Annual-Report-2012.Pdf

ENERGY FOR TODAY and TOMORROW

Annual Report 2012 contents

1. A message from your Chairman and Managing Director 1

2. Management Discussion and Analysis 4

3. Directors’ Report 36

4. Lead Auditor’s Independence Declaration 43

5. Remuneration Report 44

6. Board of Directors 66

7. Executive Management Team 68

8. Corporate Governance Statement 70

9. Financial Statements 74

10. Directors’ Declaration 142

11. Independent Auditor’s Report 143

12. Share and Shareholder Information 145

13. Exploration and Production Permits and Data 147

14. Five Year Financial History 151

15. Glossary of Terms 152

COVER IMAGES

Top Left Top Right An Origin employee Cuervo River, part of at one of Australia Energía Austral’s hydro Pacific LNG’s CSG development project. wells in Queensland. Bottom Right Bottom Left Origin’s online An Origin employee Smart energy at Uranquinty Power management portal. Station in NSW.

4 A MESSAGE FROM YOUR CHAIRMAN AND MANAGING DIRECTOR

ENERGY

Managing Director, Grant King and FOR Chairman, Kevin McCann OPPORTUNITY

FULL YEAR PROFIT $980M AND UNDERLYING Fellow Shareholder PROFIT UP 33 PER CENT TO $893M Origin has again delivered strong growth Statutory Profit (2) for the year was $980 million, up from $186 million across our operating businesses in the 2012 in the prior year. The primary factors contributing to the increase in Statutory Profit included a higher Underlying Profit, a gain on dilution of financial year, largely driven by the first full Origin’s shareholding in Australia Pacific LNG and a substantial increase year contribution from the New South Wales in the fair value of financial instruments, partially offset by a larger energy assets (1) acquired in March 2011. impairment of assets when compared to the prior year. Underlying Profit increased 33 per cent or $220 million to $893 million, For the past two years, Origin has delivered when compared with the prior year, driven by a full year contribution growth in Underlying Profit (2,3) of more than from the NSW energy assets, a lower exploration expense and higher commodity prices. 50 per cent and growth in Underlying The increase in Underlying Profit was matched by 27 per cent growth in EBITDA (2) of more than 65 per cent. Underlying EBITDA to $2.3 billion and a 12 per cent rise in Group Operating Cash Flow After Tax (2) to $1.8 billion, demonstrating the ongoing strength of Origin’s underlying business. At the same time, your Company has laid the foundations that will Basic earnings per share (EPS) based on Statutory Profit increased by ensure the business continues to grow over the medium to long term. 71.0 cents per share (cps) to 90.6 cps from 19.6 cps last year. Underlying In particular, we continue to progress the Australia Pacific LNG project, EPS rose 16 per cent to 82.6 cps compared with 71.0 cps last year. the most significant project we have undertaken to date and which stands to deliver significant shareholder value as it is completed. In order The Board has declared a final fully franked dividend of 25 cps, taking to support the funding of our interest in Australia Pacific LNG, we have total dividends for the year to 50 cps, in line with the 2011 financial year. reduced capital expenditure outside of our interest in Australia Pacific The full year dividend of 50 cps represents a payout ratio of 61 per cent (2) LNG and also ceased to pursue other activities not considered a priority of Underlying EPS . for the Company at this time. We discuss these activities later in this The final dividend will be paid on 27 September 2012 to shareholders year’s report. of record on 3 September 2012.

(1) Refers to Origin’s acquisition of the Integral Energy and Country Energy retail businesses and the Eraring GenTrader arrangements in March 2011. (2) Refer to Glossary of Terms on pages 152-154 of this report. (3) Refer to Section 3 of the Management Discussion & Analysis for a reconciliation between Statutory Profit and Underlying Profit. (4) Underlying EPS is disclosed in note 37 of the Origin Consolidated Financial Statements on page 140 of this report.

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

Origin’s Dividend Reinvestment Plan (DRP) will apply to this dividend. No AUSTRALIA PACIFIC LNG PROGRESSING ON discount will be applied in the calculation of the DRP price and the final SCHEDULE AND ON BUDGET dividend will not be underwritten. The Australia Pacific LNG project is a key focus for Origin for the near PRUDENT CAPITAL MANAGEMENT term. The $23 billion, two train LNG project has been sanctioned and significant progress has been made towards first LNG in 2015, both in Australia Pacific LNG has signed US$8.5 billion of project financing terms of continued growth of reserves and in construction. agreements. This, together with Origin’s strong operating cash flow after Australia Pacific LNG increased 2P reserves from 11,775 petajoules (1) tax and $4.2 billion in cash and undrawn facilities, provides sufficient equivalent (PJe) at 30 June 2011 to 13,111 PJe at 30 June 2012, with 3P liquidity for Origin’s remaining funding requirement for Australia Pacific reserves increasing from 14,742 PJe to 16,047 PJe. LNG of approximately $3.6 billion to first LNG for both trains, as well as The overall progress of work completed to date is 14 per cent for the the ongoing needs of Origin’s business. Upstream part of the project and 17 per cent for the Downstream part If we achieve the planned dilution in Australia Pacific LNG below Origin’s of the project. There has been no increase to the $23 billion estimated current shareholding of 37.5 per cent, our funding position will further project costs, and the high ratio of fixed versus variable costs provides improve. improved project cost certainty and enables risks to be appropriately managed. More than two thirds of the total project cost is fixed or CONTINUING STRENGTH IN THE UNDERLYING unit rate, with the remainder variable and already largely agreed BUSINESS with contractors. The growth in Origin’s Underlying Profit and Underlying EBITDA reflects When we announced the final investment decision (FID) for the second the continuing strength of Origin’s underlying businesses. train in July 2012, we announced a joint process with ConocoPhillips to Energy Markets Underlying EBITDA increased by 33 per cent or $388 million further dilute our interest in Australia Pacific LNG below 37.5 per cent. to $1,562 million, an increase which was largely attributable to a full year Origin’s intention is to retain around a 30 per cent stake in Australia contribution from the acquired NSW energy assets. Pacific LNG over the longer term. Exploration and Production Underlying EBITDA increased by 23 per cent LOOKING AHEAD or $61 million to $329 million, primarily due to a lower exploration expense and higher commodity prices, partially offset by higher operating costs. To support our major focus of delivering first production from Australia Australia Pacific LNG Underlying EBITDA decreased by 25 per cent or Pacific LNG on schedule and on budget, we have been significantly $16 million to $47 million, primarily due to the dilution of Origin’s reducing our committed capital expenditure on other projects and we shareholding in Australia Pacific LNG from 50 per cent to 42.5 per cent will be focusing on maximising cash flow from the existing businesses following the first Sinopec subscription in July 2011, together with higher and managing the maturity of our existing debt facilities. operating costs to support the expanded operations and meet increased When announcing our full year results in August, we launched a regulatory requirements. $625 million four and five year syndicated bank loan to refinance Contact Energy Underlying EBITDA increased by 16 per cent or $55 million debt maturing in the 2013 financial year. to $400 million, primarily due to reductions in gas and carbon unit costs The outlook for the coming year is more challenging than in prior years, and improved commercial and industrial margins. with less growth coming from new capital investments, regulatory Corporate expenses increased by 19 per cent or $13 million resulting in uncertainty, particularly related to pricing decisions made by the an Underlying EBITDA loss of $81 million. The largest contributor was Queensland Competition Authority for which we have initiated a judicial increased expenditure on development opportunities in Chile, Indonesia review, as well as more uncertainty in forecasting earnings driven by and Papua New Guinea. volatile global commodity prices and changing patterns in the demand for energy in Australia. RETAIL TRANSFORMATION DELIVERING In the Energy Markets segment, we will respond to the uncertainties by IMMEDIATE IMPROVEMENTS focusing on reducing costs, winning and retaining customers, realising benefits of the new SAP billing and customer relationship management Origin’s Energy Markets business continued to make good progress on system and continuing to capture benefits from Origin’s integrated the integration of the NSW energy assets, as well as successfully portfolio. In this segment, we are targeting an Underlying EBIT margin (2) completing a major SAP billing and customer relationship management of around 11 per cent. system implementation. This new system will increase the efficiency of our operations, improve competitiveness and allow us to respond more We expect a higher contribution from our Exploration and Production effectively to customer needs. business with BassGas expected to recommence production in the September Quarter 2012. We are scheduling a shutdown for Otway to While a range of factors constrained Origin’s ability to attract and retain allow for the tie-in of the Geographe project. We are also expecting a customers in the first half of the financial year, primarily a freeze on new higher contribution from Contact Energy as it continues to benefit from product development and call centre system availability, these were greater flexibility in its generation portfolio and its gas purchasing position. released after completion of the system implementation. As a result, second half net customer losses were 48,000, a 57 per cent improvement Depreciation and amortisation costs will increase in line with the on the first half. increased asset base, following the completion of Mortlake Power Station, upgrades to Eraring Power Station, implementation of the new With the help of new rate freeze and easy payment products and new SAP billing and customer relationship management system, a return to technology supporting self service, electronic billing and smart energy production at BassGas and increased production. management, our intention is to maintain customer numbers throughout the coming year.

(1) Excluding Contact and bank guarantees. (2) Refer to Glossary of Terms.

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

Underlying net financing costs (1) are expected to increase substantially PEOPLE in the 2013 financial year compared with the prior year due to interest Origin’s first priority is the health and safety of our people and contractors. on completed projects and the Ironbark development no longer being We implemented a new system to target safety observations in an effort capitalised. Interest associated with Origin’s cash contributions via to focus on modifying behaviours before incidents occur, preventing shareholder loan repayments to Australia Pacific LNG will continue to unsafe actions and reinforcing safe behaviours. We reached our target be excluded from Underlying Profit. of more than 30,000 observations by employees and, as a result, the Origin’s Underlying effective tax rate (1) is expected to remain at around Company will award $1,000 of shares to eligible employees via the 30 per cent for the coming year. Employee Share Plan. Based on these factors and prevailing market conditions, Origin Regrettably, we continue to be reminded of the risks faced by our people anticipates Underlying EBITDA for the 2013 financial year to increase and those who do work on our behalf. In February 2012, an employee was by approximately 10 per cent and Underlying Profit to be in line with killed in a road accident in the Papua New Guinea Highlands. In August 2012, the 2012 financial year result. two employees of Stena Drilling, a contractor operating the Stena Clyde While Origin intends to reduce its shareholding in Australia Pacific LNG drilling rig drilling a well for Origin in the Bass Strait, died as a result of an to below 37.5 per cent, profit guidance does not include any impact of incident on the rig. We will continue to focus on strategies and initiatives such a change. that will help deliver a zero harm workplace. Finally, we would like to sincerely thank the people and businesses PURSUING FUTURE GROWTH OPPORTUNITIES associated with Origin – from our customers and partners, to our There are a number of opportunities both domestically and internationally employees and investors, to the communities in which we live and work. that Origin will pursue to drive growth in the medium to long term. As we continue to grow our business and consolidate Origin’s position as We are well positioned to capitalise on the expected rise in domestic gas Australia’s leading integrated energy company, we take pride in sharing prices, with a diverse and flexible portfolio of physical and contracted this success with all of our stakeholders, now and into the future. fuel resources. As evidenced by the recent gas sale to the GLNG project at international oil-linked pricing, fuel integration is a key source of Origin’s competitive advantage. Gas demand in eastern Australia is expected to triple over the next five years and Origin continues to invest in a targeted number of exploration opportunities in and around existing permits in anticipation of this growth. Origin is also exploring for oil and gas resources in H Kevin McCann Grant King attractive international markets including New Zealand, South East Asia, Chairman Managing Director Kenya and Botswana, providing access to both potential resources and growing demand. We also continue to develop our portfolio of high quality, large-scale renewable energy opportunities in offshore markets which offer strong growth prospects, including a potential hydro project and geothermal exploration in Chile, geothermal exploration in Indonesia and a potential hydro project in Papua New Guinea. In the 12 years since listing on the Australian Securities Exchange, Origin has consistently demonstrated the ability to deliver sustained growth in earnings which, in turn, has resulted in long term growth in shareholder value. Based on the opportunities available to the Company and the environment in which we are operating, Origin continues to target growth in Underlying EPS of 10 to 15 per cent per annum on average. WORKING WITH COMMUNITIES The nature of our business brings us into contact with a large number of communities across Australia, and increasingly other parts of the world, and we continue to focus on opportunities to share and jointly create community value with our stakeholders. Australia Pacific LNG is making a significant economic contribution to Queensland, currently creating employment for around 4,000 Queenslanders. The project expects to create a maximum of 6,000 construction jobs at its peak. Independently chaired community consultative committees established in regional centres provide a key channel for communication between Origin, Australia Pacific LNG and the community. We have also developed an innovative program with Skills Queensland, which enables landholders to support CSG infrastructure on their land, providing them with an additional income stream.

(1) Refer to Glossary of Terms.

Origin Energy Annual Report 2012 3 Management Discussion and Analysis for the year ended 30 June 2012

Certain statements in this report are in the nature of forward looking a 50 per cent shareholding in until 9 August 2011, when completion of a statements, including statements of current intention, statements of share subscription agreement between Australia Pacific LNG and Sinopec opinion and predictions as to possible future events. Such statements resulted in a dilution in Origin’s shareholding to 42.5 per cent. Origin’s are not statements of fact and there can be no certainty of outcome in shareholding in Australia Pacific LNG, which is equity accounted in line with relation to the matters to which the statements relate. These forward Origin’s shareholding, was 42.5 per cent as at 30 June 2012. This shareholding looking statements involve known and unknown risks, uncertainties, subsequently reduced to 37.5 per cent upon completion of Sinopec’s assumptions and other important factors that could cause the actual increased share subscription in Australia Pacific LNG on 12 July 2012. outcomes to be materially different from the events or results expressed A reference to the NSW acquisition or NSW energy assets is a reference or implied by such statements. Those risks, uncertainties, assumptions to the Integral Energy and Country Energy retail businesses and the and other important factors are not all within the control of Origin and Eraring GenTrader arrangements acquired by Origin in March 2011. cannot be predicted by Origin and include changes in circumstances or A reference to $ is a reference to Australian dollars unless specifically events that may cause objectives to change as well as risks, circumstances marked otherwise. All references to debt are a reference to interest and events specific to the industry, countries and markets in which bearing debt only (excludes Australia Pacific LNG shareholder loans). Origin and its related bodies corporate, joint ventures and associated Individual items and totals are rounded to the nearest appropriate undertakings operate. They also include general economic conditions, number or decimal. Some totals may not add down the page due to exchange rates, interest rates, the regulatory environment, competitive rounding of individual components. When calculating a percentage pressures, selling price, market demand and conditions in the financial change, a positive or negative percentage change denotes the markets which may cause objectives to change or may cause outcomes mathematical movement in the underlying metric, rather than a positive not to be realised. None of Origin or any of its respective subsidiaries, or a detrimental impact. Measures for which the underlying numbers affiliates and associated companies (or any of their respective officers, change from negative to positive are labelled as not applicable. employees or agents) (the Relevant Persons) makes any representation, assurance or guarantee as to the accuracy or likelihood of fulfilment of CHANGES TO REPORTING OF OPERATING any forward looking statements or any outcomes expressed or implied SEGMENTS in any forward looking statements. The forward looking statements in this report reflect views held only at the date of this report. In addition, Origin revised its operating segments in February 2012 for the half year statements about past performance are not necessarily indicative of ended 31 December 2011 to reflect changes in Origin’s business. Origin’s future performance. Subject to any continuing obligations under law results for the year ended 30 June 2012 are consistent with these new or the ASX Listing Rules, Origin and the Relevant Persons disclaim any operating segments. obligation or undertaking to disseminate after the date of this report any A description of the new operating segments is provided below. updates or revisions to any forward looking statements to reflect any Comparative segment balances for the year ended 30 June 2011 have change in expectations in relation to any forward looking statements been restated, with key reconciliations provided in Appendix 4. or any change in events, conditions or circumstances on which such Energy Markets – This segment includes Australian energy retail statements are based. operations (including energy related products and services), power All figures in this report relate to businesses of the Origin Energy Group generation activities in Australia, and Liquefied Petroleum Gas (LPG) (Origin, or the Company), being Origin Energy Limited and its controlled operations in Australia, the Pacific, Papua New Guinea (PNG) and Vietnam. entities, for the year ended 30 June 2012 (this year or the current year) Previously, retail and generation operations were disclosed as separate compared with the year ended 30 June 2011 (the prior year), except segments. The previous Retail segment has been incorporated into the where otherwise stated. Energy Markets segment almost in its entirety, with the exclusion of Origin’s Full Year Financial Statements for the year ended 30 June 2012 some costs previously allocated to Retail, which are now in the Corporate are presented in accordance with Australian Accounting Standards. The segment. The Generation segment previously included Origin’s major Segment results, which are used to measure segment performance, are generation activities and power station developments in Australia, disclosed in Note 2 of the 2012 Full Year Financial Statements and are including wind (now in the Energy Markets segment), together with disclosed on a basis consistent with the information provided internally development activities in geothermal, hydro and solar and some to the Managing Director. Origin’s Statutory Profit contains a number of corporate costs (now in the Corporate segment). items that when excluded provide a different perspective on the financial Exploration & Production – This segment records Origin’s gas and oil and operational performance of the business. Income Statement amounts exploration and production activities in Australia, New Zealand and presented on an underlying basis, such as Underlying Consolidated Profit, other international areas of interest. The results of Australia Pacific LNG are non-IFRS financial measures, and exclude the impact of these items were previously included in this segment. consistent with the manner in which the Managing Director reviews the financial and operating performance of the business. Each underlying Australia Pacific LNG – This segment covers Origin’s equity accounted measure disclosed has been adjusted to remove the impact of these investment in Australia Pacific LNG. items on a consistent basis. A detailed reconciliation and description Contact Energy – This segment reports the results of Origin’s investment of the items that contribute to the difference between Statutory Profit in its 53.0 per cent owned controlled entity, Contact Energy, involved in and Underlying Consolidated Profit is provided in Section 3.1. energy retailing, associated products and services and power generation This report also includes certain other non-IFRS financial measures. in New Zealand. These non-IFRS financial measures are used internally by management Corporate – This segment reports corporate activities that are not to assess the performance of Origin’s business and make decisions on allocated to other operating segments and business development activities allocation of resources. Further information regarding the non-IFRS outside of Origin’s existing operations. Historically, all corporate costs financial measures and other key terms used in this presentation is were allocated to other segments. Business development activities included in the Glossary of Terms (footnotes reference the first time a principally include Origin’s Australian geothermal activities and overseas term is used). Non-IFRS measures have not been subject to audit or generation development opportunities such as geothermal opportunities review. in Chile and Indonesia, hydro opportunities in PNG and Chile and the A reference to Contact Energy is a reference to Origin’s controlled entity Transform Solar joint venture. (53.0 per cent ownership) Contact Energy Limited in New Zealand. In Net financing costs and tax specifically associated with the Australia accordance with Australian accounting standards, Origin consolidates Pacific LNG and Contact Energy segments are recorded in those Contact Energy within its result. A reference to Australia Pacific LNG or segments. All other net financing costs and tax are recorded in the APLNG is a reference to Australia Pacific LNG Pty Ltd in which Origin had Corporate segment.

4 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

1. FINANCIAL PERFORMANCE SUMMARY

1.1 Statutory Profit (1) – $980 million profit, up from $186 million Origin reported a Net Profit After Tax (NPAT) and Non-controlling interests (1) (Statutory Profit) of $980 million for the year ended 30 June 2012, an increase of $794 million compared with $186 million reported in the prior year. The key factors contributing to the increase in the Statutory Profit include: higher Underlying Profit (1) driven by the NSW acquisition, a lower exploration expense and higher wholesale energy prices for Contact Energy (+$220 million); net gains on items related to Australia Pacific LNG, primarily a gain on dilution of Origin’s shareholding (+$414 million); an increase in the fair value of financial instruments (+$258 million); and a lower net expense from other items including transition and transaction costs relating to the NSW acquisition (+$149 million); partially offset by: a larger impairment of assets (-$247 million). Further details are provided in Section 1.4 - Reconciliation of Statutory Profit to Underlying Profit and in Section 3.1. 1.2 Statutory earnings per share – 90.6 cps, up from 19.6 cps Basic earnings per share (EPS) based on Statutory Profit increased by 71.0 cents per share (cps) to 90.6 cps from 19.6 cps in the prior year. The weighted average capital base of 1,082 million shares increased 14 per cent on the prior year, mainly due to the full year impact of the $2.3 billion 1 for 5 pro rata equity offering completed in April 2011 and the $266 million share issuance resulting from the underwritten Dividend Reinvestment Plan (DRP) completed in September 2011. 1.3 Final dividend – 25 cps fully franked A final fully franked dividend of 25 cps will be paid on 27 September 2012 to shareholders of record on 3 September 2012. Origin shares will trade ex-dividend from 28 August 2012. This will bring the total dividend attributable to the 2012 financial year to 50 cps in line with the prior year. The DRP will apply to this dividend. No discount will be applied in the calculation of the DRP price. The final DRP for the period ended 30 June 2012 will not be underwritten. 1.4 Reconciliation of Statutory Profit to Underlying Profit Statutory Profit for this year and the prior year contains the impact of a number of items which, when excluded, provide a different perspective on the financial and operating performance of the Origin business, consistent with the manner in which the Managing Director reviews the business. Underlying Profit excludes these items and is used internally by the Managing Director to assess the performance of Origin’s business and make decisions on the allocation of resources. In the year to 30 June 2012, items excluded in the measurement of Underlying Profit amounted to a benefit of $87 million. This compares with the year ended 30 June 2011 in which these items had an overall cost of $487 million. Reconciliation of Statutory Profit to Underlying Profit

2012 2011 Year ended 30 June $million Excluded items NPAT Excluded items NPAT Change

Statutory Profit 980 186 794 APLNG related items 430 16 414 Increase/(decrease) in fair value of financial instruments 119 (139) 258 Impairment of assets (407) (160) (247) Other (55) (204) 149 Less total excluded items 87 (487) 574 Underlying Profit 893 673 220

A more detailed reconciliation of Statutory Profit to Underlying Profit is provided in Section 3.1. 1.5 Underlying Proﬁt - $893 million, up 33 per cent Underlying Profit for the year increased 33 per cent or $220 million to $893 million, from $673 million in the prior year. The result primarily reflects a 27 per cent or $475 million increase in Underlying Earnings Before Interest, Tax, Depreciation and Amortisation (Underlying EBITDA (1)) due in part to contributions from the NSW energy assets, a lower exploration expense and higher wholesale energy prices in the Contact Energy segment. The increase in Underlying EBITDA was partially offset at the Underlying Profit level by higher depreciation and amortisation charges primarily in the Energy Markets segment (primarily due to a full year of operations at the Eraring and Shoalhaven power stations) and in the Contact Energy segment (-$75 million), and an increase in Underlying net financing costs (1) (-$74 million). Further details are provided in Section 3.

(1) Refer to Glossary of Terms.

Origin Energy Annual Report 2012 5 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

1.6 Underlying EPS – 82.6 cps, up 16 per cent Contact Energy is expected to see an increased earnings contribution as Underlying EPS (1) calculated on Underlying Profit was 82.6 cps on a it continues to benefit from greater flexibility in its generation portfolio weighted average capital base of 1,082 million shares. This represents and its gas purchasing position. a 16 per cent increase from 71.0 cps on a weighted average capital base Depreciation and amortisation costs will increase in line with the of 948 million shares in the prior year. The lower increase in Underlying increased asset base, following completion of the Mortlake Power EPS of 16 per cent compared with the increase in Underlying Profit of Station, upgrades to the Eraring Power Station, implementation of the 33 per cent reflects the increase in the weighted average capital base, new SAP billing and customer relationship management system, due predominantly to the full year impact of the $2.3 billion 1 for 5 pro rata depreciation of Phase 1 of the BassGas Mid-Life Enhancement project equity offering completed in April 2011 to support the NSW acquisition and increased production. and the $266 million share issuance from the underwritten DRP for the Underlying net financing costs are expected to increase substantially 2011 financial year final dividend, completed in September 2011. in the 2013 financial year compared with the prior year due to interest Origin’s total dividend of 50 cps attributable to the 2012 financial year on completed projects and the Ironbark development no longer being represents a payout ratio of 61 per cent based on Underlying EPS. capitalised. Interest associated with Origin’s cash contributions to Australia Pacific LNG will continue to be excluded from Underlying Profit. 1.7 Operating Cash Flow After Tax (OCAT) - $1,781 million, Origin’s Underlying effective tax rate (1) is expected to remain around up 12 per cent 30 per cent for the coming year. Group OCAT (1) increased by 12 per cent or $196 million to $1,781 million. Taking all these factors into account, and based on prevailing market This was primarily due to the $475 million increase in Underlying EBITDA conditions, Origin anticipates Underlying EBITDA for the 2013 financial partially offset by the utilisation of $235 million of provisions relating to year to increase by around 10 per cent and Underlying Profit to be in line the NSW acquisition, including $98 million for the Transitional Services with the 2012 financial year. Agreements (TSAs, discussed in further detail in Section 5.1.6) and $137 million for onerous hedge contracts, and by higher working capital While Origin intends to reduce its shareholding in Australia Pacific LNG requirements. to below 37.5 per cent, this guidance does not include any impact of a change in Origin’s shareholding. Further details are provided in Section 4.2. Future growth opportunities 1.8 Capital expenditure and Origin cash contributions to Australia Paciﬁc LNG - $2,847 million (2) Origin continues to pursue a number of opportunities in Australia and internationally that will drive growth in the medium to longer term. Capital expenditure for the year (including capitalised interest and cash received on settlement of the NSW acquisition of $75 million) was Origin is well positioned to capitalise on the expected rise in domestic $1,680 million. This was down 66 per cent from $4,954 million in the gas prices, with a diverse and flexible portfolio of physical and prior year, which included $3,125 million relating to the NSW energy contracted fuel resources, as evidenced by the recent gas sale to the assets acquired in March 2011. GLNG project at international oil-linked pricing. In addition, Origin contributed $1,167 million to Australia Pacific LNG via Gas demand in eastern Australia is expected to triple over the next five years, loan repayments to fund its share of Australia Pacific LNG capital and Origin continues to invest in a targeted number of exploration expenditure not otherwise met by cash available to Australia Pacific LNG. opportunities in and around existing permits in anticipation of this growth. Further details are provided in Section 4.3. Origin is also exploring for resources in attractive international markets including New Zealand, South East Asia, Kenya and Botswana, providing 2. OUTLOOK access to both potential resources and growing demand. A key focus for the Company over the next few years is on delivering the Origin continues to develop a portfolio of high quality, large-scale Australia Pacific LNG project on schedule and on budget. To fund Origin’s renewable energy opportunities in offshore markets which offer strong share of that investment the Company has been significantly reducing growth prospects. This includes a potential hydro project and its committed capital expenditure on other projects, will be focusing on geothermal exploration in Chile, geothermal exploration in Indonesia maximising cash flow from the existing business and managing the and a potential hydro project in PNG. maturity of its existing debt facilities. Based on the opportunities available to the Company, Origin continues The outlook for the coming year is more challenging than in prior years to target long term growth in Underlying EPS of 10 per cent to 15 per cent with less growth coming from new capital investments, regulatory per annum on average. uncertainty, particularly related to pricing decisions made by the Queensland Competition Authority for which the Company has initiated a judicial review, as well as more uncertainty in forecasting earnings, driven by volatile global commodity prices and changing patterns in the demand for energy in Australia. In Energy Markets, Origin will respond to the uncertainties by focusing on reducing costs, winning and retaining customers, realising benefits from the new SAP billing and customer relationship management system, and continuing to capture the benefits from Origin’s integrated portfolio. In this segment, Origin’s intention is to maintain customer numbers throughout the coming year, and it is targeting an Underlying EBIT margin (1) of around 11 per cent. In Exploration & Production, production is forecast to increase with BassGas expected to recommence production in the September 2012 Quarter, partially offset by reduced production at Otway due to a scheduled shutdown.

(1) Refer to Glossary of Terms. (2) Includes a benefit of $75 million in the 2012 financial year relating to a working capital settlement for the NSW acquisition.

6 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

3. REVIEW OF FINANCIAL PERFORMANCE

2012 2011 Change Section Year ended 30 June $million $million % reference

External revenue 12,935 10,344 25 3.2 EBITDA 2,290 1,114 106 3.3 Depreciation and amortisation (614) (539) 14 3.4 Share of interest, tax, depreciation and amortisation of equity accounted investees (27) (25) 8 3.5 EBIT 1,649 550 200 3.6 Net financing costs (289) (155) 86 3.7 Profit before income tax 1,360 395 244 – Income tax expense (302) (147) 105 3.8 Net profit after tax before Non-controlling interests 1,058 248 327 – Non-controlling interests share of Statutory Profit (78) (62) 26 3.9 Statutory Profit 980 186 427 3.10 Statutory earnings per share 90.6¢ 19.6¢ 362

The above table is derived from the Income Statement and Notes to the Financial Statements. The Company excludes certain items (described in detail below) from Statutory Profit in order to calculate Underlying Profit, which the Managing Director uses to assess the financial and operational performance of the business.

3.1 Reconciliation of Statutory Proﬁt to Underlying Proﬁt

Net Non- Reconciliation year ended 30 June 2012 financing controlling $million EBITDA EBIT costs Tax interests NPAT

Statutory measure 2,290 1,649 (289) (302) (78) 980 Gain on dilution of Origin’s shareholding in APLNG 436437–––437 Interest expense related to APLNG funding – – (72) 22 – (50) Unwinding of discount on APLNG receivable balances – 21 – – – 21 APLNG foreign currency impacts 40 40 – (13) – 27 Share of tax expense on translation of foreign denominated tax balances within APLNG (equity accounted) – (5) – – – (5) APLNG related items 476 493 (72) 9 – 430 Increase/(decrease) in fair value of financial instruments 166 166 – (50) 3 119 Impairment of assets (512) (512) – 104 1 (407) Other Transition and transaction costs (119) (119) – 36 1 (82) Contact Energy’s exiting of investment in Oakey Power Holdings Pty Ltd 23 23 – (1) (10) 12 Petroleum Resource Rent Tax – – – 16 – 16 Other – – – (1) – (1) Less total excluded items 33 51 (72) 113 (5) 87 Underlying measure 2,257 1,598 (217) (415) (73) 893 Underlying Basic EPS (cps) 82.6

Australia Pacific LNG related items (+$430 million) Gain on dilution of Origin’s shareholding in Australia Pacific LNG (+$437 million) As a result of Australia Pacific LNG issuing shares to Sinopec in August 2011 (15 per cent equity interest) causing Origin’s ownership percentage to decrease 7.5 per cent from 50 per cent to 42.5 per cent, Origin has recorded a gain on diluting its shareholding in Australia Pacific LNG. Interest expense related to Australia Pacific LNG (-$50 million) Origin recorded an after-tax interest expense relating to Australia Pacific LNG funding of $50 million. This interest would otherwise be capitalised except for Origin’s investment in Australia Pacific LNG being an equity accounted investment. If the project was directly held by Origin, the interest would be capitalised. Unwinding of discount on Australia Pacific LNG receivable balances (+$21 million) A non-cash benefit of $21 million was recorded for the year attributable to Origin’s share of the unwinding of the discounted loans receivable within Australia Pacific LNG.

Origin Energy Annual Report 2012 7 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Australia Paciﬁc LNG foreign currency (+$27 million) Foreign currency gain incurred by Origin and Australia Pacific LNG in relation to funding and development of Australia Pacific LNG. The gain was attributable to appreciation of the Australian dollar against the Euro and depreciation of the Australian dollar against the US dollar. Share of tax expense on foreign currency translation (-$5 million) An expense of $5 million was recognised for Origin’s share of the foreign currency translation to US dollars of the long-term tax balances within Australia Pacific LNG associated with its downstream activities. Increase in fair value of ﬁnancial instruments (+$119 million) Although the fair value movements in Origin’s financial instruments are included every financial period, the quantum of the movements is subject to significant volatility. During the period, an increase in the fair value of financial instruments, primarily relating to those not qualifying for hedge accounting, resulted in a post-tax benefit of $119 million. Impairment of assets (-$407 million) A review of the carrying amount of the Company’s assets led to a recognition of an impairment loss of $407 million after tax compared with $160 million in the prior year. The Company has determined that continued investment in certain activities is not warranted in the near term, particularly given the requirement to fund Origin’s share of its investment in Australia Pacific LNG. The details of this impairment are set out below:

Non-controlling $million Gross Tax interests Net

Transform Solar (153) 18 - (135) Geothermal development opportunities (44) 11 - (33) Wind development opportunities (65) 5 - (60) Gas fired development site in central NSW (5) 2 - (3) Worsley generation plant (17) - - (17) Ironbark (198) 59 - (139) Surat assets (27) 8 - (19) Clutha hydro site (Contact Energy) (3) 1 1 (1) Total (512) 104 1 (407)

$153 million: Origin’s 50 per cent investment in the Transform Solar joint venture following a scale-back of operations; $44 million: Innamincka joint ventures with Geodynamics and other South Australian geothermal tenements; $65 million: Origin’s wind development opportunities following the de-prioritisation of certain sites; $5 million: following the de-prioritisation of a prospective gas-fired generation development site in central NSW; $17 million: Origin’s 50 per cent interest in the Worsley generation plant reflecting a revised view of the plant’s future contracted capacity; $198 million: Origin’s Ironbark permit areas with the realisation of an upfront tax deduction for the permit acquisition; $27 million: resulting from the unlikelihood of realising value from the Surat assets with negligible reserves at 30 June 2012; and $3 million: recorded by Contact Energy relating to a potential hydro generation development on the Clutha Hydro site. Transition and transaction costs (-$82 million) Origin recorded a $74 million expense for the year relating to transition and integration costs primarily relating to the Retail Transformation Program and the transition of the acquired NSW energy assets. Origin recorded an $8 million expense for the year relating to transaction costs for acquisition activity. Contact Energy’s exiting of its investment in Oakey Power Holdings Pty Ltd (+$12 million) Origin recorded a $12 million net gain for the year resulting from Contact Energy exiting its 25 per cent interest in Oakey Power Holdings Pty Ltd. Petroleum Resource Rent Tax (+$16 million) Origin recorded a $16 million deferred tax benefit resulting from the extension of the Petroleum Resource Rent Tax (PRRT) legislation which took effect on 1 July 2012. In accordance with the legislation, Origin has adopted tax starting bases for existing projects that are deductible against future assessable receipts. A deferred tax asset of $16 million has been recorded in the Financial Statements based on the estimated utilisation of the tax starting bases considering future deductible amounts. As a result of the above factors, items excluded from Underlying Profit for the year provided a benefit of $87 million after tax and Non-controlling interests, compared with an expense of $487 million in the prior year. Refer to Appendix 2 of this document and the ‘Management Discussion and Analysis’ report for the 2011 financial year for more details.

8 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Underlying performance The following table provides an alternate reconciliation of Underlying Profit and Statutory Profit.

2012 2011 Change Section Year ended 30 June $million $million % reference

External revenue 12,935 10,344 25 3.2 Underlying EBITDA 2,257 1,782 27 3.3 Underlying depreciation and amortisation (614) (539) 14 3.4 Underlying share of interest, tax, depreciation and amortisation of equity accounted investees (45) (49) (8) 3.5 Underlying EBIT (1) 1,598 1,194 34 3.6 Underlying net financing costs (217) (143) 52 3.7 Underlying Profit before tax 1,381 1,051 31 – Underlying income tax expense (1) (415) (316) 31 3.8 Underlying Profit before Non-controlling interests 966 735 31 – Non-controlling interests share of Underlying Profit (73) (62) 18 3.9 Underlying Profit 893 673 33 3.10 Items excluded from Underlying Profit 87 (487) N/A 3.1 Statutory Profit 980 186 427 3.10 Underlying earnings per share 82.6¢ 71.0¢ 16

The key line items are explained below.

3.2 External revenue External revenue increased by 25 per cent or $2,591 million to $12,935 million. This increase primarily reflects the impact of revenues from the NSW energy assets acquired in March 2011 in the Energy Markets segment, together with higher commodity prices in the Exploration & Production segment and higher wholesale electricity prices in the Contact Energy segment. Further details are available in Section 5.

2012 2011 Change Year ended 30 June $million $million %

Energy Markets 10,250 8,109 26 Exploration & Production 583 527 11 Australia Pacific LNG ––– Contact Energy 2,102 1,708 23 Corporate ––– Revenue 12,935 10,344 25

3.3 EBITDA Statutory EBITDA (1) increased 106 per cent or $1,176 million to $2,290 million from $1,114 million. Underlying EBITDA increased 27 per cent or $475 million to $2,257 million from $1,782 million. The Underlying EBITDA contributions by business segment are presented in the following table:

2012 2011 Change Year ended 30 June $million $million %

Energy Markets 1,562 1,174 33 Exploration & Production 329 268 23 Australia Pacific LNG 47 63 (25) Contact Energy 400 345 16 Corporate (81) (68) 19 Underlying EBITDA 2,257 1,782 27 Items excluded from Underlying EBITDA 33 (668) N/A Statutory EBITDA 2,290 1,114 106

(1) Refer to Glossary of Terms.

Origin Energy Annual Report 2012 9 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Exploration & Production: Underlying EBITDA increased by 23 per cent or $61 million to $329 million, primarily due to a lower exploration expense ($69 million) and higher commodity prices, partially offset by higher operating costs and lower production. Further details are available in Section 5.2. Australia Pacific LNG: Underlying EBITDA decreased by 25 per cent or $16 million to $47 million. This was primarily due to the dilution of Origin’s shareholding in Australia Pacific LNG from 50 per cent to 42.5 per cent following the first Sinopec subscription in August 2011, together with higher operating costs to support the expanded operations and meet increased regulatory requirements. Further details are available in Section 5.3. Contact Energy: Underlying EBITDA increased by 16 per cent or $55 million to $400 million. This was primarily due to reductions in gas and carbon unit costs and improved commercial and industrial margins. While higher South Island hydro storage levels resulted in higher wholesale electricity prices, this was largely offset by a 25 per cent decrease in hydro generation being covered by the use of more expensive thermal generation. Further details are available in Section 5.4. Corporate: Underlying EBITDA loss increased 19 per cent or $13 million resulting in an Underlying EBITDA loss of $81 million. The largest contributor to this variance was increased expenditure on development opportunities in Chile, Indonesia and PNG. Further details are available in Section 5.5. 3.4 Depreciation and amortisation Depreciation and amortisation (Statutory and Underlying) increased by 14 per cent or $75 million to $614 million. This was primarily due to a full year of operations from the Eraring and Shoalhaven power stations and the growth of the Contact Energy asset base with the inclusion of the Stratford peaker plant and Ahuroa gas storage facility.

2012 2011 Change Year ended 30 June $million $million %

Energy Markets (237) (189) 25 Exploration & Production (224) (221) 1 Australia Pacific LNG ––– Contact Energy (151) (128) 18 Corporate (2) (1) 100 Depreciation and amortisation (614) (539) 14

3.5 Share of interest, tax, depreciation and amortisation of equity accounted investees (ITDA) The Statutory share of ITDA(1) expense of $27 million for the year was $2 million higher than a $25 million expense in the prior year. Origin’s Underlying share of ITDA (1) attributable to equity accounted investees decreased eight per cent or $4 million to $45 million due to dilution of Origin’s shareholding in Australia Pacific LNG.

2012 2011 Change Year ended 30 June $million $million %

Energy Markets (8) (7) 14 Exploration & Production ––– Australia Pacific LNG (33) (42) (21) Contact Energy (1) (3) (67) Corporate (3) 3 (200) Underlying share of ITDA (45) (49) (8) Items excluded from Underlying share of ITDA 18 24 25 Statutory Share of ITDA (27) (25) 8

3.6 EBIT Statutory EBIT (1) increased by $1,099 million or 200 per cent from $550 million to $1,649 million. Underlying EBIT (1) increased 34 per cent or $404 million to $1,598 million primarily due to the increase in Underlying EBITDA described in Section 3.3 above.

2012 2011 Change Year ended 30 June $million $million %

Energy Markets 1,317 978 35 Exploration & Production 105 47 123 Australia Pacific LNG 14 21 (33) Contact Energy 248 214 16 Corporate (86) (66) 30 Underlying EBIT 1,598 1,194 34 Items excluded from Underlying EBIT 51 (644) N/A Statutory EBIT 1,649 550 200

(1) Refer to Glossary of Terms.

10 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

3.7 Net ﬁnancing costs Statutory net financing costs (1) increased by 86 per cent or $134 million to $289 million from $155 million in the prior year. Underlying net financing costs increased by 52 per cent or $74 million to $217 million in the current year. The increase in Underlying net financing costs was predominantly due to a higher average Net Debt (1) balance for the year as a result of increased debt used to partially fund the NSW acquisition and for capital expenditure incurred during the period.

2012 2011 Change Year ended 30 June $million $million %

Australia Pacific LNG ––– Contact Energy (67) (60) (12) Corporate (150) (83) 81 Underlying net financing costs (217) (143) 52 Items excluded from Underlying net financing costs (72) (12) 500 Statutory net financing costs (289) (155) 86

Capitalised interest for the year was $142 million compared with $153 million in the prior year and is not included in the calculation of net financing costs. 3.8 Income tax expense The current year Statutory income tax expense (1) of $302 million results in an effective tax rate of 22 per cent, which is lower than the company tax rate of 30 per cent, mainly due to the non tax-assessable gain arising on dilution of Origin’s shareholding in Australia Pacific LNG, partially offset by non-deductible impairment losses. The prior year Statutory income tax expense of $147 million resulted in an effective tax rate of 37 per cent, which was higher than the company tax rate of 30 per cent, due to non-deductible costs associated with stamp duty for the acquired NSW energy assets and the impairment of Origin’s 30 per cent interest in the Innamincka geothermal joint venture, partially offset by a tax benefit arising on the translation of foreign denominated tax balances. Underlying income tax expense for the year increased 31 per cent or $99 million to $415 million in line with an increase in Underlying profit before tax. The Underlying effective tax rate was 30 per cent in the current and the prior year.

2012 2011 Change Year ended 30 June $million $million %

Australia Pacific LNG ––– Contact Energy (51) (47) 9 Corporate (364) (269) 35 Underlying income tax expense (415) (316) 31 Items excluded from Underlying income tax expense 113 169 (33) Statutory income tax expense (302) (147) 105

Origin recorded a $16 million deferred tax benefit resulting from the extension of the PRRT legislation which took effect on 1 July 2012. This benefit has been excluded from Underlying income tax expense. In accordance with the legislation, Origin has adopted tax starting bases for existing projects that are deductible against future assessable receipts. A deferred tax asset of $16 million has been recorded in the Financial Statements based on the estimated utilisation of the tax starting bases considering future deductible amounts. Origin also has an unrecorded deferred tax benefit of $1,027 million referable to the extended PRRT legislation which, considering estimated future assessable and deductible amounts, has not been recognised as an asset in Origin’s 30 June 2012 Consolidated Financial Statements. Australia Pacific LNG is also subject to the extended PRRT legislation and has an unrecorded deferred tax benefit balance of $2,426 million (100 per cent Australia Pacific LNG). The deferred tax amounts referable to the extended PRRT legislation are disclosed in notes 4 and 15 of Origin’s Consolidated Financial Statements. 3.9 Non-controlling interests share of proﬁt Statutory Profit attributable to Non-controlling interests increased by $16 million or 26 per cent to $78 million, primarily relating to Contact Energy exiting its investment in Oakey Power Holdings Pty Ltd, which increased Contact Energy’s earnings but is excluded from Underlying Profit. Underlying Profit attributable to Non-controlling interests increased 18 per cent to $73 million due to an increased contribution from the Contact Energy segment.

2012 2011 Change Year ended 30 June $million $million %

Contact Energy (70) (61) 15 Corporate (3) (1) 200 Underlying Profit attributable to Non-controlling interests (73) (62) 18 Items excluded from Underlying Non-controlling interests (5) – N/A Statutory Profit attributable to Non-controlling interests (78) (62) 26

(1) Refer to Glossary of Terms.

Origin Energy Annual Report 2012 11 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

3.10 Underlying Proﬁt Statutory Profit for the year increased by 427 per cent or $794 million to $980 million. Underlying Profit for the year increased 33 per cent or $220 million to $893 million. The segment contribution to Underlying Profit is set out below and commented on in detail in Section 5.

2012 2011 Change Year ended 30 June $million $million %

Energy Markets 1,317 978 35 Exploration & Production 105 47 123 Australia Pacific LNG 14 21 (33) Contact Energy 60 46 30 Corporate (603) (419) 44 Underlying Profit 893 673 33 Items excluded from Underlying Profit 87 (487) N/A Statutory Profit 980 186 427

4. REVIEW OF CASH FLOWS

4.1 Statement of Cash Flows

2012 2011 Change Change Year ended 30 June $million $million $million %

Cash and cash equivalents at the start of the period 724 819 (95) (12) Cash flows from operating activities 1,822 1,401 421 30 Cash flows used in investing activities (2,626) (4,758) 2,132 (45) Cash flows from financing activities 434 3,266 (2,832) (87) Net decrease in cash and equivalents (370) (91) (279) 307 Effect of foreign exchange rates on cash 3 (4) 7 N/A Cash and cash equivalents at end of the period 357 724 (367) (51)

The above table is an extract from the Statement of Cash Flows in Origin’s Financial Statements. Cash flows from operating activities reflect the cash generated from Origin’s operations and exclude investing and financing activities. Cash flows from operating activities increased 30 per cent or $421 million to $1,822 million in the year. For more detail see Section 4.2. Cash flows used in investing activities were down 45 per cent or $2,132 million at $2,626 million. Cash flows used in investing activities primarily relate to capital and investment expenditure, which is discussed in more detail in Section 4.3. Cash flows from financing activities include net cash flows relating to Origin’s funding activities, including the payment of interest and dividends. This amounted to a net cash flow of $434 million for the year. Section 4.4 provides more details on Origin’s funding initiatives during the period. 4.2 Operating Cash Flow After Tax

2012 2011 Change Change Year ended 30 June $million $million $million %

Underlying EBITDA 2,257 1,782 475 27 Change in working capital (120) (37) (83) 224 Stay-in-business capex (194) (203) 9 (4) Share of APLNG OCAT less EBITDA 7 11 (4) (36) Exploration expense 49 118 (69) (58) NSW acquisition-related liabilities (235) (128) (107) 84 Other (1) 56 39 17 44 Tax (paid)/received (39) 3 (42) N/A Group OCAT (including share of APLNG) 1,781 1,585 196 12 Net interest paid (366) (269) (97) 36 Free cash flow (2) 1,415 1,316 99 8 Productive Capital (2) 14,523 11,571 2,952 26 Group OCAT Ratio (2) 11.5% 13.0% (1.5%) (12)

(1) The add-back of non-cash equity accounted profits excluding Australia Pacific LNG and movements in other provision balances are included within the ‘Other’ line item. (2) Refer to Glossary of Terms.

12 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

One of Origin’s internal measures of performance is its Group OCAT Exploration & Production – $421 million in total, including: Ratio which is an indicator of the cash returns the Company is – Ironbark – $75 million; generating from Productive Capital. Group OCAT, Productive Capital, – BassGas – $115 million; and the Group OCAT Ratio are discussed below. – Otway Project – $103 million; The key difference between Group OCAT and statutory cash flows from Contact Energy – $402 million in total, including: operating activities is that Group OCAT includes stay-in-business capital – Te Mihi geothermal development – $308 million; and expenditure and Origin’s share of Australia Pacific LNG’s OCAT, and excludes transition and transaction costs. Corporate – $146 million in total, including: Group OCAT increased by 12 per cent or $196 million to $1,781 million. This – Energía Austral – $40 million. increase was largely attributable to an increase in Underlying EBITDA of Capitalised interest of $142 million, disclosed in note 3(c) of the Financial $475 million and was partially offset by: Statements, is primarily associated with the Mortlake Power Station, A $107 million increase in the utilisation of non-cash provisions for Ironbark and Contact Energy projects. transitional services agreements and onerous hedge contracts 4.3.2 Origin’s cash contributions to Australia Paciﬁc LNG relating to the NSW acquisition; Origin is required to contribute cash to Australia Pacific LNG (in An $83 million increase in working capital requirements compared proportion to its equity holding) where Australia Pacific LNG has with the prior year due to a reversal of the temporary increase in insufficient cash from other sources to fund its activities. In previous network creditors in the prior year, higher wholesale electricity prices periods, Australia Pacific LNG has had sufficient cash from the proceeds and increased gas storage inventory at Contact Energy, partially offset of the issue of equity to other shareholders and from operating cash by a benefit from the small-scale and large-scale renewable energy flows to fund its activities, and Origin has made no cash contributions as schemes; and all expenditure was met through these sources. During the 2012 financial A $69 million reduction in exploration expense reflecting reduced year, Origin contributed $1,167 million to Australia Pacific LNG via loan exploration activity. repayments to fund its activities. Net interest paid was $97 million higher than the prior year, reflecting higher average Net Debt balances in the underlying business and higher 4.4 Funding and capital management funding costs associated with the Australia Pacific LNG segment, 4.4.1 Capital management initiatives including a full 12 months of interest paid on the €500 million hybrid issue and six months interest paid on the $900 million retail During the 2012 financial year, Origin undertook a number of capital subordinated notes. management initiatives to strengthen its balance sheet and ensure that it has sufficient liquidity to fund future capital expenditure requirements, Free cash flow available for funding growth and distributions to including its expected cash contributions to Australia Pacific LNG. shareholders increased by eight per cent from $1,316 million to $1,415 million. In September 2011, Origin fully underwrote its final dividend for the Productive Capital in the business, calculated on a 12 month weighted 2011 financial year raising $266 million of equity finance. average basis, increased by 26 per cent to $14,523 million. Major assets contributing to this increase were the full year inclusion of the NSW In October 2011, Origin undertook a US$500 million ($492 million) Senior energy assets and the full year inclusion of the Stratford Peaker and Unsecured Notes issuance in the 144A market in the United States. In Ahuroa gas storage, which commenced operations for Contact Energy December 2011, Origin issued $900 million of Origin Energy Subordinated in the March Quarter 2011. Notes in the Australian retail bond market. Origin also raised an additional $750 million of debt facilities (2) during the 12 month period, and repaid The benefit of the higher Group OCAT is outweighed by higher $566 million of debt and capital market facilities which matured during Productive Capital resulting in a lower Group OCAT Ratio for the 12 months the period. These initiatives assisted in diversifying Origin’s funding ended 30 June 2012 of 11.5 per cent compared with 13.0 per cent in the portfolio in terms of currency, market and tenor, and strengthened 12 months ended 30 June 2011. Origin’s liquidity position. 4.3 Capital expenditure and Origin’s cash contributions Australia Pacific LNG signed project finance agreements during the (1) to Australia Paciﬁc LNG second quarter of 2012 that are subject to certain conditions precedent. 4.3.1 Capital expenditure Following completion of the US$8.5 billion project finance facility, which Australia Pacific LNG expects to begin drawing on in the December Total capital expenditure for the year (including capitalised interest Quarter 2012, and the payment of Sinopec’s equity subscription amount of $142 million and cash received on settlement of NSW acquisition of associated with its increased shareholding in Australia Pacific LNG from $75 million) was $1,680 million. This was 66 per cent down from $4,954 12 July 2012, Origin’s remaining funding requirement for its 37.5 per cent million in the prior year, which included $3,125 million relating to the shareholding in Australia Pacific LNG for the period from 1 July 2012 to NSW energy assets acquired in March 2011. first production from both LNG trains is approximately $3.6 billion based Stay-in-business capital expenditure was $194 million, compared with on current estimates. This funding requirement will be met from Origin’s $203 million in the prior year. existing committed undrawn debt facilities and cash, which totals $4.2 Growth capital expenditure (including capitalised interest) was $1,561 billion (excluding Contact Energy) as at 30 June 2012. A portion of these million compared with $1,626 million in the prior year. This included existing committed undrawn debt facilities mature within the period expenditure of $35 million or more in the following areas: to first production from both LNG trains and will be refinanced as required. In addition, Origin’s Free Cash Flow ($1.4 billion for the 2012 Energy Markets – $592 million in total, including: financial year) provides a further funding source for Origin’s Australia – Mortlake Power Station – $165 million; Pacific LNG obligations, the payment of Origin’s dividends and other – Eraring Power Station – $176 million; growth opportunities. – Retail Transformation Program – $71 million; Origin currently holds BBB+ (negative outlook) and Baa1 (negative outlook) long-term credit ratings with Standard & Poor’s and Moody’s respectively.

(1) The capital expenditure above is based on cash flow amounts rather than accrual accounting amounts and includes growth and stay-in-business capital expenditure, capitalised interest and Origin’s cash contributions (via loan repayments) to Australia Pacific LNG. (2) Excludes debt facilities raised by Contact Energy during the 2012 financial year.

Origin Energy Annual Report 2012 13 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

4.4.2 Share capital During the 2012 financial year, Origin issued an additional 25.1 million shares, raising a total of $316 million. This included 23.7 million shares issued under the DRP which raised $306 million ($266 million from the DRP underwrite of the 2011 financial year final dividend and $40 million from the 2012 financial year interim DRP), and 1.4 million shares issued as the result of the exercise of long-term employee incentives which raised $10 million. As a consequence, the total number of shares on issue increased from 1,065 million at 30 June 2011 to 1,090 million at 30 June 2012. The weighted average number of shares used to calculate basic EPS at 30 June 2012 increased by 134 million to 1,082 million from 948 million as at 30 June 2011. This increase of 134 million shares from the prior year primarily reflects a full year of the $2.3 billion 1 for 5 pro rata equity entitlement offer completed in April 2011 and $266 million share issuance from the underwritten DRP for the 2011 financial year final dividend completed in September 2011. 4.4.3 Net Debt (1) and equity Net Debt The Net Debt for the consolidated entity increased by 36 per cent or $1,462 million to $5,522 million from $4,060 million at 30 June 2011.

