ORIGIN ENERGY LIMITED Audio Webcast

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ORIGIN ENERGY LIMITED (ORG)

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ORIGIN ENERGY LIMITED (ORG) Events

Company (Stock Code)	Date/Time	Event	Timezone: Australia/NSW
ORIGIN ENERGY LIMITED (ORG) Teleconference Briefing for Analysts and Investors	Wed, 22 Apr 2009 01:00PM	ORG - Origin to Acquire Further CSG Reserves - Mr Grant King, Managing Director
ORIGIN ENERGY LIMITED (ORG)	Thu, 26 Feb 2009 09:00AM	ORG - 2009 Half Year Results - Mr Grant King, MD and Mr Frank Calabria, CFO
ORIGIN ENERGY LIMITED (ORG)	Wed, 15 Oct 2008 02:30PM	Origin Energy 2008 Annual General Meeting - Mr Kevin McCann, Chairman and Mr Grant King, Managing Director
ORIGIN ENERGY LIMITED (ORG) Origin Announces CSG to LNG JV Partner	Mon, 8 Sep 2008 10:30AM	ORG - Origin Selects ConocoPhillips to Acquire a 50% Share in a CSG to LNG Joint Venture - Mr Grant King, Managing Director
ORIGIN ENERGY LIMITED (ORG)	Thu, 28 Aug 2008 10:00AM	ORG - Full Year Results 2008 - Mr Grant King, Managing Director and Mr Frank Calabria, Chief Financial Officer
ORIGIN ENERGY LIMITED (ORG)	Tue, 19 Aug 2008 09:45AM	ORG - Target's Statement - Mr Grant King, Managing Director
ORIGIN ENERGY LIMITED (ORG) Origin Energy Rejects BG Group's Unsolicited Conditional Takeover Bid	Fri, 4 Jul 2008 02:00PM	ORG - Response to BG Group Offer - Mr Grant King, Managing Director
ORIGIN ENERGY LIMITED (ORG)	Thu, 28 Feb 2008 09:30AM	ORG - 2008 Half Year Results - Mr Grant King, MD and Mr Frank Calabria, CFO
ORIGIN ENERGY LIMITED (ORG)	Wed, 25 Mar 2009	Date Payable
ORIGIN ENERGY LIMITED (ORG)	Tue, 10 Mar 2009	Record Date
ORIGIN ENERGY LIMITED (ORG)	Tue, 3 Mar 2009	Ex Div Date
ORIGIN ENERGY LIMITED (ORG)	Mon, 23 Feb 2009 11:00PM	Interim Results
ORIGIN ENERGY LIMITED (ORG)	Wed, 15 Oct 2008 09:30AM	Annual General Meeting Australian Ballroom, The Menzies Hotel, 14 Carrington Street, Sydney, NSW
ORIGIN ENERGY LIMITED (ORG)	Tue, 14 Oct 2008 11:00PM	Full Year Results
ORIGIN ENERGY LIMITED (ORG)	Fri, 3 Oct 2008	Date Payable
ORIGIN ENERGY LIMITED (ORG)	Tue, 9 Sep 2008	Record Date
ORIGIN ENERGY LIMITED (ORG)	Wed, 3 Sep 2008	Ex Div Date
ORIGIN ENERGY LIMITED (ORG)	Thu, 3 Apr 2008 11:00PM	Date Payable
ORIGIN ENERGY LIMITED (ORG)	Mon, 10 Mar 2008 11:00PM	Record Date
ORIGIN ENERGY LIMITED (ORG)	Mon, 3 Mar 2008 11:00PM	Ex Div Date
ORIGIN ENERGY LIMITED (ORG)	Wed, 27 Feb 2008 11:00PM	Interim Results
ORIGIN ENERGY LIMITED (ORG)	Wed, 31 Oct 2007 09:30AM	Annual General Meeting Wesley Conference Centre, 220 Pitt Street, Sydney 2000, NSW
ORIGIN ENERGY LIMITED (ORG)	Wed, 3 Oct 2007	Date Payable
ORIGIN ENERGY LIMITED (ORG)	Mon, 10 Sep 2007	Record Date
ORIGIN ENERGY LIMITED (ORG)	Mon, 3 Sep 2007	Ex Div Date
ORIGIN ENERGY LIMITED (ORG)	Wed, 29 Aug 2007	Full Year Results
ORIGIN ENERGY LIMITED (ORG)	Fri, 30 Mar 2007	Date Payable
ORIGIN ENERGY LIMITED (ORG)	Thu, 8 Mar 2007 11:00PM	Record Date
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ORIGIN ENERGY LIMITED (ORG)

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PRESENTATION BY GRANT KING, MANAGING DIRECTOR OF ORIGIN ENERGY LIMITED (ORG)

“ORG - Target's Statement”

http://www.brr.com.au/event/49529

 

TUESDAY, AUGUST 19, 2008, 9:45 AM.

