase is estimated to be US$14 billion (US$6 billion Origin’s 4. Significant changes in the share), some of which has been committed. Additionally, under an state of affairs agreement reached between Origin and ConocoPhillips, the contingent FID payment of US$1 billion to be made by ConocoPhillips to Australia The following significant changes in the state of affairs of the Company Pacific LNG in connection with the first LNG train has been deferred occurred during the year: and the payment will be made when the project pays out an agreed Acquisitions economic return on the total investment by ConocoPhillips in Australia Pacific LNG. On 1 March 2011, Origin completed Sale and Purchase Agreements with the NSW Government to acquire the retail businesses of Integral Energy On 9 August 2011, Australia Pacific LNG issued new shares to China and Country Energy, and entered into GenTrader arrangements with Petroleum and Chemical Corporation (Sinopec), resulting in Sinopec Eraring Energy for a combined purchase consideration of $3,259 million. holding a 15 per cent interest in the issued capital of Australia Pacific Included in the purchase consideration is the estimated NSW stamp duty LNG. As a result of this new share issue, Origin’s interest in Australia payable of $134 million. Pacific LNG has been diluted from 50 per cent to 42.5 per cent. Under the terms of the subscription agreement, Sinopec paid an upfront Funding subscription amount of US$1,765 million and committed to fund an During the year, Origin strengthened its balance sheet, lengthened its additional amount of $1,262 million when called by Australia Pacific LNG. debt maturity profile and increased its funding options in preparation The completion of the share issue from Australia Pacific LNG to Sinopec for ongoing investment in the Australia Pacific LNG CSG to LNG project results in a dilution gain recorded in statutory profit for the consolidated through the following initiatives. entity of approximately $0.5 billion for the year ended 30 June 2012. Syndication of $2.15 billion and US$350 million bank debt facility – At 30 June 2011, the consolidated entity recorded a loan payable to On 11 April 2011, Origin completed the syndication of a $2.15 billion Australia Pacific LNG of $3,576 million. This loan is expected to be utilised and US$350 million bank debt facility with terms of between three by the consolidated entity in funding expenditure for the FID approved and five years. Australia Pacific LNG development project; some of this expenditure has been committed by Australia Pacific LNG and is also subject to Renounceable equity entitlement offer – On 19 April 2011, Origin completed guarantees provided by Origin Energy Limited, as per below. the 1 for 5 pro rata renounceable equity entitlement offer issuing 177,100,055 new shares and raising $2.3 billion. Following FID and subsequent to 30 June 2011, Origin Energy Limited (the Parent Company of the consolidated entity) provided a guarantee Hybrid instrument issue – On 10 June 2011, Origin completed a €500 million for Origin’s share of certain contractual commitments of Australia ($675 million) hybrid issue. The hybrid has been recorded as debt in the Pacific LNG associated with the construction project, amounting to financial statements and has received 100 per cent equity credit from approximately $3 billion (Origin’s share). Origin Energy Limited also Standard & Poor’s and 50 per cent equity credit from Moody’s. provided a guarantee of $125 million (Origin’s share) in respect of a bank Commenced operations guarantee facility obtained by Australia Pacific LNG to support the first Darling Downs Power Station – On 1 July 2010, Darling Downs phase of the development project. At the date of this report, no commenced commercial operations. Darling Downs Power Station is the guarantees have been issued under this facility. largest gas-fired combined cycle power station in the National Electricity Following the issue of shares to Sinopec, Origin’s share of the commitments Market with a capacity of 630 MW. and guarantees of the Australia Pacific LNG joint venture recorded at 30 June 2011, is diluted from 50 per cent to 42.5 per cent, resulting in commitments as at 30 June 2011 reducing by $277 million.

Origin Energy Annual Report 2011 27 Directors’ Report for the year ended 30 June 2011 (continued)

Final Dividend In July 2011, Origin committed to fund its 42.5 per cent share of the On 28 July 2011, the Board announced that Origin has entered an agreement US$14 billion of estimated capital expenditure for the first phase of the to underwrite up to 100 per cent of the interim and final dividends up Australia Pacific LNG project, with the option of progressing to a full to and including the period ending 31 December 2012. Origin intends to two-train development. Capital has also been committed to develop underwrite 100 per cent of the final dividend for the period ending the Te Mihi Geothermal project via Origin’s shareholding in Contact and 30 June 2011. Origin will fund the continued upgrade of capacity of the Eraring Power Station. These commitments will continue to drive growth in the On 23 August 2011, the Board declared a final fully franked dividend of medium term. 25 cents per share. Refer to section 6 below for further details. Origin is also pursuing a number of opportunities, which will expand the 6. Dividends scale and diversity of its business and provide earnings growth in the medium to long term. Dividends paid during the year by the Company were as follows: Origin has several options available to expand its generation capacity. This includes the development of Australia’s largest wind farm at $million Stockyard Hill and the option to convert some open cycle gas turbine Final dividend of 25 cents per ordinary share, fully sites to highly efficient combine cycle gas turbines. franked at 30%, for the year ended 30 June 2010, In addition, Origin is pursuing a range of low carbon emission and paid 28 September 2010. 221 renewable energy opportunities in growing offshore markets. These Interim dividend of 25 cents per ordinary share, include exploration and development of geothermal resources fully franked at 30%, for the half year ended particularly in Chile and Indonesia, assessment and development of 31 December 2010, paid 1 April 2011. 221 hydro resources such as the potential Purari Hydro Project in Papua New Guinea and the exploration for gas particularly in the Canterbury Basin In respect of the current financial year, the Directors have declared a final in New Zealand, in South East Asia and Kenya. dividend as follows: Since first listing in 2000, Origin has demonstrated the ability to deliver $million sustained growth in earnings which has resulted in long-term growth in shareholder value. Based on the opportunities available to the Company, Final dividend of 25 cents per ordinary share, fully Origin continues to target long term growth in Underlying EPS of 10 to franked at 30%, for the year ended 30 June 2011, 15 per cent per annum on average. payable 29 September 2011. 266

The DRP will apply to this final dividend at a discount of 2.5 per cent. 8. Directors The Directors of the Company at any time during or since the end of the 7. Business strategies, future financial year are: developments and expected results H Kevin McCann (Chairman) During 2011, Origin invested $5.0 billion in developing and growing its Grant A King (Managing Director) business. This included $3.1 billion on the acquisition of the Integral John H Akehurst Energy and Country Energy retail businesses and entry into the Eraring Bruce G Beeren GenTrader arrangements. In addition, in July 2011, Origin committed Trevor Bourne US$6.0 billion for the first phase of the Australia Pacific LNG project. Gordon M Cairns This will drive short, medium and longer term growth for Origin. Karen A Moses Helen M Nugent In the coming year, Origin’s Underlying EBITDA will benefit from: J Roland Williams (retired 29 October 2010) •• a full year contribution from the acquisition of the Integral Energy and Country Energy retail businesses; 9. Information on Directors •• a full year contribution from the GenTrader arrangements covering and Company Secretaries the Eraring and Shoalhaven power stations and contributions from Information relating to current Directors’ qualifications, experience and the Mortlake Power Station which is expected to commence special responsibilities is set out on pages 54 and 55. The qualifications commercial operations during the first half of the financial year; and experience of the Company Secretaries is set out below. •• increased contribution from the Exploration and Production business due to lower levels of planned exploration expense versus the prior Andrew Clarke year; and Group General Counsel and Company Secretary •• improved profitability in Contact in New Zealand as the Stratford Andrew Clarke joined Origin in May 2009 and is responsible for the Peaker Power Station and the Ahuroa Gas Storage project deliver company secretarial and legal functions. He was a partner of a national flexibility to Contact’s energy supply portfolio. law firm for 15 years and was Managing Director of a global investment Depreciation and amortisation expense will continue to increase as bank for more than two years prior to joining Origin. Andrew has a capital intensive assets come on line or provide a full year’s contribution. Bachelor of Laws (Hons) and a Bachelor of Economics from Sydney Underlying net financing costs will increase associated with the funding University. He is admitted to practice in New South Wales and New York. of the NSW acquisition and completed developments. As Australia Helen Hardy Pacific LNG is a development project, interest expense associated with Company Secretary its funding is excluded from the guidance of Underlying Profit. Helen Hardy joined Origin in March 2010. She was previously General Origin’s Underlying effective tax rate is expected to remain above Manager, Company Secretariat of a large ASX listed company, and has 30 per cent due to the non-deductibility for tax purposes of amortisation advised on governance, financial reporting and corporate law at a Big 4 associated with the GenTrader arrangements. accounting firm and a national law firm. Helen is a Chartered Accountant Based on Origin’s current assessment of operations and prevailing and Chartered Secretary. She holds a Bachelor of Laws and a Bachelor market conditions, Origin anticipates Underlying EBITDA to increase of Commerce from Melbourne University, and is admitted to practice by around 35 per cent and Underlying Profit to increase by around in New South Wales and Victoria. 30 per cent for FY2012 when compared with the prior year.

28 Directors’ Report for the year ended 30 June 2011 (continued)

10. 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:

Directors Meetings of Board Committees Scheduled Unscheduled Board Meetings Board Meetings Audit Remuneration HSE Nomination Risk H H A A H A H A H A H A H A

H K McCann 11 11 5 5 4 4 4 3 4 4 3 3 3 3 G A King 11 11 5 5 – – – – 4 4 – – 3 3 J H Akehurst 11 10 5 5 – – – – 4 4 3 3 3 2 B G Beeren 11 10 5 5 4 4 4 4 – – 3 3 3 2 T Bourne 11 11 5 5 1 1 4 4 4 4 3 3 3 3 G M Cairns 11 10 5 5 – – 4 3 4 4 3 2 3 3 K A Moses 11 10 5 5 – – – – – – – – 3 2 H M Nugent 11 11 5 5 4 4 4 4 – – 3 3 3 3 J R Williams(1) 4 4 1 1 1 1 – – 1 1 1 1 2 2

(1) Up to date of retirement 29 October 2010. H: Number of meetings held during the time that the Director held office or was a member of the committee during the year. A: Number of meetings attended.

The Board held three workshops during the year to consider operational and strategic matters of relevance to the Origin Group. The Board has also visited Company operations in Victoria and New South Wales and met with operational management during the year.

11. Directors’ interests in shares, options and rights of Origin Energy Limited The relevant interests of each Director in the shares and rights or options 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:

Ordinary shares held Options over Performance Share Rights Ordinary shares in Director directly and indirectly ordinary shares over ordinary shares Contact Energy Limited

H K McCann 349,012 – – – G A King 1,106,611 1,368,212(1) 399,750(2) 28,438 J H Akehurst 71,200 – – – B G Beeren 1,360,015 – – 31,762 T Bourne 53,504 – – – G M Cairns 83,360 – – – K A Moses 221,927 700,202(3) 183,779(3) 14,947 H M Nugent 38,204 – – –

Exercise price for share options and performance share rights: (1) 300,000: $9.86, 400,000: $15.84, 297,000: $15.47, 371,212: $14.91 (2) Nil (3) 211,000: $6.04, 140,000: $9.86, 89,000: $15.84, 115,000: $15.47, 145,202: $14.91

12. Environmental regulation and performance The Company’s operations are subject to significant environmental regulation under Commonwealth, State and Territory legislation. In the year ended 30 June 2011, the Company recorded 30 incidents involving either water discharge criteria, air emissions or noise levels that exceeded licence conditions and resulted in regulators being notified. None of the reported environmental incidents resulted in fines or penalties being issued. Of these incidents, three involved high levels of response and interaction with regulators.

13. Indemnities and insurance for Directors and officers Under the Company’s Constitution, it must indemnify the current and past Directors, secretaries and senior managers against all liabilities to other persons (other than the Company or a related body corporate) that may arise from their positions as Directors, secretaries or officers of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The Company has entered into agreements with current Directors and certain former Directors whereby it will indemnify those Directors from all liability in accordance with the terms of the Constitution for a period of seven years after they cease to be Directors. The agreements stipulate that the Company will meet the full amount of any such liabilities, including costs and expenses. Since the end of the previous financial year, the Company has paid insurance premiums in respect of Directors’ and officers’ liability, and legal expense insurance contracts for current and former Directors and officers, including executive officers and Directors of the Company and executive officers and secretaries of its controlled entities.

Origin Energy Annual Report 2011 29 Directors’ Report for the year ended 30 June 2011 (continued)

14. Auditor independence 16. Rounding of amounts There is no former partner or director of KPMG, the Company’s auditors, The Company is a company of a kind referred to in ASIC Class Order 98/100 who is or was at any time during the year ended 30 June 2011 an officer dated 10 July 1998 and in accordance with that class order, amounts in of the Origin Energy Group. The auditor’s independence declaration the financial report and Directors’ Report have been rounded off to the (made under section 307C of the Corporations Act) is attached to and nearest million dollars unless otherwise stated. forms part of this report. 17. Remuneration 15. Non-audit services The Remuneration Report is attached and forms part of this Directors’ The amounts paid or payable to the Origin Energy Group auditor KPMG Report. for non-audit services provided by that firm during the year are as Signed in accordance with a resolution of Directors: follows (shown to nearest thousand dollar):

1. Accounting advice $243,000 2. Taxation services $173,000 3. Equity and debt transactional services $569,000 4. Other services $146,000 Kevin McCann Chairman Further details of amounts paid to the Company’s Auditors are included in Note 24 to the full financial statements. Sydney, 23 August 2011 In accordance with advice provided by the Audit Committee, the Board has formed the view that the provision of those non-audit services by the auditors is compatible with, and did not compromise, the general standards of independence for auditors imposed by the Corporations Act. The Board’s reasons for concluding that the non-audit services provided did not compromise the auditor’s independence are: •• All non-audit services were subject to the corporate governance procedures that had been adopted by Origin and were below the pre-approved limits imposed by the Audit Committee; •• All non-audit services provided did 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 Origin, acting as an advocate for Origin or jointly sharing risks and rewards; and •• There were no known conflict of interest situations nor any circumstance arising out of a relationship between Origin (including its Directors and officers) and the auditor which may impact on auditor independence.

30 Lead auditor’s independence declaration

Origin Energy Annual Report 2011 31 Remuneration Report for the year ended 30 June 2011

This Report is presented in the following sections: 2. Key terms 1. Introduction; Throughout this Report, the following terms have the meaning indicated 2. Key terms; below: 3. Governance; 4. Corporate performance; Key management personnel 5. Remuneration framework; Key management personnel (KMP) is defined by AASB 124 Related Party 6. Employee retention plan; Disclosures as all directors and those persons having authority and 7. Employee share plan (ESP); responsibility for planning, directing and controlling the activities of the 8. Non-executive Director remuneration; and Company and the consolidated entity. For the Company, these are the 9. Remuneration tables and additional remuneration disclosures. individuals listed in section 3.3 of this Report.

1. Introduction Directors The Directors present the Remuneration Report for Origin Energy Executive Directors and Non-executive Directors. Limited (the Company) for FY2011. Executive Management Team (EMT) Amongst the key issues to highlight for the current year is the The Managing Director and managers who report to the Managing comprehensive review undertaken of the Company’s Long Term Incentive Director. Plan (LTI Plan) and its operation, discussed in sections 5.4 and 5.8. This resulted in an expanded participating population and the confirmation Executives of a continuing central role for Options within the LTI Plan, notwithstanding The EMT plus all those senior employees who have been invited to the significantly changed regulatory environment for equity arrangements. participate in the Company’s LTI arrangements. The Remuneration Committee has again been active during the year in the public discussion on executive remuneration matters. The Board OCAT/PC (OCAT Ratio) considers that the Government should discuss principles relating to Operating Cash Flow After Tax (less interest tax shield) divided by proposed regulation of remuneration with the relevant stakeholders Productive Capital. OCAT/PC is one of two performance metrics used before preparing detailed draft legislation. In the past five years legislation to determine short-term incentive (STI) outcomes, the other being has been introduced, in some cases with little consultation, adding to Underlying EPS (see below). Productive Capital excludes capital complexity and administrative costs. Where consultation has occurred, work-in-progress. some of the issues raised by the Company have been accepted and in some cases contributed to improving the drafting of the original Underlying EPS government proposals. The Board was pleased to see an attribution Underlying profit (year-end Statutory Net Profit after excluded items) from its 2010 Remuneration Report quoted in a ‘best practice’ example divided by the weighted average number of shares on issue. recently distributed by the Australian Securities and Investment Commission (ASIC) on remuneration reporting. However, the Board remains concerned that the Federal Government has rejected recommendations from both the Productivity Commission and the Australian Prudential Regulatory Authority to remove cessation of employment as a taxing point for employee share plans. The Board agrees with the Productivity Commission’s observations that there is “little rationale for ceasing tax deferral at termination of employment” and that the provision “is contrary to best practice governance promoted in Australia by the prudential regulator and overseas”(1). As noted by the Australian Securities Exchange (ASX), “a taxation policy that drives remuneration design and practices that are inconsistent with corporate governance policy is both inappropriate and counterproductive”(2). The Board will continue to urge change on this matter. Whilst new laws concerning remuneration consultants and remuneration advice do not take effect until the Company’s next reporting period, the Board has chosen to become an ‘early adopter’ and this year’s Report contains relevant disclosures in section 3.2 Advisors to the Committee. The Board’s assessment is that the remuneration framework that is in place is robust and appropriate to the Company’s circumstances and industry setting, such that adjustments during the year, despite extensive review, constitute fine tuning and enhancement rather than significant change.

(1) Productivity Commission Inquiry Report No. 49 (Executive Remuneration in Australia) 19 December 2009, pages 339 and 341. (2) Australian Securities Exchange (ASX), submission DD142 to the Productivity Commission’s 2009 Inquiry into Executive Remuneration in Australia, page 9.

32 Remuneration Report for the year ended 30 June 2011 (continued)

3. Governance Remuneration Other advice and fees to the Consultant recommendations and fees Company 3.1 Remuneration Committee Guerdon Market analysis and Remuneration Report The Remuneration Committee (the Committee) is responsible for Associates remuneration review preparation assistance, LTI making recommendations to the Board on director and executive material for Managing plan design issues and remuneration pay, policy and structure. The composition and functions Director and EMT, and market practice, research on of the Remuneration Committee are set out in the Remuneration analysis and fees review for retention and STI deferral, Committee Charter which can be viewed or downloaded from the Non-executive Directors data mining services, Company’s website w w w.originenergy.com.au. ($84,662). paymix analysis and general benchmarking ($78,754). The Remuneration Committee comprises five Non-executive Directors Hewitt Market analysis and Benchmarking of selected with significant remuneration experience working within other board Associates remuneration review non-KMP roles and remuneration committees, and considerable experience with the Australia material for Managing non-remuneration related Company’s operations. The members are: Director and EMT ($40,810). human resources services ($21,105). Remuneration Committee

Trevor Bourne Independent Chairman 3.3 Individuals covered by the Report Bruce Beeren Non-executive The detailed disclosures of the Report relate to the KMP of the Company Gordon Cairns Independent as defined in section 2 and as listed below: Kevin McCann Independent Helen Nugent Independent Non-executive Directors Kevin McCann Independent Chairman 3.2 Advisors to the Committee John Akehurst Independent (1) The Committee seeks advice from external advisors from time to time to Bruce Beeren Non-executive assist in its deliberations. The table below summarises the advisors used Trevor Bourne Independent during the reporting period. Those advisors who provided advice directly Gordon Cairns Independent related to remuneration decisions for KMP during the period have been Helen Nugent Independent deemed by the Company to be “Remuneration Consultants” for the Non-executive Director – former purpose of the recently approved executive remuneration legislation, (2) and are listed below. Roland Williams Independent The Remuneration Consultants were selected by resolution of the Executive Directors Committee, and were commissioned and instructed by the Chairman Grant King Managing Director of the Committee. Karen Moses Executive Director, Finance & Strategy The appointment terms identify that all output be sent directly to the Other KMP – current Committee through its Chairman, and prohibit the Consultant from providing such material or other information directly to management. David Baldwin Chief Development Officer (from 1 April 2011) The terms also require that any dialogue with management be limited to Managing Director, Contact Energy the provision or validation of factual and policy data, for example (until 31 March 2011) contractual provisions, entitlements, salary history and incentive Dennis Barnes Chief Executive Officer, Contact Energy (3) eligibility. The terms also provide that no dialogue would be permitted (from 1 April 2011) between KMP and the Remuneration Consultant without written Frank Calabria Chief Executive Officer, Energy Markets approval of the Chairman of the Committee. The appointment terms Paul Zealand Chief Executive Officer, Upstream also require that the Remuneration Consultants provide, with their Other KMP – former report, both a declaration of their independence from the KMPs to whom their recommendations relate, and also confirmation that the Andrew Stock Executive General Manager, Major (4) Committee’s conditions for contact and dialogue had been observed. Development Projects (until 31 March 2011) In this way, the Committee and Board have been assured and are Robbert Willink Executive General Manager, Geoscience & (5) satisfied that the Remuneration Consultant’s remuneration advice and New Ventures (until 30 June 2011) recommendations were made free from undue influence from (1) Mr Beeren was an Executive Director from March 2000 to January 2005. management generally and from KMP executives specifically. (2) Retired 29 October 2010. All work undertaken by Guerdon Associates on behalf of the Company (3) Prior to 1 April 2011, Mr Barnes held the role of General Manager, Energy Risk related to remuneration was also performed on behalf of the Management, a non-KMP role. Committee, including work not deemed to be a remuneration (4) From 1 April 2011, Mr Stock holds the role of Director, Executive Projects, a non-KMP role. recommendation under new legislation. (5) From 1 July 2011, Mr Willink holds the role of Director, Exploration Projects, a non-KMP role.

More broadly, the Report also describes the remuneration arrangements applying to Executives and all EMT as defined in section 2.

Origin Energy Annual Report 2011 33 Remuneration Report for the year ended 30 June 2011 (continued)

4. Corporate performance The Kupe Gas project and the Darling Downs Power Station made full year contributions in FY2011, while the NSW retail businesses and Origin reported a Net Profit after Tax and Non-controlling Interests GenTrader agreements contributed for the four months from March (Statutory Profit) of $186 million for the year ended 30 June 2011, a 2011. Mortlake Power Station will contribute in the 2012 financial year. decrease of 70 per cent compared with $612 million reported in the prior year. The key drivers for the change in Statutory Profit were impairments, The Company also continued a substantial exploration program including a decrease in the fair value of financial instruments and transition and seven offshore and international wells, and a substantial seismic transaction costs primarily relating to the acquisition of Integral Energy exploration program. Origin has actively managed its exposure across and Country Energy retail businesses as part of the NSW privatisation a number of these areas and recovered back costs in two areas through process. These items contributed to charges to Statutory Profit of farmout arrangements. This contributed to a before tax exploration $487 million and more than offset a 15 per cent increase in profits expense net of farmout receipts of $118 million, compared with associated with the underlying business from $585 million in the prior $45 million in the prior year. year to $673 million. At an underlying level, the Company continued to build on the strong performance of the business in the prior year. Underlying EBITDA increased by 32 per cent or $436 million to $1,782 million during the year, and operating cash flow after tax increased 64 per cent to $1,585 million. The Company has invested in valuable assets both through acquisitions (such as the NSW retail businesses of Country Energy and Integral Energy, and entering into the Eraring and Shoalhaven GenTrader Agreements) and through the development of internally generated projects (such as the Kupe Gas project in New Zealand, the Darling Downs Power Station and the Mortlake Power Station).

The following table outlines the Company’s performance over a number of key performance indicators:

Compound Annual Increase Performance Indicator 2007 2008 2009 2010 2011 %(1)

EARNINGS Revenue $6,436m $8,275m $8,042m $8,534m $10,344m 13 Statutory Profit $457m $517m $6,941m $612m $186m -20 Statutory EPS – basic(2) 53.1c 57.4c 768.8c 67.7c 19.6c -22 Underlying Profit $370m $443m $530m $585m $673m 16 Underlying EPS – basic(2) 43.0c 49.2c 58.7c 64.8c 71.0c 13 OCAT Ratio 13.7% 12.3% 10.4% 10.9% 13.0% – TSR Dividends 21.0c 50.0c(3) 50.0c 50.0c 50.0c 24 Share Price 30 June(2) $9.51 $15.43 $14.23 $14.52 $15.79 14 Annual shareholder return 38% 66% -5% 5% 12% 17

(1) Compound average growth rate between 30 June 2007 and 30 June 2011. (2) Share Price and EPS have been restated for the bonus element of the Rights Issue completed in April 2011. (3) Includes additional dividend paid in November 2008.

34 Remuneration Report for the year ended 30 June 2011 (continued)

From 30 June 2007 to 30 June 2011, the Company’s compound Total Shareholder Return (TSR) was 16.8 per cent per annum. This was significantly above the ASX 100 Accumulation Index, which decreased by 2.9 per cent average annual compound over the same period.

1,800

1,600

1,400

1,200

1,000

800

Index Level Index 600

400

200

0 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Origin Total Shareholder Return S&P/ASX 100 Index Total Return

Origin Energy Total Shareholder Returns vs ASX 100 Total Return (indexed to 100 from 21/02/2000) Source: Guerdon Associates.

TSR is defined as the growth in Company share price over the relevant performance period with dividends notionally reinvested on the ex-dividend date during the period. The share price is measured on a volume weighted basis for the three months preceding the relevant date.

5. Remuneration framework 5.1 Principles The Company’s remuneration strategy and policy are set by the Board and overseen by the Remuneration Committee. The Committee’s focus is to bring strong governance and risk management principles to remuneration practice that: •• has the appropriate mix of fixed pay and ‘at-risk’ reward; •• measures performance in both financial and non-financial terms; and •• has a significant deferred element that aligns the interests of management with shareholders in terms of long-term and sustainable performance.

Origin Energy Annual Report 2011 35 Remuneration Report for the year ended 30 June 2011 (continued)

5.2 Policy •• Transacts business consistently in ways that are aligned with the The purpose of the remuneration policy is to manage an overall Company’s purpose, principles, commitments and values. framework for rewards that is geared to achieve the following objectives: To achieve these objectives the Board has set a remuneration policy Attract and retain talent that has a fixed component benchmarked to the median of the relevant market, guaranteeing fair pay for the role itself, and, through the •• Recognises and develops internal talent; and addition of variable pay, the opportunity for aggregate remuneration •• Builds and develops the capabilities and competencies of its people (fixed plus variable) to be at the top quartile of the market if and when through opportunities for growth, development and promotion. performance is outstanding. Motivate to achieve superior performance The policy for variable pay is to have a mix of STIs (cash) and LTIs •• Rewards those who deliver outstanding performance. (deferred pay in the form of equity). The details are described in sections Align executives’ and shareholders’ interests 5.7 and 5.8. •• Links reward to long-term and sustainable value creation while The diagram below provides a schematic representation of the policy managing risk; and implementation and remuneration arrangements as they apply to EMT:

Attract and retain talent Motivate to achieve superior performance Align with shareholder interests

• Recognise and develop internal talent • Reward outstanding performance • Have a substantial deferred pay element linked to the creation • Build and develop people capabilities of sustainable value through opportunities for growth • Conduct business in line with the and development Company’s purpose, principles, values and commitments

Fixed remuneration At-risk remuneration

The proportion of guaranteed or fixed The proportion of at-risk pay increases with seniority. The maximum at-risk pay decreases with seniority component varies from 57% of total package for EMT to 73% of total package for the Managing Director

STI LTI

Comprises cash salary, superannuation Cash paid annually after release • Deferred share-based remuneration and packaged benefits of corporate results • Performance measures based on Benchmarked to the median of the Performance measured by: relative TSR against ASX 100 companies relevant market • Group measures • Has value only when TSR is in top 60-67% half, maximum value only if TSR • Divisional measures reaches top quartile

• Individual measures 33-40% • Options bring in a combination of absolute and relative hurdles (Options have no value unless absolute share price improves, irrespective of relative TSR)

36 Remuneration Report for the year ended 30 June 2011 (continued)

5.3 Benchmarks In addition to market data sourced through the Remuneration Consultants listed in section 3.2, the Company subscribes to published survey data and participates in industry forums. Through these multiple channels the Company maintains an ongoing monitor of trends and developments within broad and specific markets. The Company attracts new staff from all major industry sectors, and exit analyses show that staff attrition is not industry specific. Therefore a benchmark representative of all industries is appropriate. The primary reference group is currently the Hay Group’s ‘all organisations’ benchmark. The Company’s analysis shows that the market is currently differentiated with some job sectors and specialist skills areas in high demand, and attracting a premium to the general market. For these roles, which include geosciences and some subsurface engineering and professional specialists, smaller “peer group” benchmarks are used. For the most senior roles, external advice is sought at least annually to provide independent determinations of market positioning and relevant trends, as outlined in section 3.2.

Pay element Benchmarks

Fixed remuneration The majority of roles are benchmarked to Hay Group’s ‘all organisations’ reference of over 400 companies. Approximately 11% of roles are benchmarked to specialist markets. In all cases the benchmark is the median of the relevant market. Aggregate remuneration The reference point for aggregate remuneration (fixed plus variable), when expressed at the maximum opportunity level, is the 75th percentile of the relevant market. Accordingly, top performance is rewarded at levels reaching top market quartile.

5.4 Package summary Aggregate remuneration is made up of four elements as summarised below:

Element Description

Fixed remuneration Executives are paid a fixed package amount which includes the minimum regulatory Company superannuation contribution. Executives may salary sacrifice from this package additional superannuation and/or benefits such as novated vehicle lease. Benefits Benefits include salary continuance insurance, total and permanent disablement and death cover, parking and fringe benefits. Some benefits are available through salary sacrifice from the fixed package and others are paid in addition to fixed package but counted towards aggregate. STI Cash-based, non-deferred, subject to four types of performance measures. Detailed in section 5.7. LTI Deferred pay, equity based, relative TSR hurdle (implicit absolute hurdle where Options used). Detailed in section 5.8.

5.5 Remuneration mix Having regard to the nature of the Company’s business, the Board has determined that it is appropriate to have a significant portion of executive remuneration deferred. Accordingly, within the benchmark for aggregate remuneration, executive remuneration is weighted relatively highly to market in LTI, and packages comprise long-term equity elements at levels that go relatively deep into the organisation. Approximately 11 per cent of the Company’s employee base (excluding Contact Energy) participate in LTI arrangements (which are described in more detail in section 5.8). The mix between the STI and LTI components is determined with reference to risk focus and time focus. The risk focus is measured as the ratio of (maximum) variable pay to fixed pay. It reflects an increasing proportion of pay at risk with increasing levels of responsibility. The time focus is measured as the ratio of LTI to STI; the higher the ratio the longer the time horizon and the higher the level of deferral. The graph below shows relationships effective from 1 July 2011: Risk vs time focus of remuneration package

2.8 Managing Director

2.4 Executive Director Finance & Strategy 2.0 KMP

1.6

Other EMT 1.2 Range for other Executives 0.8

Risk focus (ratio of variable/fixed pay) of variable/fixed (ratio Risk focus 0.4

0.0 0.4 0.6 0.8 1.0 1.2 1.4 Time focus (ratio of LTI/STI)

Origin Energy Annual Report 2011 37 Remuneration Report for the year ended 30 June 2011 (continued)

The mixes are assigned such that there is a consistent relationship between the level of risk and time horizon, and that the time horizon is longer for higher levels of risk.

Maximum STI Maximum LTI Ratio Ratio Variable Variable Position as % of Fixed as % of Fixed LTI / STI / Fixed as % of Total

Managing Director FY2012 120% 150% 1.25 2.70 73% Managing Director FY2011 120% 140% 1.17 2.60 72% Executive Director Finance & Strategy FY2012 100% 120% 1.20 2.20 69% Executive Director Finance & Strategy FY2011 100% 100% 1.00 2.00 67% Other KMP average FY2012 100% 100% 1.00 2.00 67% Other KMP average FY2011 86% 74% 0.86 1.60 62% Other EMT FY2012 72% 63% 0.88 1.35 57% Other EMT FY2011 63% 56% 0.89 1.19 54% Other Executives (FY2011 & FY2012) 25-55% 15-45% 0.60-0.82 0.40-1.00 avg 41%

The relatively high weighting of LTIs means that there is a significant level of deferred pay within the Company’s executive remuneration packages. The Board considers that the Company’s deferral is at an appropriate level that is competitive and aligned with value creation. 5.6 Link to strategic objectives and performance The diagram below illustrates how the at-risk component of the Company’s executive remuneration framework is structured to align with its strategic objectives. There are five different types of performance measures applied, and maximum outcomes therefore require performance against a variety of measures. As noted in section 5.2, the use of Options for the more senior roles means that there is effectively a combination of relative and absolute hurdles within the LTI component. The relative hurdle is provided through relative TSR, and there is an absolute hurdle in the sense that the share price must grow in absolute terms if the Options are to have any value. The performance assessment commentaries in sections 5.7 and 5.8 provide further details of how the incentive plans are linked to performance outcomes.

Component Delivery Performance measure Strategic objective

STI Cash Company Measure 1: Drive real annual earnings growth Underlying EPS (widely used and understood metric)

Measure of cash flow required to exceed risk adjusted cost of capital, Company Measure 2: reflecting the long-term nature of many OCAT/PC of the Company’s projects (appropriate for the Company’s business)

Divisional Measure: (e.g. financial measures such as EBITDA, Reward achievement of specific capital and opex management) divisional performance goals

Individual Measure: (e.g. safety, project delivery, Rewards achievement of specific culture-engagement) individual performance goals

Rewards creation of shareholder wealth Options/ LTI Personal performance and (through outperformance of TSR PSRs development potential relative to reference group) (3 – 5 year period)

Total at-risk remuneration

38 Remuneration Report for the year ended 30 June 2011 (continued)

5.7 Variable remuneration – STI Details of the operation of STI arrangements are provided below:

Parameter Details

Performance Period Annual Payment is generally during September, after the performance reviews described below are completed and after the release of annual results.

Opportunity Level The maximum opportunity level is expressed as a percentage of fixed remuneration, and is determined by the Executive’s relative influence on Company performance as described in section 4.

Maximum Target STI as % STI as % Position of Fixed of Fixed Managing Director 120% 72% Other KMP 100% 60% Other EMT (average) 72% 43% Other executives 25-55% 15-33% ‘Target’ performance outcomes represent 60% of the maximum level. This will remain unchanged in FY2012.

Payment Vehicle Cash.

Performance Measures Three levels of performance measure are linked to strategic objectives as described in section 5.6, with relative weightings as shown below:

EMT (average Managing of operational Director roles) Group Financial Targets •• OCAT/PC (see section 1) •• Growth in Underlying EPS 60% 33⅓% Business Unit Targets Non-Financial e.g. safety performance, project delivery Financial e.g. opex and capex management, cash flow, EBIT and EBITDA, margin and efficiency measures – 33⅓% Individual Targets Personal Key Performance Indicators, which may be financial or non-financial and may include risk management, safety plans, culture and engagement and people measures 40% 33⅓% The STI can be reduced if safety targets are not achieved, or it may be increased or decreased in exceptional circumstances with Board approval.

Performance Assessment Company goals and outcomes are approved by the Board. Division goals are set by the Managing Director and reviewed by the Remuneration Committee. EMT performance is assessed by the Managing Director, reviewed by the Remuneration Committee and approved by the Board. The Managing Director’s performance is assessed and approved by the Board. For the period(s) during which Mr Baldwin or Mr Barnes were or are on secondment to Contact Energy, their STI was or is assessed by its board.

Origin Energy Annual Report 2011 39 Remuneration Report for the year ended 30 June 2011 (continued)

Maximum STI as % of Actual STI as % of % of Maximum STI Fixed Remuneration Maximum STI(1) Payment Forfeited(2) Actual STI Payment(3)

KMP Current (excluding Non-executive Directors) Grant King 2011 120 76 24 2,100,000 2010 120 72 28 1,820,000 Karen Moses 2011 100 95 5 1,140,000 2010 100 78 22 900,000 David Baldwin(4) 2011 100 65 35 457,000 2010 100 60 40 396,376 Dennis Barnes(5) 2011 100(6) 79 21 286,000 2010 – – – – Frank Calabria 2011 100 95 5 843,000 2010 100 81 19 605,000 Paul Zealand 2011 85 85 15 489,000 2010 75 65 35 300,000 KMP – former Andrew Stock 2011 85 79 21 505,000 2010 85 82 18 525,000 Robbert Willink 2011 75 62 38 295,000 2010 75 74 26 340,000 TOTAL 2011 80 20 6,115,000 2010 73 27 4,886,376

(1) In exceptional circumstances the Board may award more than the maximum to an individual provided that the maximum overall is not exceeded. (2) Where the actual STI payment is less than maximum potential, the difference is forfeited. It does not become payable in subsequent years. (3) 2011 STI constitutes a cash bonus granted for the year ended 30 June 2011, determined following the close of 2011 results and paid in September 2011. 2010 STI constitutes a cash bonus granted for the year ended 30 June 2010, determined following the close of 2010 results and paid in September 2010. (4) NZD/AUD annual average exchange rate 1.2947 – 1 July 2010 to 31st March 2011 (2010 full year 1.2362). (5) NZD/AUD annual average exchange rate 1.3269 – 1 April to 30 June 2011. (6) For the period as a KMP.