Equity Shareholders’ Equity (2) increased by seven per cent or $942 million from $13,516 million at 30 June 2011 to $14,458 million at 30 June 2012. The increase of $942 million is predominantly due to the Statutory Profit before Non-controlling interests of $1,058 million and $316 million of share issuance, partially offset by $538 million of dividends paid.

Gearing Ratio (2) The following table provides the calculation of the Gearing ratio based on the reported Net Debt and the reported Shareholders’ Equity:

As at 30 June 2012 2011 Net Debt as reported ($million) 5,522 4,060 Shareholders’ Equity as reported ($million) 14,458 13,516 Net Debt to (Net Debt + Shareholders’ Equity) 28% 23%

4.4.4 Adjusted Net Debt (2) calculations The calculation of Net Debt above includes a favourable mark-to-market adjustment of $216 million as at 30 June 2012 compared with a favourable adjustment of $223 million as at 30 June 2011. Favourable adjustments act to decrease the net debt quoted. Excluding these mark-to-market adjustments, the ‘Adjusted Net Debt’ for the consolidated entity was $5,738 million at 30 June 2012 compared with a $4,283 million Adjusted Net Debt balance at 30 June 2011, a net increase of $1,455 million. Origin owns 53.0 per cent of the ordinary shares of Contact Energy and is therefore required under Australian accounting standards to consolidate all of Contact Energy’s assets and liabilities in Origin’s Statement of Financial Position. This includes consolidating 100 per cent of Contact Energy’s outstanding debt obligations. However, under the terms of those debt obligations Origin has no liability associated with Contact Energy’s debt. Excluding Contact Energy’s Adjusted Net Debt obligations, Origin had an Adjusted Net Debt position as at 30 June 2012 of $4,617 million compared with $3,365 million as at 30 June 2011, a change of $1,252 million. 4.5 Interest rates Origin’s Underlying average interest rate (2) incurred on debt for the current year was 7.4 per cent compared with 7.1 per cent for the prior year. The higher Underlying average interest rate is primarily due to amortisation of up-front costs associated with additional debt facilities raised during the year and higher funding costs in Contact Energy. Underlying net financing costs used to calculate the Underlying average interest rate include interest on Contact Energy’s New Zealand dollar denominated debt, Origin’s Australian dollar, US dollar and New Zealand dollar debt obligations and include commitment fees incurred on undrawn committed debt facilities associated with Origin’s underlying business. Origin’s Underlying average interest rate incurred excluding Contact Energy and funding costs related to Australia Pacific LNG was 7.3 per cent. Drawn debt and commitment fees paid on undrawn committed debt facilities, which act to support Origin’s future funding commitments to Australia Pacific LNG, are excluded from Underlying net financing costs (Section 3.7) and from the interest rate quoted above. These excluded amounts would otherwise be capitalised except for Origin’s investment in Australia Pacific LNG being equity accounted. As at 30 June 2012, Origin held cash and cash equivalents of $357 million compared with $728 million at 30 June 2011, including Contact Energy. This cash was invested at an average rate of 5.4 per cent for the year ended 30 June 2012. Excluding Contact Energy, Origin held cash on deposit and cash equivalents of $352 million compared with $692 million at 30 June 2011. Approximately 51 per cent of Origin’s consolidated debt obligations are fixed to 30 June 2013 at an average rate of 6.3 per cent including margin. Excluding Contact Energy, Origin has 41 per cent of its debt obligations fixed at an average rate of 5.8 per cent including margin.

(1) The reported numbers for Net Debt include interest-bearing debt obligations only. (2) Refer to Glossary of Terms.

14 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

5. REVIEW OF SEGMENT OPERATIONS The Review of Segment Operations is a discussion on the underlying performance of each of Origin’s business segments. The financial performance metrics and segmental discussion reflect the results of Origin’s underlying business and therefore exclude a number of items to provide a different perspective of the financial and operating performance of the Origin business, consistent with the manner in which the Managing Director reviews the financial and operational performance of the business. A detailed reconciliation between Statutory Profit and Underlying Profit is provided in Section 3.1. Further non-IFRS measures, such as Gross Profit (1), are utilised to explain segment performance. These measures are a component of the Segment Result and are defined in the Glossary of Terms. 5.1 Energy Markets Origin’s Energy Markets business is an integrated provider of energy solutions to consumer and business markets in Australia and the Pacific. As well as being Australia’s leading electricity, gas and LPG retailer, with 4.4 million customer accounts, Energy Markets also operates a flexible and diverse owned and contracted generation portfolio and continues to increase its product and service offerings to customers.

2012 2011 Change Year ended 30 June $million $million %

Total Segment Revenue (1) 10,250 8,109 26 Underlying EBITDA 1,562 1,174 33 Underlying EBIT 1,317 978 35 Segment Result (2) 1,317 978 35 Items excluded from Underlying EBIT and Segment Result (20) (465) (96) Growth capital expenditure 592 864 (31)

Underlying EBITDA up 33 per cent to $1,562 million Electricity volumes up 26 per cent to 42.7 TWh (1) following the NSW acquisition Underlying EBIT margin improved from 12.7 per cent to 13.6 per cent 2.6 million customers migrated to the new billing and customer relationship management system Net loss of 160,000 customer accounts with improved customer win and retention performance in the second half of the year Integration of Country Energy and Integral Energy proceeding in line with expectations Segment ﬁnancial performance

Year ended 30 June 2012 Natural Gas Electricity Non-commodity LPG

Revenue ($m) (3,4) 1,203 (+2%) 7,566 (+40%) 213 (-50%) 706 (+5%) Cost of goods sold ($m) (970) (-1%) (5,769) (+39%) (178) (-50%) (528) (+6%) Gross Profit ($m) 233 (+14%) 1,797 (+41%) 35 (-45%) 178 (+3%) Total operating costs ($m) (682) (+27%) Underlying EBITDA ($m) 1,562 (+33%) Underlying EBIT ($m) 1,317 (+35%) Underlying EBIT Margin (%) 13.6% (June 2011: 12.7%) Volumes sold (5) 130 PJ (-8%) 43 TWh (+26%) N/A 502 kT (1) (+5%) Year-end customer accounts (’000) 963 (+4%) 3,014 (-6%) N/A 382 (+5%) Average customer accounts (6) (’000) 943 (+6%) 3,114 (+40%) N/A 368 (+4%) Gross Profit per customer (average accounts, $) 509 (+3%) 484 (-1%) Underlying EBITDA per customer (average accounts, $) 373 (+4%) 129 (-12%) Underlying EBIT per customer (average accounts, $) 319 (+5%) 60 (-24%)

Energy Markets’ Underlying EBITDA increased 33 per cent or $388 million to $1,562 million. This growth was largely attributable to the full year contribution from the acquired Integral Energy and Country Energy retail businesses and the Eraring GenTrader arrangements. Electricity volumes grew by 8.7 TWh or 26 per cent to 42.7 TWh in the year, primarily due to the acquired volumes gained through the NSW acquisition. Mass market electricity usage declined at a customer level due to the increased penetration of solar photovoltaic (PV) installations, consumer responses to rising electricity prices, mild summer temperatures and responses to the changed economic outlook. Gas volumes declined by eight per cent to 130 PJ despite a six per cent increase in average customer accounts due to a 13 PJ reduction in wholesale trading volumes. Energy Markets’ Underlying EBIT margin was 13.6 per cent for the year, higher than the prior year of 12.7 per cent due to a full year’s contribution from the NSW acquisition.

(1) Refer to Glossary of Terms. (2) Segment Result for Energy Markets does not include the impact of taxation and financing costs, which are included in the Corporate segment. (3) Energy Markets Total Segment Revenue includes pool revenue from the sale of electricity when Origin’s internal generation portfolio, including Eraring and Shoalhaven power stations, is dispatched. These pool revenues, along with the associated fuel costs, are netted off in Electricity cost of goods sold. (4) Energy Markets Total Segment Revenue includes revenue from the sale of gas swaps to major customers at no margin. These revenues are netted off with the associated cost in Natural Gas cost of goods sold. (5) Does not include internal sales for Origin’s gas-fired generation portfolio (2012: 31 PJ; 2011: 31 PJ). (6) Average Customer Accounts is calculated as the average of the month-end customer numbers for each month of the year.

Origin Energy Annual Report 2012 15 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Origin lost 160,000 customers during the 2012 financial year, of which 112,000 were in the first half of the year. This was due to restricted customer win and retention activities as a result of the migration of customer accounts to the new SAP billing and customer relationship management system (SAP system) in the first half of the year. Customer losses were expected following the purchase of the large incumbency position in NSW. Origin’s customer churn rates improved in the second half of the year following the completion of the SAP system migration as the business was able to return its focus to customer win and retention activities. Retail Transformation continues to be a key priority as Origin is committed to delivering an improved customer experience and creating a more efficient and flexible operating model, delivering lower cost to serve. The new SAP system was implemented and 2.6 million customers were migrated onto this new platform during the year. Normal post ‘go-live’ stabilisation activities associated with this new system are now well underway with a focus on improving billing, exception management and contact centre processes to take advantage of the new system capabilities. A number of legacy systems have now been decommissioned. The rollout of the new online functionality has also commenced and will continue over the coming months. Concurrently cost reduction initiatives are also underway. Integration of the acquired NSW energy assets is progressing well. The Integral Energy customer base is expected to migrate over in the second half of the 2013 financial year, with Country Energy to follow. Mass market sales volumes in NSW have declined since Origin’s acquisition of the NSW retail businesses. This reduction is due to lower usage per customer as a result of trends seen across the National Electricity Market (NEM), including the high level of rooftop solar PV installations during 2010 and 2011, and a reduction in mass market customer numbers. The Eraring GenTrader arrangements have performed better than expectations, providing increased portfolio benefits and delivering improvements in Origin’s energy procurement costs. Origin successfully prepared and implemented systems and processes to comply with the requirements of the introduction of the Clean Energy Future package. Segment operating cash ﬂows

Change Year ended 30 June 2012 2011 %

Operating Cash Flow (1) ($m) 1,141 892 28 Productive Capital ($m) 8,651 6,342 36 OCFR (1) (%) 13.2 14.1 (6)

Energy Markets’ operating cash flow increased by 28 per cent or $249 million to $1,141 million, primarily due to an increase in Underlying EBITDA associated with the NSW acquisition. While operating cash flow increased by 28 per cent on the prior year, it was reduced by $235 million of non-cash provision movements related to the NSW acquisition in the current year, comprising $137 million of onerous hedge contracts and $98 million of TSAs, together with a temporary increase in network-related creditors arising from the NSW acquisition in the prior year. Operating cash flow return (1) (OCFR) declined from 14.1 per cent to 13.2 per cent during the year, due to a full year impact of the NSW acquisition- related non-cash provision adjustments in the current year compared to a four month impact in the prior year, as well as an increased negative working capital movement. 5.1.1 Natural gas

Change Change Year ended 30 June 2012 $/GJ (1) 2011 $/GJ % $/GJ

Volumes sold (PJ) 161 173 (7) C&I 91 98 (7) Mass Market 39 44 (11) Total external volumes 130 142 (8) Internal sales (2) 31 31 (0) Revenue ($m) 1,203 9.3 1,180 8.3 2 1.0 C&I 500 5.5 486 5.0 3 0.5 Mass Market 703 17.9 694 15.9 1 2.0 Cost of goods sold (3) ($m): (970) (7.5) (975) (6.9) (1) (0.6) Network costs (513) (4.0) (462) (3.3) 11 (0.7) Energy procurement costs (457) (3.5) (513) (3.6) (11) 0.1 Gross Profit ($m) 233 1.8 205 1.4 14 0.4 Gross Margin (%) 19.4 17.4 2.0 Year-end customer accounts (’000) 963 923 4 Average customer accounts (’000) 943 889 6 Gross Profit per customer (average accounts, $) 247 231 7

Natural gas volume and revenue Origin sold 130 PJ of natural gas to customers in the year, while an additional 31 PJ was used as fuel in Origin’s generation portfolio, primarily at the Darling Downs Power Station in South East Queensland.

(1) Refer to Glossary of Terms. (2) Internal sales represent volume used in Origin’s gas-fired generation portfolio. The cost of the gas is included at cost in the electricity cost of goods sold. (3) For the period ending December 2011, the cost of goods sold for natural gas was $498m of which $256m related to network costs and $242m to procurement costs.

16 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

External sales of natural gas reduced by eight per cent or 12 PJ compared with the prior year. The decline of 5 PJ in Mass Market volumes was primarily due to milder winter temperatures in Victoria and South Australia compared with the prior year. A 7 PJ decline in C&I volumes was attributable to a reduction in wholesale trading volumes of 13 PJ, with core C&I customer volumes increasing during the period. Despite a decline in volumes, natural gas revenue increased by $23 million or two per cent to $1,203 million due to higher tariffs including the pass through of increased network costs. Natural gas customers increased by four per cent or 40,000 accounts to 963,000 customer accounts as at 30 June 2012, supported by strong growth in NSW dual fuel customers. Natural gas volumes by state and by segment are detailed in the table below:

Year ended 30 June 2012 2011 Variance % NSW 3.8 2.5 1.3 52 Victoria 26.8 31.6 (4.8) (15) Queensland 2.2 2.2 (0) (0) South Australia 6.5 7.3 (0.8) (11) Mass Market 39.3 43.6 (4.3) (10) C&I 90.5 98.0 (7.5) (8) External volumes 129.8 141.6 (11.8) (8) Internal generation 31.2 31.3 (0.1) (0) Total Natural Gas Volume (PJ) 161.0 172.9 (11.9) (7)

Natural gas cost of goods sold Natural gas cost of goods sold increased by $0.60/GJ, primarily due to higher network and transmission costs relating to the Queensland – South Australia – New South Wales pipeline link (QSN). Spot market gas prices reduced during winter 2011 reflecting low seasonal demand, and then increased in the second half of the financial year as coal-fired generation outages led to higher gas demand, leading to a net increase in spot prices over the year. Despite these market price increases, Origin was able to marginally reduce gas procurement costs by $0.10/GJ to $3.50/GJ due to its integrated fuel procurement strategy.

Natural gas Gross Profit Despite lower volumes, Natural gas Gross Profit improved 14 per cent or by $28 million to $233 million, an improvement of $0.40/GJ. This was attributable to increased tariffs in line with market prices, including the recovery of network cost increases, while gas purchase costs remained steady due to Origin’s integrated fuel procurement strategy.

GLNG gas supply agreement During the year, Origin announced a gas supply agreement with GLNG for the supply of 365 PJ of gas over 10 years at international oil-linked prices, commencing in 2015. 5.1.2 Electricity performance

Change Change Year ended 30 June 2012 $/MWh (1) 2011 $/MWh % $/MWh

Volumes sold (TWh) 42.7 34.0 26 C&I 20.6 16.8 23 Mass Market 22.1 17.2 28 Revenue ($m) 7,566 177 5,410 159 40 18 C&I 2,385 116 1,846 110 29 6 Mass Market 5,114 231 3,502 204 46 27 Other income 22 25 (12) Externally contracted generation 45 37 22 Cost of goods sold ($m): (5,769) (135) (4,138) (122) 39 (13) Network costs (3,453) (81) (2,339) (69) 48 (12) Wholesale energy costs (2,063) (48) (1,653) (49) 25 1 Generation operating costs (252) (6) (146) (4) 73 (2) Energy procurement costs (2,316) (54) (1,799) (53) 29 (1) Gross Profit ($m) 1,797 42 1,272 37 41 5 Gross Margin (%) 23.8 23.5 0.3 Average customer accounts (’000) 3,114 2,228 40 Gross Profit per customer (average accounts, $) 577 571 1

(1) Refer to Glossary of Terms.

Origin Energy Annual Report 2012 17 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Electricity volumes and revenue Origin’s electricity volumes increased by 26 per cent or 8.7 TWh to 42.7 TWh, primarily due to the acquired customer load from Integral Energy and Country Energy. Energy consumption in the NEM was down on the prior year. Reduced market demand is primarily attributable to a slowing in economic activity in the business market and lower household usage. Mass market electricity volumes by state and by segment are detailed in the table below:

Change Year ended 30 June 2012 2011 Variance %

NSW 10.9 5.0 5.9 118 Victoria 4.1 4.5 (0.4) (9) Queensland 6.2 6.7 (0.5) (7) South Australia 0.9 1.0 (0.1) (10) Mass Market 22.1 17.2 4.9 28 C&I 20.6 16.8 3.8 23 Total Electricity Volumes (TWh) 42.7 34.0 8.7 26

Electricity revenue increased 40 per cent or $2.2 billion to $7.6 billion. This was primarily due to increased volumes on the back of the NSW acquisition, together with higher tariffs owing to the pass through of increased network charges and the recovery of costs associated with various environmental schemes.

Electricity cost of goods sold Electricity cost of goods sold comprises three main elements: network costs, wholesale energy costs, and generation operating costs. Network costs reflect the pass through of charges for the transportation and distribution of electricity to the end customer. Wholesale energy costs relate to the mix of physical and financial instruments used in procuring electricity, including fuel (gas and coal) used in Origin’s generation portfolio. Generation operating costs relate to the operating and maintenance costs of Origin’s generation portfolio, including the costs associated with the GenTrader arrangements. In combination, wholesale energy costs and generation operating costs determine the procurement cost of energy. Overall, Electricity cost of goods sold increased by $13/MWh, primarily owing to increases in network costs of $12/MWh. Energy procurement costs increased by $1/MWh to $54/MWh. Wholesale energy costs were relatively stable, decreasing by $1/MWh on the prior year from $49/MWh to $48/MWh. Origin achieved this slight reduction in wholesale energy costs compared with the prior year despite an increase in the energy component of wholesale prices and a decrease in volatility. Generation operating costs increased by $2/MWh from $4/MWh to $6/MWh due to a full year of costs for the Eraring GenTrader arrangements. Included within wholesale energy costs are costs associated with the onerous hedge contracts and green rights contracts relating to the NSW acquisition. A benefit of $137 million from the unwind of these liabilities was recorded within wholesale energy costs (prior year $93 million). The unwind ensures that the earnings impact in the Income Statement reflects market prices at the acquisition date. Electricity cost of goods sold excludes any capital charge for Origin’s investment of $3.3 billion in its generation portfolio. Refer Section 5.1.5 for information on the performance of Origin’s internal generation portfolio.

Electricity Gross Profit Electricity Gross Profit increased by 41 per cent or $525 million to $1,797 million. This was primarily due to a full year of earnings contribution from the NSW acquisition, as well as effective management of energy procurement costs. Gross Profit per megawatt hour increased $5/MWh from $37/MWh to $42/MWh. 5.1.3 Non-commodity sales Revenue for the non-commodity businesses reduced by 50 per cent or $209 million to $213 million, reflecting fewer installations of rooftop solar PV systems in comparison with the prior year. Policy changes, including changes to the Renewable Energy Certificate multiplier and feed-in tariff schemes across all states, had a significant impact on demand over the period. Consequently, Origin completed 16,009 installations during the year compared with 36,840 in the prior year. The substantial reduction in solar PV installations led to a 45 per cent reduction in Non-commodity Gross Profit from $64 million to $35 million. Energy Markets’ other product offerings such as solar hot water, serviced bulk hot water systems and heat pumps performed well and continue to complement the core Electricity and Natural gas businesses. Origin is playing a leading role in supporting the adoption of electric vehicles in Australia and is the preferred charging provider for the Nissan LEAF. Origin ChargePoints have been installed at Nissan LEAF dealerships across Australia, and Origin has a range of fully installed residential and commercial charging packages to support electric vehicle owners. The trigeneration business continues to pursue a number of key contracts and, in particular, announced a Heads of Agreement with the City of Sydney in April 2012. Under the Heads of Agreement, four trigeneration precincts will be built across central Sydney with Origin to invest $100 million over a 10-year period (through its 100 per cent owned controlled entity, Cogent). 5.1.4 LPG LPG sales volumes increased five per cent to 502 kT compared to the prior year and customer accounts increased by five per cent to 382,000. This growth was largely driven by the Autogas segment with Origin’s expansion into the NSW market, and increased wholesale volumes following the unwind of Origin’s share in the Vitalgas joint venture with Caltex in November 2011. LPG Gross Profit grew by three per cent or $6 million to $178 million, with active sales price management more than offsetting the fluctuations in the procurement cost of LPG. An increase in operating costs and depreciation saw Underlying EBIT decline $6 million or 23 per cent to $22 million compared to the previous year.

18 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

5.1.5 Internal generation portfolio Energy Markets’ generation portfolio continued to achieve high levels of availability and reliability during the period, with availability of 95 per cent versus 90 per cent in the prior year, unplanned outages of 2.0 per cent down from 3.3 per cent in the prior year, and an equivalent reliability factor (1) (ERF) of at least 97 per cent achieved for all peaking sites for the year. The ERF for Eraring Power Station was 90.2 per cent during the year, primarily due to a fire in the 2B transformer of Unit 2 in October 2011. Unit 2 returned to service in February 2012 and became unavailable again in March 2012 due to a failure within the 2A transformer. The transformer was replaced and Unit 2 returned to service at a reduced capacity of 540 MW in March 2012. It is expected that Unit 2 will return to full load of 720 MW by the end of the 2012 calendar year. Liquidated damages in relation to the fire are continuing to be pursued from Eraring Energy and have not been recognised in Origin’s Consolidated Financial Statements. Performance of the internal generation portfolio and externally contracted plant is summarised in the following table:

Nameplate Equivalent Electricity Plant Capacity Reliability Capacity Output Pool revenue Pool revenue Year ended 30 June 2012 MW Factor Factor MWh $million $/MWh

Base Load Eraring (Contracted) 2,770 90.2% 46% 11,099 338 30 Darling Downs 630 97.0% 54% 3,207 92 29 Peaking Mt Stuart 414 99.5% 0% 6 – 64 Uranquinty 640 100% 3% 171 9 55 Roma 74 99.8% 2% 16 1 56 Ladbroke Grove 80 99.6% 11% 79 4 49 Quarantine 216 98.7% 3% 64 3 48 Mortlake (2) 550 97.1% 7% 89 4 39 Renewable Cullerin Range 30 96.7% 36% 98 3 29 Shoalhaven (Contracted) 240 97.3% 3% 57 3 46 Internal Generation 5,644 14,886 457 31 Externally Contracted Bulwer Island (3) 32 99.4% 40% Osborne (3,4) 180 99.2% 37% Worsley (3) 120 94.9% 45% Total (equity %) 5,900

On 3 January 2012, the first of two units at the 550 MW gas-fired Mortlake Power Station was available for dispatch into the Victorian electricity market. The second unit was available for dispatch on 21 August 2012, signalling the formal completion of the 550 MW development and representing an investment by Origin of $810 million (excluding $160 million of capitalised interest). Origin has 30 MW of operating wind capacity at Cullerin Range and a number of contractual wind off-take power purchase agreements to support the Company’s renewable energy obligations under the Federal Government’s Large-Scale Renewable Energy Target, as well as provide GreenPower to retail customers. While Origin’s wind development strategy has been to maintain the option to build wind generation by holding development sites, recent contracting activity has led to the deprioritisation of certain sites for development, amounting to a gross impairment loss of $65 million. Origin’s most advanced wind development project is Stockyard Hill in western Victoria, which was granted conditional wind farm planning permits during the year. The 154 wind turbine project has a forecast capacity of around 300 to 500 MW and an expected average capacity factor of 36 per cent. Origin recently commenced a process to assess a range of options to ensure the optimal development at Stockyard Hill, including third party proposals for engineering, procurement and construction of the wind farm on Origin’s behalf or providing equity for the wind farm’s development while Origin supports it through a power purchase agreement. 5.1.6 Operating costs, customer accounts and churn

Year ended 30 June Change $million 2012 2011 %

Natural gas, Electricity & non-commodity operating costs (551) (419) 32 LPG operating costs (131) (120) 9 Total operating costs (682) (539) 27

(1) Refer to Glossary of Terms. (2) Mortlake Power Station commenced commercial operation on 21 August 2012. Generation statistics are for one unit during commissioning testing. (3) Origin holds a 50 per cent share. (4) For Osborne, Origin holds a 50 per cent share and contracts 100 per cent of the output.

Origin Energy Annual Report 2012 19 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Natural gas, Electricity and Non-commodity operating costs Energy Markets includes within its Electricity, Natural gas and Non-commodity operating costs, all costs associated with servicing and maintaining customers, all customer acquisition and retention costs, and all costs associated with delivering new product lines within the Non-commodity business. Natural gas, Electricity and Non-commodity operating costs increased by 32 per cent or $132 million to $551 million, largely reflecting costs associated with the increased scale of the business following the NSW acquisition in the prior year. 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. As these services are at a cost which is higher than the incremental cost Origin would have incurred internally, a provision was raised on acquisition. The unwind of this provision for the year to 30 June 2012 was $98 million ($35 million in the prior year), which is shown as a reduction in Natural gas, Electricity and Non-commodity cost-to-serve.

Change Year ended 30 June 2012 2011 Change %

Natural Gas, Electricity & non-commodity cost-to-serve (excl. TSA unwind) ($million) (649) (454) (195) 43 TSA provision unwind ($million) 98 35 63 180 Total Electricity, Natural gas & Non-commodity operating costs ($million) (551) (419) (132) 32 Maintenance costs ($million) (465) (351) (114) 32 Acquisition & retention costs ($million) (86) (68) (18) 26 Average customer accounts (’000) 4,057 3,117 940 30 Cost to serve ($ per customer) (136) (134) (2) 1 Cost to maintain ($ per average customer) (115) (112) (3) 3 Cost to acquire/retain ($ per average customer) (21) (22) 1 (5) Cost per acquisition/retention (1) ($ per win/retain) (70) (64) (6) 9

Cost to maintain increased by 32 per cent or $114 million to $465 million, after the unwind of the TSAs, primarily due to a full year of servicing the expanded customer base following the NSW acquisition. On a per customer basis, cost to maintain increased by $3 per customer, from $112 to $115 per customer. Cost per customer increases were driven primarily by the establishment of systems, functionality and processes to comply with carbon-related requirements and investment in capability to service C&I customers. Origin’s acquisition and retention costs increased by 26 per cent or $18 million to $86 million. Gross cost increases were primarily driven by a full year of acquisition and retention costs relating to the newly-acquired NSW customer base. The increase in annual acquisition and retention costs included the launch of new products and promotions, including price discounts, flexible payment options and rate freezes, focused on customer retention. Increased costs were also experienced in the door-to-door acquisition channel with competition among retailers for resources increasing sales commission rates. Notwithstanding the gross increase in cost to acquire and retain, on a per customer level it reduced by $1 per customer from $22 to $21 per customer. This reflects the benefit of a higher proportion of low-churning customers from the acquired NSW retail businesses.

LPG operating costs LPG operating costs increased by nine per cent or $11 million to $131 million, driven principally by an investment in labour and other operating costs to support the Country Energy acquisition and temporary service related distribution costs in Queensland and Victoria. 5.1.7 Customer accounts and churn Natural gas, Electricity and LPG customer accounts and churn The net impact of wins and losses resulted in a 160,000 decrease in Origin’s total electricity and natural gas customer accounts from 4,137,000 at 30 June 2011 to 3,977,000 at 30 June 2012. The full year net customer loss of 160,000 was split 112,000 in the first half and 48,000 in the second half. Following the SAP migration, win activities increased in the second half of the financial year. Win rates improved and customer losses reduced against the first half as new campaigns were launched to focus on customer retention. Overall, competitive activity has been consistently high over the last two years, with national market churn stable at 20.4 per cent. Origin’s churn is lower than the market, and improved during the period from 18.5 per cent to 17.1 per cent. The improvement in Origin churn levels was attributable to the incumbency benefits of the NSW acquisition and a strong retention focus. NSW market churn increased to 16.7 per cent from 12.8 per cent in the prior year. This increase is typical for a recently privatised market, with Queensland experiencing a similar trend following the privatisation of Sun Retail in 2007.

Customer account movement from 30 June 2011 to 30 June 2012 (’000)

2012 2011 Year ended 30 June Electricity Natural gas Total Electricity Natural gas Total Change

NSW 1,425 157 1,582 1,532 120 1,652 (70) Victoria 641 475 1,116 690 466 1,156 (40) Queensland 795 130 925 834 129 963 (38) South Australia 153 201 354 158 208 366 (12) Customer accounts 3,014 963 3,977 3,214 923 4,137 (160)

(1) Cost per acquisition/retention = Acquisition and Retention Costs divided by the sum of customer wins (545,000; 567,000 prior year) and retains (679,000; 494,000 prior year).

20 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

As at 30 June 2012, Origin held 942,000 dual fuel (electricity and gas) customer accounts. Dual fuel accounts increased by 11,000 accounts in the second half of the year from 931,000 accounts at 31 December 2011, however, year-on-year the balance was down 15,000 accounts from 957,000 customer accounts. As at 30 June 2012, Origin held 382,000 LPG customer accounts. This was an increase of 17,000 or five per cent on the prior year. 5.1.8 Retail Transformation Program Retail Transformation continues to be a key priority as Origin is committed to delivering an improved customer experience and creating a more efficient and flexible operating model, delivering lower cost to serve. The new SAP billing and customer relationship management system was introduced and 2.6 million customers were migrated onto this new platform during the year. Normal post ‘go-live’ stabilisation activities associated with this new system are now well underway with a focus on improving billing, exception management and contact centre processes to take advantage of the new system capabilities. A number of legacy systems have now been decommissioned. The rollout of the new online functionality has commenced and will continue over the coming months. Concurrently cost reduction initiatives are also underway. Capital spend for the life of the Retail Transformation Program to 30 June 2012, including capitalised interest, was $241 million. Energy Markets is well placed for the future, with industry leading core billing and customer management technology, new online functionality and continued investment in developing innovative energy solutions. 5.1.9 Segment Result The Energy Markets Segment Result was up 35 per cent or $339 million to $1,317 million on the prior year from $978 million. Items excluded from the Energy Markets Segment Result totalled an expense of $20 million during the year, which included an increase in the fair value of financial instruments, offset by an impairment loss relating to Origin’s portfolio of wind and gas fired generation development opportunities and its 50 per cent equity interest in the Worsley generation plant, and transition and transaction costs associated with the Retail Transformation Program and the integration of the acquired NSW energy assets. This compares with an expense of $465 million in the prior year, which was primarily due to transition and transaction costs relating to the NSW acquisition and a decrease in the fair value of financial instruments. Growth capital expenditure, including capitalised interest, was $592 million, down 31 per cent from $864 million in the prior year, primarily comprised of spending on Mortlake Power Station, upgrades to the Eraring Power Station and the Retail Transformation Program. 5.2 Exploration & Production Origin has exploration and production interests in eastern and southern Australia, the Perth Basin in Western Australia and in New Zealand. Origin also has international exploration interests in South East Asia, Kenya and Botswana. These activities are reported within the Exploration & Production segment. Australia Pacific LNG activities are reported separately and discussed in Section 5.3.

2012 2011 Change Year ended 30 June $million $million %

Total Segment Revenue 735 701 5 Underlying EBITDA before exploration expense 378 386 (2) Underlying EBITDA 329 268 23 Underlying EBIT 105 47 123 Segment Result (1) 105 47 123 Items excluded from Segment result (223) 1 N/A Growth capital expenditure 421 335 26

Underlying EBITDA up 23 per cent or $61 million to $329 million Higher revenue driven by a 12 per cent increase in commodity unit prices (mainly crude oil and condensate) Production volumes from most fields steady with the exception of BassGas due to extended shutdown from Yolla MLE project; overall production volumes lower by four per cent Lower exploration expense Higher non-routine general operating costs Origin’s 2P Reserves (2) (excluding Origin’s share of Australia Pacific LNG) increased by seven per cent or 81 PJe to 1,235 PJe 5.2.1 Financial Performance Production, Sales and Revenue

Change Year ended 30 June 2012 2011 %

Total Production (PJe) (2) 83 86 (3) Total Sales (PJe) 90 96 (6) Commodity Sales Revenue ($m) 700 667 5 Proved plus Probable (2P) Reserves (PJe) (3) 1,235 1,154 7

(1) Segment result for Exploration & Production does not include the impact of taxation and financing costs, which are included in the Corporate segment. (2) Refer to Glossary of Terms. (3) Excludes Origin’s share of Australia Pacific LNG reserves. Including Origin’s share of Australia Pacific LNG’s reserves, Origin’s 2P Reserves decreased from 7,041 PJe to 6,807 PJe, or three per cent, which includes Origin’s dilution in Australia Pacific LNG from 50 per cent to 42.5 per cent.

Origin Energy Annual Report 2012 21 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Origin’s share of total production in the Exploration & Production segment was down 3 PJe or three per cent to 83 PJe. This was mainly due to the extended shutdown of the BassGas plant arising from Phase 1 of the Yolla MLE project. Sales volumes were also lower, reflecting lower production together with lower sales from third party purchases. Of the total sales of 90 PJe, 28 PJe was sold internally to Origin, a 4 PJe decline from the prior year of 32 PJe. Total revenue increased by five per cent from $701 million in the prior year to $735 million. Commodity sales revenues increased by five per cent compared to the prior year from $667 million to $700 million. Higher commodity prices more than offset four per cent lower production volumes and six per cent lower sales volumes. Further information regarding production, sales volumes and revenues is provided in Origin’s June 2012 Quarterly Production Report, available at www.originenergy.com.au/1040/Quarterly-production-reports.

Operating costs Total operating costs including exploration expense reduced by six per cent from the prior year. Expenses excluding exploration costs increased by 15 per cent to $359 million from $313 million in the prior year, as detailed in the table below.

2012 2011 Change Year ended 30 June $million $million %

Cost of goods sold (100) (70) 43 Stock movement 5(1)N/A Royalties, tariffs and freight (62) (57) 9 General operating costs (202) (185) 9 Expenses (359) (313) 15 Exploration (49) (118) (58) Total operating costs (407) (431) (6)

For the current year, cost of goods sold was $100 million compared with $70 million in the prior year. This reflects an increase in the proportion of crude oil to total product purchases (from 38 per cent to 51 per cent of total product purchases) combined with an increase in the average product purchase cost (in particular, crude oil which increased by 18 per cent) for product purchases from the Cooper Basin. Stock movement expense reduced by $6 million from the prior year reflecting an increase in inventory volumes held and inventory value due to the higher cost of third party purchases. Royalties, tariffs and freight increased by $5 million, or nine per cent. This increase is primarily due to an increase in royalties paid by Kupe ($6 million) due to the exhaustion of the benefit from royalty deductions for construction deductibles in the prior year. General operating costs increased by nine per cent or $17 million to $202 million in the current year. Routine general operating costs increased by $1 million. However, non-routine general operating costs were $16 million higher than the prior year primarily due to an increase in planned shutdown activity at Kupe, Otway and BassGas ($5 million), one-off repairs to the Kupe offshore umbilical cable ($5 million), increased costs at non-operated Cooper Basin assets predominantly due to increased flood recovery costs ($4 million) and contract costs to accelerate production from Manutahi ($2 million). Origin’s general operating costs per unit of production increased by $0.28 per GJe, or 13 per cent, compared with the prior year to $2.43 per GJe, mainly due to lower production volumes.

Exploration expenses For the current year, exploration expenses were $49 million, comprised primarily of a $27 million expense for Thistle-1 in Bass Basin, compared with $118 million in the prior year. The significant decrease relates to lower exploration activity domestically and internationally, reduced expense for unsuccessful wells compared with the prior year, and dilutions in several offshore tenements in Kenya providing farmin income and thereby reducing exploration expense. During the year, there was a focus on reducing Origin’s risk exposure across a number of its exploration areas with farmout agreements.

Segment Result For the reasons set out above, Underlying EBITDA increased by 23 per cent or $61 million to $329 million in the current year. Underlying depreciation and amortisation charges were slightly higher than the prior year at $224 million, primarily due to an increase in the capital value of the Cooper Basin assets and higher depreciation for the Perth Basin and New Zealand Onshore assets compared with the prior year. Reduced production resulted in a five per cent increase to $2.69 per GJe on a unit of production basis on the prior year. Underlying EBIT increased by $58 million from $47 million to $105 million for the current year. This represents the Segment Result for the Exploration & Production segment. Items excluded from the Exploration & Production Segment Result include an expense of $223 million in the current year, of which $198 million relates to a gross impairment loss on the Ironbark CSG permit area reflecting the realisation of an upfront tax deduction for the permit acquisition, $27 million relates to a gross impairment loss recorded against property, plant and equipment resulting from the unlikelihood of realising value for the Surat Basin conventional assets, partially offset by a $2 million financial instrument gain on revaluation.

Capital expenditure Growth capital expenditure (which included capitalised interest for the Ironbark CSG project in the first half of the year), increased 26 per cent or $86 million to $421 million in the current year. This primarily reflected expenditure in the Otway, Bass and Cooper basins the Ironbark CSG project, and ongoing exploration and evaluation activities.

22 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

5.2.2 Reserves The 2P Reserves attributable to Origin across its areas of interest (excluding its shareholding in Australia Pacific LNG) increased by seven per cent or 81 PJe to 1,235 PJe (1) at 30 June 2012. Significant changes in 2P Reserves net of production were recorded for Ironbark (+61 PJe), Cooper Basin (+57 PJe), Conventional Surat Basin (-15 PJe) and Offshore Taranaki Basin (Kupe, +14 PJe). Origin undertakes a full assessment of its reserves on an annual basis at the end of the financial year. A full statement of reserves attributable to Origin at 30 June 2012 is included in Origin’s Annual Reserves Report released to the ASX on 31 July 2012 and available on Origin’s website at http://www.originenergy.com.au/news/article/asxmedia-releases/1414. 5.2.3 Operations Australia Origin’s Australian operations include producing assets in the Bass and 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 Australia. Collectively, these assets produced 65 PJe net to Origin during the current year, a decrease of 4 PJe or six per cent on the prior year, due mainly to an extended shutdown of BassGas for Phase 1 of the Yolla MLE project. Production for the year included 55 PJ of sales gas, 1,129,000 barrels of crude oil and condensate and 79 kT of LPG. Offshore Australia Production from Origin’s offshore Australian assets in the Otway and Bass basins of 40 PJe was 12 per cent lower than in the prior year primarily as a result of the extended shutdown due to the Yolla MLE project. BassGas production was shutdown from December 2011 and is expected to return to a free flow production mode during the September Quarter 2012. In October 2011, joint venture approval was obtained for development of the Geographe field as part of the Otway Gas Project. The development consists of two subsea horizontal wells and a subsea production system to link the wells to existing Thylacine production facilities. Drilling commenced in the Geographe field in late May 2012. The Thistle-1 exploration well in VIC/P43 permit area was plugged and abandoned during the year after no significant hydrocarbons were encountered. Evaluation studies of the Speculant Transition Zone 3D seismic survey over the near-shore waters of VIC/RL2 (V) and the adjacent onshore areas are continuing. Onshore Australia Production from Origin’s onshore assets increased five per cent to 25 PJe on the prior year due to marginally higher production in the Cooper and Perth basins. In the Cooper Basin, production increased marginally as lower gas production was more than offset by an increase in crude oil production. Origin participated in drilling 41 development wells in the Cooper Basin compared with only 20 wells in the prior year which was flood-affected. Production in the Perth Basin was 4 PJe or 46 per cent higher than the prior year mainly due to a full year contribution from Redback South at Beharra Springs. Production in the Surat Basin was 2 PJe or 12 per cent lower than the prior year due to natural field decline. Evaluation activities continued across all areas including seismic acquisition, reprocessing and interpretation. In the Ironbark permit surface facilities are being installed together with gathering networks and pond construction to support the pilot well production facilities. This programme will continue into the 2013 financial year. New Zealand In New Zealand, Origin participates in production from both offshore and onshore assets in the Taranaki Basin, and has interests in exploration permits in the Canterbury and Northland basins. Origin’s share of production from these assets was 18 PJe, an increase of five per cent on the prior year. Production for the year included 10 PJ of sales gas, 1,050,500 barrels of crude oil and condensate and 42 kT of LPG. Higher gas and LPG production was partially offset by lower liquid yields. The Kupe field remaining 2P Reserves have been revised upwards to 408 PJe (Origin share 204 PJe) following further evaluation of well and field production and pressure data. Production testing and 3D seismic analysis of three Manutahi oil wells drilled in 2011 continued during the year. Construction of the Manutahi surface production and water injection facilities has commenced. In May 2012, Origin agreed to sell its interests in the Tariki, Ahuroa, Waihapa and Ngere (TAWN) fields together with the Waihapa Production Station for $42 million Canadian dollars (with adjustments) and a five per cent overriding royalty payable to Origin on future production from the TAWN fields. The transaction is expected to complete in October 2012. Origin is seeking to farmdown its interest in the Canterbury Basin with the expectation of drilling a well during the 2014 financial year. International oil and gas exploration Origin is pursuing exploration activities in a number of international regions where the combination of geological prospectivity and market opportunities provides incentive to explore. Efforts to date have focused on conventional gas exploration in a number of countries in South East Asia and in the highly prospective east coast of Africa in Kenya, and for CSG in Botswana. In Vietnam, planning is in progress for the drilling of a well in the Song Hong Basin in the first half of the 2013 financial year. Farmout negotiations have been concluded with two farminees for a 55 per cent equity share in Block 121 subject to government and other approvals. In Kenya, drilling at the offshore Mbawa-1 well in Block L8 commenced in August 2012. In Botswana, Origin entered into a 50:50 incorporated joint venture in November 2011 with Sasol Limited to explore for CSG. An aero-magnetic survey began in June 2012, the first part of a three year exploration program that will also include an extensive drilling and coring program.

(1) The statements in this Management Discussion & Analysis relating to reserves and resources as at 30 June 2012 for the Ironbark asset are based on information in the Netherland, Sewell & Associates, Inc. (NSAI) report dated 23 July 2012, compiled by Mr. John G. Hattner, a full-time employee of NSAI. Mr. John G. Hattner has consented to the statements based on this information, and to the form and context in which these statements appear. The statements in this document 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 Energy Annual Report 2012 23 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

5.3 Australia Paciﬁc LNG The Australia Pacific LNG segment includes Origin’s equity accounted share of the results of Australia Pacific LNG Pty Ltd, and the financing costs, foreign exchange gains and losses and tax associated with Australia Pacific LNG. Origin’s shareholding in Australia Pacific LNG at 30 June 2011 was 50 per cent. On 9 August 2011, completion of an equity subscription agreement between Australia Pacific LNG and Sinopec resulted in a dilution of Origin’s shareholding to 42.5 per cent. Origin recorded a $437 million gain on diluting its shareholding in Australia Pacific LNG as a result of the issue of shares to Sinopec. Origin’s shareholding at 30 June 2012 was at 42.5 per cent. A second subscription agreement between Australia Pacific LNG and Sinopec was signed on 20 January 2012. Following the taking of FID on the second train of the Australia Pacific LNG project in July 2012, Origin’s shareholding in Australia Pacific LNG was diluted on 12 July 2012 to 37.5 per cent with completion of Sinopec’s increased share subscription in Australia Pacific LNG from 15 per cent to 25 per cent. In Origin’s 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 Australia Pacific LNG Segment Result. Origin’s share of Australia Pacific LNG’s Underlying EBITDA is included in the Underlying EBITDA of the Australia Pacific LNG segment. Australia Pacific LNG’s Underlying interest, tax, depreciation and amortisation expense is accounted for between Underlying EBITDA and Underlying EBIT in the line item ‘Share of interest, tax, depreciation and amortisation of equity accounted investees’. As a result, Origin’s share of Australia Pacific LNG’s Underlying net profit after tax is included in the Underlying EBIT line and Segment Result line below.

2012 2011 Change Year ended 30 June $million $million %

Total Segment Revenue ––– Underlying EBITDA 47 63 (25) Underlying EBIT 14 21 (33) Segment result 14 21 (33) Items excluded from Underlying EBIT and Segment result 430 16 N/A Origin cash contribution to Australia Pacific LNG (1) 1,167 – N/A

Underlying EBITDA of $47 million in the year, 25 per cent lower than in the prior year reflecting Origin’s reduced shareholding in Australia Pacific LNG and increased expenditure associated with meeting LNG regulatory and operating requirements for the export project Marketing agreements are in place with Kansai and Sinopec for two LNG trains FID taken on the first LNG train in July 2011 and the second LNG train in July 2012 Australia Pacific LNG reserves increased to 13,111 PJe 2P Reserves and 16,047 PJe 3P Reserves (2) (100 per cent basis) at 30 June 2012 The Australia Pacific LNG project is progressing on schedule and budget to deliver first LNG in mid-2015 5.3.1 Australia Paciﬁc LNG ﬁnancial performance (100 per cent basis) Production, Sales and Revenue

June 2012 June 2011 Total APLNG Origin’s interest Total APLNG Origin’s interest Operating Performance PJe PJe PJe PJe

Production Volumes 108 47 97 48 Sales Volumes 115 50 109 54

Australia Pacific LNG’s domestic production increased 11 PJe or 11 per cent from 97 PJe to 108 PJe for the current year. This was despite limited average production in the Spring Gully area as it recovers from water capacity restrictions during the 2010/2011 flooding events and a temporary shutdown of the Northern Denison field to carry out upgrade activities. Sales volumes increased by 6 PJe or six per cent to 115 PJe for the current year (prior year 109 PJe) due to increased customer demand. Average gas prices were also marginally higher, and consequently revenue increased in line with sales volumes to $362 million compared with $336 million in the prior year, an increase of eight per cent.

(1) Via loan repayments. (2) Refer to Glossary of Terms.

24 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Financial performance The following information is derived from note 11(b) to Origin’s Financial Statements.

Financial Performance June 2012 June 2011 $million Total APLNG Origin’s interest (1) Total APLNG Origin’s interest (2)

Operating revenue 362 336 Operating expenses (251) (210) Underlying EBITDA 111 47 126 63 Depreciation and amortisation expense (93) (77) Net financing income/(costs) 6 (4) Income tax benefit/(expense) 10 (3) Underlying Share of ITDA (77) (33) (84) (42) Segment Result 34 14 42 21 Items excluded from Segment Result 25 11 49 24 Statutory Profit 59 25 91 45

Australia Pacific LNG’s operating expenses increased by 20 per cent or $41 million to $251 million, compared with $210 million in the prior year. This reflected an increase in the costs associated with meeting the LNG-related regulatory and operating requirements in both operated and non-operated fields. Increased expenses relating to the LNG project office, LNG marketing, repairs and maintenance following the 2011 floods and additional preventative maintenance on key production and compression equipment were also incurred during the year. As a result, Underlying EBITDA decreased by 12 per cent or $15 million, from $126 million to $111 million. Depreciation and amortisation expenses increased by 21 per cent or $16 million from $77 million to $93 million due to an increase in assets in operation compared to the prior year. Underlying net financing income increased $10 million from an expense of $4 million to income of $6 million during the current year, due to interest earned on the proceeds received under the subscription agreement with Sinopec. Underlying income tax benefit increased $13 million from an expense of $3 million to a benefit of $10 million compared to the prior year due to the reduction in Underlying profit before tax compared to the prior year and increased research and development deductions. Items excluded from the Segment Result decreased 49 per cent or $24 million from $49 million to $25 million in the current year. This was primarily due to a net foreign exchange loss ($12 million) and a foreign exchange loss on the deferred tax balances of subsidiaries in the Australia Pacific LNG consolidated group with US dollar functional currencies ($13 million) offset by higher unwinding of discounts recognised on shareholder receivables ($10 million). Consequently, Statutory Profit for Australia Pacific LNG decreased 35 per cent or $32 million from $91 million to $59 million. 5.3.2 Segment Result The Australia Pacific LNG segment recorded an Underlying EBITDA of $47 million compared with $63 million in the prior year, a decrease of 25 per cent. This reflected higher operating costs within Australia Pacific LNG as described above, together with the dilution of Origin’s shareholding in Australia Pacific LNG from 50 per cent to 42.5 per cent in July 2011. Origin’s Underlying share of ITDA for Australia Pacific LNG decreased from $42 million in the prior year to $33 million in the current year. Origin’s share of the Underlying Profit of Australia Pacific LNG decreased from $21 million in the prior year to $14 million in the current year. This is recorded as the Segment Result for the Australia Pacific LNG segment in Origin’s Financial Statements. Items excluded from the Australia Pacific LNG Segment Result amount to $430 million (post-tax) in the current year, as described in Section 3.1. 5.3.3 Reserves Australia Pacific LNG increased 2P Reserves from 11,775 PJe at 30 June 2011 to 13,111 PJe at 30 June 2012, with 3P Reserves increasing from 14,742 PJe to 16,047 PJe (3). The overall increase in 2P Reserves of 1,336 PJe included additions, revisions and corrections totalling 1,444 PJe, together with production of 108 PJe. Origin’s shareholding in Australia Pacific LNG was 50 per cent at 30 June 2011 and was diluted to 42.5 per cent on 9 August 2011. The tables below shows Origin’s net share of reserves and resources reflective of this change. At a 2P Reserves level, Origin’s share of reserves has therefore decreased by 315 PJe net of production to 5,572 PJe.

(1) Reflects Origin’s 50 per cent share in Australia Pacific LNG until 9 August 2011 at which time this was diluted to a 42.5 per cent share, and remained at that level at 30 June 2012. (2) Reflects Origin’s 50 per cent share in Australia Pacific LNG during the prior year. (3) The June 2012 assessment of Australia Pacific LNG’s CSG reserves and resources has been prepared by internationally recognised petroleum consultant Netherland, Sewell & Associates, Inc. (NSAI) as per their report dated 26 July 2012, compiled by Mr John G. Hattner, a full-time employee of NSAI. Mr John G. Hattner is qualified in accordance with ASX listing rule 5.11 and has consented to the statements made based on this information, and to the form and context in which these statements appear. The Reserves Statement has been prepared to be consistent with the Petroleum Resources Management System 2007 published by the Society of Petroleum Engineers (SPE). This document may be found at the SPE website http://www.spe.org/spe-app/spe/industry/reserves/prms.htm A factor of 1.038 petajoules per billion cubic feet of gas was used in the conversion of volumetric petroleum product measures to the energy measure of petajoules. Origin’s interests in exploration and production tenements (held directly or indirectly) may change from time to time and some of Australia Pacific LNG’s CSG tenements are subject to commercial arrangements under which, after the recovery of acquisition, royalty, exploration, development and operating costs, plus an uplift on exploration, 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 economic tests consistent with these reserves and based on that assessment does not consider that reversion will impact the reserves quoted within this report.

Origin Energy Annual Report 2012 25 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Origin net Origin net APLNG Reserves Reserves Additions/ Reserves June 2011 June 2012 PJe June 2011 Revisions Production June 2012 (50%) (42.5%)

Proved and Probable (2P) 11,775 1,444 (108) 13,111 5,887 5,572 Proved, Probable and Possible (3P) 14,742 1,413 (108) 16,047 7,371 6,820

Origin net Origin net APLNG Resources Resources Net Increase/ Resources June 2011 June 2012 PJe June 2011 (Decrease) June 2012 (50%) (42.5%)

2C Contingent Resources 4,041 (216) 3,825 2,020 1,626 3C Contingent Resources 10,050 (221) 9,829 5,025 4,177

Australia Pacific LNG’s reserves have been assessed against existing contractual arrangements, additional domestic sales and a forward price scenario based on the monetisation of the reserves through Australia Pacific LNG’s CSG to LNG export project. Gas prices for the CSG to LNG export project are calculated using the Residual Pricing Method (RPM) which is described in Origin’s Annual Reserves Report. Origin undertakes a full assessment of its reserves on an annual basis at the end of the financial year. A full statement of reserves attributable to Origin at 30 June 2012 is included in Origin’s Annual Reserves Report released to the ASX on 31 July 2012 and available on Origin’s website at http://www.originenergy.com.au/news/article/asxmedia-releases/1414. 5.3.4 Australia Paciﬁc LNG export project The Australia Pacific LNG export project was sanctioned in July 2011 for an initial 4.5 million tonnes per annum (mtpa) LNG production train and infrastructure to support a second LNG train of the same size. The second LNG train was sanctioned in July 2012. On 20 January 2012, Sinopec agreed to purchase an additional 3.3 million tonnes per annum of LNG through to 2035 under its existing sale and purchase agreement with Australia Pacific LNG. On 29 June 2012, Australia Pacific LNG and The Kansai Electric Power Company signed a binding agreement for the sale and purchase of approximately one million tonnes of LNG per year for 20 years. The above Sinopec and Kansai agreements complete the marketing of Australia Pacific LNG’s two train project. 5.3.5 Capital expenditure and funding The two train CSG to LNG project is estimated to cost $23 billion from the taking of the first FID in July 2011 to first LNG from the second train. Since July 2011, there has been no significant change in the estimated US$20 billion project costs other than as a result of movements in foreign exchange rates, which at the time converted to $23 billion. The project is on schedule and budget to deliver first LNG in mid-2015. Over two-thirds of this estimated capital cost is denominated in Australian dollars with the balance predominantly in US dollars. The table below details Australia Pacific LNG capital expenditure (100 per cent basis) for the 2012 financial year.