 

            ORG    Good morning, ladies and gentlemen, and welcome to Origin’s presentation in relation to the Target’s statement. Target’s statement in relation to BG’s

10                    offer has been lodged with all the relevant authorities this morning and provided to BG and the purpose of our presentation today is to talk to some of the key points in that statement and hopefully in the process to spill over about some of the issues that BG has also been focusing on in relation to the value of Origin.

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                        So if we turn through to the first slide of presentation, it will be no surprise to investors that Origin’s Directors believe BG’s offer undervalues Origin existing business and the outstanding prospects we think we have for the future, and therefore unanimously recommend that Origin shareholders reject BG’s offer.

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                        In coming to this conclusion, the Directors have a number of reasons for supporting that view and these reasons are set out in the slide we are looking at now. I do not intend to read through each of the reasons specifically, but to say in very broad terms, we think BG’s offer undervalues Origin’s existing

25                    business, that is the fuel-integrated generation and retail business that Origin has built over the years from 2000, that our prospects as we look to the future are outstanding, particularly if we can develop a project to convert additional volumes of CSG into LNG. The Company has a proven track record of delivering growth and earnings and creating value for shareholders and we

30                    continue to tag growth in the years ahead.

 

                        If shareholders accept BG’s offer, they will forego, in our view, value for those reasons. We believe that BG is knowledgeable of the value of Origin’s CSG assets through its acquisition of QGC or some interest at QGC’s properties,

35                    and in seeking to acquire those assets through its acquisition of Origin, it is substantially less than what the true value of those assets is, and of course, not surprisingly, we encourage shareholders to look closely at the tax implication to accepting BG’s offer as well.

 

40                    Now if we turn to some of the details, and again we are not going through all of the details that are set out in the Target’s statement but just some of the key points. If we turn firstly to the question of Origin’s existing business, and Origin has built an outstanding business since we were separately listed in 2000, we have pursued a strategy of building a fuel-integrated generation and

45                    retail business and you can see from the charts here that that business has grown substantially over the years, our upstream assets particularly over the last year or so with very substantial increases in CSG reserves. We see now reserves position grows strongly.

 

                        Recent decisions again in the last six months in particular in the last year or so in general have seen commitment to substantially expand our generation capacity and will see a near quadrupling of capacity to something like 2800 megawatts through to 2010. Of course, we have continued to build our

5                      wholesale and retail business to one of the leading wholesale energy businesses in Australia, and of course, Origin has the largest position as a green energy retailer in Australia.

 

                        So we have built all of the various legs of the business very strongly and we

10                    believe that we will continue to do so. At the time of the demerger, Origin had about a 10% share of the energy market, energy sales, and we have grown that by 50%, but of course, that still, I think, comprises some 15% of energy sales, and therefore, we believe there is plenty of potential for Origin to continue to grow and we continue to target that growth in our business and

15                    obviously growth in earnings so it will rise as we continue to grow Origin’s business. So we believe we have built Origin’s business into a very, very strong competitive position as a fuel-integrated generator retailer.

 

                        If we turn then to the question of reserves, BG has certainly attempted to

20                    question the quality and development of Origin’s reserves and resources, we can look briefly at two charts that demonstrate both the substantial nature of Origin’s reserves and Origin’s experience. Clearly, our reserves position has grown strongly over the last 12 months. We are now reporting some 10,138 petajoules in the 3P category and you can see on the chart the component 2

25                    and 1P proportion of those reserves, and as equally, contingent resources have also grown dramatically, and in effect, since the prior reserves update of May 15, another 2000 petajoules of contingent resource taking the overall level of contingent resource to around 15,000 or so petajoules.

 

30                    Of course, we have got the prospective reserves in the Galilee Basin which are arguably something that will be of interest many years into the future and our primary attention of course is focused around our contingent resources and our 3P reserves.

