17 May 2012
Sustainability Report 2011
Message from our Managing Director
After a decade of continuous growth, major investment decisions in the 2011 financial year led to Origin’s emergence as a leader in both the Australian energy market and the fast-growing coal seam gas industry.
With this greater prominence will come greater interest and closer scrutiny from many in the community about who we are, what we do and how we do it. We expect this, and we are confident in our ability to respond.
It has always been important to us, but never more so than now, that we honour our principles and values and that we meet the commitments we make to our customers, our people, our communities, our business partners and our investors.
In this, our 10th Sustainability Report, we report our progress, and try to give a flavour of how we go about our business.
More detail and a richer representation is available in our online report.
Taking a leadership position
In December 2010, Origin announced the acquisition of a portfolio of energy businesses from the NSW government. Those acquisitions were completed on 1 March 2011. Combining the acquired businesses with our existing business, we have become Australia’s leading energy retailer (33 per cent of customer accounts in the National Electricity Market) and the owner of one of Australia’s largest and most flexible portfolios of electricity generation (12 per cent of available capacity).
In July 20111, Australia Pacific LNG, Origin’s incorporated joint venture with ConocoPhillips and Sinopec, made a Final Investment Decision (FID) to proceed with a one-train, 4.5 million tonnes per annum Coal Seam Gas (CSG) to Liquefied Natural Gas (LNG) project with infrastructure to support a second LNG train. Origin is the operator of the gasfields and pipeline for Australia Pacific LNG.
Since the close of the 2011 reporting period, binding agreements have been signed with The Kansai Electric Power Company and Sinopec to complete the marketing of the second train. Sinopec also subscribed for additional equity in Australia Pacific LNG, which on completion will reduce Origin’s share to 37.5 per cent. Australia Pacific LNG possesses Australia’s largest Proved plus Probable (2P) CSG reserves, which are reserves likely to be recoverable using standard technical and operating methods, making Origin a leading player in developing natural gas resources in Australia.
Our leading retail and CSG positions are supported by a strong balance sheet and a range of longer-term growth options.
Statutory Profit for the 2011 financial year was $186 million, down from $612 million in the prior year. Underlying Profit increased by 15 per cent and Underlying EBITDA by 32 per cent, with Underlying Earnings Per Share up 10 per cent2 to 71 cents. Shareholders received 50 cents per share in fully franked dividends and for the full year dividend were able to engage in a Dividend Reinvestment Plan at a 2.5 per cent discount to the share price. Origin has undertaken a number of capital management activities, raising more than $5 billion in total, which positions us well to fund our share of the Australia Pacific LNG project and other committed projects.
We also made progress on a range of longer-term renewable and gas opportunities, including exploration and development of geothermal resources in Chile and Indonesia, assessment and development of hydro resources such as the potential Purari Hydro Project in Papua New Guinea and exploration for gas in the Canterbury Basin in New Zealand, South East Asia and Kenya.
As well as leading in a commercial and development sense, Origin takes great pride in how we go about our business – being particularly focused on our customers and the communities in which we operate.
Underpinning our long-term success is the ability to foresee, understand and meet the changing needs of our customers, large and small.
Our multi-year Retail Transformation program will deliver simpler processes and an integrated billing and customer management system, facilitating better customer service in the years ahead. Excellent progress through 2011 meant that at publication of this report all 2.6 million Queensland, Victorian, South Australian and directly-acquired NSW electricity and gas customers have been migrated to the new system. Acquired NSW customers of Country Energy and Integral Energy will be migrated to the new system over the next two years.
Origin remains a leader in product innovation, servicing more than 370,000 GreenPower customer accounts and providing the only green gas product in the Australian market to more than 130,000 households. Revenue from Origin’s Retail Solutions business, which includes sales of solar photovoltaic (PV) panels, more than doubled to $445 million. Our tri-generation business won a number of major contracts for energy-efficient power, heat and cooling services to large buildings and was named lead partner in a project to deliver against the City of Sydney’s Sustainability 2030 vision. Additionally, Origin has continued to invest in electric vehicle charging capability, business metering and energy efficiency solutions.