Year ended 30 June 2012 $million

Project costs plus capitalised O&M costs 4,710 Domestic costs 504 Exploration costs 85 Total (1) 5,299

Project costs plus capitalised O&M costs include all operated and non-operated costs associated with the LNG project plus all operating and maintenance costs associated with the LNG project which have been capitalised. These operating and maintenance costs are excluded from the LNG export project cost estimates. The operating and maintenance spend will grow with progress in the upstream project. The capitalisation of operating and maintenance costs prior to LNG start up will continue to be assessed. Domestic costs include those from Australia Pacific LNG’s domestic operations, upstream non-operated costs associated with the supply of gas to third party LNG projects and costs associated with head office and system assets. Exploration costs relate to exploration not expected to be applied to Phase 1 of the project (pre-LNG start-up). During the 2012 financial year, Origin contributed $1,167 million to Australia Pacific LNG via loan repayments to meet its share of Australia Pacific LNG capital expenditure not otherwise met by cash available to Australia Pacific LNG. Origin has made no cash contributions in previous periods as all expenditure was met through the proceeds from the issue of equity to other shareholders and from operating cash flows. The non-operated joint venture operations remain on track to deliver gas when needed by Australia Pacific LNG in order to deliver LNG from mid-2015. There have been cost increases announced by third party LNG projects in which Australia Pacific LNG is a non-operating joint venture participant in specific upstream gas fields. Australia Pacific LNG’s cost estimates announced in July 2011 already allowed some headroom for cost increases of this type in the period to first LNG. The impact of the other projects’ cost increases on Australia Pacific LNG’s existing cost estimates for its two-train project will be further assessed when more information becomes available from these projects.

(1) Australia Pacific LNG capital expenditure is shown on an accruals basis. No revenue has been capitalised.

26 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

5.3.6 Project performance and key milestones The CSG to LNG project is on budget and on schedule to achieve key project milestones:

Milestone Date First gas field facility complete Mid-2013 Pipeline complete Early-2014 First LNG from Train One Mid-2015 First LNG from Train Two Early-2016

The Upstream project is 14 per cent complete and the Downstream project is 17 per cent complete, based on overall progress of work completed to date. Key accomplishments since project commencement Upstream Project Drilling: 68 Phase 1 (1) operated wells have been drilled and Australia Pacific LNG participated in 262 non-operated wells during the 2012 financial year. Improvements to land access have been made and the project has 340 operated wells in the ‘land bank’ (wells ready for pad preparation and drilling). A third Savanna hybrid coil-tubing rig was mobilised in July 2012 and now drilling in Condabri. Additional drilling capacity is expected to be added in the coming months. Gathering: 595 of the 1,100 (operated) wells which are required for Trains One and Two have been ‘scouted’ (land surveys, environmental studies, flow-line routes etc.) and construction drawings and work packs have been issued for approximately 300 of these wells. East Coast Pipelines are undertaking gathering works in the Spring Gully area, and Leighton Contractors are undertaking gathering works in the Condabri area. A third contractor is expected to be engaged shortly to install gathering lines in the Combabula area. A 400-person camp has been constructed and is operational in Condabri to house gathering construction teams. Facilities: The second set of compressor trains was shipped to Brisbane from Germany and the first two gas plant pre-assembled units were shipped from Thailand to Brisbane on schedule during June and July 2012. Site preparation works are largely complete for the first gas and water facilities at Condabri. Laing O’Rourke and Leighton Contractors are mobilising for site construction activities. Pipeline: Construction of the pipeline commenced in July 2012, following receipt of required environmental permits. Pipeline stringing commenced in August 2012, with welding on track to start in September 2012. As at 30 June 2012, 166 pipeline easements, corresponding to 240 kilometres of pipeline, had been secured. The acquisition of easements is continuing ahead of pipeline construction. The main pipeline is on track to be completed in early-2014, consistent with the project schedule and the Narrows Crossing is on track to be complete by mid-2014. Electrification: Australia Pacific LNG has contracted Powerlink to undertake the electrification sub-project. All aspects of electrification are progressing on schedule. Downstream Project Curtis Island: Early works, including clearing, rock delivery and placement were impacted by heavier than typical rainfall during the wet season resulting in lower than anticipated productivity at the site. Notwithstanding this impact, key critical path activities are all on schedule: (i) works associated with the LNG compressors (fabrication in Italy and site works on Curtis Island); (ii) the construction of the Material Offloading Facility (MOF), which will receive the deliveries of LNG plant items in early 2013; and (iii) the construction of the LNG tanks. Pouring of concrete foundations for Train One commenced in June 2012. Construction of the first phase of the accommodation village on Curtis Island is on track to support initial occupancy in the September Quarter 2012, slightly behind schedule. The Curtis Island transport infrastructure is slightly behind plan, however, this will not adversely impact the Australia Pacific LNG overall schedule. Mainland facilities: Key infrastructure including Roll-On Roll-Off facilities on Fishermans Landing and Curtis Island sites, which supports the delivery of people and materials from the mainland to Curtis Island, is complete and operational. Dredging: Dredging works have progressed more slowly than anticipated due to a combination of early turbidity issues, seasonal tides and lower than anticipated productivity of dredging vessels. However, Australia Pacific LNG has worked with the other proponents and Gladstone Port Corporation to ensure that all critical aspects of dredging are completed on time to support construction activities. All construction relating to dredging works is complete, with MOF and LNG jetty shipping channels progressing to plan following the introduction of a second suction cutter dredge. Module yard: Site works have been completed in preparation for the receipt of material and assembly of modules in Batam, Indonesia. Bechtel and Australia Pacific LNG personnel have commenced mobilisation to the module yard, and first deliveries of bulk materials have arrived on schedule. Module assembly is expected to commence in September 2012 and first module delivery is expected early in the second half of the 2013 financial year.

(1) Phase 1 includes Australia Pacific LNG operated wells required to be online to deliver first gas to both trains of the CSG to LNG export project (in conjunction with gas from non-operated areas).

Origin Energy Annual Report 2012 27 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Project performance to 30 June 2012

Upstream Result Downstream Result

Overall progress of work completed to date 14% Overall progress of work completed to date 17% Access approvals 340 Site civil construction 65% Operated wells drilled 68 Material Offloading Facility On track Curtis Island construction dock On track Island Drilling Curtis Island Roll on/Roll off ramp

Curtis Island Curtis Curtis Island causeway On track Gathering wells scouted 595 Fisherman’s Landing Northern Extension Gathering well sites ready for construction 295 roll on/roll off facility and ferry terminal Complete Early works On track Gathering camp Occupied Facilities Mainland Gathering Gathering construction contracts awarded to Leighton Contractors and East Coast Pipelines Complete Fabrication of pre-assembled units for Train One 76% Marine facilities 71% Delivery of the first two units Shipped Dredging works 34% Delivery of the second set of compressor trains Shipped Site preparation at Condabri Central Complete Facilities Construction contracts awarded to Laing Dredging O’Rourke (gas facilities) and Leighton Contractors (water treatment facilities) Complete Pipeline easements 166 Compressor manufacturing On track Pipeline engineering completion 69% Compressor foundations On track Pipeline delivered 30% LNG tanks Ahead of plan Pipeline construction contracts awarded to McConnell Dowell, Consolidated Contracting Pipeline Co. joint venture (MCJV) and NACAP Complete Plant LNG Construction of Narrows Crossing (performed by QCLNG) On track Eastern electrification On track Train Two electrification On track Electrification

Key project goals and milestones for the 2013 ﬁnancial year

Upstream FY2013 Plan Downstream FY2013 Plan

200 wells drilled Q2 Module assembly underway Q1 100 wells with gathering lines installed Q2 Mechanical erection begins Q2 Condabri Central gas plant 50% complete Q2 Material Offloading Facility complete Q3 150km pipeline installed Q2 First compressors shipped to site Q3

5.4 Contact Energy This segment reports the results of Origin’s 53.0 per cent owned controlled entity, Contact Energy, which is a natural gas, electricity, LPG and energy related products and services provider and power generator in New Zealand. Origin held a 52.6 per cent interest in Contact Energy at 30 June 2011. The segment also includes Origin’s interest and tax relating to borrowings for the investment in Contact Energy. Financial Performance

2012 2011 Change Year ended 30 June $million $million %

Total Segment Revenue 2,102 1,708 23 Underlying EBITDA 400 345 16 Underlying EBIT 248 214 16 Segment Result (1) 60 46 30 Items excluded from Segment Result (2) 6(1)N/A Growth capital expenditure 402 341 18

(1) Segment Result represents Underlying EBIT less interest, tax and non-controlling interests. (2) Items excluded from Segment Result are net of tax and non-controlling interests.

28 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

Underlying EBITDA up 16 per cent to $400 million Higher wholesale electricity prices offset by reduced hydro generation volumes Improvement in generation unit costs and Commercial and Industrial margins Improved portfolio flexibility from the Ahuroa gas storage facility and the Stratford and Whirinaki peaker plants Te Mihi on track Enterprise Transformation now focused on retail program 5.4.1 Operational Performance

Change Year ended 30 June 2012 2011 %

Total generation volume (GWh) 10,653 10,259 4 Retail electricity sales (GWh) 8,280 8,254 0 Gas sales (retail and wholesale) (PJ) 4.8 9.9 (52) LPG sales (tonnes) 65,715 65,201 1 Electricity customers (’000s) 443,000 447,000 (1) Gas customers (’000s) 62,500 60,000 4 LPG customers (including franchisees) (’000s) 61,700 59,300 4 Total customers (’000s) 567,200 566,300 0

Origin owns a 53.0 per cent interest in and consolidates 100 per cent of Contact Energy in accordance with the Australian accounting standards. The interests attributable to minority shareholders are recognised as Non-controlling interests in the Financial Statements. A financial report entitled ‘Management discussion of financial results for the year ended 30 June 2012’ was issued by Contact Energy to the New Zealand Stock Exchange (NZX) on 14 August 2012 and is available on Origin’s website www.originenergy.com.au. That document contains details regarding Contact Energy’s financial and operating performance during the period, including comparisons to the performance of Contact Energy in the prior year. In consolidating Contact Energy’s results, Origin used an average exchange rate of NZ$1.28 to the Australia dollar, compared with NZ$1.30 to the Australian dollar in the prior year. Contact Energy’s Underlying EBITDA reported in Origin’s accounts in Australian dollars increased 16 per cent or $55 million to $400 million from $345 million, while Underlying EBIT increased in line with Underlying EBITDA to $248 million with higher depreciation and amortisation costs due to the growth of the Contact Energy asset base with the inclusion of the Stratford peaker plant and Ahuroa gas storage facility. The Contact Energy Segment Result increased by 30 per cent or $14 million to $60 million in the year. Improved earnings were partially offset by higher net financing costs, an increase in income tax (at a lower rate due to a decrease in the New Zealand company tax rate from 30 per cent to 28 per cent) and non-taxable gains on the divestment of Oakey Power Holdings Pty Ltd and the sale of Clutha land. Items excluded from the Segment Result are net of tax and Non-controlling interests and include adjustments for the removal of a gain on exit of Contact Energy’s investment in Oakey Power Holdings Pty Ltd, the change in fair value of financial instruments, transition costs arising on implementation of Contact Energy’s IT transformation program and associated activities in the retail business, and the net cost of not proceeding with the Clutha development. Growth capital expenditure of $402 million (including capitalised interest) increased 18 per cent from $341 million in the prior year, primarily due to $308 million of expenditure for the Wairakei Investment Program, which includes the Te Mihi Power Station. The commentary below relates to Contact Energy’s performance in New Zealand dollar terms. Contact Energy’s Underlying EBITDA increased 15 per cent or by NZ$67 million to NZ$509 million. Contact Energy’s Electricity business segment grew strongly, with Underlying EBITDA up 16 per cent or NZ$63 million to NZ$468 million. The benefits of Contact Energy’s diverse generation portfolio were realised during the year with higher wholesale electricity prices due to lower hydro generation (due to record low inflows in the South Island), which increased thermal generation, including 356 GWh from Contact Energy’s Stratford Peakers. The gains from higher prices were offset by an unfavourable fuel mix with Contact Energy’s hydro volumes down 25 per cent on the prior year. Improvements in the flexibility of Contact Energy’s portfolio were evidenced by take-or-pay savings, lower average gas costs and increased revenue from providing more capacity to the ancillary services market. Lower international carbon prices also assisted in lowering the thermal unit generation cost. Total electricity retail sales were in line with the prior year with continued sales growth in the C&I market offset by the impact of mass market customer losses up until August 2011. As part of a competitive focus on retaining and gaining customers, the introduction in July 2011 of a higher prompt payment discount for residential customers who receive and pay their bills online (from 12 per cent to 22 per cent) has been successful with a net gain of 5,000 customers since its introduction. Underlying EBITDA from Contact Energy’s Other business segment (retail and wholesale gas, LPG and meters) was up 12 per cent or NZ$4 million to NZ$41 million, primarily due to improved LPG margins and a reduction in carbon costs for the retail, wholesale gas and LPG businesses. Contact Energy strengthened its financial position during the year with capital initiatives including the issue of NZ$200 million of subordinated capital bonds in December 2011 and a long-term NEXI/ANZ NZ$105 million export credit agency facility for the 166 MW Te Mihi geothermal project, which has not yet been drawn down.

Origin Energy Annual Report 2012 29 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

5.5 Corporate This segment reports corporate activities that have not been allocated to other operating segments together with business development activities outside Origin’s existing operations. Corporate activities consist of Origin’s corporate office costs including executive management, finance, strategy, legal and company secretarial costs. Business development activities are those that do not relate directly to Origin’s existing business operations, principally Origin’s overseas generation development opportunities such as geothermal opportunities in Chile and Indonesia, hydro opportunities in PNG and Chile and the Transform Solar joint venture. Origin’s Australian geothermal activities with Geodynamics have also been included in this segment. With the exception of net financing costs and tax specifically associated with the Australia Pacific LNG and Contact Energy segments which are recorded in those segments, all other net financing costs and tax are recorded in the Corporate segment. Financial Performance

2012 2011 Change Year ended 30 June $million $million %

Total Segment Revenue ––– Underlying EBITDA (81) (68) 19 Underlying EBIT (86) (66) 30 Segment Result (603) (419) 44 Items excluded from Segment Result (106) (38) 179 Growth capital expenditure 146 86 70

Lower EBITDA largely resulting from increased expenditure relating to new international developments in PNG, Chile and Indonesia Underlying net financing costs were higher reflecting a higher average net debt balance for the period to 30 June 2012 as a result of debt financing for the NSW acquisition and capital expenditure incurred, and a higher average interest rate paid on debt Underlying income tax expense is higher reflecting higher Underlying profit before tax from the Energy Markets and Exploration & Production segments Currently, no revenues are generated within the Corporate segment. Underlying EBITDA loss increased by 19 per cent or $13 million from a loss of $68 million to a loss of $81 million. The largest contributor to this variance was expenditure relating to new international developments in PNG, Chile and Indonesia. Underlying EBIT loss was 30 per cent or $20 million higher at a loss of $86 million, driven by the lower Underlying EBITDA. The Segment Result was 44 per cent or $184 million lower at a loss of $603 million. This incorporates the impact of $150 million in net financing costs and $364 million of taxation expense reflecting higher earnings in other segments. Items excluded from the segment result totalled an expense of $106 million compared with an expense of $38 million in the prior year. See Section 3 for more detail. Growth capital expenditure increased 70 per cent or $60 million to $146 million with the increase over the prior year being primarily due to initial cash contributions by Origin to the Energía Austral hydro joint venture in Chile. 5.5.1 Business development activities Geothermal Over the year, Origin has been investigating geothermal development options within Australia and internationally.

Chile Origin holds a 40 per cent interest in Energía Andina S.A. (EASA), Chile’s leading geothermal exploration company. EASA has a portfolio of 12 geothermal exploration projects across northern and central Chile. Over the past 18 months, EASA has successfully confirmed the presence of a geothermal system at its Tinguiririca project, near Santiago, and has successfully completed one water well and three shallow temperature gradient wells to a depth of 300 metres that can be deepened later at Pampa Lirima in northern Chile. EASA has also concluded several geophysical surveys across its other projects with positive results. In the next 18 months, EASA will commence drilling deeper slim hole wells across its projects to confirm resource presence and will progress to drilling full-size exploration wells in areas where a geothermal system has been demonstrated.

Indonesia A consortium between OTP Geothermal Pte (a 50:50 joint venture between Origin and The Tata Power Company Limited of India) and PT Supraco Indonesia, holds the Sorik Marapi geothermal concession in Northern Sumatra, Indonesia. Origin has a 47.5 per cent effective interest in the concession. Over the past 12 months, activities continued to focus on surface exploration in the concession, gaining necessary regulatory approvals and preparing for exploration well drilling. Construction of roads and other associated infrastructure is expected to commence in the first half of the 2013 financial year and drilling of the first exploration well is expected to commence in the second half of the same period. Negotiations for the sale of power from this project have commenced with the Indonesian state-owned utility.

Australia Within Australia, Origin’s investments in geothermal opportunities are through the Innamincka Deeps and Shallows incorporated joint ventures with Geodynamics, an equity interest of approximately 4.5 per cent in the Geodynamics ASX-listed company and a 100 per cent interest in a geothermal exploration licence (GEL 185) adjacent to the joint venture acreage.

30 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

During the year, the Deeps joint venture (30 per cent Origin share) completed the sale of the Rig 100 asset ($17 million, Origin share $5 million), received an insurance payout relating to the Habanero 3 well failure ($11 million, Origin share $3 million) and reached agreement with the Federal Government to bring forward the drawdown of the $90 million Renewable Energy Demonstration Program grant. In addition, a sale and purchase agreement for Rig 200 was executed, with settlement expected in September 2012 ($21 million, Origin share $6 million). The drilling of Habanero 4 well is nearing completion. Origin does not intend to contribute further to the cost of the well but retains the right to elect to resume paying its full cost contribution and return to full participation in the well at any stage. During the year, Origin as Operator of the Shallows joint venture (50 per cent Origin share) conducted further desktop studies to determine whether to proceed and drill a second Shallows well. The joint venture did not identify a target with a high enough chance of success and therefore Origin has ceased activity in the Shallows project and in GEL 185. The carrying value of Origin’s share of the Deeps (30 per cent), Shallows (50 per cent) and GEL 185 (100 per cent) interests was fully impaired as at 30 June 2012 (net $33 million) as joint venture activities have not met expectations for a timely and commercial development of the geothermal resources. Solar Transform Solar, a 50:50 incorporated joint venture between Micron Technology Inc. and Origin, decided to discontinue production of its SLIVER photovoltaic modules in Idaho, United States, in May 2012. This was in light of challenging market conditions given the global oversupply of solar photovoltaic capacity and the significant funding required to take the investment to a commercial scale. Having demonstrated SLIVER’s investment proposition through its 20 MW production facility, Transform Solar will retain SLIVER’s intellectual property and currently expects to continue its development at a laboratory scale. Origin fully impaired the carrying value of its interest at 30 June 2012 (net $135 million). Hydro Papua New Guinea Origin is evaluating the potential for a hydroelectric development in PNG through PNG Energy Developments Limited (PNG EDL), a 50:50 joint venture between Origin and PNG Sustainable Development Program Limited. PNG EDL has engaged a consortium led by AECOM to undertake the project feasibility studies and social and environmental impact assessments. To date, the project feasibility work has continued to build on previous studies and to validate existing assumptions. This work has continued to bear positive results, including increasing the anticipated installed capacity of the hydroelectric scheme to 2,500 MW. The initial feasibility report will be reviewed during the first quarter of the 2013 financial year before proceeding to the next phase. Following this review, field investigations and community consultations will continue through the 2013 financial year in PNG and northern Queensland. Feasibility studies and front-end engineering and social and environmental impact assessments are expected to continue through to the 2014 financial year.

Chile In April 2012, Origin announced the acquisition of a 51 per cent voting interest in one of Chile’s leading hydroelectric development companies, Energía Austral (EA), from Xstrata Copper. EA is currently developing a hydroelectric project of approximately 1,000 MW in the Aysén region in southern Chile. Once completed, it will comprise up to three hydroelectric plants and a transmission system connecting the project to Chile’s national central electricity grid. Origin is taking the lead role in developing EA’s hydroelectric project with Xstrata Copper retaining a 49 per cent voting stake in the company. Origin has agreed to progressively invest project development costs of US$75 million during the next three years to complete a detailed project feasibility study, and, if the project is deemed feasible, an additional US$75 million towards a final investment decision. As at 30 June 2012, Origin had invested US$37.5 million in EA. The project is mid way through its feasibility stage. The main hydro project (the 640 MW Cuervo project) has achieved a significant level of engineering design and permitting progress, with final environmental approval expected to be granted in the 2013 calendar year. Significant progress has also been made with the engineering design, and environmental impact assessment for the 375 MW Blanco project.

Grant King Managing Director Sydney, 23 August 2012

Origin Energy Annual Report 2012 31 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

APPENDIX 1 – ORIGIN ENERGY KEY FINANCIALS

2012 2011 Change Year ended 30 June $million $million %

External revenue 12,935 10,344 25 Underlying EBITDA 2,257 1,782 27 Underlying depreciation and amortisation (614) (539) 14 Underlying share of interest, tax, depreciation and amortisation of equity accounted investees (45) (49) (8) Underlying EBIT 1,598 1,194 34 Underlying net financing costs (217) (143) 52 Underlying Profit before income tax and Non-controlling interests 1,381 1,051 31 Income tax expense on Underlying Profit (415) (316) 31 Underlying net profit after tax before elimination of Non-controlling interests 966 735 31 Non-controlling interests share of Underlying Profit (73) (62) 18 Underlying Profit 893 673 33 Items excluded from Underlying Profit 87 (487) N/A Statutory Profit 980 186 427 Free cash flow 1,415 1,316 8 Group OCAT Ratio (12 months to 30 June) 11.5% 13.0% (12) Productive capital (12 months to 30 June) 14,523 11,571 26 Capital expenditure (including acquisitions) (1) 1,680 4,954 (66) Total assets (2) 27,981 26,900 4 Net Debt (3) 5,522 4,060 36 Adjusted Net Debt 5,738 4,283 34 Shareholders’ Equity 14,458 13,516 7 Earnings per share – Statutory 90.6¢ 19.6¢ 362 Earnings per share – Underlying 82.6¢ 71.0¢ 16 Free cash flow per share (4) 129.9¢ 123.6¢ 5 Interim dividend per share 25¢ 25¢ – Final dividend per share 25¢ 25¢ – Net asset backing per share $13.27 $12.70 4 Net debt to net debt plus equity 28% 23% 22 Origin Cash (excluding Contact Energy) 352 692 (49) Origin Debt (excluding Contact Energy) (4,855) (3,949) 23 Contact Energy Net Debt (1,019) (802) 27 Total employees (numbers) 5,941 5,213 14 Total Recordable Injury Frequency Rate (TRIFR) 8.0 6.0 33

(1) Includes a benefit of $75 million in the 2012 financial year relating to a working capital settlement for the NSW acquisition. (2) Restated for the 2011 financial year for NSW acquisition adjustments. (3) The reported numbers for Net Debt include interest bearing debt obligations only. (4) Refer to Glossary of Terms.

APPENDIX 2 – 2011 RECONCILIATION OF STATUTORY PROFIT TO UNDERLYING PROFIT

Net Non- Reconciliation year ended 30 June 2011 financing controlling $million EBITDA EBIT costs Tax interests NPAT

Statutory Loss 186 Unwinding of discount liability payable to APLNG – – (12) 4 – (8) Share of unwinding of discounted receivables within APLNG –20–––20 Share of tax benefit on translation of foreign denominated tax balances within APLNG (equity accounted) –4–––4 APLNG related items – 24 (12) 4 – 16 Decrease in fair value of financial instruments (201) (201) – 60 2 (139) Impairment of assets (214) (214) – 54 – (160) Transition and transaction costs (253) (253) – 18 (2) (237) Tax benefit on translation of foreign denominated tax balances – – – 31 – 31 Other –––2–2 Less total excluded items (668) (644) (12) 169 – (487) Underlying Profit 673 Underlying Basic EPS (cps) 71.0

32 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

APPENDIX 3 – MOVEMENTS IN FAIR VALUE OF FINANCIAL INSTRUMENTS Summary of movements in financial instruments

Change in Net Assets $million Net Assets Statement of Financial Position June 2012 June 2011 $million

Commodity Risk Management 140 (74) 214 Contact Energy (54) (60) 6 Treasury and Other (174) (161) (13) Total (88) (295) 207

Reconciliation of Statement of Financial Position and Income Statement items associated with movements in financial instruments $million

Recognition of ‘effective’ instruments in the Statement of Financial Position 41 Recognised in Equity (Hedge Reserve post tax) 31 Recognised in Deferred Tax Liability 10 Recognition of ‘ineffective’ instruments in the Income Statement 166 Change in net assets (as above) 207

The fair value of financial instruments as measured against the relevant market prices is recorded in the Statement of Financial Position in the financial asset and liability balances. The total increase in the fair value of financial instruments for the 2012 financial year was $207 million, of which an amount of $41 million qualified for hedge accounting and is recognised in Equity (Hedge Reserve). The balance of $166 million is recognised as a gain in the Income Statement and is attributable to: Commodity risk management instruments (gain of $177 million) – predominantly structured energy derivatives which do not qualify for hedge accounting including electricity caps and carbon instruments. Of the total gain of $177 million, $1 million expense is attributable to Contact Energy and $178 million gain is attributable to Origin (excluding Contact Energy); and Foreign exchange and interest rate risk management instruments (expense of $11 million) – predominantly due to the lower forward interest rates in Australia and New Zealand and the depreciation of the Australian and New Zealand dollars against the US dollar during the period. Of the total expense of $11 million, an $8 million expense is attributable to Contact Energy and a $3 million expense is attributable to Origin (excluding Contact Energy). The gross gain in the Income Statement of $166 million this year compares with an expense of $201 million in the prior year, which was predominantly attributable to commodity risk management instruments.

Origin Energy Annual Report 2012 33 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

APPENDIX 4 – RECONCILIATION OF SEGMENT REPORTING AS AT 30 JUNE 2011 A reconciliation between the new segments and those previously reported is shown below. June 2011 Operating Segments Reconciliation EBITDA Underlying segment earnings before interest, tax, depreciation and amortisation

Old Segments New Segments Exploration Exploration & Contact Energy & Australia Contact Production Generation Retail Energy Total Markets Production Pacific LNG Corporate Energy Total

Underlying segment EBITDA as previously reported 325 327 785 345 1,782 Reallocations between Old and New Segments to restate June 2011 results: Generation and Retail combined into Energy Markets 350 824 1,174 1,174 1,174 APLNG split from Exploration & Production 331 331 268 63 331 Reallocation of Corporate Costs (6) (23) (39) (68) (68) (68) Total Adjustments: 325 327 785 – 1,437 1,174 268 63 (68) – 1,437

Underlying segment EBITDA restated 1,174 268 63 (68) 345 1,782

EBIT Underlying segment earnings before interest and tax.

Old Segments New Segments Exploration Exploration & Contact Energy & Australia Contact Production Generation Retail Energy Total Markets Production Pacific LNG Corporate Energy Total

Underlying segment EBIT as previously reported 62 208 710 214 1,194 Reallocations between Old and New Segments to restate June 2011 results: Generation and Retail combined into Energy Markets 229 749 978 978 978 APLNG split from Exploration & Production 68 68 47 21 68 Reallocation of Corporate Costs (6) (21) (39) (66) (66) (66) Total Adjustments: 62 208 710 – 980 978 47 21 (66) – 980

Underlying segment EBIT restated 978 47 21 (66) 214 1,194

34 Management Discussion and Analysis for the year ended 30 June 2012 (continued)

APPENDIX 5 – ENERGY MARKETS TABLE – 30 JUNE 2011

Year ended 30 June 2011 Natural Gas Electricity Non-commodity LPG

Revenue (1,2) ($m) 1,180 5,410 422 670 Total COGS ($m) (975) (4,138) (358) (498) Gross Profit ($m) 205 1,272 64 172 Total operating costs ($m) (539) Underlying EBITDA ($m) 1,174 Underlying EBIT ($m) 978 Underlying EBIT Margin (%) 12.7% Volumes sold 142 PJ 34 TWh N/A 476 kT Year-end customer accounts (‘000) 923 3,214 N/A 365 Average customer accounts (‘000) 889 2,228 N/A 353 Gross Profit per customer (average accounts, $) 494 487 Underlying EBITDA per customer (average accounts, $) 360 147 Underlying EBIT per customer (average accounts, $) 305 79

(1) Energy Markets’ revenue includes pool revenue from the sale of electricity when Origin’s internal generation portfolio, including Eraring and Shoalhaven power stations, is dispatched. These pool revenues, along with the associated fuel costs, are netted off in wholesale energy costs within Electricity cost of goods sold. (2) Energy Markets’ revenue includes revenue from the sale of gas swaps to major customers at no margin. These revenues are netted off with the associated cost in Natural Gas cost of goods sold.

Origin Energy Annual Report 2012 35 Directors’ Report for the year ended 30 June 2012

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 2012. 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. There have been no significant changes in the nature of these activities during the year. 2. RESULT

Statutory Proﬁt – $980 million proﬁt, up from $186 million Origin reported a Net Profit After Tax (NPAT) and Non-controlling interests (Statutory Profit) of $980 million for the year ended 30 June 2012, an increase of $794 million compared with $186 million reported in the prior year. The key factors contributing to the increase in the Statutory Profit include: higher Underlying Profit driven by the NSW acquisition, a lower exploration expense and higher wholesale energy prices for Contact Energy (+$220 million); net gains on items related to Australia Pacific LNG, primarily a gain on dilution of Origin’s shareholding (+$414 million); an increase in the fair value of financial instruments (+$258 million); and a lower net expense from other items including transition and transaction costs relating to the NSW acquisition (+$149 million); partially offset by: a larger impairment of assets (-$247 million). Statutory Profit for this year and the prior year contains the impact of a number of items which, when excluded, provide a different perspective on the financial and operating performance of the Origin business, consistent with the manner in which the Managing Director reviews the business. Underlying Profit excludes these items and is used internally by the Managing Director to assess the performance of Origin’s business and make decisions on the allocation of resources. The following table sets out the calculation of Underlying Profit.

2012 2011 Change Year ended 30 June $million $million %

Reconciliation of Statutory Proﬁt to Underlying Proﬁt In the year to 30 June 2012, items excluded in the measurement of Underlying Profit amounted to a benefit of $87 million. This compares with the year ended 30 June 2011 in which these items had an overall cost of $487 million.

Year ended 30 June 2012 2011 Change $million Excluded items NPAT Excluded items NPAT $million

36 Directors’ Report for the year ended 30 June 2012 (continued)

3. REVIEW OF OPERATIONS

External revenue External revenue increased by 25 per cent or $2,591 million to $12,935 million. This increase primarily reflects the impact of revenues from the NSW energy assets acquired in March 2011 in the Energy Markets segment, together with higher commodity prices in the Exploration & Production segment and higher wholesale electricity prices in the Contact Energy segment. EBITDA Statutory EBITDA increased 106 per cent or $1,176 million to $2,290 million from $1,114 million. Underlying EBITDA increased 27 per cent or $475 million to $2,257 million from $1,782 million. The Underlying EBITDA contributions by business segment are presented in the following table:

2012 2011 Change Year ended 30 June $million $million %

Energy Markets: Underlying EBITDA increased by 33 per cent or $388 million to $1,562 million. This was largely attributable to a full year contribution from the acquired NSW energy assets. Increased energy sales were partially offset by a reduction in both electricity customers and usage per customer. Exploration & Production: Underlying EBITDA increased by 23 per cent or $61 million to $329 million, primarily due to a lower exploration expense (+$69 million) and higher commodity prices, partially offset by higher operating costs and lower production. Australia Pacific LNG: Underlying EBITDA decreased by 25 per cent or $16 million to $47 million. This was primarily due to the dilution of Origin’s shareholding in Australia Pacific LNG from 50 per cent to 42.5 per cent following the first Sinopec subscription in August 2011, together with higher operating costs to support the expanded operations and to meet increased regulatory requirements. Contact Energy: Underlying EBITDA increased by 16 per cent or $55 million to $400 million. This was primarily due to reductions in gas and carbon unit costs and improved commercial and industrial margins. While higher South Island hydro storage levels resulted in higher wholesale electricity prices, this was largely offset by a 25 per cent decrease in hydro generation being covered by the use of more expensive thermal generation. Corporate: Underlying EBITDA loss increased 19 per cent or $13 million resulting in an Underlying EBITDA loss of $81 million. The largest contributor to this variance was increased expenditure on development opportunities in Chile, Indonesia and PNG. EBIT Statutory EBIT increased by $1,099 million or 200 per cent from $550 million to $1,649 million. Underlying EBIT increased 34 per cent or $404 million to $1,598 million primarily due to the increase in Underlying EBITDA described above.

2012 2011 Change Year ended 30 June $million $million %

Net ﬁnancing costs Statutory net financing costs increased by 86 per cent or $134 million to $289 million from $155 million in the prior year. Underlying net financing costs increased by 52 per cent or $74 million to $217 million in the current year. The increase in Underlying net financing costs was predominantly due to a higher average Net Debt balance for the year as a result of increased debt used to partially fund the NSW acquisition and for capital expenditure incurred during the period. Capitalised interest for the year was $142 million compared with $153 million in the prior year and is not included in the calculation of net financing costs.

Origin Energy Annual Report 2012 37 Directors’ Report for the year ended 30 June 2012 (continued)

Income tax expense A second subscription agreement between Australia Pacific LNG and The current year Statutory income tax expense of $302 million results Sinopec was signed on 20 January 2012 for Sinopec to increase its in an effective tax rate of 22 per cent, which is lower than the company shareholding from 15 per cent to 25 per cent. This agreement was tax rate of 30 per cent, mainly due to the non tax-assessable gain arising completed when Australia Pacific LNG’s second train was sanctioned in on dilution of Origin’s shareholding in Australia Pacific LNG, partially July 2012, resulting in Origin’s and ConocoPhillips’ respective offset by non-deductible impairment losses. shareholdings in Australia Pacific LNG reducing to 37.5 per cent. The prior year Statutory income tax expense of $147 million resulted in On 20 January 2012, Sinopec agreed to purchase an additional 3.3 mtpa an effective tax rate of 37 per cent, which was higher than the company of LNG through to 2035 under its existing sale and purchase agreement tax rate of 30 per cent, due to non-deductible costs associated with with Australia Pacific LNG. On 29 June 2012, Australia Pacific LNG and stamp duty for the acquired NSW energy assets and the impairment of The Kansai Electric Power Company signed a binding agreement for Origin’s 30 per cent interest in the Innamincka geothermal joint venture, the sale and purchase of approximately 1 mtpa of LNG for 20 years. partially offset by a tax benefit arising on the translation of foreign The above Sinopec and Kansai agreements completed the marketing denominated tax balances. of Australia Pacific LNG’s second LNG train. Underlying income tax expense for the year increased 31 per cent or Funding $99 million to $415 million, in line with an increase in Underlying profit During the year, Origin continued to strengthen its balance sheet, and before tax. The Underlying effective tax rate was 30 per cent in the increase its funding options to ensure that it has sufficient liquidity to current and the prior year. fund future capital expenditure requirements, including expected cash Origin recorded a $16 million deferred tax benefit resulting from the contributions via loan repayments to Australia Pacific LNG. extension of the PRRT legislation which took effect on 1 July 2012. This Underwritten dividend investment plan – In September 2011, Origin fully benefit has been excluded from Underlying income tax expense. In underwrote its dividend for the June 2011 period raising $266 million of accordance with the legislation, Origin has adopted tax starting bases equity finance. for existing projects that are deductible against future assessable receipts. A deferred tax asset of $16 million has been recorded in the Senior unsecured notes – In October 2011, Origin undertook a US$500 million Financial Statements based on the estimated utilisation of the tax ($492 million) Senior Unsecured Notes issuance in the 144A market in the starting bases considering future deductible amounts. Origin also has United States. an unrecorded deferred tax benefit of $1,027 million referable to the Subordinated notes – In December 2011, Origin issued $900 million of extended PRRT legislation which, considering estimated future assessable Origin Energy Subordinated Notes in the Australian retail bond market. and deductible amounts, has not been recognised as an asset in Origin’s The hybrid has been recorded as debt in the financial statements and 30 June 2012 Consolidated Financial Statements. has received 100 per cent equity credit from Standard & Poor’s and Australia Pacific LNG is also subject to the extended PRRT legislation 50 per cent equity credit from Moody’s. and has an unrecorded deferred tax benefit balance of $2,426 million Project finance – In May 2012, Australia Pacific LNG signed agreements (100 per cent Australia Pacific LNG). with a syndicate of domestic and international commercial banks and The deferred tax amounts referable to the extended PRRT legislation are export credit agencies for an US$8.5 billion project finance facility disclosed in notes 4 and 15 of Origin’s Consolidated Financial Statements. subject to conditions precedent. Non-controlling interests share of profit Developments Statutory Profit attributable to Non-controlling interests increased by Retail Transformation Program – During the year, Energy Markets $16 million, or 26 per cent to $78 million primarily relating to Contact Energy successfully migrated 2.6 million mass market natural gas and electricity exiting its investment in Oakey Power Holdings Pty Ltd, which increased customers not under the NSW acquisition-related TSAs to SAP via four Contact Energy’s earnings but is excluded from Underlying Profit. large-scale migrations. Underlying Profit attributable to Non-controlling interests increased Mortlake Power Station – In January 2012, the first of two units at the 18 per cent to $73 million due to an increased contribution from the 550 MW gas-fired Mortlake Power Station was available for dispatch into Contact Energy segment. the Victorian electricity market. The second unit was completed shortly after the end of the period. Underlying Profit The events described above and those as disclosed in the Financial Statutory Profit for the year increased by 427 per cent, or $794 million Statements represent the significant changes in the state of affairs to $980 million. of Origin for the year ended 30 June 2012. Underlying Profit for the year increased 33 per cent or $220 million 5. EVENTS SUBSEQUENT TO BALANCE DATE to $893 million. Other than the items described below, no matters or circumstances 4. SIGNIFICANT CHANGES IN THE STATE have arisen since 30 June 2012, that have significantly affected, or may OF AFFAIRS significantly affect: The following significant changes in the state of affairs of the Company i) the Company’s operations in future financial years; occurred during the year: ii) the results of those operations in future financial years; or iii) the Company’s state of affairs in future financial years. Australia Pacific LNG Final Investment Decision on the second train of the two train Australia On 28 July 2011, the Australia Pacific LNG export project was sanctioned Pacific LNG Pty Limited Incorporated Joint Venture CSG to LNG project for an initial 4.5 mtpa LNG production train and infrastructure to support and issue of shares to China Petroleum and Chemical Corporation a second LNG train. On 9 August 2011, following this final investment decision, completion of an equity subscription agreement between On 4 July 2012, Australia Pacific LNG Pty Limited, a 42.5 per cent owned Australia Pacific LNG and Sinopec resulted in the dilution of Origin’s and equity accounted incorporated joint venture of the consolidated shareholding to 42.5 per cent, and the completion of a marketing entity, announced that a Final Investment Decision (FID) on the second agreement with Sinopec for the sale of 4.3 mtpa of LNG. train of the two train CSG to LNG project had been approved. LNG from the previously announced first train is expected to be delivered in mid-2015, with LNG from the second train expected in early 2016.

38 Directors’ Report for the year ended 30 June 2012 (continued)

The total capital expenditure for the FID approved two train project In Exploration & Production, production is forecast to increase with (100 per cent Australia Pacific LNG) is estimated to be $23 billion, BassGas expected to recommence production in the September including contingencies. This excludes expected expenditure on Quarter 2012, partially offset by reduced production at Otway due non-project costs associated with the domestic operations, pre-LNG to a scheduled shutdown. operating and maintenance costs and costs associated with the supply Contact Energy is expected to see an increased earnings contribution as of gas to third party LNG projects. it continues to benefit from greater flexibility in its generation portfolio On 12 July 2012, Australia Pacific LNG issued new shares to Sinopec resulting and its gas purchasing position. in Sinopec’s equity holding increasing from 15 per cent to 25 per cent. Depreciation and amortisation costs will increase in line with the As a result of this new share issue, Origin’s interest in Australia Pacific increased asset base, following completion of the Mortlake Power LNG has been diluted from 42.5 per cent to 37.5 per cent. Under the terms Station, upgrades to the Eraring Power Station, implementation of the of the subscription agreement Sinopec injected approximately US$2.1 billion new SAP billing and customer relationship management system, of cash into Australia Pacific LNG. The completion of the share issue from depreciation of Phase 1 of the BassGas Mid-Life Enhancement project Australia Pacific LNG to Sinopec will result in a dilution gain recorded in and increased production. statutory profit for the consolidated entity of approximately $0.4 billion Underlying net financing costs are expected to increase substantially in the for the year ended 30 June 2013. 2013 financial year compared with the prior year due to interest on completed Commitments at 30 June 2012 will reduce by $618 million as Origin’s projects and the Ironbark development no longer being capitalised. share of the commitments and guarantees of the Australia Pacific LNG Interest associated with Origin’s cash contributions to Australia Pacific joint venture will be diluted from 42.5 per cent to 37.5 per cent following LNG will continue to be excluded from Underlying Profit. the issue of shares to Sinopec to increase Sinopec’s interest in Australia Origin’s Underlying effective tax rate is expected to remain around Pacific LNG to 25 per cent. 30 per cent for the coming year. 6. DIVIDENDS Taking all these factors into account, and based on prevailing market conditions, Origin anticipates Underlying EBITDA for the 2013 financial (a) Dividends paid during the year by the Company were as follows: year to increase by around 10 per cent and Underlying Profit to be in line with the 2012 financial year. $million Final dividend of 25 cents per ordinary share, While Origin intends to reduce its shareholding in Australia Pacific LNG fully franked at 30%, for the year ended 30 June 2011, to below 37.5 per cent, this guidance does not include any impact of a paid 29 September 2011. 266 change in Origin’s shareholding. Interim dividend of 25 cents per ordinary share, Future growth opportunities fully franked at 30%, for the half year ended 31 December 2011, paid 30 March 2012. 272 Origin continues to pursue a number of opportunities in Australia and internationally that will drive growth in the medium to longer term. (b) In respect of the current financial year, the Directors have declared a Origin is well positioned to capitalise on the expected rise in domestic final dividend as follows: gas prices, with a diverse and flexible portfolio of physical and contracted fuel resources, as evidenced by the recent gas sale to the $million GLNG project at international oil-linked pricing. Final dividend of 25 cents per ordinary share, fully franked at 30%, for the year ended 30 June 2012, Gas demand in eastern Australia is expected to triple over the next payable 27 September 2012. 272 five years, and Origin continues to invest in a targeted number of exploration opportunities in and around existing permits in anticipation The Dividend Reinvestment Plan (DRP) will apply to this final dividend of this growth. at no discount. Origin is also exploring for resources in attractive international markets including New Zealand, South East Asia, Kenya and Botswana, providing 7. BUSINESS STRATEGIES, FUTURE access to both potential resources and growing demand. DEVELOPMENTS AND EXPECTED RESULTS Origin continues to develop a portfolio of high quality, large-scale renewable A key focus for the Company over the next few years is on delivering the energy opportunities in offshore markets which offer strong growth Australia Pacific LNG project on schedule and on budget. To fund Origin’s prospects. This includes a potential hydro project and geothermal share of that investment, the Company has been significantly reducing exploration in Chile, geothermal exploration in Indonesia and a potential its committed capital expenditure on other projects, will be focusing on hydro project in PNG. maximising cash flow from the existing business and managing the Based on the opportunities available to the Company, Origin continues maturity of its existing debt facilities. to target long term growth in Underlying EPS of 10 per cent to 15 per cent The outlook for the coming year is more challenging than in prior years per annum on average. with less growth coming from new capital investments, regulatory uncertainty, particularly related to pricing decisions made by the 8. DIRECTORS Queensland Competition Authority for which the Company has initiated The Directors of the Company at any time during or since the end of the a judicial review, as well as more uncertainty in forecasting earnings, financial year are: driven by volatile global commodity prices and changing patterns in the demand for energy in Australia. H Kevin McCann (Chairman) Grant A King (Managing Director) In Energy Markets, Origin will respond to the uncertainties by focusing John H Akehurst on reducing costs, winning and retaining customers, realising benefits Bruce G Beeren from the new SAP billing and customer relationship management Trevor Bourne system, and continuing to capture the benefits from Origin’s integrated Gordon M Cairns portfolio. In this segment, Origin’s intention is to maintain customer Karen A Moses numbers throughout the coming year, and it is targeting an Underlying Ralph J Norris (appointed 18 April 2012) EBIT margin of around 11 per cent. Helen M Nugent

Origin Energy Annual Report 2012 39 Directors’ Report for the year ended 30 June 2012 (continued)

9. INFORMATION ON DIRECTORS AND COMPANY SECRETARIES Information relating to current Directors’ qualifications, experience and special responsibilities is set out on pages 66 and 67. The qualifications and experience of the Company Secretaries is set out below. Andrew Clarke Group General Counsel and Company Secretary Andrew Clarke joined Origin Energy in May 2009 and is responsible for the company secretarial and legal functions. He was a partner of a national law firm for 15 years and was Managing Director of a global investment bank for more than two years prior to joining Origin. Andrew has a Bachelor of Laws (Hons) and a Bachelor of Economics from Sydney University. He is admitted to practice in New South Wales and New York. Helen Hardy Company Secretary Helen Hardy joined Origin Energy in March 2010. She was previously General Manager, Company Secretariat of a large ASX listed company, and has advised on governance, financial reporting and corporate law at a Big 4 accounting firm and a national law firm. Helen is a Chartered Accountant and Chartered Secretary. She holds a Bachelor of Laws and a Bachelor of Commerce from Melbourne University and is admitted to practice in New South Wales and Victoria.

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:

Scheduled Board Unscheduled Meetings of Board Committees Meetings Board Meetings Audit Remuneration HSE Nomination Risk Directors HA HAHAHAHAHAHA

H K McCann1111444454553333 G A King 111144––––55––33 J H Akehurst111144––––553332 B G Beeren111144 1 155––3333 T Bourne1111444455553333 G M Cairns111143––55553333 K A Moses 11 11 4 3––––––––33 R J Norris 33 1 1 1 1–––––– 1 1 H M Nugent 11 11 4 4 4 4 5 5 – –3333

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 two workshops during the year to consider operational and strategic matters of relevance to the Origin Group. The Board also visited Company operations in Queensland 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, subordinated notes 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 Subordinated Notes held Options over Performance Share Rights Ordinary shares in Director directly and indirectly directly and indirectly ordinary shares over ordinary shares Contact Energy Limited

H K McCann 349,012 7,070 – – – G A King 1,006,611 2,000 2,096,718(1) 582,083(2) 32,353 J H Akehurst 71,200 2,000 – – – B G Beeren 1,381,680 500 – – 34,277 T Bourne 55,606 – – – – G M Cairns 83,360 – – – – K A Moses 237,374 1,000 760,695(3) 251,729(2) 20,086 R J Norris 20,000 – – – – H M Nugent 38,834 300 – – –

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; 728,506: $13.01. (2) Nil. (3) 140,000: $9.86; 89,000: $15.84; 115,000: $15.47; 145,202: $14.91; 271,493: $13.01.

40 Directors’ Report for the year ended 30 June 2012 (continued)

11. DIRECTORS’ INTERESTS IN SHARES, OPTIONS AND RIGHTS OF ORIGIN ENERGY LIMITED (CONTINUED)

Options and Rights granted by Origin Energy Options and Rights granted during the financial year, including to key management personnel, are included in Section 8 of the Remuneration Report which forms part of this Directors’ Report. No Options or Rights were granted since the end of the financial year. Options and Rights granted by Contact Energy The number of Options and Rights granted by Contact Energy to participants under its own Long Term Incentive plan during the financial year, and on issue at the end of the financial year is summarised below: Options

Exercise price Balance at Grant Date Expiry Date per option 30 June 2012

1 October 2007 30 November 2012 NZ$9.07 262,547 1 February 2008 30 November 2012 NZ$7.55 15,008 1 October 2008 30 November 2013 NZ$8.53 555,738 1 October 2009 30 November 2014 NZ$5.67 1,429,288 1 October 2010 30 November 2015 NZ$5.76 3,727,092 1 October 2011 30 November 2016 NZ$5.40 2,789,389

No Contact Energy options have been granted since the end of the financial year. Rights

Exercise price Balance at Grant Date Expiry Date per right 30 June 2012

1 October 2007 30 November 2012 NZ$0.00 46,679 1 February 2008 30 November 2012 NZ$0.00 2,846 1 October 2008 30 November 2013 NZ$0.00 79,208 1 October 2009 30 November 2014 NZ$0.00 255,571 1 October 2010 30 November 2015 NZ$0.00 839,750 1 October 2011 30 November 2016 NZ$0.00 603,142

No Contact Energy rights have been granted since the end of the financial year. Origin Energy Shares issued on the exercise of Options and Rights Options The following ordinary shares of Origin were issued during the year ended 30 June 2012 on the exercise of options granted under the Senior Executive Option Plan. No amounts are unpaid on any of the shares.

Issue price Number of Date options granted of shares shares issued

11 September 2006 $6.04 922,000 26 June 2007 $8.51 50,000 28 September 2007 $9.86 269,400

Since 30 June 2012, the following ordinary shares of Origin have been issued on the exercise of options granted under the Senior Executive Option Plan. No amounts are unpaid on any of the shares.