 

35                    Clearly, we have got a very flexible position. The location of our assets in Queensland gives us a lot of flexibility to develop these reserves either into domestic channels or export channels, exports through LNG and domestic through our generation and retail business.

 

40                    If we look at Origin’s position as a producer, we clearly have the longest history of involvement in CSG production in Australia now, something around 10 years, and we have participated in more wells as operator and non-operator, now something like 750 wells and therefore have a great depth of experience, and that experience has seen us become the largest producer of

45                    coal seam gas as you can see from that chart with Origin being currently the largest producer and also with plans in place to substantially increase that production through to 2011 to around somewhere in excess of 100 petajoules a year of production.

 

                        So Origin unquestionably has, in our view, an unchallengeable position as both the holder of the largest CSG reserves position and the leading developer of CSG reserves, and hopefully that puts to bed any doubt about the quality of Origin’s CSG position.

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                        Origin’s extensive CSG reserves and their development expertise means we are well placed to benefit from rising energy prices and what we think would be therefore an increase in demand for gas. We are seeing increases in global energy prices particularly coal or LNG and natural gas increasing and

10                    we expect through time those increases will net back into higher domestic energy prices in Australia. We also think those same factors will see increasing demand for gas.

 

                        As you can see, the underlying growth for gas demand in Australia is a

15                    consistent growth, and as I mentioned earlier, we have grown our share of that market by 50% over the last eight years, yet still only provided 15% of the energy sales and we expect gas to be a continuing source of growth for us in supplying energy to those markets. Of course, should an LNG export channel to market be developed, then there would again be a substantial increase in

20                    the amount of demand for gas in Eastern Australia and a substantial amount of that increase would of course be met from coal seam gas and we think Origin is very, very well placed to benefit from that.

 

                        An important point we would make is that these factors affect us in a couple

25                    of ways. Higher prices work for us whether or not we develop an LNG export channel, and if for example the net back price to gas was equal from either exporting or supplying to domestic markets, then of itself we would not need to necessarily participate in those export channels. That is one of the reasons why we say Origin’s existing business is worth more than BG’s offer anyway

30                    because we do believe there will be increases in prices and that will apply right across the domestic gas markets.

 

                        However, Origin’s reserve position has grown strongly and in the last six months to a year even more than we would have perhaps anticipated. As a

35                    result, there is clearly also a value in increasing production beyond that necessary to meet those domestic channels and we would quite clearly and quite rightly want to test whether additional value can be created by accessing those export channels to market.

 

40                    In the process of looking at the quality of CSG reserves, much is being said about benchmarks, various benchmarks that are used in the industry. What we are showing in this chart is the quality of Origin’s reserves and our access to market in recent benchmarks, all in our view support the view that there is a greater value in Origin CSG assets that might have previously been

45                    described to them.

 

                        In particular, in BG’s analysis, they have in a sense tried to deconstruct the Santos/PETRONAS benchmark in quite an innovative way. We could for example argue as to why that particular deconstruction of the benchmark lacks, I guess integrity for lack of better word. But we have chosen the alternative and to say, “Well, let’s go in the other way.” If Origin could develop a CSG to LNG project in the same timeframe and the similar size of two-trained project that that proposed by Santos/PETRONAS joint venture, then

5                      you would see that we would set aside the same sorts of 3P and contingent reserves and resources that Santos has committed to that project and we would still be left with a lot of gas over and above that requirement and that really demonstrates the quality and scale of Origin CSG position.

 

10                    If we then apply the benchmarks that would be used, you could see you can come up with a number something like $10 billion as a value for Origin CSG assets, and we stress that we are not saying that is the valuation of Origin CSG assets or we are saying as those benchmarks remain relevant. No matter how much imagination you use, they cannot be made to go away, but

15                    they are relevant to the valuation of Origin’s CSG business.

 

                        Having said that, the true value of our assets will be determined through the CSG monetization process. That process was initiated by the company in June following rejection of BG’s offer and it was the 4th of July that we

20                    received indicative proposals and then short-listed companies to continue to work with us to look at how we might be able to add value to our CSG resources.

 

                        We were very happy with the responses. We went to market with a very wide

25                    approach. We said, “Here’s our total CSG resources. We are open to any proposal. If you want to buy them all, you can buy them all.” But the proposals we received were such that the short-listed proposals are all to develop in some way, shape or form a CSG to LNG project, and the bidders participating in the process are all working on delivering that sort of outcome.