5.8 Variable remuneration – LTI As disclosed in the 2010 Report, the Board determined to extend the operation of the LTI Plan from approximately 4 per cent to 11 per cent of the (non-Contact Energy) employee base in FY2012. This followed a review of market practices to ensure that the Company’s remuneration remained competitive, and noting the retention effect observed where the LTI Plan operated. The graph below shows the difference in voluntary turnover levels for FY2011 for resigning employees holding unvested LTI equity (less than 5 per cent) compared with those forfeiting annual STI awards (almost 13 per cent). Voluntary turnover with STI and LTI forfeit

15%

10%

0 STI LTI

40 Remuneration Report for the year ended 30 June 2011 (continued)

In early 2011, the Board undertook a comprehensive review and updating of the LTI Plan which, until that time, had remained largely in the form of the 1994 plan developed by Boral Limited prior to the demerger creating the Company. This review modernised the administration and articulation of the Plan, reflecting recent regulatory changes and bringing the separate Options Plan and Performance Share Rights (PSR) Plan under a single ‘umbrella’ set of rules. The updated arrangements apply prospectively to new awards and do not impact on prior grants. The LTI vehicles continue to be: (a) PSRs, which are the right to a fully paid share in the Company at no cost; and/or (b) Options, which are the right to a fully paid share in the Company upon payment of an exercise price determined by the volume weighted average market price for the Company’s shares in the five business days leading up to and including the date of grant (i.e. the market price at issue). The Board recognises that general market practice favours PSRs and similar instruments rather than Options. Tax changes in recent years make the advantages of Options more difficult to communicate to participants. Nevertheless, the Board considers that Options continue to serve a useful role in the Company’s LTI mix, especially in the way they reward outperformance and provide additional shareholder alignment provided through the inherent absolute price hurdle in conjunction with the relative TSR hurdle. Balancing these considerations, the Board concluded that Options currently remain appropriate for the most senior LTI participants (approximately one third of those who participate in the LTI plan) when used in combination with PSRs, but that the rollout to the next level of participation is more appropriate wholly in the form of PSRs. Where a combination of Options and PSRs is used, the split is approximately half (by fair value). In addition, the Board determined that PSRs would be exercised automatically on achieving vesting hurdles. While Options will remain exercisable between vesting and expiry, subject to the Company’s Dealing in Securities Policy, the Board also determined that additional trading restrictions would apply to shares resulting from the exercise of Options through to the end of the next full “blackout” period (Closed Period) following exercise. During its review, the Board deliberated on the most appropriate reference group on which to base the performance hurdle. After consideration of a variety of comparator groups, the Board concluded that the ASX 100 group of companies remains the most appropriate comparator for alternative investment choice for the majority of the Company’s stakeholders. The question of re-testing was also reviewed. In 2007 the Board changed the Plan from continuous testing to one test at the end of Year 3 followed by two re-tests at the end of years 4 and 5. In confirming that two re-tests provided the right balance for the Company, the Board noted that reductions in the level of testing result in lower fair valuation of the rights involved, and therefore result in a corresponding increase in the number of rights that must be issued to maintain a given allocation value. For FY2011, the maximum allocation value for 525 executives (including two Executive Directors) is $34 million for all LTI awards. Actual awards are expected to be determined during September/October 2011. In terms of potential share issuance, this equates to a maximum of approximately 0.78 per cent of issued shares. Currently, the total number of shares held by all KMP (including Non-executive Directors) is set out in Table 9.6 and equates to approximately 0.45 per cent of issued shares. As disclosed in the 2010 Report, a Deferred Share Rights (DSR) Plan was introduced in early 2010 under the Employee Retention Plan. The governing rules for the DSR Plan have been incorporated into the new Plan rules. Further information regarding the operation of the Employee Retention Plan is discussed in section 6. Details of the operation of the LTI Plan are provided below, and details of the grants made to the Executive Directors and Executives during the FY2011 are set out in section 9.4.

Origin Energy Annual Report 2011 41 Remuneration Report for the year ended 30 June 2011 (continued)

Parameter Details

Performance period 3 to 5¼ years. Grants are made annually after the performance reviews described below.

Opportunity level The maximum opportunity level is expressed as a percentage of fixed remuneration, and is determined by the executive’s relative influence on Company performance and risk versus time-focus as described in section 5.5.

Maximum Target LTI as % LTI as % Position of Fixed of Fixed Managing Director 150% 90% Executive Director Finance & Strategy 120% 72% Other KMP 100% 60% Other EMT (average) 63% 38% Other Executives 15-45% 9-27%

“Target” performance outcomes represent 60% of the maximum level.

Payment vehicle For approximately one-third of participants (those occupying the most senior roles in the Company), the payment vehicle is in the form of a 50/50 mix of PSRs and Options (half each by fair value). For the remainder, the payment vehicle is in the form of PSRs. While under secondment to Contact Energy during FY2011, Mr Baldwin and Mr Barnes participated in Contact Energy’s long term incentive arrangements for the period they were seconded (refer to Contact Energy’s website – w w w.contactenergy.co.nz), in addition to their participation under the Company’s LTI Plan. Their combined participation elements for any year remain within their individual overall maximum opportunity level.

Performance measures, testing The hurdle is relative TSR assessed at the end of the performance period against the ASX 100 group of companies and vesting (as at the date of grant). The degree to which the award vests is determined by the Company’s percentile ranking against the following scale:

TSR Percentile Ranking % of Award Vesting <50th 0% 50th 50% 75th or higher 100%

Between the 50th and 75th percentiles the percentage of award vesting increases proportionately on a straight line basis. Independent testing of TSR is undertaken at the third anniversary of the grant and awards vest according to the ranking achieved. Any balance not vested at this test is carried forward and re-tested at the fourth anniversary (based on four years of performance). Vesting from the re-test occurs only to the extent that a higher percentile ranking than the first test is achieved. Similarly with a second re-test at the fifth anniversary (based on five years of performance), vesting again occurs only where a higher ranking is achieved. The total amount vested corresponds to the highest ranking achieved.

Allocation and performance Although LTI grants are subject to a performance hurdle in order to vest, the original allocation is also subject assessment to a performance gateway. The annual LTI allocation is based on an assessment of the employee’s actual and potential contribution and overall performance, which determines the proportion (if any) of the maximum potential grant. Tools such as the Company’s performance management system and talent management system provide input to this process. The Managing Director’s performance is assessed by the Board. The EMT is assessed by the Managing Director, reviewed by the Remuneration Committee and approved by the Board. In exceptional circumstances the Board may award more than the maximum to an individual. If the relevant performance conditions are satisfied at the end of the performance period, then the awards will vest and, in respect of: (a) the PSRs that vest, the executive will be allocated shares in the Company at no cost to the Executive; and (b) the Options that vest, those Options will become exercised upon payment of the exercise price, and the Executive will then be allocated shares in the Company.

Equity grants The number of Options and/or PSRs for each Executive is calculated by dividing the allocation value of the LTI award for that Executive by the independently-determined fair market value of the unit Option and/or PSR estimated at the date of grant. The fair value is calculated using a Black-Scholes methodology with a Monte Carlo simulation model that takes into account market conditions and performance hurdles. Because the Options and the PSRs have different values, an Executive receiving a 50/50 mix by value will receive a different number of each. The recommended number of equity units for Executive Directors is recommended by the Board for approval by shareholders.

42 Remuneration Report for the year ended 30 June 2011 (continued)

Parameter Details

Exercise period and forfeiture Options and PSRs may only be exercised where the performance hurdle has been met, to the extent set out in the vesting table previously. Generally, unvested Options and PSRs lapse on cessation of employment or 5¼ years after grant. The Board has discretion to hold unexercised Options and PSRs ‘on foot’ subject to their normal performance hurdles and other Plan conditions in exceptional circumstances (such as death, disability, genuine retirement, redundancy, Company-initiated transfer of employment, or other termination by the Company without cause). Unvested or unexercised Options and PSRs lapse 5¼ years after grant.

Early vesting Early vesting may occur in limited circumstances, subject to the performance hurdle being achieved: On a person/entity acquiring 20% or more of the relevant interest in the Company pursuant to a takeover bid that has become unconditional, or on a person otherwise acquiring 20% or more of a relevant interest in the issued capital of the Company; On termination of employment due to death or permanent disability; In other circumstances where the Board determines appropriate (note: such discretion has not been exercised by the Board to date and would require exceptional circumstances).

Hedging policy The Company’s policy has long required that employees not trade instruments or other financial products which operate to limit the economic risk of any securities held under any equity-based incentive schemes, while those holdings are subject to performance hurdles or are otherwise unvested. The Company Secretary monitors adherence to this policy. Non-compliance may result in summary dismissal.

5.9 Managing Director’s remuneration details Details regarding the Managing Director’s remuneration arrangements are tabulated below:

Element Details

Fixed remuneration The Managing Director’s fixed remuneration for FY2011 was $2,300,000. The Board commissioned two external reports on chief executive remuneration which provided detailed benchmarks across a range of domestic and international peer groups. The Board concluded from the analysis that it was appropriate to increase the Managing Director’s fixed remuneration to $2,500,000 for FY2012.

STI The Managing Director’s maximum STI opportunity level is 120% of fixed remuneration (72% at target). This level will remain unchanged for FY2012. 60% of the Managing Director’s STI is determined on the Company performance measure and 40% on individual measures. Company performance for FY2011 was determined against two equally weighted measures, OCAT Ratio and growth in Underlying EPS (see section 4).

LTI The Managing Director’s maximum LTI opportunity level for FY2011 was 140% of fixed remuneration. Using the methodologies described at section 5.5, the Board has adjusted this opportunity level to 150% for FY2012. The Managing Director maintains a significant shareholding in the Company, as reflected in Table 9.6 of this Report and equivalent tables in prior Reports.

Origin Energy Annual Report 2011 43 Remuneration Report for the year ended 30 June 2011 (continued)

5.10 Contractual arrangements The table below sets out the main terms and conditions of the employment contracts of the Managing Director and EMT.

Termination Payments (subject to termination Name Contract Duration Notice Period benefits legislation)

Grant King To 30 June 2014 •• 12 months either party •• Statutory entitlements only for •• Immediate for misconduct, breach of termination with cause contract or bankruptcy •• Payment in lieu of notice at Company •• 6 months extended illness discretion •• For Company termination ‘without cause’, pro rata STI is payable

EMT Ongoing (no fixed term) •• Up to 3 months either party •• Statutory entitlements only for •• Immediate for misconduct, breach of termination with cause contract or bankruptcy •• Payment in lieu of notice at Company discretion •• For Company termination ‘without cause’, pro rata STI is payable •• For Company termination ‘without cause’, payment equivalent to 3 weeks’ fixed remuneration per year of service capped at 74 weeks; a minimum may also apply (generally 18-22 weeks)

The above includes arrangements agreed prior to the amendments to the Corporations Act 2001 (Cth) regarding termination payments which came into effect on 24 November 2009. Entitlements under pre-existing contracts are generally not subject to the new limits on termination payments. The new legislative provisions apply to KMP contract variations after 24 November 2009 and to agreements with KMPs appointed after 24 November 2009.

5.11 Gender pay equity As at 30 June 2011, no DSRs had been issued, and the number of The Company pays particular attention to delivering a policy of equal employees with deferred cash arrangements stood at 39 (2010: 31). pay for equal work. During its annual salary review processes it employs It is expected, however, that the first DSRs will be issued early in a number of checks and balances to detect persistent gaps or systemic FY2012 in a measured and targeted manner. bias. For some years it has maintained gender variation by grade within margins of plus or minus 2 per cent with variation in both directions. 7. Employee Share Plan (ESP) A detailed study early in the year detected that the variation in new hires All permanent employees of the Company in Australia and New Zealand was less favourable. Accordingly, special focus has been paid to salary (other than Executive Directors) with more than one year of service are decisions during the early phases of hiring to eliminate such potential gaps. eligible to participate in the ESP. The Plan provides for an award of up Although pay equity exists on an equal pay for equal work basis, the to $1,000 of shares in the Company if the Company meets specified Company has a structural imbalance in terms of gender distribution. financial and/or safety targets set by the Board. To be eligible to receive This is a characteristic of the energy industry generally, manifested in shares, annual performance measures which relate to targeted areas of a skew where females are over represented in lower-graded jobs and Company-wide performance must be achieved. Shares awarded under under-represented in higher-graded jobs. the ESP must be held for at least three years following the award or until the employee ceases employment. Targets established under the Company’s diversity agenda include the maintenance of grade pay equity, and seek to improve the Company’s For the FY2011, a safety target was set for combined employee and gender distribution profile. The targets address the lowering of female contractor performance. The target was not met and therefore no shares turnover overall, and increasing the proportion of women in senior roles, will be awarded in respect of the year. especially those with operational accountabilities. Other arrangements may apply for employees in operations outside Australia and New Zealand. 6. Employee Retention Plan As part of the Company’s ongoing operations, from time to time, the Board has approved deferred pay retention arrangements used primarily to reduce the risk of loss of employees who manage critical activities, occupy roles that are key to the delivery of operating or strategic objectives, or undertake functions requiring skills that are in short supply and actively sought in the market. The arrangements allow for the key employees to be provided with deferred equity (DSR) or deferred cash payment provided that they remain in employment to a nominated date (generally two to four years in the future) and achieve personal performance targets. The DSRs Plan was approved by the Board in early 2010 to provide an equity grant as an alternative to cash. The governing rules for the DSR Plan have been incorporated into the new ‘umbrella’ LTI Plan rules. The period of deferral is four years and the equity would be time vested in equal amounts at the ends of the second, third and fourth year.

44 Remuneration Report for the year ended 30 June 2011 (continued)

8. Non-executive Director remuneration 8.3 Non-executive Director Share Plan The Non-executive Director Share Plan requires Non-executive Directors 8.1 Policy to hold a minimum of 10,000 shares in the Company within three years The Board’s policy objectives with respect to Non-executive Director of appointment, and allows them to salary sacrifice up to $5,000 of fees fees are summarised below: per annum toward the acquisition of shares. Shares are acquired on-market by the Trustee of the Plan to be held for participating Policy Objective Methodology Non-executive Directors. The Trustee of the Plan may transfer to a Promote independence and Non-executive Directors are paid fixed Non-Executive Director a share acquired under the Plan after five years objectivity fees and are not dependent on the or upon retirement from office or death of the Non-executive Director. financial results of the Company for their No allocations were made under the Non-executive Director Share Plan remuneration. This principle allows during the reporting period. Participants with existing holdings under independent and objective assessment of executive and Company performance the Non-executive Director Share Plan took up their pro-rata entitlements in the Rights Issue during the year, these are included in the disclosures Attract and retain Directors Fees take into account the workload of the made in Table 9.6. who have the skills required director on the Board and the Committees by the Board and with a on which they serve. Fees are reviewed reputation for directorial against companies of comparable market skill and ability capitalisation to the Company

Non-executive Directors are remunerated by way of base fees and Committee fees (inclusive of superannuation). Directors can elect to receive this in the form of participation in the shareholder-approved Non-executive Director Share Plan. The level of fees paid is based on the scope of director responsibilities and the size and the complexity of the Company. Non-executive Directors’ fees are not subject to performance. The Remuneration Committee considers the level of remuneration required to attract and retain Directors with the necessary skills and experience for the Board. 8.2 Non-executive Director fee structure The table below shows the structure and level of Non-executive Director fees for the current year and as approved for FY2012. The increase in fees to operate for FY2012 was determined following an external benchmarking review by Guerdon Associates. The Board’s review of the report indicated that a market adjustment of 5 per cent per annum should apply to base fees for the Chairman and Non-executive Directors, but that the Committee fees remained at an appropriate level and remain unchanged.

Year ending 30 June 2011 2012

Board fees Chairman(1) $620,000 $651,000 Director $180,000 $189,000 Committee fees Audit Chairman $55,000 $55,000 Member $28,000 $28,000 Remuneration Chairman $45,000 $45,000 Member $20,000 $20,000 Health, Safety & Environment Chairman $40,000 $40,000 Member $20,000 $20,000 Risk Chairman & members – – Nomination Chairman & members – –

(1) The Chairman of the Board attends all Committee meetings but receives no additional fees for such attendance.

Origin Energy Annual Report 2011 45 Remuneration Report for the year ended 30 June 2011 (continued)

9. Remuneration tables and additional remuneration disclosures 9.1 Remuneration Table for FY2011 and FY2010

Other Long Term Long Term Short Term Benefits Post Employment Benefits Benefits Payments Retention, % of Total % of Contact Energy Variable Non-Monetary Insurance NED Share Plan Options & Total Remuneration Remuneration in Year Base Salary / Fees Fees(1) Remuneration(2) Benefits(3) Premiums Total Superannuation Benefits(4) Total Accrued LSL Rights(5) Remuneration “At Risk” Options and PSRs

Executive Directors Grant King 2011 2,255,664 102,343 2,100,000 34,857 17,487 4,510,351 44,336 – 44,336 130,454 2,975,141 7,660,282 66% 39% 2010 2,059,048 107,857 1,820,000 12,200 13,592 4,012,697 40,952 – 40,952 52,500 1,915,458 6,021,607 62% 32% Karen Moses 2011 1,166,584 71,640 1,140,000 13,110 9,771 2,401,105 32,506 – 32,506 47,839 953,493 3,434,943 61% 28% 2010 1,108,802 72,804 900,000 13,398 8,329 2,103,333 40,000 – 40,000 28,750 1,523,000 3,695,083 66% 41%

Executives David Baldwin(6, 7) 2011 774,879 21,240 457,000 3,050 5,573 1,261,742 3,804 – 3,804 2,587 421,781(8) 1,689,914 52% 25% 2010 678,577 – 396,376 – 3,682 1,078,635 – – – – 554,238(8) 1,632,873 58% 34% Dennis Barnes(6) 2011 501,851 – 286,000 6,258 5,380 799,489 21,000 – 21,000 5,435 158,972(8) 984,896 45% 16% 2010 – – – – – – – – – – – – – – Frank Calabria 2011 853,915 – 843,000 17,211 5,142 1,719,268 21,084 – 21,084 25,518 662,874 2,428,744 62% 27% 2010 725,004 – 605,000 12,200 6,137 1,348,341 24,996 – 24,996 9,370 461,972 1,844,679 58% 25% Andrew Stock 2011 755,255 – 505,000 19,101 28,492 1,307,848 23,412 – 23,412 38,668 453,434 1,823,362 53% 25% 2010 718,040 – 525,000 4,333 30,320 1,277,693 31,960 – 31,960 18,750 377,766 1,706,169 53% 22% Robbert Willink 2011 544,687 – 295,000 22,166 25,591 887,444 85,738 – 85,738 26,164 222,928 1,222,274 42% 18% 2010 527,299 – 340,000 4,800 9,057 881,156 82,701 – 82,701 (45,750) 189,246 1,107,353 48% 17% Paul Zealand 2011 627,189 – 489,000 14,455 8,380 1,139,024 43,902 – 43,902 11,805 267,951 1,462,682 52% 18% 2010 566,771 – 300,000 6,133 7,905 880,809 49,896 – 49,896 7,746 220,418 1,158,869 45% 19%

Non-executive Directors Kevin McCann 2011 603,451 – – 1,202 220 604,873 15,216 – 15,216 – – 620,089 – – 2010 555,528 – – 929 181 556,638 14,472 – 14,472 – – 571,110 – – John Akehurst(9) 2011 174,784 – – – 220 175,004 25,216 – 25,216 – – 200,220 – – 2010 126,697 – – – 181 126,878 12,232 26,767 38,999 – – 165,877 – – Bruce Beeren 2011 211,451 84,689 – 1,333 220 297,693 15,216 – 15,216 – – 312,909 – – 2010 188,528 86,556 – 1,053 181 276,318 14,472 – 14,472 – 28,313 319,103 – – Trevor Bourne 2011 229,784 – – – 269 230,053 15,216 – 15,216 – – 245,269 – – 2010 198,528 – – – 181 198,709 14,472 – 14,472 – – 213,181 – – Gordon Cairns 2011 199,784 – – – 220 200,004 15,216 – 15,216 – – 215,220 – – 2010 149,507 – – – 181 149,688 13,346 32,565 45,911 – – 195,599 – – Helen Nugent 2011 268,451 – – – 220 268,671 15,216 – 15,216 – – 283,887 – – 2010 190,008 – – 2,666 181 192,855 14,573 40,102 54,675 – – 247,530 – – Roland Williams 2011 77,594 – – – 251 77,845 5,072 – 5,072 – – 82,917 – – 2010 186,592 – – – 181 186,773 14,573 39,186 53,759 – – 240,532 – –

Totals(10) 2011 9,245,323 279,912 6,115,000 132,743 107,436 15,880,414 382,150 – 382,150 288,470 6,116,574 22,667,608 2010 7,978,929 267,217 4,886,376 57,712 80,289 13,270,523 368,645 138,620 507,265 71,366 5,270,410 19,119,564

(1) Mr King, Mr Baldwin, Mr Beeren and Ms Moses are the Company’s nominees on the Board of Contact Energy. Remuneration is converted to Australian dollars using an annual (1 July 2010 – 30 June 2011) average exchange rate of $1.3028 (2010 – $1.2362). (2) Variable remuneration includes the STI in respect of the reporting period based on achieving personal goals and satisfying specified performance criteria plus any discretionary amounts awarded for exceptional contributions. FY2011 STI constitutes a cash bonus granted for the year ended 30 June 2011, determined following the close of FY2011 results and paid in September 2011. FY2010 STI constitutes a cash bonus granted for the year ended 30 June 2010, determined following the close of 2010 results and paid in September 2010. (3) Non-monetary benefits include fringe benefits such as car parking and reportable fringe benefits. (4) Benefits under the Non-Executive Director’s Share Plan (refer to section 8.3) or the fees sacrificed for application toward the purchase of such shares where ultimately the sacrifice has been returned as cash. (5) Includes restricted shares for Contact Energy fees; retention payments as set out in section 5; and the fair value of equity rights awarded. The fair value of the Options and PSRs is calculated at the date of grant using a Black-Scholes methodology with a Monte Carlo simulation model that takes into account hurdles. The fair value is allocated to each reporting period evenly over the period from date of grant to the first vesting test date. The value disclosed is the portion of the fair value of the Options/PSRs allocated to this reporting period. In valuing the Options/PSRs, market conditions have been taken into account.

46 Remuneration Report for the year ended 30 June 2011 (continued)

9. Remuneration tables and additional remuneration disclosures 9.1 Remuneration Table for FY2011 and FY2010

(6) During employment with Contact Energy, Mr Baldwin and Mr Barnes were paid in New Zealand currency. Remuneration is converted to Australian dollars using an annual average exchange rate of $1.2947 (1 July 2010 to 31 March 2011) and $1.3269 (1 April 2011 to 30 June 2011) (2010 – $1.2362). Base salary includes holiday pay rate adjustments. Fixed remuneration and all or part of their variable remuneration is reimbursed by Contact Energy. (7) As Managing Director (up to and including 31 March 2011), Mr Baldwin did not receive any fees in his capacity as a director of Contact Energy nor was he a participant in the Contact Energy Directors’ Share Scheme. Fees received have been in Mr Baldwin’s capacity as Director of Contact Energy subsequent to 1 April 2011. (8) Includes Options and restricted shares issued by Contact Energy, and Options and PSRs issued by the Company. (9) Mr Akehurst was appointed as a Non-executive Director on 29 April 2009. (10) All named KMP and Executive Directors are employed and remunerated by the Company and its controlled entities. All Non-executive Directors are remunerated by the Company. Note: Fixed remuneration (as defined in section 5.4) is the sum of base salary, non-monetary benefits, and superannuation. Where an Executive’s Fixed Remuneration was frozen during the reporting period, some variation may occur due to changes in the valuation of non-monetary benefits such as car parking, or changes in the package make-up (for example, cash to superannuation or vice versa).

Origin Energy Annual Report 2011 47 Remuneration Report for the year ended 30 June 2011 (continued)

9.2 Details of equity grants The table below lists the position of all current grants of equity-based incentive grants made to Directors and Executives. No terms of equity-settled share-based transactions (including Options and PSRs granted as compensation to a KMP) have been altered or modified by the issuing entity during the reporting period or the prior period except as footnoted below.

No. of Options and Number Percentage PSRs Outstanding Exercise Price(1) First Exercise Date Expiry Date Vested Exercisable(2) Exercisable(3)

922,000 $6.04 11 Sept 2009(4) 11 Sept 2011 Yes 922,000 100 50,000 $8.51 26 June 2010(4) 26 June 2012 Yes 50,000 100 300,000 $9.86 28 Sept 2010(4) 28 Sept 2012 Yes 300,000 100 169,000 Nil 28 Sept 2010 28 Dec 2012 Yes 169,000 100 1,085,000 $9.86 28 Sept 2010 28 Dec 2012 Yes 1,085,000 100 503,660 Nil 30 Sept 2011 30 Dec 2013 No – 90 1,233,500 $15.84 30 Sept 2011 30 Dec 2013 No – 90 452,510 Nil 28 Sept 2012 28 Dec 2014 No – 69 1,177,000 $14.58 28 Sept 2012 28 Dec 2014 No – 69 154,370 Nil 6 Nov 2012 6 Feb 2015 No – 79 412,000 $15.47 6 Nov 2012 6 Feb 2015 No – 79 4,322 Nil 10 May 2013 10 Aug 2015 No – 58 11,600 $14.89 10 May 2013 10 Aug 2015 No – 58 791,731 Nil 1 Oct 2013 31 Dec 2015 No – 77 2,191,027 $14.91 1 Oct 2013 31 Dec 2015 No – 77

(1) Adjustments to the exercise price of Options (in accordance with ASX Listing Rule 6.22) and to the number of unvested PSRs granted in FY2011 and for prior years were made during the reporting period as a result of the Rights Issue allotment. (2) The performance conditions are described in section 5.8. (3) The number of equity instruments exercisable is indicative. The number has been calculated by comparing the Company’s TSR to the relevant performance group and applying the performance conditions noted in section 5.8 as at 30 June 2011. The number of Options and PSRs that become exercisable will be determined at the test date and may be different from that indicated here. (4) Under the previous LTI Plan rules that applied to these awards early vesting occurred as a result of the announcement on 30 April 2008 by the BG Group that it proposed to acquire more than 20 per cent of the Company’s shares.

48 Remuneration Report for the year ended 30 June 2011 (continued)

9.3 Analysis of movements in Options and PSRs A summary of the movement in FY2011, by value, of Options and PSRs over ordinary shares in the Company (and Options and Restricted Shares in Contact Energy in the case of Mr Baldwin) held by the KMP is provided in the table below.

Value of Options and PSRs Granted(1) Exercised(2) Lapsed(3) $ $ $

Non-executive Directors Kevin McCann – – – John Akehurst – – – Bruce Beeren – – – Trevor Bourne – – – Gordon Cairns – – – Helen Nugent – – –

Executive Directors Grant King Options 1,570,227 3,945,000 – PSRs 1,501,295 1,539,000 – Karen Moses Options 614,204 1,278,180 – PSRs 587,240 – –

Other KMP – current Dennis Barnes(4) Options 101,478 155,100 – PSRs 97,029 170,390 – Contact Options 59,161 – – Contact PSRs 59,161 – – David Baldwin(5,6,7) Options 500,701 – – PSRs 475,892 – – Contact Options 269,175 – – Contact PSRs 269,175 – – Frank Calabria Options 440,662 1,692,290 – PSRs 421,289 368,245 – Paul Zealand Options 154,814 223,520 – PSRs 148,007 246,400 –

Other KMP – former Andrew Stock Options 238,339 1,322,680 – PSRs 227,875 371,300 – Robbert Willink Options 134,387 – PSRs 128,498 229,100 –

(1) The allocated value of Options and PSRs granted in the year is the fair value calculated at grant date using a binominal option-pricing model which has been independently calculated by Mercer. The value disclosed is the total value of the Options and PSRs. This amount is allocated to remuneration (See section 9.1) over the vesting period (i.e. from 1 October 2010 to 1 October 2013). (2) The value of Options and PSRs exercised during the year is calculated as the market price of the Company’s shares on the ASX as at the close of trading on the date the Options and PSRs were exercised, after deducting the price paid to exercise the Option or PSR. (3) No Options or PSRs lapsed during the year. (4) Based on an exchange rate of 1.3269. (5) Based on an exchange rate of 1.2947. (6) Mr Baldwin’s securities were issued under the Contact Energy Employee Long-term Incentive Scheme when he was Managing Director of Contact Energy. Mr Baldwin also received director’s fees from Contact Energy in his capacity as a director, subsequent to 1 April 2011 (following the end of his secondment to Contact Energy). Mr Baldwin will not be granted any further securities in Contact Energy under the employee Long-term Incentive Scheme but will retain existing securities subject to exercise hurdles and vesting requirements. (7) Mr Baldwin’s participation in the Employee Long-term Incentive Scheme: Mr Baldwin has participated in Contact Energy’s Long-term Incentive Scheme since its inception in 2006. Following the completion of his secondment to the role of Managing Director on 31 March 2011, Mr Baldwin will not be issued any further securities under the Contact Energy Scheme but will retain existing securities subject to exercise hurdles and vesting requirements (this is permitted under the Restricted Share Plan Rules and Share Option Scheme Rules). Contact Energy relied on NZSX Listing Rule 7.3.9 to allow Mr Baldwin to continue to participate in the Long-term Incentive Scheme following his appointment as Managing Director. On 23 July 2009, NZX Regulation granted a waiver in respect of NZSX Listing Rule 7.6.4(b)(iii) to allow Mr Baldwin to continue to receive financial assistance under the Long-term Incentive Scheme. The full version of the waiver can be found on Contact Energy’s website.

Origin Energy Annual Report 2011 49 Remuneration Report for the year ended 30 June 2011 (continued)

9.4 Numbers of Options and PSRs granted, vested and lapsed and associated fair value Options and PSRs over ordinary shares of the Company (and Options and PSRs in Contact Energy in the case of Mr Baldwin and Mr Barnes) granted or vested to the KMP are set out below.

No of Options & No PSRs Granted % Vested in during Grant Fair Exercise Vesting Expiry % Vested Forfeited year to 30 KMP Type the year Date Value(1) Price(3) Date(4) Date(4) in Year in Year(5) June 2011

Non-executive Directors Kevin McCann – – – – – – – – – John Akehurst – – – – – – – – – Bruce Beeren – – – – – – – – – Trevor Bourne – – – – – – – – – Gordon Cairns – – – – – – – – – Helen Nugent – – – – – – – – – Roland Williams – – – – – – – – – Executive Directors Grant King Options 371,212 28/10/10 $4.23 $14.91 1/10/13 31/12/15 – – 300,000 PSRs 130,434 28/10/10 $11.51 Nil 1/10/13 31/12/15 – – 100,000 PSRs(2) 11,316 17/06/11 Nil(2) Nil Various Various – – – Karen Moses Options 145,202 28/10/10 $4.23 $14.91 1/10/13 31/12/15 – – 140,000 PSRs 51,020 28/10/10 $11.51 Nil 1/10/13 31/12/15 – – 51,000 PSRs(2) 3,759 17/06/11 Nil(2) Nil Various Various – – – Other KMP – current Dennis Barnes Options 23,990 28/10/10 $4.23 $14.91 1/10/13 31/12/15 – – 30,000 PSRs 8,430 28/10/10 $11.51 Nil 1/10/13 31/12/15 – – 11,000 PSRs(2) 610 17/06/11 Nil(2) Nil Various Various – – – Contact Options 106,082 1/10/10 $0.56 $4.31 1/10/13 30/11/15 – – – Contact PSRs 23,574 1/10/10 $2.51 Nil 1/10/13 30/11/15 – – – David Baldwin Options 118,369 28/10/10(6) $4.23 $14.91 1/10/13 31/12/15 – – – PSRs 42,424 28/10/10(6) $11.51 Nil 1/10/13 31/12/15 – – – PSRs(2) 797 17/06/11 Nil(2) Nil Various Various – – – Contact Options 470,946 1/10/10 $0.57 $4.41 1/10/13 30/11/15 – – – Contact PSRs 104,655 1/10/10 $2.57 Nil 1/10/13 30/11/15 – – – Frank Calabria Options 104,166 28/10/10 $4.23 $14.91 1/10/13 31/12/15 – – 64,000 PSRs 36,602 28/10/10 $11.51 Nil 1/10/13 31/12/15 – – 23,500 PSRs(2) 2,669 17/06/11 Nil(2) Nil Various Various – – – Paul Zealand Options 36,599 28/10/10 $4.23 $14.91 1/10/13 31/12/15 – – 44,000 PSRs 12,859 28/10/10 $11.51 Nil 1/10/13 31/12/15 – – 16,000 PSRs(2) 1,031 17/06/11 Nil(2) Nil Various Various – – – Other KMP – former Andrew Stock Options 56,345 28/10/10 $4.23 $14.91 1/10/13 31/12/15 – – 64,000 PSRs 19,798 28/10/10 $11.51 Nil 1/10/13 31/12/15 – – 23,500 PSRs(2) 1,772 17/06/11 Nil(2) Nil Various Various – – – Robbert Willink Options 31,770 28/10/10 $4.23 $14.91 1/10/13 31/12/15 – – 40,000 PSRs 11,164 28/10/10 $11.51 Nil 1/10/13 31/12/15 – – 14,500 PSRs(2) 864 17/06/11 Nil(2) Nil Various Various – – –

(1) All values in Australian currency. (2) Adjustment grants made during the reporting period to adjust for dilution to the number of unvested PSRs granted in FY2011 and for prior years as a result of the Rights Issue allotment and intended to maintain original allocation value. (3) Post-adjustment exercise price of Options in accordance with ASX Listing Rule 6.22 as a result of the Rights Issue. (4) The adjustment PSRs granted as a result of the Rights Issue have the same Vesting Dates and Expiry Dates as their corresponding original allocations of the same tranche. For example, adjustment PSRs for the FY2011 grant have a Vesting Date of 1 October 2013 and an expiry date of 31 December 2015. (5) The percentage forfeited in the year represents the reduction from the maximum number of Options available to vest due to the highest level performance criteria not being achieved. (6) Inclusive of 106,000 Options and 38,078 PSRs issued 22 June 2011 on the same terms and conditions as granted 28 October 2010.

No Options or PSRs have been granted since the end of the reporting period. Options and PSRs were provided at no cost to the recipients. Options and PSRs expire on the earlier of their expiry date or within six months of notice of resignation of employment. The Options and PSRs are exercisable no earlier than three years after grant date. In addition to a continuing employment service condition, the ability to exercise Options and PSRs is conditional on the consolidated entity achieving certain performance hurdles. Details of the performance criteria are included in the LTI information in section 5.8 (and, for Contact Energy, refer to Contact Energy’s website – w w w.contactenergy.co.nz). For Options and PSRs granted in the current year, the earliest exercise date is 1 October 2013.

50 Remuneration Report for the year ended 30 June 2011 (continued)

9.5 Options and PSRs holdings and transactions Movement during the reporting period in the number of Options and PSRs over ordinary shares in the Company (and, for Mr Baldwin and Mr Barnes, Options and PSRs over and restricted shares in ordinary shares in Contact Energy) held directly, indirectly or beneficially by the KMP including their related parties are set out in the table below:

Granted Vested & Held at during Vested and Held at Vested Exercisable Year Type(1) Year Start the year(2) Exercised Lapsed Year End During Year at Year End

Non-executive Directors Kevin McCann 2011 – – – – – – – – 2010 – – – – – – – – John Akehurst 2011 – – – – – – – – 2010 – – – – – – – – Bruce Beeren 2011 – – – – – – – – 2010 Options 275,000 – 275,000 – – – – Trevor Bourne 2011 – – – – – – – – 2010 – – – – – – – – Gordon Cairns 2011 – – – – – – – – 2010 – – – – – – – – Helen Nugent 2011 – – – – – – – – 2010 – – – – – – – – Executive Directors Grant King 2011 Options 1,497,000 371,212 500,000 – 1,368,212 300,000 300,000 PSRs 358,000 141,750 100,000 – 399,750 100,000 – 2010 Options 1,700,000 297,000 500,000 – 1,497,000 – 800,000 PSRs 250,000 108,000 – – 358,000 – – Karen Moses 2011 Options 717,000 145,202 162,000 – 700,202 140,000 351,000 PSRs 129,000 54,779 – – 183,779 51,000 51,000 2010 Options 822,000 115,000 220,000 – 717,000 – 373,000 PSRs 87,000 42,000 – – 129,000 – – Other KMP – current Dennis Barnes 2011 Options 63,000 23,990 30,000 – 56,990 30,000 – PSRs 23,500 9,040 11,000 – 21,540 11,000 – Contact Options – 106,082 – – 106,082 – – Contact PSRs – 23,574 – – 23,574 – – Contact Restricted Shares – – – – – – – 2010 Options 45,000 18,000 – – 63,000 – – PSRs 17,000 6,500 – – 23,500 – – Contact Options – – – – – – – Contact PSRs – – – – – – – Contact Restricted Shares – – – – – – – David Baldwin 2011 Options 60,000 118,369 – – 178,369 – – PSRs 23,000 43,221 – – 66,221 – – Contact Options 779,156 470,946 – – 1,250,102 – – Contact PSRs – 104,655 – – 104,655 – – Contact Restricted Shares 133,070 – – – 133,070 – – 2010 Options – 60,000 – – 60,000 – – PSRs – 23,000 – – 23,000 – – Contact Options 525,547 253,609 – – 779,156 – – Contact Restricted Shares 88,342 44,728 – – 133,070 – – Frank Calabria 2011 Options 401,000 104,166 196,000 – 309,166 64,000 64,000 PSRs 78,500 39,271 23,500 – 94,271 23,500 – 2010 Options 399,000 92,000 90,000 – 401,000 – 196,000 PSRs 43,500 35,000 – – 78,500 – – Paul Zealand 2011 Options 103,000 36,599 44,000 – 95,599 44,000 – PSRs 38,500 13,890 16,000 – 36,390 16,000 – 2010 Options 65,000 38,000 – – 103,000 – – PSRs 24,500 14,000 – – 38,500 – –

Origin Energy Annual Report 2011 51 Remuneration Report for the year ended 30 June 2011 (continued)

Granted Vested & Held at during Vested and Held at Vested Exercisable Year Type(1) Year Start the year(2) Exercised Lapsed Year End During Year at Year End

Other KMP – former Andrew Stock 2011 Options 448,000 56,345 187,000 – 317,345 64,000 158,000 PSRs 64,500 21,570 23,500 – 62,570 23,500 – 2010 Options 393,000 55,000 – – 448,000 – 281,000 PSRs 43,500 21,000 – – 64,500 – – Robbert Willink 2011 Options 87,000 31,770 – – 118,770 40,000 40,000 PSRs 33,000 12,028 14,500 – 30,528 14,500 – 2010 Options 62,000 25,000 – – 87,000 – – PSRs 23,500 9,500 – – 33,000 – –

(1) Contact Energy offers a combination of share options and performance share rights under its current LTI Scheme to ensure incentives align participating employees’ performance with shareholders’ interests in both favourable and unfavourable share market conditions. Following a review of the Contact Energy Employee Long-term Incentive Scheme in 2010, no further restricted shares have been issued since the 1 October 2009 grant date. Performance share rights (issued under the Contact Energy Share Option Scheme) replaced restricted shares from October 2010. The Restricted Share Plan is now grand-parented but restricted shares issued prior to October 2010 are still held by participants and remain subject to exercise hurdles and vesting criteria. Contact Energy’s LTI Scheme for participating employees now consists of a Share Option Scheme under which both share options and performance share rights are issued. Details of the Scheme are set out following (along with historical details of restricted shares that remain on issue under the now grand-parented Restricted Share Plan). (2) PSRs granted during the year include the 2011 LTI grants as well as those granted as adjustment for dilution from the Rights Issue.