As these product areas mature, the system provided by Retail Transformation will help us provide next generation products and services. As an example, in May 2011, US Vice President Joe Biden announced a partnership between Origin and Colorado technology company Tendril to launch Australia’s first large-scale pilot of world-class customer engagement technology for the energy sector. Origin will adapt and connect the technology into our new billing platform and provide the opportunity for customers to see their consumption in real time, and therefore better manage their quarterly power bills. Origin is committed to being the leading innovator in providing this revolutionary capability.
The community’s competing concerns about cost, growth and the environment
The cost of living is among the highest concerns of Australian households, with energy cost being one component of that. Prices have risen significantly in recent years, mainly due to the costs incurred by transmission and distribution companies in upgrading and extending poles and wires networks. These costs make up more than half of a retail customer’s bill, and are passed through to consumers by Origin and other retailers.
Wholesale electricity costs have been flat, but this is expected to change in the future as the prices of coal and gas as fuel inputs rise in response to international demand and higher production costs.
Additionally, the Commonwealth Government’s new carbon price will commence on 1 July 2012 and the price of Renewable Energy Certificates will increase in years ahead. Customers continue to subsidise a variety of less efficient small-scale renewable and energy-efficiency schemes at state and Commonwealth level.
For so long as most renewable technologies remain much more expensive than fossil fuels, there will be an essential role for natural gas to play in achieving Australia’s environmental goals. Not only does baseload gas generate electricity with approximately half the emissions of coal, it typically uses only two to three per cent as much water3 and causes vastly less local air pollution.
Australia’s traditional sources of natural gas – such as the Cooper Basin – are in decline. It is a boon for the country that we have a 15-year-old CSG industry that is capable not only of meeting Australia’s natural gas requirements, but of meeting growing global energy demand for electricity generation at lower emissions than produced by coal-fired generation.
Like all extractive industries, CSG can have an impact on local communities and the environment. We actively and continuously engage with landholders and communities around our operations in Queensland. Governments in that state have over time introduced strong regulatory regimes and consultation mechanisms to ensure the industry and communities can work together for mutual benefit.
We welcome the Commonwealth’s efforts to ensure that all states develop similar processes.
We are proud of the relationships we have built up over time with many local communities around our power stations, gas plants and wind farm assets across Australia. Today we have more than 600 land access agreements in place with local farmers. Overwhelmingly we have found that we have been able to work through any concerns with landholders and access the resource on good terms.
Communication with unaffected communities around CSG has been more challenging. The CSG industry involves advanced precision engineering, with drilling taking place up to a kilometre below the ground. For those unfamiliar with the technical processes associated with gas extraction, including some media, it raises a number of potential issues and involves numbers and distances and volumes of water, salt and chemicals that can seem large to the uninitiated, but are actually commonplace and in some cases quite minor in the context of significant industries such as gas, mining or agriculture.
Investment in communication, and in listening to those people most affected by and most interested in the industry, will always be a priority for Origin.
As a bigger company, working in industries of increasing public interest, it is more and more important that our people be able and supported to make good decisions that are respectful of our stakeholders.
One of the achievements in 2011 I am most proud of was the re-consolidation of our Principles, Values and Commitments, alongside a new Purpose Statement into a guiding Compass for the Company. It formed a major theme of our senior management conference last year and I travelled to all of our major cities to meet with a range of managers to discuss what our Compass means to them.
At Origin, we aspire always to lead, in the broad sense of that word. We make decisions knowing they cannot always be attractive to everyone, but that they effectively and appropriately balance the competing demands that exist for more and cleaner sources of energy globally, and a changing social, environmental and technological landscape. Our stakeholders can have faith in us that we will make good choices, and we are confident that those choices will stand up to scrutiny over time.
- Activity took place after the close of the reporting period.
- The 2010 EPS has been restated for the bonus element of the rights issues completed in April 2011.
- The technology used cuts annual water consumption to around 200 megalitres, compared to 8,500 megalitres for conventional water-cooled coal-fired power stations.