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                        All of the participants have the technical, commercial and financial capability to deliver such a project and we are very committed to seeing that process through. We believe continuing this process is the best way to determine the true value of Origin CSG assets and we do believe it is possible that such a

35                    project may deliver additional value when compared to the other alternatives that we have available and that is continuing to monetize large volumes of gas through domestic channels to market.

 

                        Hopefully, for that reason, our investors will be comfortable with the view that

40                    on completion of that process is an appropriate time to provide our shareholders with an independent experts’ report and that is our intention. Our intention is to deliver it prior to the closing of BG’s offer. We are not in total control of the timelines because BG’s bids got its own timelines, but the closing date is, at the moment, 26 September and of course our CSG process

45                    has got its own timeline and we are not going to pull that up, for example a day early, but for the sake of the difference between a good outcome and a bad one.

 

                        But nonetheless, we are committed to try and to provide an independent experts’ report which will include a valuation of Origin’s shares and all of the relevant information of that valuation including the outcome of the CSG monetization process. As I say, we are committed to providing that

5                      information to shareholders prior to closure of the BG bid.

 

                        Now, notwithstanding that we have committed to that CSG process, there are now quite a number of projects, CSG to LNG projects, proposed for Queensland coal seam gas. In this chart, you can see based on publicly

10                    reported information how each of these proposed projects stacks up.

 

                        We do believe that Origin’s reserves and contingent resource position would support a 6 million tonne project, generally a 2 million by 3 million tonne trained project or a two-train project, and it seems quite clear and if we look at

15                    the way value has been bid into the Santos-PETRONAS project, clearly there is extra value if a second try can be achieved and we believe we are the only organization that can, through the quality of its CSG resources, take to market a resource base sufficient to support the two-train project.

 

20                    We note that in the case of Santos-PETRONAS, they have significant contingent reserves or resources, but the reserves and resources committed to the joint venture are approximately 11,000 petajoules and would just support a similar sized two-train project.

 

25                    In the case of BG QGC project that had published a contingent resource, but based on our knowledge of the acreage, it would seem to us and bear to mind we have some common tenements and adjacent tenements, that that acreage is actually well understood, well developed and most of the resources are now in fact sitting in the reserves category, and therefore, that

30                    project will struggle to get to what -- I mean, obviously it does not have sufficient resources to get to a two-train project.

 

                        So our view is that Origin is in fact very well placed to support a scale project and that will bring with it significant additional value as that scale on that

35                    second train is leveraged to provide more value.

 

                        Now just to conclude on perhaps a couple of final points. Much is being made of the question of reversion and the impact of reversion may rise from the value of Origin. We hope and we have included a couple of pages of

40                    information in the explanatory statement and we have just reproduced a summary here, but I would just like to go through it and make a few points as clearly as we can. As we disclosed previously, approximately one-third of Origin’s 3P reserves are associated with interest subject to reversion, and given that reversion is 45%, then the maximum theoretical reversion of those

45                    interest is 15%. Reversion only occurs when cumulative revenue exceeds cumulative expenditure plus an uplift factor applied to various costs. We have said, as noted in the next statement, that we do not believe on the current market conditions, planned developments and costs that any of Origin’s 3P CSG reserves will revert to (0:14:41).

 

                        We do believe that Origin CSG developments are expected to generate return in excess of Origin’s cost of capital, irrespective of whether reversion occurs, and for reversion to occur, clearly it would require either higher prices

5                      or lower development cost or either way. It could result in reversion occurring in the future. But we are absolutely clear that under any scenario, the Company will exceed returns greater than its cost of capital in the notion that somehow its returns will be less and its cost of capital is completely fanciful. It is just unable to be sustained by the facts.

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                        We have however taken the step of taking advice on the matter and I have made this an analogy. It is not uncommon that from time to time companies end up in situations where issues are risen. For example, it is regrettably not unusual that tax office for example might say, “We think the Company owes

15                    us some money,” and companies and boards often respond to that. They do not respond to it by putting all the contracts and everything on the table. They respond to it by saying, “We have taken appropriate advice,” and in this occasion we have taken QC advice confirming our interpretation on how reversion works and we are very comfortable and very confident with our own

20                    understanding of reversion and in the advice that we have received and we just believe there are no issues to carry on with in relation to reversion.