52 Remuneration Report for the year ended 30 June 2011 (continued)

9.6 Equity holdings and transactions The table below represents the movement during the reporting period in the number of ordinary shares of the Company (and, in the case of Mr Baldwin and Mr Barnes, Contact Energy) held directly, or indirectly or beneficially by the KMP, including their related parties:

Received on Received Held at Year Exercise of on Exercise Held at Year Start Purchases(1) Options of PSRs(3) Sales Year End

Non-executive Directors(2) Kevin McCann 2011 286,245 62,767 – – – 349,012 2010 277,382 8,863 – – – 286,245 John Akehurst 2011 14,750 56,450 – – – 71,200 2010 2,000 12,750 – – – 14,750 Bruce Beeren 2011 1,235,020 124,995 – – – 1,360,015 2010 960,020 – 275,000 – – 1,235,020 Trevor Bourne 2011 46,822 6,682 – – – 53,504 2010 45,372 1,450 – – – 46,822 Gordon Cairns 2011 53,939 29,421 – – – 83,360 2010 48,089 11,850 – – 6,000 53,939 Helen Nugent 2011 31,059 7,145 – – – 38,204 2010 25,953 5,106 – – – 31,059

Executive Directors Grant King 2011 939,939 566,672 500,000(4) 100,000 1,000,000 1,106,611 2010 909,958 29,981 500,000 – 500,000 939,939 Karen Moses 2011 220,000 4,927 162,000(4) – 165,000 221,927 2010 198,586 – 220,000 – 198,586 220,000

Other KMP – current Dennis Barnes 2011 22,794 13,005 30,000(5) 11,000 17,131 59,668 2010 – – – – – – David Baldwin 2011 – 10,000 – – – 10,000 2010 – – – – – – Frank Calabria 2011 90,993 44,976 196,000(6) 23,500 121,000 234,469 2010 90,973 20 90,000 – 90,000 90,993 Paul Zealand 2011 91,140 31,788 44,000(5) 16,000 – 182,928 2010 91,120 20 – – – 91,140

Other KMP – former Andrew Stock 2011 448,068 56,534 187,000(7) 23,500 112,440 602,662 2010 448,048 20 – – – 448,068 Robbert Willink 2011 415,470 85,402 – 14,500 100,900 414,472 2010 413,693 1,777 – – – 415,470

(1) All existing participants in the plan took up their entitlements during the reporting period. (2) Includes shares acquired by participants of the Non-executive Director Share Plan as a result of their take-up of the pro-rata entitlements under the Rights Issue during the reporting period. There were no allocations under the Plan. (3) No amount was paid for the shares acquired on exercise of vested PSRs. (4) Exercise price per share of $7.21. (5) Exercise price per share of $10.32. (6) 86,000 shares had an exercise price per share of $7.21, 110,000 shares had an exercise price per share of $6.50. (7) 123,000 shares had an exercise price per share of $7.21, 64,000 shares had an exercise price per share of $9.86.

Origin Energy Annual Report 2011 53 Board of directors

H Kevin McCann AM Grant A King John H Akehurst Independent Non-executive Chairman Managing Director Independent Non-executive Director Kevin McCann joined the Board of the Grant King was appointed Managing Director John Akehurst joined the Board of the Company as Chairman in February 2000. of the Company at the time of its demerger Company in April 2009 and is Chairman of the He is Chairman of the Nomination and Risk from Boral Ltd, in February 2000, and was Health, Safety and Environment Committee committees and a member of the Audit, Managing Director of Boral Energy from 1994. and a member of the Nomination and Risk Remuneration, and Health, Safety and Grant is a member of the Company’s Risk and committees. Environment committees. Health, Safety and Environment committees. His executive career was in the upstream oil Kevin is Chairman of Macquarie Group Ltd and Prior to joining Boral, he was General Manager, and gas and LNG industries, initially with Royal Macquarie Bank Ltd and a director of BlueScope AGL Gas Companies. Grant is Chairman of Dutch Shell and then as Chief Executive of Steel Ltd and of the Australian Institute of Contact Energy Ltd (since October 2004), Woodside Petroleum Ltd. John is currently a Company Directors (AICD). He is a Council a councillor of the Australian Petroleum member of the Board of the Reserve Bank of Member of the National Library of Australia, Production and Exploration Association, a Australia and a director of CSL Ltd, Securency a member of the Corporate Governance former director of Envestra Ltd (1997-2007) Ltd and the University of Western Australia Committee of the AICD and a Fellow of the and former Chairman of the Energy Supply Business School. Senate of the University of Sydney. Association of Australia Ltd. He is Chairman of the National Centre for Kevin’s community activities include Grant has a Civil Engineering degree from the Asbestos Related Diseases and of the Fortitude Chairmanship of the Development Council University of New South Wales and a Master Foundation, a former Chairman of Alinta Ltd of the National Library of Australia and of Management from the University of and Coogee Resources Ltd and a former membership of the Law Foundation, University Wollongong. director of Oil Search Ltd. of Sydney. Kevin practiced as a commercial John holds a Masters in Engineering Science lawyer as a partner of Allens Arthur Robinson from Oxford University and is a Fellow of the (and its predecessor firm Allen Allen & Hemsley) Institution of Mechanical Engineering. from 1970 to 2004 and was Chairman of Partners from 1995 to 2004. He was previously Chairman of Healthscope Ltd and ING Management Limited, a director of Pioneer International Ltd (building materials and products), Ampol Ltd (refiner and retailer of petroleum products), a member of the Takeovers Panel, the State Rail Authority of New South Wales and served on the Defence Procurement Advisory Board. He was also previously the Chairman of the Sydney Harbour Federation Trust, a Commonwealth agency. Gordon M Cairns Karen Moses Kevin has a Bachelor of Arts and Law (Honours) Independent Non-executive Director from Sydney University and a Master of Law Executive Director, Finance and Strategy from Harvard University. He is a Fellow of the Gordon Cairns joined the Board of the Karen Moses joined the Board of the Company AICD. Company on 1 June 2007. He is a member of the in March 2009 and is a member of the Risk Remuneration, Risk, Nomination and Health, Committee. She is responsible for the finance, Safety and Environment committees and is tax and accounting functions, interactions Chairman of the Origin Foundation. with capital markets and for information He has extensive Australian and international technology. In addition to corporate strategy experience as a senior executive, most recently and transactional activity, she has oversight as Chief Executive Officer of Lion Nathan Ltd, of overall risk including health, safety and and has held senior management positions in environment, commodity risk, compliance and marketing and finance with Pepsico, Cadbury insurance. Karen oversees the Australia Pacific Schweppes and Nestlé. LNG project for Origin. Gordon is currently the Chairman of Rebel Prior to Origin, Karen held development and Group (since November 2010), and a director of trading roles with Exxon Group (1983-1994). Westpac Banking Corporation (since July 2004) Karen is a director of Australian Energy Market and World Education Australia. He is also a Operator Limited (since July 2009) and Contact senior advisor to McKinsey & Company and Energy Ltd (since October 2004). Karen is a Caliburn Partnership. former director of Energy and Water Gordon holds a Master of Arts (Honours) from Ombudsman (Victoria) Ltd (October the University of Edinburgh. 2005-November 2010), VENCorp (2007-2009) and the Australian Energy Market Operator (Transitional) Ltd (September 2008-July 2009). Karen holds a Bachelor of Economics and a Diploma of Education from the University of Sydney.

54 Board of directors (continued)

Bruce G Beeren Trevor Bourne Non-executive Director Independent Non-executive Director Bruce Beeren joined the Board of the Company Trevor Bourne joined the Board of the Company as an Executive Director in March 2000. He in February 2000. He is Chairman of the retired from this position on 31 January 2005 Remuneration Committee and a member of and continues on the Board as a Non-executive the Risk, Audit, Nomination and Health, Safety Director. He is a member of the Audit, & Environment committees. Remuneration, Risk and Nomination Trevor retired in December 2003 as Chief committees. Executive Officer of Tenix Investments Pty Ltd, With over 30 year’s experience in the energy prior to which he was Managing Director of industry, Bruce was Chief Executive Officer of Brambles Australia Ltd. Trevor is Chairman of VENCorp, the Victorian gas system operator, and Hastie Group Ltd (since November 2004) and held several senior management positions at AGL, a director of Caltex Australia Ltd (since March including Chief Financial Officer. He is a director 2006). He is a former director of Coates Hire Ltd of Contact Energy Ltd (since October 2004), (2004-2008) and Lighting Corporation Ltd Equipsuper Pty Ltd (since August 2002), (2004-2008). ConnectEast Group (since March 2009) and Trevor has a Mechanical Engineering degree The Hunger Project Australia Pty Limited (since from the University of New South Wales and August 2008). He is a former director of Coal & a Master of Business Administration from Allied Industries Ltd (2004-2011), Envestra Ltd Newcastle University. He is a fellow of the AICD. (2000-2007) and Veda Advantage Ltd (2004-2007). Bruce has degrees in Science (from ANU) and Commerce and a Master of Business Administration (both from the University of New South Wales). He is a Fellow of CPA Australia and the AICD.

Helen M Nugent AO Independent Non-executive Director Helen Nugent joined the Board of the Company in March 2003 and is Chairman of the Audit Committee and a member of the Remuneration, Risk and Nomination committees. An experienced professional non-executive director, she is currently Chairman of Funds SA. She is also a director of Macquarie Group Ltd (since August 2007), Macquarie Bank Ltd (since June 1999) and Freehills. She is Chancellor of Bond University, President of Cranbrook School and Deputy Chairman of the National Portrait Gallery. Previously, Helen was Chairman of Swiss Re Life and Health (Australia) (2001-2010) and a non-executive director of UNiTAB (1999-2006), Director of Strategy at Westpac Banking Corporation and a partner with McKinsey & Company, specialising in financial services and mining. Helen has a Bachelor of Arts (Honours); a Doctorate of Philosophy; and an Honorary Doctorate in Business from the University of Queensland. She also holds a Master of Business Administration (with Distinction) from the Harvard Business School. She is a Fellow of the AICD.

Origin Energy Annual Report 2011 55 executive management team

David Baldwin Dennis Barnes Frank Calabria Chief Development Officer Chief Executive Officer Chief Executive Officer, David is responsible for the development of Contact Energy, New Zealand Energy Markets Origin’s major projects and initiatives to drive In January 2011, the Contact Energy Board Frank Calabria joined Origin as Chief Financial Origin’s continued growth. announced that Dennis Barnes, then General Officer in November 2001 and was appointed Prior to this year, David was Managing Director Manager Energy Risk Management at Origin, to his current role of Chief Executive Officer, of Contact Energy, of which Origin owns would become Chief Executive Officer of Energy Markets in March 2009. In this role, 52.6 per cent. Contact is one of New Zealand’s Contact Energy from April 2011. Frank is responsible for the integrated largest listed companies. In this role he Dennis has been with Origin since 1998 and has operations within Australia including power successfully led Contact through a period of led sales, systems development, gas trading generation and natural gas, electricity and LPG substantial change, and established Contact and generation operations departments. trading and retailing. as a geothermal leader in New Zealand. Key Dennis is a senior energy leader in Australia Prior to joining Origin, Frank held senior finance initiatives such as the Ahuroa gas storage and has guided Origin’s significant and roles with Pioneer International Limited, facility, the Stratford Peaking Power Station, expanding operations in wholesale markets. Hanson plc and Hutchison Telecommunications. the Te Huka geothermal power station, and the In addition to his experience with Origin, Frank has a Bachelor of Economics from transformation of Contact’s business systems Dennis brings considerable skills and expertise Macquarie University and a Masters of were developed and executed during David’s gained through many years operating in Business Administration (Executive) from the assignment at Contact. international energy markets; including Australian Graduate School of Management. Before that, David was based in Asia and the managerial roles at Scottish and English He is a Fellow of the Institute of Chartered United States overseeing the energy asset electricity companies. Accountants of Australia and a Fellow of the interests of a US-based investment fund. Financial Services Institute of Australasia. He has also held senior development and operational roles in Asia and the US with MidAmerican Energy Holdings Company, a US-based global energy company, and Shell in New Zealand and the Netherlands. David holds a Master of Business Administration from Victoria University and a Bachelor of Engineering (Chemical) from Canterbury University.

Carl McCamish Andrew Stock Executive General Manager Director, Executive Projects Corporate Affairs Carl McCamish joined Origin in March 2008 Andrew Stock joined the company (now Origin) and is responsible for corporate brand, in 1984 and is responsible for Origin’s major sustainability, public policy, corporate capital development projects in upstream communications, and government and media petroleum and power generation and the relations. low-emissions technology businesses. With Before joining Origin, Carl was head of over 30 years of experience, he has previously strategic development at the private equity held senior management roles in petroleum firm, Terra Firma. From 2004 - 2006, he was and petrochemical industries in Australia and Senior Energy Advisor in the UK Prime overseas. Minister’s Strategy Unit and was deputy head Andrew is a director of Geodynamics Limited of the 2006 UK Energy Review. Before that he where he chairs the Remuneration & worked at McKinsey & Co management Nominations Committee, Australia Pacific LNG consultants. Pty Limited and The Climate Group, and is a Carl has a Bachelor of Arts and Law from the member of the Advisory Board of the faculty University of Melbourne and a Masters in of Engineering, Computer and Mathematical Industrial Relations and Labour Economics Sciences at the University of Adelaide. from Oxford University where he was a Rhodes He has a Bachelor of Engineering (Chemical – Scholar. Honours) from the University of Adelaide, is a Fellow of the Institution of Engineers Australia, a Graduate Member of the AICD and a member of the Australian Institute of Energy.

56 executive management team (continued)

Andrew Clarke Melanie Laing Group General Counsel and Executive General Manager Company Secretary People and Culture Andrew Clarke joined Origin in May 2009 and Melanie Laing joined Origin in November 2007 is responsible for the legal and company and is responsible for driving the human secretarial functions. He was a partner of a resources strategy. Prior to joining Origin, national law firm and a managing director of Melanie was Regional Human Resources a global investment bank prior to joining Origin. Director for Unisys Asia Pacific where she built Andrew has a Bachelor of Laws (Hons) and a a human resources function that supported Bachelor of Economics from Sydney University. the business through major growth and change. She has also held senior HR roles with Vodafone Asia Pacific and General Re Corporation. Melanie has a Bachelor of Arts from the University of the Witwatersrand in South Africa and several qualifications in human resources management. She is a Fellow of the AICD and a member of the Australian Human Resources Institute.

Robbert Willink Paul Zealand Director, Exploration Projects Chief Executive Officer, Upstream

Rob Willink joined Sagasco Resources (now Paul joined Origin in 2005 and manages the Origin) in 1988 and is responsible for oil and gas company’s portfolio of oil and gas exploration exploration. He is also responsible for the and production assets in Australia and New provision of functional (geotechnical) support Zealand, including the operation of the and ensuring technical excellence in the Upstream part of Origin’s joint venture with development of Origin’s existing conventional ConocoPhillips and Sinopec: Australia Pacific LNG. and CSG fields. Prior to joining Origin, Paul was Chairman and Prior to joining Origin, Rob spent nine years General Manager of Shell in New Zealand. His with Shell as a petroleum geologist in Australia, extensive experience in the oil and gas industry Oman and Turkey, and was a lecturer in includes upstream, refining and strategy petroleum geology at the National Centre for assignments with Shell at various locations Petroleum Geology and Geophysics in Adelaide. in Europe and Australasia. Rob has a Bachelor of Science (Honours) from Paul holds a Masters of Business the University of Tasmania and a PhD from the Administration and Bachelor of Science Australian National University. (Mechanical – Honours), is a non-executive director Queensland Resources Council, a Fellow of the Institution of Engineers Australia and a member of the AICD.

Origin Energy Annual Report 2011 57 corporate governance statement

Origin Energy’s Board and management are committed to the creation Non-executive Directors also meet without the Executive Directors of shareholder value and meeting the expectations of stakeholders or management to address such matters as succession planning, to practice sound corporate governance. key strategic issues, and Board operation and effectiveness. To achieve this, every employee and contractor is required to act All Directors have access to Company employees, advisers and records. in accordance with the highest standards of personal safety and In carrying out their duties and responsibilities, Directors have access environmental performance, governance and business conduct to advice and counsel from the Chairman, the Company Secretary and the across its operations in Australia and internationally. Group General Counsel, and are able to seek independent professional advice at the Company’s expense, after consultation with the Chairman. Compliance with ASX Corporate The Board’s size and composition is determined by the Directors, within Governance Council’s Corporate limits set by the Company’s Constitution, which requires a Board of Governance Principles and between five and 12 Directors. As at 30 June 2011, the Board comprised Recommendations (ASX Principles) eight Directors, including two Executive Directors and six Non-executive This statement summarises the Company’s corporate governance Directors, five of whom are considered independent by the Board. practices which were in place throughout FY2011. The Company is Directors’ profiles, duration of office and details of their skills, experience pleased to report that, during the financial year and to the date of and special expertise are set out in the Directors’ Report. this Report, it complied with all of the ASX Principles. The Board seeks to have an appropriate mix of skills, experience, The ASX Principles were revised on 30 June 2010 and the new provisions expertise and diversity to enable it to discharge its responsibilities and began to apply to the Company on 1 July 2011. However, the Company add value to the Company. The skills, experience and expertise which reviewed its practices and complied with the new recommendations are relevant include those in the areas of finance, legal, governance, before that date. management, retail, marketing, engineering and energy industry-related. The Board values diversity in all respects, including Principle 1: Lay solid foundations gender and differences in background and life experience, for management and oversight communication styles, interpersonal skills, education, functional expertise and problem solving skills. The Board has an appropriate The Board’s roles and responsibilities are formalised in a Board Charter, mix of relevant skills, experience, expertise and diversity. which is available on the Company’s website. The Charter sets out those functions that are delegated to management and those that are The Company’s Independence of Directors Policy requires that the reserved to the Board. Board comprises a majority of independent Directors. In defining the characteristics of an independent Director, the Board uses the ASX At the time of joining the Company, Directors and senior executives Principles, together with its own consideration of the Company’s are provided with letters of appointment, together with key Company operations and businesses and appropriate materiality thresholds. documents and information setting out their term of office, duties, Further details of the matters considered by the Board in assessing rights and responsibilities, and entitlements on termination. independence are contained in the Independence of Directors Policy The performance of all key executives, including the Managing Director, which is available on the Company’s website. is reviewed annually against: The Board reviews each Director’s independence annually. At its review (a) a set of personal financial and non-financial goals; for the 2010/11 reporting period, the Board formed the view that (b) Company goals; and Mr Kevin McCann, Chairman, and Directors Mr John Akehurst, Mr Trevor Bourne, Mr Gordon Cairns and Dr Helen Nugent were independent. (c) adherence to the Company’s Purpose, Principles, Values and Commitments. The Board selects and appoints the Chairman from the independent Directors. The Chairman, Mr McCann, is independent and his role and The Remuneration Committee considers the performance of the responsibilities are separate from those of the Managing Director. Managing Director and all members of the Executive Management Team when awarding performance-related remuneration through short-term Five Committees assist the Board in executing its duties relating to audit, and long-term incentives for the year completed and when assessing remuneration, health, safety and environment, nomination and risk. fixed remuneration for future periods. Further information on executive Each Committee has its own Charter which sets out its roles and remuneration is set out in the Remuneration Report. responsibilities, composition, structure, membership requirements and operation. These are available on the Company’s website. Committee Principle 2: Structure the Board meeting minutes are tabled at the following Board meeting, with to add value additional and specific reporting requirements to the Board addressed The Board is structured to facilitate the effective discharge of its duties in the Committee Charters. and to add value through its deliberations. Additional information about the Audit Committee, Risk Committee and In 2010/11 the Board had 11 scheduled meetings, including a two-day Remuneration Committee is provided in response to Principles 4, 7 and 8 strategic planning meeting. The Board also had three separate scheduled respectively. workshops to consider matters of particular relevance. In addition, the The Nomination Committee, which has met three times during 2010/11, full Board met on five other occasions to deal with urgent matters and provides support and advice to the Board by: conducted visits of Company operations and met with operational •• assessing the range of skills and experience required on the Board management during the year. and of Directors; From time to time, the Board delegates its authority to non-standing •• reviewing the performance of Directors and the Board; committees of Directors to deal with transactional or other urgent •• establishing processes to identify suitable Directors, including matters. In the 12 months to 30 June 2011, there were 10 such additional the use of professional intermediaries; and Board Committee meetings held. •• recommending Directors’ appointments and re-elections. At each scheduled Board meeting, Directors receive reports from A list of the members of each Board Committee is set out below executive management, financial and operational reports, a health, and their attendance at Committee meetings is set out in the safety and environment report and reports on all major projects in Directors’ Report. which the Company is involved. In addition, the Directors receive reports from Board Committees and, as appropriate, presentations on opportunities and challenges for the Company.

58 corporate governance statement (continued)

Current Board Committee membership

Health, Safety & Audit Remuneration Environment Nomination Risk

Non-executive Directors Kevin McCann Member Member Member Chairman Chairman John Akehurst Chairman Member Member Bruce Beeren Member Member Member Member Trevor Bourne Member Chairman Member Member Member Gordon Cairns Member Member Member Member Helen Nugent Chairman Member Member Member Executive Directors Grant King Member Member Karen Moses Member

Each year the performance of the Directors retiring by rotation and Origin personnel may not engage in short-term dealings in the Company’s seeking re-election under the Constitution is reviewed by the Nomination securities and margin loans should not be entered into if they could Committee (other than the relevant Director), the results of which form cause a dealing that is in breach of the Policy. Executives are prohibited the basis of the Board’s recommendation to shareholders. The review from entering into hedging transactions that limit the downside risk of considers a Director’s expertise, skill and experience, along with his/her any of their unvested equity-based incentives. The Dealing in Securities understanding of the Company’s business, preparation for meetings, Policy is available on the Company’s website. relationships with other Directors and management, awareness of The Company is focusing on increasing gender diversity across all levels ethical and governance issues, and overall contribution. of its workforce. The Company’s actions will be guided by maintaining The Board reviewed the performance of Mr McCann and Mr Beeren who its current high standards of competence and performance. are standing for re-election at the Annual General Meeting in October The Company has developed a Diversity and Inclusion Policy which aims 2011. The Board found that Mr McCann and Mr Beeren have been high to create an environment in which individuals are involved, supported, performing Directors and concluded that they should be proposed for respected and connected. We know that partnering with, and employing, re-election. Mr McCann and Mr Beeren abstained from deliberations a diverse range of people will give us access to a range of perspectives for their respective reviews. to make the best decisions today to create value for the future. A diverse The Board’s recommendation on the re-election of Mr McCann and range of people will also have a positive sustainable impact on, and Mr Beeren will be included in the Notice convening the Annual General minimise risks to, employees, customers, shareholders and the Meeting. communities in which we work. Every second year, the Directors review the performance of the whole As part of the Company’s continued efforts to increase gender diversity Board and Board Committees. A full review was undertaken during FY2011 across the business, the Company has introduced targets to improve covering the Board’s activities and work program, time commitments, gender equity in under-represented roles and address pay equity. Our meeting efficiency and Board contribution to Company strategy, targets will cover key areas of focus and measurement including: monitoring, compliance and governance. •• increasing representation of women in management roles; •• increasing representation of women in under-represented roles Principle 3: Promote ethical and such as trades and engineering; responsible decision making •• remuneration equity; and All Directors and employees are expected to comply with the law and •• increasing retention of women. act with a high level of integrity. The Company has a Code of Conduct We regularly track and report on representation of women across the and a number of policies governing conduct in pursuit of Company Company. At present, women represent 25 per cent of the Company objectives. The Code of Conduct is consistent with the Company’s Board; 20 per cent of the Executive Management Team; 26 per cent Statement of Purpose, Principles, Values and Commitments. of women in management roles; and 37 per cent of all employees. A summary of the Code of Conduct is available on the Company’s website. In addition, we have identified the following areas of focus to continue The Company also encourages employees to report known or suspected to support our efforts to improve gender equity: instances of inappropriate conduct, including Code of Conduct breaches. •• established a Diversity Council, chaired by the Managing Director, that There are policies in place to protect employees from any reprisal, has responsibility, among other tasks, for recommending the targets discrimination or being personally disadvantaged as a result of their and to assist in monitoring performance against them; reporting of a concern. •• implemented targeted initiatives to support women’s development The Company has established a policy which governs dealings in its and career progression; securities. This precludes any Origin personnel from dealing in the •• introduced selection panels to its recruitment processes so as to Company’s securities from 1 July until after the announcement of the full identify and reduce unconscious gender bias in its succession year financial results, and from 1 January until after the announcement planning, talent review, recruitment and performance management of the half-yearly results. In addition, all Origin personnel are prohibited processes; and from trading in the Company’s securities at any time if they possess price-sensitive information not available to the market and which could •• promoted inclusive behaviours that recognise, and manage, reasonably be expected to have an effect on the price or value of the unconscious bias in core people processes. Company’s securities. The Board is responsible for overseeing the Company’s strategies on gender diversity, including monitoring of the Company’s achievements against any gender targets set by the Board.

Origin Energy Annual Report 2011 59 corporate governance statement (continued)

Principle 4: Safeguard integrity in an internal record of briefings given to investors and analysts, including financial reporting those present and the main issues discussed. The Board has an Audit Committee which comprises four Non-executive The Communications with Shareholders Policy is available on the Directors, of whom three are independent. The Chairman of the Board Company’s website. cannot chair the Audit Committee. The Chairman of the Audit Committee, Dr Helen Nugent, is an independent Director. All members of the Committee Principle 7: Recognise and manage risk are financially literate and the Committee possesses sufficient financial The Board has an overarching policy governing the Company’s approach expertise and knowledge of the industry in which the Company operates. to risk oversight and management and internal control systems. The Audit Committee oversees the structure and management systems The Risk Committee oversees the Company’s policies and procedures that are designed to protect the integrity of the Company’s financial in relation to risk management and internal control systems. The reporting. The Audit Committee reviews the Company’s half and full Company’s policies are designed to identify, assess, address and monitor year financial reports and makes recommendations to the Board on strategic, operational, legal, reputational, commodity and financial risks adopting financial statements. The Committee provides additional to achieve business objectives. Certain specific risks are covered by assurance to the Board with regard to the quality and reliability of insurance and the Board has also approved policies for hedging of financial information. The Committee has the authority to seek interest rates, foreign exchange rates and commodities. information from any employee or external party. Management is responsible for the design and implementation of the The internal and external auditors have direct access to the Audit risk management and internal control systems to manage the Company’s Committee Chairman and, following each scheduled meeting, meet material business risks. Management reports to the Risk Committee on separately with the Committee without Executive Directors or whether those risks are being managed effectively. Top risks are reported management present. to the Risk Committee and the Board, along with associated controls and The Committee reviews the independence of the external auditor, risk mitigation plans. Management has reported to the Risk Committee including the nature and level of non-audit services provided, and and the Board that, as at 30 June 2011, its material business risks are being reports its findings to the Board every six months. managed effectively. The names of the members of the Audit Committee are set out In addition to reports from the Risk Committee, the Board receives in the table under Principle 2 and their attendance at meetings monthly reports on key risk areas such as health and safety, project of the Committee is set out in the Directors’ Report. development, commodity exposures and exchange rates. A general Company-wide review of major risks is undertaken for corporate, Principle 5: Make timely and balanced operational and development activities. disclosure When presenting financial statements for Board approval, the Managing The Company has adopted policies and procedures to ensure compliance Director and Executive Director, Finance and Strategy provide a formal with its continuous disclosure obligations, and to ensure accountability statement in accordance with s295A of the Corporations Act with an of senior management for that compliance. assurance that the statement is founded upon a sound system of risk management and internal control that is operating effectively in all The Company is committed to providing timely, full and accurate material respects. disclosure and to keeping the market informed with quarterly releases detailing exploration, development and production, and annual and The names of the members of the Risk Committee are set out in the half-year reports to shareholders. table under Principle 2 and their attendance at meetings of the Committee is set out in the Directors’ Report. All material matters are disclosed to the ASX immediately (and subsequently to the media, where relevant), as required by the ASX Listing Rules. All The Risk Management Policy and information on Origin Energy’s policies material investor presentations are released to the ASX and are posted on risk oversight and management of material business risks are on the Company’s website, along with other reports that are not material available on the Company’s website. The Risk Committee Charter is enough to be an ASX announcement. Shareholders can subscribe to a available on the Company’s website. free email notification service and receive notice of any announcements released by the Company. Principle 8: Remunerate fairly and The Continuous Disclosure Policy and the Communications with responsibly Shareholders’ Policy are available on the Company’s website. The Remuneration Report sets out details of the Company’s policies and practices for remunerating Directors, key management personnel and Principle 6: Respect the rights employees. of shareholders The Board has a Remuneration Committee, which comprises five The Company respects the rights of its shareholders and has adopted Non-executive Directors, of whom four are independent. The Chairman, policies to facilitate the effective exercise of those rights through Mr Trevor Bourne, is an independent Director. The names of the participation at general meetings and providing them with information members of the Remuneration Committee are set out under Principle 2 about the Company and its operations. and their attendance at meetings of the Committee is set out in the Directors’ Report. The Company is committed to providing a high standard of communication to shareholders and other stakeholders so that they Further information about the Remuneration Committee’s activities have all available information reasonably required to make informed is provided in the Remuneration Report. assessments of the Company’s value and prospects. The remuneration of Non-executive Directors is structured separately The Company provides shareholders with a choice of receiving an annual from that of the Executive Directors and senior executives. Information Shareholder Review, a full Annual Report or no report at all. Shareholders on remuneration for Non-executive Directors is in the Remuneration who make no election receive a Shareholder Review. Shareholders may Report. also elect to receive their reports electronically or in printed form. All information referred to in this Corporate Governance Statement The Company’s website contains a list of upcoming events, all recent as being on the Company’s website may be found at the web address: announcements, presentations, past and current reports to w w w.originenergy.com.au under the section “Investor Centre” – shareholders, notices of meeting and archived webcasts of general “Corporate Governance”. meetings and results announcements. The Company also keeps

60 financial statements contents

Income statement 62 Statement of comprehensive income 63 Statement of financial position 64 Statement of changes in equity 65 Statement of cash flows 66 Notes to the financial statements 1 Statement of significant accounting policies 67 2 Segments 76 3 Profit 78 4 Income tax expense 79 5 Dividends 80 6 Trade and other receivables 81 7 Inventories 82 8 Other assets 82 9 Other financial assets, including derivatives 82 10 Investments accounted for using the equity method 83 11 Property, plant and equipment 86 12 Exploration, evaluation and development assets 87 13 Intangible assets 88 14 Tax assets 90 15 Trade and other payables 92 16 Interest-bearing liabilities 92 17 Other financial liabilities, including derivatives 93 18 Tax liabilities 93 19 Provisions 95 20 Employee benefits 96 21 Share capital 99 22 Reserves and other comprehensive income 99 23 Notes to the statement of cash flows 101 24 Auditors’ remuneration 104 25 Contingent liabilities and assets 104 26 Commitments 105 27 Financial instruments 106 28 Acquisition, disposal and deconsolidation of controlled entities 116 29 Controlled entities 116 30 Interest in joint venture operations 119 31 Share-based payments 120 32 Related party disclosures 124 33 Key management personnel disclosures 124 34 Deed of cross guarantee 124 35 Earnings per share 126 36 Parent entity disclosures 127 37 Subsequent events 128 Directors’ declaration 129 Independent auditor’s report 130

Origin Energy Annual Report 2011 61 Income statement for the year ended 30 June

2011 2010 Note $million $million

Revenue 10,344 8,534 Other income 3(a) 9 56 Total expenses, excluding net financing costs 3(b) (9,857) (7,734) Share of results of equity accounted investees 10(a) 54 144 Net financing costs 3(c) (155) (124) Profit before income tax 395 876 Income tax expense 4 (147) (196) Profit for the period 248 680 Non-controlling interests (62) (68) Profit attributable to members of the parent entity 186 612

Earnings per share: Basic earnings per share 35 19.6 cents 67.7 cents(1) Diluted earnings per share 35 19.6 cents 67.4 cents(1)

(1) Restated to reflect the impact of the bonus element component of the 2011 rights issue, refer to note 35 for further details.

The income statement should be read in conjunction with the accompanying notes set out on pages 67 to 128. Operational business segment performance and underlying profit of the consolidated entity is presented in note 2(a) and a reconciliation between statutory profit attributable to members of the parent entity and underlying profit is included in note 2(b).

62 statement of comprehensive income for the year ended 30 June

2011 2010 $million $million

Profit for the period 248 680

Other comprehensive income Available for sale assets: Valuation loss taken to equity – (11) Losses transferred to income statement 9 –

Cash flow hedges: Losses transferred to income statement 141 199 Transferred to carrying amount of assets 2 8 Foreign currency translation gain 2 2 Valuation loss taken to equity (168) (194)

Net gain/(loss) on hedge of net investment in foreign operations 73 (3) Foreign currency translation differences for foreign operations (245) – Actuarial gain/(loss) on defined benefit superannuation plan 4 (3) Income tax expense on other comprehensive income 3 – Other comprehensive loss for the period, net of income tax (179) (2)

Total comprehensive income for the period 69 678

Total comprehensive income attributable to: Non-controlling interests 4 83 Members of the parent entity 65 595 Total comprehensive income for the period 69 678

The statement of comprehensive income should be read in conjunction with the accompanying notes set out on pages 67 to 128.

Origin Energy Annual Report 2011 63 Statement of financial position as at 30 June

2011 2010 Note $million $million

Current assets Cash and cash equivalents 728 823 Trade and other receivables 6 2,159 1,371 Inventories 7 263 177 Other financial assets, including derivatives 9 556 471 Tax assets 14 2 47 Other assets 8 153 139 Total current assets 3,861 3,028

Non-current assets Trade and other receivables 6 24 10 Other financial assets, including derivatives 9 550 194 Investments accounted for using the equity method 10 5,470 5,395 Property, plant and equipment 11 10,313 9,168 Exploration and evaluation assets 12 965 1,039 Development assets 12 – 76 Intangible assets 13 5,433 2,796 Tax assets 14 – 88 Other assets 8 24 40 Total non-current assets 22,779 18,806

Total assets 26,640 21,834

Current liabilities Trade and other payables 15 2,020 1,205 Interest-bearing liabilities 16 595 113 Other financial liabilities, including derivatives 17 2,217 398 Tax liabilities 18 2 7 Provisions 19 275 161 Total current liabilities 5,109 1,884

Non-current liabilities Trade and other payables 15 412 65 Interest-bearing liabilities 16 4,193 3,373 Other financial liabilities, including derivatives 17 2,282 3,813 Tax liabilities 18 595 901 Provisions 19 533 360 Total non-current liabilities 8,015 8,512

Total liabilities 13,124 10,396

Net assets 13,516 11,438

Equity Share capital 21 4,029 1,683 Reserves 22 (301) (199) Retained earnings 8,504 8,765 Total parent entity interest 12,232 10,249 Non-controlling interests 1,284 1,189 Total equity 13,516 11,438

The statement of financial position should be read in conjunction with the accompanying notes set out on pages 67 to 128.

64 Statement of changes in equity for the year ended 30 June

Share- Foreign based currency Available- Non- Share payments translation Hedging for-sale Retained controlling Total capital reserve reserve reserve reserve earnings interests equity $million $million $million $million $million $million $million $million

Opening balance as at 1 July 2010 1,683 47 (132) (107) (7) 8,765 1,189 11,438

Other comprehensive income (refer note 22(b)) – – (107) (16) 7 (5) (58) (179) Profit after tax expense for the period – – – – – 186 62 248 Total comprehensive income/(expense) for the period – – (107) (16) 7 181 4 69

Dividends paid (refer note 5) – – – – – (442) (62) (504) Movement in share capital (refer note 21) 2,346 – – – – – 153 2,499 Movement in share-based payments reserve – 14 – – – – – 14 Total transactions with owners recorded directly in equity 2,346 14 – – – (442) 91 2,009 Balance as at 30 June 2011 4,029 61 (239) (123) – 8,504 1,284 13,516

Opening balance as at 1 July 2009 1,604 36 (121) (114) 1 8,597 1,141 11,144

Other comprehensive income (refer note 22(b)) – – (11) 7 (8) (5) 15 (2) Profit after tax expense for the period – – – – – 612 68 680 Total comprehensive income/(expense) for the period – – (11) 7 (8) 607 83 678

Dividends paid (refer note 5) – – – – – (439) (72) (511) Movement in share capital (refer note 21) 79 – – – – – 37 116 Movement in share-based payments reserve – 11 – – – – – 11 Total transactions with owners recorded directly in equity 79 11 – – – (439) (35) (384) Balance as at 30 June 2010 1,683 47 (132) (107) (7) 8,765 1,189 11,438

The statement of changes in equity should be read in conjunction with the accompanying notes set out on pages 67 to 128.

Origin Energy Annual Report 2011 65 Statement of cash flows for the year ended 30 June

2011 2010 Note $million $million

Cash flows from operating activities Cash receipts from customers 10,362 9,052 Cash paid to suppliers (8,768) (7,883) Cash generated from operations 1,594 1,169 Dividends/distributions received from equity accounted investees 9 13 Other dividends received – 1 Income taxes received/(paid) 3 (102) Acquisition transaction costs (205) (7) Net cash from operating activities 23(c) 1,401 1,074

Cash flows from investing activities Acquisition of property, plant and equipment (1,102) (1,788) Exploration and development assets (150) (898) Acquisition of other assets (424) (190) Acquisition of businesses, net of cash acquired 23(d) (3,125) (8) Interest received 39 120 Net proceeds from sale of non-current assets 4 7 Costs associated with dilution of Origin’s interest in Australia Pacific LNG – (16) Tax paid on dilution of Origin’s interest in Australia Pacific LNG – (548) Net cash used in investing activities (4,758) (3,321)

Cash flows from financing activities Proceeds from borrowings 9,788 2,698 Repayment of borrowings (8,191) (2,841) Interest paid (308) (285) Proceeds from issue of share capital – senior executive option plan 21 18 13 Proceeds from share rights issues 2,252 – Proceeds from shares issued by Contact Energy, a subsidiary of the consolidated entity 115 – Dividends paid by the parent entity (381) (374) Dividends paid to non-controlling interests (27) (35) Net cash from/(used in) financing activities 3,266 (824)

Net decrease in cash and cash equivalents (91) (3,071) Cash and cash equivalents at the beginning of the period 819 3,891 Effect of exchange rate changes on cash (4) (1) Cash and cash equivalents at the end of the period 23(a) 724 819

The statement of cash flows should be read in conjunction with the accompanying notes set out on pages 67 to 128.