Issue price Number of Date options granted of shares shares issued

28 September 2007 $9.86 40,000

Origin Energy Annual Report 2012 41 Directors’ Report for the year ended 30 June 2012 (continued)

11. DIRECTORS’ INTERESTS IN SHARES, OPTIONS 14. AUDITOR INDEPENDENCE AND RIGHTS OF ORIGIN ENERGY LIMITED There is no former partner or director of KPMG, the Company’s auditors, (CONTINUED) who is or was at any time during the year ended 30 June 2012 an officer Rights of the Origin Energy Group. The auditor’s independence declaration (made under section 307C of the Corporations Act 2001) is attached to The following ordinary shares of Origin were issued during the year and forms part of this report. ended 30 June 2012 on the vesting and exercise of rights granted under the Senior Executive Performance Share Rights Plan. No amount is 15. NON-AUDIT SERVICES payable on the vesting of rights and accordingly no amounts are unpaid on any of the shares. The amounts paid or payable to the Origin Energy Group auditor KPMG for non-audit services provided by that firm during the year are as Number of follows (shown to nearest thousand dollar): Date rights granted shares issued 1. Accounting advice $nil 28 September 2007 38,000 2. Taxation services $113,000 30 September 2008 113,848 3. Equity and debt transactional services $530,000 Since 30 June 2012, the following ordinary shares of Origin have been 4. Other services $286,000 issued on the vesting and exercise of rights granted under the Senior Executive Performance Share Rights Plan. Further details of amounts paid to the Company’s auditors are included in note 26 to the full year financial statements. Number of In accordance with written advice signed by the Audit Committee Date rights granted shares issued Chairman and provided to the Board pursuant to a resolution passed by 28 September 2007 6,000 the Audit Committee, the Board has formed the view that the provision 30 September 2008 22,515 of those non-audit services by the auditor is compatible with, and did not compromise, the general standards of independence for auditors Contact Energy Shares issued on the exercise of Options imposed by the Corporations Act. The Board’s reasons for concluding and Rights that the non-audit services provided did not compromise the auditor’s independence are: No Contact Energy Options or Rights have vested during or since the end of the financial year and as a result no Contact Energy shares have been All non-audit services were subject to the corporate governance issued on the vesting and exercise of Options or Rights granted under procedures that had been adopted by Origin and were below the the Contact Energy Long-Term Incentive Scheme. pre-approved limits imposed by the Audit Committee; All non-audit services provided did not undermine the general 12. ENVIRONMENTAL REGULATION principles relating to auditor independence as they did not involve AND PERFORMANCE reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for Origin, acting as an The Company’s operations are subject to significant environmental advocate for Origin or jointly sharing risks and rewards; and regulation under Commonwealth, State and Territory legislation. For the year ended 30 June 2012, the Company’s Australian operations recorded There were no known conflict of interest situations nor any 67 environmental regulatory incidents, one of which resulted in the NSW circumstance arising out of a relationship between Origin (including EPA issuing a $1,500 fine for a breach of storage related regulations at its Directors and officers) and the auditor which may impact on the Company’s Newcastle LPG terminal. Appropriate remedial actions auditor independence. have been, or are being, undertaken in relation to all these incidents. 16. PROCEEDINGS ON BEHALF OF THE COMPANY 13. INDEMNITIES AND INSURANCE FOR No proceedings have been brought on behalf of the Company, nor have DIRECTORS AND OFFICERS any applications been made in respect of the Company under section Under the Constitution, the Company may indemnify current and past 237 of the Corporations Act 2001. directors and officers for losses or liabilities incurred by the person as a 17. ROUNDING OF AMOUNTS director or officer of the Company or its related bodies corporate to the extent allowed under law. The Constitution also permits the Company The Company is a company of a kind referred to in Australian Securities to purchase and maintain a Directors’ and Officers’ insurance policy. and Investment Commission (ASIC) Class Order (CO) 98/100 dated No indemnity has been granted to an auditor of the Company in their 10 July 1998 (updated by CO 05/641 effective 28 July 2005 and CO 06/51 capacity as auditor of the Company. effective 31 January 2006) and in accordance with that class order, The Company has entered into agreements with current Directors and amounts in the financial report and Directors’ Report have been rounded certain former Directors whereby it will indemnify those Directors from off to the nearest million dollars unless otherwise stated. all losses or liabilities in accordance with the terms of the Constitution. 18. REMUNERATION The agreements stipulate that the Company will meet the full amount of any such liabilities, including costs and expenses to the extent The Remuneration Report is attached and forms part of this Directors’ allowed under law. The Company is not aware of any liability having Report. arisen, and no claims have been made during or since the year ended Signed in accordance with a resolution of Directors: 30 June 2012 under these agreements. During the year, the Company has paid insurance premiums in respect of Directors’ and officers’ liability, and legal expense insurance contracts for the year ended 30 June 2012. The insurance contracts insure against certain liability (subject to exclusions) of persons who are or have been directors or officers of the Company Kevin McCann and its controlled entities. A condition of the contracts is that the nature Chairman of the liability indemnified and the premium payable not be disclosed. Sydney, 23 August 2012

42 Lead auditor’s independence declaration

Origin Energy Annual Report 2012 43 Remuneration Report for the year ended 30 June 2012

The Directors are pleased to present the Remuneration Report for Origin decisions in the overall best interests of the Company and its Energy Limited (Company) which forms part of the Directors’ Report for shareholders. the year ended 30 June 2012 (FY2012). Two changes to LTI arrangements The Remuneration Report is structured into nine sections: While the Board considers the basic structure of its executive 1. Executive Summary remuneration to be appropriate, it has resolved in light of feedback 2. Key management personnel and report coverage from stakeholders to make two changes to Long Term Incentive (LTI) 3. Remuneration governance arrangements. Both changes, which take effect from 1 July 2012, aim 4. Remuneration objectives, policy and practice to reduce complexity and to increase the alignment of executive and 5. Contractual details long-term shareholder interests. They are as follows: 6. Company performance and remuneration outcomes 7. Non-executive director remuneration and fees the two re-tests that currently apply to the Long Term Incentive Plan 8. Remuneration tables and disclosures (LTI Plan) will be removed, and; 9. Abbreviations and key definitions the performance period for the Options component of the LTI Plan (which applies to the most senior LTI recipients, including all executive 1. EXECUTIVE SUMMARY KMP) will be extended from three years to four years. Since our 2011 Remuneration Report and our 2011 Annual General Meeting Some stakeholders also suggested that the performance hurdle and the (AGM) the Board has reviewed its remuneration approach. It has associated comparator group for LTI awards should be reviewed. These benchmarked its policies against best practice; analysed remuneration issues were seriously examined by the Remuneration Committee and trends; and considered specific feedback from shareholders as part of the Board. However, the Board has decided that the most appropriate last year’s AGM. The Chairman of the Remuneration Committee and the hurdle, in light of the objective of aligning executives’ and shareholders’ Chairman of the Board have met with major institutional shareholders interests, remains as relative Total Shareholder Return (TSR). The top (2) and proxy advisers to discuss remuneration and governance issues. approximately 150 executives receive LTI partly in the form of Options . Two features of Options serve to tie the interests of senior executives to From that review, the Board has concluded that the Company’s current the overall interest of shareholders: they only have value if a relative TSR approach to remuneration remains appropriate, but has proposed two performance is achieved against a comparator group (the ASX-100) and changes to the Long Term Incentive (LTI) arrangements. These changes if the absolute value of the Company’s shares increases. Other measures, take effect from 1 July 2012. including Earnings Per Share (EPS), are used in the calculation of Short An appropriate remuneration structure Term Incentive (STI), as are a range of operational and financial measures appropriate to an executive’s specific business unit (3). But the TSR The Company’s remuneration approach is designed to attract, incentivise measure best serves the LTI objective of aligning executives’ long term and retain a management team that enhances its business, and to do interests with those of shareholders. so in a way that aligns executives’ interests with those of shareholders. In relation to the choice of comparator group (currently the ASX-100), The Company is engaged in a diverse range of related activities. it was proposed by some stakeholders that a selection of Australian and Its resource and development businesses make large, long-term global peers from similar industries be used instead. On review, the Board investments for which key costs and prices are set in international has concluded this would add complexity and reduce transparency. markets. Its retail and energy trading businesses operate day to day Investors – and the award recipients themselves – have ready access in competitive domestic markets. As an integrated energy company, to information about the ASX-100, both its constituent companies and management seeks to create value from the interactions among these their combined performance. There is no subjectivity in selection of diverse activities. ASX-100 constituents or the criteria by which they are chosen. The scale The remuneration structure, therefore, needs to attract, retain and of the ASX-100 reduces sensitivity to the performance of a particular develop a diverse talent pool and group of executives, while exposing competitor or the influence of cyclical industry-specific factors. In addition, them to the breadth of the Company’s activities. It needs to incentivise the peer group is intended to represent a set of investment options. For decision-making appropriate to business unit activities and to the these reasons, the Board considers the ASX-100 a more appropriate Company overall. It must align executives’ interests with those of comparator group than a limited selection of industry competitors. shareholders by linking remuneration to long-term value creation. Managing Director pay for FY2013 Consistently since the Company’s listing on the ASX in 2000, the By mutual agreement, no changes are being made to pay arrangements executive remuneration policy designed to deliver against these for the Managing Director for FY2013. Fixed remuneration and the objectives has been to: maximum level of both STI and LTI opportunities will be maintained at 1. benchmark remuneration such that it is intrinsically fair and the same level as applied during FY2012. competitive, at the same time as rewarding exceptional performance; 2. set a mix of fixed and variable (‘at-risk’) pay that is appropriate for the Reducing complexity risk profiles and time horizons of different business units, but which During the year, the Commonwealth Government responded to the also creates an incentive to act in the best interests of the Company Corporations and Markets Advisory Committee (CAMAC) April 2011 overall as well as its shareholders; and Executive Remuneration Report. CAMAC had been commissioned by the Government to identify ways to simplify legislation and ‘to reduce 3. incorporate a significant deferred element that aligns the long-term the complexity of remuneration reports’. The Company strongly interests of management with those of shareholders. supports this objective. Over that period, the Company has attracted an Executive Management The Government rejected five of CAMAC’s nine recommendations. Team (EMT) with a wide range of experience and industry backgrounds. Four of the five Key Management Personnel (KMP) have occupied executive One rejected recommendation was to repeal the reference to accounting positions in more than one business unit, and the average tenure as a standards in the governing legislation. CAMAC had noted that ‘the direct report to the Managing Director is 5.8 years (1). With its longevity application of accounting methodology in a remuneration report can be and experience across the Company, the EMT is well placed to make confusing and misleading to shareholders without providing them with

(1) These figures do not include the Managing Director. Including the time spent by the Managing Director in the Managing Director role, average tenure of the EMT in EMT roles is 7.0 years. (2) Half by value in the form of Options and half in the form of Performance Share Rights (PSRs). (3) See section 4.3.

44 Remuneration Report for the year ended 30 June 2012 (continued)

additional useful information’ (1). Regrettably, the piecemeal adoption of parts of a set of integrated proposals arising out of detailed and expert review could increase rather than reduce complexity. In particular, the requirement to report accounting standards data for KMP (including the Managing Director), which CAMAC said can be ‘confusing and misleading’ to shareholders, remains. The rejection of this particular recommendation misses an opportunity for genuine simplification of remuneration reporting. While awaiting the Commonwealth’s eventual regulation on the reporting quantification of executive remuneration, we have continued to streamline our Report and focus on succinct summaries of the ‘why and how’ behind the framework we have adopted. In addition, section 6.4 of the Report presents remuneration outcomes in a form that reflects actual pay delivered, in addition to the accounting view required in the disclosure tables. 2. KEY MANAGEMENT PERSONNEL AND REPORT COVERAGE Key Management Personnel (KMP) during FY2011 and FY2012 are listed below:

Non-executive Directors – current Notes

H K McCann Independent Chairman J H Akehurst Independent B G Beeren Non-executive Executive Director from March 2000 to January 2005 T Bourne Independent G M Cairns Independent R J Norris Independent Joined the Board 18 April 2012 H M Nugent Independent

Non-executive Directors – former

R Williams Independent Retired 29 October 2010

Executive Directors

G A King Managing Director K A Moses Executive Director, Finance & Strategy

Other KMP – current

D A Baldwin Chief Development Officer Managing Director Contact Energy until 31 March 2011, Chief Development Officer since 1 April 2011, both KMP roles. D Barnes Chief Executive Officer, Contact Energy Assumed KMP role of Chief Executive Officer, Contact Energy on 1 April 2011, prior roles non-KMP. F G Calabria Chief Executive Officer, Energy Markets P A Zealand Chief Executive Officer, Upstream

Other KMP – former

A M Stock Executive General Manager, Major Assumed non-KMP role of Director Executive Projects from 1 April 2011 Development Projects (until 31 March 2011) R J Willink Executive General Manager, Geoscience & Assumed non-KMP role of Director Exploration Projects from 1 July 2011 New Ventures (until 30 June 2011)

While the remuneration tables and detailed disclosures in this Report relate to the KMP of the Company, more broadly the Report also describes the remuneration arrangements applying to Executives and to all Executive Management Team (EMT) as defined in section 9. 3. REMUNERATION GOVERNANCE

3.1 Remuneration Committee The full Board is accountable for Director and executive remuneration and the policy and structure governing it. The Board Remuneration Committee, through its Chairman, reports to the full Board and advises on these matters. The Committee is comprised of a minimum of three members who must be Non-executive Directors. The majority of the Committee, and its Chairman, are independent. During FY2012 the Committee members were:

Remuneration Committee FY2012

T Bourne (Chair) Independent, Non-executive Director B G Beeren Non-executive Director G M Cairns Independent, Non-executive Director H K McCann Independent, Non-executive Director H M Nugent Independent, Non-executive Director

All five Committee members have significant experience with the Company’s operations and with remuneration governance through experience with other board remuneration committees. All Non-executive Directors have a standing invitation to attend meetings of the Committee. The Committee operates under a Charter which is published on the Company’s website at www.originenergy.com.au. In particular, the Charter identifies the mechanisms to deal with conflicts of interest.

(1) Section 3.12.3 (page 105) of CAMAC’s April 2011 Report on Executive Remuneration.

Origin Energy Annual Report 2012 45 Remuneration Report for the year ended 30 June 2012 (continued)

3.2 Remuneration Advisors The Committee has established protocols for the engagement of and dealing with external advisors, including those defined as Remuneration Consultants for the purpose of the Corporations Act 2001. The protocols require engagement by the Committee, instruction by the Chairman of the Committee, delivery of reports direct to the Committee through its Chairman, and a prohibition on communication with Company management except as authorised by the Chairman and limited to the provision or validation of factual and policy data. The advisor must furnish a statement confirming the absence of any undue influence from management. The Committee applies these protocols to advisors selected to provide benchmarking data that is used to support decisions for KMP, even where the advisors are not defined as Remuneration Consultants for the purposes of the Corporations Act 2001. As shown in the table below, the protocols were applied to Guerdon Associates and AON Hewitt during FY2012, on the basis of the provision of benchmarking data used by the Committee, though neither acted as a Remuneration Consultant for the purposes of the Corporations Act 2001:

KMP benchmarking and data used Remuneration Consultant General benchmarking and data applicable outside by Committee to formulate its own for the purposes of the Advisor/Consultant FY2012 KMP and across wider organisation recommendations to Board Corporations Act 2001

Guerdon Associates Benchmarking of roles outside KMP Yes No AON Hewitt Benchmarking of roles outside KMP Yes No The Hay Group Hay PayNet® database access to remuneration survey data No No Mercer Consulting Fair valuation of LTI instruments, actuarial assessment of superannuation No No

4. REMUNERATION OBJECTIVES, POLICY AND PRACTICE

4.1 Remuneration Objectives Five objectives underpin the Company’s remuneration framework: 1. Enable the Company to attract executives with a diverse range of backgrounds and experience; 2. Retain the right executives by remunerating fairly and competitively and by rewarding superior performance well (linking remuneration and personal performance); 3. Align executives’ interests with those of shareholders by linking remuneration to long-term and sustainable value creation (linking remuneration and Company performance); 4. Recognise and reward internal talent, and provide opportunities for growth, development and promotion as an internal source of future executives; and 5. Align remuneration practice with community expectations through strong governance. 4.2 Remuneration Policy In order to deliver against these objectives, our policy is to: 1. benchmark remuneration such that it is intrinsically fair and competitive, at the same time as rewarding exceptional performance; 2. set a mix of fixed and variable (at-risk) pay that is appropriate for the risk profiles and time horizons of different business units, but which also creates an incentive to act in the best interests of the Company overall as well as its shareholders; and 3. incorporate a significant deferred element that aligns the long-term interests of management with those of shareholders. The remuneration packages through which this policy is implemented each contain a fixed element and a variable element, in a mix appropriate to the executive’s role. 4.2.1 Total Fixed Remuneration (TFR) This element represents a price for the job taking into account the size and complexity of the role, its problem-solving and decision-making dimensions, and skills utilisation. This element is calibrated against equivalent and similar-size roles internally and externally, and the remuneration is benchmarked to the median of the external market (see 4.3.3). This ensures appropriate pay for the role. TFR (also referred to as fixed or fixed remuneration) refers to the known or guaranteed ongoing and regular benefits received during the year and includes cash salary, employer contributions to superannuation, and salary sacrifice benefits. 4.2.2 At-Risk remuneration This element is variable and depends upon business and personal performance. The maximum potential amount a participant can earn through at-risk remuneration is capped and occurs only where all assessment parameters, both business and personal, are each at their ‘stretch’ or maximum achievable outcomes. There is a range of hurdle and performance measures as shown on the Remuneration framework diagram in Table 4.3.1. At-risk remuneration is divided into two parts: STI which is assessed on annual performance measures and delivered in cash; and LTI which is assessed on longer term measures and is deferred and currently delivered in the form of equity. Achievement of goals at target represents a payout of 60 per cent of the maximum level. Target may be set at budget or other appropriate levels as considered by the Board. The maximum levels of At-risk remuneration are set out in section 4.3.2, and are achieved only where difficult stretch goals are met.

46 Remuneration Report for the year ended 30 June 2012 (continued)

4.2.3 Aggregate Reward The total of TFR plus At-risk remuneration is known as Aggregate Reward. Aggregate Reward at maximum is where the At-Risk elements are at maximum, and is benchmarked to reach the upper quartile or 75th percentile of the external market (see 4.3.3). This ensures that executives are appropriately rewarded when superior performance is achieved. 4.3 Remuneration Framework The remuneration framework shows how the remuneration policy is implemented, and how performance is measured and linked to the objectives. 4.3.1 Remuneration framework

Objectives Policy weighting section Strategic objective/ reference Remuneration component Delivery vehicle Performance measure 4.3.2 (1) performance link section 4.1

FIXED Secure resources Fixed Cash, super, Position MD 27-38% to execute 1, 2 remuneration benefits description KMP 31-45% business plans

Not at risk Oth 43-81%

Corporate Drive real annual Measure 1 2 earnings growth Underlying EPS (3)

Measure of cash flow required Corporate to exceed Measure 2 risk-adjusted cost 2, 3 Group OCAT of capital, Ratio (3) reflecting the long-term nature STI AT RISK of the business Cash (2) paid (% of Aggregate annually after Reward) STI release of MD 27-32% corporate results Divisional KMP 26-33% Measure Oth 12-31% Reward (e.g. financial achievement of measures such as 2 specific divisional EBITDA, capital goals and opex management) seniority with increases risk proportion at The

Individual Reward measure achievement of (e.g. safety, project 4 specific individual delivery, culture performance goals and engagement)

AT-RISK REMUNERATION Reward creation Allocation of shareholder measure LTI AT RISK Deferred and wealth Personal (% of Aggregate share-based (measured by performance and Reward) LTI (Options and outperformance 3, 5 development MD 34-41% Performance of TSR relative to potential KMP 27-38% Share Rights) the comparator Vesting measure Oth 7-27% group, tested after Relative TSR 3 or 4 years (4))

(1) The range reflects outcomes expressed between target and maximum incentive outcomes as a percentage of Aggregate Reward. In this diagram, ‘KMP’ refers to the average of executive KMPs (excluding the Managing Director, but including the Executive Director, Finance & Strategy) and ‘Oth’ refers to the average of all other Executives. (2) Inclusive of any Superannuation Guarantee obligations. (3) Refer to sections 4.3.4, 6.2 and 9. The key performance indicators of Underlying EPS and Group OCAT Ratio together form the Corporate STI Performance Metric which applies to all STI participants, in addition to Divisional and individual performance hurdles. (4) 3 years for PSRs, 4 years for Options.

Origin Energy Annual Report 2012 47 Remuneration Report for the year ended 30 June 2012 (continued)

4.3.2 Remuneration mix As part of the remuneration policy and framework, and with regard to the long-term nature of the Company’s business, a significant number of employees (11 per cent) have a portion of their remuneration deferred. For each position, the weighting between STI and LTI is aligned to the risk focus and the time focus of the role. The risk focus is defined as the ratio of at-risk pay to fixed pay (measured at maximum). As shown in the Remuneration Framework diagram (4.3.1), an increasing proportion of pay is placed at risk with increasing levels of responsibility (risk focus), and the time horizon also increases with increasing role accountabilities (measured as the ratio of LTI to STI, or the time focus). The longer the time horizon of the employee’s responsibilities and decisions, the higher is the weighting to LTI, and the higher the level of deferral in the package. These relationships are summarised in the table and graph below:

Maximum STI Proportion as % Maximum LTI as Ratio Ratio At-risk as deferred Position of Fixed % of Fixed LTI/STI At-risk/Fixed % of Total(1) (LTI/Total)(1)

Managing Director 120% 150% 1.25 2.70 73% 41% Executive Director, Finance & Strategy 100% 120% 1.20 2.20 69% 38% Other KMP – current 100% 100% 1.00 2.00 67% 33% Other EMT (average) 72% 63% 0.88 1.35 57% 27% Other Executives (2) – Level A 55% 45% 0.82 1.00 50% 23% – Level B 45% 35% 0.78 0.80 44% 19% – Level C 40% 30% 0.75 0.70 41% 18% – Level D 25-35% 15-25% 0.60-0.71 0.40-0.60 29-38% 11-16%

(1) Total is the Aggregate Reward at maximum incentive outcomes. (2) Other Executives are broken down into salary brackets to show the different ranges of STI and LTI opportunity levels applying to the particular bracket.

The table below compares the level of deferred pay for the Company’s Managing Director with the average of CEOs in ASX-100, showing that the Company’s level of deferred pay, whether at policy target or at maximum outcomes, exceeds the actually awarded ASX-100 average level of deferral.

Per cent of Per cent of package package not deferred deferred

Managing Director at maximum At-Risk outcomes 41% 59% Managing Director at ‘Target’ outcomes 34% 66% Average CEOs ASX-100 32% 68%

Source: Guerdon Associates analysis of 78 full-year CEOs from ASX-100, disclosures to 31 December 2011. The percentage that is deferred includes deferred STI, the disclosed amortised fair value of LTI grants and any unhurdled equity grants; the percentage that is not deferred includes base salary, fringe benefits, superannuation and cash STI.

Given the significant level of deferral already embedded into the Company’s pay structure, and given that the deferral is included in the Long Term Incentive due to the long-term nature of the business, the Board does not consider it appropriate to increase the deferred proportion by deferring part of the STI component. Remuneration mix Risk versus time focus relationship

3.5

3.0 Managing Director 2.5 Executive Director 2.0 Other KMP Finance & Strategy

1.5 Other EMT 1.0 Other Execs

Risk focus (ratio At-risk/Fixed) (ratio Risk focus 0.5

0.50 0.75 1.00 1.25 1.50 Time focus (ratio of LTI/STI)

With more senior roles there is an increase in the ratio of At-risk to Fixed pay, reflecting the increased risk focus; and also an increase in the ratio of long term incentive to short term incentive, reflecting the increased time horizon. Data is shown at maximum At-risk outcomes.

48 Remuneration Report for the year ended 30 June 2012 (continued)

Proportion of deferred pay

10 Proportion of deferred pay of deferred Proportion 5

0 Exec Grp D Exec Grp D Exec Grp C Exec Grp B Exec Grp A Other EMT Other KMP Exec Dir Fin Managing Dir (low) (high) & Strategy Increasingly senior roles (% of Aggregate Reward at maximum incentive outcomes) at maximum incentive Reward (% of Aggregate

The level of deferred pay as a proportion of the Aggregate Reward increases with more senior roles. At maximum outcomes, more than 40 per cent of the Managing Director’s remuneration package is deferred. 4.3.3 Remuneration benchmarking In addition to market data sourced through the advisors listed in section 3.2, the Company subscribes to published survey data and participates in industry forums (such as the National Rewards Group or NRG). Through these multiple channels the Company maintains an ongoing monitor of trends and developments within broad and specific markets. The Company attracts people from, and loses people to, all major industry sectors, such that its people resource and competition is not confined narrowly by industry sector. Therefore the Company in FY2012 continued to adopt The Hay Group’s all organisations benchmark of over 400 organisations as its prime benchmark reference for the market applicable to most of its employees. For job families in skills shortage areas (such as geosciences, subsurface engineering and some professional specialists) smaller peer groups such as those sourced through commissioned surveys and from industry forums such as NRG have been utilised to determine the relevant market. As identified in section 4.2.3, Aggregate Reward (the total of TFR plus At-risk remuneration) is benchmarked such that, when at-risk outcomes are at their maximum potential, the result will meet the upper quartile (75th percentile) of the external market. 4.3.4 STI – Other details The performance measures for STIs are shown in the framework at section 4.3.1. That framework also shows the opportunity levels for all at-risk pay. The opportunity levels, expressed as a percentage of TFR, applying to STI are:

Target STI Maximum STI Position as % of Fixed as % of Fixed

Managing Director 72% 120% Executive Director, Finance & Strategy 60% 100% Other KMP – current 60% 100% Other EMT (average) 43% 72% Other Executives 15-33% 25-55%

The whole of the STI is delivered in cash (including superannuation if required by superannuation regulation) and usually paid in September each year after performance reviews have been completed and after the release of annual results. As identified in section 4.3.2 no portion of this STI is deferred as executives already have a significant portion of their remuneration mix in the LTI component, which provides for at least three years’ deferral. As identified in section 1, the Board has increased deferral for Options to four years from FY2013. The STI can be reduced if safety targets are not achieved. Such reductions were applied in the current and prior year. As noted in section 4.3.1 the award of STI is subject to the achievement of a combination of corporate, division, and individual performance measures. Corporate performance outcomes are reviewed by the Remuneration Committee and the full Board. The corporate performance measures are an equally weighted combination of Underlying EPS and Group OCAT Ratio, to ensure an appropriate balance in incentive to grow earnings and generate a return on capital. In exceptional circumstances, the Board may adjust the measures or their relative weighting. Individual performance goals are set with and assessed by the relevant manager, and approved by the manager’s manager. The Corporate STI Performance Metric (comprising the two key performance indicators, Underlying EPS and Group OCAT Ratio, as shown in the diagram at 4.3.1) is reviewed by and approved by the Board. Division goals are set by the Managing Director at the beginning of each performance cycle and reviewed by the Remuneration Committee. EMT performance is assessed by the Managing Director, reviewed by the Remuneration Committee and approved by the Board. Performance of the Managing Director is assessed and approved by the Board. For the period during which Mr Barnes is on secondment to Contact Energy his performance is assessed by the Contact Energy Board.

Origin Energy Annual Report 2012 49 Remuneration Report for the year ended 30 June 2012 (continued)

4.3.5 LTI – Other details The basic features of LTI are shown in the diagram at 4.3.1, and the detail is summarised in the table below. As described in the introduction, two changes have been made to the operation of the LTI Plan and will come into effect on 1 July 2012 – the removal of re-testing, and the vesting period for Options will be extended from three years to four years. Those changes have been made following review of external feedback about the Company’s LTI arrangements and in the context of changes in prevailing market practices. While this Report discloses the Company’s remuneration policy and practice for the year ended 30 June 2012, where relevant, changes applicable from 1 July 2012 are also highlighted.

LTI parameter FY2012 details

Performance period FY2012 3 years (for Options and PSRs). Grants are made annually, usually in October, based on the outcomes of the assessment of Pre-allocation Performance conditions as described below. Changes for FY2013 Options – Performance period extended to 4 years Opportunity level The maximum opportunity level expressed as a percentage of TFR is determined by the individual’s relative influence on Company performance and by the risk versus time-focus as described in section 4.3.2.

Target LTI Max potential Role (% Fixed) LTI (% Fixed)

KMP Managing Director 90% 150% Executive Director, Finance & Strategy 72% 120% Other KMP – current 60% 100% Other Other EMT 38% 63.3% Other Executives 9-27% 15-45%

Opportunity levels are reviewed annually against market benchmarks to align with the objectives as outlined in sections 4.1 and 4.3.3, and set at the beginning of the financial year. Vehicle The LTI vehicles are: (a) Performance Share Rights (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. For the FY2012 allocation, the exercise price was determined as the volume weighted average market price for the Company’s shares traded on the ASX in the ten trading days leading up to and including the date of grant (26 September 2011). For approximately one-third of eligible participants (those occupying the most senior roles in the Company) the payment vehicle is in the form of a mix of PSRs and Options (half each by fair value). For the remainder of the eligible participant pool, the payment vehicle is wholly in the form of PSRs. While under secondment to Contact Energy (see section 2) Mr Barnes participated in Contact Energy’s LTI arrangements (refer to Contact Energy’s website – www.contactenergy.co.nz). The maximum opportunity refers to the combined LTI from Origin Energy and/or Contact Energy in any given year. Pre-allocation The diagram at 4.3.1 shows that the extent to which an individual is awarded any part of their maximum opportunity is performance condition first subject to an assessment of performance and future development potential. The Company’s performance management and talent management systems provide input to this process. The Managing Director’s performance is assessed by the Board. The performance of other EMT members including the Executive Director, Finance & Strategy is assessed by the Managing Director, reviewed by the Remuneration Committee and approved by the Board. The pre-allocation process results in grants that are generally between 30% and 100% of the Executive’s maximum potential identified in their remuneration package. In exceptional circumstances the Board may award more than the maximum to an individual. Any unallocated portion of an individual’s maximum LTI opportunity is forfeited. The actual allocated LTIs will then be subject to a further post-allocation (vesting) performance condition of relative TSR over a further performance period of 3 or 4 years, as described further below. Valuation 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. For the Managing Director and the Executive Director, Finance & Strategy, the maximum value of the potential LTI award, as recommended by the Board, is submitted for approval by shareholders at the AGM held in the performance year to which the award relates. The actual number of Options and/or PSRs will be calculated at the time of the decision to make the award, shortly after the release of the financial results of that performance year, based upon the independently- determined fair values at that time.

50 Remuneration Report for the year ended 30 June 2012 (continued)

LTI parameter FY2012 details

Post allocation After allocation, the PSRs and Options are subject to a further performance condition in order to vest. This performance performance condition condition is Relative TSR against the ASX-100 group of companies (as comprised at the date of grant) measured at the end and vesting scale of the performance period. The degree to which the award vests is determined by the Company’s percentile ranking against the following vesting table:

TSR percentile rank % Vest

<50th Nil 50th 50% 75th or higher 100%

Between the 50th and 75th percentiles the percentage of award vesting increases proportionately on a straight line basis. Prior to vesting and allocation of shares, any unvested and unexercised Options and/or PSRs do not carry any voting rights or entitlements to dividends. On capital reorganisation, the number of unvested awards to which each participant is entitled, or the exercise price (if any) or both, will be adjusted in a manner determined by the Board in order to minimise or eliminate any material advantage or disadvantage to the participant. If new awards are granted, they will, unless the Board determines otherwise, be subject to the same terms and conditions as the original awards. Options that vest must be exercised together with payment of the exercise price, upon which shares are then allotted. PSRs have a zero exercise price and (since 1 July 2011) shares are allocated automatically on vesting. Re-testing FY2012 Independent testing of TSR is undertaken at the end of the performance period and vesting occurs according to the ranking achieved. At the end of the performance period, if less than 100% vests, a re-test is carried out at the fourth and again, if necessary, at the fifth anniversary of the grant. Any re-test is based on the full 4-year or 5-year TSR outcomes (not on the incremental period). Vesting from a re-test can occur only to the extent that a higher percentile ranking than the prior test is achieved. Changes for FY2013 Re-testing discontinued for all grants after 1 July 2012. Any unvested LTI after the test at the end of the performance period lapses immediately (see discussion in section 1). Early vesting Early vesting may occur in limited circumstances, subject to the performance condition being achieved (i.e. at the end of the truncated performance period): 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/entity otherwise acquiring 20% or more of the relevant interest in the issued capital of the Company; on termination of employment due to death or permanent disability; or 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). Exercise period, expiry FY 2012 and forfeiture Options may be exercised only where the performance condition has been met, to the extent set out in the vesting table. Options that vest must be exercised together with payment of the exercise price. Since 1 July 2011, PSRs that vest are exercised automatically. The LTI Plan Rules provide that unvested or unexercised Options and PSRs lapse on cessation of employment unless the Board exercises discretion in exceptional circumstances (such as death, disability, or genuine redundancy) to hold unvested Options or PSRs on foot subject to their normal performance hurdles and other Plan conditions. In addition, the Plan Rules provide that unvested or unexercised Options and PSRs lapse up to a maximum of 7 years after grant. For FY2012 awards, Options and/or PSRs that have not vested by the 5th anniversary after grant will lapse. Any vested but unexercised Options will lapse 5¼ years after grant. Changes for FY2013 PSRs or Options that do not vest at the single test date will lapse immediately. Anti 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. Non-compliance may result in summary dismissal.

4.3.6 Safety and Employee Share Plan (ESP) Safety is a core issue reflected at multiple levels throughout the STI arrangements. At a corporate level, failure to achieve Company-wide targets affects the senior population through safety deduct mechanisms that may reduce the Corporate STI Performance Metric (section 6.2), and affects the whole employee workforce through the operation of the Employee Share Plan (ESP), discussed below. In addition, operating businesses utilise business-wide safety measures in STI KPIs (see 4.3.1) affecting senior employees in the particular business, and safety KPIs where appropriate may also be included amongst personal KPIs. All permanent employees of the Company in Australia and New Zealand (other than Executive Directors) with more than one year of service are eligible to participate in the ESP. The Plan provides for an award of up to $1,000 of shares in the Company if specified safety targets set by the Board are met. To be eligible to receive shares, annual performance measures which relate to targeted areas of Company-wide performance must be achieved. Shares awarded under the ESP must be held for at least three years following the award or until cessation of employment, whichever occurs first.

Origin Energy Annual Report 2012 51 Remuneration Report for the year ended 30 June 2012 (continued)

For FY2012 a safety target was set for the recording of 30,000 safety observations. The target was fully met and the Company is committed to awarding $1,000 of shares to approximately 3,800 eligible employees (or a pro-rata amount for eligible part-time employees). It is proposed that the Company will acquire the requisite shares on market for transfer to employees to meet this commitment during September 2012, subject to compliance with applicable regulations. Other non-equity arrangements may apply for employees in operations outside Australia and New Zealand. 4.3.7 Retention Plan As part of the Company’s ongoing operations, from time to time, the Board has approved deferred payment arrangements to reduce the risk of losing key employees who manage critical activities, or occupy roles that are key to the delivery of operating or strategic objectives, or undertake functions requiring skills that are actively solicited in the market. The arrangements allow for the key employees to be provided with Deferred Share Rights (DSRs) or deferred cash payments provided that they remain in employment to a nominated date (generally two to four years in the future) and achieve personal performance targets. No new deferred cash arrangements under the DSR Plan were implemented during FY2012, and the number of deferred cash arrangements outstanding at 30 June 2012 was nine (2011 – 39). None of the arrangements applied to members of the KMP. The DSR Plan was approved by the Board in early 2010 to provide an equity grant as a preferred alternative to cash. The period of deferral is four years and the equity is time vested in equal amounts at the ends of the second, third and fourth year. The first DSRs were issued during FY2012. At 30 June 2012, 161,448 DSRs had been issued to 16 recipients of DSRs under the Plan (2011 – nil). None of the recipients were members of the KMP. 4.3.8 Gender pay equity The Company policy is to deliver equal pay for equal work. During its annual salary review processes it employs a number of checks and balances to maintain an average variation between genders across all grades within plus or minus two per cent with evenly distributed fluctuations. Analysis is also undertaken of point-of-hire salary decisions to eliminate potential gaps arising in hiring decisions. The Company has a structural imbalance in terms of gender distribution (females are over represented in lower-graded jobs and under-represented in higher-graded jobs) and has implemented monitoring measures focused on increasing the proportion of women in senior roles over time. These include the review of interview panel constitution and the gender balance of shortlists to provide checks against systemic bias in appointment and hire decisions. 5. CONTRACTUAL DETAILS The table below sets out the main terms and conditions of the employment contracts of the Managing Director and executive KMP (excluding Non-executive Directors). As noted in section 4.2, the contractual terms were determined with reference to the size and complexity of the job roles, benchmarked against the external market, and reflect the principles of reward for performance and alignment with the interests of shareholders.

Role Contract Expiry Notice Period Termination Payments (subject to termination benefits legislation)

Managing To 30 June 2014 12 months by either party Statutory entitlements only for termination with cause Director Immediate for misconduct, breach Payment in lieu of notice at Company discretion of contract or bankruptcy For Company termination ‘without cause’, pro rata STI is payable 6 months for extended illness Executive Ongoing Up to 3 months by either party Statutory entitlements only for termination with cause Director, (no fixed term) Immediate for misconduct, breach Payment in lieu of notice at Company discretion Finance of contract or bankruptcy For Company termination ‘without cause’ pro rata earned STI & Strategy and other is payable executive KMP 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.

52 Remuneration Report for the year ended 30 June 2012 (continued)

Details regarding the Managing Director’s remuneration arrangements are provided in earlier sections of this Report but are included in the summary below for completeness:

Element Details TFR The Managing Director’s fixed remuneration for FY2012 was $2,500,000. During the period, the Board commissioned two external reports on chief executive remuneration providing detailed benchmarks across a range of domestic and international peer groups. No change has been made to the Managing Director’s fixed remuneration for FY2013. STI The Managing Director’s maximum STI opportunity level is 120% of TFR (72% at target). 60% of the Managing Director’s STI is determined by the Corporate Performance Metrics and 40% on individual measures. Individual measures may include major project deliverables, succession planning and human resource objectives, safety performance, and strategic positioning targets. Company performance for FY2012 was determined against two equally weighted measures, Group OCAT Ratio and growth in Underlying EPS (see section 6.2). No change has been made to the Managing Director’s STI opportunity level for FY2013. LTI The Managing Director’s maximum LTI opportunity level for FY2012 was 150% of TFR. The Managing Director maintains a significant shareholding in the Company, as reflected in Table 8.6 of this Report (and equivalent tables in prior Reports). No change has been made to the Managing Director’s LTI opportunity level for FY2013.

6. COMPANY PERFORMANCE AND REMUNERATION OUTCOMES

6.1 Company Performance Summary The Company reported a Net Profit after Tax and Non-controlling interests (Statutory Profit) of $980 million for the year ended 30 June 2012, an increase of 427 per cent compared with $186 million reported in the prior year. The key drivers for the change in Statutory Profit were a 33 per cent or $220 million increase in Underlying Profit from $673 million to $893 million, a gain on the dilution of the Company’s interest in Australia Pacific LNG, and an increase in the fair value of financial instruments, partly offset by impairments, and transition and transaction costs primarily relating to the Retail Transformation Project and the NSW acquisition. At an underlying level, the Company delivered a strong increase in earnings with Underlying EBITDA up 27 per cent or $475 million to $2,257 million, underpinned by a full year’s contribution from the acquisition of the NSW retail businesses, Country Energy and Integral Energy, and the Eraring GenTrader arrangements. Group operating cash flow after tax increased by 12 per cent or $196 million to $1,781 million. In Energy Markets, the NSW acquisition, supported by effective wholesale portfolio management drove a 33 per cent increase in Underlying EBITDA to $1,562 million. Lower exploration expenses of $49 million compared with $118 million in the prior year, and higher commodity prices drove a 23 per cent increase in Underlying EBITDA to $329 million in the Exploration and Production business, while in Contact, higher wholesale prices and lower gas and carbon costs led to a 16 per cent or $55 million increase in Underlying EBITDA to $400 million. Australia Pacific LNG approved a US$14 billion final investment decision on the first phase of its CSG to LNG project in July 2011. This investment decision secured a 4.3 mtpa LNG supply agreement with Sinopec, in addition to Sinopec’s subscription agreement for a 15 per cent interest in the incorporated joint venture, diluting the Company’s interest to 42.5 per cent. During the year, further LNG off take agreements were signed with Kansai Electric for approximately 1 mtpa, and Sinopec for an additional 3.3 mtpa, marking the completion of marketing for both LNG trains. Sinopec also committed to increasing its shareholding in Australia Pacific LNG to 25 per cent, which was finalised following Australia Pacific LNG’s $23 billion final investment decision on the second train in July 2012. The finalisation of this further diluted the Company’s interest in Australia Pacific LNG to 37.5 per cent, and the Company has signalled its intention to further reduce this interest to around 30 per cent through a joint process with ConocoPhillips. The joint venture also secured US$8.5 billion in project finance facilities during the period (subject to customary conditions precedent, including certain government approvals), significantly strengthening the Company’s liquidity position. During the year the Company made substantial progress on its major investments. Energy Markets successfully migrated 2.6 million customer accounts to the new billing and customer relationship management system, providing enhanced capability to optimise processes, reduce costs and improve sales outcomes. Integration of the acquired NSW businesses continued to progress well, and final commissioning of the 550 MW Mortlake Power Station was completed shortly after the end of the period. Construction of Contact’s 166 MW Te Mihi geothermal project continued as planned. The Company raised additional capital during the year, including a $266 million underwritten DRP, a US$500 million issuance of unsecured notes in the US 144a market, $900 million in subordinated notes in the Australian retail bond market, and $800 million of additional debt facilities. This additional capital further strengthens the Company’s balance sheet, improving liquidity and diversifying its funding sources. As at 30 June 2012, the Company had committed undrawn debt facilities and cash (excluding Contact and bank guarantees) totalling $4.2 billion. 6.2 Ten Year Performance History The following table outlines the Company’s performance over a number of key performance indicators, with the highlighted rows relating to the performance metrics used in the STI and LTI plans as depicted in the framework at section 4.3.1. As shown in the framework, the Corporate STI Performance measure is made up of two corporate measures, Underlying EPS and Group OCAT Ratio. Total Shareholder Return (TSR) is defined as the growth in Company share price over the relevant performance period with dividends notionally re-invested 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.

Origin Energy Annual Report 2012 53 Remuneration Report for the year ended 30 June 2012 (continued)

In terms of LTI, awards during the period have had a vesting period of three years from grant to test date; the three-year rolling TSR performance in the table below approximates shareholder returns during those vesting periods.

Ten Year Performance History (1) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 CAGR(6)

Earnings Revenue $m 3,327 3,522 4,870 5,880 6,436 8,275 8,042 8,534 10,344 12,935 14.5% Statutory Profit $m 162 205 301 332 457 517 6,941 612 186 980 Statutory EPS – basic cents per share (2) 23.5 29.2 38.4 40.7 53.1 57.4 768.8 67.7 19.6 90.6 Underlying Profit $m 162 205 301 338 370 443 530 585 673 893 18.6%

STI Performance Condition

Underlying EPS – basic cents per share (2) 23.5 29.2 38.4 41.5 43.0 49.2 58.7 64.8 71.0 82.6 13.4% Group OCAT Ratio % 15.6 17.5 12.9 15.0 13.7 12.3 10.4 10.9 13.0 11.5 Corporate STI Performance Metric Outcome (%) (3) 100.0 100.0 81.9 67.5 95.0 70.0 45.0 77.0 70.0 92.4

Total Shareholder Return (TSR) Dividends (cents) 10.0 13.0 15.0 18.0 21.0 50.0(4) 50.0 50.0 50.0 50.0 17.5% Share Price 30 June $ (2) 3.76 5.24 7.28 7.04 9.51 15.43 14.23 14.52 15.79 12.20 12.5% Annual TSR % 22.6 42.5 42.0 (1.0) 38.4 66.2 (5.3) 5.3 12.3 (19.9) 17.6%

LTI Performance Condition

TSR (Rolling 3-Year CAGR (5) %pa) 39.3 26.0 35.4 26.1 24.9 31.6 29.6 18.3 3.8 (1.8)

(1) Years FY2003, FY2004 and FY2005 are reported under previous AGAAP and have not been re-stated under A-IFRS. (2) Share price and EPS have been restated for the bonus element of the Rights Issues completed in April 2005 and April 2011. (3) See 4.3.1 and 4.3.4. Prior to FY2009 the Corporate STI Performance Metric was Group OCAT Ratio. Since FY2009 it is a combination of Underlying EPS and Group OCAT Ratio, equally weighted. (4) Includes additional dividend paid in November 2008. (5) Compound annual growth rate (%pa) for the three years ended 30 June. Three years corresponds to the LTI vesting period (but note that LTI hurdles are tested three years after actual date of grant). (6) Compound annual growth rate (%pa) over ten years 1 July 2002 to 30 June 2012.

Origin Energy Total Shareholder Return vs ASX-100 Total Return (indexed to 100 from 1/07/2002 to 30/06/2012) Source: Guerdon Associates

800

700

600

500

400

300 Index Level Index

200

100

01 Jul 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Origin Total Shareholder Return S&P/ASX 100 Index Total Return The detailed TSR performance for the 10 years to 30 June 2012 is shown in the graph above. The 10-year compound annual growth rate is shown for key metrics in the right of the table above. While the ASX-100 Accumulation Index increased by 7.0 per cent average annual compound over the period, the Company’s compound TSR was 17.6 per cent per annum. The Managing Director’s total remuneration during the period has increased at a rate lower than this. Remuneration disclosures were not prepared under A-IFRS prior to FY2006. Using audited A-IFRS remuneration for the period FY2006-FY2012, the CAGR for Managing Director Aggregate Reward was 15 per cent per annum.

54 Remuneration Report for the year ended 30 June 2012 (continued)

6.3 KMP Actual and Forfeit STI The table below shows the STI opportunity levels, together with actual payout and forfeit proportions for FY2011 and FY2012.

Maximum STI Actual STI Actual STI KMP Current as % of Fixed as % of % of Maximum STI Payment(3) (excluding Non-executive Directors) FY Remuneration Maximum STI(1) Payment Forfeited(2) $000

G A King 2012 120 78 22 2,350 2011 120 76 24 2,100 K A Moses 2012 100 90 10 1,146 2011 100 95 5 1,140 D A Baldwin (4) 2012 100 88 12 774 2011 100 65 35 457 D Barnes (5) 2012 100 60 40 390 2011 (6) 100 79 21 286 F G Calabria 2012 100 71 29 710 2011 100 95 5 843 P A Zealand 2012 100 62 38 440 2011 85 85 15 489 KMP – former

A M Stock2012–––– 2011 (6) 85 79 21 505 R J Willink2012–––– 2011 (6) 75 62 38 295

(1) In exceptional circumstances the Board may award more than the maximum to an individual. (2) Where the actual STI payment is less than maximum potential, the difference is forfeited. It does not become payable in subsequent years. The minimum total value of the STI is nil if no performance conditions are met. (3) 2012 STI constitutes a cash bonus granted for performance during the year ended 30 June 2012, determined following the close of 2012 results and paid in September 2012. 2011 STI constitutes a cash bonus granted for performance during the year ended 30 June 2011, determined following the close of 2011 results and paid in September 2011. (4) NZD/AUD annual average exchange rate 1.2947 for 1 July 2010-30 March 2011. (5) NZD/AUD annual average exchange rate 1.2825 for 1 July 2011-30 June 2012 (1.3269 1 April 2011 -30 June 2011). (6) For the period as a KMP (see section 2).

6.4 Remuneration Outcomes Table FY2012 The following tables summarise the actual pay earned and delivered in respect of FY2012 for executive KMP, and the status of conditional pay awarded in this and prior periods. This presentation is based on recommended amendments to the Corporations Act that were proposed in April 2011 by CAMAC (1) and the information in these tables is different from that which appears in Table 8.1. Table 8.1 is prepared in accordance with the Corporations Act and measured in accordance with accounting standards and includes expense amounts for items such as LTIs awarded in the current and prior years and other amounts which are expensed over the period in which they vest or before the period paid. The three tables in this section, which are not additive, are provided in order to present a clearer view of actual pay outcomes. (a) Crystallised Past Pay (past pay crystallised or forfeited in FY2012)

Name Past Pay crystallised in FY2012 (2) Past Pay forfeited in FY2012 (3)

Executive Directors G A King 1,677,216 – K A Moses 402,538 –

Other Executive KMP D A Baldwin (4) –824,845(5) D Barnes (4) 67,090 – F G Calabria 223,628 – P A Zealand 95,042 –

(1) Corporations and Markets Advisory Committee, see Executive Summary (2) Past Pay Crystallised represents the value crystallised in FY2012 of LTI awarded in prior years and vested in FY2012. The value of equity is calculated at the date of vesting (irrespective of exercise). This is the number of Options or Rights vested multiplied by the market closing price of the Company’s shares on the day of vesting, less any applicable exercise price. Where the exercise price exceeds the market price, the value is zero. In FY2012, vesting comprised LTI awards granted in September 2008 referable to the performance year FY2008. (3) Past Pay Forfeited represents the Grant Date fair value of LTI awarded in prior years and disclosed as remuneration in prior years, but lapsed and forfeited in FY2012. The original Grant Date fair value has not been adjusted for time value change. In FY2012, lapses for D A Baldwin comprise LTI awards granted by Contact Energy in July 2006. (4) NZD/AUD annual average exchange rate of $1.2825 (1 July 2011 to 30 June 2012) applied to the New Zealand Dollar denominated elements of pay. (5) Relates to Contact Energy securities.

Origin Energy Annual Report 2012 55 Remuneration Report for the year ended 30 June 2012 (continued)

(b) Present Pay (pay earned and delivered in respect of FY2012)

FY2012 STI for performance Name Fixed remuneration(1) to 30 June 2012(2) Present Pay FY2012(3)

Executive Directors G A King 2,694,706 2,350,000 5,044,706(4) K A Moses 1,390,341 1,145,540 2,535,881

Other Executive KMP D A Baldwin 988,356 774,400 1,762,756 D Barnes (5) 644,951 390,000 1,034,951 F G Calabria 1,011,373 710,000 1,721,373 P A Zealand 730,732 440,200 1,170,932

(1) Fixed remuneration is defined in section 4.2.1 and is the sum of base salary, non-monetary benefits and superannuation. (2) FY2012 STI constitutes a cash bonus granted for the year ended 30 June 2012, determined following the close of FY2012 results and to be paid in September 2012. (3) Present Pay is the total of the two previous columns and represents the actual pay delivered in relation to FY2012 performance. (4) Present Pay for G A King for FY2012 was 10.8% higher than for FY2011. (5) NZD/AUD annual average exchange rate of $1.2825 (1 July 2011 to 30 June 2012) applied to the New Zealand Dollar denominated elements of pay.

Past Pay that may crystallise Pay awarded for FY2012 that Name in the future (1) may crystallise in the future (2)

Executive Directors G A King – 3,750,000(3,4) K A Moses – 1,524,000(4)

Other Executive KMP D A Baldwin – 880,000 D Barnes – 650,000 F G Calabria – 1,000,000 P A Zealand – 603,500

(1) Indicative value at 30 June 2012. Includes all Past Pay LTI awarded in prior years that has not vested or lapsed as at 30 June 2012 but may vest (partially or fully) or lapse in a future period. The indicative value is calculated from the TSR ranking and implied vesting measured at 30 June 2012, and is based on the Company’s closing share price at 30 June 2012 ($12.20) less any applicable exercise price. Where the exercise price exceeds the share price at 30 June 2012, the indicative value is zero. Awards in this column were granted between 30 September 2008 and October 2011 referable to performance years FY2008, FY2009, FY2010 and FY2011. As at 30 June 2012, all these awards had zero indicative value. (2) Intended fair value of LTI awards determined with respect to performance in FY2012 that may vest (partially or fully) or lapse in a future period. (3) Conditional pay awarded for FY2012 to G A King was 8.4% lower than conditional pay awarded for FY2011. (4) Pursuant to shareholder approval obtained at the 2011 AGM.

56 Remuneration Report for the year ended 30 June 2012 (continued)

7. NON-EXECUTIVE DIRECTOR REMUNERATION AND FEES

7.1 Policy The Board’s objectives and policies with respect to Non-executive Director fees are summarised below:

Objective Policy

Promote independence Non-executive Directors are paid fixed fees and are not dependent on the financial results of the Company for and objectivity their remuneration. This principle allows independent and objective assessment of executive and Company performance. Attract and retain Directors Fees take into account the workload of the director on the Board and the Committees on which they serve. who have the skills required by Fees are reviewed against companies of comparable market capitalisation to the Company. the Board and with a reputation for directorial skill and ability

The Chairman receives a base fee, and other Non-executive Directors receive base fees and Committee fees (inclusive of superannuation guarantee and salary sacrifice contributions). Directors can elect to receive this in the form of participation in the shareholder-approved Non-executive Director Share Plan (section 7.3). 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 Board considers independently sourced market benchmark data in setting the level of remuneration required to attract and retain Directors with the necessary skills and experience for the Board. 7.2 Non-Executive Fee Structure The aggregate cap for Non-executive Directors’ remuneration was approved by shareholders at the 2010 Annual General Meeting. The Board does not propose a change to this cap for FY2013, but has approved an increase of four per cent in Board and Committee fees to apply for FY2013. The table below shows the structure and level of Non-executive Director fees for the current year and as approved by the Board for FY2013.

FY2012 FY2013 Year ending 30 June $’000 $’000

Board fees Chairman (1) 651 677 Director 189 196

Committee fees Audit Chairman 55 57 Member 28 29 Remuneration Chairman 45 47 Member 20 21 Health, Safety & Environment Chairman 40 42 Member 20 21 Risk Chairman & members –– Nomination Chairman & members ––

(1) The Chairman of the Board is a member of all Board Committees but receives no additional fees for such attendance.

7.3 Non-Executive Director Share Plan Non-executive Directors are required to hold a minimum of 10,000 shares in the Company within three years of appointment. The Non-executive Director Share Plan allows the salary sacrifice up to $5,000 of fees per annum toward the acquisition of shares. Shares are acquired on-market by the Trustee of the Plan to be held for participating Non-executive Directors. The Trustee of the Plan may transfer to a Non-Executive Director a share acquired under the Plan after five years or upon retirement from office or death of the Non-executive Director. No acquisitions of shares were made under the Non-executive Director Share Plan during the reporting period.

Origin Energy Annual Report 2012 57 Remuneration Report for the year ended 30 June 2012 (continued)

8. REMUNERATION TABLES AND DISCLOSURES

8.1 Remuneration Table for FY2011 and FY2012

Short-term benefits

Variable Non-monetary Base salary/fees Contact Energy fees(1) remuneration(2) benefits and Other(3)

Executive Directors G A King 2012 2,456,248 163,743 2,350,000 30,963 2011 2,255,664 102,343 2,100,000 52,344 K A Moses 2012 1,251,542 100,292 1,145,540 22,715 2011 1,166,584 71,640 1,140,000 22,881

Executive KMP – Current D A Baldwin (5) 2012 852,008 102,339 774,400 314,463 2011 774,879 21,240(6) 457,000 8,623 D Barnes (5) 2012 618,362 – 390,000 5,589 2011 501,851 – 286,000 11,638 F G Calabria 2012 963,669 – 710,000 24,088 2011 853,915 – 843,000 22,353 P A Zealand 2012 660,899 – 440,200 27,021 2011 627,189 – 489,000 22,835

Executive KMP – Former A M Stock (8) 2012 – – – – 2011 755,255 – 505,000 47,593 R J Willink (8) 2012 – – – – 2011 544,687 – 295,000 47,757

Non-executive Directors H K McCann 2012 633,245 – – 738 2011 603,451 – – 1,422 J H Akehurst 2012 205,208 – – 204 2011 174,784 – – 220 B G Beeren 2012 218,489 120,468 – 1,515 2011 211,451 84,689 – 1,553 T Bourne 2012 266,112 – – 256 2011 229,784 – – 269 G M Cairns 2012 208,112 – – 204 2011 199,784 – – 220 R J Norris (9) 2012 35,092 – – 51 2011 – – – – H M Nugent 2012 278,112 – – 204 2011 268,451 – – 220

Non-executive Directors (former) R Williams 2012 – – – – 2011 77,594 – – 251

Totals (10) 2012 8,647,098 486,842 5,810,140 428,011 2011 9,245,323 279,912 6,115,000 240,179

(1) GA King, D A Baldwin, BG Beeren and KA Moses are the Company’s nominees on the Board of Contact Energy. Remuneration is converted to Australian dollars using an annual (1 July 2011 – 30 June 2012) average exchange rate of $1.2825 (2011 – $1.3028). (2) Variable remuneration includes the STI in respect of the relevant reporting period based on achieving personal goals and satisfying specified performance criteria during that period plus any discretionary amounts awarded for exceptional contributions. FY2012 STI constitutes a cash bonus granted for the year ended 30 June 2012, determined following the close of FY2012 results and to be paid in September 2012. FY2011 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. (3) Non-monetary benefits include insurance premiums and fringe benefits such as car parking and reportable fringe benefits. Other includes monetary benefits of $296,246 associated with D A Baldwin’s relocation from New Zealand to Australia and is recorded as Other Benefits. (4) Includes restricted shares for Contact Energy fees and the fair value of Options and PSRs 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 test date. The value disclosed is the portion of the fair value of the Options and PSRs allocated to the relevant reporting period. In valuing the Options and PSRs, market conditions have been taken into account.

58 Remuneration Report for the year ended 30 June 2012 (continued)

Post-employment benefits Long-term benefits Totals % of Total Termination Total Remuneration % of Remuneration Superannuation Options & Rights(4) Accrued LSL Benefits Remuneration ‘At Risk’ in Options and PSRs

43,752 3,162,818 140,468 – 8,347,992 66% 38% 44,336 2,975,141 130,454 – 7,660,282 66% 39% 15,792 1,169,436 58,515 – 3,763,832 62% 31% 32,506 953,493 47,839 – 3,434,943 61% 28%

15,792 1,206,338 65,226 – 3,330,566 59% 36% 3,804 857,598(7) 2,587 – 2,125,731(7) 62%(7) 40%(7) 21,000 325,414 62,371 – 1,422,736 50% 23% 21,000 189,465(7) 5,435 – 1,015,389(7) 47%(7) 19%(7) 23,616 873,784 158,539 – 2,753,696 58% 32% 21,084 662,874 25,518 – 2,428,744 62% 27% 42,812 338,092 11,267 – 1,520,291 51% 22% 43,902 267,951 11,805 – 1,462,682 52% 18%

––––––– 23,412 453,434 38,668 – 1,823,362 53% 25% ––––––– 85,738 222,928 26,164 – 1,222,274 42% 18%

15,792 – – – 649,775 – – 15,216 – – – 620,089 – – 23,792 – – – 229,204 – – 25,216 – – – 200,220 – – 15,792 – – – 356,264 – – 15,216 – – – 312,909 – – 15,792 – – – 282,160 – – 15,216 – – – 245,269 – – 15,792 – – – 224,108 – – 15,216 – – – 215,220 – – 3,158 – – – 38,301 – – ––––––– 15,792 – – – 294,108 – – 15,216 – – – 283,887 – –

––––––– 5,072 – – – 82,917 – –

268,674 7,075,882 496,386 – 23,213,033 382,150 6,582,884(7) 288,470 – 23,133,918(7)

(5) During employment with Contact Energy, D A Baldwin and D Barnes were paid in New Zealand currency. Remuneration is converted to Australian dollars using an annual average exchange rate of $1.2825 (1 July 2011 to 30 June 2012). For FY2011 the rates were 1.2947 (1 July 2010 to 31 March 2011 for D A Baldwin) and $1.3269 (1 April 2011 to 30 June 2011 for D Barnes). For Contact Energy, base salary includes holiday pay rate adjustments. Fixed remuneration and all or part of their variable remuneration for the period of employment with Contact Energy is reimbursed by Contact Energy. (6) As Managing Director of Contact Energy (up to and including 31 March 2011), D A 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 his capacity as Director of Contact Energy subsequent to 1 April 2011. (7) Re-stated to include fair values for Options, PSRs and restricted shares issued by Contact Energy. (8) For the period as a KMP (see section 2). (9) RJ Norris was appointed as a Non-executive Director on 18 April 2012. (10) All named executive 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 is defined in section 4.2.1 and is the sum of base salary, non-monetary benefits, and superannuation.

Origin Energy Annual Report 2012 59 Remuneration Report for the year ended 30 June 2012 (continued)

8.2 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, PSRs and DSRs 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.

Number Exercise Number Percentage Granted Type Outstanding Price(1) First Test Date Expiry Date Vested Exercisable(2) Exercisable(3)

28/09/2007 Options 300,000 $9.86 28/09/2010(4) 28/09/2012 Yes 300,000 100 28/09/2007 PSRs 131,000 Nil 28/09/2010 28/12/2012 Yes 131,000 100 28/09/2007 Options 815,600 $9.86 28/09/2010 28/12/2012 Yes 815,600 100 30/09/2008 PSRs 388,107 Nil 30/09/2011 30/12/2013 Yes 320,421 82.56 30/09/2008 Options 1,161,500 $15.84 30/09/2011 30/12/2013 Yes 958,934 82.56 28/09/2009 PSRs 427,295 Nil 28/09/2012 28/12/2014 No – – 28/09/2009 Options 1,056,500 $14.58 28/09/2012 28/12/2014 No – – 06/11/2009 PSRs 154,370 Nil 06/11/2012 06/02/2015 No – – 06/11/2009 Options 412,000 $15.47 06/11/2012 06/02/2015 No – – 10/05/2010 PSRs 4,322 Nil 10/05/2013 10/08/2015 No – – 10/05/2010 Options 11,600 $14.89 10/05/2013 10/08/2015 No – – 28/10/2010 PSRs 757,457 Nil 01/10/2013 31/12/2015 No – – 28/10/2010 Options 2,039,899 $14.91 01/10/2013 31/12/2015 No – – 15/10/2011 DSRs 11,292 Nil 01/04/2013 01/04/2013 No – – 11,292 Nil 01/04/2014 01/04/2014 No – – 11,292 Nil 01/04/2015 01/04/2015 No – – 15/10/2011 PSRs 42,886 Nil 01/04/2014 01/04/2016 No – – 15/10/2011 Options 174,316 $13.01 01/04/2014 30/06/2016 No – – 15/10/2011 DSRs 35,329 Nil 15/10/2013 15/10/2013 No – – 35,329 Nil 15/10/2014 15/10/2014 No – – 35,329 Nil 15/10/2015 15/10/2015 No – – 15/10/2011 PSRs 1,922,255 Nil 15/10/2014 15/10/2016 No – – 15/10/2011 Options 4,287,463 $13.01 15/10/2014 15/01/2017 No – – 11/04/2012 DSRs 7,195 Nil 01/02/2014 01/02/2014 No – – 7,195 Nil 01/02/2015 01/02/2015 No – – 7,195 Nil 01/02/2016 01/02/2016 No – – 11/04/2012 PSRs 98,409 Nil 11/04/2015 11/04/2017 No – – 11/04/2012 Options 362,570 $12.91 11/04/2015 11/07/2017 No – –

(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 4.3.5. (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 4.3.5 as at 30 June 2012. The number of Options and PSRs that become exercisable will be determined at the test date and may be different from that indicated here. An indicative number is not provided for Deferred Share Rights as these are subject to tenure and personal performance hurdles rather than a market hurdle. (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% of the Company’s shares.

60 Remuneration Report for the year ended 30 June 2012 (continued)

8.3 Analysis of movements in Options and PSRs A summary of the movement in FY2012, by value, of Options over ordinary shares and PSRs in the Company (and Options, PSRs and Restricted Shares in Contact Energy in the case of D A Baldwin and D Barnes) held by KMP is provided in the table below. Note that no Non-executive Directors hold Options or PSRs.

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

Executive Directors G A King Options 2,214,658 – – PSRs 1,879,853 – – K A Moses Options 825,338 1,510,760 – PSRs 700,564 – –

Other KMP D Barnes (3,4) Options – – – PSRs – – – Contact Options 306,043 – – Contact PSRs 306,894 – – D A Baldwin (3,4) Options 577,739 – – PSRs 490,405 – – Contact Options – – 313,840 Contact PSRs 327,709(5) –2,653 Contact Restricted Shares – 508,352 F G Calabria Options 610,200 – – PSRs 517,953 – – P A Zealand Options 244,385 – – PSRs 207,447 – –

(1) The allocated value of Options and PSRs granted in the year is the fair value calculated at grant date using a Black-Scholes algorithm with Monte Carlo simulation to account for hurdles and has been independently calculated by Mercer. The value disclosed is the total value of the Options and PSRs. This amount is allocated to remuneration (Table 8.1) over the vesting period (i.e. from October 2011 to October 2014). (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) Based on an exchange rate of 1.2825. (4) D Barnes’ and D A Baldwin’s Contact securities were issued under the Contact Energy Employee Long term Incentive Scheme as Chief Executive Officer or Managing Director (respectively) of Contact Energy. Contact Energy relies on NZSX Listing Rule 7.3.9 to allow participation of the CEO/Managing Director in the Long-term Incentive Scheme. D A Baldwin receives cash Director’s fees from Contact Energy in his capacity as a Director post 1 April 2011 following the end of his secondment to Contact Energy, but will not be granted any further securities in Contact Energy under its Long-term Incentive Scheme. However, he will retain existing securities subject to their corresponding exercise hurdles and vesting requirements. (5) Contact PSRs issued in FY2012 to adjust for dilution on previously granted securities as a result of the Contact Energy Entitlement Offer and to replace existing Restricted Shares due to the closure of the Contact Energy Restricted Share Plan. Refer to Contact Energy’s website – www.contactenergy.co.nz.

Origin Energy Annual Report 2012 61 Remuneration Report for the year ended 30 June 2012 (continued)

8.4 Numbers of Options and PSRs granted, vested and lapsed in FY2012 and associated fair value Options over ordinary shares and PSRs of the Company (and Options and PSRs in Contact Energy in the case of D A Baldwin and D Barnes) granted or vested to KMP are listed below. Note that no Non-executive Directors hold Options or PSRs and no KMPs hold DSRs.

No of No Granted options & during Exercise Vesting Expiry % vested % forfeited PSRs vested KMP Type FY2012 Grant Date Fair Value(1) Price Date Date FY2012 FY2012(2) FY 2012

Executive Directors G A King Options 728,506 15/10/11 $3.04 $13.01 15/10/14 15/01/17 – – 330,240 PSRs 182,333 15/10/11 $10.31 Nil 15/10/14 15/10/16 – – 127,448 K A Moses Options 271,493 15/10/11 $3.04 $13.01 15/10/14 15/01/17 – – 73,478 PSRs 67,950 15/10/11 $10.31 Nil 15/10/14 15/10/16 – – 30,588

Other KMP D BarnesOptions–– – –––––12,384 PSRs –– – –––––5,098 Contact Options 490,625 01/10/11 $0.62 $4.21 01/10/14 30/11/16 – – – Contact PSRs 327(3) 23/08/11 $2.60 Nil 01/10/13 30/11/15 – – – 106,082 01/10/11 $2.88 Nil 01/10/14 30/11/16 – – – D A Baldwin Options 190,046 15/10/11 $3.04 $13.01 15/10/14 15/01/17 – – – PSRs 47,566 15/10/11 $10.31 Nil 15/10/14 15/10/16 – – – Contact PSRs(4) 3,29123/08/11$3.40 NilNote 3Note 3 – 93,017 21/06/12 $3.40 Nil Note 3 Note 3 – F G Calabria Options 200,724 15/10/11 $3.04 $13.01 15/10/14 15/01/17 – – 40,454 PSRs 50,238 15/10/11 $10.31 Nil 15/10/14 15/10/16 – – 16,993 P A Zealand Options 80,390 15/10/11 $3.04 $13.01 15/10/14 15/01/17 – – 17,338 PSRs 20,121 15/10/11 $10.31 Nil 15/10/14 15/10/16 – – 7,222

(1) All values in Australian currency; fair values are at the date of grant. (2) The percentage forfeited in FY2012 represents the reduction from the maximum number of Options available to vest due to the highest level performance criteria not being achieved. (3) Contact PSRs issued to adjust for dilution on previously granted securities as a result of the Contact Energy Entitlement Offer. (4) 3,291 Contact PSRs issued to adjust for dilution on previously granted securities as a result of the Contact Energy Entitlement Offer; and 93,017 PSRs to replace existing Restricted Shares due to the closure of the Contact Energy Restricted Share Plan. Vesting and expiry dates as per the underlying securities, fair value shown as the weighted average fair value for the various tranches represented. Refer to Contact Energy’s website – www.contactenergy.co.nz.

No Options or PSRs have been granted since the end of the reporting period. Options or PSRs were provided at no cost to the recipients. Unvested Options and PSRs expire on the earlier of their expiry date or on cessation of employment. The Options and PSRs are generally 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 4.3.5 (and, for Contact Energy, refer to Contact Energy’s website – www.contactenergy.co.nz).

62 Remuneration Report for the year ended 30 June 2012 (continued)

8.5 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 D A Baldwin and D Barnes, restricted shares or Options and PSRs over ordinary shares in Contact Energy) held directly, indirectly or beneficially by the KMP including their related parties are listed below. Note that Non-executive Directors do not hold Options or PSRs.

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

Executive Directors G A King 2012 Options 1,368,212 728,506 – – 2,096,718 330,240 630,240 PSRs 399,750 182,333 – – 582,083 127,448 127,448 2011 Options 1,497,000 371,212 500,000 – 1,368,212 300,000 300,000 PSRs (2) 358,000 141,750 100,000 – 399,750 100,000 – K A Moses 2012 Options 700,202 271,493 211,000 – 760,695 73,478 213,478 PSRs 183,779 67,950 – – 251,729 30,588 81,588 2011 Options 717,000 145,202 162,000 – 700,202 140,000 351,000 PSRs (2) 129,000 54,779 – – 183,779 51,000 51,000

Other KMP D Barnes 2012 Options 56,990 – – – 56,990 12,384 12,384 PSRs 21,540 – – – 21,540 5,098 5,098 Contact Options 106,082 490,625 – – 596,707 – – Contact PSRs (2) 23,574 106,409 – – 129,983 – – 2011 Options 63,000 23,990 30,000 – 56,990 30,000 – PSRs (2) 23,500 9,040 11,000 – 21,540 11,000 – Contact Options – 106,082 – – 106,082 – – Contact PSRs – 23,574 – – 23,574 – – D A Baldwin 2012 Options 178,369 190,046 – – 368,415 – – PSRs 66,22147,566––113,787–– Contact Options 1,250,102 – – 206,410 1,043,692 – – Contact PSRs 104,655 96,308(3) – 555 200,408 – – Contact Restricted Shares133,070––133,070––– 2011 Options 60,000 118,369 – – 178,369 – – PSRs (2) 23,000 43,221 – – 66,221 – – Contact Options 779,156 470,946 – – 1,250,102 – – Contact PSRs –104,655––104,655–– Contact Restricted Shares133,070–––133,070–– F G Calabria 2012 Options 309,166 200,724 – – 509,890 40,454 104,454 PSRs 94,271 50,238 – – 144,509 16,993 16,993 2011 Options 401,000 104,166 196,000 – 309,166 64,000 64,000 PSRs (2) 78,500 39,271 23,500 – 94,271 23,500 – P A Zealand 2012 Options 95,599 80,390 – – 175,989 17,338 17,338 PSRs 36,390 20,121 – – 56,511 7,222 7,222 2011 Options 103,000 36,599 44,000 – 95,599 44,000 – PSRs (2) 38,500 13,890 16,000 – 36,390 16,000 – A M Stock (4) 2012– –– ––––– 2011 Options 448,000 56,345 187,000 – 317,345 64,000 – PSRs (2) 64,500 21,570 23,500 – 62,570 23,500 – R J Willink (4) 2012– –– ––––– 2011 Options 87,000 31,770 – – 118,770 40,000 – PSRs (2) 33,000 12,028 14,500 – 30,528 14,500 –

(1) Performance Share Rights (issued under the Contact Energy Share Option Scheme) replaced restricted shares from October 2010. Restricted shares issued prior to October 2010 remain held by participants and subject to their exercise hurdles and vesting criteria. (2) PSRs granted during FY2011 include adjustment for dilution from the 2011 Rights Issue. (3) Contact PSRs issued in FY2012 to adjust for dilution on previously granted securities as a result of the Contact Energy Entitlement Offer and to replace existing Restricted Shares due to the closure of the Contact Energy Restricted Share Plan. Refer to Contact Energy’s website – www.contactenergy.co.nz. (4) For the period as a KMP (see section 2).

Origin Energy Annual Report 2012 63 Remuneration Report for the year ended 30 June 2012 (continued)

8.6 Equity holdings and transactions Movements during the reporting periods in the number of ordinary shares of the Company (and, in the case of D A Baldwin and D Barnes, Contact Energy) held directly, or indirectly or beneficially by KMP, including their related parties:

Received on Received on exercise of Exercise Held at Year Held at Year Start Purchases(1) options of PSRs(2) Sales Year End

Non-executive Directors (3) H K McCann 2012 349,012 – – – – 349,012 2011 286,245 62,767 – – – 349,012 J H Akehurst 2012 71,200 – – – – 71,200 2011 14,750 56,450 – – – 71,200 B G Beeren 2012 1,360,015 21,665 – – – 1,381,680 2011 1,235,020 124,995 – – – 1,360,015 T Bourne 2012 53,504 2,102 – – – 55,606 2011 46,822 6,682 – – – 53,504 G M Cairns 2012 83,360 – – – – 83,360 2011 53,939 29,421 – – – 83,360 R J Norris 2012 – 20,000 – – – 20,000 2011–––––– H M Nugent 2012 38,204 630 – – – 38,834 2011 31,059 7,145 – – – 38,204

Executive Directors G A King 2012 1,106,611 – – – 100,000 1,006,611 2011 939,939 566,672 500,000(4) 100,000 1,000,000 1,106,611 K A Moses 2012 221,927 – 211,000(5) – 195,553 237,374 2011 220,000 4,927 162,000 – 165,000 221,927

Other KMP D Barnes 2012 59,668 – – – – 59,668 2011 22,794 13,005 30,000(6) 11,000 17,131 59,668 D A Baldwin 2012 10,000 393 – – – 10,393 2011 – 10,000 – – – 10,000 F G Calabria 2012 234,469 – – – – 234,469 2011 90,993 44,976 196,000(7) 23,500 121,000 234,469 P A Zealand 2012 182,928 612 – – – 183,540 2011 91,140 31,788 44,000(6) 16,000 – 182,928 A M Stock (8) 2012–––––– 2011 448,068 56,534 187,000(9) 23,500 112,440 602,662 R J Willink (8) 2012–––––– 2011 413,693 1,777 – – – 415,470

(1) All existing participants in the Plan took up their Rights entitlements during the FY2011 reporting period. (2) No amount was paid for the shares acquired on exercise of vested PSRs. (3) 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 FY2011 reporting period. There were no allocations under the Plan. (4) Exercise price per share of $7.21. There are no amounts remaining unpaid. (5) Exercise price per share of $6.04. There are no amounts remaining unpaid. (6) Exercise price per share of $10.32. There are no amounts remaining unpaid. (7) 86,000 shares had an exercise price of $7.21. 110,000 shares had an exercise price of $6.50. There are no amounts remaining unpaid. (8) For the period as a KMP (see section 2). (9) 123,000 shares had an exercise price per share of $7.21; 64,000 shares had an exercise price of $9.86. There are no amounts remaining unpaid.

64 Remuneration Report for the year ended 30 June 2012 (continued)

9. ABBREVIATIONS AND KEY DEFINITIONS

KMP – Key management personnel The term ‘Key management personnel’ is defined by AASB 124 Related Party Disclosures as all directors and those persons having authority and responsibility for planning, directing and controlling the activities of the consolidated entity. For the consolidated entity, these are the individuals listed in section 2 of this Report. Directors Executive Directors and Non-executive Directors. EMT – Executive Management Team The Managing Director and managers who report to the Managing Director. Executives The EMT plus those employees who participate in the Company’s long term incentive arrangements. LTI Long Term Incentive STI Short Term Incentive TFR Total Fixed Remuneration TSR – Total Shareholder Return The growth in Company share price over a specified 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.

Non-IFRS Financial Measures This Remuneration Report includes certain non-IFRS Financial measures. Non-IFRS Financial measures are financial measures that are presented other than in accordance with all relevant Accounting Standards. Non-IFRS Financial measures are used internally by management to assess the performance of the Company’s business and make decisions on allocation of resources. Certain non-IFRS Financial measures are used as performance metrics for remuneration outcomes as detailed in this Remuneration Report. The non-IFRS Financial measures included in this Remuneration Report are defined below.

Group OCAT Ratio Operating Cash Flow After Tax (less interest tax shield) divided by Productive Capital. Interest tax shield represents the tax deduction for interest paid. Productive capital represents funds employed including 42.5% of Australia Pacific LNG (as at 30 June 2012) and excludes capital works in progress for projects under development which are not yet contributing to earnings. Underlying Consolidated Profit Statutory Profit for the period (as reported in the Origin Energy Consolidated Group Income Statement (Underlying Profit) for the Full Year Financial Statements), adjusted for items consistent with the manner in which the Managing Director reviews the performance of the business, as disclosed in note 2(b) of the Origin Energy Consolidated Group Full Year Financial Statements. Underlying EBITDA Underlying Earnings before interest, tax, depreciation and amortisation as disclosed in note 2(a) of the Origin Energy Consolidated Full Year Financial Statements. Underlying earnings per share Underlying Consolidated Profit divided by the weighted average number of shares on issue in the year, (Underlying EPS) as disclosed in note 37 of the Full Year Financial Statements for the Origin Consolidated Group.

Origin Energy Annual Report 2012 65 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 Company Grant King was appointed Managing Director John Akehurst joined the Board of the as Chairman in February 2000. He is Chairman of the Company at the time of its demerger Company in April 2009 and is Chairman of the Nomination and Risk committees and a from Boral Ltd, in February 2000, and was of the Health, Safety and Environment member of the Audit, Remuneration, and Managing Director of Boral Energy from 1994. Committee and a member of the Nomination Health, Safety and Environment committees. Grant is a member of the Company’s Risk and and Risk committees. Health, Safety and Environment committees. Kevin is Chairman of Macquarie Group Ltd His executive career was in the upstream oil and Macquarie Bank Ltd and a Director of Prior to joining Boral, he was General Manager, and gas and LNG industries, initially with Royal BlueScope Steel Ltd and the University of AGL Gas Companies. Grant is Chairman of Contact Dutch Shell and then as Chief Executive of Sydney United States Studies Centre. He is a Energy Ltd (since October 2004), a councillor Woodside Petroleum Ltd. John is currently a Director and President of the NSW Division of of the Australian Petroleum Production and member of the Board of the Reserve Bank of the Australian Institute of Company Directors Exploration Association, a Director of the Australia and a director of CSL Ltd, Securency Ltd, (AICD) and is a member of the AICD Corporate Business Council of Australia and Chairman of Transform Exploration Pty Ltd and the University Governance Committee and NSW Advisory the Business Council of Australia Infrastructure of Western Australia Business School. Council. Kevin is a Fellow of the Senate of the & Sustainability Growth Committee. He is a He is Chairman of the National Centre for University of Sydney. former director of Envestra Ltd (1997-2007) and Asbestos Related Diseases and of the Fortitude former Chairman of the Energy Supply Foundation, a former Chairman of Alinta Ltd Kevin’s community activities include Association of Australia Ltd. Chairmanship of the National Library of and Coogee Resources Ltd and a former Australia Foundation and membership of Grant has a Civil Engineering degree from the director of Oil Search Ltd. the Law Foundation, University of Sydney. University of New South Wales and a Master of John holds a Master of Engineering Science Management from the University of Wollongong. Kevin practiced as a commercial lawyer as from Oxford University and is a Fellow of the a partner of Allens Arthur Robinson (and its Institution of Mechanical Engineering. predecessor firm Allen Allen & Hemsley) 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 and the Council of the National Library of Australia. He was also previously the Chairman of the Gordon M Cairns Karen A Moses Sydney Harbour Federation Trust, a Independent Non-executive Director Commonwealth agency. Executive Director, Finance and Strategy Gordon Cairns joined the Board of the Kevin has a Bachelor of Arts and Law (Honours) Company on 1 June 2007. He is a member of Karen Moses joined the Board of the Company from Sydney University and a Master of the Remuneration, Risk, Nomination and in March 2009 and is a member of the Risk Law from Harvard University. He is a Fellow Health, Safety and Environment committees Committee. She is responsible for the finance, of the AICD. and is Chairman of the Origin Foundation. tax and accounting functions, interactions with capital markets and for information He has extensive Australian and international technology. In addition she oversees corporate experience as a senior executive, most recently strategy and transactional activity, and overall as Chief Executive Officer of Lion Nathan Ltd, risk including health, safety and environment, and has held senior management positions in commodity risk, compliance and insurance. marketing and finance with Pepsico, Cadbury Karen also oversees the Australia Pacific LNG Schweppes and Nestlé. project for Origin. Gordon is currently Chairman of Quick Service Karen has worked with Origin (formerly Boral Restaurant Group and a director of Westpac Energy) since 1994 and prior to that Exxon and Banking Corporation (since July 2004) and BP. Karen is a Director of Contact Energy Ltd World Education Australia. He is also a senior (since October 2004), SAS Trustee Corporation advisor to McKinsey & Company and Caliburn (since March 2012) and Sydney Dance Company Partnership. He was previously Chairman of (since May 2012). Karen is a former director of Rebel Group (2010-2012) and a Director of The Australian Energy Market Operator Limited Centre for Independent Studies. (July 2009-June 2012), Energy and Water Gordon holds a Master of Arts (Honours) from Ombudsman (Victoria) Ltd (October 2005- the University of Edinburgh. November 2010), Australian Energy Market Operator (Transitional) Ltd (September 2008-July 2009) and VENCorp (2007-2009). Karen holds a Bachelor of Economics and a Diploma of Education from the University of Sydney.

66 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 Remuneration, and Environment committees. Risk and Nomination committees. Trevor retired in December 2003 as Chief With over 35 years’ experience in the energy Executive Officer of Tenix Investments Pty Ltd, industry, Bruce was Chief Executive Officer of prior to which he was Managing Director of VENCorp, the Victorian gas system operator, Brambles Australia Ltd. Trevor is a Director of and held several senior management positions Caltex Australia Ltd (since March 2006). He is at AGL, including Chief Financial Officer. He is former Chairman of Hastie Group Ltd a Director of Contact Energy Ltd (since October (2004-2012) and director of Coates Hire Ltd 2004), Equipsuper Pty Ltd (since August 2002) (2004-2008) and Lighting Corporation Ltd and The Hunger Project Australia Pty Limited (2004-2008). (since August 2008). He is a former director of ConnectEast Group (2009-2011), Coal & Allied Trevor has a Mechanical Engineering degree from Industries Ltd (2004-2011), Envestra Ltd the University of New South Wales and a Master (2000-2007) and Veda Advantage Ltd of Business Administration from Newcastle (2004-2007). University. He is a fellow of the AICD. 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 Ralph J Norris KNZM Independent Non-executive Director Independent Non-executive Director Helen Nugent joined the Board of the Company Ralph Norris joined the Board of the Company in March 2003 and is Chairman of the Audit in April 2012. He is a member of the Audit, Committee and a member of the Nomination and Risk committees. Remuneration, Risk and Nomination Ralph retired as Managing Director and Chief committees. An experienced professional Executive Officer of the Commonwealth Bank non-executive director, she is currently of Australia in November 2011. During his Chairman of Funds SA. She is also a Director career he had a number of senior executive of Macquarie Group Ltd (since August 2007), roles including Chief Executive Officer of ASB Macquarie Bank Ltd (since June 1999) and Bank and Air New Zealand Limited. He is a Freehills. She is Chancellor of Bond University, Director of Fonterra Limited and a former President of Cranbrook School and Chairman Director of Fletcher Building Ltd, Business of the National Portrait Gallery. Council of Australia, the International Previously, Helen was Chairman of Swiss Re Monetary Conference, Chairman of Sovereign Life and Health (Australia) (2001-2010) and a Insurance Ltd, the New Zealand Bankers’ non-executive director of UNiTAB (1999-2006), Association, New Zealand Business Roundtable Director of Strategy at Westpac Banking and the Australian Bankers’ Association. Corporation and a partner with McKinsey & He is a member of the New Zealand Olympic Company, specialising in financial services Advisory Committee and the Juvenile Diabetes and mining. Research Foundation Advisory Board. Helen has a Bachelor of Arts (Honours); a Ralph was made a Knight Companion of the Doctorate of Philosophy; and an Honorary New Zealand Order of Merit in 2009 and a Doctorate in Business from the University of Distinguished Companion of the New Zealand Queensland. She also holds a Master of Order of Merit for services to business in 2006. Business Administration (with Distinction) He is a Fellow of the New Zealand Institute of from the Harvard Business School. She is a Management and a Fellow of New Zealand Fellow of the AICD. Computer Society.

Origin Energy Annual Report 2012 67 executive management team

David Baldwin Dennis Barnes Frank Calabria Chief Development Officer Chief Executive Officer Contact Energy Chief Executive Officer Energy Markets David Baldwin was appointed to his current Dennis Barnes was appointed Chief Executive Frank Calabria joined Origin as Chief Financial role as Chief Development Officer at Origin Officer of Contact Energy in April 2011. Prior to Officer in November 2001 and was appointed in April 2011. David is responsible for the joining Contact Energy, Dennis was General Chief Executive Officer Energy Markets in development of Origin’s major projects and Manager Energy Risk Management at Origin, March 2009. In this role, Frank is responsible initiatives to drive Origin’s continued growth. based in Sydney. He joined Origin in 1998 and for the integrated operations within Australia Prior to this, David was Managing Director over that time led sales, systems development, including power generation and natural gas, of Contact Energy, in which Origin has a gas trading and generation operations electricity and LPG trading and retailing. 53.0 per cent interest. departments. Prior to joining Origin, Frank held senior finance Before joining Origin, David was based in Asia Dennis also previously held managerial roles roles with Pioneer International Limited, and the United States overseeing the energy at Scottish and English electricity companies. Hanson plc and Hutchison asset interests of an investment fund. He also Dennis has a Bachelor of Science (Hons) in Telecommunications. held senior roles with MidAmerican Energy Metallurgy and Microstructural Engineering Frank has a Bachelor of Economics from Holdings Company and Shell in New Zealand from Sheffield Hallam University and a Master Macquarie University and a Master of Business and the Netherlands. of Business Administration from Sheffield Administration (Executive) from the Australian David holds a Master of Business University. Graduate School of Management. He is a Administration from Victoria University Fellow of the Institute of Chartered and a Bachelor of Engineering (Chemical) Accountants of Australia and a Fellow of the from Canterbury University. Financial Services Institute of Australasia.

Carl McCamish Paul Zealand Executive General Manager People and Culture Chief Executive Ofﬁcer Upstream Carl McCamish joined Origin in March 2008 Paul Zealand joined Origin in 2005 and and is responsible for driving the human manages the company’s portfolio of oil and resources strategy. Carl was previously gas exploration assets in Australia and Executive General Manager Corporate Affairs. New Zealand, including the operation of the Before joining Origin, Carl was head of Upstream part of Origin’s joint venture strategic development at the private equity with ConocoPhillips and Sinopec: Australia firm, Terra Firma. He was previously Senior Pacific LNG. Energy Advisor in the United Kingdom Prime Prior to joining Origin, Paul was Chairman and Minister’s Strategy Unit and was deputy head General Manager of Shell in New Zealand. of the 2006 UK Energy Review. Before that he Paul holds a Master of Business Administration worked at McKinsey & Co management and Bachelor of Science (Mechanical – Honours), consultants. is a non-executive director Queensland Carl has a Bachelor of Arts and Law from the Resources Council, a Fellow of Engineers University of Melbourne and a Masters in Australia and a member of the AICD. Industrial Relations and Labour Economics from Oxford University where he was a Rhodes Scholar.

68 executive management team (continued)

Andrew Clarke Phil Craig Group General Counsel and Company Secretary Executive General Manager Corporate Affairs Andrew Clarke joined Origin in May 2009 Phil Craig joined Origin in May 2001 and and is responsible for the legal and company was appointed Executive General Manager secretarial functions. He was a partner of a Corporate Affairs in March 2012. In this role, national law firm and a managing director of a Phil has responsibility for Origin’s brand and global investment bank prior to joining Origin. reputation, government and media relations, Andrew has a Bachelor of Laws (Honours) and a policy development and sustainability, and Bachelor of Economics from Sydney University. the Origin Foundation. Prior to this, Phil was General Manager of Origin’s Retail business, leading the development and substantial growth of that business over the past decade. Phil has a Bachelor of Commerce from the University of Melbourne, and a Master of Business Administration with Distinction from Warwick Business School (UK).

Origin Energy Annual Report 2012 69 corporate governance statement

Origin Energy’s Board and management are committed to the creation All Directors have access to Company employees, advisers and records. of shareholder value and meeting the expectations of stakeholders In carrying out their duties and responsibilities, Directors have access to including employees, governments, partners and joint venturers, advice and counsel from the Chairman, the Company Secretary and the contractors and shareholders and their advisors to practice sound Group General Counsel, and are able to seek independent professional corporate governance. advice at the Company’s expense, after consultation with the Chairman. To achieve this, every employee and contractor is required to act The Board’s size and composition is determined by the Directors, within in accordance with the highest standards of personal safety and limits set by the Company’s Constitution, which requires a Board of environmental performance, governance and business conduct between five and 12 Directors. As at 30 June 2012, the Board comprised across operations in Australia and internationally. nine Directors, including two Executive Directors and seven Non-executive Directors, six of whom are considered independent by COMPLIANCE WITH ASX CORPORATE the Board. Directors’ profiles, duration of office and details of their skills, GOVERNANCE COUNCIL’S CORPORATE experience and special expertise are set out in the Directors’ Report. GOVERNANCE PRINCIPLES AND RECOMMENDATIONS (ASX PRINCIPLES) The Board seeks to have an appropriate mix of skills, experience, expertise and diversity to enable it to discharge its responsibilities and This statement summarises the Company’s corporate governance practices add value to the Company. The skills, experience and expertise which are which were in place throughout FY2012. The Company is pleased to report relevant include those in the areas of finance, legal, safety, governance, that, during the financial year and to the date of this Report, it complied management, retail, marketing, engineering and energy industry-related. with all of the ASX Principles. The Board values diversity in all respects, including gender and PRINCIPLE 1: LAY SOLID FOUNDATIONS differences in background and life experience, communication styles, FOR MANAGEMENT AND OVERSIGHT interpersonal skills, education, functional expertise and problem solving skills. The Board considers it has an appropriate mix of relevant skills, The Board’s roles and responsibilities are formalised in a Board Charter, experience, expertise and diversity. which is available on the Company’s website. The Charter sets out those The Company’s Independence of Directors Policy requires that the Board functions that are delegated to management and those that are comprises a majority of independent Directors. In defining the reserved to the Board. characteristics of an independent Director, the Board uses the ASX At the time of joining the Company, Directors and senior executives are Principles, together with its own consideration of the Company’s 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 for (a) a set of personal financial and non-financial goals; the FY2012 reporting period, the Board formed the view that, Mr Kevin McCann, Chairman, and Directors Mr John Akehurst, Mr Trevor Bourne, (b) Company goals; and Mr Gordon Cairns, Mr Ralph Norris and Dr Helen Nugent were independent. (c) adherence to the Company’s Compass, which reflects the role that Origin’s Purpose, Principles, Values and Commitments play The Board selects and appoints the Chairman from the independent in everyday decision making. Directors. The Chairman, Mr McCann is independent and his role and responsibilities are separate from those of the Managing Director. The Remuneration Committee considers the performance of the Managing Director and all members of the Executive Management Team Five Committees assist the Board in executing its duties relating to audit, when awarding performance-related remuneration through short-term remuneration, health, safety and environment, nomination and risk. and long-term incentives for the year completed and when assessing Each Committee has its own Charter which sets out its roles and fixed remuneration for future periods. Further information on executive responsibilities, composition, structure, membership requirements remuneration is set out in the Remuneration Report. and operation. These are available on the Company’s website. Each Committee’s Chairman reports to the Board on the Committee’s PRINCIPLE 2: STRUCTURE THE BOARD deliberations at the following Board meeting where the Committee TO ADD VALUE meeting minutes are also tabled. Additional and specific reporting The Board is structured to facilitate the effective discharge of its duties requirements to the Board by each Committee are addressed in the and to add value through its deliberations. respective Committee Charters. In FY2012, the Board had 11 scheduled meetings, including a two-day Additional information about the Audit Committee, Risk Committee and strategic planning meeting. The Board also had two separate scheduled Remuneration Committee is provided in response to Principles 4, 7 and 8 workshops to consider matters of particular relevance. In addition, the respectively. full Board met on four other occasions to deal with urgent matters and The Nomination Committee, which has met three times during FY2012, conducted visits of Company operations and met with operational provides support and advice to the Board by: management during the year. assessing the range of skills and experience required on the Board and From time to time, the Board delegates its authority to non-standing of Directors as part of the Company’s continued consideration of committees of Directors to deal with transactional or other urgent Board renewal and succession planning; matters. In the 12 months to 30 June 2012, there were 10 such additional reviewing the performance of Directors and the Board; Board Committee meetings held. establishing processes to identify suitable Directors, including the use At each scheduled Board meeting, Directors receive reports from of professional intermediaries; executive management, financial and operational reports, a health, recommending Directors’ appointments and re-elections; and safety and environment report and reports on all major projects in considering the appropriate induction and continuing education which the Company is involved. In addition, the Directors receive reports provided for Directors. from Board Committees and, as appropriate, presentations on opportunities and challenges for the Company. A list of the members of each Board Committee as at 30 June 2012 is set out below and their attendance at Committee meetings is set out in the Non-executive Directors also meet without the Executive Directors and Directors’ Report. management to address such matters as succession planning, key strategic issues, and Board operation and effectiveness.

70 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 Trevor Bourne Member Chairman Member Member Member Gordon Cairns Member Member Member Member Ralph Norris 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 seeking The Company also encourages individuals to report known or suspected re-election under the Constitution is reviewed by the Nomination instances of inappropriate conduct, including breaches of the Code of Committee (other than the relevant Director), the results of which form Conduct and other policies and directives. There are policies in place to the basis of the Board’s recommendation to shareholders. The review protect employees and contractors from any reprisal, discrimination or considers a Director’s expertise, skill and experience, along with his/her being personally disadvantaged as a result of their reporting of a concern. understanding of the Company’s business, preparation for meetings, The Company has also established a policy which governs dealings in relationships with other Directors and management, awareness of its securities. This precludes any Origin personnel from dealing in the ethical and governance issues, and overall contribution. Company’s securities between 1 July and the day after the announcement The Board reviewed the performance of Mr Akehurst, Ms Moses and of the full year financial results, and between 1 January and the day after Dr Nugent who are standing for re-election at the Annual General Meeting the announcement of the half year results. In addition, all Origin personnel in October 2012. The Board found that each of Mr Akehurst, Ms Moses are prohibited from trading in the Company’s securities at any time if and Dr Nugent have been high performing Directors and concluded that they possess information which is not generally available to the market they should be proposed for re-election. Mr Akehurst, Ms Moses and and which could reasonably be expected to have a material effect on the Dr Nugent did not participate in the discussion for their respective reviews. price or value of the Company’s securities. In addition, Mr Norris joined the Board in April 2012 and will be standing Origin personnel may not engage in short-term dealings in the Company’s for election at the Annual General Meeting in accordance with the ASX securities and margin loans should not be entered into if they could cause Listing Rules. a dealing that is in breach of the policy or the general insider trading Mr Norris brings to the Board significant management and financial provisions of the Corporations Act. Executives are prohibited from entering experience, together with a deep knowledge of global business and into hedging transactions which operate to limit the economic risk of financial trends which will provide an invaluable contribution to the any of their unvested equity-based incentives. The Dealing in Securities Company’s growing business. Policy is available on the Company’s website. The Board similarly reviewed the performance of Mr Norris since his The Code of Conduct, Dealings in Securities Policy and other relevant appointment to the Board and concluded that he should be proposed policies are supported by appropriate training programs and regular for election. Mr Norris did not participate in the discussion of his review. updates. The Board’s recommendation on the election or re-election of each Director The Company is focusing on increasing gender diversity across all levels will be included in the Notice convening the Annual General Meeting. of its workforce. The Company’s actions will be guided by maintaining its current high standards of competence and performance. Every second year, the Directors review the performance of the whole Board and Board Committees. This year, the review was undertaken The Company’s Diversity and Inclusion Policy aims to create an with assistance from an independent external consultant, covering the environment in which individuals are involved, supported, respected Board’s activities and work program, time commitments, meeting and connected. We know that partnering with, and employing, a diverse efficiency and Board contribution to Company strategy, monitoring, range of people will give us access to a range of perspectives to make compliance and governance. The results of the review were discussed the best decisions today to create value for the future. In addition, the by the whole Board, and initiatives to improve or enhance Board Company continues to treat as a priority the reduction of bias of all kinds performance and effectiveness were considered and recommended. in decision making. As part of the Company’s continued efforts to increase gender diversity PRINCIPLE 3: PROMOTE ETHICAL AND across the business, we will: RESPONSIBLE DECISION MAKING continue to deliver equal average pay for men and women at each All Directors and employees are expected to comply with the law and act job grade; with a high level of integrity. The Company has a Code of Conduct and a improve our retention of women in senior roles, with a target number of policies governing conduct in pursuit of Company objectives to improve our turnover rate by 15 per cent in FY2013; and in dealing with shareholders, employers, customers, contractors and appoint more women to senior roles, with a target to improve our other stakeholders. The Code of Conduct is based on the Company’s rate of appointment by 15 per cent in FY2013. Statement of Purpose, Principles, Values and Commitments (Origin Compass). A summary of the Code of Conduct and the Origin Compass is available on the Company’s website.

Origin Energy Annual Report 2012 71 corporate governance statement (continued)

We regularly track and report on representation of women across the All material matters are disclosed to the ASX immediately (and Company. As at 30 June 2012, women represent 22 per cent of the Company subsequently to the media, where relevant), as required by the ASX Listing Board; 11 per cent of the Executive Management Team; 27 per cent of Rules. All material investor presentations are released to the ASX and are women in senior professional and management roles; and 37 per cent posted on the Company’s website, along with other reports that are not of all employees. In FY2012 the difference between average male and material enough to be an ASX announcement. Shareholders can subscribe average female pay at every job level was plus or minus two per cent. to a free email notification service and receive notice of any announcements Major actions to deliver improved gender equity outcomes include: released by the Company. our Diversity Council, chaired by the Managing Director and consisting The Continuous Disclosure Policy and the Communications with of the Executive Management Team, meets quarterly to review Shareholders Policy are available on the Company’s website. diversity targets, oversee action to meet those targets and monitor the results; PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS bias awareness-raising sessions are integrated into each of our processes for succession planning, talent review and performance The Company respects the rights of its shareholders and has adopted management; policies to facilitate the effective exercise of those rights through all selection panels for new recruits must involve at least one woman; participation at general meetings and providing them with information talented women at middle and senior levels are provided about the Company and its operations. opportunities to network at external and internal events with senior The Company is committed to providing a high standard of communication management, including members of the Executive Management to shareholders and other stakeholders so that they have all available Team, and to participate in external networking events and information reasonably required to make informed assessments of the development programs; and Company’s value and prospects. a program developed with the help of local government and The Company provides shareholders with a choice of receiving an annual community groups in our regional CSG host communities has Shareholder Review, a full Annual Report or no report at all. Shareholders greatly enlarged our potential pool of local female employees. who make no election receive a Shareholder Review. Shareholders may The Board is responsible for overseeing the Company’s strategies on also elect to receive their reports electronically or in printed form. gender diversity, including monitoring of the Company’s achievements The Company’s website contains a list of upcoming events, all recent against any gender targets set by the Board. announcements, presentations, past and current reports to shareholders, notices of meetings and archived webcasts of general meetings and PRINCIPLE 4: SAFEGUARD INTEGRITY results announcements. The Company also keeps an internal record of IN FINANCIAL REPORTING briefings given to investors and analysts, including those present and The Board has an Audit Committee which comprises four Non-executive the main issues discussed. Directors, all of whom are independent. The Chairman of the Board cannot The Communications with Shareholders Policy is available on the chair the Audit Committee. The Chairman of the Audit Committee, Company’s website. Dr Helen Nugent, is an independent Director. All members of the Committee are financially literate and the Committee possesses sufficient financial PRINCIPLE 7: RECOGNISE AND MANAGE RISK expertise and knowledge of the industry in which the Company operates. The Board has an overarching policy governing the Company’s approach The Audit Committee oversees the structure and management systems to risk oversight and management and internal control systems. that are designed to protect the integrity of the Company’s financial The Risk Committee oversees the Company’s policies and procedures in reporting. The Audit Committee reviews the Company’s half and full relation to risk management and internal control systems. The Company’s year financial reports and makes recommendations to the Board on policies are designed to identify, assess, address and monitor strategic, adopting financial statements. The Committee provides additional operational, legal, reputational, commodity and financial risks to achieve assurance to the Board with regard to the quality and reliability of business objectives. Certain specific risks are covered by insurance and financial information. The Committee has the authority to seek the Board has also approved policies for hedging of interest rates, foreign information from any employee or external party. exchange rates and commodities. The internal and external auditors have direct access to the Audit Management is responsible for the design and implementation of the risk Committee Chairman and, following each scheduled meeting, meet management and internal control systems to manage the Company’s separately with the Committee without Executive Directors or material business risks. Management reports to the Risk Committee on management present. whether those risks are being managed effectively. Top risks are reported The Committee reviews the independence of the external auditor, to the Risk Committee and the Board, along with associated controls and including the nature and level of non-audit services provided, and risk mitigation plans. Management has reported to the Risk Committee reports its findings to the Board every six months. and the Board that, as at 30 June 2012, its material business risks are The names of the members of the Audit Committee are set out in being managed effectively. the table under Principle 2 and their attendance at meetings of the In addition to reports from the Risk Committee, the Board receives Committee is set out in the Directors’ Report. monthly reports on key risk areas such as health and safety, project development, commodity exposures and exchange rates. A general PRINCIPLE 5: MAKE TIMELY AND BALANCED Company-wide review of major risks is undertaken for corporate, DISCLOSURE operational and development activities. The Company has adopted policies and procedures to ensure compliance Given the importance and scale of the Company’s investment in the with its continuous disclosure obligations, and to ensure accountability $23 billion Australia Pacific LNG project, the Board and its relevant of senior management for that compliance. Committees have a number of mechanisms through which they The Company is committed to providing timely, full and accurate maintain appropriate oversight of the Australia Pacific LNG project- disclosure and to keeping the market informed with quarterly releases related risks, including ongoing management briefings and detailed detailing exploration, development and production, and annual and monthly reports on strategic issues, operations, fiscal matters and half year reports to shareholders. community engagement. The Board has also evaluated progress in the field by undertaking visits to both the gasfields in the Surat and Bowen basins and the LNG facility under development at Curtis Island.

72 corporate governance statement (continued)

When presenting financial statements for Board approval, the Managing Director and Executive Director, Finance and Strategy provide a formal statement in accordance with Section 295A of the Corporations Act with an assurance that the statement is founded upon a sound system of risk management and internal control that is operating effectively in all material respects. The Company also has an internal audit function which utilises both internal and external resources to provide the Board with an appraisal of the adequacy and effectiveness of the Company’s risk management and internal control system, independent from management. The internal audit function has direct access to the Audit Committee Chairman and management with the right to seek information. The names of the members of the Risk Committee are set out in the table under Principle 2 and their attendance at meetings of the Committee is set out in the Directors’ Report. The Risk Management Policy and information on Origin Energy’s policies on risk oversight and management of material business risks is available on the Company’s website. The Risk Committee Charter is available on the Company’s website. PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY The Remuneration Report sets out details of the Company’s policies and practices for remunerating Directors, key management personnel and employees. The Board has a Remuneration Committee, which comprises five Non-executive Directors, of whom four are independent. The Chairman, Mr Trevor Bourne, is an independent Director. The names of the members of the Remuneration Committee are set out under Principle 2 and their attendance at meetings of the Committee is set out in the Directors’ Report. Further information about the Remuneration Committee’s activities is provided in the Remuneration Report. The remuneration of Non-executive Directors is structured separately from that of the Executive Directors and senior executives. Information on remuneration for Non-executive Directors is in the Remuneration Report. All information referred to in this Corporate Governance Statement as being on the Company’s website may be found at the web address: www.originenergy.com.au under the section Investor Centre – Corporate Governance.

Origin Energy Annual Report 2012 73 ﬁnancial statements contents

Income statement 75 Statement of comprehensive income 75 Statement of financial position 76 Statement of changes in equity 77 Statement of cash flows 78 Notes to the financial statements 1 Statement of significant accounting policies 79 2 Segments 88 3 Profit 93 4 Income tax expense 94 5 Dividends 95 6 Trade and other receivables 96 7 Inventories 96 8 Other assets 96 9 Other financial assets, including derivatives 97 10 Assets and liabilities classified as held for sale 97 11 Investments accounted for using the equity method 98 12 Property, plant and equipment 102 13 Exploration, evaluation and development assets 103 14 Intangible assets 104 15 Tax assets 106 16 Trade and other payables 107 17 Interest-bearing liabilities 108 18 Other financial liabilities, including derivatives 108 19 Tax liabilities 109 20 Provisions 110 21 Employee benefits 111 22 Share capital 113 23 Reserves 114 24 Other comprehensive income 115 25 Notes to the statement of cash flows 116 26 Auditors’ remuneration 117 27 Contingent liabilities and assets 117 28 Commitments 118 29 Financial instruments 119 30 Acquisition and disposal of controlled entities 129 31 Controlled entities 129 32 Interest in joint venture operations 132 33 Share-based payments 132 34 Related party disclosures 137 35 Key management personnel disclosures 138 36 Deed of Cross Guarantee 138 37 Earnings per share 140 38 Parent entity disclosures 141 39 Subsequent events 141 Directors’ declaration 142 Independent auditor’s report 143

74 Income statement for the year ended 30 June

2012 2011 Note $million $million

Revenue 12,935 10,344 Other income 3(a) 504 9 Expenses 3(b) (11,829) (9,857) Share of results of equity accounted investees 11(a) 39 54 Interest income 3(c) 37 36 Interest expense 3(c) (326) (191) Profit before income tax 1,360 395 Income tax expense 4 (302) (147) Profit for the period 1,058 248

Profit for the period attributable to: Non-controlling interests 78 62 Members of the parent entity 980 186 Profit for the period 1,058 248

Earnings per share Basic earnings per share 37 90.6 cents 19.6 cents Diluted earnings per share 37 90.4 cents 19.6 cents

The income statement should be read in conjunction with the accompanying notes set out on pages 79 to 141.

statement of comprehensive income for the year ended 30 June

2012 2011 $million $million

Profit for the period 1,058 248

Other comprehensive income

Available for sale financial assets (Gains)/losses transferred to income statement (8) 9

Cash flow hedges Losses transferred to income statement 109 141 Transferred to carrying amount of assets 4 2 Foreign currency translation gain 6 2 Valuation loss taken to equity (65) (168)

Net (loss)/gain on hedge of net investment in foreign operations (37) 73 Foreign currency translation differences for foreign operations 129 (245) Actuarial (loss)/gain on defined benefit superannuation plan (13) 4 Other comprehensive income/(loss) for the period 125 (182) Income tax (expense)/benefit on other comprehensive income (8) 3 Other comprehensive income/(loss) for the period, net of income tax 117 (179)

Total comprehensive income for the period 1,175 69

Total comprehensive income attributable to: Non-controlling interests 112 4 Members of the parent entity 1,063 65 Total comprehensive income for the period 1,175 69

The statement of comprehensive income should be read in conjunction with the accompanying notes set out on pages 79 to 141.

Origin Energy Annual Report 2012 75 Statement of ﬁnancial position as at 30 June

2012 2011 Note $million $million

Current assets Cash and cash equivalents 357 728 Trade and other receivables 6 2,306 2,159 Inventories 7 259 263 Other financial assets, including derivatives 9 824 544 Tax assets 15 – 2 Assets classified as held for sale 10 38 – Other assets 8 155 153 Total current assets 3,939 3,849

Non-current assets Trade and other receivables 6 17 24 Other financial assets, including derivatives 9 337 562 Investments accounted for using the equity method 11 5,962 5,470 Property, plant and equipment 12 10,895 10,313 Exploration and evaluation assets 13 838 965 Intangible assets 14 5,966 5,693 Other assets 8 27 24 Total non-current assets 24,042 23,051 Total assets 27,981 26,900

Current liabilities Trade and other payables 16 2,063 2,020 Interest-bearing liabilities 17 145 595 Other financial liabilities, including derivatives 18 1,684 2,217 Tax liabilities 19 71 2 Provisions 20 315 275 Liabilities classified as held for sale 10 16 – Total current liabilities 4,294 5,109

Non-current liabilities Trade and other payables 16 365 412 Interest-bearing liabilities 17 5,734 4,193 Other financial liabilities, including derivatives 18 1,482 2,282 Tax liabilities 19 1,074 855 Provisions 20 574 533 Total non-current liabilities 9,229 8,275 Total liabilities 13,523 13,384 Net assets 14,458 13,516

Equity Share capital 22 4,345 4,029 Reserves 23 (186) (301) Retained earnings 8,935 8,504 Total parent entity interest 13,094 12,232 Non-controlling interests 1,364 1,284 Total equity 14,458 13,516

The statement of financial position should be read in conjunction with the accompanying notes set out on pages 79 to 141.

76 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 $million capital reserve reserve reserve reserve earnings interests equity

Balance as at 1 July 2011 4,029 61 (239) (123) – 8,504 1,284 13,516

Total other comprehensive income (refer note 24) – – 68 31 (5) (11) 34 117 Profit – – – – – 980 78 1,058 Total comprehensive income/(expense) for the period – – 68 31 (5) 969 112 1,175

Dividends paid (refer note 5) – – – – – (538) (65) (603) Movement in share capital (refer note 22) 316 – – – – – 32 348 Movement in share-based payments reserve – 21 – – – – 1 22 Total transactions with owners recorded directly in equity 316 21 – – – (538) (32) (233) Balance as at 30 June 2012 4,345 82 (171) (92) (5) 8,935 1,364 14,458

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

Total other comprehensive income (refer note 24) – – (107) (16) 7 (5) (58) (179) Profit – – – – – 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 22) 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

The statement of changes in equity should be read in conjunction with the accompanying notes set out on pages 79 to 141.