66 notes to the financial statements

1. Statement of significant accounting policies Origin Energy Limited (the company) is a company domiciled in Australia. (D) Principles of consolidation The financial statements of the company for the year ended 30 June 2011 comprise the company and its subsidiaries (together referred to as the Accounting for acquisitions of non-controlling interests consolidated entity) and the consolidated entity’s interest in associates Acquisitions of non-controlling interests are accounted for as transactions and jointly controlled entities. The consolidated financial statements with equity holders in their capacity as equity holders and therefore no were approved by the Board of Directors on 23 August 2011. goodwill is recognised. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. (A) Statement of compliance Subsidiaries The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards The financial statements of the consolidated entity include the financial adopted by the Australian Accounting Standards Board (AASB) and the statements of Origin Energy Limited and all entities in which it had a Corporations Act 2001. The financial statements of the consolidated controlling interest. Where control of entities commenced or ceased entity comply with International Financial Reporting Standards adopted during the year, the profits or losses are included only from the date by the International Accounting Standards Board. control commenced or up to the date control ceased. Non-controlling interests in the equity and results of entities that are (B) Basis of preparation under the control of Origin Energy Limited are shown as a separate item in the financial statements. The consolidated financial statements are presented in Australian dollars, which is the functional currency of the company and the Associates and joint ventures (equity accounted investees) majority of the subsidiaries in the consolidated entity. Unless otherwise Associates are those entities over which the consolidated entity stated, all reference to ‘$’ refer to Australian dollars. exercises significant influence, but not control, over the financial and The entity has not elected to early adopt any accounting standards and operating policies and which are not intended for sale in the near future. amendments. Significant influence is presumed to exist when the consolidated entity The financial statements are prepared on the historical cost basis except holds between 20 and 50 per cent of the voting power of another entity. for the following material items in the statement of financial position: Joint ventures are those entities over whose activities the consolidated •• derivative financial instruments and financial assets classified as entity has joint control, established by contractual agreement and available-for-sale that are measured at their fair value; requiring unanimous consent for strategic, financial and operating decisions. In the financial statements, investments in associates and •• the defined benefit liability is measured as the net total of the plan investments in jointly controlled entities, including partnerships, are assets, plus unrecognised past service cost and unrecognised actuarial accounted for using equity accounting principles. losses, less unrecognised actuarial gains and the present value of the defined benefit obligation; and The financial statements include the consolidated entity’s share of the •• environmental scheme certificates which can be traded in an active income and expenses and equity movements of the equity accounted market are measured at their fair value. investees, after adjusting to align the accounting policies with those of the consolidated entity, from the date that significant influence or joint The company is of a kind referred to in Australian Securities and control commences until the date that significant influence or joint Investments Commission (ASIC) Class Order (CO) 98/100 dated 10 July 1998 control ceases. When the consolidated entity’s share of losses exceeds (updated by CO 05/641 effective 28 July 2005 and CO 06/51 effective 31 its interest in an equity accounted investee, the carrying amount of that January 2006) and in accordance with that Class Order, amounts in the interest (including any long-term investments) is reduced to nil and the financial statements and Directors’ Report have been rounded off to the recognition of further losses is discontinued except to the extent that nearest million dollars, unless otherwise stated. the consolidated entity has an obligation or has made payments on behalf of the investee. (C) Use of estimates and judgements The equity accounted results are disclosed in the income statement The preparation of financial statements requires management to make as “share of results of equity accounted investees”. judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and Jointly controlled operations and assets expenses. The estimates and associated assumptions are based on The consolidated entity’s interests in unincorporated joint ventures are historical experience and various other factors that are believed to be brought to account by including the assets that it controls and the reasonable under the circumstances, the results of which form the basis liabilities that it incurs in the course of pursuing the joint operation, and of making the judgements about carrying values of assets and liabilities the expenses that it incurs and its share of the income that it earns from that are not readily apparent from other sources. Actual results may the joint operation on a line-by-line basis, from the date joint control differ from these estimates. commences to the date joint control ceases. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in Business combinations which the estimate is revised and in any future periods affected. Refer to Business combinations are accounted for using the acquisition method note 1(AL) for accounting estimates and judgements. as at the acquisition date, which is the date on which control is The accounting policies set out below have been applied consistently to transferred to the consolidated entity. Control is the power to govern the all periods presented in the financial statements. The accounting policies financial and operating policies of an entity so as to obtain benefits from have been applied consistently by all entities in the consolidated entity. its activities. In assessing control, the consolidated entity takes into consideration potential voting rights that are currently exercisable. Certain comparative amounts have been reclassified to conform to the current year’s presentation.

Origin Energy Annual Report 2011 67 notes to the financial statements(continued)

1. Statement of significant accounting policies (continued) (D) Principles of consolidation (continued) A segment is a distinguishable component of the consolidated entity that is engaged in providing business activities that are regularly reviewed Any contingent consideration arising from a business combination is by the Managing Director. recognised at fair value at the acquisition date. Changes to the fair value that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. (F) Cash and cash equivalents Measurement period adjustments are adjustments that arise from Cash and cash equivalents comprise cash balances, call deposits and additional information obtained subsequent to the acquisition date term deposits. Bank overdrafts that are repayable on demand and form about facts and circumstances that existed at the acquisition date. an integral part of the consolidated entity’s cash management are The measurement period ends as soon as all information is received but included as a component of cash and cash equivalents for the purpose is no longer than 12 months. Otherwise, subsequent changes to the fair of the statement of cash flows. value of the contingent consideration are recognised in profit or loss. If the initial accounting for a business combination is incomplete by (G) Trade and other receivables the end of the reporting period in which the combination occurs, the Trade and other receivables are initially recognised at fair value. consolidated entity reports provisional amounts for the items for which Subsequent to initial recognition they are measured at amortised cost the accounting is incomplete. The provisional amounts are adjusted less accumulated impairment losses. during the measurement period, or additional assets or liabilities are Unbilled revenue represents estimated gas and electricity services recognised to reflect the new information obtained about facts and supplied to customers but unbilled at the end of the reporting period. circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. (H) Inventories Costs related to the acquisition, other than those associated with the Inventories are valued at the lower of cost and net realisable value. issue of debt or equity securities, that the consolidated entity incurs Net realisable value is the estimated selling price in the ordinary course in connection with a business combination, are expensed as incurred. of business, less the estimated costs of completion and selling expenses. Business combinations from entities under common control Cost is determined predominantly on the first-in-first-out basis of valuation. The cost of coal and gas storage inventory is determined Business combinations arising from transfers of interests in entities that on a weighted average basis. are under the control of the shareholder that controls the consolidated entity are accounted for by recognising the assets and liabilities acquired (I) Deferred expenses at the carrying amounts recognised previously in the consolidated entity’s controlling shareholder’s consolidated financial statements. Expenditure is deferred to the extent that it is probable that future The components of equity of the acquired entities are added to the economic benefits embodied in the expenditure will eventuate and can same components within the consolidated entity equity. Any cash paid be reliably measured. Deferred expenses are amortised on a straight-line for the acquisition is recognised directly in equity. basis over the period in which the related benefits are expected to be realised. Transactions eliminated on consolidation The effects of transactions between entities consolidated in the (J) Impairment financial statements and any unrealised income and expenses arising The carrying amounts of assets, other than inventories, derivatives, from these transactions, are eliminated in preparing the consolidated environmental scheme certificates and deferred tax assets, are reviewed financial statements. Unrealised gains arising from transactions with at each reporting date to determine if there is any indication of impairment. equity accounted investees are eliminated against the investment to the If any such indication exists, the asset’s recoverable amount is estimated, extent of the consolidated entity’s interest in the investee. Unrealised as discussed below for all assets except exploration and evaluation losses are eliminated in the same way as unrealised gains, but only to assets which is discussed in note 1(M). For goodwill, the recoverable the extent that there is no evidence of impairment. amount is estimated bi-annually. An impairment loss is recognised whenever the carrying amount of (E) Segment reporting an asset or its cash-generating unit exceeds its recoverable amount. The consolidated entity determines and presents operating segments Impairment losses are recognised in the income statement. based on the information that is internally provided to the Managing Impairment losses recognised in respect of cash-generating units are Director who is the chief operating decision maker. The Managing allocated first to reduce the carrying amount of any goodwill allocated Director regularly receives financial information on the underlying profit to cash-generating units and then to reduce the carrying amount of the of each operating segment and the statutory profit. A reconciliation is other assets in the cash-generating unit on a pro-rata basis. also received to show the financial impact of the individual items that When a decline in the fair value of an available-for-sale financial asset are excluded from statutory profit in the measurement of underlying has been recognised directly in equity and there is objective evidence profit. The underlying profit information is provided to the Managing that the asset is impaired, the cumulative loss that had been recognised Director to assess the performance of Origin’s ongoing business. The directly in equity is recognised in the income statement even though the nature of items adjusted for in the measurement of underlying profit financial asset has not been derecognised. The amount of the cumulative include losses or reversals on impairment of assets, gains on dilution of loss that is recognised in the income statement is the difference between Origin’s interests in subsidiaries, gains and losses on the movement in the acquisition cost and current fair value, less any impairment loss fair value of financial instruments not qualifying for hedge accounting, on that financial asset previously recognised in the income statement. net interest expense arising on the unwinding of discounted receivables An impairment loss with respect to an available-for-sale financial asset and payables associated with Origin’s investment in Australia Pacific is not reversed. LNG, transition and transaction costs, the tax impact on translation of foreign denominated tax balances, one-off tax items and other items that would distort the comparability of the results of the ongoing operations.

68 notes to the financial statements(continued)

1. Statement of significant accounting policies (continued) (J) Impairment (continued) expense on a straight-line basis once the asset is ready for use, over the estimated useful lives of the assets. With the exception of available-for-sale financial assets any impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An (M) Exploration and evaluation assets impairment loss is reversed if there has been a change in the estimates Exploration and evaluation assets are accounted for in accordance with used to determine the recoverable amount. An impairment loss in the area of interest method. The application of this method is based on respect of goodwill is not reversed. An impairment loss in respect of a partial capitalisation model closely aligned to the ‘successful efforts’ assets other than goodwill is reversed only to the extent that the asset’s approach. All exploration and evaluation costs, including directly carrying amount does not exceed the carrying amount that would have attributable overheads, general permit activity, geological and geophysical been determined, net of depreciation or amortisation, if no impairment costs are expensed as incurred except the cost of drilling exploration wells had been recognised. and the cost of acquiring new interests. The costs of drilling exploration wells are initially capitalised pending the determination of the success of (K) Calculation of recoverable amount the well. Costs are expensed where the well does not result in a successful The recoverable amount of receivables carried at amortised cost is discovery. Costs incurred before the consolidated entity has obtained the calculated as the present value of estimated future cash flows, discounted legal rights to explore an area are recognised in the income statement. at the original effective interest rate (i.e. the effective interest rate Exploration and evaluation assets are partially or fully capitalised where computed at initial recognition of these financial assets). Receivables the rights of the area of interest are current and either (i) the expenditure with a short duration are not discounted. is expected to be recouped through successful development and Impairment of receivables is not recognised until objective evidence exploitation of the area of interest (or alternatively, by its sale) or is available that a loss event has occurred. Significant receivables are (ii) exploration and evaluation activities in the area of interest have not individually assessed for impairment. Non-significant receivables are at the reporting date reached a stage which permits a reasonable not individually assessed. Instead, impairment testing is performed by assessment of the existence or otherwise of economically recoverable placing non-significant receivables into portfolios of similar risk profiles, reserves, and active and significant operations in, or in relation to, the based on objective evidence from historical experience adjusted for any area of interest are continuing, or where both conditions are met. Upon effects of conditions existing at each reporting date. approval for the commercial development of a project, the accumulated expenditure is transferred to development assets. The recoverable amount of other assets is the greater of their fair value less costs to sell, and value in use. In assessing value in use, the estimated Exploration and evaluation assets are reviewed at each reporting date future cash flows are discounted to their present value using a pre-tax to determine if there is any indication of impairment. Impairment discount rate that reflects current market assessments of the time value indicators include (i) expiration of the right to explore in the specific of money and the risks specific to the asset. For an asset that does not area during the period or in the near future that is not expected to be generate largely independent cash inflows, the recoverable amount is renewed or (ii) substantive expenditure on further exploration for and determined for the cash-generating unit to which the asset belongs. evaluation of resources is not planned or budgeted for or (iii) a decision to discontinue activity in a specific area due to exploration for and (L) Intangible assets evaluation of resources not leading to the discovery of commercially viable quantities or (iv) data indicating that although a development Goodwill in a specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full All business combinations are accounted for by applying the acquisition from successful development or by sale. method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets, liabilities and contingent liabilities acquired. Goodwill is stated at cost less any (N) Development assets accumulated impairment losses. Goodwill is allocated to cash-generating The costs of oil and gas assets in the development phase are separately units and is not amortised but is tested annually for impairment. In respect accounted for and include costs transferred from exploration and of equity accounted entities, the carrying amount of goodwill is included evaluation assets once technical feasibility and commercial viability of in the carrying amount of the investment in the equity accounted entity. an area of interest are demonstrable, and all development drilling and Negative goodwill arising on an acquisition is recognised directly in the other subsurface expenditure. When production commences, the income statement. accumulated costs are transferred to producing areas of interest except for land and buildings and surface plant and equipment associated with Other intangible assets development assets which are recorded in the other land and buildings Other intangible assets that are acquired outside of a business and other plant and equipment categories respectively. combination are stated at cost less accumulated amortisation and impairment losses. Amortisation is recognised as an expense on a (O) Investments in debt and equity straight-line basis over the estimated useful lives of the assets. securities Research and development Financial instruments held for trading are classified as current assets and are stated at fair value, with any resultant gain or loss recognised in the Expenditure on research activities, undertaken with the prospect of gaining income statement. new scientific or technical knowledge and understanding, is recognised in the income statement as an expense as incurred. Expenditure on Other financial assets held by the consolidated entity are classified as development activities, whereby research findings are applied to a plan being available-for-sale and are stated at fair value, with any resultant or design for the production of new or substantially improved products gain or loss recognised in other comprehensive income and presented and processes, is capitalised if the product or process is technically and directly in equity, except for impairment losses and, in the case of commercially feasible and the consolidated entity has sufficient resources monetary items such as foreign exchange gains and losses. When these to complete development. The expenditure capitalised includes the cost investments are derecognised, the cumulative gain or loss previously of materials, direct labour and an appropriate proportion of overheads. recognised directly in equity is recognised in profit or loss. Where these Capitalised development expenditure is stated at cost less accumulated investments are interest-bearing, interest calculated using the effective amortisation and impairment losses. Amortisation is recognised as an interest method is recognised in profit or loss.

Origin Energy Annual Report 2011 69 notes to the financial statements(continued)

1. Statement of significant accounting policies (continued) (O) Investments in debt and equity Subsequent to initial recognition, lease liabilities are reduced by the securities (continued) repayments of principal with the interest components of the lease payments expensed in profit and loss. The asset is accounted for in The fair value of financial assets classified as available-for-sale is their accordance with the accounting policy applicable to assets in note 1(P). quoted bid price at the reporting date. Financial assets classified as available-for-sale investments are recognised/de-recognised by the consolidated entity on the date it commits to purchase/sell (R) Operating leases the investments. Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more (P) Property, plant and equipment representative of the pattern of benefits to be derived from the leased property. Lease incentives are recognised in the income statement as Items of property, plant and equipment are recorded at cost less part of total lease expense spread over the lease term. accumulated depreciation and impairment losses. Producing areas of interest (S) Trade and other payables The costs of oil and gas assets in production are separately accounted Liabilities are recognised for amounts to be paid in the future for goods for and include costs transferred from exploration and evaluation assets, and services received and are recorded at amortised cost. transferred development assets and the ongoing costs of continuing to develop reserves for production. Land and buildings and surface plant (T) Interest-bearing liabilities and equipment associated with producing areas of interest are recorded Interest-bearing liabilities are initially recognised at fair value less in the other land and buildings and other plant and equipment attributable transaction costs. Subsequent to initial recognition, categories respectively. interest-bearing liabilities are stated at amortised cost with any Leased plant and equipment difference between cost and redemption value being recognised in the income statement over the period of borrowings on an effective Leases of plant and equipment which are classified as finance leases interest basis. Interest expense is recognised in the income statement (where the consolidated entity assumes substantially all the risks and as a component of net financing costs. rewards of ownership of the assets) are capitalised and amortised over the period during which benefits are anticipated. Other leases are (U) Defined benefit superannuation plan classified as operating leases and the lease costs are expensed on a straight-line basis over the term of the lease, except where an alternative The consolidated entity’s net obligation in respect of the defined benefit basis is more representative of the pattern of benefits to be derived from superannuation plan is calculated by estimating the amount of future the leased assets. benefit that employees have earned in return for their service in the current and prior periods. The benefit is discounted to determine its Self-constructed assets present value, and the fair value of the plan assets is deducted. The discount These assets are carried at cost less accumulated depreciation and rate is the yield at the reporting date on Commonwealth Government tested for impairment. The cost of self-constructed assets includes the bonds that have maturity dates approximating the terms of the cost of materials, direct labour, the initial estimate, where relevant, of consolidated entity’s obligations. The calculation is performed by a the costs of dismantling and removing the items and restoring the site qualified actuary using the projected unit credit method. The calculation on which they are located, an appropriate proportion of production for the financial year ending 30 June 2011 was performed on 14 July 2011. overheads and capitalised interest. When the benefits of the plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense Depreciation and amortisation in the income statement on a straight-line basis over the average period With the exception of producing areas of interest off-shore assets and until the benefits become vested. To the extent that the benefits vest land, depreciation is charged to the income statement on a straight-line immediately, the expense is recognised immediately in the income basis over the estimated useful lives of each part of an item of property, statement. plant and equipment. The carrying values of producing areas of interest When the calculation results in plan assets exceeding liabilities to the sub-surface assets are amortised on a units of production basis using consolidated entity, the recognised asset is limited to the total of any the proved and probable reserves to which they relate, together with the unrecognised past service costs and the present value of any future estimated future development expenditure required to develop those refunds from the plan or reductions in future contributions to the plan. reserves. Land is not depreciated. Past service cost is the increase in the present value of the defined The range of depreciation rates for the current and comparative period benefit obligation for employee services in prior periods, resulting in the for each class of asset are: current period from the introduction of, or changes to, post-employment benefits or other long-term employee benefits. Past service costs may Generation property, plant and equipment 1% – 33% either be positive (where benefits are introduced or improved) or Other land and buildings 1% – 18% negative (where existing benefits are reduced). Other plant and equipment 1% – 50% Actuarial gains and losses are recognised directly in retained earnings Producing areas of interest 2% – 25% in the period in which they occur and are presented in the statement of comprehensive income. (Q) Finance leases Leases where substantially all the risks and rewards of ownership are (V) D efined contribution superannuation assumed by the consolidated entity are classified as finance leases. funds The consolidated entity makes contributions to defined contribution Upon initial recognition a lease asset and a lease liability are recognised superannuation funds. All contributions made by the consolidated entity at the lower of the fair value and the present value of the minimum lease are recognised as a labour related expense within total expenses, payments. excluding net financing costs in the income statement as incurred.

70 notes to the financial statements(continued)

1. Statement of significant accounting policies (continued) (W) Long-term service benefits In the statement of financial position, the provision is recognised net of the recovery receivable only when the entity has a legally recognised The consolidated entity’s net obligation in respect of long-term service right to set off the recovery receivable and the provision, and intends benefits, other than superannuation plans, is the amount of future to settle on a net basis, or to realise the asset and settle the provision benefit that employees have earned in return for their service in the simultaneously. current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and Dividends expected settlement dates, and is discounted using the rates attached A provision for dividend payable is recognised in the reporting period to the Commonwealth Government bonds at the reporting date which in which the dividend is declared, for the entire undistributed amount, have maturity dates approximating the terms of the consolidated regardless of the extent to which it will be paid in cash. entity’s obligations. Restoration, rehabilitation and dismantling (X) Wages, salaries, annual leave and Provisions for the estimated costs relating to current environmental sick leave restoration, rehabilitation and dismantling are recognised as liabilities Liabilities for employee benefits for wages, salaries, annual leave and sick when a legal or constructive obligation arises as a result of exploration, leave that are expected and due to be settled within 12 months of the development and production activities having been undertaken, and it reporting date represent present obligations resulting from employees’ is probable that an outflow of economic benefits will be required to settle services provided up to the reporting date calculated at undiscounted the obligation. Where the obligation arises as a result of the construction amounts based on remuneration wage and salary rates that the or installation of an asset or assets, an amount equal to the initial liability company expects to pay as at the reporting date including related is capitalised as a component of the asset. At each reporting date, the on-costs, such as workers compensation insurance and payroll tax. restoration liability is remeasured in line with changes in discount rates, and timing or amount of the costs to be incurred. Any changes in the (Y) Equity-based compensation liability in future periods are added or deducted from the related asset, Equity-based compensation benefits are provided to employees via the other than the unwinding of the discount which is recognised as interest Senior Executive Option Plan, Senior Executive Performance Share Rights expense in the income statement as it occurs. The costs, which include Plan and the Employee Share Plan. The accounting policies regarding field site rehabilitation and restoration, remediation of soil, groundwater each of these plans are as follows: and untreated waste and dismantling and removal of infrastructure, are determined on the basis of current legal requirements and current Senior Executive Option Plan and Performance Share Rights Plan technology. Changes in estimates are dealt with on a prospective basis. The fair value of the options and performance share rights granted Uncertainties exist as to the amount of the restoration obligations that is recognised as an employee benefits expense with a corresponding will be incurred due to uncertainty as to the remaining life of existing increase in equity. The fair value is measured at grant date using a operating sites and the impact of changes in environmental legislation. binomial model, taking into account market performance conditions only, and recognised over the vesting period during which the employees Onerous contracts become unconditionally entitled to the options and performance share An onerous contract provision is recognised when the unavoidable cost rights. The amount recognised as an expense is adjusted to reflect the of meeting the obligation under the contract exceeds the economic actual number of options and performance share rights that vest except benefits expected to be received under the contract. A provision is where forfeiture is due to market related conditions. recognised at the present value of the obligation and is the lower of the cost of terminating the contract and the net cost of continuing Employee Share Plan with the contract. Where shares allocated to the benefit of employees are purchased by the company on market, the fair value of the shares is recognised as a (AA) Share capital liability in the statement of financial position until paid and included in the income statement. Ordinary shares Incremental costs directly attributable to the issue of ordinary shares (Z) Provisions and share options are recognised as a deduction from equity, net of any A provision is recognised in the statement of financial position when related income tax benefit. there is a legal, equitable or constructive obligation as a result of a past Dividends event and it is probable that a future sacrifice of economic benefits will be required to settle the obligation, the timing or amount of which is Dividends are recognised as a liability in the period in which they are uncertain. Provisions are determined by discounting the expected future declared. cash flows required to settle the obligation at a pre-tax rate that reflects current market assessments of the time value of money and the risk free (AB) Revenue recognition rate, being the rates on Commonwealth Government bonds most closely Revenue matching the expected future payments, except where noted below. When some or all of the economic benefits required to settle a provision Revenue comprises revenue earned, (net of returns, discounts and are expected to be recovered from a third party, the recovery receivable allowances) from the provision of products or services to entities outside is recognised as an asset when it is virtually certain that the recovery will the consolidated entity, including estimated amounts for customers’ be received and is measured on a basis consistent with the measurement unread meters and is measured at the fair value of consideration of the related provision. In the income statement, the expense recognised received or receivable. Sales revenue is recognised in accordance with in respect of a provision is presented net of the recovery. The unwinding the contractual arrangements where applicable and only once the of the discount on the provision is recognised in the income statement significant risks and rewards of ownership of the goods passes from the within net financing costs. consolidated entity to the customer or when services have been rendered to the customer, collectability is reasonably assured and revenue can be measured reliably.

Origin Energy Annual Report 2011 71 notes to the financial statements(continued)

1. Statement of significant accounting policies (continued) (AB) Revenue recognition (continued) (AE) Income tax In practice, the above revenue recognition approach is applied to the Income tax on the profit and loss for the year comprises current and consolidated entity’s operating segments as follows: deferred tax. Income tax is recognised in the income statement except •• Revenue from the sale of oil and gas in the Exploration and Production to the extent that it relates to items recognised directly in equity, in operating segment is recognised when the commodities have been which case it is recognised in equity. loaded for shipment and title passes to the customer; Current tax is the expected tax receivable/payable on the taxable •• Revenue from electricity and gas supplied by the Retail business income for the year, using tax rates enacted or substantially enacted segment is recognised once the electricity and gas has been at the reporting date, and any adjustment to tax payable in respect delivered and is measured through a regular review of usage meters. of previous years. Revenue from the sale of solar panels is recognised once installation Deferred tax is recognised in respect of temporary differences between is complete; and the carrying amounts of assets and liabilities for financial reporting •• The Generation business segment recognises revenues from the purposes and the amounts used for taxation purposes. The following generation of electricity when the electricity has been supplied to temporary differences are not provided for: goodwill, the initial customers. A tolling arrangement is in place at commercial rates recognition of assets or liabilities that affect neither accounting, nor between the Retail and Generation operating segments in relation taxable profit, and differences relating to investments in subsidiaries to the consolidated entity’s merchant power stations. The external and joint ventures to the extent that they will probably not reverse in the revenue generated by the merchant power stations is recognised in foreseeable future. The amount of deferred tax provided is based on the Retail’s revenue while Generation receives a tolling fee from Retail for expected manner of realisation or settlement of the carrying amount of the capacity provided and costs incurred by these power stations. assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. Government grants A deferred tax asset is recognised only to the extent that it is probable Government grants are recognised in the statement of financial position that future taxable profits will be available against which the asset can initially as deferred income when there is reasonable assurance that they be utilised. Deferred tax assets are reduced to the extent that it is no will be received and that the consolidated entity will comply with the longer probable that the related tax benefit will be realised. conditions attaching to them. Grants that compensate the consolidated Origin’s Exploration and Production operations in New Zealand have an entity for expenses incurred are recognised as revenue in the income accounting functional currency other than the New Zealand dollar (NZD). statement on a systematic basis in the same periods in which the New Zealand tax legislation dictates that these operations have a NZD expenses are incurred. Grants that compensate the consolidated entity currency for the purposes of submitting their tax returns. Origin is for the cost of an asset are deferred as unearned income until the asset required to translate the NZD tax bases using the spot rate at balance is ready for use at which time they are recognised in the income statement date when performing the tax effect accounting calculation, with the as other income on a systematic basis over the useful life of the asset. foreign exchange movement recorded in the income statement through Dividends income tax expense. All dividends received from subsidiaries, jointly controlled entities and associates are recognised as income in the entity’s stand alone accounts (AF) Foreign currency transactions when the right to receive the dividend is established. Transactions in foreign currencies are translated at the foreign exchange Revenue from dividends from other investments is recognised when rate ruling at the date of the transaction. Monetary assets and liabilities dividends are declared. denominated in foreign currencies at the reporting date are translated to the relevant entity’s functional currency at the foreign exchange rate Interest income ruling at that date. Foreign exchange differences arising on translation Interest income is recognised as it accrues. are recognised in the income statement except for differences arising on a financial liability designated as a hedge of a net investment in foreign (AC) Net financing costs operations that is effective or are qualifying cash flow hedges, which are recognised in other comprehensive income and presented in equity. Net financing costs comprise interest payable on borrowings, dividends Non-monetary assets and liabilities that are measured in terms of on redeemable preference shares recorded as debt, unwinding of discounts historical cost in a foreign currency are translated using the exchange and interest receivable on funds invested. Borrowing costs are expensed rate at the date of the transaction. Non-monetary assets and liabilities as incurred and included in net financing costs in the income statement. denominated in foreign currencies that are stated at fair value are Financing costs incurred for the construction of a qualifying asset are translated to Australian dollars at foreign exchange rates ruling at the capitalised during the period of time that is required to complete and dates the fair value was determined. prepare the asset for its intended use or sale. (AG) Financial statements of foreign (AD) Goods and services tax operations Revenues, expenses and assets are recognised net of the amount of The assets and liabilities of foreign operations, including goodwill and goods and services tax (GST), except where the amount of GST incurred fair value adjustments arising on consolidation are translated to is not recoverable from the taxation authorities, in these circumstances, Australian dollars at foreign exchange rates in effect at the reporting the GST is recognised as part of the cost of acquisition of the asset or as date. The revenues and expenses of foreign operations are translated to part of an item of the expense. Receivables and payables are stated with Australian dollars at rates approximating the foreign exchange rates the amount of GST included. The net amount of GST recoverable from, ruling at the dates of the transactions. Foreign exchange differences or payable to, the tax authorities is included as a current asset or liability arising on retranslation are recognised in other comprehensive income, in the statement of financial position. Cash flows are included in the and presented in the foreign currency translation reserve within equity. statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the taxation authorities are classified as operating cash flows.

72 notes to the financial statements(continued)

1. Statement of significant accounting policies (continued) (AH) Net investment and hedge of net (AK) Hedging investment in foreign operations Cash flow hedges Exchange differences arising from the translation of the net investment in foreign operations, and of related hedges that are deemed effective Where a derivative financial instrument is designated as a hedge of the are recognised in other comprehensive income and presented in the foreign variability in cash flows of a recognised asset or liability, or a highly currency translation reserve within equity. They are released to the income probable forecasted transaction, the effective part of any gain or loss on statement upon disposal. the derivative financial instrument is recognised in other comprehensive income and presented in the hedging reserve directly in equity. When The consolidated entity applies hedge accounting to foreign currency the forecast transaction subsequently results in the recognition of a differences arising between the functional currency of the foreign non-financial asset or non-financial liability, the associated cumulative operation and the parent entity’s functional currency, regardless of gain or loss is removed from equity and included in the initial cost or whether the net investment is held directly or through an immediate other carrying amount of the non-financial asset or liability. If a hedge parent entity. of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains and losses (AI) Environmental scheme certificates that were recognised directly in equity are reclassified into profit or loss The consolidated entity holds environmental scheme certificates in order in the same period or periods during which the asset acquired or liability to meet the consolidated entity’s regulatory surrender obligations under assumed affects profit or loss. various schemes in Australia and overseas. Both the environmental For cash flow hedges, other than described above, the associated certificate assets and the surrender obligations are initially recorded cumulative gain or loss is removed from equity and recognised in the at cost. Subsequent to initial recognition, they are recorded at fair value income statement in the same period or periods during which the (being the market price for certificates at the reporting date) where hedged forecast transaction affects profit or loss. The ineffective part there is an active market in which Origin participates in buying and of any gain or loss is recognised immediately in the income statement. selling activities. If there is no active market, the certificates continue When a hedging instrument expires or is sold, terminated or exercised, to be recorded at cost. or the entity revokes designation of the hedge relationship, but the hedged forecast transaction is still expected to occur, the cumulative (AJ) Derivative financial instruments gain or loss at that point remains in equity and is recognised in The consolidated entity uses derivative financial instruments to hedge accordance with the above policy when the transaction occurs. If the its exposure to foreign exchange, interest rate, electricity price and hedged transaction is no longer expected to occur, the cumulative commodity price risks arising from operating, financing and investing unrealised gain or loss recognised in equity is recognised immediately activities. In accordance with its treasury and energy risk management in the income statement. policies, the consolidated entity does not hold or issue derivative financial instruments for speculative or trading purposes. However, Economic hedges derivatives that do not qualify for hedge accounting are required to The consolidated entity holds a number of derivative instruments for be accounted for as trading instruments. economic hedging purposes under the board approved risk management Derivative financial instruments are recognised initially at fair value on policies, which are prohibited from being designated as hedges under the date the instrument is entered into. Where a valuation technique AASB 139. These derivatives are therefore required to be categorised as results in a gain or loss at the execution date of an instrument, the day held for trading with changes in the fair value being recognised in the one gain or loss is not recognised at the date of execution and the impact income statement. of the day one gain or loss is excluded from the changes in fair value of the instrument recognised each period over the life of the instrument. Fair value hedges Subsequent to initial recognition, derivative financial instruments are Where a derivative financial instrument is designated as a hedge of re-measured to fair value. The gain or loss on re-measurement to fair exposure to changes in fair value of a recognised asset or liability, the value is recognised immediately in the income statement unless the changes in fair value of the derivative are recognised in the income derivative is designated and effective as a hedging instrument, in which statement, together with the changes in fair value of the hedged asset event, the timing of the recognition of profit or loss depends on the or liability attributable to the hedged risk. nature of the hedging relationship. The consolidated entity designates Hedge of net investment in foreign operations certain derivatives as either hedges of the exposure to fair value changes in recognised assets or liabilities or firm commitments (fair value The portion of the gain or loss on an instrument used to hedge a net hedges); hedges of the exposure to variability in cash flows attributable investment in a foreign operation that is determined to be an effective to a recognised asset or liability or highly probable forecast transactions hedge is recognised in other comprehensive income and presented (cash flow hedges); or hedges of net investments in foreign operations. directly in equity in the foreign currency translation reserve. The Refer to note 27 for further details. ineffective portion is recognised immediately in the income statement. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host (AL) Accounting estimates and judgements contract and the embedded derivative are not closely related, a separate Estimates of reserve quantities instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not Reserves are estimates of the amount of product that can be economically measured at fair value through profit or loss. and legally extracted from the consolidated entity’s properties. In order to estimate economically recoverable reserves, assumptions are required about a range of geological, technical, legal and economic factors, including quantities, grades, production techniques, reversion rights, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates.

Origin Energy Annual Report 2011 73 notes to the financial statements(continued)

1. Statement of significant accounting policies (continued) (AL) Accounting estimates and judgements Origin owns assets in Australia that are expected to be impacted by the (continued) Australian Government’s proposed carbon plan announced on 10 July 2011. The introduction of a carbon price framework has the potential to Estimating the quantity and/or grade of reserves requires the size, shape impact the value in use calculations applied for impairment reviews of and depth of orebodies or fields to be determined by analysing geological Origin’s Australian assets. Origin has included estimates of the impact of data such as drilling samples. This process may require complex and carbon on its asset valuations but uncertainties exist as to the impact of difficult geological judgements to interpret the data. Because the economic any carbon pricing mechanism on the consolidated entity as legislation assumptions used to estimate economically recoverable reserves change has yet to be drafted, and must be passed by Parliament, and the likely from period to period, and because additional geological data is impact of the carbon pricing regime to the markets in which Origin’s generated during the course of operations, estimates of reserves may assets operate continues to be assessed. change from period to period. Changes in reported reserves may affect the consolidated entity’s financial results and financial position in a Exploration and evaluation assets number of ways, including the following: The consolidated entity’s accounting policy for exploration and evaluation •• asset carrying values (notes 10, 11 and 12) may be affected due to assets is set out in 1(M) above. The application of this policy necessarily changes in estimated future cash flows requires management to make certain estimates and assumptions as •• depreciation, depletion and amortisation charged in the income to future events and circumstances, in particular, the assessment of statement (note 3(b)) may change where such charges are determined whether economic quantities of reserves have been found. Any such by the units of production basis, or where the useful economic lives of estimates and assumptions may change as new information becomes assets change available. If, after having capitalised expenditure under this policy it is •• restoration, rehabilitation and dismantling provisions (note 19) may concluded that it is unlikely to recover the expenditure by future change where changes in estimated reserves affect expectations exploitation or sale, then the relevant capitalised amount will be written about the timing or the cost of the activities off to the income statement. Refer to note 12 for the carrying value of •• the carrying value of deferred tax assets (note 14) may change due exploration and evaluation assets. to changes in the estimates of the likely recovery of the tax benefits Amortisation of producing areas of interest Restoration, rehabilitation and dismantling The carrying values of producing areas of interest sub-surface assets are The consolidated entity estimates the future removal costs of off-shore amortised on a units of production basis using the proved and probable oil and gas platforms, production facilities, wells, pipelines, LPG tankers reserves to which they relate, together with the estimated future and tanks and generation plants at the time of installation or construction development expenditure required to develop those reserves. Certain of the assets. In most instances, removal of the assets occurs many years estimates and assumptions are used in determining these reserves and into the future. This requires judgemental assumptions regarding development cost estimates such as the assessment as to technical removal date, future environmental legislation, the extent of restoration feasibility and commercial viability of an area and quantities of reserves. and rehabilitation activities required, the methodology for estimating Refer above for further reserves assumptions and to note 11 for the cost, future removal technologies in determining the removal cost, carrying values of producing areas of interest. and the risk free rate to determine the present value of these cash flows. Commitments Refer to note 19 for the carrying value of these provisions. Commitments are estimated based on information and expectations as Impairment of assets at the reporting date. Assumptions are made for expected performance In accordance with AASB 136 Impairment of assets, the recoverable and charges to be incurred in respect of committed arrangements amount of assets is determined, in the absence of quoted market prices, including: delivery volumes, service levels, exchange rates and delivery through estimating the present value of future cash flows using asset timeframes. Refer to note 26 for further details. specific discount rates. The recoverable amount calculations are based Fair value of financial instruments on financial forecasts covering periods which reflect the long term nature of the assets. The forecasts include assumptions related to the The fair value of financial assets and financial liabilities must be growth in revenue, operating expenditure and capital expenditure. estimated for recognition and measurement or for disclosure purposes. The growth assumptions are largely determined by contractual The fair value of financial instruments that are not traded in an active parameters and the projected Australian Consumer Price Index or market is determined using valuation techniques. The consolidated equivalent. Expenditure growth for all assets is largely indexed to the entity uses a variety of methods and makes assumptions that are based projected Australian Consumer Price Index. Assumptions used for oil on market conditions existing at each reporting date. Refer to note 27 and gas properties also include reserves levels, future production for further details. profiles and commodity prices. Defined benefit superannuation plan obligations The estimated future cash flows are discounted to their present value Various actuarial assumptions are utilised in the determination of the using a pre tax discount rate based on the weighted average cost of consolidated entity’s defined benefit superannuation plan obligations. capital (WACC). The WACC takes into account the average rates of return These assumptions are discussed in note 20. required by providers of debt and equity (weighted to the market) to compensate them for the time value of money and the inherent risk or Unbilled revenue uncertainty in achieving the cash flow returns for that outlay of capital. Unbilled revenue for unread gas and electricity meters, is estimated at The discount rates applied in determining the recoverable amounts the end of the reporting period. This involves an estimate of of the cash generating units (CGU) with significant carrying amounts consumption for each unread meter based on the customer’s past of goodwill referred to in note 13 are 12.2 per cent for Retail and consumption history or an estimate of unbilled days at an average billed Generation, and 8-10 per cent for Contact Energy. The impairment rate over the billing cycle. Refer to note 6 for the carrying value of assessment, performed at a CGU level is inclusive of the allocation of unbilled revenue. corporate assets. CGU’s have been identified for the purpose of assessing impairment, on the grounds that these are the smallest identifiable groups of assets that generate cash inflows largely independent of the cash inflows from other assets or groups of assets. For further detail around key assumptions refer to note 13. 74 notes to the financial statements(continued)

1. Statement of significant accounting policies (continued) (AL) Accounting estimates and judgements (AM) New standards and interpretations (continued) not yet adopted Taxation The following standards, amendments to standards and interpretations have been identified as those which may impact the consolidated entity The consolidated entity is subject to income taxes in Australia and in the period of initial application. They are available for early adoption jurisdictions where it has foreign operations. Significant judgement is at 30 June 2011, but have not been applied in preparing the financial required in determining the provision for income taxes. There are many statements: transactions and calculations undertaken during the ordinary course of AASB 9 Financial Instruments business for which the ultimate tax determination is uncertain. AASB 124 Related Party Disclosures Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable profits are AASB 1053 Application of Tiers of Australian Accounting Standards available to utilise those temporary differences and losses, and the tax AASB 1054 Australian Additional Disclosures losses continue to be available, having regard to the nature and timing of AASB 2009-11 Amendments to Australian Accounting Standards arising their origination and compliance with the relevant tax legislation from AASB 9 associated with their recoupment. AASB 2009-12 Amendments to Australian Accounting Standards Assumptions are made about the application of income tax legislation. These assumptions are subject to risk and uncertainty and there is a AASB 2009-14 Amendments to Australian Interpretation – Prepayments possibility that changes in circumstances will alter expectations which of a Minimum Funding Requirement – AASB Interpretations 14 may impact the amount of deferred tax assets and deferred tax liabilities AASB 2010-2 Amendments to Australian Accounting Standards arising recorded in the statement of financial position and the amount of tax from Reduced Disclosure Requirements losses and timing differences not yet recognised. In these circumstances, AASB 2010-4 Further Amendments to Australian Accounting Standards the carrying amount of deferred tax assets and liabilities may change arising from the Annual Improvements Project impacting the profit or loss of the consolidated entity. Refer to notes 14 AASB 2010-6 Amendments to Australian Accounting Standards – and 18 for the carrying value of tax assets and liabilities. Disclosures on Transfers of Financial Assets AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax Recovery of Underlying Assets AASB 2010-9 Amendments to Australian Accounting Standards – Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters AASB 2011-1 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project AASB 2011-2 Amendments to Australian Accounting Standards arising from the Trans-Tasman Convergence Project – Reduced Disclosure Requirements The consolidated entity is currently in the process of assessing the impact of the adoption of these standards.