Origin Energy Annual Report 2012 77 Statement of cash ﬂows for the year ended 30 June

2012 2011 Note $million $million

Cash flows from operating activities Cash receipts from customers 13,991 10,362 Cash paid to suppliers (12,115) (8,768) Cash generated from operations 1,876 1,594 Dividends/distributions received from equity accounted investees 4 9 Income taxes (paid)/received (39) 3 Acquisition transaction costs (19) (205) Net cash from operating activities 25(c) 1,822 1,401

Cash flows from investing activities Acquisition of property, plant and equipment (1,203) (1,055) Acquisition of exploration and development assets (127) (150) Acquisition of other assets (173) (422) Acquisition of businesses, net of cash acquired 25(d) 75 (3,125) Investment in joint ventures/associates (109) (49) Interest received 37 39 Net proceeds from sale of non-current assets 41 4 Repayment of loans to equity accounted investees (1,167) – Net cash used in investing activities (2,626) (4,758)

Cash flows from financing activities Proceeds from borrowings 7,423 9,788 Repayment of borrowings (6,330) (8,191) Interest paid (403) (308) Proceeds from issue of share capital – senior executive options 22 10 18 Proceeds from issue of share capital – underwritten dividend reinvestment plan 145 – Dividends paid by the parent entity (377) (381) Dividends paid to Non-controlling interests (34) (27) Proceeds from share rights issues – 2,252 Proceeds from shares issued by Contact Energy, a controlled entity of the consolidated entity – 115 Net cash from financing activities 434 3,266

Net decrease in cash and cash equivalents (370) (91) Cash and cash equivalents at the beginning of the period 724 819 Effect of exchange rate changes on cash 3 (4) Cash and cash equivalents at the end of the period 25(a) 357 724

The statement of cash flows should be read in conjunction with the accompanying notes set out on pages 79 to 141.

78 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 address of the Company’s registered office is Level 45, Australia Square, 264-278 George Street, Sydney NSW 2000. The financial Accounting for acquisitions of Non-controlling interests statements of the company for the year ended 30 June 2012 comprise Acquisitions of non-controlling interests are accounted for as transactions the company, its controlled entities and the consolidated entity’s interest with equity holders in their capacity as equity holders and therefore no in associates and joint ventures (together referred to as the consolidated goodwill is recognised. The adjustments to non-controlling interests are entity). The consolidated financial statements were approved by the Board based on a proportionate amount of the net assets of the controlled entity. of Directors on 23 August 2012. The consolidated entity is a for-profit entity and primarily is involved in the operation of energy businesses Controlled entities including the exploration and production of oil and gas; electricity The financial statements of the consolidated entity include the financial generation; wholesale and retail sale of electricity and gas; and statements of Origin Energy Limited and all entities in which it had a renewable energy development opportunities in Australia and overseas. controlling interest during the year. Where control of entities commenced or ceased during the year, the profits or losses are included only from the (A) STATEMENT OF COMPLIANCE date control commenced or up to the date control ceased. The financial statements are general purpose financial statements that Non-controlling interests in equity and the profit or loss of entities that have been prepared in accordance with Australian Accounting Standards are under the control of Origin Energy Limited are shown as a separate adopted by the Australian Accounting Standards Board (AASB) and the item in the financial statements. Corporations Act 2001. The financial statements of the consolidated entity comply with International Financial Reporting Standards adopted Associates and joint ventures (equity accounted investees) by the International Accounting Standards Board. Associates are those entities over which the consolidated entity exercises significant influence, but not control, over the financial and (B) BASIS OF PREPARATION operating policies and which are not intended for sale in the near future. Significant influence is presumed to exist when the consolidated entity The consolidated financial statements are presented in Australian holds between 20 and 50 per cent of the voting power of another entity. dollars, which is the functional currency of the company and the Joint ventures are those entities over whose activities the consolidated majority of the controlled entities in the consolidated entity. Unless entity has joint control, established by contractual agreement and otherwise stated all reference to ‘$’ refers to Australian dollars. requiring unanimous consent for strategic, financial and operating The accounting policies set out below have been applied consistently to decisions. In the financial statements, investments in associates and all periods presented in the financial statements. The accounting policies investments in incorporated joint ventures, including partnerships, are have been applied consistently by all entities in the consolidated entity. accounted for using equity accounting principles. The entity has not elected to early adopt any accounting standards and The financial statements include the consolidated entity’s share of the amendments. income and expenses and equity movements of the equity accounted The financial statements are prepared on the historical cost basis except investees, after adjusting to align the accounting policies with those of for the following material items in the statement of financial position: the consolidated entity, from the date that significant influence or joint derivative financial instruments and financial assets classified as control commences until the date that significant influence or joint available-for-sale that are measured at their fair value; and control ceases. When the consolidated entity’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that environmental scheme certificates which can be traded in an active interest (including any long-term investments) is reduced to nil and the market are measured at their fair value. recognition of further losses is discontinued except to the extent that The company is of a kind referred to in Australian Securities and the consolidated entity has an obligation or has made payments on Investments Commission (ASIC) Class Order (CO) 98/100 dated 10 July 1998 behalf of the investee. (updated by CO 05/641 effective 28 July 2005 and CO 06/51 effective The equity accounted results are disclosed in the income statement 31 January 2006) and in accordance with that Class Order, amounts in as ‘share of results of equity accounted investees’. the financial statements and Directors’ Report have been rounded off to the nearest million dollars, unless otherwise stated. Jointly controlled operations and assets Certain comparative amounts have been reclassified to conform to the The consolidated entity’s interests in unincorporated joint ventures current year’s presentation. are brought to account by including the assets that it controls and the liabilities that it incurs in the course of pursuing the joint operation, (C) USE OF ESTIMATES AND JUDGEMENTS and the expenses that it incurs and its share of the income that it earns The preparation of financial statements requires management to make from the joint operation on a line-by-line basis, from the date joint judgements, estimates and assumptions that affect the application of control commences to the date joint control ceases. policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on Business combinations historical experience and various other factors that are believed to be Business combinations are accounted for using the acquisition method reasonable under the circumstances, the results of which form the basis as at the acquisition date, which is the date on which control is of making the judgements about carrying values of assets and liabilities transferred to the consolidated entity. Control is the power to govern that are not readily apparent from other sources. Actual results may the financial and operating policies of an entity so as to obtain benefits differ from these estimates. from its activities. In assessing control, the consolidated entity takes into consideration potential voting rights that are currently exercisable. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Refer to note 1(AM) for accounting estimates and judgements.

Origin Energy Annual Report 2012 79 notes to the ﬁnancial statements (continued)

1. Statement of signiﬁcant accounting policies (continued)

(D) PRINCIPLES OF CONSOLIDATION (CONTINUED) including further details of the items excluded from segment results and underlying consolidated profit, is included in note 2(b). Any contingent consideration arising from a business combination is recognised at fair value at the acquisition date. Changes to the fair value A segment is a distinguishable component of the consolidated entity that qualify as measurement period adjustments are adjusted that is engaged in providing business activities that are regularly retrospectively, with corresponding adjustments against goodwill. reviewed by the Managing Director. Measurement period adjustments are adjustments that arise from additional information obtained subsequent to the acquisition date (F) CASH AND CASH EQUIVALENTS about facts and circumstances that existed at the acquisition date. Cash and cash equivalents comprise cash balances, call deposits and The measurement period ends as soon as all information is received term deposits. Bank overdrafts that are repayable on demand and form but is no longer than twelve months. Any changes to the fair value an integral part of the consolidated entity’s cash management are of the contingent consideration after the measurement period are included as a component of cash and cash equivalents for the purpose recognised in the income statement. of the statement of cash flows. Bank overdrafts are disclosed in note 17. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the (G) TRADE AND OTHER RECEIVABLES consolidated entity reports provisional amounts for the items for which Trade and other receivables are initially recognised at fair value. the accounting is incomplete. The provisional amounts are adjusted Subsequent to initial recognition they are measured at amortised cost during the measurement period, or additional assets or liabilities are less accumulated impairment losses. recognised to reflect the new information obtained about facts and circumstances that existed as of the acquisition date that, if known, Unbilled revenue represents estimated gas and electricity services would have affected the amounts recognised as of that date. supplied to customers but unbilled at the end of the reporting period. Costs related to the acquisition, other than those associated with the (H) INVENTORIES issue of debt or equity securities, that the consolidated entity incurs in connection with a business combination, are expensed as incurred. Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course Business combinations from entities under common control of business, less the estimated costs of completion and selling expenses. Business combinations arising from transfers of interests in entities that Cost is determined predominantly on the first-in-first-out basis of are under the control of the shareholder that controls the consolidated valuation. The cost of coal and gas storage inventory is determined entity are accounted for by recognising the assets and liabilities acquired on a weighted average basis. at the carrying amounts recognised previously in the consolidated Inventories are presented as a current asset as the consolidated entity entity’s controlling shareholder’s consolidated financial statements. expects to utilise the inventories within its normal operating cycle. The components of equity of the acquired entities are added to the same components within the consolidated entity’s equity. Any cash (I) DEFERRED EXPENSES paid for the acquisition is recognised directly in equity. Expenditure is deferred to the extent that it is probable that future economic Transactions eliminated on consolidation benefits embodied in the expenditure will eventuate and can be reliably measured. Deferred expenses are amortised on a straight-line basis over The effects of transactions between entities consolidated in the financial the period in which the related benefits are expected to be realised. statements, and any unrealised income and expenses arising from these transactions, are eliminated in preparing the consolidated financial (J) IMPAIRMENT statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent The carrying amounts of assets, other than inventories, derivatives, of the consolidated entity’s interest in the investee. Unrealised losses are environmental scheme certificates and deferred tax assets, are reviewed eliminated in the same way as unrealised gains, but only to the extent at each reporting date to determine if there is any indication of that there is no evidence of impairment. impairment. If any such indication exists, the asset’s recoverable amount is estimated, as discussed below for all assets except exploration and (E) SEGMENT REPORTING evaluation assets which is discussed in note 1(M). The consolidated entity determines and presents operating segments An impairment loss is recognised whenever the carrying amount of based on the information that is internally provided to the Managing an asset or its cash-generating unit exceeds its recoverable amount. Director who is the chief operating decision maker. The Managing Impairment losses are recognised in the income statement. Director regularly receives financial information on the segment result Impairment losses recognised in respect of cash-generating units are and underlying consolidated profit of each operating segment and the allocated first to reduce the carrying amount of any goodwill allocated statutory profit. A reconciliation is also received to show the financial to cash-generating units and then to reduce the carrying amount of the impact of the individual items that are excluded from statutory profit in other assets in the cash-generating unit on a pro-rata basis. the measurement of segment result and underlying consolidated profit. When a decline in the fair value of an available-for-sale financial asset The segment result and underlying consolidated profit information is has been recognised directly in equity and there is objective evidence provided to the Managing Director to assess the performance of the that the asset is impaired, the cumulative loss that had been recognised consolidated entity’s business. The nature of items adjusted for in the directly in equity is recognised in the income statement even though the measurement of segment result and underlying consolidated profit financial asset has not been derecognised. The amount of the cumulative include gains and losses on the movement in fair value of financial loss that is recognised in the income statement is the difference between instruments not qualifying for hedge accounting; impairment of the acquisition cost and current fair value, less any impairment loss non-current assets; Australia Pacific LNG related items such as gains on on that financial asset previously recognised in the income statement. dilution of the consolidated entity’s interests in Australia Pacific LNG; An impairment loss with respect to an available-for-sale financial asset and other items such as transition and transaction costs that would is not reversed. distort the comparability of the results of the performance of the consolidated entity. A reconciliation between statutory profit attributable to members of the parent entity and underlying consolidated profit,

80 notes to the ﬁnancial statements (continued)

1. Statement of signiﬁcant accounting policies (continued)

(J) IMPAIRMENT (CONTINUED) expense on a straight-line basis once the assets are 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 (M) EXPLORATION AND EVALUATION ASSETS for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the Exploration and evaluation assets are accounted for in accordance with estimates used to determine the recoverable amount. An impairment the area of interest method. The application of this method is based on loss in respect of goodwill is not reversed. An impairment loss in respect a partial capitalisation model closely aligned to the ‘successful efforts’ of assets other than goodwill is reversed only to the extent that the approach. All exploration and evaluation costs, including directly asset’s carrying amount does not exceed the carrying amount that attributable overheads, general permit activity, geological and would have been determined, net of depreciation or amortisation, geophysical costs are expensed as incurred except the cost of drilling if no impairment had been recognised. exploration wells and the cost of acquiring new interests. The costs of drilling exploration wells are initially capitalised pending the (K) CALCULATION OF RECOVERABLE AMOUNT determination of the success of the well. Costs are expensed where the well does not result in a successful discovery. Costs incurred before the The recoverable amount of receivables carried at amortised cost is consolidated entity has obtained the legal rights to explore an area are calculated as the present value of estimated future cash flows, expensed as incurred. discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Exploration and evaluation assets are partially or fully capitalised where Receivables with a short duration are not discounted. the rights of the area of interest are current and either (i) the expenditure 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 individually assessed for impairment. Non-significant receivables are not 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 The recoverable amount of other assets is the greater of their fair expenditure is transferred to development assets. value less costs to sell, and value in use. In assessing value in use, the Exploration and evaluation assets are reviewed at each reporting date estimated future cash flows are discounted to their present value using to determine if there is any indication of impairment. Impairment a pre-tax discount rate that reflects current market assessments of indicators include (i) expiration of the right to explore in the specific the time value of money and the risks specific to the asset. For an area during the period or in the near future that is not expected to be asset that does not generate largely independent cash inflows, the renewed or (ii) substantive expenditure on further exploration for and recoverable amount is determined for the cash-generating unit to evaluation of resources is not planned or budgeted for or (iii) a decision which the asset belongs. 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 in Goodwill a specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful All business combinations are accounted for by applying the acquisition 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 (N) DEVELOPMENT ASSETS contingent liabilities acquired. Goodwill is stated at cost less any 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 bi-annually for impairment. accounted for and include costs transferred from exploration and In respect of equity accounted entities, the carrying amount of goodwill evaluation assets once technical feasibility and commercial viability of is included in the carrying amount of the investment in the equity an area of interest are demonstrable, and all development drilling and accounted entity. Negative goodwill arising on an acquisition is recognised other subsurface expenditure. When production commences, the directly in 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 are stated at cost less accumulated amortisation and other plant and equipment categories respectively. and impairment losses. Amortisation is recognised as an expense on a straight-line basis over the estimated useful lives of the assets. (O) INVESTMENTS IN DEBT AND EQUITY SECURITIES Research and development Financial instruments held for trading are classified as current assets Expenditure on research activities, undertaken with the prospect of gaining and are stated at fair value at the reporting date, with any resulting gain new scientific or technical knowledge and understanding, is recognised or loss recognised in the income statement. 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 at the reporting date, or design for the production of new or substantially improved products with any resulting gain or loss recognised in other comprehensive and processes, is capitalised if the product or process is technically and income and presented directly in equity, except for impairment losses commercially feasible and the consolidated entity has sufficient resources and in the case of monetary items such as foreign exchange gains and to complete development. The expenditure capitalised includes the cost losses. When these investments are derecognised, the cumulative gain of materials, direct labour and an appropriate proportion of overheads. or loss previously recognised directly in equity is recognised in profit or Capitalised development expenditure is stated at cost less accumulated loss. Where these investments are interest-bearing, interest calculated amortisation and impairment losses. Amortisation is recognised as an using the effective interest method is recognised in profit or loss.

Origin Energy Annual Report 2012 81 notes to the ﬁnancial statements (continued)

1. Statement of signiﬁcant accounting policies (continued) (O) INVESTMENTS IN DEBT AND EQUITY (Q) FINANCE LEASES SECURITIES (CONTINUED) Leases where substantially all the risks and rewards of ownership are The fair value of financial assets classified as available-for-sale is their assumed by the consolidated entity are classified as finance leases. quoted bid price at the reporting date. Financial assets classified as Upon initial recognition a lease asset and a lease liability are recognised available-for-sale investments are recognised/derecognised by the at the lower of the fair value and the present value of the minimum lease consolidated entity on the date it commits to purchase/sell the payments. Subsequent to initial recognition, lease liabilities are reduced investments. by the repayments of principal with the interest components of the lease payments expensed in profit or loss. The asset is accounted for in (P) PROPERTY, PLANT AND EQUIPMENT accordance with the accounting policy applicable to assets in note 1(P). Items of property, plant and equipment are recorded at cost less accumulated depreciation and impairment losses. (R) OPERATING LEASES Producing areas of interest Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is The costs of oil and gas assets in production are separately accounted more representative of the pattern of benefits to be derived from the for and include costs transferred from exploration and evaluation assets, leased property. Lease incentives are recognised in the income transferred development assets and the ongoing costs of continuing statement as part of total lease expense spread over the lease term. to develop reserves for production including an estimate of the costs to restore the site. Land and buildings and surface plant and equipment (S) TRADE AND OTHER PAYABLES associated with producing areas of interest are recorded in the other land and buildings and other plant and equipment categories respectively. Liabilities are recognised for amounts to be paid in the future for goods and services received and are recorded at amortised cost. Leased plant and equipment Leases of plant and equipment which are classified as finance leases are (T) INTEREST-BEARING LIABILITIES capitalised and amortised over the period during which benefits are Interest-bearing liabilities are initially recognised at fair value less anticipated. Other leases are classified as operating leases and the lease attributable transaction costs. Subsequent to initial recognition, costs are expensed on a straight-line basis over the term of the lease, interest-bearing liabilities are stated at amortised cost with any except where an alternative basis is more representative of the pattern difference between cost and redemption value being recognised in the of benefits to be derived from the leased assets. income statement over the period of borrowings on an effective interest basis. Interest expense is recognised in the income statement as a Self-constructed assets component of net financing costs. These assets are carried at cost less accumulated depreciation and tested for impairment. The cost of self-constructed assets includes the (U) DEFINED BENEFIT SUPERANNUATION PLAN cost of materials, direct labour, the initial estimate, where relevant, of The consolidated entity’s net obligation in respect of the defined benefit the costs of dismantling and removing the items and restoring the site superannuation plan is calculated by estimating the amount of future on which they are located, an appropriate proportion of production benefit that employees have earned in return for their service in the overheads and capitalised interest. current and prior periods. The benefit is discounted to determine its Depreciation and amortisation present value, and the fair value of the plan assets is deducted. The discount rate is the yield at the reporting date on Commonwealth With the exception of producing areas of interest sub-surface assets and Government bonds that have maturity dates approximating the terms of land, depreciation is charged to the income statement on a straight-line the consolidated entity’s obligations. The calculation is performed by a basis over the estimated useful lives of each part of an item of property, qualified actuary using the projected unit credit method. The calculation plant and equipment. The carrying values of producing areas of interest for the financial year ended 30 June 2012 was performed on 13 July 2012. sub-surface assets are amortised on a units of production basis using the proved and probable reserves to which they relate, together with the When the benefits of the plan are improved, the portion of the increased estimated future development expenditure required to develop those benefit relating to past service by employees is recognised as an expense reserves. Land is not depreciated. in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest The range of depreciation rates for the current and comparative period immediately, the expense is recognised immediately in the income for each class of asset are: statement. Generation property, plant and equipment 1% – 33% When the calculation results in plan assets exceeding liabilities to the Other land and buildings 1% – 18% consolidated entity, the recognised asset is limited to the total of any Other plant and equipment 1% – 50% unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. Producing areas of interest 2% – 25% Past service cost is the increase in the present value of the defined benefit obligation for employee services in prior periods, resulting in the current period from the introduction of, or changes to, post-employment benefits or other long-term employee benefits. Past service costs may either be positive (where benefits are introduced or improved) or negative (where existing benefits are reduced). Actuarial gains and losses are recognised directly in retained earnings in the period in which they occur and are presented in the statement of comprehensive income.

82 notes to the ﬁnancial statements (continued)

1. Statement of signiﬁcant accounting policies (continued)

(V) DEFINED CONTRIBUTION SUPERANNUATION matching the expected future payments, except where noted below. FUNDS When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the recovery receivable The consolidated entity makes contributions to defined contribution is recognised as an asset when it is virtually certain that the recovery will superannuation funds. All contributions made by the consolidated entity be received and is measured on a basis consistent with the measurement are recognised as a labour related expense within expenses in the of the related provision. In the income statement, the expense recognised income statement as incurred. in respect of a provision is presented net of the recovery. The unwinding (W) LONG-TERM SERVICE BENEFITS of the discount on the provision is recognised in the income statement within net financing costs. The consolidated entity’s net obligation in respect of long-term service In the statement of financial position, the provision is recognised net benefits, other than superannuation plans, is the amount of future of the recovery receivable only when the entity has a legally recognised benefit that employees have earned in return for their service in the right to set off the recovery receivable and the provision, and intends current and prior periods. The obligation is calculated using expected to settle on a net basis, or to realise the asset and settle the provision future increases in wage and salary rates including related on-costs and simultaneously. expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the reporting date which Dividends have maturity dates approximating the terms of the consolidated A provision for dividends payable is recognised in the reporting period entity’s obligations. in which the dividend is declared, for the entire undistributed amount, (X) WAGES, SALARIES, ANNUAL LEAVE regardless of the extent to which it will be paid in cash. AND OTHER EMPLOYEE BENEFITS Restoration, rehabilitation and dismantling Liabilities for employee benefits for wages, salaries, annual leave and Provisions for the estimated costs relating to current environmental other employee benefits that are expected and due to be settled within restoration, rehabilitation and dismantling are recognised as liabilities 12 months of the reporting date represent present obligations resulting when a legal or constructive obligation arises as a result of exploration, from employees’ services provided up to the reporting date calculated development and production activities having been undertaken, and it is at undiscounted amounts based on remuneration wage and salary rates probable that an outflow of economic benefits will be required to settle that the company expects to pay as at the reporting date including related the obligation. Where the obligation arises as a result of the construction on-costs, such as workers compensation insurance and payroll tax. or installation of an asset or assets, an amount equal to the initial liability is capitalised as a component of the asset. At each reporting (Y) EQUITY-BASED COMPENSATION date, the restoration liability is remeasured in line with changes in discount rates, and timing or amount of the costs to be incurred. Any Equity-based compensation benefits are provided to employees via the changes in the liability in future periods are added or deducted from Long Term Incentive (LTI) Plan and the Employee Share Plan. The LTI Plan the related asset, other than the unwinding of the discount which is covers options and share rights (collectively ‘securities’). Share rights are recognised as interest expense in the income statement as it occurs. in the form of Performance Share Rights (PSRs) and Deferred Share The costs, which include field site rehabilitation and restoration, Rights (DSRs). The accounting policies regarding each of these plans are remediation of soil, groundwater and untreated waste and dismantling as follows: and removal of infrastructure, are determined on the basis of current Senior Executive Options, Performance Share Rights legal requirements and current technology. Changes in estimates are and Deferred Share Rights factored in on a prospective basis. The fair value of the securities granted is recognised as an employee Uncertainties exist as to the amount of the restoration obligations that expense with a corresponding increase in equity. The fair value is will be incurred due to uncertainty as to the remaining life of existing measured at grant date using a Black-Scholes methodology with a operating sites and the impact of changes in environmental legislation. Monte Carlo simulation model, taking into account market performance conditions (except for DSRs which have a service and personal Onerous contracts performance hurdle rather than market hurdle) and is recognised over An onerous contract provision is recognised when the unavoidable cost the vesting period during which the employees become unconditionally of meeting the obligation under the contract exceeds the economic entitled to the securities. The amount recognised as an expense is benefits expected to be received under the contract. A provision is adjusted to reflect the actual number of securities that vest except recognised at the present value of the obligation and is the lower of the where forfeiture of options and PSRs is due to market related conditions. cost of terminating the contract and the net cost of continuing with the contract. Employee Share Plan Where shares allocated to the benefit of employees are purchased by (AA) SHARE CAPITAL the company on market, the fair value of the shares is recognised as a liability in the statement of financial position until paid and included Ordinary shares in the income statement. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of (Z) PROVISIONS any related income tax benefit. A provision is recognised in the statement of financial position when Dividends there is a legal, equitable or constructive obligation as a result of a past Dividends are recognised as a liability in the period in which they event and it is probable that a future sacrifice of economic benefits will are declared. be required to settle the obligation, the timing or amount of which is uncertain. Provisions are determined by discounting the expected future 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 rate, being the rates on Commonwealth Government bonds most closely

Origin Energy Annual Report 2012 83 notes to the ﬁnancial statements (continued)

1. Statement of signiﬁcant accounting policies (continued)

(AB) REVENUE RECOGNITION included. The net amount of GST recoverable from, or payable to, the tax authorities is included as a current asset or liability in the statement of Revenue financial position. Cash flows are included in the statement of cash Revenue comprises revenue earned (net of returns, discounts and flows on a gross basis. The GST components of cash flows arising from allowances) from the provision of products or services to parties outside investing and financing activities which are recoverable from, or payable the consolidated entity, including estimated amounts for customers’ to, the taxation authorities are classified as operating cash flows. unread meters and is measured at the fair value of consideration received or receivable. Sales revenue is recognised in accordance with (AE) INCOME TAX the contractual arrangements where applicable and only once the Income tax on the profit and loss for the year comprises current and significant risks and rewards of ownership of the goods passes from deferred tax. Income tax is recognised in the income statement except the consolidated entity to the customer or when services have been to the extent that it relates to items recognised directly in equity, in rendered to the customer, collectability is reasonably assured and which case it is recognised in equity. revenue can be measured reliably. In practice, the above revenue Current tax is the expected tax receivable/payable on the taxable recognition approach is applied to the consolidated entity’s operating income for the year, using tax rates enacted or substantively enacted at segments as follows: the reporting date, and any adjustment to tax payable in respect of Revenue from the sale of oil and gas in the Exploration & Production previous years. and Australia Pacific LNG operating segments is recognised when the Deferred tax is recognised in respect of temporary differences between commodities have been loaded for shipment and title passes to the the carrying amounts of assets and liabilities for financial reporting customer. purposes and the amounts used for taxation purposes. The following Revenue from electricity and gas supplied by the Energy Markets and temporary differences are not provided for: goodwill, the initial Contact Energy operating segments is recognised once the electricity recognition of assets or liabilities that affect neither accounting, nor and gas have been delivered and is measured through a regular review taxable profit, and differences relating to investments in controlled of usage meters. Revenue from the sale of solar panels is recognised entities and equity accounted investees to the extent that they will once installation is complete. probably not reverse in the foreseeable future. The amount of deferred Government grants tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax Government grants are recognised in the statement of financial position rates enacted or substantively enacted at the reporting date. initially as deferred income when there is reasonable assurance that they will be received and that the consolidated entity will comply with the A deferred tax asset is recognised only to the extent that it is probable conditions attaching to them. Grants that compensate the consolidated that future taxable profits will be available against which the asset can entity for expenses incurred are recognised as revenue in the income be utilised. Deferred tax assets are reduced to the extent that it is no statement on a systematic basis in the same periods in which the longer probable that the related tax benefit will be realised. expenses are incurred. Grants that compensate the consolidated entity The consolidated entity’s Exploration & Production operations in New for the cost of an asset are deferred as unearned income until the asset Zealand have an accounting functional currency other than the New is ready for use at which time they are recognised in the income Zealand dollar (NZD). New Zealand tax legislation dictates that these statement as other income on a systematic basis over the useful life of operations have a NZD currency for the purposes of submitting their tax the asset. returns. Origin is required to translate the NZD tax bases using the spot rate at the reporting date when performing the tax effect accounting Dividends calculation, with the foreign exchange movement recorded in the All dividends received from controlled entities, jointly controlled entities income statement through income tax expense. and associates are recognised as income in the entity’s stand alone accounts when the right to receive the dividend is established. Petroleum Resource Rent Tax (PRRT) Revenue from dividends from other investments is recognised when Petroleum Resource Rent Tax (PRRT) is considered, for accounting dividends are declared. purposes, to be a tax based on income under AASB 112 Income Taxes. Accordingly, any current and deferred PRRT expense is measured and Interest income disclosed on the same basis as income tax. Interest income is recognised in the income statement as it accrues. (AF) FOREIGN CURRENCY TRANSACTIONS (AC) NET FINANCING COSTS Transactions in foreign currencies are translated at the foreign exchange Net financing costs comprise interest payable on borrowings, dividends rate ruling at the date of the transaction. Monetary assets and liabilities on redeemable preference shares recorded as debt, unwinding of denominated in foreign currencies at the reporting date are translated discounts and interest receivable on funds invested. Borrowing costs to the relevant entity’s functional currency at the foreign exchange rate are expensed as incurred and included in net financing costs in the ruling at that date. Foreign exchange differences arising on translation income statement. are recognised in the income statement except for differences arising on a financial liability designated as a hedge of a net investment in foreign Financing costs incurred for the construction of a qualifying asset are operations that is effective or are qualifying cash flow hedges, which are capitalised during the period of time that is required to complete and recognised in other comprehensive income and presented in equity. prepare the asset for its intended use or sale. Non-monetary assets and liabilities that are measured in terms of (AD) GOODS AND SERVICES TAX historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities Revenues, expenses and assets are recognised net of the amount of denominated in foreign currencies that are stated at fair value are goods and services tax (GST), except where the amount of GST incurred translated to Australian dollars at foreign exchange rates ruling at the is not recoverable from the taxation authorities. In these circumstances, dates the fair value was determined. the GST is recognised as part of the cost of acquisition of the asset or as an expense. Receivables and payables are stated with the amount of GST

84 notes to the ﬁnancial statements (continued)

1. Statement of signiﬁcant accounting policies (continued)

(AG) FINANCIAL STATEMENTS OF FOREIGN Embedded derivatives are separated from the host contract and OPERATIONS accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a The assets and liabilities of foreign operations, including goodwill and separate instrument with the same terms as the embedded derivative fair value adjustments arising on consolidation are translated to would meet the definition of a derivative, and the combined instrument Australian dollars at foreign exchange rates in effect at the reporting is not measured at fair value through profit or loss. date. The revenues and expenses of foreign operations are translated to Australian dollars at rates approximating the foreign exchange rates (AK) HEDGING ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised in other comprehensive income, Cash ﬂow hedges and presented in the foreign currency translation reserve within equity. Where a derivative financial instrument is designated as a hedge of the (AH) NET INVESTMENT AND HEDGE OF NET variability in cash flows of a recognised asset or liability, or a highly INVESTMENT IN FOREIGN OPERATIONS probable forecasted transaction, the effective part of any gain or loss on the derivative financial instrument is recognised in other comprehensive Exchange differences arising from the translation of the net investment income and presented in the hedging reserve directly in equity. When in foreign operations, and of related hedges that are deemed effective, the forecast transaction subsequently results in the recognition of a are recognised in other comprehensive income and presented in the non-financial asset or non-financial liability, the associated cumulative foreign currency translation reserve within equity. They are released to gain or loss is removed from equity and included in the initial cost or the income statement upon disposal. other carrying amount of the non-financial asset or liability. If a hedge The consolidated entity applies hedge accounting to foreign currency of a forecast transaction subsequently results in the recognition of a differences arising between the functional currency of the foreign financial asset or a financial liability, the associated gains and losses that operation and the parent entity’s functional currency, regardless of were recognised directly in equity are reclassified into profit or loss in the whether the net investment is held directly or through an immediate same period or periods during which the asset acquired or liability parent entity. assumed affects profit or loss. For cash flow hedges, other than described above, the associated (AI) ENVIRONMENTAL SCHEME CERTIFICATES cumulative gain or loss is removed from equity and recognised in the The consolidated entity holds environmental scheme certificates in income statement in the same period or periods during which the order to meet the consolidated entity’s regulatory surrender obligations hedged forecast transaction affects profit or loss. The ineffective part under various schemes in Australia and overseas. Both the environmental of any gain or loss is recognised immediately in the income statement. certificate assets and the surrender obligations are initially recorded at When a hedging instrument expires or is sold, terminated or exercised, cost. Subsequent to initial recognition, they are recorded at fair value or the entity revokes designation of the hedge relationship, but the (being the market price for certificates at the reporting date) where hedged forecast transaction is still expected to occur, the cumulative there is an active market in which the consolidated entity participates in gain or loss at that point remains in equity and is recognised in buying and selling activities. If there is no active market, the certificates accordance with the above policy when the transaction occurs. If the continue to be recorded at cost. hedged transaction is no longer expected to occur, the cumulative unrealised gain or loss recognised in equity is recognised immediately (AJ) DERIVATIVE FINANCIAL INSTRUMENTS in the income statement. The consolidated entity uses derivative financial instruments to hedge Economic hedges its exposure to foreign exchange, interest rate, electricity price and commodity price risks arising from operating, financing and investing The consolidated entity holds a number of derivative instruments for activities. In accordance with its treasury and energy risk management economic hedging purposes under the Board approved risk management policies, the consolidated entity does not hold or issue derivative policies, which are prohibited from being designated as hedges under financial instruments for speculative or trading purposes. However, AASB 139 Financial Instruments: Recognition and Measurement. These derivatives that do not qualify for hedge accounting are required to be derivatives are therefore required to be categorised as held for trading accounted for as trading instruments. with changes in the fair value being recognised in the income statement. Derivative financial instruments are recognised initially at fair value on Fair value hedges the date the instrument is entered into. Where a valuation technique Where a derivative financial instrument is designated as a hedge of results in a gain or loss at the execution date of an instrument, the day exposure to changes in fair value of a recognised asset or liability, the one gain or loss is not recognised at the date of execution and the changes in fair value of the derivative are recognised in the income impact of the day one gain or loss is excluded from the changes in fair statement, together with the changes in fair value of the hedged asset value of the instrument recognised each period over the life of the or liability attributable to the hedged risk. instrument. Subsequent to initial recognition, derivative financial instruments are re-measured to fair value. The gain or loss on Hedge of net investment in foreign operations re-measurement to fair value is recognised immediately in the income The portion of the gain or loss on an instrument used to hedge a net statement unless the derivative is designated and effective as a hedging investment in a foreign operation that is determined to be an effective instrument, in which event, the timing of the recognition of the gain or hedge is recognised in other comprehensive income and presented loss in the income statement depends on the nature of the hedging directly in equity in the foreign currency translation reserve. The relationship. The consolidated entity designates certain derivatives as ineffective portion is recognised immediately in the income statement. either hedges of the exposure to fair value changes in recognised assets or liabilities or firm commitments (fair value hedges); hedges of the exposure to variability in cash flows attributable to a recognised asset or liability or highly probable forecast transactions (cash flow hedges); or hedges of net investments in foreign operations. Refer to note 29 for further details.

Origin Energy Annual Report 2012 85 notes to the ﬁnancial statements (continued)

1. Statement of signiﬁcant accounting policies (continued) (AL) ASSETS AND LIABILITIES CLASSIFIED Impairment of assets AS HELD FOR SALE In accordance with AASB 136 Impairment of assets, the recoverable Assets and liabilities that are expected to be recovered or settled amount of assets is the greater of its value in use and its fair value less primarily through sale rather than through continuing use, are classified costs to sell. An asset’s value in use is determined, in the absence of as held for sale and recognised as current assets or current liabilities. quoted market prices, through estimating the present value of future Immediately before classification as held for sale, the assets, or cash flows using asset specific discount rates. The value in use components of a disposal group, are remeasured in accordance with calculations are based on financial forecasts covering periods which the consolidated entity’s accounting policy for that asset or liability. reflect the long term nature of the assets. The forecasts include Thereafter the assets or liabilities are measured at the lower of their assumptions related to the growth in revenue, operating expenditure carrying amount and fair value less cost to sell. and capital expenditure. The growth assumptions are largely determined Impairment losses on initial classification as held for sale and by contractual parameters and the projected Australian Consumer Price subsequent gains or losses on remeasurement at the end of each Index or equivalent. Expenditure growth for all assets is largely indexed reporting period are recognised in the income statement. to the projected Australian Consumer Price Index. Assumptions used for oil and gas properties also include reserves levels, future production Once classified as held for sale, property, plant and equipment and profiles and commodity prices. intangible assets are no longer depreciated or amortised. The estimated future cash flows are discounted to their present value (AM) ACCOUNTING ESTIMATES AND JUDGEMENTS using a pre tax discount rate based on the weighted average cost of capital (WACC). The WACC takes into account the average rates of return Estimates of reserve quantities 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 Reserves are estimates of the amount of product that can be economically uncertainty in achieving the cash flow returns for that outlay of capital. and legally extracted from the consolidated entity’s properties. In order The discount rates applied in determining the recoverable amounts of to estimate economically recoverable reserves, assumptions are required the cash generating units (CGU) with significant carrying amounts of about a range of geological, technical, legal and economic factors, goodwill are shown in note 14. The impairment assessment, performed including quantities, grades, production techniques, reversion rights, at a CGU level is inclusive of the allocation of corporate assets. CGUs recovery rates, production costs, transport costs, commodity demand, have been identified for the purpose of assessing impairment, on the commodity prices and exchange rates. grounds that these are the smallest identifiable groups of assets that Estimating the quantity and/or grade of reserves requires the size, shape generate cash inflows largely independent of the cash inflows from and depth of reserve fields to be determined by analysing geological other assets or groups of assets. For further detail around key data such as drilling samples. This process may require complex and assumptions refer to note 14. difficult geological judgements to interpret the data. Because the The consolidated entity owns assets in Australia that are impacted by economic assumptions used to estimate economically recoverable the Australian Government’s Clean Energy Legislative package which reserves change from period to period, and because additional included the Clean Energy Act, passed in the Federal Parliament on geological data is generated during the course of operations, estimates 8 November 2011. A key component of the legislative package is the of reserves may change from period to period. Changes in reported Carbon Pricing Mechanism effective 1 July 2012. The introduction of a reserves may affect the consolidated entity’s financial results and carbon framework will impact the value in use calculations applied for financial position in a number of ways, including the following: impairment reviews of the consolidated entity’s Australian assets. The asset carrying values (notes 11, 12 and 13) may be affected due impact of the emissions legislation program has been included in the to changes in estimated future cash flows; consolidated entity’s asset recoverability testing at the reporting date. depreciation, depletion and amortisation charged in the income statement (note 3(b)) may change where such charges are determined Exploration and evaluation assets by the units of production basis, or where the useful economic lives The consolidated entity’s accounting policy for exploration and of assets change; evaluation assets is set out in note 1(M). The application of this policy restoration, rehabilitation and dismantling provisions (note 20) may requires management to make certain estimates and assumptions as change where changes in estimated reserves affect expectations to future events and circumstances, in particular, the assessment of about the timing or the cost of the activities; and whether economic quantities of reserves have been found. Any such the carrying value of deferred tax assets and tax liabilities (notes 15 estimates and assumptions may change as new information becomes and 19) may change due to changes in the estimates of the likely available. If, after having capitalised expenditure under this policy, it is recovery of the tax benefits. concluded that the consolidated entity is unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalised Restoration, rehabilitation and dismantling amount will be written off to the income statement. Refer to note 13 for The consolidated entity estimates the future removal costs of off-shore the carrying value of exploration and evaluation assets. oil and gas platforms, production facilities, wells, pipelines, LPG tankers Amortisation of producing areas of interest and tanks and generation plants at the time of installation or construction of the assets. In most instances, removal of the assets occurs many years The carrying values of producing areas of interest sub-surface assets are into the future. This requires judgemental assumptions regarding amortised on a units of production basis using the proved and probable removal date, future environmental legislation, the extent of restoration reserves to which they relate, together with the estimated future and rehabilitation activities required, the methodology for estimating development expenditure required to develop those reserves. Certain cost, future removal technologies in determining the removal cost, and estimates and assumptions are used in determining these reserves and the risk free rate to determine the present value of these cash flows. development cost estimates such as the assessment as to technical Refer to note 20 for the carrying value of these provisions. feasibility and commercial viability of an area and quantities of reserves. Refer above for further reserves assumptions and to note 12 for the carrying values of producing areas of interest.

86 notes to the ﬁnancial statements (continued)

1. Statement of significant accounting policies (continued) (AM) ACCOUNTING ESTIMATES AND JUDGEMENTS Petroleum Resource Rent Tax (PRRT) (CONTINUED) From 1 July 2012, the Petroleum Resource Rent Tax (PRRT) applies to all Commitments Australian onshore oil and gas projects, including coal seam gas projects. In addition to the taxation estimates and judgements above, Commitments are estimated based on information and expectations as implementation of PRRT legislation involves judgement around the at the reporting date. Assumptions are made for expected performance application of the PRRT legislation including, definition and grouping of and charges to be incurred in respect of committed arrangements PRRT projects, the taxing point of projects, the transfer price used for including: delivery volumes, service levels, exchange rates and delivery determining PRRT income, and the measurement of the starting base for timeframes. Refer to note 28 for further details. transition of existing permits, production licences and retention leases Fair value of financial instruments into the PRRT regime. In assessing the recoverability of deferred tax assets, estimates are required in respect of future augmentation The fair value of financial assets and financial liabilities must be (escalation) of expenditure, the sequence in which current and future estimated for recognition and measurement or for disclosure purposes. deductible amounts are expected to be utilised, and the probable cash The fair value of financial instruments that are not traded in an active flows used in determining the recoverability of deferred tax assets. market are determined using valuation techniques. The consolidated entity uses a variety of methods and makes assumptions that are based (AN) NEW STANDARDS AND INTERPRETATIONS on market conditions existing at each reporting date. Refer to note 29 for NOT YET ADOPTED further details. The following standards, amendments to standards and interpretations Defined benefit superannuation plan obligations have been identified as those which may impact the consolidated entity Various actuarial assumptions are utilised in the determination of the in the period of initial application. They are available for early adoption at consolidated entity’s defined benefit superannuation plan obligations. 30 June 2012, but have not been applied in preparing the financial These assumptions are discussed in note 21. statements: Unbilled revenue AASB 9 Financial Instruments AASB 10 Consolidated Financial Statements Unbilled revenue for unread gas and electricity meters is estimated at the end of the reporting period. This involves an estimate of AASB 11 Joint Arrangements consumption for each unread meter based on the customer’s past AASB 12 Disclosures of Interests in Other Entities consumption history or an estimate of unbilled days at an average billed AASB 13 Fair Value Measurement rate over the billing cycle. Refer to note 6 for the carrying value of unbilled revenue. AASB 119 Employee Benefits AASB 127 Separate Financial Statements Taxation AASB 128 Investments in Associates and Joint Ventures The consolidated entity is subject to income taxes in Australia and AASB 1053 Application of Tiers of Australian Accounting Standards jurisdictions where it has foreign operations. Judgement is required in determining the provision for income taxes. There are many transactions AASB 2009-11 Amendments to Australian Accounting Standards arising and calculations undertaken during the ordinary course of business for from AASB 9 which the ultimate tax determination is uncertain. AASB 2010-7 Amendments to Australian Accounting Standards arising Deferred tax assets are recognised for deductible temporary differences from AASB 9 (December 2010) and unused tax losses only if it is probable that future taxable profits are AASB 2010-8 Amendments to Australian Accounting Standards – Deferred available to utilise those temporary differences and losses, and the tax Tax Recovery of Underlying Assets losses continue to be available, having regard to the nature and timing of AASB 2011-4 Amendments to Australian Accounting Standards to Remove their origination and compliance with the relevant tax legislation Individual Key Management Personnel Disclosure Requirements associated with their recoupment. AASB 2011-7 Amendments to Australian Accounting Standards arising from Assumptions are made about the application of income tax legislation. the Consolidation and Joint Arrangement Standards These assumptions are subject to risk and uncertainty and there is a possibility that changes in circumstances will alter expectations which AASB 2011-8 Amendments to Australian Accounting Standards arising may impact the amount of deferred tax assets and deferred tax liabilities from AASB 13 recorded in the statement of financial position and the amount of tax AASB 2011-9 Amendments to Australian Accounting Standards – losses and timing differences not yet recognised. In these circumstances, Presentation of Other Comprehensive Income the carrying amount of deferred tax assets and liabilities may change, AASB 2011-10 Amendments to Australian Accounting Standards arising impacting the profit or loss of the consolidated entity. Refer to notes 15 from AASB 119 (September 2011) and 19 for the carrying value of tax assets and liabilities. AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle The consolidated entity is currently in the process of assessing the impact of the adoption of these standards.

Origin Energy Annual Report 2012 87 notes to the ﬁnancial statements (continued)

2. Segments (A) OPERATING SEGMENTS 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 consolidated entity’s operating segments have been updated from those presented at 30 June 2011 to reflect the Final Investment Decision (FID) on the first phase of the Australia Pacific LNG export project, the deepening integration within the Energy Markets business between retail and generation activities, and increased development opportunities outside of existing operations. The comparative balances have been restated to conform to the current period presentation. The segments are: Energy Markets – Australian energy retailing, associated products and services; power generation in Australia; and LPG operations in Australia, the Pacific, Papua New Guinea and Vietnam. Exploration & Production – Gas and oil exploration and production in Australia, New Zealand and international areas of interest. Australia Pacific LNG – The consolidated entity’s 42.5 per cent investment in Australia Pacific LNG (50 per cent at 30 June 2011) including current domestic operations and the Australia Pacific LNG coal seam gas to LNG export project. Contact Energy – The consolidated entity’s investment in its 53.0 per cent owned New Zealand controlled entity (52.6 per cent at 30 June 2011) Contact Energy Limited is involved in energy retailing, associated products and services, and power generation in New Zealand. Corporate – Corporate activities that are not allocated to other operating segments and business development activities outside of the consolidated entity’s existing operations. The Managing Director receives financial information on the segment result of each operating segment so as to assess the performance of each segment. Segment result represents underlying earnings before interest and tax (EBIT) for the Energy Markets and Exploration and Production segments. Net financing costs and tax expense/(benefit) are allocated to Australia Pacific LNG, Contact Energy and the Corporate segments in measuring segment result. The Managing Director also receives a listing of the items excluded from segment result and underlying consolidated profit by segment, and a reconciliation of the consolidated statutory profit to the underlying consolidated profit.

88 notes to the ﬁnancial statements (continued)

2. Segments (continued)

(A) OPERATING SEGMENTS (CONTINUED) for the year ended 30 June

Exploration & Australia Pacific Segment results: Energy Markets Production LNG (1) Contact Energy Corporate Consolidated $million 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

Revenue Total segment revenue 10,250 8,109 735 701 – – 2,102 1,708 – – 13,087 10,518 Intersegment sales elimination (2) – – (152) (174) – – – – – – (152) (174) Total revenues from external customers 10,250 8,109 583 527 – – 2,102 1,708 – – 12,935 10,344

Underlying Earnings before interest, tax, depreciation and amortisation (EBITDA) (3) 1,562 1,174 329 268 47 63 400 345 (81) (68) 2,257 1,782 Depreciation and amortisation expense (237) (189) (224) (221) – – (151) (128) (2) (1) (614) (539) Share of interest, tax, depreciation and amortisation of equity accounted investees (8) (7) – – (33) (42) (1) (3) (3) 3 (45) (49) Underlying Earnings before interest and tax (EBIT) 1,317 978 105 47 14 21 248 214 (86) (66) 1,598 1,194 Net financing costs – – (67) (60) (150) (83) (217) (143) Income tax expense – – (51) (47) (364) (269) (415) (316) Non-controlling interests (70) (61) (3) (1) (73) (62) Segment result and Underlying consolidated profit 1,317 978 105 47 14 21 60 46 (603) (419) 893 673

Items excluded from segment result and Underlying consolidated profit for the period (refer note 2(b)): Increase/(decrease) in fair value of financial instruments 175 (214) 2 1 – – (9) (5) (2) 17 166 (201) Impairment of assets (87) – (225) – – – (3) – (197) (214) (512) (214) Australia Pacific LNG related items – – – – 421 12 – – – – 421 12 Other (108) (251) – – – – 20 – (8) (2) (96) (253) Tax and non-controlling interests on items excluded from segment result 9 4 (2) 4 101 161 108 169 Impact of items excluded from segment result and Underlying consolidated profit net of tax (20) (465) (223) 1 430 16 6 (1) (106) (38) 87 (487) Statutory profit attributable to members of the parent entity 980 186

(1) The consolidated entity owns a 42.5 per cent share of Australia Pacific LNG at 30 June 2012 (30 June 2011: 50 per cent). Refer to note 11(b) for further details. (2) Intersegment pricing is determined on an arm’s length basis. Intersegment sales are eliminated on consolidation. The Exploration & Production segment sells gas and LPG to the Energy Markets segment. (3) Underlying EBITDA includes the consolidated entity’s share of Underlying EBITDA of equity accounted investees of $73 million (2011: $79 million). Refer to note 11(a) for further details.

Origin Energy Annual Report 2012 89 notes to the ﬁnancial statements (continued)

2. Segments (continued) (A) OPERATING SEGMENTS (CONTINUED)

as at 30 June

Exploration & Australia Pacific Other segment information: Energy Markets Production LNG (1) Contact Energy Corporate Consolidated $million 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

Assets Segment assets 12,833 12,504 3,617 3,460 – – 5,072 4,591 140 140 21,662 20,695 Investments accounted for using the equity method (refer note 11(a)) 71 64 5 – 5,769 5,258 – 9 117 139 5,962 5,470 Cash and interest rate derivatives and current and deferred tax assets – – 5 37 352 698 357 735 Total assets 12,904 12,568 3,622 3,460 5,769 5,258 5,077 4,637 609 977 27,981 26,900

Liabilities Segment liabilities (2,384) (2,839) (693) (467) – – (380) (353) (275) (186) (3,732) (3,845) Other financial liabilities, interest-bearing liabilities and related derivatives and tax liabilities (3,576) (3,576) (2,064) (1,835) (4,151) (4,128) (9,791) (9,539) Total liabilities (2,384) (2,839) (693) (467) (3,576) (3,576) (2,444) (2,188) (4,426) (4,314) (13,523) (13,384)

Acquisitions of non-current assets (includes capital expenditure) 567 3,991 450 301 – – 451 443 112 36 1,580 4,771

(1) Origin owns a 42.5 per cent share of Australia Pacific LNG at 30 June 2012 (30 June 2011: 50 per cent). Refer to note 11(b) for further details.

(B) RECONCILIATION OF UNDERLYING CONSOLIDATED PROFIT TO STATUTORY PROFIT

for the year ended 30 June

2012 2011 Non- Non- controlling controlling $million Gross Tax interests Net Gross Tax interests Net

Profit attributable to members of the parent entity 980 186 Items excluded from segment result and underlying consolidated profit attributable to members of the parent entity: Increase/(decrease) in fair value of financial instruments 166 (50) 3 119 (201) 60 2 (139) Impairment of assets (512) 104 1 (407) (214) 54 – (160) Australia Pacific LNG related items 421 9 – 430 12 4 – 16 Other (96) 50 (9) (55) (253) 51 (2) (204)

Total items excluded from segment result and underlying consolidated profit (21) 113 (5) 87 (656) 169 – (487)

Underlying consolidated profit 893 673

Refer to note 2(c) for explanatory notes.

90 notes to the ﬁnancial statements (continued)

2. Segments (continued) (C) EXPLANATORY NOTES TO THE RECONCILIATION OF UNDERLYING CONSOLIDATED PROFIT TO STATUTORY PROFIT

Increase/(decrease) in fair value of ﬁnancial instruments Change in fair value of financial instruments primarily relates to instruments that are effective economic hedges but do not qualify for hedge accounting. Impairment of assets During the year ended 30 June 2012 the consolidated entity reviewed the carrying amount of its non-current assets. The review led to the recognition of an impairment loss of $512 million which has been recorded in the line item ‘expenses’ (refer note 3(b)) in relation to property, plant and equipment, exploration assets, intangible assets and investments in equity accounted investees; and comprises the following:

2012 $million Gross Tax

Transform Solar 153 (18) Geothermal development opportunities 44 (11) Wind development opportunities 65 (5) Gas fired development site in central NSW 5 (2) Worsley Generation Plant 17 – Ironbark 198 (59) Surat assets 27 (8) Clutha Hydro site (Contact Energy Limited) 3 (1) 512 (104)

$153 million: in respect of the consolidated entity’s 50 per cent equity accounted investment in the Transform Solar Joint Venture arising from a scale back of operations and challenging economic conditions impacting the commercialisation benefits of the Sliver technology; $44 million: in respect of the Australian Geothermal development opportunities which have not met expectations for a timely and commercial development of the geothermal resources; $65 million: in respect of the consolidated entity’s portfolio of wind development opportunities following the de-prioritisation of certain sites; $5 million: following the de-prioritisation of a prospective gas fired generation development site in central NSW; $17 million: in respect of the consolidated entity’s 50 per cent interest in the Worsley Generation plant, reflecting a revised view of the plant’s future contracted capacity; $198 million: relates to the Ironbark CSG permit area in respect of the realisation of an upfront tax deduction for the permit acquisition; $27 million: from the unlikelihood of realising value from the Surat assets with negligible reserves at 30 June 2012; and $3 million: recorded by Contact Energy Limited (a 53.0 per cent owned controlled entity of the consolidated entity) as a result of the decision not to proceed with any of the options being investigated for hydro generation development on the Clutha Hydro site for the foreseeable future. Australia Paciﬁc LNG related items

2012 $million Gross Tax

Dilution gain on Australia Pacific LNG investment 437 – Financing costs not able to be capitalised (72) 22 Share of unwinding of discounted receivables within Australia Pacific LNG 21 – Share of tax expense on translation of foreign denominated long term tax balances (5) – Foreign currency gain 40 (13) 421 9

$437 million: net gain on dilution of the consolidated entity’s investment in Australia Pacific LNG arising on Australia Pacific LNG issuing new shares to China Petroleum and Chemical Corporation (Sinopec), resulting in Sinopec holding a 15 per cent interest in Australia Pacific LNG and the consolidated entity’s interest in Australia Pacific LNG diluting from 50 per cent to 42.5 per cent; $72 million: net financing costs incurred by the consolidated entity in funding the Australia Pacific LNG project. The interest would otherwise be capitalised except for the investment being held via an equity accounted investment. If the development project was completed by the consolidated entity, the interest would be capitalised; $21 million: the consolidated entity’s share of the unwinding of discounted receivables within Australia Pacific LNG, refer note 11(b); $5 million: share of tax expense on translation of foreign denominated long term tax balances recorded in the equity accounted investment in Australia Pacific LNG; and $40 million: foreign currency gain incurred by the consolidated entity and Australia Pacific LNG in relation to the funding and development of Australia Pacific LNG.