Origin Energy Annual Report 2011 75 notes to the financial statements(continued)

2. Segments (a) Operating segments for the year ended 30 June The operating segments have been presented on a basis consistent with the information that is internally provided to the Managing Director who is the chief operating decision maker for the consolidated entity. The Managing Director regularly receives financial information on the underlying earnings before interest and tax (EBIT) of each operating segment, so as to assess the ongoing performance of each segment and to enable a relevant comparison to the prior period ongoing operating results. The Managing Director also receives a reconciliation of the statutory profit to the underlying profit detailing the financial impact of each individual item that is excluded from statutory profit in the measurement of underlying profit. To assist users in understanding the financial results of the Origin business and the performance of its operating segments, this information has been disclosed in this note.

Exploration & Production Generation Retail Contact Energy Consolidated 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 $million $million $million $million $million $million $million $million $million $million

Underlying results: Revenue Total segment revenue 701 522 474 234 8,072 6,393 1,708 1,717 10,955 8,866 Intersegment sales elimination(1) (174) (140) (437) (192) – – – – (611) (332) Total revenues from external customers 527 382 37 42 8,072 6,393 1,708 1,717 10,344 8,534

Earnings before interest, tax, depreciation and amortisation (EBITDA)(2) 325 250 327 182 785 568 345 346 1,782 1,346

Depreciation and amortisation expense (221) (170) (115) (44) (75) (65) (128) (129) (539) (408) Share of interest, tax, depreciation and amortisation of equity accounted investees (42) (32) (4) (7) – – (3) (3) (49) (42) Earnings before interest and tax (EBIT) 62 48 208 131 710 503 214 214 1,194 896 Net financing costs (143) (13) Profit before income tax 1,051 883 Income tax expense (316) (232) Profit for the period 735 651 Non-controlling interests in profit (62) (66) Underlying profit attributable to members of the parent entity 673 585 Impact of items excluded from underlying profit (refer note 2(b)) (487) 27 Profit attributable to members of the parent entity 186 612

Earnings per share based on underlying profit: Basic earnings per share 71.0¢ 64.8¢(4) Diluted earnings per share 70.8¢ 64.4¢(4)

Other material non-cash items(3) – 29 215 5 266 19 8 12 489 65 Acquisitions of non-current assets (includes capital expenditure) 304 1,609 1,302 738 2,722 304 443 411 4,771 3,062

(1) Intersegment pricing is determined on an arm’s length basis. Intersegment sales are eliminated on consolidation. – A tolling arrangement operates between the Retail and Generation segments in relation to the consolidated entity’s Australian merchant power stations. The external revenue from the merchant power stations is recognised in Retail’s revenue while Generation receives a tolling fee from Retail for the capacity provided and costs incurred by these power stations. – The Exploration and Production segment sells gas and LPG to the Retail segment. (2) EBITDA includes the consolidated entity’s share of EBITDA of equity accounted investees of $79 million (2010: $69 million). Refer to note 10(a) for further details. (3) Other material non-cash items include: impairment expense in Generation $214 million (2010: Exploration and Production $29 million, Retail $4 million), change in fair value of non-financing cost related financial instruments in Generation $1 million, Retail $214 million and Contact $1 million (2010: Generation $5 million, Retail $17 million gain and Contact $2 million) and other non-cash items. (4) Restated to reflect the impact of the bonus element component of the 2011 rights issue.

Australian corporate revenue and expenses are allocated across all business segments based on segment results, excluding Contact Energy. The following summary describes the operations in each of the consolidated entity’s reportable segments:

Business segments Products and services

Exploration & Production Natural gas and oil exploration and production in Australia, New Zealand and South East Asia. Generation Natural gas-fired co-generation and power generation in Australia. Retail Natural gas, electricity, LPG and energy related products and services in Australia, the Pacific and Papua New Guinea. Contact Energy Natural gas, electricity, LPG and energy related products and services and power generation in New Zealand.

76 notes to the financial statements(continued)

2. Segments (continued) (b) Reconciliation of underlying profit

2011 2011 2011 2010 2010 2010 $million $million $million $million $million $million Gross Tax Net Gross Tax Net

Profit attributable to members of the parent entity 186 612

Impact of items excluded from underlying profit attributable to members of the parent entity:

Impairment of assets(1) (214) 54 (160) (33) 10 (23) (Decrease)/increase in fair value of financial instruments(2) (201) 60 (141) 15 (4) 11 Unwinding of discounted liability payable to APLNG (refer note 3(c)) (12) 4 (8) (111) 33 (78) Share of unwinding of discounted receivables within APLNG (refer note 10(b)) 20 – 20 117 – 117 Transition and transaction costs(3) (253) 18 (235) (29) 8 (21) Change in New Zealand corporate income tax legislation(4) – 2 2 – 8 8 Tax benefit/(expense) on translation of foreign denominated tax balances(5) – 31 31 – (9) (9) Share of tax benefit on translation of foreign denominated tax balances within APLNG(6) 4 – 4 – – – Gain on dilution of Origin’s interest in subsidiaries (refer note 28) – – – 38 (11) 27 New Plymouth asbestos removal and related costs – – – (4) 1 (3) Items excluded from underlying profit for the period (656) 169 (487) (7) 36 29 Non-controlling interests – (2) Impact of items excluded from underlying profit attributable to members of the parent entity (487) 27

Underlying profit attributable to members of the parent entity 673 585

(1) During the year ended 30 June 2011 the consolidated entity reviewed the carrying amount of its non-current assets. The review led to the recognition of an impairment loss of $214 million in relation to Origin’s 30 per cent interest in the Innamincka Joint Venture with Geodynamics focused on deep geothermal generation technology in northern South Australia and the Group’s investment in Geodynamics Limited listed securities. This amount has been included in the income statement in the line item “total expenses, excluding net financing costs” (refer note 3(b)). The asset impairments were measured using a fair value less costs to sell methodology. (2) Change in fair value of financial instruments primarily relates to instruments that are effective economic hedges but do not qualify for hedge accounting. (3) Transaction costs of $215 million (2010: $7 million) represent the costs incurred by the consolidated entity relating to successful and unsuccessful acquisition activity. The expense recorded in the current year includes the transaction costs incurred for the acquisition of the NSW Government energy retail assets and entering into the GenTrader arrangements of $213 million (including estimated stamp duty payable on the transaction of $150 million). Transition costs of $38 million (2010: $22 million) relate to the transition of the acquired NSW Government energy business into Origin’s existing business and the Retail transformation and transition project. (4) Reduction in New Zealand corporate income tax rate from 30 per cent to 28 per cent commencing in the income tax year ending 30 June 2012 and a change in New Zealand tax depreciation deductions allowed on buildings. (5) Tax benefit/(expense) arising on the foreign currency translation of the long term tax bases recorded in Origin’s Exploration and Production activities in New Zealand. (6) Share of tax benefit arising on the foreign currency translation of the long term tax bases recorded in the equity accounted investment in Australia Pacific LNG.

2011 2010 $million $million

Revenue Australia 8,377 6,647 New Zealand 1,876 1,806 Other(1) 91 81 Total revenue from external customers 10,344 8,534

Non-current assets Australia 17,683 13,580 New Zealand 4,905 4,996 Other(1) 59 89 Total non-current assets 22,647 18,665

(1) The other geographic segment includes operations in the Pacific, South East Asia, Papua New Guinea, Chile, Indonesia and Kenya.

In presenting geographical information revenue is based on the geographical location of customers. Non-current assets, which exclude financial instruments and deferred tax assets, are based on the geographical location of the assets.

Origin Energy Annual Report 2011 77 notes to the financial statements(continued)

3. Profit

2011 2010 Note $million $million

(a) Other income Dividends received from other parties – 1 Net gain on sale of other assets – 4 Net foreign exchange gain 5 4 Government grants/subsidies 2 1 Gain on dilution of Origin’s interest in subsidiaries – 38 Other 2 8 Total other income 9 56

(b) Total expenses, excluding net financing costs Raw materials and consumables used, and changes in finished goods and work in progress (7,379) (6,340) Labour related expenses 20 (540) (449) Exploration expense (118) (45) Depreciation and amortisation expense (539) (408) Impairment of assets (refer note 2(b)) (214) (33) (Decrease)/increase in fair value of financial instruments (refer note 2(b)) (201) 15 Transition and transaction costs (refer note 2(b)) (253) (29) Other expenses (613) (445) Total expenses, excluding net financing costs (9,857) (7,734)

Interest expense Other parties (157) (108) Unwinding of discount on restoration provisions (22) (18) Unwinding of discounted liability payable to Australia Pacific LNG (12) (111) (191) (237)

Net financing costs (155) (124)

Net financing costs excluding unwinding of discounted liability payable to APLNG (143) (13)

Financing costs capitalised(1) 153 156

(1) Capitalised interest is calculated at an average rate based on the general borrowings of the consolidated entity (2011: 7.18 per cent, 2010: 5.75 per cent).

78 notes to the financial statements(continued)

4. Income tax expense

2011 2010 $million $million

Current tax expense/(benefit) 40 (71) Deferred tax expense 115 279 Over provided in prior years (8) (12) Total income tax expense in the income statement 147 196

Reconciliation between tax expense and pre-tax net profit Profit before income tax 395 876

Income tax using the domestic corporation tax rate of 30% (2010: 30%) Prima facie income tax expense on pre-tax accounting profit: – at Australian tax rate of 30% 119 263 – adjustment for difference between Australian and overseas tax rates 7 3 Income tax expense on pre-tax accounting profit at standard rates 126 266

Increase/(decrease) in income tax expense due to: Tax benefit not recognised for acquisition transaction costs 58 – Impairment expense not deductible 11 – Share of results of equity accounted investees (15) (41) Recognition of change in net tax loss position (2) (23) Tax expense on translation of foreign denominated tax balances (31) 9 Other 8 (3) 29 (58) Over provided in prior years – current and deferred (8) (12) Income tax expense on pre-tax net profit 147 196

Deferred tax movements recognised directly in equity (including foreign currency translation) Fair value of available-for-sale financial assets 2 (3) Financial instruments at fair value (6) 2 Property, plant and equipment (43) 5 Provisions 5 – Other items (2) 3 (44) 7

2011 2011 2011 2010 2010 2010 $million $million $million $million $million $million Gross Tax Net Gross Tax Net

Income tax expense recognised in other comprehensive income Available for sale assets: Valuation loss taken to equity – – – (11) 3 (8) Losses transferred to income statement 9 (2) 7 – – –

Cash flow hedges: Losses transferred to income statement 141 (42) 99 199 (60) 139 Transferred to carrying amount of assets 2 (1) 1 8 (2) 6 Foreign currency translation gain 2 – 2 2 – 2 Valuation loss taken to equity (168) 49 (119) (194) 58 (136)

Net gain/(loss) on hedge of net investment in foreign operations 73 – 73 (3) – (3) Foreign currency translation differences for foreign operations (245) – (245) – – – Actuarial gain/(loss) on defined benefit superannuation plan 4 (1) 3 (3) 1 (2) Other comprehensive income for the period (182) 3 (179) (2) – (2)

Origin Energy Annual Report 2011 79 notes to the financial statements(continued)

5. Dividends

2011 2010 $million $million

(a) Dividend reconciliation Final dividend of 25 cents per share, fully franked at 30%, paid 28 September 2010 (2010: Final dividend of 25 cents per share, fully franked at 30%, paid 23 September 2009). 221 219 Interim dividend of 25 cents per share, fully franked at 30%, paid 1 April 2011 (2010: Interim dividend of 25 cents per share, fully franked at 30%, paid 1 April 2010). 221 220 442 439

(b) Subsequent event Since the end of the financial year, the directors have declared a final dividend of 25 cents per share, fully franked at 30%, payable 29 September 2011. 266

The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2011 and will be recognised in subsequent financial statements. The declaration and subsequent payment of dividends has no income tax consequences. An underwritten dividend reinvestment plan covering the next four dividend payments will commence with the final dividend for the financial year ending 30 June 2011, a 2.5 per cent discount will apply.

Dividends paid or provided for during the reporting period Current year interim franked dividend per share 25 cents 25 cents Previous year final franked dividend per share 25 cents 25 cents

Dividends proposed and not recognised as a liability Franked dividend per share 25 cents

(d) Dividend franking account 30 per cent franking credits available to shareholders of Origin Energy Limited for subsequent financial years amount to $213 million (2010: $433 million). The above available amount is based on the balance of the dividend franking account at year end adjusted for: (a) franking credits that will arise from the payment of current income tax liabilities; (b) franking debits that will arise from the payment of dividends provided at year end; (c) franking credits that will arise from the receipt of dividends recognised as receivables by the tax-consolidated group at year end; and (d) franking credits that the entity may be prevented from distributing in subsequent years. The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the franking account balance of the final dividend declared after 30 June 2011 but not brought to account in the financial statements for the year ended 30 June 2011 will be to reduce the balance by $114 million (2010: $95 million).

80 notes to the financial statements(continued)

6. Trade and other receivables

2011 2010 $million $million

Current Trade receivables net of allowance for doubtful debts 867 542 Unbilled revenue 1,201 742 Other debtors (including joint venture debtors) 91 87 2,159 1,371

Non-current Trade receivables 24 10 24 10

Trade receivables of the consolidated entity’s operations denominated in currencies other than the functional currency of the operations comprise $6 million denominated in US dollars (2010: $7 million) and $13 million denominated in New Zealand dollars (2010: $16 million). The consolidated entity’s policy requires trade debtors to pay in accordance with agreed payment terms. Depending on the customer segment, the settlement terms are generally 14 to 30 days from date of invoice. All credit and recovery risk associated with trade debtors has been provided for in the statement of financial position. The average age of trade receivables is 22 days (2010: 22 days). The movement in the allowance for doubtful debts in respect of trade receivables during the year is as follows:

Balance at the beginning of the year 27 22 Acquired impairment losses recognised for the NSW acquisition 31 – Impairment losses recognised 60 42 Amounts written off (56) (37) Balance at the end of the year 62 27

The aging of the consolidated entity’s trade receivables at the reporting date is detailed below:

2011 2011 2010 2010 $million $million $million $million Total Allowance Total Allowance

Current 678 (1) 417 (2) 30 – 60 days 100 (2) 74 (2) 60 – 90 days 41 (1) 25 (1) More than 90 days 110 (58) 53 (22) 929 (62) 569 (27)

Origin Energy Annual Report 2011 81 notes to the financial statements(continued)

7. Inventories

2011 2010 Note $million $million

Raw materials and stores 92 54 Finished goods 43 34 Inventory gas 128 89 263 177

8. Other assets

Current Prepayments 84 114 Deposits 69 15 Other – 10 153 139

Non-current Prepayments 24 38 Other – 2 24 40

9. Other financial assets, including derivatives

Current Derivative financial instruments 27 310 361 Available-for-sale financial assets 27 5 Environmental scheme certificates 219 95 Other financial assets – 10 556 471

Non-current Derivative financial instruments 27 132 53 Environmental scheme certificates 410 131

Available-for-sale financial assets: Listed shares 4 7 Investments held in other corporations 4 3 8 10

550 194

82 notes to the financial statements(continued)

10. Investments accounted for using the equity method (a) Investments summary

Share of interest, tax, Equity depreciation accounted and investment Place of Ownership Share of amortis- Share of carrying incorpor- Reporting interest EBITDA ation net profit amount 2011 Note Principal activity ation date % $million $million $million $million

Associates BIEP Pty Ltd Cogeneration Vic 30 June 50.0 – – – – BIEP Security Pty Ltd Cogeneration Vic 30 June 50.0 – – – – CUBE Pty Ltd(1) Cogeneration SA 30 June 50.0 12 (7) 5 33 Gas Industry Superannuation Superannuation Pty Ltd trustee SA 30 June 50.0 – – – – Oakey Power Holdings Pty Ltd(2) Electricity generation NSW 30 June 25.0 6 (3) 3 9 Rockgas Timaru Ltd(2) LPG distributor NZ 31 Mar 50.0 – – – – Vitalgas Pty Ltd Autogas distributor NSW 31 Dec 50.0 – – – – Energia Andina S.A.(3) Geothermal activities Chile 30 June 40.0 – – – 13 18 (10) 8 55

Joint venture entities Australia Pacific LNG Pty Ltd (APLNG) 10(b) CSG NSW 30 June 50.0 63 (18) 45 5,258 Bulwer Island Energy Partnership Cogeneration Qld 30 June 50.0 5 – 5 31 PNG Energy Developments Limited(4) Electricity generation PNG 30 June 50.0 – – – 8 Transform Solar Pty Ltd(5) Solar technology NSW 30 June 50.0 (5) 2 (3) 112 OTP Geothermal Pte Ltd(6) Geothermal activities Singapore 30 June 50.0 (2) 1 (1) 6 61 (15) 46 5,415 Total 79 (25) 54 5,470

2010

Associates BIEP Pty Ltd Cogeneration Vic 30 June 50.0 – – – – BIEP Security Pty Ltd Cogeneration Vic 30 June 50.0 – – – – CUBE Pty Ltd(1) Cogeneration SA 30 June 50.0 14 (8) 6 31 Gas Industry Superannuation Superannuation Pty Ltd trustee SA 30 June 50.0 – – – – Oakey Power Holdings Pty Ltd(2) Electricity generation NSW 30 June 25.0 6 (3) 3 7 Rockgas Timaru Ltd(2) LPG distributor NZ 31 Mar 50.0 – – – – Vitalgas Pty Ltd Autogas distributor NSW 31 Dec 50.0 – – – – 20 (11) 9 38

Joint venture entities Australia Pacific LNG Pty Ltd (APLNG) 10(b) CSG NSW 30 June 50.0 45 85 130 5,223 Bulwer Island Energy Partnership Cogeneration Qld 30 June 50.0 5 – 5 32 PNG Energy Developments Limited(4) Electricity generation PNG 30 June 50.0 – – – 9 Transform Solar Pty Ltd(5) Solar technology NSW 30 June 50.0 (1) 1 – 93 49 86 135 5,357 Total 69 75 144 5,395

(1) Osborne Cogeneration Pty Ltd, a company incorporated in SA, is a wholly-owned controlled entity of CUBE Pty Ltd. (2) Oakey Power Holdings Pty Ltd and Rockgas Timaru Ltd are associates of Contact Energy Limited, a 52.6 per cent owned subsidiary of the consolidated entity. Contact Energy Limited has a 25 per cent interest in Oakey Power Holdings Pty Ltd and a 50 per cent interest in Rockgas Timaru Ltd. (3) Origin Energy Geothermal Chile Limitada acquired 40 per cent of the shares in Energia Andina S.A. in May 2011, forming a joint venture with Antofagasta Minerals S.A. (4) Origin Energy PNG Holdings Ltd has a 50 per cent interest in PNG Energy Developments Limited. (5) Transform Solar Pty Ltd (formerly Origin Energy Solar Pty Ltd) is owned 50 per cent by Origin (refer note 28). (6) OTP Geothermal Pte Ltd is a joint venture established during the year owned 50 per cent by Origin and 50 per cent by Trust Energy Resources Pte Ltd. OTP Geothermal Pte Ltd owns 95 per cent of the Sorik Marapi geothermal concession.

Origin Energy Annual Report 2011 83 notes to the financial statements(continued)

10. Investments accounted for using the equity method (continued)

(a) Investments summary (continued) Transactions between Origin and equity accounted investees Osborne Cogeneration Pty Ltd The consolidated entity is party to a Gas Supply Agreement and a Power Purchase Agreement with its associated entity Osborne Cogeneration Pty Ltd (Osborne). Under these agreements Origin supplies gas to Osborne and purchases electricity from Osborne. Australia Pacific LNG Pty Ltd (Australia Pacific LNG) Joint Venture Origin provides services to Australia Pacific LNG. The services are provided in accordance with contractual arrangements. The services provided under these arrangements include the provision of corporate related services, Upstream operating services and CSG marketing related services. The Upstream operating services include activities related to the development and operation of Australia Pacific LNG’s natural gas assets. Origin incurs costs in providing these services and charges Australia Pacific LNG in accordance with the terms of the contractual arrangements. Origin has entered agreements with Australia Pacific LNG where Origin purchases gas from Australia Pacific LNG (2011: $140 million; 2010: $18 million) and Origin sells gas to Australia Pacific LNG (2011: $19 million; 2010: $51 million). At 30 June 2011, Origin’s outstanding payable balance for purchases from Australia Pacific LNG is $6 million (2010: $22 million) and outstanding receivable balance for sales to Australia Pacific LNG is $1 million (2010: nil). (b) Investment in Australia Pacific LNG Pty Ltd Origin entered into a 50:50 joint venture with ConocoPhillips (COP) to develop a CSG to LNG project using Origin’s CSG reserves and resources in Queensland through Australia Pacific LNG. A summary of Australia Pacific LNG’s financial performance for the periods ended 30 June 2011 and 30 June 2010, and its financial position as at 30 June 2011 and 30 June 2010 is provided below:

Origin 50% Origin 50% Total APLNG interest Total APLNG interest 2011 2010 $million $million $million $million Operating revenue 336 250 Operating expenses (210) (159) EBITDA 126 63 91 45 Depreciation and amortisation expense (77) (47) Net financing costs (4) (2) Operating profit before income tax 45 42 Income tax expense (3) (15) Underlying operating profit after tax for the period 42 21 27 14 Items excluded from underlying profit: Unwinding of discounted receivables from shareholders 47 278 Income tax expense on unwinding of discounted receivables (7) (44) Net profit from discounted receivables 40 20 234 117 Tax benefit on translation of foreign denominated tax balances 9 4 – – Total items excluded from underlying profit 49 24 234 117 Net profit for the period 91 45 261 130

Summary statement of financial position of Australia Pacific LNG

2011 2010 $million $million Receivables from shareholders 3,746 1,400 Other current assets 346 162 Current assets 4,092 1,562 Receivables from shareholders 3,690 7,128 Property, plant and equipment and exploration and evaluation and development assets 3,273 2,085 Other non-current assets 50 53 Non-current assets 7,013 9,266 Total assets 11,105 10,828 Current liabilities 479 269 Non-current liabilities 126 114 Total liabilities 605 383 Net assets 10,500 10,445 Origin’s 50% interest 5,250 5,222 Origin’s own costs 8 1 5,258 5,223

84 notes to the financial statements(continued)

10. Investments accounted for using the equity method (continued)

2011 2010 $million $million

Results of associates 100% of associates’ revenues 119 117 100% of associates’ net profit 22 25

Summary of statement of financial position of associates Assets and liabilities of associates, not adjusted for percentage ownership held by the consolidated entity are as follows:

Current assets 26 35 Non-current assets 220 211 Total assets 246 246

Current liabilities 31 39 Non-current liabilities 96 117 Total liabilities 127 156 Net assets 119 90

(d) Investments in joint venture entities

Results of joint venture entities 100% of joint venture entities’ revenues 371 285 100% of joint venture entities’ net profit 93 269

Summary of statement of financial position of joint venture entities Assets and liabilities of joint venture entities, not adjusted for percentage ownership held by the consolidated entity are as follows:

Current assets 4,113 1,594 Non-current assets 7,272 9,473 Total assets 11,385 11,067

Current liabilities 504 306 Non-current liabilities 145 118 Total liabilities 649 424 Net assets 10,736 10,643

Origin Energy Annual Report 2011 85 notes to the financial statements(continued)

11. Property, plant and equipment

2011 2010 $million $million

Generation property, plant and equipment At cost 8,190 6,851 Less: Accumulated depreciation 928 787 7,262 6,064

Other land and buildings At cost 122 117 Less: Accumulated depreciation and amortisation 30 21 92 96

Other plant and equipment At cost 3,357 3,220 Less: Accumulated depreciation 1,171 1,069 2,186 2,151

Producing areas of interest At cost 1,542 1,477 Less: Accumulated amortisation 769 620 773 857 10,313 9,168

Reconciliations Reconciliations of the carrying amounts of each class of property, plant and equipment are set out below:

Generation property, plant Other land and Other plant and Producing areas and equipment buildings equipment of interest Total 2011 $million $million $million $million $million

Carrying amount at the beginning of the period 6,064 96 2,151 857 9,168 Additions 719 4 296 56 1,075 Additions through acquisition of entities/operations(1) 867 – – – 867 Disposals (1) – (3) – (4) Depreciation/amortisation expense (218) (2) (178) (110) (508) Transfers (to)/from development assets and intangibles – – 48 – 48 Effect of movements in foreign exchange rates (169) (6) (128) (30) (333) Carrying amount at the end of the period 7,262 92 2,186 773 10,313

2010

Carrying amount at the beginning of the period 5,224 102 1,267 425 7,018 Additions 955 4 193 144 1,296 Additions through acquisition of entities/operations – 8 387 151 546 Disposals – (3) – – (3) Depreciation/amortisation expense (144) (3) (149) (93) (389) Impairment loss (refer note 2(b)) – (4) (4) (25) (33) Transfers (to)/from development assets and intangibles – (6) 431 258 683 Dilution resulting from Transform Solar transaction – (1) (2) – (3) Effect of movements in foreign exchange rates 29 (1) 28 (3) 53 Carrying amount at the end of the period 6,064 96 2,151 857 9,168

(1) Generation property, plant and equipment in relation to the GenTrader arrangements entered as part of the NSW energy asset transaction (refer to note 23(d)) over the Eraring and Shoalhaven power stations. The GenTrader arrangements expire in 2032 for Eraring and 2038 for Shoalhaven.

86 notes to the financial statements(continued)

12. Exploration, evaluation and development assets

2011 2010 $million $million

Exploration and evaluation assets Net costs carried forward in respect of areas of interest in the exploration and evaluation phase 965 1,039

Development assets Net costs carried forward in respect of areas of interest in the development phase – 76

Reconciliations Reconciliations of the carrying amounts of exploration and evaluation assets and development assets are set out below:

2011 $million Exploration and evaluation Development assets assets

Carrying amount at the beginning of the period 1,039 76 Additions 254 3 Impairment loss (202) – Exploration expense (118) – Transfers including to property, plant and equipment and intangibles – (75) Effect of movements in foreign exchange rates (8) (4) Carrying amount at the end of the period 965 –

2010

Carrying amount at the beginning of the period 199 755 Additions 224 55 Additions through acquisition of entities/operations 661 – Exploration expense (45) – Transfers including to property, plant and equipment and intangibles – (683) Effect of movements in foreign exchange rates – (51) Carrying amount at the end of the period 1,039 76

Origin Energy Annual Report 2011 87 notes to the financial statements(continued)

13. Intangible assets

2011 2010 $million $million

Goodwill at cost 5,138 2,599

Customer related and other intangible assets at cost 485 356 Less: Accumulated amortisation 190 159 295 197 5,433 2,796

Average amortisation Class of asset rate Customer related and other intangible assets at cost 13% 15%

Reconciliations Reconciliations of the carrying amounts of each class of intangible asset are set out below:

Customer related and other Goodwill intangibles Total 2011 $million $million $million

Carrying amount at the beginning of the period 2,599 197 2,796 Additions through business combinations 2,562 52 2,614 Other additions – 52 52 Transfers from development assets – 27 27 Amortisation expense – (31) (31) Effect of movements in foreign exchange rates (23) (2) (25) Carrying amount at the end of the period 5,138 295 5,433

2010

Carrying amount at the beginning of the period 2,584 153 2,737 Additions through business combinations 10 21 31 Other additions – 56 56 Amortisation expense – (17) (17) Dilution resulting from Transform Solar transaction – (16) (16) Effect of movements in foreign exchange rates 5 – 5 Carrying amount at the end of the period 2,599 197 2,796

88 notes to the financial statements(continued)

13. Intangible assets (continued) Impairment tests for cash-generating units containing goodwill The following cash-generating units have carrying amounts of goodwill:

2011 2010 $million $million

Retail 4,523 1,961 Contact Energy 419 442 Generation 193 193 Other 3 3 5,138 2,599

Retail cash-generating unit The impairment test for the Retail unit’s goodwill is based on a value in use methodology. The value in use calculations apply a discounted cash flow methodology. Cash flow projections are based on Origin Energy’s five-year business plan for the underlying Retail business and cash flows for a further 35-year period are determined based on expected market trends and the expected impact of the key assumptions (discussed below) of the change in customer numbers and customer churn, gross margin per customer and other operating costs per customer. Origin Energy’s electricity and gas business is considered a long-term business and the cash flow projections allow for the risk of increased competition for customers and short-term and long-term customer churn. The cash flow projections are discounted using a pre-tax discount rate of 12.2 per cent (2010: 12.2 per cent). Key assumptions in the value in use calculation for the Retail cash-generating unit and the approach to determining the value in the current and previous period are:

Assumptions Method of determination

Customer numbers and customer churn Review of actual customer numbers and historical data regarding movements in customer numbers and levels of customer churn. The historical analysis is considered against current and expected market trends and competition for customers. Gross margin per customer Review of actual gross margins per customer and consideration of current and expected market movements and impacts. Other operating costs per customer Review of actual operating costs per customer and consideration of current and expected market movements and impacts.

Contact Energy cash-generating unit The Contact Energy goodwill relates to Origin Energy’s acquired 52.6 per cent ownership interest in Contact Energy Limited. The impairment test for the Contact Energy goodwill is based on a fair value less costs to sell methodology. Contact Energy is listed on the New Zealand Stock Exchange and Origin Energy uses the share price of Contact Energy shares to determine the recoverable amount of its investment in Contact Energy and the Contact Energy goodwill. Generation cash-generating unit The impairment test for the Generation unit’s goodwill is based on value in use methodology. The value in use calculations apply a discounted cash flow methodology. Cash flow projections are based on Origin Energy’s five-year business plan for the underlying Generation business and cash flows out to the expected life of each asset. The cash flow projections are discounted using a pre-tax discount rate of 12.2 per cent (2010: 12.2 per cent).

Origin Energy Annual Report 2011 89 notes to the financial statements(continued)

14. Tax assets

2011 2010 Note $million $million

Current Income tax receivable 2 47

Non-current Recognised deferred tax assets Deferred tax assets are attributable to the following: Accrued expenses not incurred for tax 17 4 Employee benefits 49 39 Acquired environmental scheme certificate purchase obligations 19 23 Provisions 194 119 Financial instruments at fair value 252 – Available-for-sale financial assets 4 3 Inventories 5 1 Other items 48 32 Tax value of carry-forward tax losses recognised 143 193 Tax assets 731 414 Set-off of tax 18 (731) (326) Net tax assets – 88

Unrecognised deferred tax assets(1) Deferred tax assets have not been recognised in respect of the following items: Revenue losses 15 18 Capital losses 43 43 Depreciation of the GenTrader finance lease asset 5 – Acquisition transaction costs 58 – 121 61

(1) The above deferred tax assets have not been recognised as they are either subject to confirmation by revenue authorities or it is not currently probable that future taxable profits will be available against which the assets can be utilised.

90 notes to the financial statements(continued)

14. Tax assets (continued) Movement in temporary differences during the year

2011 $million Deconsolidation/ Recognised acquisition of Opening in income Recognised controlled Closing balance statement in equity entities balance

Accrued expenses not incurred for tax 4 3 – 10 17 Employee benefits 39 10 – – 49 Acquired environmental scheme certificate purchase obligations 23 (4) – – 19 Provisions 119 (3) (5) 83 194 Financial instruments at fair value – 53 6 193 252 Available-for-sale financial assets 3 3 (2) – 4 Inventories 1 4 – – 5 Other items 32 2 14 – 48 Tax value of carry-forward tax losses recognised 193 (35) (15) – 143 Tax assets 414 33 (2) 286 731 Set-off of tax (326) (731) Net tax assets 88 –

2010 $million Deconsolidation/ Recognised acquisition of Opening in income Recognised controlled Closing balance statement in equity entities balance

Accrued expenses not incurred for tax 1 3 – – 4 Employee benefits 29 10 – – 39 Acquired environmental scheme certificate purchase obligations 26 (3) – – 23 Provisions 111 8 – – 119 Financial instruments at fair value 27 (25) (2) – – Available-for-sale financial assets – – 3 – 3 Inventories 4 (3) – – 1 Other items 48 (14) – (2) 32 Tax value of carry-forward tax losses recognised 152 43 (2) – 193 Tax assets 398 19 (1) (2) 414 Set-off of tax (287) (326) Net tax assets 111 88

Origin Energy Annual Report 2011 91 notes to the financial statements(continued)

15. Trade and other payables

2011 2010 $million $million

Current Trade payables and accrued expenses 1,931 1,193 Acquired energy purchase obligations 56 – Acquired environmental certificate purchase obligations 33 12 2,020 1,205

Non-current Other payables 2 2 Acquired energy purchase obligations 337 – Acquired environmental certificate purchase obligations 73 63 412 65

Trade payables of the consolidated entity’s operations denominated in currencies other than the functional currency of the operations comprise $nil trade payables denominated in New Zealand dollars (2010: $1 million), $3 million of trade payables denominated in Euros (2010: $2 million) and $19 million of trade payables denominated in US dollars (2010: $9 million).

16. Interest-bearing liabilities

Interest-bearing liabilities Current Bank overdrafts – unsecured 4 4 Bank loans – secured 15 13 Bank loans – unsecured 328 – Capital market borrowings – unsecured 246 94 Lease liabilities – secured 2 2 595 113

Non-current Bank loans – secured 295 310 Bank loans – unsecured 1,857 1,293 Capital market borrowings – unsecured 2,036 1,764 Lease liabilities – secured 5 6 4,193 3,373

Refer to note 27 for further information regarding interest-bearing liabilities. Interest rates applicable to: The consolidated entity has entered into interest rate swap contracts to manage the exposure to interest rates at 1.20 per cent to 7.67 per cent per annum at a weighted average of 5.80 per cent per annum (2010: 2.75 per cent to 7.80 per cent per annum at a weighted average of 6.30 per cent per annum). Refer to note 27(c)(iv) Financial risk factors – interest rate risk (cash flow and fair value), for a summary of interest rate risks.

92 notes to the financial statements(continued)

17. Other financial liabilities, including derivatives

2011 2010 Note $million $million

Current Derivative financial instruments 27 356 330 Loan from APLNG joint venture associated entity 1,731 – Environmental scheme surrender obligations 128 68 Other financial liabilities 2 – 2,217 398

Non-current Derivative financial instruments 27 437 249 Loan from APLNG joint venture associated entity 1,845 3,564 2,282 3,813

18. Tax liabilities

Current Provision for income tax 2 7

Non-current Recognised deferred tax liabilities Deferred tax liabilities are attributable to the following: Property, plant and equipment 701 615 Exploration, evaluation and development assets 353 401 Financial instruments at fair value – 9 Investments in associates 19 23 Unbilled receivables 237 132 Discounted receivables – 4 Other items 16 43 Tax liabilities 1,326 1,227 Set-off of tax 14 (731) (326) Net tax liabilities 595 901

At 30 June 2011 a deferred tax liability balance of $1,569 million (2010: $1,558 million) for temporary differences of $5,230 million (2010: $5,195 million) in respect of Origin’s investment in the Australia Pacific LNG joint venture has not been recognised as Origin is able to control the timing of the reversal of the temporary difference through voting rights prescribed in the shareholders’ agreement and it is not expected that the temporary difference will reverse in the foreseeable future.

Origin Energy Annual Report 2011 93 notes to the financial statements(continued)

18. Tax liabilities (continued) Movement in temporary differences during the year

2011 $million Deconsolidation/ Recognised acquisition of Opening in income Recognised controlled Closing balance statement in equity entities balance

Property, plant and equipment 615 129 (43) – 701 Exploration, evaluation and development assets 401 (48) – – 353 Financial instruments at fair value 9 (9) – – – Investments in associates 23 (1) (3) – 19 Unbilled receivables 132 105 – – 237 Discounted receivables 4 (4) – – – Other items 43 (32) – 5 16 Deferred tax liabilities 1,227 140 (46) 5 1,326 Set-off of tax (326) (731) Net deferred tax liabilities 901 595

2010 $million Deconsolidation/ Recognised acquisition of Opening in income Recognised controlled Closing balance statement in equity entities balance

Property, plant and equipment 619 (11) 5 2 615 Exploration, evaluation and development assets 134 267 – – 401 Financial instruments at fair value – 9 – – 9 Investments in associates 7 16 – – 23 Unbilled receivables 117 15 – – 132 Discounted receivables 37 (33) – – 4 Other items 19 23 1 – 43 Deferred tax liabilities 933 286 6 2 1,227 Set-off of tax (287) (326) Net deferred tax liabilities 646 901

94 notes to the financial statements(continued)

19. Provisions

2011 2010 Note $million $million

Current Employee benefits 154 121 Restoration, rehabilitation and dismantling 14 20 Onerous contracts 90 2 Other 17 18 275 161

Non-current Employee benefits 17 13 Restoration, rehabilitation and dismantling 342 318 Onerous contracts 156 8 Defined benefit superannuation plan deficit 20 2 6 Other 16 15 533 360

Reconciliations Reconciliations of the carrying amounts of each class of provision, except employee benefits and defined benefit superannuation plan deficit are set out below:

2011 $million Restoration, Onerous rehabilitation Contracts and dismantling Other

Carrying amount at beginning of the period 10 338 33 Provisions recognised 278 53 8 Provisions released (7) (24) – Payments/utilisation (35) (4) (7) Effect of movements in foreign exchange rates – (7) (1) Carrying amount at end of the period 246 356 33

Nature and purpose of provisions: Employee benefits The provision for employee benefits predominately represents accrued annual leave, vested long service leave, other employee benefits and related on-costs. Restoration, rehabilitation and dismantling The restoration, rehabilitation and dismantling provision represents estimates of future expenditure for site rehabilitation and restoration of oil and gas fields and infrastructure sites, including the future costs of dismantling and removing infrastructure. Onerous contracts Onerous provisions represent the onerous portion of the TSA entered in respect of the acquired NSW retail businesses, covering customer related services and onerous property leases for premises vacated by Origin.

Origin Energy Annual Report 2011 95 notes to the financial statements(continued)

20. Employee benefits

2011 2010 $million $million

Labour related expenses Wages and salaries (440) (367) Annual leave expense (37) (29) Long service leave expense (9) (6) Employee share plan (refer note 31) (4) (5) Executive share-based payments expense (refer note 31) (14) (11) Defined benefit superannuation funds 1 1 Contributions to defined contribution superannuation funds (37) (32) (540) (449)

Defined benefits superannuation plan

(A) Employee superannuation funds At 30 June 2011, there were in existence a number of superannuation plans in which the consolidated entity participates for the benefit of its employees in Australia and overseas. The major plans are managed through Equipsuper. The principal types of benefit provided for under the plans are lump sums payable on retirement, termination, death or total disability. Contributions to the plans by both employees and entities in the consolidated entity are predominantly based on percentages of the salaries or wages of employees. Entities in the consolidated entity contribute to the plans in accordance with the governing Trust Deeds subject to certain rights to vary. Defined benefit members receive lump sum benefits on retirement, death, disablement and withdrawal. Some defined benefit members are also eligible for pension benefits in certain circumstances. The defined benefit section of the plan is closed to new members. All new members receive accumulation only benefits. The following sets out details in respect of the Equipsuper defined benefit section only:

(B) Statement of financial position amounts

The amounts recognised in the statement of financial position are determined as follows: Present value of the defined benefit obligation 51 53 Fair value of the plan assets 49 47 Deficit (2) (6) Net liability in the statement of financial position (2) (6)

Reconciliation of the present value of the defined benefit obligation Balance at the beginning of the period 53 57 Current service cost 2 3 Interest cost 2 2 Actuarial (gains)/losses (2) 4 Benefits paid (4) (5) Settlements – (8) Balance at the end of the period 51 53

Reconciliation of the fair value of plan assets Balance at the beginning of the period 47 54 Expected return on plan assets 3 4 Actuarial gains 2 1 Contributions by Origin Energy companies 1 1 Benefits paid (4) (5) Settlements – (8) Balance at the end of the period 49 47

96 notes to the financial statements(continued)

20. Employee benefits(continued) (D) Categories of plan assets The percentage invested in each class of asset at reporting date is as follows:

2011 2010 % %

Australian equities 35 36 International equities 27 25 Fixed income 12 12 Property 10 10 Growth alternatives 8 9 Defensive alternatives 2 2 Cash 6 6 100 100

(E) Recognising actuarial gains and losses There is immediate recognition of actuarial gains and losses through retained earnings.

(F) Amounts recognised in income statement The amounts recognised in the income statement are as follows:

2011 2010 $million $million

Current service cost 2 3 Expected return on plan assets - gain (3) (4) Total gain recognised in employee benefits expense (1) (1) Interest expense 2 2 Total loss recognised in income statement 1 1

(G) Actuarial gains and losses recognised directly in equity

Cumulative loss at the beginning of the period 19 16 (Gains)/losses recognised during the period (4) 3 Cumulative loss at the end of the period 15 19

(H) Expected rate of return on plan assets The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation of assets to each class and allowing for correlations of the investment returns between asset classes. The returns used for each class are net of investment tax and investment fees. The allowance for administration expenses has been deducted from the expected return.

(I) Actual return on plan assets

Actual return on plan assets 5 5

Origin Energy Annual Report 2011 97 notes to the financial statements(continued)

20. Employee benefits(continued) (j) Principal actuarial assumptions

2011 2010 % pa % pa

Discount rate (active members) 4.7 4.5 Discount rate (pensioners) 5.1 4.9 Expected salary increase rate 4.5 4.5 Expected pension increase rate 3.0 3.0 Expected rate of return on assets: – supporting lump sum liabilities 7.0 7.0 – supporting pension liabilities 7.5 7.5

(k) Historical information

2011 2010 2009 2008 2007 $million $million $million $million $million

Present value of defined benefit obligation 51 53 57 61 144 Fair value of plan assets 49 47 54 68 154 (Deficit)/surplus in plan (2) (6) (3) 7 10 Experience adjustments loss/(gain) - plan liabilities – 2 (8) (6) 16 Experience adjustments (gain)/loss - plan assets (2) (1) 15 11 (13)

The consolidated entity expects $1,198,000 in contributions to be paid to the defined benefit plan during the year ended 30 June 2012.

98 notes to the financial statements(continued)

21. Share capital

2011 2010 Note $million $million

Issued and paid-up capital 1,064,507,259 (2010: 880,668,872) ordinary shares, fully paid 4,029 1,683

Ordinary share capital at the beginning of the period 1,683 1,604 Shares issued: – 2,809,000 (2010: 2,113,200) shares in accordance with the Senior Executive Option Plan and Performance Share Rights Plan 31 18 13 – 86,875,125 (2010: Nil) shares under an institutional rights issue(1) 1,112 – – 90,224,930 (2010: Nil) shares under a retail rights issue(1) 1,155 – – 3,929,332 (2010: 4,106,271) shares in accordance with the Dividend Reinvestment Plan 61 65 – Nil (2010: 67,320) shares in accordance with the Employee Share Plan – 1 Total movements in ordinary share capital 2,346 79

Ordinary share capital at the end of the period 4,029 1,683

(1) The terms of the rights issue was 1 new Origin Energy Limited share offered for every 5 existing shares at $13 per share. The rights issues were fully underwritten and were completed on 29 March 2011 (Institutional rights offer) and 28 April 2011 (Retail rights offer). The net proceeds from the rights issues of $2.27 billion were used to pay down Group borrowings. The rights issues were at a discount to the then market price. Accordingly, earnings per share for all periods up to the date on which the shares were issued have been adjusted for the bonus element of the rights issues being 1.0289. The 2010 comparative for earnings per share has been restated accordingly (refer note 35). Terms and conditions Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of the winding up of the company, ordinary shareholders rank after creditors, and are fully entitled to any proceeds of liquidation. The company does not have authorised capital or par value in respect of its issued shares. 22. Reserves and other comprehensive income

(a) Reserves summary

Share-based payments 61 47 Foreign currency translation (239) (132) Hedging (123) (107) Available-for-sale – (7) (301) (199)

Nature and purpose of reserves: Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options and performance share rights over their vesting period (refer note 31). Foreign currency translation reserve The foreign currency translation reserve records the foreign currency differences arising from the translation of foreign operations, and the translation of transactions that hedge the company’s net investments in foreign operations. Hedging reserve The hedging reserve is used to record the effective portion of the gains or losses on hedging instruments in cash flow hedges that have not yet settled. Amounts are recognised in profit and loss when the associated hedged transactions affect profit and loss or as part of the cost of an asset if non-monetary. Available-for-sale reserve Changes in fair value and exchange differences arising on translation of investments and settlement residue agreements are taken to the available-for-sale reserve. Amounts are recognised in profit and loss when the associated investments/settlement residue agreements are sold/settled or impaired.

Origin Energy Annual Report 2011 99 notes to the financial statements(continued)

22. Reserves and other comprehensive income (continued) (b) Other comprehensive income

Foreign Total other currency Available- Non- compre- translation Hedging for-sale Retained controlling hensive reserve reserve reserve earnings interests income 2011 $million $million $million $million $million $million

Loss on translation of assets and liabilities of overseas controlled entities (178) – – – (65) (243) Net gain on hedge of net investment in foreign subsidiary taken to equity 73 – – – – 73 Cash flow hedges – effective component recognised in equity, net of tax – (116) – – (3) (119) Cash flow hedges – amount removed from equity and transferred to profit, net of tax – 98 – – 1 99 Cash flow hedges – amount transferred to the initial carrying value of non-financial assets, net of tax – 1 – – – 1 Cash flow hedges – foreign currency translation loss, net of tax (2) 1 – – 1 – Fair value adjustment on available-for-sale financial assets – – 7 – – 7 Actuarial gain on defined benefit superannuation plan, net of tax – – – 3 – 3 (Loss)/gain on transfer of interest in entities under common control – – – (8) 8 – Other comprehensive income (107) (16) 7 (5) (58) (179)

2010

Loss on translation of assets and liabilities of overseas controlled entities (6) – – – 8 2 Net loss on hedge of net investment in foreign subsidiary taken to equity (3) – – – – (3) Cash flow hedges – effective component recognised in equity, net of tax – (137) – – 1 (136) Cash flow hedges – amount removed from equity and transferred to profit, net of tax – 138 – – 1 139 Cash flow hedges – amount transferred to the initial carrying value of non-financial assets, net of tax – 5 – – 1 6 Cash flow hedges – foreign currency translation loss, net of tax (2) 1 – – 1 – Fair value adjustment on available-for-sale financial assets – – (8) – – (8) Actuarial loss on defined benefit superannuation plan, net of tax – – – (2) – (2) (Loss)/gain on transfer of interest in entities under common control – – – (3) 3 – Other comprehensive income (11) 7 (8) (5) 15 (2)

100 notes to the financial statements(continued)

23. Notes to the statement of cash flows (a) Reconciliation of cash and cash equivalents Cash includes cash on hand, at bank and short-term deposits, net of outstanding bank overdrafts. Cash as at the end of the period as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows:

2011 2010 Note $million $million

Cash and cash equivalents 728 823 Bank overdrafts 16 (4) (4) 724 819

(b) The following non-cash financing and investing activities have not been included in the statement of cash flows:

Issue of shares in respect of the Dividend Reinvestment Plan 21 61 65

Profit for the period 248 680 Adjustments to reconcile profit to net cash provided by operating activities: Depreciation and amortisation 539 408 Executive share-based payment expense 14 11 Bad debts expense 60 42 Exploration expense 118 45 Impairment of assets 214 33 Decrease/(increase) in fair value of financial instruments 201 (15) Net financing costs 155 124 Increase in tax balances 150 94 Gain on dilution of Origin’s interest in subsidiaries – (38) Gain on sale of assets – (4) Non-cash share of net profits of equity accounted investees (45) (131) Changes in assets and liabilities, net of effects from acquisitions/disposals: – Receivables (283) (133) – Inventories 20 19 – Payables 213 6 – Provisions 2 28 – Other (205) (95) Total adjustments 1,153 394 Net cash provided by operating activities 1,401 1,074

Origin Energy Annual Report 2011 101 notes to the financial statements(continued)

23. Notes to the statement of cash flows (continued) (d) Business combinations 2011 Acquisition of NSW Government energy assets On 1 March 2011, Origin completed Sale and Purchase Agreements with the NSW Government to acquire the retail businesses of Integral Energy and Country Energy, and entered into GenTrader arrangements with Eraring Energy for a combined consideration of $3,259 million. Included in the purchase consideration is the estimated NSW stamp duty payable of $134 million. In addition to the $3,259 million consideration paid, an amount of up to $198 million may become payable if certain payments under the GenTrader arrangements are ruled to be tax deductible. Transaction costs incurred on the acquisition of $213 million (including estimated stamp duty payable in NSW and other states) have been recognised within total expenses, excluding net finance costs in the income statement and are recorded as an Item Excluded from Underlying Profit (refer note 2(b)). The acquired NSW Retail businesses and GenTrader arrangements contributed revenue of $1,269 million and earnings before interest and tax (EBIT) loss of $31 million to the consolidated entity for the period 1 March 2011 to 30 June 2011. Excluding the impact of fair value changes in financial derivatives and transition and transaction costs related to the acquisition and integration of the acquired businesses that have been recorded as items excluded from Underlying Profit, the acquired businesses contributed an underlying EBIT gain of $202 million. It was not practicable to disclose the expected annualised performance of the acquired businesses as if they were owned by Origin Energy for the full financial year ended 30 June 2011, because the required historical financial information for the specific assets acquired was not available as part of the acquisition transaction. The NSW Premier announced a special commission of inquiry into the recent sale of NSW energy assets including the GenTrader contracts and the sale of the retail businesses of Country Energy and Integral Energy acquired by the consolidated entity. The inquiry was announced in May 2011 and is required to deliver its report in September 2011. 2010 Cogent Energy Pty Ltd On 24 July 2009 the consolidated entity acquired 100 per cent of Cogent Energy Pty Ltd (Cogent). Cogent’s business relates to the installation and operation of co-generation facilities. The purchase consideration at completion (net of cash acquired) was $8 million. A further amount of $6 million was recorded as contingent consideration.

102 notes to the financial statements(continued)

23. Notes to the statement of cash flows (continued) (d) Business combinations (continued) The fair value of the net assets acquired as part of business combinations are detailed below.

2011 2010 $million $million Fair value

Current assets Cash and cash equivalents – 1 Trade and other receivables 636 – Inventories 70 – Other financial assets, including derivatives 219 – Total current assets 925 1

Non-current assets Other financial assets, including derivatives 95 – Property, plant and equipment 867 8 Intangible assets 52 8 Deferred tax assets 286 – Total non-current assets 1,300 16 Total assets 2,225 17

Current liabilities Trade and other payables 553 2 Interest-bearing liabilities – 3 Other financial liabilities, including derivatives 309 – Provisions 95 – Total current liabilities 957 5

Non-current liabilities Trade and other payables 356 – Interest-bearing liabilities – 5 Other financial liabilities, including derivatives 161 – Tax liabilities 5 – Provisions 183 – Total non-current liabilities 705 5 Total liabilities 1,662 10

Net assets 563 7 Goodwill on acquisition 2,562 8 Fair value of net assets acquired 3,125 15 Total consideration 3,125 15 Non-cash consideration – (6) Cash acquired – (1) Net cash outflow for business combinations 3,125 8

In accordance with the consolidated entity’s accounting policies the fair value of assets and liabilities acquired are provisional as the information provided by the vendors and required for acquisition accounting purposes was not complete at 30 June 2011, and is subject to further review for a period of up to 12 months from the date of acquisition.

Origin Energy Annual Report 2011 103 notes to the financial statements(continued)

24. Auditors’ remuneration

2011 2010 $’000 $’000

Audit services by: Auditors of the Company (KPMG) Australia – Audit and review of the financial reports 2,610 1,440 Overseas – Audit and review of the financial reports 728 553 3,338 1,993

Other auditors (primarily PWC)(1) 74 67

Other services by: Auditors of the Company (KPMG) Australia – Accounting advice 178 80 – Taxation services 158 29 – Equity and debt transactional services 569 – – Other services 146 341 Overseas – Accounting advice 65 – – Taxation services 15 15 1,131 465

Other auditors (PWC)(2) 5,303 3,416 9,846 5,941

(1) Other auditors, primarily PricewaterhouseCoopers (PWC), audit financial reports of certain controlled entities located in various Pacific Island countries and Chile. (2) Includes amounts for internal audit, taxation, advice on acquisition transactions, information technology, risk and quality assurance advice and accounting advice.

25. Contingent liabilities and assets Details of contingent liabilities and contingent assets where the probability of future payments/receipts is not considered remote are set out below, as well as details of contingent liabilities and contingent assets, which although considered remote, the directors consider should be disclosed. Provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

2011 2010 $million $million

Bank guarantees – unsecured 430 359 Letters of credit – unsecured 23 24 453 383

The bank guarantees and letters of credit disclosed have primarily been provided in favour of the Australian Electricity Market Operator Limited to support its obligations to purchase electricity from the National Electricity Market. At 30 June 2011, the consolidated entity holds a 50 per cent interest in Australia Pacific LNG, which has bank guarantees of $62 million (Origin’s 50 per cent share $31 million). The Australia Pacific LNG bank guarantees have primarily been provided in favour of the State of Queensland to support its environmental obligations relating to CSG exploration and production. Events subsequent to the reporting date change Origin’s share of Australia Pacific LNG’s contingent liabilities from 50 per cent to 42.5 per cent. These are outlined in note 37. The consolidated entity has given to its bankers letters of responsibility in respect of accommodation provided from time to time by the banks to Origin Energy Limited’s wholly or partly-owned controlled entities. Warranties and indemnities have been given by entities in the consolidated entity in relation to environmental liabilities for certain properties as part of the terms and conditions of divestments. A number of sites within the consolidated entity have been identified as contaminated, all of which are subject to ongoing environmental management programs to ensure appropriate controls are in place and clean-up requirements are implemented. The contaminating activities ceased in the 1970s when manufactured gas was replaced with natural gas from oil and gas fields. For sites where the requirements can be assessed and costs estimated, the estimated cost of remediation has been expensed or provided for. Certain entities within the consolidated entity are subject to various lawsuits and claims. Any liabilities arising from such lawsuits and claims are not expected to have a material adverse effect on the consolidated financial statements.

104 notes to the financial statements(continued)

25. Contingent liabilities and assets (continued) A Demerger Deed was entered into in the 2000 year containing certain indemnities and other agreements between Origin Energy Limited and Boral Limited and their respective controlled entities covering the transfer of the businesses, investments, tax, other liabilities, debt and assets of Boral Limited and some temporary shared arrangements. There are no known amounts subject to this agreement that have not been adequately provided for in the consolidated financial statements. The company, as a venturer in certain joint ventures, is severally liable for 100 per cent of all liabilities incurred by these joint ventures. Deed of cross guarantee Under the terms of ASIC Class Order 98/1418 (as amended by Class Order 98/2017) certain wholly-owned controlled entities have been granted relief from the requirement to prepare audited financial reports. Origin Energy Limited has entered into an approved deed of indemnity for the cross-guarantee of liabilities with those controlled entities (refer note 29). Transform Solar Pty Ltd was released from its obligations under the Deed of Cross Guarantee by executing a Revocation Deed on 18 November 2009. A consolidated income statement and a consolidated statement of financial position, comprising the company and controlled entities which are a party to the Deed of Cross Guarantee, after eliminating all transactions between parties to the Deed, at 30 June 2011 are set out in note 34. 26. Commitments

2011 2010 $million $million

Capital expenditure commitments(1) Contracted but not provided for and payable: not later than one year 565 256 later than one year but not later than five years 391 92 later than five years 653 – 1,609 348

Joint venture commitments(2) Share of exploration, development and capital expenditure commitments not provided for and payable: not later than one year 1,028 438 later than one year but not later than five years 1,167 194 later than five years 8 1 2,203 633

Other commitments(1) Other commitments include contracts for ongoing maintenance and services provided in respect of the consolidated entity’s assets and operations, but not provided for and payable: not later than one year 187 18 later than one year but not later than five years 557 72 later than five years 1,797 83 2,541 173

(1) Included in the capital expenditure and other commitments above are fixed charges to be paid in respect of the GenTrader arrangements over the Eraring and Shoalhaven power stations entered as part of the NSW energy asset transaction, classified in accordance with the accounting for the arrangement. (2) Included in the joint venture commitments above is an amount of $1,844 relating to Origin’s 50 per cent share of Australia Pacific LNG’s commitments. The consolidated entity has recorded a $3,576 million loan payable to Australia Pacific LNG (refer to note 17) which may be called upon by Australia Pacific LNG to fund its commitments. Events subsequent to the reporting date change Origin’s share of Australia Pacific LNG’s commitments from 50 per cent to 42.5 per cent, refer note 37.

Operating leases Lease commitments in respect of operating leases are payable as follows: Not later than one year 60 54 Later than one year but not later than five years 228 174 Later than five years 136 155 424 383

Operating lease rental expense 47 39

The consolidated entity leases property, plant and equipment under operating leases with terms of one to ten years.

Origin Energy Annual Report 2011 105 notes to the financial statements(continued)

27. Financial instruments (a) Financial assets and liabilities The consolidated entity classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the financial assets were acquired or executed. The consolidated entity classifies its financial liabilities into the following categories: at fair value through profit or loss and other financial liabilities. Management determines the classification of its financial assets and liabilities at initial recognition and re-evaluates this designation at every reporting date. Financial assets and liabilities at fair value through profit or loss This category has two sub-categories: financial assets or liabilities held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivative instruments (assets and liabilities) are also categorised as held for trading unless they are designated as hedges for accounting purposes. The consolidated entity holds a number of derivative instruments for economic hedging purposes under the Board-approved risk management policies, which are prohibited from being designated as hedges under Australian Accounting Standards. These derivative assets and liabilities are therefore required to be categorised as held for trading. Assets and liabilities in this category are classified as current assets or current liabilities if they are either held for trading or are derivative instruments which are not designated as hedges for accounting purposes. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the reporting date, which are classified as non-current assets. Loans and receivables are classified as ‘trade and other receivables’ in the statement of financial position (note 6). Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of, or otherwise realise, the asset within 12 months of the reporting date. Other financial liabilities Other financial liabilities are non-derivatives that are either designated into this category or not designated as fair value through profit or loss. They are included in current liabilities, except where the obligation matures greater than 12 months after the reporting date. Recognition Regular purchases and sales of investments are recognised on trade-date, the date on which the consolidated entity commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the consolidated entity has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Financial liabilities carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Other financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest rate method. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ and ‘financial liabilities at fair value through profit or loss’ categories are presented in the income statement within ‘total expenses, excluding net financing costs’ in the period in which they arise. The consolidated entity does not recognise day one gains or losses arising from valuation techniques used to estimate the fair value of structured commodity derivatives for which no observable market prices exist. The effect of any day one gains and losses is excluded from recognition both initially and in all subsequent periods during the life of the instrument. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as ‘total expenses, excluding net financing costs’. Dividends on available-for-sale equity instruments are recognised in the income statement when the consolidated entity’s right to receive payments is established. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the consolidated entity establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models making maximum use of market inputs and relying as little as possible on entity-specific inputs. The consolidated entity assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the securities are impaired. If available-for-sale financial assets are deemed to be impaired, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. Impairment testing of trade receivables is described in note 1.

106 notes to the financial statements(continued)

27. Financial instruments (continued) (b) Derivative financial instruments and hedging activities The consolidated entity uses a range of derivative financial instruments to hedge the risk exposures arising from its operational, financing and investment activities. Derivatives are initially recognised at fair value on the date they are entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The consolidated entity designates certain derivatives as either: (1) hedges of the fair value of recognised assets, liabilities or firm commitments (fair value hedge); (2) hedges of a particular cash flow risk associated with a recognised asset, liability or highly probable forecast transaction (cash flow hedge); or (3) hedges of a net investment in a foreign operation (net investment hedge). The consolidated entity documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The consolidated entity also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative instruments used for hedging purposes are disclosed in note 9 and note 17. Movements of the hedging reserve in shareholders’ equity are shown in the statement of changes in equity. The fair value of hedging derivatives is classified as either current or non-current based on the timing of the underlying cash flows of the instrument. Cash flows due within 12 months of the reporting date are classified as current and cash flows due after 12 months of the reporting date are classified as non-current. Derivatives which are valid economic hedges, but which do not qualify for hedge accounting, are classified as a current asset or liability. Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the cross currency interest rate swaps hedging fixed rate foreign currency borrowings is recognised in the income statement within ‘total expenses, excluding net financing costs’. Changes in the fair value of the hedged fixed rate borrowings attributable to interest rate and foreign exchange rate risk are recognised in the income statement within ‘total expenses, excluding net financing costs’. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity. Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within ‘total expenses, excluding net financing costs’. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the income statement within ‘net financing costs’. The gain or loss relating to the effective portion of commodity derivatives hedging floating price forecast purchases is recognised in note 3(b) within ‘raw materials and consumables used, and changes in finished goods and work in progress’. The gain or loss relating to the effective portion of commodity derivatives hedging floating price forecast sales is recognised in the income statement within ‘revenue’. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging export sales is recognised in the income statement within ‘revenue’. The gain or loss relating to the effective portion of forward foreign exchange contracts hedging purchases of non-financial assets (such as capital equipment) is recognised in the initial carrying value of the non-financial asset. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Net investment hedges Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting, despite being valid economic hedges of the relevant risk(s). Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement within ‘total expenses, excluding net financing costs’.

Origin Energy Annual Report 2011 107 notes to the financial statements(continued)

27. Financial instruments (continued) (c) Financial risk management Financial risk factors The consolidated entity’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The consolidated entity’s overall risk management program focuses on the unpredictability of financial and commodity markets and seeks to minimise potential adverse effects on the consolidated entity’s financial performance. The consolidated entity uses a range of derivative financial instruments to hedge these risk exposures. Risk management is carried out under policies approved by the Board of Directors. Financial risks are identified, evaluated and hedged in close co-operation with the consolidated entity’s operating units. The consolidated entity has written policies covering specific areas, such as foreign exchange risk, interest rate risk, electricity price risk, oil price risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and the investment of excess liquidity. (i) Market risk Foreign exchange risk The consolidated entity operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the New Zealand dollar, US dollar and Euro. Foreign exchange risk arises from future commercial transactions (including interest payments on long-term borrowings, the sale of oil, the sale and purchase of LPG and the purchase of capital equipment), recognised assets and liabilities (including foreign receivables and borrowings) and net investments in foreign operations. To manage the foreign exchange risk arising from future commercial transactions, the consolidated entity uses forward foreign exchange contracts. To manage the foreign exchange risk arising from the future principal and interest payments required on foreign currency denominated long-term borrowings, the consolidated entity uses cross currency interest rate swaps (both fixed to fixed and fixed to floating) which convert the foreign currency denominated future principal and interest payments into the functional currency for the relevant entity for the full term of the underlying borrowings. In certain circumstances borrowings are left in the foreign currencies, or hedged from one foreign currency to another to match payments of interest and principal against expected future business cash flows in that foreign currency. Each subsidiary designates internal derivatives as fair value hedges or cash flow hedges, as appropriate with the relevant underlying transaction. External derivative contracts are designated at the consolidated entity level as hedges of foreign exchange risk on specific assets, liabilities or future transactions on a gross basis. The consolidated entity has certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the consolidated entity’s foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies. The following table summarises the impact of a 10 per cent strengthening/weakening of the Australian dollar against the relevant foreign currencies on the consolidated entity’s post-tax profit for the year and on other components of equity. All variables other than the relevant primary risk variable identified are held constant in the analysis.

Foreign exchange rate change + / - 10 % Impact on post-tax profit Impact on equity 2011 2010 2011 2010 + / - ($million) + / - ($million)

USD 22 – 50 20 NZD 1 1 21 22 EUR 21 – 22 1

Post-tax profit for the year would increase/decrease as a result of certain financial instruments which do not qualify for hedge accounting under AASB 139 requirements and trade receivables and payables denominated in foreign currencies. In addition to the impact from retained earnings arising from the impact on post-tax profit, equity would increase/decrease as a result of the hedging instruments which do qualify for cash flow hedge accounting under AASB 139. Price risk The consolidated entity is exposed to commodity price risk from a number of commodities, including electricity, oil, gas and related commodities associated with the purchase and/or sale of these commodities. To manage its commodity price risks in respect to electricity and oil, the consolidated entity utilises a range of derivative instruments including fixed priced swaps, options and futures. The consolidated entity’s equity investments subject to price risk are all publicly traded. The consolidated entity’s risk management policy for commodity price risk is to hedge forecast future transactions for up to 18 years into the future. The consolidated entity has a risk management policy framework that manages the exposure arising from its commodity-based activities. The policy permits the active hedging of price and volume exposure arising from the retailing, generation and portfolio management activities, within prescribed risk capacity limits. The policy prescribes the maximum risk exposures permissible over prescribed periods for each commodity within the portfolio, under defined worse case scenarios. The full portfolio is subject to ongoing testing against these limits at prescribed intervals, and reported monthly to management. The consolidated entity is also exposed to equity securities price risk because of investments held by the consolidated entity and classified on the statement of financial position as available-for-sale and fair value through profit or loss.

108 notes to the financial statements(continued)

27. Financial instruments (continued) (c) Financial risk management (continued) The following table summarises the impact of a 10 per cent increase/decrease of the relevant forward prices (for commodities) and equity prices (for equity investments) on the consolidated entity’s post-tax profit for the year and on other components of equity. All variables other than the relevant primary risk variable identified are held constant in the analysis.

Impact on post-tax profit Impact on equity 2011 2010 2011 2010 + / - ($million) + / - ($million)

Electricity forward price 10 21 88 59 Oil forward prices – – 27 6 Equity securities quoted price – – 1 1 Carbon and renewable energy price 40 12 40 12

Post-tax profit for the year would increase/decrease as a result of the inherent ineffectiveness in some commodity hedging relationships and some financial instruments which are valid economic hedges of these commodity price risks which do not qualify for cash flow hedge accounting under AASB 139 requirements. In addition to the impact from retained earnings arising from the impact on post-tax profit, equity would increase/decrease as a result of the hedging instruments which do qualify for cash flow hedge accounting under AASB 139 and gains on equity securities classified as available-for-sale. (ii) Credit risk The consolidated entity manages its exposure to credit risk via credit risk management policies which allocate credit limits based on the overall financial and competitive strength of the counterparty. Publicly available credit information from recognised providers is utilised for this purpose where available. Credit policies cover exposures generated from the sale of products and the use of derivative instruments. Derivative counterparties are limited to high-credit-quality financial institutions and other organisations in the relevant industry. The consolidated entity has Board approved policies that limit the amount of credit exposure to each financial institution and derivative counterparty. The consolidated entity also utilises ISDA agreements with all derivative counterparties in order to limit exposure to credit risk through the netting of amounts receivable from and amounts payable to individual counterparties. The carrying amounts of financial assets recognised in the statement of financial position, and disclosed in more detail in notes 6 and 9 best represents the consolidated entity’s maximum exposure to credit risk at the reporting date. In respect of those financial assets and the credit risk embodied within them, the consolidated entity holds no significant collateral as security and there are no other significant credit enhancements in respect of these assets. The credit quality of all financial assets that are neither past due nor impaired is appropriate and is constantly monitored in order to identify any potential adverse changes in the credit quality. There are no significant financial assets that have had renegotiated terms that would otherwise, without that renegotiation, have been past due or impaired. (iii) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the consolidated entity aims to maintain flexibility in funding by keeping committed credit lines available. Certain of the consolidated entity’s interest-bearing liability obligations are subject to change in control provisions under the agreements with third-party lenders. As at 30 June 2011 these provisions were not triggered. The following summarises the contractual timing of cash flows of the borrowings including interest and related derivative instruments at 30 June 2011 and 30 June 2010:

2011 2010 $million $million

Less than one month 322 144 One to three months 52 40 Three to 12 months 2,285 172 One to five years 5,818 6,888 Over five years 1,583 925

Included in the balances above is the $3,576 million loan from Australia Pacific LNG ($1,731 million current within three to twelve months and $1,845 million non-current within one to five years). The consolidated entity has $3.6 billion of undrawn facilities (refer note 27(e)) which is immediately available. In addition, as set out in note 5(b), the Company has announced an underwritten dividend reinvestment plan which provides further flexibility in respect of the consolidated entity’s funding arrangements.

Origin Energy Annual Report 2011 109 notes to the financial statements(continued)

27. Financial instruments (continued) (c) Financial risk management (continued) (iv) Interest rate risk (cash flow and fair value) The consolidated entity’s income and operating cash flows are substantially independent of changes in market interest rates. The consolidated entity’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the consolidated entity to cash flow interest rate risk. Borrowings issued at fixed rates expose the consolidated entity to fair value interest rate risk. The consolidated entity’s risk management policy is to manage interest rate exposures using Profit at Risk and Value at Risk methodologies using 95 per cent statistical confidence levels. Exposure limits are set to ensure that the consolidated entity is not exposed to excess risk from interest rate volatility. The consolidated entity manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the consolidated entity agrees with other parties to exchange, at specified intervals (mainly quarterly), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. The following table summarises the impact of a 100 basis point increase/decrease of the relevant interest rates on the consolidated entity’s post-tax profit for the year and on other components of equity. All variables other than the relevant primary risk variable identified are held constant in the analysis.

Impact on post-tax profit Impact on equity 2011 2010 2011 2010 + / - ($million) + / - ($million)

Interest rates (12) (7) 25 18

At 30 June 2011, if interest rates at that date had been higher/lower by 10 per cent with all other variables held constant, post-tax profit and other components of equity of the consolidated entity would have been higher/lower by the amounts as set out in the table above. Profit would have been affected mainly as a result of the ineffective portion of cash flow and fair value hedge transactions and the fair value change in derivatives which are valid economic hedges but which do not qualify for hedge accounting. In addition to the impact from retained earnings arising from the impact on post-tax profit, equity would have been affected mainly as a result of an increase/decrease in the fair value of interest rate swaps which qualify for cash flow hedge accounting.

(d) Capital risk management The consolidated entity’s objectives when managing capital are to safeguard the consolidated entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the consolidated entity 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 funding requirements in advance of when the funds are required. As part of the funding options considered the consolidated entity may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, raise external debt, or sell assets to reduce debt. Consistent with others in the industry, the consolidated entity monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total interest-bearing borrowings less cash and cash equivalents and fair value adjustments to borrowings in hedge relationships. Total capital is calculated as ‘equity’ as shown in the statement of financial position plus net debt less reserves attributable to fair value adjustments on financial instruments. In addition, Origin monitors various other credit metrics, principally funds from operations (FFO) to gross debt. The consolidated entity maintains a gearing ratio designed to optimise the cost of capital whilst providing flexibility to fund growth opportunities. The gearing ratios were as follows:

2011 2010 $million $million

Total interest-bearing borrowings 4,788 3,486 Fair value adjustments on borrowings in hedge relationships 223 172 Less: Cash and cash equivalents (728) (823) Net debt 4,283 2,835 Total equity 13,516 11,438 Less: Reserves(1) 123 114 Total capital (excluding reserves(1) ) 17,922 14,387 Total capital (including reserves(1) ) 17,799 14,273 Gearing ratio (excluding reserves(1) ) 24% 20% Gearing ratio (including reserves(1) ) 24% 20%

(1) Represents reserves attributable to fair value adjustments on financial instruments.