Origin Energy Annual Report 2012 91 notes to the ﬁnancial statements (continued)

2. Segments (continued) (C) EXPLANATORY NOTES TO THE RECONCILIATION OF UNDERLYING CONSOLIDATED PROFIT TO STATUTORY PROFIT (CONTINUED)

Other

2012 $million Gross Tax

Retail business transformation and transition costs and NSW energy assets transition costs 111 (36) Transaction costs for acquisition activity 8 – Gain on Contact Energy’s exiting of investment in Oakey Power Holdings Pty Ltd (23) 1 Tax expense on translation of foreign denominated long term tax balances – 7 Recognition of tax benefits not previously brought to account relating to Powercor Trading Contracts – (6) Recognition of deferred tax benefit in respect of the Petroleum Resource Rent Tax (PRRT) legislation – (16) 96 (50)

(D) GEOGRAPHICAL INFORMATION

for the year ended 30 June

2012 2011 $million $million

Revenue Australia 10,533 8,377 New Zealand 2,291 1,876 Other (1) 111 91 Total revenue from external customers 12,935 10,344

Non-current assets Australia 18,280 17,526 New Zealand 5,266 4,904 Other (1) 159 59 Total segment non-current assets 23,705 22,489

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

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.

92 notes to the ﬁnancial statements (continued)

3. Proﬁt

2012 2011 Note $million $million (A) OTHER INCOME Net gain on dilution of Origin’s interest in equity accounted investees 2(b) 437 – Net gain on sale of other assets 27 – Net foreign exchange gain 34 5 Government grants/subsidies 1 2 Other 5 2 Total other income 504 9 (B) EXPENSES Raw materials and consumables used, and changes in finished goods and work in progress (9,255) (7,379) Labour related expenses 21 (708) (540) Exploration expense (49) (118) Depreciation and amortisation expense (614) (539) Impairment of assets 2(b) (512) (214) Increase/(decrease) in fair value of financial instruments 2(b) 166 (201) Transition and transaction costs 2(b) (119) (253) Other expenses (738) (613) Expenses (11,829) (9,857) (C) NET FINANCING COSTS Interest income Other parties 37 36 37 36

Interest expense Other parties (217) (157) Unwinding of discounting on long term provisions (37) (22) Unwinding of discounted liability payable to Australia Pacific LNG – (12) Interest expense related to Australia Pacific LNG funding (72) – (326) (191)

Net financing costs (289) (155)

Net financing costs excluding unwinding of discounted liability payable to Australia Pacific LNG and interest expense related to Australia Pacific LNG funding (1) (217) (143)

Financing costs capitalised (2) 142 153

(1) Disclosure is provided to enable reconciliation to net financing costs included in the segment analysis in note 2(a). (2) Capitalised interest is calculated at an average rate based on the general borrowings of the consolidated entity (2012: 7.53 per cent; 2011: 7.18 per cent).

Origin Energy Annual Report 2012 93 notes to the ﬁnancial statements (continued)

4. Income tax expense

2012 2011 $million $million

Income tax Current tax expense 103 40 Deferred tax expense 217 115 Over provided in prior years (2) (8) Petroleum Resource Rent Tax deferred tax benefit (16) – Total income tax expense in the income statement 302 147

Reconciliation between tax expense and pre-tax net profit Profit before income tax 1,360 395

Income tax using the domestic corporation tax rate of 30 per cent (2011: 30 per cent) Prima facie income tax expense on pre-tax accounting profit: – at Australian tax rate of 30 per cent 408 119 – adjustment for difference between Australian and overseas tax rates (3) 7 Income tax expense on pre-tax accounting profit at standard rates 405 126

Increase/(decrease) in income tax expense due to: Tax benefit not recognised for acquisition transaction costs – 58 Impairment expense not recoverable 50 11 Share of results of equity accounted investees (11) (15) Gain on dilution of equity accounted investees (131) – Recognition of change in net tax loss position 2 (2) Recognition of tax benefits relating to Powercor Trading Contracts not previously brought to account (6) – Tax expense on translation of foreign denominated tax balances 7 (31) Other 4 8 (85) 29 Over provided in prior years – current and deferred (2) (8) Income tax expense on pre-tax net profit 318 147 Petroleum Resource Rent Tax (16) – Total income tax expense 302 147

Deferred tax movements recognised directly in equity (including foreign currency translation) Fair value of available-for-sale financial assets – 2 Financial instruments at fair value 12 (6) Property, plant and equipment 13 (43) Provisions (1) 5 Other items (5) (2) 19 (44)

2012 2011 $million Gross Tax Net Gross Tax Net

Income tax expense recognised in other comprehensive income

Available for sale assets: (Gains)/losses transferred to income statement (8) 3 (5) 9 (2) 7

Cash flow hedges: Losses transferred to income statement 109 (31) 78 141 (42) 99 Transferred to carrying amount of assets 4 (2) 2 2 (1) 1 Foreign currency translation gain 6 – 6 2 – 2 Valuation loss taken to equity (65) 18 (47) (168) 49 (119)

Net (loss)/gain on hedge of net investment in foreign operations (37) – (37) 73 – 73 Foreign currency translation differences for foreign operations 129 – 129 (245) – (245) Actuarial (loss)/gain on defined benefit superannuation plan (13) 4 (9) 4 (1) 3 Other comprehensive income/(loss) for the period 125 (8) 117 (182) 3 (179)

94 notes to the ﬁnancial statements (continued)

5. Dividends

2012 2011 $million $million (A) DIVIDEND RECONCILIATION Final dividend of 25 cents per share, fully franked at 30 per cent, paid 29 September 2011 (2011: Final dividend of 25 cents per share, fully franked at 30 per cent, paid 28 September 2010) 266 221 Interim dividend of 25 cents per share, fully franked at 30 per cent, paid 30 March 2012 (2011: Interim dividend of 25 cents per share, fully franked at 30 per cent, paid 1 April 2011) 272 221 538 442

(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 per cent, payable 27 September 2012. 272

The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2012 and will be recognised in subsequent financial statements.

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 Franking credits available to shareholders of Origin Energy Limited for subsequent financial years are:

Australian franking credits available at 30 per cent 58 213 New Zealand franking credits available at 28 per cent (in NZD) 140 140

The ability to utilise the franking credits is dependent upon the ability to declare dividends.

Origin Energy Annual Report 2012 95 notes to the ﬁnancial statements (continued)

6. Trade and other receivables

2012 2011 $million $million

Current Trade receivables net of allowance for doubtful debts 890 867 Unbilled revenue 1,317 1,201 Other debtors 99 91 2,306 2,159

Non-current Trade receivables 17 24 17 24

Trade receivables of the consolidated entity’s operations denominated in currencies other than the functional currency of the operations comprise $8 million denominated in US dollars (2011: $6 million) and $2 million denominated in New Zealand dollars (2011: $13 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 the date of the 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 (2011: 22 days). The movement in the allowance for doubtful debts in respect of trade receivables during the year is as follows:

Balance as at 1 July 62 27 Acquired impairment losses recognised for the NSW acquisition – 31 Impairment losses recognised 70 60 Amounts written off (66) (56) Balance as at 30 June 66 62

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

2012 2011 $million $million $million $million Total Allowance Total Allowance Current 599 (1) 665 (1) 30 – 60 days 126 (2) 95 (2) 60 – 90 days 45 (1) 38 (1) More than 90 days 186 (62) 131 (58) 956 (66) 929 (62)

7. Inventories

2012 2011 $million $million

Raw materials and stores 79 92 Finished goods 42 43 Inventory gas 138 128 259 263

8. Other assets

Current Prepayments 77 84 Deposits 78 69 155 153

Non-current Prepayments 27 24 27 24

96 notes to the ﬁnancial statements (continued)

9. Other ﬁnancial assets, including derivatives

2012 2011 Note $million $million

Current Derivative financial instruments 29 545 310 Available-for-sale financial assets 29 11 15 Environmental scheme certificates 29 268 219 824 544

Non-current Derivative financial instruments 29 44 132 Environmental scheme certificates 29 280 410

Available-for-sale ﬁnancial assets: Listed shares 29 2 4 Investments held in other corporations 29 2 4 Other available-for-sale financial assets 29 9 12 13 20

337 562

10. Assets and liabilities classiﬁed as held for sale

At 30 June 2012, the following assets and liabilities were classified as held for sale:

2012 2011 $million $million

Assets classified as held for sale Producing areas of interest (1) 13 – Exploration asset (2) 5 – Generation property, plant and equipment (3) 6 – Other plant and equipment (1) 10 – Inventories (1) 4 – 38 –

Liabilities classified as held for sale Restoration, rehabilitation and dismantling provision (1) 16 – 16 –

Cumulative income or expenses recognised in other comprehensive income There are no cumulative income or expenses recognised in other comprehensive income relating to the assets and liabilities held for sale.

(1) The Tariki, Ahuroa, Waihapa and Ngaere (TAWN) fields along with the Waihapa Production Station and associated infrastructure assets have been classified as held for sale following the consolidated entity entering into an agreement on 31 May 2012 to sell the TAWN assets. The sale is expected to complete in the year ending 30 June 2013. (2) The exploration asset relates to the consolidated entity’s interest in a drilling rig held by the Innamincka Deeps joint venture with Geodynamics; the drilling rig is subject to a sale agreement, with the sale expected to complete in the year ending 30 June 2013. (3) Certain land assets have been classified as held for sale as they are being actively marketed by Contact Energy, a 53.0 per cent owned controlled entity of the consolidated entity, following Board approval to dispose of the land. These land assets are expected to be sold within the year ending 30 June 2013.

Origin Energy Annual Report 2012 97 notes to the ﬁnancial statements (continued)

11. Investments accounted for using the equity method (A) INVESTMENTS SUMMARY

Share of Equity interest, tax, accounted depreciation investment Ownership Share of and Share of carrying Principal Place of Reporting interest EBITDA amortisation net profit amount 2012 Note activity incorporation date per cent $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 15 (8) 7 38 Energía Andina S.A.(2) Geothermal activities Chile 31 Dec 40.0 – – – 23 Gas Industry Superannuation Superannuation Pty Ltd trustee SA 30 June 50.0 – – – – Oakey Power Holdings Pty Ltd (3) Electricity generation NSW 30 June – 3 (1) 2 – Rockgas Timaru Ltd (4) LPG distributor NZ 31 Mar 50.0 – – – – 18 (9) 9 61

Joint venture entities Australia Pacific LNG Pty Ltd 11(b) Coal seam gas (CSG) NSW 30 June 42.5 40 (15) 25 5,769 Bulwer Island Energy Partnership Cogeneration Qld 30 June 50.0 4 – 4 33 Energia Austral S.A.(5) Hydro development Chile 31 Dec 20.7 (5) – – – 43 KUBU Energy Resources (Pty) Limited (6) CSG exploration Botswana 30 June 50.0 – – – 5 OTP Geothermal Pte Ltd (7) Geothermal activities Singapore 31 Dec 50.0 (2) 1 (1) 15 PNG Energy Developments Hydro Limited (8) development PNG 31 Dec 50.0 (1) – (1) 36 Transform Solar Pty Ltd (9) Solar technology NSW 30 June 50.0 7 (4) 3 – 48 (18) 30 5,901 Total 66 (27) 39 5,962

Consolidated entity’s share of items recorded in Australia Pacific LNG treated as items excluded from underlying consolidated profit (11) 7 (18) (11) Total excluding the consolidated entity’s share of items recorded in Australia Pacific LNG treated as items excluded from underlying consolidated profit (12) 73 (45) 28

Refer to page 99 for footnotes.

98 notes to the ﬁnancial statements (continued)

11. Investments accounted for using the equity method (continued) (A) INVESTMENTS SUMMARY (CONTINUED)

Share of Equity interest, tax, accounted depreciation investment Ownership Share of and Share of carrying Principal Place of Reporting interest EBITDA amortisation net profit amount 2011 Note activity incorporation date per cent $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 Energia Andina S.A.(2) Geothermal activities Chile 31 Dec 40.0 – – – 13 Gas Industry Superannuation Superannuation Pty Ltd trustee SA 30 June 50.0 – – – – Oakey Power Holdings Pty Ltd (3) Electricity generation NSW 30 June 25.0 6 (3) 3 9 Rockgas Timaru Ltd (4) LPG distributor NZ 31 Mar 50.0 – – – – Vitalgas Pty Ltd (10) Autogas distributor NSW 31 Dec 50.0 – – – – 18 (10) 8 55

Joint venture entities Australia Pacific LNG Pty Ltd 11(b) Coal seam gas (CSG) NSW 30 June 50.0 63 (18) 45 5,258 Bulwer Island Energy Partnership Cogeneration Qld 30 June 50.0 5 – 5 31 OTP Geothermal Pte Ltd (7) Geothermal activities Singapore 31 Dec 50.0 (2) 1 (1) 6 PNG Energy Developments Hydro Limited (8) development PNG 31 Dec 50.0 – – – 8 Transform Solar Pty Ltd (9) Solar technology NSW 30 June 50.0 (5) 2 (3) 112 61 (15) 46 5,415 Total 79 (25) 54 5,470

Consolidated entity’s share of items recorded in Australia Pacific LNG treated as items excluded from underlying consolidated profit – (24) (24) Total excluding the consolidated entity’s share of items recorded in Australia Pacific LNG treated as items excluded from underlying consolidated profit (12) 79 (49) 30

(1) Osborne Cogeneration Pty Ltd, a company incorporated in SA, is a wholly-owned controlled entity of CUBE Pty Ltd. (2) 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. (3) Oakey Power Holdings Pty Ltd was an associate of Contact Energy Limited, a 53.0 per cent owned controlled entity of the consolidated entity. Contact Energy Limited held a 25 per cent interest in Oakey Power Holdings Pty Ltd. Contact exited its investment in Oakey Power Holdings Pty Ltd on 18 January 2012 for proceeds of $31 million. A gain of $22 million post tax has been recognised in the income statement for the year ended 30 June 2012 and has been excluded from underlying consolidated profit (refer note 2(b)). (4) Rockgas Timaru Ltd is an associate of Contact Energy Limited, a 53.0 per cent owned controlled entity of the consolidated entity. Contact Energy Limited has a 50 per cent interest in Rockgas Timaru Ltd. (5) On 3 April 2012, the consolidated entity acquired a 51 per cent voting interest in Energia Austral SpA through being issued 150,000,000 partly paid ordinary shares in Energia Austral SpA. As at 30 June 2012, the consolidated entity has fully paid US$37,510,000 of these ordinary shares, giving it an economic interest of 20.7 per cent in Energia Austral SpA. The consolidated entity expects to pay the remaining unpaid shares in accordance with specific development milestones up to a total amount of US$150 million. The consolidated entity does not control Energia Austral as the Shareholders Agreement provides for joint control between the consolidated entity and Xstrata over the key strategic financial and operating decisions of the entity. (6) Kubu Energy Resources (Pty) Limited is a joint venture established in November 2011 and owned 50 per cent by the consolidated entity and 50 per cent by Sasol Petroleum International (Pty) Limited. (7) OTP Geothermal Pte Ltd is a joint venture established during the year ended 30 June 2011 and owned 50 per cent by the consolidated entity and 50 per cent by Trust Energy Resources Pte Ltd. OTP Geothermal Pte Ltd owns 95 per cent of the Sorik Marapi geothermal concession. (8) The consolidated entity has a 50 per cent interest in PNG Energy Developments Limited, a joint venture focused on hydro generation development opportunities in Papua New Guinea. (9) Transform Solar Pty Ltd is owned 50 per cent by the consolidated entity. Refer to note 2(b) for details on the impairment loss of $153 million recognised against the consolidated entity’s investment in the Transform Solar joint venture recorded at 30 June 2012. (10) Vitalgas Pty Limited, a 50:50 joint venture between the consolidated entity and Caltex was divested on 1 November 2011. (11) The consolidated entity’s share of items recorded in Australia Pacific LNG treated as items excluded from underlying consolidated profit include the consolidated entity’s share of the unwinding of discounted receivables (EBITDA $Nil, ITDA $21 million gain); share of tax expense on foreign denominated long term tax balances (EBITDA $Nil, ITDA $5 million expense) and share of foreign currency loss incurred by Australia Pacific LNG in relation to the funding and development of Australia Pacific LNG (EBITDA $7 million loss, ITDA $2 million benefit). (12) Disclosure is provided to enable the reconciliation to share of interest, tax, depreciation and amortisation of equity accounted investees included in the segment analysis in note 2(a).

Origin Energy Annual Report 2012 99 notes to the ﬁnancial statements (continued)

11. Investments accounted for using the equity method (continued) (B) INVESTMENT IN AUSTRALIA PACIFIC LNG PTY LTD The consolidated entity entered into a joint venture with ConocoPhillips to develop a CSG to LNG project using the consolidated entity’s CSG reserves and resources in Queensland through Australia Pacific LNG. From the period of inception of the joint venture in October 2008 up to 9 August 2011, the consolidated entity’s interest in the joint venture was 50 per cent. 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 the new share issue, the consolidated entity’s interest in Australia Pacific LNG was diluted from 50 per cent to 42.5 per cent, and from 9 August 2011, the consolidated entity holds a 42.5 per cent interest. This transaction gave rise to a gain on dilution of the consolidated entity’s investment in Australia Pacific LNG of $437 million (refer note 2(b)). Origin’s interest in the results of Australia Pacific LNG are presented in the operating segment Australia Pacific LNG (refer note 2). A summary of Australia Pacific LNG’s financial performance for the periods ended 30 June 2012 and 30 June 2011 including a reconciliation to the segment result disclosed in note 2(a), and its financial position as at 30 June 2012 and 30 June 2011 follows:

2012 2011 $million $million $million $million Origin Origin Total 42.5 per cent Total 50 per cent APLNG interest (1) APLNG interest

Operating revenue 362 336 Operating expenses (251) (210) EBITDA 111 47 126 63 Depreciation and amortisation expense (93) (77) Net financing income/(costs) 6 (4) Income tax benefit/(expense) 10 (3) Segment result for the period 34 14 42 21

Items excluded from segment result: Net unwinding of discounted receivables from shareholders 50 21 40 20 Net foreign exchange loss (12) (5) – – Tax (expense)/benefit on translation of foreign denominated tax balances (13) (5) 9 4 Total items excluded from segment result 25 11 49 24 Net profit for the period 59 25 91 45

(1) The consolidated entity’s interest in Australia Pacific LNG for the period was 50 per cent from 1 July 2011 until 8 August 2011, and 42.5 per cent from 9 August 2011 to 30 June 2012.

2012 2011 $million $million

Summary statement of financial position of Australia Pacific LNG Receivables from shareholders 2,969 3,746 Other current assets 767 346 Current assets 3,736 4,092

Receivables from shareholders 2,682 3,690 Property, plant and equipment and exploration and evaluation and development assets 8,656 3,273 Other non-current assets 52 50 Non-current assets 11,390 7,013 Total assets 15,126 11,105

Current liabilities 1,260 479 Non-current liabilities 320 126 Total liabilities 1,580 605 Net assets 13,546 10,500

Consolidated entity’s interest of 42.5 per cent at 30 June 2012 (2011: 50 per cent) 5,757 5,250 Consolidated entity’s own costs 12 8 5,769 5,258

Australia Pacific LNG has an unrecognised deferred tax asset of $2,426 million (100 per cent Australia Pacific LNG) relating to the expanded Petroleum Resource Rent Tax. This has not been recognised by Australia Pacific LNG as it is not currently probable that future taxable profits will be available against which the assets can be utilised.

100 notes to the ﬁnancial statements (continued)

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

Results of associates

2012 2011 $million $million 100 per cent of associates’ revenues 103 119 100 per cent of associates’ net profit 18 22

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 24 26 Non-current assets 127 220 Total assets 151 246

Current liabilities 22 31 Non-current liabilities 15 96 Total liabilities 37 127 Net assets 114 119

(D) INVESTMENTS IN JOINT VENTURE ENTITIES

Results of joint venture entities

2012 2011 $million $million

100 per cent of joint venture entities’ revenues 395 371

100 per cent of joint venture entities’ net (loss)/profit (145) (1) 93

(1) Included in the $145 million loss is $207 million relating to an impairment recognised by Transform Solar following a decision to scale back operations of the joint venture. Concurrently the consolidated entity reviewed the carrying value of its investment resulting in an impairment being recognised of $153 million (refer note 2(b)). As the consolidated entity has fully impaired its investment, it ceases to equity account the results of Transform Solar. Therefore the loss recorded by Transform Solar is not reflected in the equity accounted results shown in note 11(a). 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 3,840 4,113 Non-current assets 11,727 7,272 Total assets 15,567 11,385

Current liabilities 1,314 504 Non-current liabilities 339 145 Total liabilities 1,653 649 Net assets 13,914 10,736

(E) 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 the consolidated entity supplies gas to Osborne and purchases electricity from Osborne. Australia Paciﬁc LNG Pty Ltd Joint Venture The consolidated entity 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 including activities related to the development and operation of Australia Pacific LNG’s natural gas assets and coal seam gas (CSG) marketing related services. The consolidated entity incurs costs in providing these services and charges Australia Pacific LNG in accordance with the terms of the contractual arrangements. The consolidated entity has entered agreements with Australia Pacific LNG where the consolidated entity purchases gas from Australia Pacific LNG (2012: $255 million; 2011: $140 million) and the consolidated entity sells gas to Australia Pacific LNG (2012: $59 million; 2011: $19 million). At 30 June 2012, the consolidated entity’s outstanding payable balance for purchases from Australia Pacific LNG is $40 million (2011: $6 million) and outstanding receivable balance for sales to Australia Pacific LNG is $Nil (2011: $1 million).

Origin Energy Annual Report 2012 101 notes to the ﬁnancial statements (continued)

12. Property, plant and equipment

2012 2011 $million $million

Generation property, plant and equipment At cost 8,985 8,190 Less: Accumulated depreciation 1,168 928 7,817 7,262

Other land and buildings At cost 130 122 Less: Accumulated depreciation and amortisation 30 30 100 92

Other plant and equipment At cost 3,522 3,357 Less: Accumulated depreciation 1,330 1,171 2,192 2,186

Producing areas of interest At cost 1,656 1,542 Less: Accumulated amortisation 870 769 786 773 10,895 10,313

Included in property, plant and equipment is an amount of $1,926 million (2011: $1,309 million) relating to capital work in progress.

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

2012 Balance as at 1 July 2011 7,262 92 2,186 773 10,313 Additions 775 23 438 124 1,360 Depreciation/amortisation expense (269) (4) (160) (103) (536) Impairment loss (1) (3) (13) (23) (11) (50) Transfers within PP&E and to intangibles – – (258) – (258) Transfers to held for sale (6) – (10) (13) (29) Effect of movements in foreign exchange rates 58 2 19 16 95 Balance as at 30 June 2012 7,817 100 2,192 786 10,895

2011 Balance as at 1 July 2010 6,064 96 2,151 857 9,168 Additions 719 4 296 56 1,075 Additions through acquisition of entities/operations (2) 867 – – – 867 Disposals (1) – (3) – (4) Depreciation/amortisation expense (218) (2) (158) (110) (488) Transfers (to)/from development assets and intangibles – – 28 – 28 Effect of movements in foreign exchange rates (169) (6) (128) (30) (333) Balance as at 30 June 2011 7,262 92 2,186 773 10,313

(1) Impairment losses of $15 million in respect of the consolidated entity’s portfolio of wind development opportunities; $5 million following the de-prioritisation of a prospective gas fired generation development site; $3 million in respect of Contact Energy Limited’s impairment of the Clutha Hydro site; and $27 million in respect of the Surat Basin recorded against other land and buildings and producing areas of interest have been recognised at 30 June 2012. Refer to note 2(b) for details. (2) Generation property, plant and equipment in relation to the GenTrader arrangements entered as part of the NSW energy asset transaction over the Eraring and Shoalhaven power stations. The GenTrader arrangements expire in 2032 for Eraring and 2038 for Shoalhaven.

102 notes to the ﬁnancial statements (continued)

13. Exploration, evaluation and development assets

2012 2011 $million $million

Exploration and evaluation assets Net costs carried forward in respect of areas of interest in the exploration and evaluation phase 838 965

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

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

Exploration and Development $million evaluation assets assets

2012 Balance as at 1 July 2011 965 – Additions 169 – Impairment loss (1) (242) – Exploration expense (49) – Transfers to assets held for sale (5) – Balance as at 30 June 2012 838 –

2011 Balance as at 1 July 2010 1,039 76 Additions 254 3 Impairment loss (2) (202) – Exploration expense (118) – Transfers including to property, plant and equipment and intangibles – (75) Effect of movements in foreign exchange rates (8) (4) Balance as at 30 June 2011 965 –

(1) Impairment losses of $198 million in respect of the Ironbark CSG permit area and $44 million in respect to the consolidated entity’s geothermal development opportunities in Australia have been recognised at 30 June 2012. Refer to note 2(b) for details. (2) An impairment loss of $202 million was recognised at 30 June 2011 in relation to the consolidated entity’s 30 per cent interest in the Innamincka Joint Venture with Geodynamics focused on deep geothermal generation technology in northern South Australia.

Origin Energy Annual Report 2012 103 notes to the ﬁnancial statements (continued)

14. Intangible assets

2012 2011 $million $million

Goodwill at cost 5,341 5,398

Customer related and other intangible assets at cost 913 505 Less: Accumulated amortisation 288 210 625 295 5,966 5,693

Average amortisation rate

Class of asset Customer related and other intangible assets at cost 13% 13%

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

Customer related and other $million Goodwill intangibles Total

2012 Balance as at 1 July 2011 5,398 295 5,693 NSW acquisition settlement adjustment (49) – (49) Other additions 1 198 199 Transfers from development assets and property, plant and equipment – 258 258 Impairment loss (1) (17) (50) (67) Amortisation expense – (78) (78) Effect of movements in foreign exchange rates 8 2 10 Balance as at 30 June 2012 5,341 625 5,966

2011 Balance as at 1 July 2010 2,599 197 2,796 Additions through business combinations (2) 2,822 52 2,874 Other additions – 52 52 Transfers from development assets and property, plant and equipment – 47 47 Amortisation expense – (51) (51) Effect of movements in foreign exchange rates (23) (2) (25) Balance as at 30 June 2011 5,398 295 5,693

(1) Impairment losses of $50 million in respect of the consolidated entity’s portfolio of wind development opportunities and $17 million in respect of the consolidated entity’s 50 per cent interest in the Worsley Generation Plant have been recognised at 30 June 2012. Refer to note 2(b) for details. (2) Restated on finalisation of acquisition accounting relating to NSW Government energy assets (refer note 25(d)).

104 notes to the ﬁnancial statements (continued)

14. Intangible assets (continued)

2012 2011 $million $million

Impairment tests for cash-generating units containing goodwill The following cash-generating units have carrying amounts of goodwill: Retail 4,735 4,783 Contact Energy 427 419 Generation 176 193 Other 3 3 5,341 5,398

RETAIL CASH-GENERATING UNIT The impairment test for the Retail cash-generating 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 the consolidated entity’s five-year business plan for the Retail cash-generating unit 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. The consolidated entity’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 (2011: 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.

GENERATION CASH-GENERATING UNIT The impairment test for the Generation 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 the consolidated entity’s five-year business plan for the Generation cash-generation unit 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 (2011: 12.2 per cent). CONTACT ENERGY CASH-GENERATING UNIT The Contact Energy goodwill relates to Origin Energy’s acquired 53.0 per cent ownership interest in Contact Energy Limited. The impairment test for the Contact Energy goodwill is based on the value in use of the Contact Energy business, applying a discounted cash flow methodology. The cash flow projections are discounted using a pre-tax discount rate of 12.5 per cent (2011: 12.5 per cent). The valuation considers the longer-term value in use for the Contact Energy cash-generating unit.

Origin Energy Annual Report 2012 105 notes to the ﬁnancial statements (continued)

15. Tax assets

2012 2011 Note $million $million

Current Income tax receivable – 2

Non-current Recognised deferred tax assets Deferred tax assets are attributable to the following: Accrued expenses not incurred for tax 12 17 Employee benefits 51 49 Acquired environmental scheme certificate purchase obligations 26 32 Acquired energy purchase obligations 101 118 Provisions 226 194 Financial instruments at fair value – 121 Available-for-sale financial assets 4 4 Inventories 5 5 Tax value of carry-forward tax losses recognised 191 143 Petroleum Resource Rent Tax 16 – Other items 37 48 Tax assets 669 731 Set-off of tax 19 (669) (731) Net tax assets – –

Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: Revenue losses 17 15 Capital losses 43 43 Petroleum Resource Rent Tax (net of income tax) 1,027 – GenTrader finance lease asset 61 5 Acquisition transaction costs 57 58 Investment in joint venture 28 – Intangible assets 19 – 1,252 121

AUSTRALIA PACIFIC LNG Australia Pacific LNG (Origin’s 42.5 per cent joint venture) is also subject to the Petroleum Resource Rent Tax legislation and has an unrecognised deferred tax asset balance of $2,426 million (100 per cent Australia Pacific LNG) at 30 June 2012. Any future recognition of this balance by Australia Pacific LNG will result in an increase in the consolidated entity’s equity accounted investment in Australia Pacific LNG shown in note 11, rather than a deferred tax asset, as the consolidated entity equity accounts its 42.5 per cent interest.

106 notes to the ﬁnancial statements (continued)

15. Tax assets (continued) MOVEMENT IN TEMPORARY DIFFERENCES DURING THE YEAR

Recognised Acquisition in income Recognised of controlled $million Opening statement in equity entities Closing

2012 Accrued expenses not incurred for tax 17 (5) – – 12 Employee benefits 49 2 – – 51 Acquired environmental scheme certificate purchase obligations 32 (7) – 1 26 Acquired energy purchase obligations 118 (17) – – 101 Provisions 194 31 1 – 226 Financial instruments at fair value 121 (121) – – – Available-for-sale financial assets 4 – – – 4 Inventories 5 – – – 5 Tax value of carry-forward tax losses recognised 143 45 3 – 191 Petroleum Resource Rent Tax – 16 – – 16 Other items 48 (16) 5 – 37 Tax assets 731 (72) 9 1 669 Set-off of tax (731) (669) Net tax assets – –

2011 Accrued expenses not incurred for tax 4 3 – 10 17 Employee benefits 39 10 – – 49 Acquired environmental scheme certificate purchase obligations 23 (5) – 14 32 Acquired energy purchase obligations – (6) – 124 118 Provisions 119 (3) (5) 83 194 Financial instruments at fair value – 60 6 55 121 Available-for-sale financial assets 3 3 (2) – 4 Inventories 1 4 – – 5 Tax value of carry-forward tax losses recognised 193 (35) (15) – 143 Other items 32 2 14 – 48 Tax assets 414 33 (2) 286 731 Set-off of tax (326) (731) Net tax assets 88 –

16. Trade and other payables

2012 2011 $million $million

Current Trade payables and accrued expenses 2,006 1,931 Acquired energy purchase obligations 34 56 Acquired environmental certificate purchase obligations 23 33 2,063 2,020

Non-current Acquired energy purchase obligations 301 337 Acquired environmental certificate purchase obligations 62 73 Other payables 2 2 365 412

Trade payables of the consolidated entity’s operations denominated in currencies other than the functional currency of the operations comprise $9 million of trade payables denominated in Australian dollars (2011: $2 million), $3 million of trade payables denominated in Euros (2011: $3 million) and $24 million of trade payables denominated in US dollars (2011: $19 million).

Origin Energy Annual Report 2012 107 notes to the ﬁnancial statements (continued)

17. Interest-bearing liabilities

2012 2011 $million $million

Interest-bearing liabilities Current Bank overdrafts – unsecured – 4 Bank loans – secured 17 15 Bank loans – unsecured 49 328 Capital market borrowings – unsecured 77 246 Lease liabilities – secured 2 2 145 595

Non-current Bank loans – secured 277 295 Bank loans – unsecured 2,022 1,857 Capital market borrowings – unsecured 3,430 2,036 Lease liabilities – secured 5 5 5,734 4,193

Refer to note 29 for further information regarding interest-bearing liabilities. INTEREST RATES 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 5.81 per cent per annum (2011: 1.20 per cent to 7.67 per cent per annum at a weighted average of 5.80 per cent per annum). Refer to note 29(c)(iv) Financial risk factors – interest rate risk (cash flow and fair value), for a summary of interest rate risks.

18. Other ﬁnancial liabilities, including derivatives

2012 2011 Note $million $million

Current Derivative financial instruments 29 257 356 Loan from Australia Pacific LNG joint venture associated entity 1,262 1,731 Environmental scheme surrender obligations 29 160 128 Other financial liabilities 5 2 1,684 2,217

Non-current Derivative financial instruments 29 335 437 Loan from Australia Pacific LNG joint venture associated entity 1,147 1,845 1,482 2,282

108 notes to the ﬁnancial statements (continued)

19. Tax liabilities

2012 2011 Note $million $million

Current Provision for income tax 71 2

Non-current Recognised deferred tax liabilities Deferred tax liabilities are attributable to the following:

Property, plant and equipment (1) 1,089 961 Exploration, evaluation and development assets 344 353 Financial instruments at fair value 44 – Investments in associates 6 19 Unbilled receivables 248 237 Other items 12 16 Tax liabilities 1,743 1,586 Set-off of tax 15 (669) (731) Net tax liabilities 1,074 855

At 30 June 2012 a deferred tax liability balance of $1,723 million (2011: $1,569 million) for temporary differences of $5,741 million (2011: $5,230 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.

(1) Restated on finalisation of acquisition accounting relating to NSW Government energy assets (refer note 25(d)).

MOVEMENT IN TEMPORARY DIFFERENCES DURING THE YEAR

Recognised Acquisition in income Recognised of controlled $million Opening statement in equity entities Closing

2012 Property, plant and equipment 961 115 13 – 1,089 Exploration, evaluation and development assets 353 (9) – – 344 Financial instruments at fair value – 32 12 – 44 Investments in associates 19 (16) 3 – 6 Unbilled receivables 237 11 – – 248 Other items 16 (6) – 2 12 Deferred tax liabilities 1,586 127 28 2 1,743 Set-off of tax (731) (669) Net deferred tax liabilities 855 1,074

2011 Property, plant and equipment 615 129 (43) 260 961 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) 265 1,586 Set-off of tax (326) (731) Net deferred tax liabilities 901 855

Origin Energy Annual Report 2012 109 notes to the ﬁnancial statements (continued)

20. Provisions

2012 2011 Note $million $million

Current Employee benefits 180 154 Restoration, rehabilitation and dismantling 14 14 Onerous contracts 99 90 Other 22 17 315 275

Non-current Employee benefits 20 17 Restoration, rehabilitation and dismantling 451 342 Onerous contracts 76 156 Defined benefit superannuation plan deficit 21 14 2 Other 13 16 574 533

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

Restoration Onerous rehabilitation $million Note contracts and dismantling Other

Balance as at 1 July 2011 246 356 33 Provisions recognised 9 119 16 Provisions released – (14) (8) Payments/utilisation (98) (1) (6) Impact of discounting expense 18 17 – Transfer to held for sale 10 – (16) – Effect of movements in foreign exchange rates – 4 – Balance as at 30 June 2012 175 465 35

NATURE AND PURPOSE OF PROVISIONS

Employee beneﬁts The provision for employee benefits predominantly 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 Transitional Services Agreement (TSA) covering customer related services in respect of the acquired NSW retail businesses; onerous property leases for premises held by the consolidated entity; and other onerous contract arrangements.

110 notes to the ﬁnancial statements (continued)

21. Employee beneﬁts

2012 2011 Note $million $million

Labour related expenses Wages and salaries (575) (440) Annual leave expense (46) (37) Long service leave expense (11) (9) Employee share plan (refer note 33) (3) (4) Executive share-based payments expense (refer note 33) (22) (14) Net gain on defined benefit superannuation fund assets 21(f) 1 1 Contributions to defined contribution superannuation funds (52) (37) (708) (540)

(A) EMPLOYEE SUPERANNUATION FUNDS At 30 June 2012, 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. Deﬁned beneﬁts superannuation plan 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 59 51 Fair value of the plan assets 45 49 Deficit (14) (2) Net liability in the statement of financial position 20 (14) (2)

Reconciliation of the present value of the deﬁned beneﬁt obligation

Balance at 1 July 51 53 Current service cost 2 2 Interest cost 2 2 Actuarial losses/(gains) 10 (2) Benefits paid (6) (4) Balance at 30 June 59 51

Reconciliation of the fair value of plan assets

Balance at 1 July 49 47 Expected return on plan assets 3 3 Actuarial (losses)/gains (2) 2 Contributions by Origin Energy companies 1 1 Benefits paid (6) (4) Balance at 30 June 45 49

Origin Energy Annual Report 2012 111 notes to the ﬁnancial statements (continued)

21. Employee beneﬁts (continued) (D) CATEGORIES OF PLAN ASSETS The percentage invested in each class of asset at reporting date is as follows:

2012 2011 per cent per cent

Australian equities 35 35 International equities 27 27 Fixed income 11 12 Property 10 10 Growth alternatives 8 8 Defensive alternatives 2 2 Cash 7 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:

2012 2011 $million $million

Current service cost 2 2 Expected return on plan assets – gain (3) (3) 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 15 19 Losses/(gains) recognised during the period 13 (4) Cumulative loss at the end of the period 28 15

(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 the correlations of the investment returns between asset classes. The returns used for each asset class are net of investment tax and investment fees. The expected return on assets assumption for pension assets has not been reduced for investment tax, as earnings on the assets supporting the pension liability are tax free.

112 notes to the ﬁnancial statements (continued)

21. Employee beneﬁts (continued) (I) ACTUAL RETURN ON PLAN ASSETS

2012 2011 $million $million Actual return on plan assets – 5

(J) PRINCIPAL ACTUARIAL ASSUMPTIONS

2012 2011 per cent p.a. per cent p.a.

Discount rate (active members) 2.6 4.7 Discount rate (pensioners) 2.9 5.1 Expected salary increase rate 4.0 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

2012 2011 2010 2009 2008 $million $million $million $million $million

Present value of defined benefit obligation 59 51 53 57 61 Fair value of plan assets 45 49 47 54 68 (Deficit)/surplus in plan (14) (2) (6) (3) 7

Experience adjustments loss/(gain) – plan liabilities 1 – 2 (8) (6) Experience adjustments loss/(gain) – plan assets 3 (2) (1) 15 11

The consolidated entity expects $1 million in contributions to be paid to the defined benefit plan during the year ended 30 June 2013.

22. Share capital

2012 2011 Note $million $million

Issued and paid-up capital 1,089,564,638 (2011: 1,064,507,259) ordinary shares, fully paid 4,345 4,029

Ordinary share capital at the beginning of the period 4,029 1,683 Shares issued: 23,664,131 (2011: 3,929,332) shares in accordance with the Dividend Reinvestment Plan 306 61 1,393,248 (2011: 2,809,000) shares in accordance with the Long Term Incentive Plan 33 10 18 Nil (2011: 86,875,125) shares under an institutional rights issue (1) – 1,112 Nil (2011: 90,224,930) shares under a retail rights issue (1) – 1,155 Total movements in ordinary share capital 316 2,346

Ordinary share capital at the end of the period 4,345 4,029

(1) The terms of the prior year 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 were adjusted for the bonus element of the rights issues being 1.0289.

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.

Origin Energy Annual Report 2012 113 notes to the ﬁnancial statements (continued)

23. Reserves

2012 2011 $million $million

Share-based payments 82 61 Foreign currency translation (171) (239) Hedging (92) (123) Available-for-sale (5) – (186) (301)

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 33). 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 or loss when the associated hedged transactions affect profit or 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 or loss when the associated investments/settlement residue agreements are sold/settled or impaired.

114 notes to the ﬁnancial statements (continued)

24. Other comprehensive income

Foreign currency Total other 2012 translation Hedging Available-for- Retained Non-controlling comprehensive $million reserve reserve sale reserve earnings interests income

Gain on translation of assets and liabilities of overseas controlled entities 111 – – – 24 135 Net loss on hedge of net investment in foreign operations taken to equity (37) – – – – (37) Cash flow hedges – effective component recognised in equity, net of tax – (52) – – 5 (47) Cash flow hedges – amount removed from equity and transferred to profit, net of tax – 77 – – 1 78 Cash flow hedges – amount transferred to the initial carrying value of non-financial assets, net of tax – 2 – – – 2 Cash flow hedges – foreign currency translation (loss)/gain, net of tax (6) 4 – – 2 – Fair value adjustment on available-for-sale financial assets – – (5) – – (5) Actuarial loss on defined benefit superannuation plan, net of tax – – – (9) – (9) (Loss)/gain on transfer of interest in entities under common control – – – (2) 2 – Other comprehensive income 68 31 (5) (11) 34 117

2011 $million

Loss on translation of assets and liabilities of overseas controlled entities (178) – – – (65) (243) Net gain on hedge of net investment in foreign subsidiaries 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)/gain, 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)

Origin Energy Annual Report 2012 115 notes to the ﬁnancial statements (continued)

25. 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:

2012 2011 Note $million $million

Cash and cash equivalents 357 728 Bank overdrafts 17 – (4) 357 724

(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 22 306 61

Profit for the period 1,058 248

Adjustments to reconcile profit to net cash provided by operating activities: Depreciation and amortisation 614 539 Executive share-based payment expense 22 14 Bad debts expense 70 60 Exploration expense 49 118 Impairment of assets 512 214 (Increase)/decrease in fair value of financial instruments (166) 201 Net financing costs 289 155 Increase in tax balances 263 150 Gain on dilution of the consolidated entity’s interest in equity accounted investees and sale of assets (464) – Non-cash share of net profits of equity accounted investees (39) (45) Unrealised foreign exchange gain (23) – Changes in assets and liabilities, net of effects from acquisitions/disposals: Receivables (222) (283) Inventories 7 20 Payables 47 213 Provisions (54) 2 Other (141) (205) Total adjustments 764 1,153 Net cash provided by operating activities 1,822 1,401

(D) BUSINESS COMBINATIONS

2012 There were no business combinations during the year ending 30 June 2012. During the year the consolidated entity received a working capital settlement amount of $75 million in respect of the acquisition of the retail businesses of Integral Energy and Country Energy. The acquisition accounting for the acquisition of the NSW Government energy assets is now completed and has resulted in an adjustment to the 2011 statement of financial position and corresponding notes. The changes were to goodwill (note 14) and deferred tax liability (note 19) for $260 million. 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 was 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) were recognised within expenses in the income statement and were recorded as an item excluded from segment result and underlying consolidated profit (refer note 2(b)).

116 notes to the ﬁnancial statements (continued)

26. Auditors’ remuneration

2012 2011 $’000 $’000

Audit and review services by: Auditors of the company (KPMG) Audit and review of the financial reports 3,212 3,338 3,212 3,338

Other auditors (1) Audit and review of the financial reports 66 74 3,278 3,412

Other services by: Auditors of the company (KPMG) In relation to other assurance, taxation and due diligence services 929 1,131

Other auditors (2) In relation to other assurance services 3,857 5,303 4,786 6,434 8,064 9,846

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

27. Contingent liabilities and assets

Details of contingent liabilities where the probability of future payments is not considered remote are set out below. 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. Details of contingent liabilities and contingent assets, which the directors consider should be disclosed have also been included.

2012 2011 $million $million

Bank guarantees – unsecured 352 430 Letters of credit – unsecured 19 23 371 453

The bank guarantees and letters of credit disclosed have primarily been provided by the consolidated entity in favour of the Australian Electricity Market Operator Limited to support its obligations to purchase electricity from the National Electricity Market. At 30 June 2012, the consolidated entity holds a 42.5 per cent interest in Australia Pacific LNG, which has bank guarantees of $178 million (the consolidated entity’s 42.5 per cent share $76 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. A process has commenced amongst ConocoPhillips, Sinopec, Australia Pacific LNG and the consolidated entity to amend each Sponsor’s share in the guarantees to reflect Sinopec’s 25 per cent holding in Australia Pacific LNG. These are outlined in note 39. 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 as well as audits and reviews by government or regulatory bodies. Any liabilities arising from such lawsuits and claims, or potential claims arising from audits or reviews, are not expected to have a material adverse effect on the consolidated financial statements.

Origin Energy Annual Report 2012 117 notes to the ﬁnancial statements (continued)

27. Contingent liabilities and assets (continued)

The consolidated entity, as a participant in certain joint ventures, is liable for a share of all liabilities incurred by these joint ventures in proportion to its equity interest in them. In some circumstances, the consolidated entity may incur more than its proportionate share of such liabilities, but will have the right to recover the excess liability from the other joint venture participants. The consolidated entity has provided guarantees for certain contractual commitments of its joint ventures associated with capital projects. The consolidated entity has disclosed its share of these contractual commitments in note 28. The consolidated entity is party to deferred contingent consideration payments relating to past business combinations contingent on future events and performance related triggers. Current assessment of these triggers and future events indicates that any payment is considered remote. The company has outstanding claims in respect of availability liquidated damages including those arising from the fires at the Eraring Power Station in October 2011 and March 2012. The company has not recorded an asset in respect of these matters as the claims are currently in progress. DEED OF CROSS GUARANTEE Under the terms of ASIC Class Order (CO) 98/1418 (as amended by CO 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 31). 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 2012, are set out in note 36.

28. Commitments

2012 2011 $million $million

Capital expenditure commitments (1) Contracted but not provided for and payable: Not later than one year 229 579 Later than one year but not later than five years 281 350 Later than five years 589 612 1,099 1,541

Joint venture commitments (2) Share of exploration, development and capital expenditure commitments not provided for and payable: Not later than one year 2,841 1,019 Later than one year but not later than five years 2,868 1,167 Later than five years 6 8 5,715 2,194

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 236 196 Later than one year but not later than five years 713 623 Later than five years 1,859 1,912 2,808 2,731

Operating leases Lease commitments in respect of operating leases are payable as follows: Not later than one year 78 60 Later than one year but not later than five years 228 228 Later than five years 104 136 410 424

Operating lease rental expense 65 47

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

(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 in 2011. (2) Included in the joint venture commitments above is an amount of $5,251 million (2011: $1,844 million) relating to the consolidated entity’s 42.5 per cent (2011: 50 per cent) share of Australia Pacific LNG’s commitments. The consolidated entity has recorded a $2,409 million (2011: $3,576 million) loan payable to Australia Pacific LNG (refer to note 18) which may be called upon by Australia Pacific LNG to fund its commitments.

118 notes to the ﬁnancial statements (continued)

29. 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 held for trading and include derivative instruments which are not designated as hedges for accounting purposes with the exception of environmental scheme certificates, which are not required to be surrendered within 12 months from balance date. 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 ‘expenses’ 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 within ‘expenses’. 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.

Origin Energy Annual Report 2012 119 notes to the ﬁnancial statements (continued)

29. 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 18. Movements of the hedging reserve in shareholders’ equity are shown in the statement of changes in equity and note 24. 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 ‘expenses’. 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 ‘expenses’. 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 ‘expenses’. Amounts accumulated in equity are transferred to the income statement in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). 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 transferred to 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 ‘expenses’ and disclosed in the ‘increase/(decrease) in fair value of financial instruments’ (note 3(b)).

120 notes to the ﬁnancial statements (continued)

29. 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 controlled entity 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 per cent Impact on post-tax profit Impact on equity 2012 2011 2012 2011 + / – $million + / – $million

USD 21 22 87 50 NZD – 1 21 21 EUR 60 21 60 22

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 Financial Instruments: Recognition and Measurement requirements and trade receivables and payables denominated in foreign currencies. In addition to the impact on 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.

Origin Energy Annual Report 2012 121 notes to the ﬁnancial statements (continued)

29. Financial instruments (continued) (C) FINANCIAL RISK MANAGEMENT (CONTINUED)

Price risk The consolidated entity is exposed to carbon, equity securities and 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 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. The following table summarises the impact of a 10 per cent increase/decrease of the relevant forward prices (for commodities and carbon) 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 2012 2011 2012 2011 + / – $million + / – $million

Electricity forward price 5 10 2 88 Oil forward prices – – 5 27 Equity securities quoted price – – – 1 Carbon and renewable energy price 33 40 33 40

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 International Swaps and Derivative Association (ISDA) agreements with all derivative counterparties in order to limit exposure to credit risk through the netting of amounts receivable from and amounts payable to individual counterparties. 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 2012 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 2012 and 30 June 2011:

2012 2011 $million $million

Less than one month 151 322 One to three months 71 52 Three to 12 months 1,619 2,285 One to five years 5,704 5,818 Over five years 3,073 1,583

122 notes to the ﬁnancial statements (continued)

29. Financial instruments (continued) (C) FINANCIAL RISK MANAGEMENT (CONTINUED)

(iii) Liquidity risk (continued) Included in the balances from the previous table is the $2,409 million (2011: $3,576 million) loan from Australia Pacific LNG ($1,262 million current within three to twelve months and $1,147 million non-current within one to five years; 2011: $1,731 million current within three to twelve months and $1,845 million non-current within one to five years). The consolidated entity has $4,189 million (2011: $3,562 million) of undrawn facilities (refer note 29(e)) immediately available. (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% 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 at the reporting date 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 2012 2011 2012 2011 + / – $million + / – $million

Interest rates (16) (12) 12 25

At 30 June 2012, if interest rates at that date had been higher/lower by 100 basis points 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 previous table. 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 on 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. The consolidated entity anticipates meeting future financing requirements through operating cash flows, periodically raising long-term and short-term bank and capital markets debt, and utilising the dividend reinvestment plan and other capital management tools, including equity offerings as may be required from time to time. The consolidated entity aims to maintain a diversified debt portfolio that enables access to a range of debt markets and specific instruments to meet ongoing business requirements and investment opportunities. To date, the consolidated entity has financed operations and developments primarily through cash flows from operations, borrowings from banks and proceeds from issuances of equity and debt securities. The consolidated entity intends to continue to fund business operations, future acquisitions and developments from existing financial resources and may also raise additional funds through debt or equity offerings or sales or other dispositions of assets in the future to finance all or a portion of future developments or for other purposes. The consolidated entity assesses the capital structure and gearing policies on an on-going basis in light of overall business objectives and prevailing local and global economic conditions. The consolidated entity’s objective is to maintain an appropriate capital structure with sufficient financial headroom to allow the business to absorb any short term shocks to business performance. The consolidated entity seeks to retain the flexibility to access a range of debt and equity markets to ensure sufficient liquid funds are available to meet financial commitments as required. Key factors considered in determining our capital structure and funding strategy at any point in time include expected operating cash flows, capital expenditure plans, maturity profile of existing debt facilities, dividend policy and the ability to access funding from banks, capital markets, and other sources. 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.

Origin Energy Annual Report 2012 123 notes to the ﬁnancial statements (continued)

29. Financial instruments (continued) (D) CAPITAL RISK MANAGEMENT (CONTINUED) 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:

2012 2011 $million $million

Total interest-bearing borrowings 5,879 4,788 Fair value adjustments on borrowings in hedge relationships 216 223 Less: Cash and cash equivalents (357) (728) Adjusted net debt 5,738 4,283 Total equity 14,458 13,516 Less: Reserves (1) 97 123 Total capital (excluding reserves (1)) 20,293 17,922 Total capital (including reserves (1)) 20,196 17,799 Gearing ratio (excluding reserves (1)) 28% 24% Gearing ratio (including reserves (1)) 28% 24%

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

(E) INTEREST-BEARING LIABILITIES

Bank loans – unsecured 2,071 2,185 Bank loans – secured 294 310 Capital markets borrowings – unsecured 3,507 2,282 Bank overdrafts – unsecured – 4 Total borrowings 5,872 4,781 Lease liabilities 7 7 Total interest-bearing borrowings 5,879 4,788

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 1,749 2,644 Six to twelve months 77 47 One to five years 2,505 1,171 Over five years 1,541 919 5,872 4,781

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

One to two years 764 208 Two to five years 2,443 2,659 Over five years 2,522 1,321 Total non-current borrowings 5,729 4,188 Lease liabilities 55 Total interest-bearing borrowings 5,734 4,193

The carrying amounts and fair values of the non-current borrowings are as follows:

Carrying value Fair value 2012 2011 2012 2011 $million $million $million $million

Bank loans – unsecured 2,022 1,857 2,022 1,857 Bank loans – secured 277 295 277 295 Capital markets borrowings – unsecured 3,430 2,036 3,484 2,092 5,729 4,188 5,783 4,244

124 notes to the ﬁnancial statements (continued)

29. Financial instruments (continued) (E) INTEREST-BEARING LIABILITIES (CONTINUED) The carrying amounts of the consolidated entity’s borrowings are exposed to the following currencies:

2012 2011 $million $million

Australian dollar 2,861 2,509 New Zealand dollar 1,353 1,162 US dollar 1,045 435 Euro 613 675 5,872 4,781

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

Expiring within one year 739 44 Expiring beyond one year 3,450 3,518 4,189 3,562

On 24 May 2012, the consolidated entity announced that Australia Pacific LNG (an equity accounted joint venture of the consolidated entity) had secured US$8.5 billion through a project finance facility. At 30 June 2012, the project finance facility was undrawn and subject to the completion of certain conditions precedent. Once the conditions precedent are satisfied and the project finance facility is in place, the consolidated entity will guarantee its proportionate share of amounts drawn down under the facility during the construction phase of the project and it will also reduce funding required from the consolidated entity for the project. At 30 June 2012, the facility was undrawn and no amounts had been guaranteed by the consolidated entity in respect of the project finance facility. (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:

Gain/(loss) on the hedging instruments 30 (110) (Loss)/gain on the hedged item attributable to the hedge risk (28) 109 2 (1)

Cash ﬂow hedges The effective portion of the losses on cash flow hedges recognised in the cash flow hedge reserve (pre tax) (65) (168)

The losses transferred from the cash flow hedge reserve to sales 1 3 The losses transferred from the cash flow hedge reserve to cost of sales 88 133 The losses transferred from the cash flow hedge reserve to finance cost 20 5 The losses transferred from the cash flow hedge reserve to the initial carrying value of non-financial assets 4 2 113 143

The ineffectiveness losses recognised in the income statement from cash flow hedges (3) (1)

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 2012 totalled $37 million loss (2011: $73 million gain). The ineffectiveness recognised in the income statement from net investment hedges for the year to 30 June 2012 totalled $Nil (2011: $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 2012 totalled $123 million gain (2011: $134 million loss).