110 notes to the financial statements(continued)

27. Financial instruments (continued) (e) Interest-bearing liabilities

2011 2010 $million $million

Bank loans – unsecured 2,185 1,293 Bank loans – secured 310 323 Capital markets borrowings – unsecured 2,282 1,858 Bank overdrafts – unsecured 4 4 4,781 3,478

The exposure of the consolidated entity’s borrowings to interest rate changes and the contractual repricing dates at the reporting date are as follows:

Six months or less 3,024 2,157 Six to twelve months 47 – One to five years 791 1,036 Over five years 919 285 4,781 3,478

The remaining contractual maturity of non-current borrowings is as follows:

One to two years 208 1,247 Two to five years 2,659 1,399 Over five years 1,321 721 4,188 3,367

The carrying amounts and fair values of the non-current interest-bearing liabilities are as follows:

Carrying value Fair value 2011 2010 2011 2010 $million $million $million $million

Bank loans – unsecured 1,857 1,293 1,857 1,293 Bank loans – secured 295 310 295 310 Capital markets borrowings – unsecured 2,036 1,764 2,092 1,848 4,188 3,367 4,244 3,451

The carrying amounts of the consolidated entity’s borrowings are denominated in the following currencies:

2011 2010 $million $million

Australian dollar 2,509 1,490 New Zealand dollar 823 952 US dollar 774 1,036 Euro 675 – 4,781 3,478

The consolidated entity has the following committed undrawn floating rate borrowing facilities:

Expiring within one year 44 150 Expiring beyond one year 3,518 2,799 3,562 2,949

Origin Energy Annual Report 2011 111 notes to the financial statements(continued)

27. Financial instruments (continued) (f) Hedge accounting Fair value hedges The changes in the fair values of the hedged items and hedging instruments recognised in the income statement for the year are disclosed in the following table:

2011 2010 $million $million

(Loss)/Gain on the hedging instruments (110) 5 Gain/(loss) on the hedged item attributable to the hedge risk 109 (5) (1) –

Cash flow hedges The effective portion of the losses on cash flow hedges recognised in the cash flow hedge reserve (pre tax) (168) (194)

The losses transferred from the cash flow hedge reserve to sales 3 3 The losses transferred from the cash flow hedge reserve to cost of sales 133 184 The losses transferred from the cash flow hedge reserve to finance cost 5 12 The losses transferred from the cash flow hedge reserve to the initial carrying value of non-financial assets 2 8 143 207

The ineffectiveness losses recognised in the income statement from cash flow hedges (1) (2)

Net investment hedges The effective portion of the gains/(losses) on net investment hedges recognised in the foreign currency translation reserve for the year to 30 June 2011 totalled $73 million gain (2010: $3 million loss). The ineffectiveness recognised in the income statement from net investment hedges for the year to 30 June 2011 totalled $Nil (2010: $Nil). Derivatives that do not qualify for hedge accounting The net change in fair value of derivatives which do not qualify for hedge accounting (and are therefore required to be classified as held for trading), which has been recognised in the income statement for the year to 30 June 2011 totalled $134 million loss (2010: $45 million gain). Fair value of financial instruments designated as hedging instruments

Assets Liabilities 2011 2010 2011 2010 $million $million $million $million

Fair value hedges(1) 1 1 (200) (98) Cash flow hedges(2) 164 215 (403) (398) Net investment hedges(3) – – (736) (529)

(1) The consolidated entity designates certain cross currency interest rate swaps in fair value hedge relationships. (2) The consolidated entity designates certain foreign exchange contracts, electricity derivatives, interest rate swaps, cross currency interest rate swaps and oil derivatives in cash flow hedge relationships. (3) The consolidated entity designates certain foreign denominated borrowings in net investment hedge relationships.

112 notes to the financial statements(continued)

27. Financial instruments (continued) (g) Derivative financial instruments

Assets Liabilities 2011 2010 2011 2010 Note $million $million $million $million

Current Interest rate swaps 1 – 46 28 Cross currency interest rate swaps – 1 11 49 Forward foreign exchange contracts 10 10 14 9 Electricity derivatives 296 348 277 237 Oil derivatives 3 2 8 7 9,17 310 361 356 330

Non-current Interest rate swaps 6 – 65 69 Cross currency interest rate swaps – – 194 84 Forward foreign exchange contracts 3 12 6 12 Electricity derivatives 123 40 164 80 Oil derivatives – 1 – 4 Other commodity derivatives – – 8 – 9,17 132 53 437 249 Total 442 414 793 579

Interest rate swaps The aggregate notional principal amounts of the outstanding interest rate swap contracts at 30 June 2011 were $1,768 million (2010: $1,671 million). At 30 June 2011, the fixed interest rates vary from 1.20 per cent to 7.67 per cent (2010: 2.75 per cent to 7.80 per cent) and the main floating rates are BBSW, US LIBOR and BKBM. Interest rate swaps are either designated in cash flow hedge relationships or remain non-designated. The hedged anticipated interest payment transactions are expected to occur at various dates between one month and 13 years from the reporting date as a result of the maturities of the underlying borrowings. Gains and losses recognised in the cash flow hedge reserve in equity (statement of comprehensive income) on interest rate swap contracts as of 30 June 2011 will be continuously released to the income statement in each period in which interest payments are recognised in the income statement until the maturities of the swaps and underlying borrowings. During the year to 30 June 2011 and the year to 30 June 2010 no interest rate swaps were de-designated. Cross currency interest rate swaps The aggregate notional principal amounts of the outstanding cross currency interest rate swap contracts at 30 June 2011 were $1,497 million (2010: $966 million). At 30 June 2011, the fixed interest rates vary from 6.25 per cent to 7.49 per cent (2010: 4.75 per cent to 6.25 per cent) and the main floating rates are BBSW and BKBM. Cross currency interest rate swaps are designated in either cash flow hedge relationships or fair value hedge relationships. The hedged anticipated interest payment transactions are expected to occur at various dates between one month and 13 years from the reporting date as a result of the maturities of the underlying borrowings. Gains and losses recognised in the cash flow hedge reserve in equity (statement of comprehensive income) on interest rate swap contracts as of 30 June 2011 will be continuously released to the income statement in each period in which interest payments are recognised in the income statement until the maturities of the swaps and underlying borrowings. During the year to 30 June 2011 and the year to 30 June 2010 no interest rate swaps were de-designated and all underlying forecast transactions remain highly probable to occur as originally forecast. Forward foreign exchange contracts The aggregate notional principal amounts of the outstanding forward foreign exchange contracts at 30 June 2011 were $258 million (2010: $90 million). Forward foreign exchange contracts are designated in cash flow hedge relationships. The hedged anticipated transactions denominated in foreign currency are expected to occur at various dates between one month and four years from the reporting date. Gains and losses recognised in the cash flow hedge reserve in equity (statement of comprehensive income) on forward foreign exchange contracts as of 30 June 2011 will be released to the income statement when the underlying anticipated transactions affect the income statement or included in the carrying value of assets or liabilities acquired. During the year to 30 June 2011 and the year to 30 June 2010, no hedges were de-designated and all underlying forecast transactions remain highly probable to occur as originally forecast.

Origin Energy Annual Report 2011 113 notes to the financial statements(continued)

27. Financial instruments (continued) (g) Derivative financial instruments (continued) Electricity derivatives The aggregate notional volumes of the outstanding electricity derivatives at 30 June 2011 were 224 million MWhs (2010: 164 million MWhs). Electricity derivatives are either designated in cash flow hedge relationships or remain non-designated and are fair valued through the income statement. The hedged anticipated electricity purchase and sale transactions are expected to occur continuously for each half hour period throughout the next eighteen years from the reporting date consistent with the forecast demand from customers over this period. Gains and losses recognised in the cash flow hedge reserve in equity (statement of comprehensive income) on electricity derivatives as of 30 June 2011 will be continuously released to the income statement in each period in which the underlying purchase or sale transactions are recognised in the income statement. During the year to 30 June 2011 and the year to 30 June 2010, no hedges were de-designated and all underlying forecast transactions remain highly probable to occur as originally forecast. The inherent variability in the volume of electricity purchased by customers in any half hour period means that the actual purchase requirements can vary from the forecasts. The forecasts are updated for significant changes in underlying conditions and where this leads to a reduction in the forecast below the aggregate notional volume of hedging instruments in the relevant half hour periods impacted, the affected hedging instruments are de-designated and the accumulated gain or loss which had been recognised in the cash flow hedge reserve is recognised directly in the income statement as the underlying forecast purchase transactions for those half hours are no longer expected to occur. Oil derivatives The aggregate notional volumes of the outstanding oil and related derivatives at 30 June 2011 were 1.16 Mbbl (2010: 0.93 Mbbl). Oil derivatives are designated in cash flow hedge relationships. The hedged anticipated oil sale and purchase transactions are expected to occur continuously throughout the next two years from the reporting date consistent with the forecast production and demand from customers over this period. Gains and losses recognised in the cash flow hedge reserve in equity (statement of comprehensive income) on oil derivatives as of 30 June 2011 will be continuously released to the income statement in each period in which the underlying sale or purchase transactions are recognised in the income statement. During the year to 30 June 2011 and the year to 30 June 2010, no hedges were de-designated and all underlying forecast transactions remain highly probable to occur as originally forecast.

(h) Fair value estimation The fair values of financial instruments traded in active markets (such as available-for-sale securities) are based on quoted market prices at the reporting date. The quoted market prices used for financial assets held by the consolidated entity are the current bid prices for the assets. The fair values of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) are determined by using valuation techniques. The consolidated entity uses valuation techniques consistent with the established valuation methodology and general market practice applicable to each instrument/market. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. The fair values of interest rate swaps and cross currency interest rate swaps are calculated using the present value of the estimated future cash flows of these instruments. The fair values of forward foreign exchange contracts are determined using quoted forward exchange rates at the reporting date. The fair values of commodity swaps and futures are calculated using the present value of the estimated future cash flows using available market forward prices. The fair values of commodity option contracts which are regularly traded are determined based on the most recent available transaction prices for the same instruments. Certain commodity derivative instruments utilised by the consolidated entity are not regularly traded and there is no observable market prices or transactions for equivalent or substantially similar instruments. Valuation techniques are required in order to estimate the fair value of such instruments. The valuation technique estimates the fair value of the avoided cost of physical assets at the valuation date required to achieve an equivalent risk management outcome for the consolidated entity, taking into account all relevant variables including capital costs, fixed and variable operating costs, efficiency factors and asset lives. Valuation techniques require the use of a range of variables and assumptions. Maximum use is made of all relevant independent and observable market data when selecting variables and developing assumptions for valuation techniques. Each instrument is discounted at the market interest rate appropriate to the instrument. Where the fair value of a derivative is calculated as the present value of the estimated future cash flows of the instrument, there are two key variables used: •• appropriate market pricing data (for the relevant underlying interest rates, foreign exchange rates or commodity prices); and •• discount rates. For derivative instruments, both of these variables are taken from observed market pricing data at the valuation date and therefore these variables represent those which would be used by market participants to execute and value the instruments. The nominal value of trade receivables (less impairment allowance) and payables approximate their fair values.

114 notes to the financial statements(continued)

27. Financial instruments (continued) (h) Fair value estimation (continued) Fair value hierarchy The table below summarises the financial instruments carried at fair value by valuation method. The different levels in the hierarchy are defined as follows: •• Level 1: quoted prices (unadjusted) in active markets for identical instruments. •• Level 2: inputs other than quoted prices included within Level 1 that are observable for the instrument, either directly (as prices) or indirectly (derived from prices). •• Level 3: one or more key inputs for the instrument are not based on observable market data (unobservable inputs).

Level 1 Level 2 Level 3 Total Note $million $million $million $million 2011 Available-for-sale financial assets 9 35 – – 35 Derivative financial assets 9 – 290 152 442 Environmental scheme certificates 9 629 – – 629 Derivative financial liabilities 17 – (776) (17) (793) Environmental scheme certificates surrender obligations 17 (128) – – (128) 536 (486) 135 185 2010 Available-for-sale financial assets 9 15 – – 15 Derivative financial assets 9 – 266 148 414 Environmental scheme certificates 9 226 – – 226 Derivative financial liabilities 17 – (550) (29) (579) Environmental scheme certificates surrender obligations 17 (68) – – (68) 173 (284) 119 8

The following table shows a reconciliation from the beginning balances to the ending balances for the fair value measurements in Level 3 of the fair value hierarchy:

Financial Financial assets liabilities held held for trading for trading Balance as at 1 July 2010 148 (29) Net gain from financial instruments at fair value through profit or loss 4 12 Balance as at 30 June 2011 152 (17)

The consolidated entity does not hold any financial assets or financial liabilities for trading purposes. The consolidated entity has a number of valid economic hedging instruments which are unable to be designated as hedges for accounting purposes and are therefore deemed by accounting standards to be held for trading. Although the consolidated entity believes that the estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements in Level 3, changing one or more of the assumptions used to reasonably possible alternative assumptions would have the following effects:

Effect on profit or loss Favourable (Unfavourable) Derivative assets 142 (142) Derivative liabilities 2 (1)

The favourable and unfavourable effects of using reasonably possible alternative assumptions have been calculated by recalibrating the model values using expected cash flows and risk-adjusted discount rates based on the probability weighted average of the consolidated entity’s ranges of possible outcomes. Key inputs and assumptions used in the models at 30 June 2011 include: Discount rate The discount rates applied to the cash flows of the consolidated entity are based on the observable market rates for risk-free interest rate instruments for the appropriate term. Forward electricity prices The consolidated entity uses both observable external market data and internally derived forecast data for forward electricity prices in the valuations of certain Level 3 instruments. Physical generation plant variables The consolidated entity uses relevant variables from the valuation of physical generation assets with equivalent risk management outcomes as inputs to the valuation of certain Level 3 instruments. The key variables are new build capital costs, operating costs and plant efficiency factors.

Origin Energy Annual Report 2011 115 notes to the financial statements(continued)

28. Acquisition, disposal and deconsolidation of controlled entities

Net Date of acquisition/ Carrying consideration disposal/ Interest amount paid Beneficial deconsolidation acquired $million $million ownership

2011 No entities were acquired or ceased to be controlled during the year ended 30 June 2011.

The following entities were incorporated/registered during the period: Origin Energy Finance Limited 19 May 2011 Origin Energy Geothermal Chile Limitada 28 February 2011 Origin Energy Chile Holdings Pty Limited 21 February 2011 Origin Energy Power Development Pty Ltd 10 November 2010

The following entities were deregistered during the period: No entities were deregistered during the year ended 30 June 2011.

2010

The following entities were acquired during the period: Cogent Energy Pty Ltd 24 July 2009 100% 15 8 100% Origin Energy ATP 788P Pty Ltd 7 August 2009 100% 661 661 100% Origin Energy ATP 788P Unit Trust 7 August 2009 100% – – 100%

The following entities were incorporated/registered during the period: Origin Energy Chile S.A. (Chile) 8 July 2009 Origin Foundation Pty Ltd 9 December 2009 Yass Valley Wind Farm Pty Ltd 8 December 2009 Origin Energy (Block 31) Pte Ltd 11 December 2009 Origin Energy (Block 01) Pte Ltd 11 December 2009 Origin Energy (L15/50) Pte Ltd 11 December 2009 Origin Energy (L26/50) Pte Ltd 11 December 2009 Origin Energy (Savannahket) Pte Ltd 11 December 2009 Origin Tata Geothermal Pte Ltd 19 April 2010 OTP Geothermal Pte Ltd 19 April 2010 OEL US Inc. 21 April 2010 Origin Energy Mortlake Terminal Station No. 1 Pty Ltd 5 May 2010 Origin Energy Mortlake Terminal Station No. 2 Pty Ltd 5 May 2010

The following entity was deregistered during the period: Origin Energy ATP 788P Unit Trust 24 December 2009

The following entities ceased to be controlled during the period: Transform Solar Pty Ltd 18 December 2009

On 18 December 2009 Origin entered into a joint venture with Micron Technology (Micron) with a focus on the development of photovoltaic solar technology. On completion, Transform Solar Pty Ltd (formerly Origin Energy Solar Pty Ltd) issued shares to Micron, providing Micron with a 50 per cent interest in Transform Solar Pty Ltd. Transform Solar Pty Ltd was deconsolidated from the Origin consolidated entity resulting in a pre-tax gain of $38 million. From the inception date of the joint venture, Origin equity accounts for its retained 50 per cent interest in Transform Solar Pty Ltd. 29. Controlled entities

Name changes during the financial year:

Collaby Hill Wind Farm Pty Ltd to Crystal Brook Wind Farm Pty Ltd Origin Energy Power Development Pty Ltd to Eraring Gentrader Depositor Pty Ltd

Name changes during the previous financial year:

Wind Power Development Services Pty Ltd to Dundas Tablelands Wind Farm Pty Ltd Snowy Plains Wind Farm Pty Ltd to Collaby Hill Wind Farm Pty Ltd Origin Energy Solar Pty Ltd to Transform Solar Pty Ltd

116 notes to the financial statements(continued)

29. Controlled entities (continued)

2011 2010 Ownership Ownership Incorporated in interest % interest %

Origin Energy Limited NSW Origin Energy Finance Limited Vic 100 – Huddart Parker Pty Ltd < Vic 100 100 Origin Energy NZ Share Plan Ltd NZ 100 100 FRL Pty Ltd < WA 100 100 BTS Pty Ltd < WA 100 100 Origin Energy Power Ltd < SA 100 100 Origin Energy SWC Ltd < WA 100 100 BESP Pty Ltd Vic 100 100 Origin Energy Pinjar Security Pty Ltd Vic 100 100 Origin Energy Pinjar Holdings No. 1 Pty Ltd Vic 100 100 Origin Energy Pinjar No. 1 Pty Ltd Vic 100 100 Origin Energy Pinjar Holdings No. 2 Pty Ltd Vic 100 100 Origin Energy Pinjar No. 2 Pty Ltd Vic 100 100 Origin Energy Walloons Transmissions Pty Ltd Vic 100 100 Origin Energy Holdings Pty Ltd < Vic 100 100 Origin Energy Retail Ltd < SA 100 100 Origin Energy (Vic) Pty Ltd < Vic 100 100 Gasmart (Vic) Pty Ltd < Vic 100 100 Origin Energy (TM) Pty Ltd Vic 100 100 Cogent Energy Pty Ltd Vic 100 100 Origin Energy Electricity Ltd < Vic 100 100 Eraring Gentrader Depositor Pty Limited Vic 100 – Sun Retail Pty Ltd < Qld 100 100 OE Power Pty Ltd < Vic 100 100 Origin Energy Uranquinty Power Pty Ltd Vic 100 100 Origin Energy Mortlake Terminal Station No. 1 Pty Ltd Vic 100 100 Origin Energy Mortlake Terminal Station No. 2 Pty Ltd Vic 100 100 Origin Energy PNG Ltd PNG 66.7 66.7 Origin Energy PNG Holdings Ltd PNG 100 100 Origin Energy Tasmania Pty Ltd < Tas 100 100 The Fiji Gas Co Ltd Fiji 51 51 Tonga Gas Ltd Tonga 51 51 Origin Energy Contracting Ltd < Qld 100 100 Origin Energy LPG Ltd < NSW 100 100 Origin (LGC) (Aust) Pty Ltd < NSW 100 100 Origin Energy SA Pty Ltd < SA 100 100 Hylemit Pty Ltd Vic 100 100 Speed-E-Gas (NSW) Pty Limited NSW 100 100 Origin Energy WA Pty Ltd < WA 100 100 Origin Energy Services Ltd < SA 100 100 OEL US Inc. USA 100 100 Origin Energy NSW Pty Ltd < NSW 100 100 Origin Energy Asset Management Ltd < SA 100 100 Origin Energy Pipelines Pty Ltd < NT 100 100 Origin Energy Pipelines (SESA) Pty Ltd Vic 100 100 Origin Energy Pipelines (Vic) Holdings Pty Ltd < Vic 100 100 Origin Energy Pipelines (Vic) Pty Ltd < Vic 100 100 Origin LPG (Vietnam) LLC Republic of Vietnam 51 51 Origin Energy Solomons Ltd Solomon Islands 80 80 Origin Energy Cook Islands Ltd Cook Islands 100 100 Origin Energy Vanuatu Ltd Vanuatu 100 100 Origin Energy Leasing Ltd Vanuatu 100 100 Origin Energy Samoa Ltd Western Samoa 100 100 Origin Energy American Samoa Inc American Samoa 100 100

Origin Energy Annual Report 2011 117 notes to the financial statements(continued)

29. Controlled entities (continued)

2011 2010 Ownership Ownership Incorporated in interest % interest %

Origin Energy Resources Ltd < SA 100 100 Origin Energy CSG 2 Pty Ltd Vic 100 100 Origin Energy ATP 788P Pty Ltd Qld 100 100 Angari Pty Ltd < SA 100 100 Oil Investments Pty Ltd < SA 100 100 OCA Holdings Pty Ltd Qld 100 100 Origin Energy Wallumbilla Transmissions Pty Ltd Vic 100 100 Oil Company of Australia (Moura) Transmissions Pty Ltd < WA 100 100 Origin Energy Kenya Pty Ltd Vic 100 100 Origin Energy Bonaparte Pty Ltd < SA 100 100 Origin Energy Developments Pty Ltd < ACT 100 100 Origin Energy Zoca 91-08 Pty Ltd < SA 100 100 Origin Energy Petroleum Pty Ltd < Qld 100 100 Origin Energy Northwest Ltd UK 100 100 Sagasco Southeast Inc Panama 100 100 Origin Energy Resources NZ Ltd NZ 100 100 Kupe Development Ltd NZ 100 100 Kupe Mining (No.1) Ltd NZ 100 100 Origin Energy Resources (Kupe) Ltd NZ 100 100 Origin Energy Resources NZ (Rimu) Ltd NZ 100 100 Origin Energy Resources NZ (TAWN) Ltd NZ 100 100 Sagasco NT Pty Ltd < SA 100 100 Sagasco Amadeus Pty Ltd < SA 100 100 Origin Energy Amadeus Pty Ltd < Qld 100 100 Amadeus United States Pty Ltd < Qld 100 100 OE Resources Limited Partnership NSW 100 100 Origin Energy Vietnam Pty Ltd Vic 100 100 Origin Energy Singapore Holdings Pte Ltd Singapore 100 100 Origin Energy (Song Hong) Pte Ltd Singapore 100 100 Origin Energy (Block 31) Pte Limited Singapore 100 100 Origin Energy (Block 01) Pte Limited Singapore 100 100 Origin Energy (L15/50) Pte Limited Singapore 100 100 Origin Energy (L26/50) Pte Limited Singapore 100 100 Origin Energy (Savannahket) Pte Limited Singapore 100 100 Origin Energy Fairview Transmissions Pty Ltd Vic 100 100 Origin Energy VIC Holdings Pty Ltd < Vic 100 100 Origin Energy New Zealand Ltd NZ 100 100 Origin Energy Universal Holdings Ltd NZ 100 100 Origin Energy Five Star Holdings Ltd NZ 100 100 Origin Energy Contact Finance Ltd NZ 100 100 Origin Energy Contact Finance No.2 Ltd NZ 100 100 Origin Energy Pacific Holdings Ltd NZ 100 100 Contact Energy Ltd NZ 52.6 51.8 Contact Australia Pty Ltd Vic 52.6 51.8 Contact Aria Ltd NZ 52.6 51.8 Contact Operations Australia Pty Ltd Vic 52.6 51.8 Contact Wind Ltd NZ 52.6 51.8 Empower Ltd NZ 52.6 51.8 Stratford Power Ltd NZ 52.6 51.8 Rockgas Holdings Ltd NZ 52.6 51.8 Rockgas Ltd NZ 52.6 51.8 Origin Energy Capital Ltd < Vic 100 100 Origin Energy Finance Company Pty Ltd < Vic 100 100 OE JV Co Pty Ltd < Vic 100 100 OE JV Holdings Pty Ltd Vic 100 100

118 notes to the financial statements(continued)

29. Controlled entities (continued)

2011 2010 Ownership Ownership Incorporated in interest % interest %

Origin Energy Australia Holding BV Netherlands 100 100 Origin Energy Mt Stuart BV Netherlands 100 100 Parbond Pty Ltd NSW 100 100 Origin Foundation Pty Ltd Vic 100 100 Origin Renewable Energy Investments No 1 Pty Ltd Vic 100 100 Origin Renewable Energy Investments No 2 Pty Ltd Vic 100 100 Origin Renewable Energy Pty Ltd Vic 100 100 Origin Energy Geothermal Holdings Pty Ltd Vic 100 100 Origin Energy Geothermal Pty Ltd Vic 100 100 Origin Energy Chile Holdings Pty Limited NSW 100 – Origin Energy Chile S.A. Chile 100 100 Origin Energy Geothermal Chile Limitada Chile 100 – Origin Energy Geothermal Singapore Pte Ltd Singapore 100 100 Origin Energy Wind Holdings Pty Ltd Vic 100 100 Cullerin Range Wind Farm Pty Ltd NSW 100 100 Yass Valley Wind Farm Pty Ltd Vic 100 100 Conroy’s Gap Wind Farm Pty Ltd NSW 100 100 Crystal Brook Wind Farm Pty Ltd NSW 100 100 Wind Power Pty Ltd Vic 100 100 Wind Power Management Pty Ltd Vic 100 100 Lexton Wind Farm Pty Ltd Vic 100 100 Stockyard Hill Wind Farm Pty Ltd Vic 100 100 Tuki Wind Farm Pty Ltd Vic 100 100 Dundas Tablelands Wind Farm Pty Ltd Vic 100 100

< Entered into a class order 98/1418 and related deed of cross guarantee with Origin Energy Limited removing the requirement for the preparation of separate financial statements (refer note 25 and 34).

30. Interest in joint venture operations The consolidated entity holds interests in a number of unincorporated joint ventures covering the following major assets: Cooper Basin Perth Basin Bass Basin Worsley Power Plant Kupe Geodynamics Otway Basin South East Asia joint ventures Surat Basin The principal activities of these joint ventures are oil and/or gas exploration, development and production, power generation, and geothermal power technology.

Origin Energy Annual Report 2011 119 notes to the financial statements(continued)

31. Share-based payments (a) Senior Executive Option Plan The company’s Senior Executive Option Plan was approved at the Annual General Meeting on 13 November 1995. Staff eligible to participate in the plan are those senior executives invited by the Board, with the invitation based on performance and the role the individual plays in guiding the future success of the company. Options granted under the plan entitle the holder to subscribe for one fully paid ordinary share per option. The exercise price of the options is based on the weighted average price of the company’s shares during a five day period determined by the Board to be representative of the company’s position at the time. Except in certain circumstances applicable to specific option tranches, the options are exercisable at any time after the third anniversary of the grant, provided that relevant performance hurdles are met. The performance hurdles that must be met prior to an option becoming exercisable vary by option tranche and are discussed in the footnotes to the Senior Executive Options table in this note. Options granted under the plan do not carry any dividend or voting rights. During the year, the company issued 2,230,143 options (2010: 1,636,600 options). The exercise prices of the options issued during the year are included in the Senior Executives Option table in this note. The fair value of the options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date using a binomial model, taking into account market performance conditions and is recognised over the vesting period during which the employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the actual number of options that vest except where forfeiture is due to market related conditions. The company has recognised $6,334,538 (2010: $5,079,000) as an expense during the year. The amount recognised in issued capital in the financial statements of the company for the financial year representing the proceeds received from exercise of options, is as follows:

2011 2010 Note $million $million

Issued ordinary share capital 21 18 13

Details of options outstanding at the beginning and the end of the financial year and movements during the year are provided in the Senior Executives Options table in note 31(d).

(b) Origin Energy Senior Executive Performance Share Rights Plan The Board approved the Senior Executive Performance Share Rights Plan (PSR Plan) on 17 September 2007. Staff eligible to participate in the plan are those senior executives invited by the Board, with the invitation based on performance and the role the individual plays in guiding the future success of the company. The Performance Share Rights (PSRs) granted under the plan entitle the holder to subscribe for one fully paid ordinary share per PSR, or such other number as adjusted in accordance with the terms of the PSR Plan. The PSRs are unlisted. The exercise price of the PSRs is nil unless otherwise determined by the Board. Except in certain circumstances applicable to specific PSR tranches, the PSRs are exercisable at any time after the third anniversary of the grant, provided that relevant performance hurdles are met. The performance hurdles that must be met prior to a PSR becoming exercisable may vary by PSR tranche and are discussed in the footnotes to the Performance Share Rights table in note 31(e). PSRs granted under the plan do not carry any dividend or voting rights. During the year, the company issued 838,116 PSRs (2010: 607,400). The fair value of the PSRs is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date using a binomial model, taking into account market performance conditions and is recognised over the vesting period during which the employees become unconditionally entitled to the PSRs. The amount recognised as an expense is adjusted to reflect the actual number of PSRs that vest except where forfeiture is due to market related conditions. The company has recognised $6,218,317 (2010: $5,052,000) as an expense during the year. Details of performance share rights outstanding at the beginning and the end of the financial year and movements during the year are provided in the Senior Executives Performance Share Rights table in note 31(e).

120 notes to the financial statements(continued)

31. Share-based payments (continued) (c) Employee Share Plan The Board approved the Origin Energy Employee Share Plan (Origin ESP) on 20 March 2001. All Origin Energy full-time and permanent part-time employees based in Australia with at least one year of service qualify for participation in the Origin ESP. Under the Origin ESP, up to $1,000 worth of fully paid shares are offered to all qualifying employees, in each year in which the Origin ESP is in effect, for no consideration. Shares are awarded under the terms of the Origin ESP in recognition of the contribution employees make to the overall success of Origin Energy, based on performance hurdles established each year. In addition, in the year ending 30 June 2010 under the same terms as the Origin ESP, all qualifying employees received 20 shares for no consideration for the 10th anniversary of the company. The Origin ESP is a Taxed Up Front Employee Share Scheme (eligible for $1,000 concession) under amendments to the Income Tax Assessment Act 1997 (Cth). Origin Energy Limited shares awarded under the Origin ESP to Australian-based employees are registered as restricted shares which cannot be sold for three years from the date of award unless the employee ceases employment. The shares awarded in the name of the qualifying employee, are not subject to forfeiture and vest at the date of award to the employee. Shares awarded under the Origin ESP rank equally with other fully paid ordinary shares on issue and carry full voting and dividend rights. To enable Origin Energy employees based in New Zealand to receive benefits similar to those of Australian-based employees, the Board has approved the Origin Energy New Zealand Employee Share Plan (New Zealand ESP). The terms and benefits awarded under the New Zealand ESP are similar to those of the Origin ESP and all full-time and permanent part-time employees with at least one year of service qualify for participation in the plan. Under the New Zealand ESP, up to $1,000 worth of fully paid shares are offered to all qualifying employees, in each year in which the New Zealand ESP is in effect, for no consideration. Shares awarded under the New Zealand ESP are restricted shares which cannot be sold for three years from the date of award and employees may elect to either receive the shares in their name at the time of award or have the shares placed into trust. Shares received by employees in their name at the date of award are not subject to forfeiture and vest at the date of award. Shares held in trust are subject to a three year vesting period before being allocated to employees and may be forfeited if employees do not remain employees of Origin Energy for the full three year vesting period. Separate plans and procedures, adapting for local laws, have also been implemented to enable employees not based in Australia or New Zealand to receive benefits similar to those awarded under the Origin ESP and the New Zealand ESP. The following table details the shares awarded under the employee share plans for the years ended 30 June 2011 and 30 June 2010:

2011 Number of shares Date shares granted granted Cost per share(2) Total cost $’000

10 September 2010 175,412 $15.60 2,736 10 September 2010(1) 7,272 $0.00 – 182,684 2,736

2010

31 March 2010 67,320 $16.77 1,129 31 March 2010(1) 2,380 $0.00 – 69,700 1,129

(1) Shares awarded to New Zealand-based employees at no cost as the shares were granted from forfeited shares acquired at market prices in prior periods. (2) The cost per share represents the weighted average market price of the company’s shares.

Under the New Zealand ESP, employees may elect to either receive the shares awarded to them in their name or have the shares placed in trust at the date of award. Shares placed in trust have a three year vesting period. During the year ended 30 June 2011, nil shares (2010: 20 shares) were vested to the trust under the New Zealand ESP. During the year ended 30 June 2011, 60 shares (2010: Nil) held in trust vested to employees. The number of shares held in trust under the New Zealand ESP as at 30 June 2011 is 11,532 (2010: 18,804).

Origin Energy Annual Report 2011 121 notes to the financial statements(continued)

31. Share-based payments (continued) (d) Summary of senior executive options

2011 Fair value Hurdle First Exercise of options price Balance Balance Vested Grant exercise Expiry price per at measure- per at start of at end of at end of date date date option ment date share the year Issued Exercised(3) Forfeited the year the year

7 Sep 2005 7 Sep 2008 7 Sep 2010 $7.21 $1.69 (1) 1,433,000 – 1,386,000 47,000 – – 11 Sep 2006 11 Sep 2009 11 Sep 2011 $6.04(4) $1.43 (1) 1,370,000 – 448,000 – 922,000 922,000 26 Jun 2007 26 Jun 2010 26 Jun 2012 $8.51(4) $2.25 (1) 50,000 – – – 50,000 50,000 28 Sep 2007 28 Sep 2010 28 Dec 2012 $9.86(4) $2.51 (1) 1,649,000 – 518,000 46,000 1,085,000 1,085,000 28 Sep 2007 28 Sep 2010 28 Sep 2012 $9.86(4) $2.57 (1) 300,000 – – – 300,000 300,000 30 Sep 2008 30 Sep 2011 30 Dec 2013 $15.84(4) $4.49 (1) 1,274,500 – – 41,000 1,233,500 – 28 Sep 2009 28 Sep 2012 28 Dec 2014 $14.58(4) $4.48 (1) 1,213,000 – – 36,000 1,177,000 – 6 Nov 2009 6 Nov 2012 6 Feb 2015 $15.47(4) $4.30 (1) 412,000 – – – 412,000 – 10 May 2010 10 May 2013 10 Aug 2015 $14.89(4) $4.38 (1) 11,600 – – – 11,600 – 28 Oct 2010 1 Oct 2013 31 Dec 2015 $14.91(4) $4.23(5) (1) – 2,124,143 – 39,116 2,085,027 – 22 Jun 2011 1 Oct 2013 31 Dec 2015 $14.91 $4.23(5) (1) – 106,000 – – 106,000 – 7,713,100 2,230,143 2,352,000 209,116 7,382,127 2,357,000 Key management personnel 3,313,000 887,653 1,119,000 – 3,081,653 913,000 Non-key management personnel 4,400,100 1,342,490 1,233,000 209,116 4,300,474 1,444,000 7,713,100 2,230,143 2,352,000 209,116 7,382,127 2,357,000

2010

6 Aug 2004 6 Aug 2007 6 Aug 2009 $5.98(2) $1.59 (1) (2) 275,000 – 275,000 – – – 26 Nov 2004 26 Nov 2007 26 Nov 2009 $5.72(2) $2.27 (1) (2) 698,900 – 698,900 – – – 7 Sep 2005 7 Sep 2008 7 Sep 2010 $7.21 $1.69 (1) 1,811,000 – 378,000 – 1,433,000 1,433,000 11 Sep 2006 11 Sep 2009 11 Sep 2011 $6.50 $1.43 (1) 2,131,300 – 761,300 – 1,370,000 1,370,000 26 Jun 2007 26 Jun 2010 26 Jun 2012 $8.97 $2.25 (1) 50,000 – – – 50,000 50,000 28 Sep 2007 28 Sep 2010 28 Dec 2012 $10.32 $2.51 (1) 1,649,000 – – – 1,649,000 – 28 Sep 2007 28 Sep 2010 28 Sep 2012 $10.32 $2.57 (1) 300,000 – – – 300,000 300,000 30 Sep 2008 30 Sep 2011 30 Dec 2013 $16.30 $4.49 (1) 1,274,500 – – – 1,274,500 – 28 Sep 2009 28 Sep 2012 28 Dec 2014 $15.04 $4.48 (1) – 1,213,000 – – 1,213,000 – 6 Nov 2009 6 Nov 2012 6 Feb 2015 $15.93 $4.30 (1) – 412,000 – – 412,000 – 10 May 2010 10 May 2013 10 Aug 2015 $15.35 $4.38 (1) – 11,600 – – 11,600 – 8,189,700 1,636,600 2,113,200 – 7,713,100 3,153,000 Key management personnel 3,716,000 682,000 1,085,000 – 3,313,000 1,650,000 Non-key management personnel 4,473,700 954,600 1,028,200 – 4,400,100 1,503,000 8,189,700 1,636,600 2,113,200 – 7,713,100 3,153,000

(1) The performance hurdle for these options is based on the Total Shareholder Return (TSR) index, i.e. the index measuring total shareholder returns maintained by the Australian Securities Exchange that calculates the share price movement of ordinary shares after notional reinvestment of dividends. Whether the exercise hurdle is satisfied within the exercise period is determined by comparing the TSR index of the company with the TSR index of a predetermined reference group of Australian listed companies. The percentage of options that may be exercised is calculated on a sliding scale dependent upon the company’s performance against the reference group of companies. If the Origin Energy TSR exceeds the 50th percentile, 50 per cent of the options may be exercised and if it reaches the 75th percentile, 100 per cent of the options may be exercised. The reference group of companies is available to shareholders and may be accessed via the company’s website. In certain circumstances the options may be exercised prior to the first exercise date. More details of the performance hurdles are included in the Remuneration Report in section 5.8. (2) Exercise prices have been adjusted to reflect the impact of the rights issue in February 2005. (3) The weighted average share price during the year ended 30 June 2011 was $15.97 (2010: $15.79). (4) Exercise prices have been adjusted to reflect the impact of the rights issue in March and April 2011. (5) The inputs used to measure the fair value of options granted during the year ended 30 June 2011 were a weighted average share price of $15.84, an exercise price of $15.37, expected volatility of 33 per cent, dividend yield of 3.1 per cent and a risk free rate of 4.95 per cent derived from the yield on Australian Government Bonds of appropriate term.

122 notes to the financial statements(continued)

31. Share-based payments (continued) (e) Summary of Senior Executive Performance Share Rights (PSR)

2011 Fair value Hurdle First Exercise of PSR’s at price Balance Balance Vested Grant exercise Expiry price per measure- per at start of at end of at end of date date date PSR ment date share the year Issued Exercised Forfeited the year the year

28 Sep 2007 28 Sep 2010 28 Dec 2012 Nil $6.78 (1) 544,000 – 357,000 18,000 169,000 169,000 14 Nov 2007 14 Nov 2010 14 Feb 2013 Nil $5.98 (1) 100,000 – 100,000 – – – 30 Sep 2008 30 Sep 2011 30 Dec 2013 Nil $11.38 (1) 505,900 14,608(2) – 16,848 503,660 – 28 Sep 2009 28 Sep 2012 28 Dec 2014 Nil $11.62 (1) 453,200 13,145(2) – 13,835 452,510 – 6 Nov 2009 6 Nov 2012 6 Feb 2015 Nil $11.62 (1) 150,000 4,370(2) – – 154,370 – 10 May 2010 10 May 2013 10 Aug 2015 Nil $11.75 (1) 4,200 122(2) – – 4,322 – 28 Oct 2010 1 Oct 2013 31 Dec 2015 Nil $11.51(3) (1) – 767,793(2) – 14,140 753,653 – 22 Jun 2011 1 Oct 2013 31 Dec 2015 Nil $11.51(3) (1) – 38,078 – – 38,078 – 1,757,300 838,116 457,000 62,823 2,075,593 169,000 Key management personnel 724,500 335,549 188,500 – 871,549 – Non-key management personnel 1,032,800 502,567 268,500 62,823 1,204,044 169,000 1,757,300 838,116 457,000 62,823 2,075,593 169,000

2010

28 Sep 2007 28 Sep 2010 28 Dec 2012 Nil $6.78 (1) 544,000 – – – 544,000 – 14 Nov 2007 14 Nov 2010 14 Feb 2013 Nil $5.98 (1) 100,000 – – – 100,000 – 30 Sep 2008 30 Sep 2011 30 Dec 2013 Nil $11.38 (1) 505,900 – – – 505,900 – 28 Sep 2009 28 Sep 2012 28 Dec 2014 Nil $11.62 (1) – 453,200 – – 453,200 – 6 Nov 2009 6 Nov 2012 6 Feb 2015 Nil $11.62 (1) – 150,000 – – 150,000 – 10 May 2010 10 May 2013 10 Aug 2015 Nil $11.75 (1) – 4,200 – – 4,200 – 1,149,900 607,400 – – 1,757,300 – Key management personnel 472,000 252,500 – – 724,500 – Non-key management personnel 677,900 354,900 – – 1,032,800 – 1,149,900 607,400 – – 1,757,300 –

(1) The performance hurdle which must be met for the PSRs to be exercised is based on the Total Shareholder Return (TSR) index, i.e. the index measuring total shareholder returns maintained by the Australian Securities Exchange that calculates the share price movement of ordinary shares after notional reinvestment of dividends. Whether the exercise hurdle is satisfied within the exercise period is determined by comparing the TSR index of the company with the TSR index of a predetermined reference group of top 100 Australian listed companies. The percentage of PSRs that may be exercised is calculated on a sliding scale dependent upon the company’s performance against the reference group of companies. If the Origin Energy TSR exceeds the 50th percentile, 50 per cent of the PSRs may be exercised and if it reaches the 75th percentile, 100 per cent of the PSRs may be exercised. The reference group of companies is available to shareholders and may be accessed via the company’s website. In certain circumstances the PSRs may be exercised prior to the first exercise date. More details of the performance hurdles are included in the Remuneration Report in section 5.8. (2) PSR issuances have been adjusted to reflect the impact of the rights issue in March and April 2011. (3) The inputs used to measure the fair value of performance share rights granted during the year ended 30 June 2011 were a weighted average share price of $15.84, expected volatility of 33 per cent, dividend yield of 3.1 per cent and a risk free rate of 4.95 per cent derived from the yield on Australian Government Bonds of appropriate term.

Origin Energy Annual Report 2011 123 notes to the financial statements(continued)

32. Related party disclosures Associated entities Interests held in equity accounted entities are set out in note 10. The business activities of a number of these entities are conducted under joint venture arrangements. The equity accounted entities conduct business transactions with various controlled entities. Such transactions include purchases and sales of certain products, provision of services and dividends. Refer note 10 for further information regarding these transactions. Refer to note 33 for key management personnel disclosures. 33. Key management personnel disclosures

(a) Key management personnel compensation tables Refer to the Remuneration Report in the Directors’ Report.

(b) Equity instruments Refer to the Remuneration Report in the Directors’ Report for details of the following: (i) Options over equity instruments granted as compensation; (ii) Exercise of options granted as compensation; and (iii) Equity holdings and transactions.

(c) Loans and other transactions with key management personnel (i) Loans Refer to the Remuneration Report in the Directors’ Report. (ii) Other transactions with the company or its controlled entities Transactions entered into during the year with key management personnel which are within normal employee, customer or supplier relationships on terms and conditions no more favourable than dealings in the same circumstances on an arm’s length basis include: •• the receipt of dividends from Origin Energy Limited; •• participation in the Employee Share Plan, the Senior Executive Option Plan and the Senior Executive Performance Share Rights Plan; •• terms and conditions of employment; •• reimbursement of expenses; and •• purchases of goods and services. Certain directors of Origin Energy Limited are also directors of other companies which supply Origin Energy Limited with goods and services or acquire goods or services from Origin Energy Limited. Those transactions are made on an arm’s length basis and 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. 34. Deed of cross guarantee The following summarised consolidated income statement comprises the company and its controlled entities which are party to the Deed of Cross Guarantee (refer notes 25 and 29), after eliminating all transactions between parties to the Deed.

2011 2010 for year ended 30 June $million $million

Summarised consolidated income statement and retained profits

Profit before income tax expense 503 716 Income tax expense 187 128 Profit for the period 316 588 Other comprehensive income (5) – Total comprehensive income for the period 311 588 Retained earnings at the beginning of the period 8,473 8,274 Adjustment for entities leaving Deed of Cross Guarantee – 50 Retained earnings at the beginning of the period 8,473 8,324 Dividends paid (442) (439) Retained earnings at the end of the period 8,342 8,473

124 notes to the financial statements(continued)

34. Deed of cross guarantee (continued)

2011 2010 as at 30 June $million $million

Statement of financial position Current assets Cash and cash equivalents 600 725 Trade and other receivables 3,876 2,828 Inventories 152 101 Other financial assets, including derivatives 547 467 Tax assets – 50 Other assets 99 128 Total current assets 5,274 4,299

Non-current assets Trade and other receivables 24 10 Investments accounted for using the equity method 5,402 5,347 Other financial assets, including derivatives 4,091 2,567 Property, plant and equipment 4,934 3,741 Exploration and evaluation and development assets 178 123 Development expenditure – 16 Intangible assets 4,635 2,044 Deferred tax assets 157 – Other assets 23 39 Total non-current assets 19,444 13,887

Total assets 24,718 18,186

Current liabilities Trade and other payables 4,142 1,793 Interest-bearing liabilities 549 97 Other financial liabilities, including derivatives 2,161 346 Tax liabilities 7 – Provisions 238 122 Total current liabilities 7,097 2,358

Non-current liabilities Trade and other payables 410 64 Interest-bearing liabilities 2,371 1,635 Other financial liabilities, including derivatives 2,127 3,704 Tax liabilities – 25 Provisions 411 247 Total non-current liabilities 5,319 5,675

Total liabilities 12,416 8,033

Net assets 12,302 10,153

Equity Share capital 4,029 1,683 Reserves (69) (3) Retained earnings 8,342 8,473 Total equity 12,302 10,153

Origin Energy Annual Report 2011 125 notes to the financial statements(continued)

35. Earnings per share

Restated(1) 2011 2010

Basic earnings per share 19.6 cents 67.7 cents Diluted earnings per share 19.6 cents 67.4 cents

Weighted average number of shares used as the denominator

Restated (1) 2011 2010 Number Number

Number of ordinary shares for basic earnings per share calculation pre adjusting for bonus element of the rights issue 922,201,286 877,972,404 Bonus element of rights issue 25,540,613 25,381,594 Number of ordinary shares for basic earnings per share calculation 947,741,899 903,353,998 Effect of executive share options and performance share rights on issue 2,880,456 4,355,825 Number of ordinary shares for diluted earnings per share calculation 950,622,355 907,709,823

Reconciliation of earnings used in calculating basic and diluted earnings per share

2011 2010 $million $million

Profit for the period 248 680 Less: Profit attributable to non-controlling interests (62) (68) Earnings used in calculating earnings per share 186 612

(1) In April 2011 Origin completed a rights issue at $13.00 per share reflecting a discount of 15 per cent to the market price. Accordingly, earnings per share for all periods up to the date on which the shares were issued (including the 2010 comparative) have been adjusted for the bonus element of the issue. The bonus element was 1 share for every 35 shares owned (as a factor of 1.0289). The 2010 comparatives have been restated accordingly. Other information relating to the rights issue is included in note 21.

Information concerning the classification of securities (A) Fully paid ordinary shares Fully paid ordinary shares are classified as ordinary shares for the purposes of calculating basic and diluted earnings per share. (B) Share options and performance share rights Share options granted under the Senior Executive Option Plan and the performance share rights issued under the Senior Executive Performance Share Rights Plan have been classified as potential ordinary shares and have been included in the determination of diluted earnings per share. The options and rights have not been included in the determination of basic earnings per share. Information about basic and diluted EPS During the year 3,080,939 (2010: 2,113,200) options and performance share rights were exercised, forfeited or lapsed. Full details of these share options and performance share rights are set out in note 31. There were 292,000 (2010: 245,000) shares issued as a result of the exercise of options between the reporting date and the completion of the financial report.

126 notes to the financial statements(continued)

36. Parent entity disclosures As at, and throughout the financial year ended 30 June 2011 the parent entity company of the group was Origin Energy Limited.

Origin Energy Limited 2011 2010 $million $million

Results of the parent entity

Profit for the period 144 130 Other comprehensive income, net of income tax (23) (5) Total comprehensive income for the period 121 125

Financial position of the parent entity at period end

Current assets 28,371 19,501 Non-current assets 1,541 1,529 Total assets 29,912 21,030

Current liabilities 20,122 12,334 Non-current liabilities 4,347 5,290 Total liabilities 24,469 17,624

Total equity of the parent entity comprising: Share capital 4,029 1,683 Share-based payments reserve 58 46 Hedging reserve (44) (10) Available-for-sale reserve – (7) Retained earnings 1,400 1,694 Total equity 5,443 3,406

Parent entity contingencies The directors are of the opinion that provisions are not required in respect of contingencies, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Contingent liabilities

Bank guarantees – unsecured 14 11

The parent entity has entered into a Deed of Cross Guarantee with the effect that the company guarantees debts in respect of certain of its subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in note 34 and note 29.

Origin Energy Annual Report 2011 127 notes to the financial statements(continued)

37. Subsequent events On 28 July 2011 Australia Pacific LNG a 50 per cent owned and equity accounted joint venture of the consolidated entity, announced that a FID had been approved initiating development of the first phase of a two-train CSG to LNG project. The first phase is the development of the first train and infrastructure to support the second train. The project has a construction period over the next four years and total capital expenditure to first gas for the first phase is estimated to be US$14 billion (US$6 billion Origin’s share), some of which has been committed. Additionally, under an agreement reached between Origin and ConocoPhillips, the contingent FID payment of US$1 billion to be made by ConocoPhillips to Australia Pacific LNG in connection with the first LNG train has been deferred and the payment will be made when the project pays out an agreed economic return on the total investment by ConocoPhillips in Australia Pacific LNG. On 9 August 2011 Australia Pacific LNG issued new shares to China Petroleum and Chemical Corporation (‘Sinopec’) resulting in Sinopec holding a 15 per cent interest in the issued capital of Australia Pacific LNG. As a result of this new share issue, Origin’s interest in Australia Pacific LNG has been diluted from 50 per cent to 42.5 per cent. Under the terms of the subscription agreement Sinopec paid an upfront subscription amount of US$1,765 million and committed to fund an additional amount of $1,262 million when called by Australia Pacific LNG. The completion of the share issue from Australia Pacific LNG to Sinopec results in a dilution gain recorded in statutory profit for the consolidated entity of approximately $0.5 billion for the year ended 30 June 2012. At 30 June 2011 the consolidated entity recorded a loan payable to Australia Pacific LNG of $3,576 million (refer note 17). This loan is expected to be utilised by the consolidated entity in funding expenditure for the FID approved Australia Pacific LNG development project; some of this expenditure has been committed by Australia Pacific LNG and is also subject to guarantees provided by Origin Energy Limited, as per below. Following FID and subsequent to 30 June 2011, Origin Energy Limited (the Parent Company of the consolidated entity) provided a guarantee for Origin’s share of certain contractual commitments of Australia Pacific LNG associated with the construction project, amounting to approximately $3 billion (Origin’s share). Origin Energy Limited also provided a guarantee of $125 million (Origin’s share) in respect of a bank guarantee facility obtained by Australia Pacific LNG to support the first phase of the development project. At the date of this report, no guarantees have been issued under this facility. Following the issue of shares to Sinopec, Origin’s share of the commitments and guarantees of the Australia Pacific LNG joint venture recorded at 30 June 2011 (refer note 26), is diluted from 50 per cent to 42.5 per cent, resulting in commitments as at 30 June 2011 reducing by $277 million. Dividends Refer note 5 for dividends declared subsequent to 30 June 2011.

128 directors’ declaration

1 In the opinion of the directors of Origin Energy Limited (the Company): (a) the financial statements and notes, and the Remuneration Report in the Directors’ Report, are in accordance with the Corporations Act 2001 (Cth), including: (i) giving a true and fair view of the financial position of the consolidated entity as at 30 June 2011 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 financial report also complies with International Financial Reporting Standards as disclosed in note 1 in the consolidated financial statements. (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2 There are reasonable grounds to believe that the Company and the controlled entities identified in note 29 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 Class Order 98/1418. 3 The directors have been given the declarations required by Section 295A of the Corporations Act 2001 (Cth) from the Managing Director and the Executive Director, Finance and Strategy for the financial year ended 30 June 2011. Signed in accordance with a resolution of the directors:

H Kevin McCann, Chairman Director Sydney, 23 August 2011

Origin Energy Annual Report 2011 129 independent auditor’s report

130 independent auditor’s report (continued)

Origin Energy Annual Report 2011 131 share and shareholder information

Information set out below was applicable as at 22 August 2011:

Ordinary Shares

Size of Holding Number of Shareholders % of Issued Shares

1-1,000 71,313 3.18 1,001-5,000 75,433 16.09 5,001-10,000 12,190 7.90 10,001-100,000 6,172 11.44 100,001 and above 194 61.39

4,099 shareholders hold less than a marketable parcel.

Substantial Shareholders There were no substantial shareholders of record on 22 August 2011.

Twenty Largest Shareholders Number of Shares % of Issued Shares

HSBC Custody Nominees (Australia) Limited 168,606,383 15.83 J P Morgan Nominees Australia Limited 150,165,317 14.10 National Nominees Limited 128,729,380 12.09 Citicorp Nominees Pty Limited 55,021,031 5.17 Cogent Nominees Pty Limited 28,911,261 2.72 RBC Dexia Investor Services Australia Nominees Pty Limited 16,398,936 1.54 Queensland Investment Corporation 10,918,961 1.03 Bond Street Custodians Limited 10,004,946 0.94 AMP Life Limited 9,625,906 0.90 Australian Reward Investment Alliance 7,126,154 0.67 Argo Investments Limited 6,486,168 0.61 Australian Foundation Investment Company Limited 6,348,856 0.60 Perpetual Trustee Company Limited 6,164,578 0.58 Invia Custodian Pty Limited 4,562,759 0.43 UBS Wealth Management Australia Nominees Pty Limited 3,678,840 0.35 BT Portfolio Services Limited 3,649,236 0.34 Tasman Asset Management Limited 3,124,956 0.29 UBS Nominees Pty Limited 2,985,300 0.28 The Senior Master of the Supreme Court 1,758,099 0.17 M F Custodians Limited 1,417,813 0.13 625,684,880 58.77

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, Link Market Services Limited 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 w w w.originenergy.com.au/investor.

132 share and shareholder information (continued)

Dividends Origin will pay a final dividend for the 2010/11 year of 25 cents per share (fully franked) on 29 September 2011. There are several alternatives in relation to the way Shareholders can elect to receive their dividends: •• By direct credit, paid into a bank, building society or credit union account in Australia or New Zealand. For payments into New Zealand bank accounts dividends will be paid in New Zealand dollars. The payment of dividends will be electronically credited on the dividend payment date and confirmed by payment advices sent through the mail; or •• By participation in the Dividend Reinvestment Plan (DRP). The DRP enables shareholders to use cash dividends to purchase additional fully paid Origin Energy shares. Details of the DRP can be obtained at w w w.originenergy.com.au/investor or by contacting the share registry; or •• By cheque paid in Australian dollars (only available to shareholders with a registered address outside Australia and New Zealand).

Tax File Number For resident shareholders who have not provided the share registry with their Tax File Number (TFN) or exemption category details, tax at the top marginal tax rate (plus Medicare levy) will be deducted from dividends to the extent they are not fully franked. For those shareholders who have not as yet provided their TFN or exemption category details, forms are available from the share registry. Shareholders are not obliged to provide this information if they do not wish to do so.

Information on Origin The main source of information for shareholders is the Annual Report and the Shareholder Review. Both the Annual Report and Shareholder Review will be provided to shareholders on request and free of charge. Shareholders not wishing to receive the Annual Report should advise the share registry in writing so that their names can be removed from the mailing list. Origin’s website w w w.originenergy.com.au is another source of information for shareholders.

Securities Exchange Listing Origin shares are traded on the Australian Securities Exchange Limited (ASX). The symbol under which Origin shares are traded is ‘ORG’.

Voting rights of members At a meeting of members, each member who is entitled to attend and vote may attend and vote in person or by proxy, attorney or representative. On a show of hands, every person present who is a member, proxy, attorney or representative shall have one vote and on a poll, every member who is present in person or by proxy, attorney or representative shall have one vote for each fully paid share held.

Origin Energy Annual Report 2011 133 explorATION AND PRODUCTION PERMITS AND DATA

134 explorATION AND PRODUCTION PERMITS AND DATA (continued)

Permits Permits Permits Basin/Project Area (Interest) Basin/Project Area (Interest) Basin/Project Area (Interest) australia PLs 257(A), 273(A), 274(A), 275(A), CANTERBURY BASIN (MAP 6) Cooper Basin (Map 1) 278(A), 279, 442(A), 474(A), 466(A) PEP 38262 and PEP 38264 50.00% and ATP 648P Shallows 15.63%+ Queensland AUSTRALIA Talinga/Orana SWQ Unit Subsleases 16.74% PLs 209, 215, 216(A), 225(A), 226, ONSHORE PERTH BASIN (WA) (MAP 7) Aquitaine A & B Blocks of 272(A), 289(A) and 445(A) and ATP EP 320 and L11 67.00%* ATP 259P and associated PLs 25.00% 692P 50.00%*+ L14 49.19%* Aquitaine C Block of ATP 259P and Other (Bowen Basin) L1/L2 (excluding Dongara, associated PLs 27.00% PLs 219 and 220 50.00%*+ Mondarra and Yardarino) 50.00% Wareena Block of ATP 259P and PLs 395(A) and 396(A), 420(A), OFFSHORE BONAPARTE (WA/NT) (MAP 8) associated PLs 10.00% 421(A), 440(A) and ATPs 653P and NT/RL1 and WA6R 5.00% South Australia + 745P 11.92% VIETNAM SA Unit PPLs 13.19% + ATP 804P 14.65% SONG HONG BASIN (MAP 10) Patchawarra East Block PLs 10.54% Other (Surat Basin) Block 121 100.00%* Reg Sprigg West Unit PLs 297(A), 403(A), 404(A), 405(A), (PPLs 194 and 211) 7.90% 406(A), 407(A), 408(A), 412(A), VINH CHAU GRABEN (MAP 11) Galilee Basin (Qld) (Map 2) 413(A) and 444(A) and ATP 606P 46.36%*+ Block 31 and Block DBSCL-01 25.00%◊ ATPs 666P, 667P and 668P 50.00%*+ PLs 281(A) and PL 282(A) THAILAND Surat Basin (Qld) (Map 3) and ATP 631P 9.05%+ KHORAT PLATEAU (MAP 12) PL 14 100.00%* ATP 663P, PLs 434(A), 435(A), L15/50 and L26/50 40.00%◊ 436(A), 437(A), 438(A) and 439(A) 50.00%*+ PLs 56 and 74 69.00%* LAO DPR PLs 265(A), 266(A) and 267(A) and PL 30 75.00%* ATP 702P 50.00%*+ KHORAT PLATEAU (MAP 12) PLs 21, 22, 27 and 64 87.50%* ATP 972P, PLs 469(A), 470(A) and Savannahket PSC 30.00% PLs 53, 174 and 227 100.00%* 471(A) 46.36%*+ KENYA PL 264 and ATP 470P Redcap 90.00%* ATP 973P 50.00%*+ LAMU BASIN (MAP 9) ATP 470P Formosa Downs 42.72%* ATP 788P Shallows 100.00%* L8 25.00%‡ PL 71 (Exploration) 72.00%* ONSHORE OTWAY BASIN (MAP 4) PL 70 100.00%* Victoria * Operatorship. ATP 471P Weribone Pooling Area 50.64%* + Interest held through 50 per cent ownership of PPLs 6 and 9 and PRL 1 90.00%* Australia Pacific LNG Pty Ltd Joint Venture. ATP 336P and PLs 10W, 11W, 12W, PPLs 4,5,7,10 and 12 100.00%* ◊ Subject to farmin agreement. 28, 69 and 89 46.25% PPL 2 (Ex Iona) 100.00%* ‡ Subject to drilling commitment. PL 11 Snake Creek East 1 Exclusion PPL 8 100.00%* Zone 25.00% ATP 647P (Block 2656 only) 50.00%* OFFSHORE OTWAY BASIN (MAP 4) ATP 754P 50.00%* Victoria ATP 471P Bainbilla 24.75% VIC/L23 and VIC/P43 67.23%* ATP 788P Deeps 25.00%* VIC/RL2(V) 100.00%* Denison Trough (Qld) (Map 3) Tasmania T/L2, T/L3, T/30P 67.23%* PLs 41, 42, 43, 44, 45, 54, 67, 173, 183 and 218 25.00%*+ T/34P 82.30%* ATP 337P, PLs 449(A), 450(A), 451(A), BASS BASIN (TASMANIA) (MAP 4) 452(A), 453(A), 454(A), 455(A), T/L1 and T/RL1 42.50%* + 456(A), 457(A), 475(A) and 476(A) 25.00% T/18P 39.00%* + ATP 337P Mahalo 15.00% T/44P 60.00%* + ATP 553P 25.00% NEW ZEALAND Csg (Qld) (Map 3) TARANAKI BASIN (MAP 5) Spring Gully PML 38146 50.00%* PLs 195 and 203 and ATP 592P, PLs PEP 38485 33.33% 268(A), 414(A), 415(A), 416(A), 417(A), 418(A) and 419(A) 47.25%*+ PMP 38151 100.00%* PL 204 49.86%*+ PMP 38155 100.00%* PL 200 47.86%*+ PML 38138 100.00%* Fairview PML 38139 100.00%* PLs 90,91,92,99,100,232,233,234, PML 38140 100.00%* 235 and 236 and ATP 526P 11.96%+ PML 38140 Peat (below base Tikorangi Fm) 100.00%* PL 101 50.00%*+ PML 38141 100.00%* Argyle/Kenya/Bellevue PML 38141 (below base Tikorangi Fm) 100.00%* PLs 179, 180, 228, 229 and 263(A) and ATP 620P Shallows 20.31%+ NORTHLANDS BASIN (MAP 5) PL 247 and ATP 610P Shallows 14.69%+ PEP 38619 100.00%*

Origin Energy Annual Report 2011 135 explorATION AND PRODUCTION PERMITS AND DATA (continued)

Drilling Program Results (1 JulY 2010 to 30 June 2011) – number of wells

Wells cased for Area/Basin Exploration Appraisal Development Total production

Cooper Oil – 2 3 5 5 Cooper Gas – – 13 13 13 CSG – Ironbark 1 14 – 15 14(1) CSG – Australia Pacific LNG 20 99 61 180 160(2) Denison Trough – Australia Pacific LNG – 2 – 2 2 Surat – – – – – Offshore Otway – – – – – Bass Basin 1 – – – – Perth Basin 1 – – 1 1 Bonaparte Basin – – – – – New Zealand – Offshore 2 – – 2 – New Zealand – Onshore – – 3 3 3 Kenya – – – – – Vietnam 1 – – 1 – Lao PDR – – – – – Thailand – 2 – 2 – Total 26 119 80 225 198

(1) One cored well P&A – not drilled as a production well. (2) 15 cored wells P&A and 5 monitor wells – not drilled as production wells.

Potential drilling program for FY12 (Gross numbers of wells)

Area/Basin No. of wells Cooper Oil/Gas 55 CSG – Ironbark 9 CSG – Australia Pacific LNG 500 Denison Trough – Australia Pacific LNG 10 Surat – Offshore Otway 1 Bass Basin – Perth Basin 1 Bonaparte Basin 1 New Zealand – Offshore – New Zealand – Onshore – Kenya – Vietnam 1 Thailand – Total 578

136 explorATION AND PRODUCTION PERMITS AND DATA (continued)

2P Reserves by Product

Origin 2P Reserves by Product Gas (PJ) LPG (kT) Cond. (kbbls) Oil (kbbls) Total (PJe) Total at 30/06/2010 5,952 2,066 21,989 5,648 6,207 Production (115) (132) (1,775) (547) (135) Net additions/revisions 971 (52) 65 211 968

Total at 30/06/2011 6,808 1,882 20,279 5,312 7,041

2P Reserves by Region

Origin 2P Reserves Gas (PJ) LPG (kT) Cond. (kbbls) Oil (kbbls) Total (PJe) Australia Pacific LNG Coal Seam Gas / Denison 5,887 – 23 – 5,887 Cooper Basin SA Cooper Basin 124 297 2,407 2,419 165 SWQ Cooper Basin 56 67 677 532 66 Other onshore Australia Western Australia 26 – 13 174 27 Conventional Surat Basin 13 29 130 119 16 Ironbark (CSG) 118 – – – 118 Offshore Australia Otway Basin – Offshore 339 623 4,963 0 397 Bass Basin 110 346 4,185 349 151 New Zealand Offshore Taranaki (Kupe) 123 504 7,883 – 190 Onshore Taranaki 12 16 – 1,720 23

Total 6,808 1,882 20,279 5,312 7,041

Sales and Production Volume by Asset Note: Australia Pacific LNG Sales and Production volumes is Origin’s 50 per cent share.

Sales Volume (PJe) 1 July – 30 June Area/Basin Region 2011 2010 Cooper Basin South Australia/Queensland 28.4 29.3 Surat Basin Queensland 2.9 4.6 Denison Trough Queensland 2.0 1.9 Peat Queensland 1.6 1.6 Fairview Queensland 10.4 7.9 Spring Gully Queensland 23.0 21.2 Argyle/Kenya/Bellevue Queensland 3.7 3.4 Talinga/Orana Queensland 13.4 2.6 Perth Basin gas Western Australia 1.7 2.2 Perth Basin oil Western Australia 0.7 1.1 Bass Project Tasmania 9.9 7.1 Otway Gas Project Victoria/Tasmania 35.6 24.6 Kupe New Zealand 15.6 8.0 Taranaki Basin (Onshore) New Zealand 1.3 1.7 Total 150.1 117.2

Origin Energy Annual Report 2011 137 FIVE YEAR financial history

2011 2010 2009 2008 2007 Income Statement ($m) Total external revenue 10,344 8,534 8,042 8,275 6,436 Underlying: EBITDA 1,782 1,346 1,219 1,324 1,195 Depreciation and amortisation expense (539) (408) (369) (345) (330) Share of interest, tax, depreciation and amortisation of equity accounted investees(1) (49) (42) (31) (13) – EBIT 1,194 896 819 966 865 Net financing costs (143) (13) (32) (220) (215) Income tax expense (316) (232) (183) (197) (180) Minority interests (62) (66) (74) (106) (100) Net profit after tax less minority interests 673 585 530 443 370 Impact of items excluded from underlying profit (487) 27 6,411 74 87 Statutory: Profit attributable to members of the parent entity 186 612 6,941 517 457 Statement of financial position ($m) Total Assets 26,640 21,834 22,102 12,568 14,765 Net debt/(cash) 4,060 2,663 (269) 3,283 2,958 Shareholders’ equity – members/parent entity interest 12,232 10,249 10,003 4,072 5,881 Adjusted net debt/(cash)(2) 4,283 2,835 (107) 3,608 3,389 Shareholders’ equity – total 13,516 11,438 11,144 5,176 6,969 Cash flow and capital expenditure ($m) Operating cash flow after tax (OCAT)(3) 1,585 965 797 875 818 Free cash flow(4) 1,316 800 661 622 595 Capital expenditure 4,954 3,027 2,426 1,685 2,027 Stay-in-business 203 179 209 178 179 Growth 1,626 1,664 2,052 1,398 580 Acquisitions 3,125 1,184 165 109 1,268 Productive Capital(5) 11,571 8,423 7,256 6,516 5,474 Group OCAT Ratio (%)(6) 13.0 10.9 10.4 12.3 13.7 Key ratios Statutory basic earnings per share (cents)(7) 19.6 67.7 768.8 57.4 53.1 Underlying basic earnings per share (cents)(7) 71.0 64.8 58.7 49.2 43.0 Free cash flow per share (cents) 123.6 90.8 75.6 70.6 71.2 Total dividend per share (cents) 50 50 50 50 21 Net debt to net debt plus equity (adjusted) (%)(2) 24 20 n/a 42 42 EBITDA by segment ($m) Exploration and Production 325 250 264 266 254 Generation 327 182 107 65 79 Retail 785 568 479 499 355 Contact 345 346 369 494 477 Networks (discontinued) – – – – 30 General information Number of employees (Excluding Contact Energy) 5,213 4,392 4,198 3,940 3,751 2P reserves (PJe) 7,041(8) 6,207 4,484 5,770 3,471 Product sales volumes (PJe) 150 117 112 101 93 Natural gas (PJ) 126 97 93 84 74 Crude oil (kbbls) 1,067 1,209 1,358 1,252 1,540 Condensate/naphtha (kbbls) 1,792 1,245 821 762 784 LPG (kt) 136 92 97 67 65 Ethane (kt) 37 36 34 25 40 Production volumes (PJe) 135 104 104 100 87 Generation (MW) – owned and contracted 5,310 1,620 1,494 704 704 Generation dispatched (TWh) 9.56 2.36 1.67 1.55 1.62 Number of customers (‘000) 4,502 2,938 2,957 2,945 3,011 Electricity 3,214 1,721 1,743 1,729 1,786 Natural gas 923 868 867 880 889 LPG 365 349 347 336 336 Retail sales volumes (PJe) 289 266 269 264 231 Electricity (TWh) 34 30 31 32 23 Natural gas (PJ) 142 135 134 127 125 LPG (Kt) 476 491 479 462 486 Weighted average number of shares(7) 947,741,899 903,353,998 902,833,589 900,682,553 859,932,181

(1) Origin now 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. As a consequence, EBITDA for June 2008 has been restated. (2) Adjusted to exclude impact of derivative financial instruments. Only includes interest-bearing debt. (3) OCAT is calculated from EBITDA as the primary source of cash contribution, but adjusted for stay-in-business capital expenditure, changes in working capital, non cash items and tax paid. (4) Free cash flow is defined here as cash available to fund distributions to shareholders and growth capital. It includes deductions for stay-in-business capital expenditure, interest and tax. (5) Productive capital is 12 months average funds employed excluding capital work in progress and including 50 per cent of Australia Pacific LNG. (6) Group OCAT Ratio = (OCAT - interest tax shield)/productive capital. (7) FY2007 to FY2010 data has been restated for the bonus element of the rights issue completed in April 2011. (8) Includes Origin’s 50 per cent share of Australia Pacific LNG reserves as at 30 June 2011. Origin’s share post-Sinopec completion on 9 August 2011 is 42.5 per cent, diluting Origin’s 2P reserves by 883 PJe. 138 glossary of terms

2C Best Estimate Contingent resource. 3C High Estimate Contingent resource. 2P reserves Proved plus Probable reserves. Analysis of geological and engineering data suggests these reserves are more likely than not to be recoverable under reasonable economic, technical and operating methods. 3P reserves Proved plus Probable plus Possible. A-IFRS Australian equivalents to International Financial Reporting Standards. Appraisal well Well drilled to determine the size of an oil or gas discovery. AS 3806 Australian Standard on Compliance Program used to manage regulatory risks. APLNG Australia Pacific LNG, a joint venture between Origin, ConocoPhillips and Sinopec. Availability The time a generation plant was available for use, after deducting planned and unplanned outage hours, compared with the total time under review. Barrels (bbls) A measure used for oil production and sales. One barrel equals approximately 159 litres. Bopd Barrels of oil per day. Capacity factor A generation plant’s output over a period compared with the expected maximum output from the plant in that period based on 100% availability at the manufacturer’s operating speciﬁcations. Capital expenditure Investment in acquisition or improvement of long-term assets, such as property, plant or equipment.

Carbon dioxide (CO2) Greenhouse gas produced as a by-product of oil and gas production and when burning fossil fuels and biomass. Cased and suspended A successful well with a steel casing installed to enable future production. Churn Mass-market energy customers switching suppliers. Climate change Any change in climate over time, whether due to natural variability or as a result of human activity. Coal seam gas (CSG) Natural gas contained within coal seams. Cogeneration Producing two or more forms of energy from one fuel source. Generally, cogeneration plants operated by Origin Energy produce steam and electricity from natural gas. CCGT Combined Cycle Gas Turbine. Condensate A light oil that separates during gas production processes due to changes in pressure and temperature. Contract Price (CP) An international price for LPG, in US dollars, using the Saudi Aramco Contract Price – tender process. Australian LPG producers export LPG or sell into the domestic Australian market at prices that reﬂect the CP. Similarly, Australian LPG retailers purchase domestically produced or imported LPG based on CP. Development well A well drilled to enable production from a known oil or gas reservoir. EBIT Earnings before interest and tax. EBITDA Earnings before interest, tax, depreciation and amortisation. EIS Environmental Impact Statement Electricity measures •• Watt (W) A measure of power when a one ampere of current ﬂows under one volt of pressure. •• Kilowatt (kW) One kW = 1,000 watts. •• Kilowatt hour (KWh) Standard unit of electrical energy representing consumption of one kilowatt over one hour. •• Megawatt (MW) One MW = 1,000 kW or one million watts. •• Gigawatt hour (GWh) One GWh = 1,000 megawatt hours or one million kilowatt hours. •• Terawatt hour (TWh) One TWh = 1,000 gigawatt hours, or one million megawatt hours. EOWA Equal Opportunity for Women in the Workplace Agency. EPA Environment Protection Authority or equivalent state authority. EPS Earning per share, total earnings divided by the weighted average shares on issue. Exploration well A well drilled to identify a new reservoir of natural gas or oil. Farmout arrangement The owner or lessee of mineral rights (the first party) assigns a working interest to an operator (the second party), the consideration for which is specified exploration and/or development activities. Farmin arrangement The arrangement from the viewpoint of the second party is termed a “farmin arrangement”. FEED Front end engineering and design. FID Final Investment Decision. Full Retail Contestability (FRC) Where homes and businesses are able to choose their own energy supplier.

Origin Energy Annual Report 2011 139 glossary of terms (continued)

Gas measures •• Joule Primary measure of energy in the metric system. •• Gigajoule (GJ) A gigajoule equals one billion joules. An average Victorian household consumes around 55 GJ annually. •• Terajoule (TJ) A Terajoule is equal to 1,000 gigajoules. •• Petajoule (PJ) A Petajoule is equal to one million gigajoules. •• Petajoules equivalent (PJe) An energy measurement Origin Energy uses in its annual report to represent the equivalent energy in different products so the amount of energy contained in these products can be compared. The factors used by Origin Energy to convert to PJe are: one million barrels crude oil = 5.8 PJe; one million barrels condensate = 5.4 PJe; one million tonnes LPG = 49.3 PJe; one TWh of electricity = 3.6 PJe. Geothermal Energy that is generated by converting hot water or steam from deep beneath the Earth’s surface into electricity. GHG Greenhouse gas. Greenfields exploration Where Origin Energy holds exploration rights, but does not have a substantial producing interest. Hedge contract A financial instrument to manage the risk created by price volatility for a commodity (such as electricity or crude oil) on a spot market. Buyers and sellers of the commodity may enter into long or short-term contracts at an agreed price. HSEMS Health, Safety and Environment Management System. Hydrocarbons Oil and gas, including condensate and gas liquids (LPG and ethane). Kbbls Kilobarrels = 1,000 barrels. Kt Kilotonnes = 1,000 tonnes. LNG Liquefied natural gas. LPG Liquefied petroleum gas. NEM National Electricity Market. NGOs Non-government organisations. Offshore exploration The search for hydrocarbon deposits under the sea, such as natural gas or oil. Onshore exploration The search for hydrocarbon deposits beneath the Earth’s surface, such as natural gas or oil. OCGT Open Cycle Gas Turbine. Operating Cash flow (OCAT – interest tax shield)/Productive Capital. After Tax Ratio (OCAT Ratio) Productive Capital is 12 months’ average funds employed excluding capital work in progress and including 50% of Australia Pacific LNG. Peaking plant A generator that can be quickly started to operate during periods of high electricity demand and/or high prices in the electricity market. Photovoltaic (PV) Photovoltaic cells convert sunlight into electricity. Plugged and abandoned A well, generally unsuccessful, which has been abandoned with cement plugs and from which hydrocarbons cannot be produced in the future. QCA Queensland Competition Authority Reserves Origin Energy uses reserves definitions consistent with the Society of Petroleum Engineers and required by the Australian Securities Exchange. Reserves reported are based on information compiled by full time employees of the company who are qualified in accordance with Australian Securities Exchange listing rule 5.11. Reserves Replacement Ratio Annual change in reserves, before deducting production, divided by production during the year. An annual RRR (RRR) of 100% indicates full replacement of production by reserve additions for that year. RET The Federal Government implemented a Renewable Energy Target (RET), requiring 20 per cent of electricity to come from renewable energy sources by 2020. Seismic survey A geophysical survey to understand rock formations beneath the Earth’s surface. SLIVER solar panels An Origin Energy product which uses one-tenth of the silicon of conventional solar panels while matching their power, performance and efficiency. Spot market A wholesale market for commodities, such as electricity or crude oil, which allows matching of supply against demand. Statutory profit Profit as disclosed in the income statement of the statutory accounts. The Company Origin Energy Limited and its controlled entities. Total Recordable Incident The total number of fatalities and injuries resulting in lost time, restricted work duties or medical treatment per Frequency Rate (TRIFR) million hours worked. Underlying profit Statutory profit adjusted for the impact of items that do not inform the ongoing performance of the business and used to measure the underlying performance of the business. Upstream Part of Origin Energy’s business that is involved in the exploration and production of hydrocarbons.

140

Directory Origin Energy Limited

Registered office Share register Secretaries Level 45, Australia Square Link Market Services Limited Andrew Clarke 264-278 George Street Level 12, 680 George Street Helen Hardy Sydney NSW 2000 Sydney NSW 2000 Auditor GPO Box 5376 Locked Bag A14 Sydney NSW 2001 Sydney South NSW 1235 KPMG Telephone (02) 8345 5000 Toll Free 1300 664 446 Facsimile (02) 9241 7377 Telephone (02) 8280 7155 Internet w w w.originenergy.com.au Facsimile (02) 9287 0303 Email enquiry @ originenergy.com.au Internet w w w.linkmarketservices.com.au Email registrars @ linkmarketservices.com.au

Further information about Origin’s performance can be found on the website: ht tp://reports.originenergy.com.au