Origin Energy Annual Report 2012 125 notes to the ﬁnancial statements (continued)

29. Financial instruments (continued)

(F) HEDGE ACCOUNTING (CONTINUED) Fair value of ﬁnancial instruments designated as hedging instruments

Assets Liabilities 2012 2011 2012 2011 $million $million $million $million

Fair value hedges (1) – 1 (170) (200) Cash flow hedges (2) 118 164 (311) (403) Net investment hedges (3) – – (1,363) (736)

(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.

(G) DERIVATIVE FINANCIAL INSTRUMENTS

Assets Liabilities 2012 2011 2012 2011 Notes $million $million $million $million

Current Interest rate swaps – 1 64 46 Cross currency interest rate swaps – – 34 11 Forward foreign exchange contracts 1 10 3 14 Electricity derivatives 538 296 156 277 Oil derivatives 6 3 – 8 9, 18 545 310 257 356

Non-current Interest rate swaps 1 6 117 65 Cross currency interest rate swaps – – 139 194 Forward foreign exchange contracts – 3 – 6 Electricity derivatives 41 123 61 164 Oil derivatives 2 – – – Other commodity derivatives – – 18 8 9, 18 44 132 335 437 Total 589 442 592 793

Interest rate swaps The aggregate notional principal amounts of the outstanding interest rate swap contracts at 30 June 2012 were $1,968 million (2011: $1,768 million). At 30 June 2012, the fixed interest rates vary from 1.20 per cent to 8.00 per cent (2011: 1.20 per cent to 7.67 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 and are fair valued through the income statement. The hedged anticipated interest payment transactions are expected to occur at various dates between one month and 12 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 2012 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 2012 and the year to 30 June 2011 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 2012 were $1,470 million (2011: $1,497 million). At 30 June 2012, the fixed interest rates vary from 6.25 per cent to 7.49 per cent (2011: 6.25 per cent to 7.49 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, or remain non-designated and are fair valued through the income statement. The hedged anticipated interest payment transactions are expected to occur at various dates between one month and 6 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 2012 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.

126 notes to the ﬁnancial statements (continued)

29. Financial instruments (continued)

(G) DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Forward foreign exchange contracts The aggregate notional principal amounts of the outstanding forward foreign exchange contracts at 30 June 2012 were $78 million (2011: $258 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 3 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 2012 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 2012 and the year to 30 June 2011, no forward foreign exchange contracts were de-designated and all underlying forecast transactions remain highly probable to occur as originally forecast. Electricity derivatives The aggregate notional volumes of the outstanding electricity derivatives at 30 June 2012 were 232 million MWhs (2011: 224 million MWhs). Electricity derivatives are either designated in cash flow hedge relationships or remain non-designated and are fair valued through the income statement within ‘increase/(decrease) in fair value of financial instruments’ (note 3(b)). The hedged anticipated electricity purchase and sale transactions are expected to occur continuously for each half hour period throughout the next 17 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 2012 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 2012 and the year to 30 June 2011, 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 and dispatched from generators in any half hour period means that the actual purchase requirements and sales volume 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 or sale 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 2012 were 0.77 Mbbl (2011: 1.16 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 2012 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 2012 and the year to 30 June 2011, 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 these 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.

Origin Energy Annual Report 2012 127 notes to the ﬁnancial statements (continued)

29. 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

2012 Available-for-sale financial assets 9 24 – – 24 Derivative financial assets 9 – 119 470 589 Environmental scheme certificates 9 548 – – 548 Derivative financial liabilities 18 – (588) (4) (592) Environmental scheme certificates surrender obligations 18 (160) – – (160) 412 (469) 466 409

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 18 – (776) (17) (793) Environmental scheme certificates surrender obligations 18 (128) – – (128) 536 (486) 135 185

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 2011 152 (17) Net gain from financial instruments at fair value through profit or loss 318 13 Balance as at 30 June 2012 470 (4)

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:

2012 2011 Effect on profit or loss Effect on profit or loss Favourable (Unfavourable) Favourable (Unfavourable)

Derivative assets 254 (254) 142 (142) Derivative liabilities 3 (3) 2 (2)

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 2012 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.

128 notes to the ﬁnancial statements (continued)

29. Financial instruments (continued)

(H) FAIR VALUE ESTIMATION (CONTINUED)

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.

30. Acquisition and disposal of controlled entities

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

2012 South American Energy (Bermuda) Limited 3 Apr 2012 100% 100% } – } – Energy Hydro Chile SpA 3 Apr 2012 100% 100%

The following entities were incorporated/registered during the period: No entities were registered during the year ended 30 June 2012. The following entities were deregistered during the period: No entities were deregistered during the year ended 30 June 2012.

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 Feb 2011 Origin Energy Chile Holdings Pty Limited 21 Feb 2011 Origin Energy Power Development Pty Ltd 10 Nov 2010

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

31. Controlled entities

Name changes during the ﬁnancial year: OCA Holdings Pty Ltd to Origin Energy Southern Africa Holdings Pty Ltd South American Energy (Bermuda) Limited to Origin Energy Hydro Bermuda Limited Energy Hydro Chile SpA to Origin Energy Hydro Chile SpA Name changes during the previous 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

Origin Energy Annual Report 2012 129 notes to the ﬁnancial statements (continued)

31. Controlled entities (continued)

2012 2011 Ownership Ownership Incorporated in interest per cent interest per cent

Origin Energy Limited NSW Origin Energy Finance Ltd Vic 100 100 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 Ltd Vic 100 100 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 Ltd 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 Resources Ltd < SA 100 100 Origin Energy CSG 2 Pty Ltd Vic 100 100

130 notes to the ﬁnancial statements (continued)

31. Controlled entities (continued)

2012 2011 Ownership Ownership Incorporated in interest per cent interest per cent

Origin Energy ATP 788P Pty Ltd Qld 100 100 Angari Pty Ltd < SA 100 100 Oil Investments Pty Ltd < SA 100 100 Origin Energy Southern Africa 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 Ltd 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 53.0 52.6 Contact Australia Pty Ltd Vic 53.0 52.6 Contact Aria Ltd NZ 53.0 52.6 Contact Operations Australia Pty Ltd Vic 53.0 52.6 Contact Wind Ltd NZ 53.0 52.6 Empower Ltd NZ 53.0 52.6 Rockgas Ltd NZ 53.0 52.6 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 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 Energy Annual Report 2012 131 notes to the ﬁnancial statements (continued)

31. Controlled entities (continued)

2012 2011 Ownership Ownership Incorporated in interest per cent interest per cent

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 Ltd NSW 100 100 Origin Energy Chile S.A. Chile 100 100 Origin Energy Geothermal Chile Limitada Chile 100 100 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 Origin Energy Hydro Bermuda Limited Bermuda 100 – Origin Energy Hydro Chile SpA Chile 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 27 and 36).

32. 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.

33. Share-based payments ORIGIN ENERGY LIMITED LONG TERM INCENTIVE PLAN The company’s Long Term Incentive (LTI) Plan was approved by the Board on 23 May 2011. 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 Plan covers Options and Share Rights (collectively ‘securities’). Share Rights are currently in the form of Performance Share Rights (PSRs) and Deferred Share Rights (DSRs). The fair value of the securities granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date using a Black-Scholes methodology with a Monte Carlo simulation model, taking into account market performance conditions (except for DSRs which have a service and personal performance hurdle rather than market hurdle) and is recognised over the vesting period during which the employees become unconditionally entitled to the securities. The amount recognised as an expense is adjusted to reflect the actual number of securities that vest except where forfeiture of options and PSRs is due to market related conditions.

132 notes to the ﬁnancial statements (continued)

33. Share-based payments (continued) (A) SENIOR EXECUTIVE OPTIONS

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 over a period of at least five but no more than 15 trading days 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 note 33(f). Options granted under the plan do not carry any dividend or voting rights. During the year, the company issued 4,969,944 options (2011: 2,230,143 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 company has recognised $8,354,365 (2011: $6,334,538) 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:

2012 2011 Note $million $million

Issued ordinary share capital 22 10 18

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 33(f). (B) SENIOR EXECUTIVE 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 LTI 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 PSR table in note 33(g). PSRs granted under the plan do not carry any dividend or voting rights. During the year, the company issued 2,118,256 PSRs (2011: 838,116). The company has recognised $10,171,657 (2011: $6,218,317) as an expense during the year. Details of PSRs outstanding at the beginning and the end of the financial year and movements during the year are provided in the Senior Executive Performance Share Rights table in note 33(g). (C) SENIOR EXECUTIVE DEFERRED SHARE RIGHTS DSRs granted under the plan entitle the holder to subscribe for one fully paid ordinary share per DSR, or such other number as adjusted in accordance with the terms of the LTI Plan. The DSRs are unlisted. The exercise price of the DSRs is nil unless otherwise determined by the Board. DSRs vest in independent equal thirds on satisfaction of the vesting conditions at each vesting date. Any DSRs that have not vested on their specific vesting date will lapse. The vesting conditions that must be met prior to a DSR becoming exercisable may vary by DSR tranche and are discussed in the footnotes to the Deferred Share Rights table in note 33(h). DSRs granted under the plan do not carry any dividend or voting rights. During the year, the company issued 161,448 DSRs (2011: nil). The fair value of the DSRs is recognised as an employee expense with a corresponding increase in equity. The company has recognised $574,995 (2011: $nil) as an expense during the year.

Origin Energy Annual Report 2012 133 notes to the ﬁnancial statements (continued)

33. Share-based payments (continued) (D) EMPLOYEE SHARE PLAN The Board approved the Origin Energy Employee Share Plan (Origin ESP) on 20 March 2001. All full-time and permanent part-time employees of the consolidated entity 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 the consolidated entity, based on performance hurdles established each year. 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 employees of the consolidated entity 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 the consolidated entity 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. No shares were awarded under the employee share plan during the year ended 30 June 2012. The following table details the shares awarded under the employee share plans for the year ended 30 June 2011:

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

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

(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.

The number of shares held in trust at 30 June 2012 is 14,784 (2011: 14,844) of which 3,252 (2011: 3,312) is allocated to employees and 11,532 (2011: 11,532) is held in trust under the New Zealand ESP. During the year ended 30 June 2012, 60 shares vested to employees (2011:60 shares) and nil shares (2011: nil shares) vested to the trust. (E) CONTACT ENERGY SHARE BASED PAYMENTS The company’s 53.0 per cent controlled entity, Contact Energy Limited, has an Employee Long Term Incentive Scheme for participating employees whereby the value of the long-term incentive award is allocated as a mix of share options and PSRs (options with an exercise price of zero), under the Share Option Scheme. Contact also previously issued restricted shares under a Restricted Share Plan. Under the Share Option Scheme the share options and PSRs will only be exercisable to the extent that the relevant performance hurdles are met (the hurdle is a comparison of Contact’s total shareholder return (TSR) relative to the TSR of a reference group comprising companies in the NZX50 index over the relevant period, commencing on the effective grant date). The consolidated entity has recognised $2,668,415 (2011: $2,236,913) as an expense during the year.

134 notes to the ﬁnancial statements (continued)

33. Share-based payments (continued) (F) SUMMARY OF SENIOR EXECUTIVE OPTIONS

2012 Fair value of Hurdle Balance Balance Vested Exercise options at price as at as at as at Grant First exercise Expiry price per measurement per 1 July 30 June 30 June date date date option date share 2011 Issued Exercised (2) Forfeited 2012 2012

11 Sep 2006 11 Sep 2009 11 Sep 2011 $6.04 (3) $1.43 (1) 922,000 – 922,000 – – – 26 Jun 2007 26 Jun 2010 26 Jun 2012 $8.51 (3) $2.25 (1) 50,000 – 50,000 – – – 28 Sep 2007 28 Sep 2010 28 Dec 2012 $9.86 (3) $2.51 (1) 1,085,000 – 269,400 – 815,600 815,600 28 Sep 2007 28 Sep 2010 28 Sep 2012 $9.86 (3) $2.57 (1) 300,000 – – – 300,000 300,000 30 Sep 2008 30 Sep 2011 30 Dec 2013 $15.84 (3) $4.49 (1) 1,233,500 – – 72,000 1,161,500 958,934 28 Sep 2009 28 Sep 2012 28 Dec 2014 $14.58 (3) $4.48 (1) 1,177,000 – – 120,500 1,056,500 – 6 Nov 2009 6 Nov 2012 6 Feb 2015 $15.47 (3) $4.30 (1) 412,000 – – – 412,000 – 10 May 2010 10 May 2013 10 Aug 2015 $14.89 (3) $4.38 (1) 11,600 – – – 11,600 – 28 Oct 2010 1 Oct 2013 31 Dec 2015 $14.91 (3) $4.23 (1) 2,085,027 – – 151,128 1,933,899 – 22 Jun 2011 1 Oct 2013 31 Dec 2015 $14.91 $4.23 (1) 106,000 – – – 106,000 – 15 Oct 2011 1 Apr 2014 30 Jun 2016 $13.01 $2.97 (4) (1) – 174,316 – – 174,316 – 15 Oct 2011 15 Oct 2014 15 Jan 2017 $13.01 $3.04 (5) (1) – 4,433,058 – 145,595 4,287,463 – 11 Apr 2012 11 Apr 2015 11 Jul 2017 $12.91 $2.00 (6) (1) – 362,570 – – 362,570 – 7,382,127 4,969,944 1,241,400 489,223 10,621,448 2,074,534

Key management personnel (7) 2,708,538 1,471,159 211,000 – 3,968,697 977,894 Non-key management personnel 4,673,589 3,498,785 1,030,400 489,223 6,652,751 1,096,640 7,382,127 4,969,944 1,241,400 489,223 10,621,448 2,074,534

2011 Fair value of Hurdle Balance Balance Vested Exercise options at price as at as at as at Grant First exercise Expiry price per measurement per 1 July 30 June 30 June date date date option date share 2010 Issued Exercised (2) Forfeited 2011 2011

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 (3) $1.43 (1) 1,370,000 – 448,000 – 922,000 922,000 26 Jun 2007 26 Jun 2010 26 Jun 2012 $8.51 (3) $2.25 (1) 50,000 – – – 50,000 50,000 28 Sep 2007 28 Sep 2010 28 Dec 2012 $9.86 (3) $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 (3) $2.57 (1) 300,000 – – – 300,000 300,000 30 Sep 2008 30 Sep 2011 30 Dec 2013 $15.84 (3) $4.49 (1) 1,274,500 – – 41,000 1,233,500 – 28 Sep 2009 28 Sep 2012 28 Dec 2014 $14.58 (3) $4.48 (1) 1,213,000 – – 36,000 1,177,000 – 6 Nov 2009 6 Nov 2012 6 Feb 2015 $15.47 (3) $4.30 (1) 412,000 – – – 412,000 – 10 May 2010 10 May 2013 10 Aug 2015 $14.89 (3) $4.38 (1) 11,600 – – – 11,600 – 28 Oct 2010 1 Oct 2013 31 Dec 2015 $14.91 (3) $4.23 (1) – 2,124,143 – 39,116 2,085,027 – 22 Jun 2011 1 Oct 2013 31 Dec 2015 $14.91 $4.23 (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

(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 4.3.5. (2) The weighted average share price during the year ended 30 June 2012 was $13.67 (2011: $15.97). (3) Exercise prices have been adjusted to reflect the impact of the rights issue in March and April 2011. (4) The inputs used to measure the fair value of options granted during the year ended 30 June 2012 were a weighted average share price of $14.28, an exercise price of $13.01, expected volatility of 26.4 per cent, dividend yield of 3.50 per cent and a risk free rate of 3.96 per cent derived from the yield on Australian Government Bonds of appropriate term. (5) The inputs used to measure the fair value of options granted during the year ended 30 June 2012 were a weighted average share price of $14.28, an exercise price of $13.01, expected volatility of 26.4 per cent, dividend yield of 3.50 per cent and a risk free rate of 4.03 per cent derived from the yield on Australian Government Bonds of appropriate term. (6) The inputs used to measure the fair value of options granted during the year ended 30 June 2012 were a weighted average share price of $13.09, an exercise price of $12.91, expected volatility of 24.0 per cent, dividend yield of 3.82 per cent and a risk free rate of 3.40 per cent derived from the yield on Australian Government Bonds of appropriate term. (7) Opening balances restated to reflect changes to key management personnel for the year ended 30 June 2012.

Origin Energy Annual Report 2012 135 notes to the ﬁnancial statements (continued)

33. Share-based payments (continued) (G) SUMMARY OF SENIOR EXECUTIVE PERFORMANCE SHARE RIGHTS (PSR)

2012 Fair value Hurdle Balance Balance Vested Exercise of PSRs at price as at as at as at Grant First exercise Expiry price per measurement per 1 July 30 June 30 June date date date PSR date share 2011 Issued Exercised Forfeited 2012 2012

28 Sep 2007 28 Sep 2010 28 Dec 2012 Nil $6.78 (1) 169,000 – 38,000 – 131,000 131,000 30 Sep 2008 30 Sep 2011 30 Dec 2013 Nil $11.38 (1) 503,660 – 113,848 1,705 388,107 320,421 28 Sep 2009 28 Sep 2012 28 Dec 2014 Nil $11.62 (1) 452,510 – – 25,215 427,295 – 6 Nov 2009 6 Nov 2012 6 Feb 2015 Nil $11.62 (1) 154,370 – – – 154,370 – 10 May 2010 10 May 2013 10 Aug 2015 Nil $11.75 (1) 4,322 – – – 4,322 – 28 Oct 2010 1 Oct 2013 31 Dec 2015 Nil $11.51 (1) 753,653 – – 34,274 719,379 – 22 Jun 2011 1 Oct 2013 31 Dec 2015 Nil $11.51 (1) 38,078 – – – 38,078 – 15 Oct 2011 1 Apr 2014 1 Apr 2016 Nil $10.39 (3) (1) – 42,886 – – 42,886 – 15 Oct 2011 15 Oct 2014 15 Oct 2016 Nil $10.31 (4) (1) – 1,976,961 – 54,706 1,922,255 – 11 Apr 2012 11 Apr 2015 11 Apr 2017 Nil $8.35 (5) (1) – 98,409 – – 98,409 – 2,075,593 2,118,256 151,848 115,900 3,926,101 451,421

Key management personnel (6) 801,951 368,208 – – 1,170,159 238,349 Non-key management personnel 1,273,642 1,750,048 151,848 115,900 2,755,942 213,072 2,075,593 2,118,256 151,848 115,900 3,926,101 451,421

2011 Fair value Hurdle Balance Balance Vested Exercise of PSRs at price as at as at as at Grant First exercise Expiry price per measurement per 1 July 30 June 30 June date date date PSR date share 2010 Issued Exercised Forfeited 2011 2011

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 (1) – 767,793 (2) – 14,140 753,653 – 22 Jun 2011 1 Oct 2013 31 Dec 2015 Nil $11.51 (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

(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 4.3.5. (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 2012 were a weighted average share price of $14.28, expected volatility of 26.4 per cent, dividend yield of 3.50 per cent and a risk free rate of 3.96 per cent derived from the yield on Australian Government Bonds of appropriate term. (4) The inputs used to measure the fair value of performance share rights granted during the year ended 30 June 2012 were a weighted average share price of $14.28, expected volatility of 26.4 per cent, dividend yield of 3.50 per cent and a risk free rate of 4.03 per cent derived from the yield on Australian Government Bonds of appropriate term. (5) The inputs used to measure the fair value of performance share rights granted during the year ended 30 June 2012 were a weighted average share price of $13.09, expected volatility of 24.0 per cent, dividend yield of 3.82 per cent and a risk free rate of 3.37 per cent derived from the yield on Australian Government Bonds of appropriate term. (6) Opening balances restated to reflect changes to key management personnel for the year ended 30 June 2012.

136 notes to the ﬁnancial statements (continued)

33. Share-based payments (continued) (H) SUMMARY OF SENIOR EXECUTIVE DEFERRED SHARE RIGHTS (DSR)

2012 Fair value Hurdle Balance Vested Exercise of DSRs at price Balance as at as at Grant First exercise Expiry price per measurement per as at 30 June 30 June date date date DSR date share 1 July 2011 Issued Exercised Forfeited 2012 2012

15 Oct 2011 1 Apr 2013 1 Apr 2013 Nil $13.56 (2) (1) – 11,292 – – 11,292 – 15 Oct 2011 1 Apr 2014 1 Apr 2014 Nil $13.10 (2) (1) – 11,292 – – 11,292 – 15 Oct 2011 1 Apr 2015 1 Apr 2015 Nil $12.60 (2) (1) – 11,292 – – 11,292 – 15 Oct 2011 15 Oct 2013 15 Oct 2013 Nil $13.33 (2) (1) – 35,329 – – 35,329 – 15 Oct 2011 15 Oct 2014 15 Oct 2014 Nil $12.85 (2) (1) – 35,329 – – 35,329 – 15 Oct 2011 15 Oct 2015 15 Oct 2015 Nil $12.33 (2) (1) – 35,329 – – 35,329 – 11 Apr 2012 1 Feb 2014 1 Feb 2014 Nil $12.36 (3) (1) – 7,195 – – 7,195 – 11 Apr 2012 1 Feb 2015 1 Feb 2015 Nil $11.90 (3) (1) – 7,195 – – 7,195 – 11 Apr 2012 1 Feb 2016 1 Feb 2016 Nil $11.42 (3) (1) – 7,195 – – 7,195 – – 161,448 – – 161,448 –

Key management personnel – – – – – – Non-key management personnel – 161,448 – – 161,448 – – 161,448 – – 161,448 –

(1) Deferred share rights (DSRs) vest in equal thirds (tranches) on satisfaction of the vesting conditions as detailed below: Tranche 1 – continued employment until end of year 2 Tranche 2 – continued employment until end of year 3 Tranche 3 – continued employment until end of year 4 Vesting of DSRs is also subject to satisfactory performance during the period in which the DSRs are held. Satisfactory performance is defined in the company’s performance management system as reviewed by line management and the Managing Director from time to time. (2) The inputs used to measure the fair value of performance share rights granted during the year ended 30 June 2012 were a weighted average share price of $14.28, expected volatility of 26.4 per cent and dividend yield of 3.50 per cent. (3) The inputs used to measure the fair value of performance share rights granted during the year ended 30 June 2012 were a weighted average share price of $13.09, expected volatility of 24.0 per cent and dividend yield of 3.82 per cent.

34. Related party disclosures

ASSOCIATED ENTITIES Interests held in equity accounted entities are set out in note 11. 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 to note 11 for further information regarding these transactions. Refer to note 35 for key management personnel disclosures.

Origin Energy Annual Report 2012 137 notes to the ﬁnancial statements (continued)

35. 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 There were no loans with key management personnel during the year. (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 and the Long Term Incentive 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 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.

36. 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 27 and 31), after eliminating all transactions between parties to the Deed.

2012 2011 for the year ended 30 June $million $million

Summarised consolidated statement of comprehensive income and retained profits Profit before income tax expense 1,432 503 Income tax expense 297 187 Profit for the period 1,135 316 Other comprehensive income (9) (5) Total comprehensive income for the period 1,126 311 Retained earnings at the beginning of the period 8,342 8,473 Dividends paid (538) (442) Retained earnings at the end of the period 8,930 8,342

138 notes to the ﬁnancial statements (continued)

36. Deed of cross guarantee (continued)

2012 2011 as at 30 June $million $million

Statement of financial position Current assets Cash and cash equivalents 152 600 Trade and other receivables 4,152 3,876 Inventories 130 152 Other financial assets, including derivatives 820 547 Other assets 93 99 Total current assets 5,347 5,274

Non-current assets Trade and other receivables 11 24 Other financial assets, including derivatives 3,952 4,091 Investments accounted for using the equity method 5,816 5,402 Property, plant and equipment 5,176 4,934 Exploration and evaluation assets 175 178 Intangible assets 5,186 4,895 Other assets 21 23 Total non-current assets 20,337 19,547

Total assets 25,684 24,821

Current liabilities Trade and other payables 2,621 2,598 Interest-bearing liabilities 120 549 Other financial liabilities, including derivatives 1,596 2,161 Tax liabilities 46 7 Provisions 276 238 Total current liabilities 4,659 5,553

Non-current liabilities Trade and other payables 2,321 1,954 Interest-bearing liabilities 3,307 2,371 Other financial liabilities, including derivatives 1,339 2,127 Tax liabilities 333 103 Provisions 424 411 Total non-current liabilities 7,724 6,966

Total liabilities 12,383 12,519

Net assets 13,301 12,302

Equity Share capital 4,345 4,029 Reserves 26 (69) Retained earnings 8,930 8,342 Total equity 13,301 12,302

Origin Energy Annual Report 2012 139 notes to the ﬁnancial statements (continued)

37. Earnings per share

2012 2011

Earnings per share based on statutory profit Basic earnings per share 90.6 cents 19.6 cents Diluted earnings per share 90.4 cents 19.6 cents

Earnings per share based on underlying consolidated profit Underlying basic earnings per share 82.6 cents 71.0 cents Underlying diluted earnings per share 82.4 cents 70.8 cents

WEIGHTED AVERAGE NUMBER OF SHARES USED AS THE DENOMINATOR

2012 2011 Number Number

Number of ordinary shares for basic earnings per share calculation pre adjusting for bonus element of the rights issue 1,081,691,687 922,201,286 Bonus element of rights issue – 25,540,613 Number of ordinary shares for basic earnings per share calculation 1,081,691,687 947,741,899 Effect of executive share options, performance share rights and deferred share rights on issue 2,408,440 2,880,456 Number of ordinary shares for diluted earnings per share calculation 1,084,100,127 950,622,355

RECONCILIATION OF EARNINGS USED IN CALCULATING BASIC AND DILUTED EARNINGS PER SHARE BASED ON STATUTORY PROFIT

2012 2011 $million $million

Profit for the period 1,058 248 Less: Profit attributable to non-controlling interests (78) (62) Earnings used in calculating earnings per share 980 186

Refer to note 2(b) for a reconciliation of underlying consolidated profit used in calculating earnings per share based on underlying consolidated profit. 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, performance share rights and deferred share rights Share options, performance share rights and deferred share rights issued under the Long Term Incentive 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 Earnings per share During the year 1,998,371 (2011: 3,080,939) 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 33. There were 68,515 (2011: 292,000) shares issued as a result of the exercise of options and performance share rights between the reporting date and the completion of the financial report.

140 notes to the ﬁnancial statements (continued)

38. Parent entity disclosures

As at, and throughout the financial year ended 30 June 2012, the parent entity company of the consolidated entity was Origin Energy Limited.

Origin Energy Limited 2012 2011 $million $million

Results of the parent entity Profit for the period 158 144 Other comprehensive income, net of income tax 4 (23) Total comprehensive income for the period 162 121

Financial position of the parent entity at period end Current assets 29,202 28,371 Non-current assets 1,436 1,541 Total assets 30,638 29,912

Current liabilities 20,565 20,122 Non-current liabilities 4,671 4,347 Total liabilities 25,236 24,469

Total equity of the parent entity comprising: Share capital 4,345 4,029 Share-based payments reserve 77 58 Hedging reserve (31) (44) Retained earnings 1,011 1,400 Total equity 5,402 5,443

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 44 14

The parent entity has provided guarantees for certain contractual commitments of its joint ventures associated with capital projects. 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 controlled entities. Further details of the Deed of Cross Guarantee and the controlled entities subject to the deed, are disclosed in note 31 and note 36.

39. Subsequent events

Final Investment Decision on the second train of the two train Australia Paciﬁc LNG Pty Limited Incorporated Joint Venture CSG to LNG project and issue of shares to China Petroleum and Chemical Corporation On 4 July 2012 Australia Pacific LNG Pty Limited a 42.5 per cent owned and equity accounted incorporated joint venture of the consolidated entity, announced that a Final Investment Decision (‘FID’) on the second train of the two train CSG to LNG project had been approved. LNG from the previously announced first train is expected to be delivered in mid-2015, with LNG from the second train expected in early 2016. The total capital expenditure for the FID approved two train project (100 per cent Australia Pacific LNG) is estimated to be $23 billion, including contingencies. This excludes expected expenditure on non-project costs associated with the domestic operations, pre-LNG operating and maintenance costs and costs associated with the supply of gas to third party LNG projects. On 12 July 2012 Australia Pacific LNG issued new shares to China Petroleum and Chemical Corporation (‘Sinopec’) resulting in Sinopec’s equity holding increasing from 15 percent to 25 per cent. As a result of this new share issue, Origin’s interest in Australia Pacific LNG has been diluted from 42.5 per cent to 37.5 per cent. Under the terms of the subscription agreement Sinopec paid net consideration to Australia Pacific LNG of US$1.4 billion. The completion of the share issue from Australia Pacific LNG to Sinopec will result in a dilution gain recorded in statutory profit for the consolidated entity of approximately $0.4 billion for the year ended 30 June 2013. Commitments at 30 June 2012 will reduce by $618 million as Origin’s share of the commitments and guarantees of the Australia Pacific LNG joint venture (refer notes 27 and 28) will be diluted from 42.5 per cent to 37.5 per cent following the issue of shares to Sinopec to increase Sinopec’s interest in Australia Pacific LNG to 25 per cent.

Origin Energy Annual Report 2012 141 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 2012 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 31 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 2012. Signed in accordance with a resolution of the directors:

H Kevin McCann, Chairman Director Sydney, 23 August 2012

142 independent auditor’s report

Origin Energy Annual Report 2012 143 independent auditor’s report (continued)

144 share and shareholder information

Information set out below was applicable as at 22 August 2012: ORDINARY SHARES

Size of Holding Number of Shareholders % of Issued Shares

1-1,000 72,813 3.19 1,001-5,000 76,372 15.93 5,001-10,000 12,065 7.66 10,001-100,000 6,160 11.12 100,001 and above 189 62.10

4,271 shareholders hold less than a marketable parcel. SUBSTANTIAL SHAREHOLDERS There were no substantial shareholders of record on 22 August 2012.

Twenty Largest Shareholders Number of Shares % of Issued Shares

HSBC Custody Nominees (Australia) Limited 188,444,810 17.29 J P Morgan Nominees Australia Limited 180,537,519 16.57 National Nominees Limited 102,409,434 9.40 Citicorp Nominees Pty Limited 64,141,306 5.89 Cogent Nominees Pty Limited 28,074,563 2.58 RBC Dexia Investor Services Australia Nominees Pty Limited 13,565,013 1.24 AMP Life Limited 8,813,495 0.81 Bond Street Custodians Limited 7,919,254 0.73 Australian Foundation Investment Company Limited 7,202,045 0.66 Argo Investments Limited 6,689,947 0.61 Queensland Investment Corporation 6,365,263 0.58 Perpetual Trustee Company Limited 5,854,160 0.54 UBS Nominees Pty Limited 5,447,871 0.50 UBS Wealth Management Australia Nominees Pty Limited 4,601,003 0.42 Invia Custodian Pty Limited 3,759,261 0.35 BT Portfolio Services Limited 3,015,651 0.28 Navigator Australia Limited 2,950,639 0.27 BNP Paribas 2,934,059 0.27 The Senior Master of the Supreme Court 1,914,636 0.18 Aust Executor Trustees SA Limited 1,699,370 0.16 646,339,299 59.32

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 www.originenergy.com.au/investor.

Origin Energy Annual Report 2012 145 share and shareholder information (continued)

DIVIDENDS Origin will pay a final dividend for the 2011/12 year of 25 cents per share (fully franked) on 27 September 2012. 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 www.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 www.originenergy.com.au is another source of information for shareholders. SECURITIES EXCHANGE LISTING Origin shares are traded on the Australian Securities Exchange Limited (ASX). The symbol under which Origin shares are traded is ‘ORG’. VOTING RIGHTS OF MEMBERS At a meeting of members, each member who is entitled to attend and vote may attend and vote in person or by proxy, attorney or representative. On a show of hands, every person present who is a member, proxy, attorney or representative, shall have one vote and on a poll, every member who is present in person or by proxy, attorney or representative shall have one vote for each fully paid share held.

146 explorATION AND PRODUCTION PERMITS AND DATA

Key Origin Enery Interests Origin permit APLNG permit Production facility Pipeline Other (Non Origin/Contact) Pipeline

Origin Energy Annual Report 2012 147 explorATION AND PRODUCTION PERMITS AND DATA (continued)

Basin/Project Area Interest Notes Basin/Project Area Interest Notes Basin/Project Area Interest Notes AUSTRALIA Spring Gully PERTH BASIN (MAP 7) COOPER BASIN (MAP 1) ATP 592P and PLs 195, 203, Western Australia South Australia 268(A), 414(A), 415(A), 416(A), EP320 and L11 67.00% * 417(A), 418(A) and 419(A) 40.16% * + Patchawarra East Block PPLs 10.54% L 14 49.19% * PL 204 42.38% * + SA Unit PPLs 13.19% L1/L2 (Excluding Dongara, PL 200 40.68% * + Reg Sprigg West Unit (PPL Mondarra and Yardarino) 50.00% 194/PPL 211 ) 7.90% Talinga/ Orana EPs 368 and 426 40.00% # Queensland ATP 692P, PLs 209, 215, 216(A), BONAPARTE BASIN (MAP 8) 225(A), 226, 272(A), 289(A), Western Australia SWQ Unit Subleases 16.74% 445(A) and 481(A) 42.50% * + NT/RL1 and WA6R 5.00% Aquitaine A * B Blocks of ATP Kenya/Argyle/Lauren/Bellevue 259P and associated PLs 25.00% NEW ZEALAND ATP 620P Shallows and PLs Aquitaine C Block of ATP 179, 180, 228, 229 and 263 17.27% + TARANAKI BASIN (MAP 5) 259P and associated PLs 27.00% PL 247 and ATP 610P PML 38146 50.00% * Wareena Block of ATP 259P + Shallows 12.48% PMP 38151 100.00% * and associated PLs 10.00% ATP 648P Shallows, PLs 257, PMP 38155 100.00% * GALILEE BASIN (MAP 2) 273, 274, 275, 278, 279, 442, PML 38138 100.00% * Queensland 466 and 475 13.28% + PML 38139 100.00% * ATP 666P 42.50% * + Peat PML 38140 100.00% * ATP 667P 42.50% * + PL 101 42.50% * + PML 38141 100.00% * ATP 668P 42.50% * + Other Bowen Basin NORTH TARANAKI BASIN (MAP 5) SURAT BASIN (MAP 3) ATP 804P 12.45% + PEP 38619 100.00% * Queensland ATPs 653P and 745 P and PLs CANTERBURY BASIN (MAP 6) PL 14 100.00% * 420(A), 421(A) and 440(A) 10.14% + PEP 38262 50.00% PLs 56 and 74 69.00% * PLs 219 and 220 42.50% * + PEP 38264 50.00% Other Surat Basin PL 30 75.00% * KENYA PLs 21, 22, 27 and 64 87.50% * ATP 606P and PLs 297(A), PLs 53, 174 and 227 100.00% * 403(A), 404(A), 405(A), LAMU BASIN (MAP 9) 406(A), 407(A), 408(A), ATP 470P Redcap 90.00% * L8 20.00% 412(A), 413(A) and 444(A) 39.40% * + VIETNAM PL 264 90.00% * ATP 631P, PLs 281(A) and SONG HONG BASIN (MAP 11) ATP 470P Formosa Downs 42.72% * 282(A) 7.69% + Block 121 100.00% * PL 71 (Exploration) 72.00% * ATP 663P and PLs 434(A), PL 70 100.00% * 435(A), 436(A), 437(A), 438(A) THAILAND ATP 471P Weribone Pooling and 439(A) 42.50% * + KHORAT PLATEAU (MAP 12) Area 50.64% * ATPs 702P and 973P, and PLs L15/50 and L26/50 40.00% ATP 336P and PLs 10W, 11W, 265, 266(A) and 267 42.50% * + BOTSWANA 12W, 28, 69 and 89 46.25% ATP 972P, and PLs 469(A), PL134/2010, PL135/2010, 470(A) and 471(A) 39.40% * + PL 11 Snake Creek East 1 PL136/2010 50.00% Exclusion Zone 25.00% ATP 788P (Shallows) 100.00% * ATP 647P (Block 2656 only) 50.00% * ONSHORE OTWAY BASIN (MAP 4) * Operatorship. ATP 754P 50.00% * Victoria + Interest held through 42.5 per cent ownership of Australia Pacific LNG Pty Ltd Joint Venture. ATP 788P Deeps 25.00% * PPLs 6,9 and PRL1 90.00% * Subject to farmin agreement, upon receipt ATP 471P Bainbilla 24.75% PPLs 4, 5, 7, 10 and 12 100.00% * of government and other approvals. DENISON TROUGH (MAP 3) PPL 2 Ex (Iona Exclusion) 100.00% * # Subject to farmin agreement. Queensland PPL 8 100.00% * PLs 41, 42, 43, 44, 45, 54, 67, OFFSHORE OTWAY BASIN (MAP 4) + 173, 183 and 218 21.25% * Victoria ATP 337P (Denison Vic/P42 (V) 100.00% * Trough) - Production 21.25% * + Vic/P43 67.23% * ATP 337P (Denison Trough) - Vic/L23 67.23% * Exploration, PLs 449(A), 450(A), 451(A), 452(A), 453(A), Vic/RL2(V) 100.00% * 454(A), 455(A), 456(A), 457(A), Tasmania 475(A) and 476(A) 21.25% + T/L2, T/L3 and T/30P 67.23% * ATP 337P Mahalo and T/34P 82.30% * + PL448(A) 12.75% Bass Basin (Tasmania) + ATP 553P 21.25% T/L1 42.50% * CSG (QUEENSLAND) (MAP 3) T/18P 39.00% * Fairview T/44P 60.00% * ATP 526P and PLs 90, 91, 92, 99, 100, 232, 233, 234, 235 and 236 10.17% +

148 explorATION AND PRODUCTION PERMITS AND DATA (continued)

DRILLING PROGRAM RESULTS (1 JULY 2011 TO 30 JUNE 2012) – NUMBER OF WELLS

Wells cased for Area/Basin Exploration Appraisal Development Total production

Cooper Oil – 4 9 13 12 Cooper Gas 1 – 24 25 25 CSG – Ironbark 6 – – 6 6 CSG – APLNG 21 83 387 491 491 Denison Trough – APLNG 3 5 – 8 8 Surat – – – – – Offshore Otway 1 – 1 2 – Bass Basin – – – – – Perth Basin – – – – – Bonaparte Basin – 1 – 1 – New Zealand – Offshore – – – – – New Zealand – Onshore – – – – – Kenya – – – – – Vietnam – – – – – Thailand – – – – – Other – – – – – Total 32 93 421 546 542

POTENTIAL DRILLING PROGRAM FROM 1 JULY 2012 TO 30 JUNE 2013 (GROSS NUMBER OF WELLS)

Area/Basin No. of wells

Cooper Oil 12 Cooper Gas 38 CSG – Ironbark 4 APLNG (CSG and Denison Trough) 760 Surat 1 Offshore Otway 3 Bass Basin – Perth Basin – Bonaparte Basin – New Zealand – Offshore – New Zealand – Onshore 2 Kenya 1 Vietnam 1 Thailand – Other – Total 822

Origin Energy Annual Report 2012 149 explorATION AND PRODUCTION PERMITS AND DATA (continued)

SALES AND PRODUCTION VOLUME BY ASSET Note: APLNG Sales and Production volumes is Origin’s 42.5% share.

Sales Volume (PJe) 1 July – 30 June Area/Basin Region 2012 2011

Cooper Basin South Australia/Queensland 25.9 28.4 Surat Basin Queensland 2.5 2.9 Denison Trough Queensland 1.0 2.0 Peat Queensland 1.2 1.6 Fairview Queensland 7.4 10.4 Spring Gully Queensland 17.9 23.0 Argyle/Kenya/Bellevue Queensland 7.0 3.7 Talinga/Orana Queensland 15.2 13.4 Perth Basin gas Western Australia 3.3 1.7 Perth Basin oil Western Australia 0.4 0.7 Bass Project Tasmania 4.7 9.9 Otway Gas Project Victoria/Tasmania 35.8 35.6 Kupe New Zealand 16.3 15.6 Taranaki Basin (Onshore) New Zealand 1.4 1.3 Total 140.0 150.3

2P RESERVES BY PRODUCT

Gas (PJ) LPG (kT) Cond. (kbbls) Oil (kbbls) TOTAL (PJe)

Total at 30 June 2011 6,808 1,882 20,279 5,312 7,041 Production (112) (121) (1,607) (573) (130) Net additions/revisions (121) 229 265 763 (104) Total at 30 June 2012 6,575 1,990 18,936 5,502 6,807

2P RESERVES BY REGION

Gas (PJ) LPG (kT) Cond. (kbbls) Oil (kbbls) Total (PJe)

Australia Pacific LNG Coal Seam Gas/Denison 5,572 – 18 – 5,572 Cooper Basin SA Cooper Basin 169 373 2,938 2,270 217 SWQ Cooper Basin 58 68 680 1122 72 Other onshore Australia Western Australia 26 – 13 – 26 Conventional Surat Basin – – – 87 1 Ironbark (CSG) 178 – – – 178 Offshore Australia Otway Basin – Offshore 314 590 4,674 – 368 Bass Basin 106 353 3,789 349 146 New Zealand Offshore Taranaki (Kupe) 138 589 6,815 – 204 Onshore Taranaki 12 17 10 1,675 22 Total 6,575 1,990 18,936 5,502 6,807

150 FIVE YEAR ﬁnancial history

2012 2011 2010 2009 2008 Income Statement ($m) Total external revenue 12,935 10,344 8,534 8,042 8,275 Underlying: EBITDA 2,257 1,782 1,346 1,219 1,324 Depreciation and amortisation expense (614) (539) (408) (369) (345) Share of interest, tax, depreciation and amortisation of equity accounted investees (1) (45) (49) (42) (31) (13) EBIT 1,598 1,194 896 819 966 Net financing costs (217) (143) (13) (32) (220) Income tax expense (415) (316) (232) (183) (197) Non-controlling interests (73) (62) (66) (74) (106) Segment result and Underlying consolidated profit 893 673 585 530 443 Impact of items excluded from segment result and Underlying consolidated profit net of tax 87 (487) 27 6,411 74 Statutory: Profit attributable to members of the parent entity 980 186 612 6,941 517 Statement of financial position ($m) Total Assets 27,981 26,900 21,834 22,102 12,568 Net debt/(cash) 5,522 4,060 2,663 (269) 3,283 Shareholders’ equity - members/parent entity interest 13,094 12,232 10,249 10,003 4,072 Adjusted net debt/(cash) (2) 5,738 4,283 2,835 (107) 3,608 Shareholders’ equity - total 14,458 13,516 11,438 11,144 5,176 Cash flow and capital expenditure ($m) Group Operating cash flow after tax (OCAT) (3) 1,781 1,585 965 797 875 Free cash flow (4) 1,415 1,316 800 661 622 Capital expenditure 1,680 4,954 3,027 2,426 1,685 Stay-in-business 194 203 179 209 178 Growth 1,561 1,626 1,664 2,052 1,398 Acquisitions (75) 3,125 1,184 165 109 Productive Capital (4) 14,523 11,571 8,423 7,256 6,516 Group OCAT Ratio (%) (4) 11.5 13.0 10.9 10.4 12.3 Key ratios Statutory basic earnings per share (cents) (5) 90.6 19.6 67.7 768.8 57.4 Underlying basic earnings per share (cents) (5) 82.6 71.0 64.8 58.7 49.2 Free cash flow per share (cents) 129.9 123.6 90.8 75.6 70.6 Total dividend per share (cents) 50 50 50 50 50 Net debt to net debt plus equity (adjusted) (%) (2) 28 24 20 n/a 42 Underlying EBITDA by segment ($m) Energy Markets 1,562 1,174 807 629 609 Exploration and Production 329 268 209 245 269 Australia Pacific LNG 47 63 45 29 – Contact Energy 400 345 346 369 494 Corporate (81) (68) (61) (53) (48) General information Number of employees (excluding Contact Energy) 5,941 5,213 4,392 4,198 3,940 2P reserves (PJe) (6) 6,807 7,041 6,207 4,484 5,770 Product sales volumes (PJe) 140 150 117 112 101 Natural gas and Ethane (PJ) 118 128 97 93 84 Crude oil (kbbls) 1,286 1,067 1,209 1,358 1,252 Condensate/naphtha (kbbls) 1,563 1,792 1,245 821 762 LPG (kt) 119 136 92 97 67 Ethane (kt) 34 37 36 34 25 Production volumes (PJe) 130 135 104 104 100 Generation (MW) – owned and contracted 5,900 5,310 1,620 1,494 704 Generation dispatched (TWh) 14.89 9.56 2.36 1.67 1.55 Number of customers (’000) 4,359 4,502 2,938 2,957 2,945 Electricity 3,014 3,214 1,721 1,743 1,729 Natural gas 963 923 868 867 880 LPG 382 365 349 347 336 Electricity (TWh) 43 34 30 31 32 Natural gas (PJ) 130 142 135 134 127 LPG (Kt) 502 476 491 479 462 Weighted average number of shares (5) 1,081,691,687 947,741,899 903,353,998 902,833,589 900,682,553 (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. (3) Group OCAT is calculated from Underlying 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) Refer to Glossary of Terms. (5) FY2008 to FY2010 data has been restated for the bonus element of the rights issue completed in April 2011. (6) Includes Origin’s share of APLNG reserves. Shareholding was 100% at 30 June 2008, 50% at 30 June 2009 and 42.5% at 30 June 2012. Origin’s share post-Sinopec completion on 12 July 2012 is 37.5%, diluting Origin’s 2P reserves by 656 PJ.

Origin Energy Annual Report 2012 151 glossary of terms

FINANCIAL MEASURES

Statutory Financial Measures Statutory Financial Measures are measures included in the Statutory Financial Statements for the Origin Consolidated Group, which are measured and disclosed in accordance with applicable Australian Accounting Standards. Statutory Financial Measures also include measures that have been directly calculated from, or disaggregated directly from financial information included in the Financial Statements for the Origin Consolidated Group.

Term Meaning Net Debt Total current and non-current interest bearing liabilities only less cash and cash equivalents. Non-controlling interest Economic interest in a controlled entity of the Consolidated Entity that is not held by the Parent entity or a controlled entity of the Consolidated Entity. Statutory EBIT Earnings before interest and tax as calculated from the Origin Consolidated Financial Statements. Statutory EBITDA Earnings before interest, tax, depreciation and amortisation as calculated from the Origin Consolidated Financial Statements. Statutory effective tax rate Statutory income tax expense divided by Statutory Profit before Tax. Statutory EPS Statutory profit divided by weighted average number of shares. Statutory income tax expense Income tax expense as disclosed in the Income Statement of the Origin Consolidated Financial Statements. Statutory net financing costs Interest expense net of interest income as disclosed in the Origin Consolidated Financial Statements. Statutory Profit Net profit after tax and non-controlling interests as disclosed in the Income Statement of the Origin Consolidated Financial Statements. Statutory profit before tax Profit before tax as disclosed in the Income Statement of the Origin Consolidated Financial Statements. Statutory share of ITDA The Consolidated Entity’s share of interest, tax, depreciation and amortisation of equity accounted investees as disclosed in the Origin Consolidated Financial Statements.

Non-IFRS Financial Measures This document includes certain non-IFRS Financial measures. Non-IFRS Financial measures are defined as financial measures that are presented other than in accordance with all relevant Accounting Standards. Non-IFRS Financial measures are used internally by management to assess the performance of Origin’s business, and to make decisions on allocation of resources. The non-IFRS Financial measures have been derived from Statutory Financial measures included in the Origin Consolidated Financial Statements, and are provided in this report to enable further insight and a different perspective into the financial performance, including profit and loss and cash flow outcomes, of the Origin business. The principle non-IFRS profit and loss measure of Underlying Consolidated Profit has been reconciled to Statutory Profit on page 7. The key non-IFRS financial measures included in this report are defined below.

Term Meaning Adjusted Net Debt Net Debt adjusted to remove fair value adjustments on borrowings in hedge relationships. Free cash flow Cash available to fund distributions to shareholders and growth capital expenditure. Free cash flow per share Free cash flow divided by the closing number of shares on issue. Gearing Ratio Net Debt divided by Net Debt plus Shareholders’ Equity. Gross Margin Gross profit divided by Revenue. Gross Profit Revenue less cost of goods sold. Group OCAT Group Operating cash flow after tax of the Consolidated Entity (including Origin’s share of Australia Pacific LNG). Group OCAT ratio (Group OCAT – interest tax shield)/ Productive Capital. Interest tax shield The tax deduction for interest paid. Operating cash flow Operating cash flow before tax. Operating cash flow return (OCFR) Operating cash flow/Productive Capital excluding tax balances. Productive Capital Funds employed including Origin’s share of Australia Pacific LNG and excluding capital works in progress for projects under development which are not yet contributing to earnings. Shareholders’ Equity Shareholders’ residual interest in the assets of the consolidated entity after deducting all liabilities, including non-controlling interests. Segment result Underlying EBIT for the Energy Markets, Exploration & Production, Australia Pacific LNG, Contact Energy and Corporate segments. Net financing costs and tax expense/(benefit) are allocated to Australia Pacific LNG, Contact Energy and the Corporate segments in measuring segment result. As disclosed in note 2 of the Origin Consolidated Financial Statements. Total Segment Revenue Total revenue for the Energy Markets, Exploration & Production, Australia Pacific LNG, Contact Energy and Corporate segments, including inter-segment sales, as disclosed in note 2 of the Origin Consolidated Financial Statements. Underlying average interest rate Underlying interest expense for the full year divided by Origin’s average drawn debt during the year.

152 glossary of terms (continued)

Underlying proﬁt and loss measures:

Term Meaning EBIT Underlying measures are measures used internally by management to assess the profitability of the EBIT margin Origin business. The Underlying profit and loss measures are derived from the equivalent Statutory profit EBITDA measures disclosed in the Origin Consolidated Financial Statements and exclude the impact of certain items that do not align with the manner in which the Managing Director reviews the financial and Effective tax rate operating performance of the business. Underlying EBIT, Underlying EBITDA and Underlying Consolidated Share of ITDA Profit are disclosed in note 2 of the Origin Consolidated Financial Statements. Underlying EPS is disclosed Net financing costs/income in note 37 of the Origin Consolidated Financial Statements. EPS Consolidated Profit Profit before tax Income tax expense/benefit Non-controlling interests

Non-Financial Terms

Term Meaning 2C Best Estimate Contingent Resource. 3C High Estimate Contingent Resource. 2P reserves The sum of Proved plus Probable Reserves. Probable Reserves are those reserves which analysis of geological and engineering data indicate are less likely to be recovered than Proved Reserves but more certain than Possible Reserves. It is equally likely that the actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves (2P). 3P reserves Proved plus Probable plus Possible Reserves. Possible Reserves are those additional Reserves which analysis of geological and engineering data suggest are less likely to be recoverable than Probable Reserves. The total quantities ultimately recovered from the project have a low probability to exceed the sum of Proved plus Probable plus Possible (3P), which is equivalent to the high estimate scenario. 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 per cent availability at the manufacturer’s operating specifications. Capital expenditure Investment in acquisition or improvement of long-term assets, such as property, plant or equipment. Cased and suspended A successful well with a steel casing installed to enable future production. Churn Mass-market energy customers switching suppliers. Coal seam gas (CSG) Natural gas contained within coal seams. 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. 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. Equivalent reliability factor Equivalent reliability factor is the availability of the plant after scheduled outages. Gas measures Joule Primary measure of energy in the metric system. Gigajoule (GJ) A gigajoule equals one billion joules. 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. 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. Hydrocarbons Oil and gas, including condensate and gas liquids (LPG and ethane). LNG Liquefied natural gas. LPG Liquefied petroleum gas.

Origin Energy Annual Report 2012 153 glossary of terms (continued)

Non-Financial Terms (continued)

Term Meaning 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 (RRR) Annual change in reserves, before deducting production, divided by production during the year. An annual RRR of 100 per cent 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. Total Recordable Incident Frequency The total number of fatalities and injuries resulting in lost time, restricted work duties or medical Rate (TRIFR) treatment per million hours worked.

154 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 www.originenergy.com.au Facsimile (02) 9287 0303 Email [email protected] Internet www.linkmarketservices.com.au Email [email protected]

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