 

                        Notwithstanding that, quite clearly information on reversion will be available to both the independent expert and the bidders, at the end of the day, their

25                    reports and the bidders’ bids will be made fully knowledgeable of the impact of reversion. Therefore, when shareholders are ultimately presented with that report and potentially a choice, that choice clearly will be informed by access to the necessary information on reversion.

 

30                    I think interesting and is worth noting is that BG has acknowledged during the process that actually they do have the sale and purchase deed between Origin and Tristar, in fact had it before the bidder statement. On in our view, BG can clearly understand how reversion works and continuing to infer that they lack some knowledge about reversion is, in my view, completely

35                    inappropriate. They have the agreements. They can read the agreements and they can interpret quite clearly how reversion works.

 

                        That not surprisingly leads us to the view based on the quality of our resources that BG is attempting to acquire Origin’s resources at less than

40                    their true value and that clearly would be, if that was to occur, would be at the expense of Origin shareholders. We trust that we are able to put to shareholders in this report, in this Target’s statement of course ultimately with the benefit of an independent experts report, that they tell necessary for shareholders to be satisfied with the view we have come to that BG’s bid

45                    does undervalue Origin, particularly its CSG assets and its existing business, and therefore is clearly to the advantage of CSG shareholders, not Origin shareholders.

 

                        Therefore, not surprisingly, the Origin Board unanimously recommends that shareholders reject BG’s offer and I will for emphasis go through these points finally.

 

5                      BG’s offer does in our opinion undervalue Origin’s outstanding fuel-integrated generation and retail business. We have built, in our view, a very strong business. A business that is well positioned to grow and can look confidently at increasing its share of market in coming years.

 

10                    We believe their offer undervalues Origin’s position as Australia’s largest holder and leading developer of CSG reserves, and I hope through this presentation and through reading the Target’s statement, shareholders can again be confident that there should be no doubt about the quality of Origin’s CSG reserves and the fact that it does have the largest reserves and leading

15                    position in CSG. Equally, based on that position, we think the Company is well placed to benefit from what we believe will be rising prices and increasing demand for gas in Eastern Australia driven by the benefits of gas both around fuel for local generation and of course feedstock for LNG exports to international markets.

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                        We continue to target growth and underlying earnings per share averaging 10% to 15% per annum. That is what we said we would do when Origin began in 2000. We have delivered on that and we continue to target that sort of growth. We do not believe BG’s offer appropriately reflects the value of

25                    Origin CSG assets, and of course not surprisingly, we would encourage shareholders and particularly retail shareholders more so than institutional shareholders to take tax advice in respect to any tax liabilities that may arise if they accept BG’s offer.

 

30                    So, ladies and gentlemen, I hope that has given you a bit of an overview of what we think are some of the key points into the Target’s statement. We do commend the document to you and ask you to look at it and hopefully it gives you a further understanding of why our Directors have come to the view they have in rejecting BG’s offer. Of course, we recognize that you would be very

35                    interested to see further information and that will be provided, as we say, with our best intentions to deliver that independent experts’ report prior to the close of BG’s offer.

 

                        So I would like to finish the presentation there and hand over for questions,

40                    and we will go straight to questions.

 

            Q         Jason (Inaudible) (0:19:59) from ABN AMRO. Just a couple of questions. First, I just wanted to ask about this article (0:20:05) that all the short-listed parties you are talking to are (0:20:09). Can you broadly say that that is

45                    correct if they are relatively (0:20:15)?

 

            ORG    We have quite deliberately chosen not to make any public comment on the process. Having said that, that is not quite true to suggest that. I mean, all of them have proposed a CSG to LNG project. We began the process by saying here is the entire resource and we will listen to any proposal in relation to the entire resource. It is fair to say that most people or so did those participating want a partnership. They do not want the entire resource, and I think I would put underneath that, not I think I know because we have talked to them that --

5                      they have regard for Origin’s skill and experience in CSG and people want to work with that. I am also happy to say that we do not intend to sell more than half of it, so I am happy to put that as an added limit. But the interest the people are showing is across the spectrum and I prefer not to comment on the other slices and dices that might occur within that framework.

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            Q         Okay. Just the next question would be, you are sort of talking now 6 million tonne project with maybe just Origin and a partner and no one else, I guess the question I have got is, I can see the logic in trying to open up the LNG channel to give you the optionality between domestic LNG, but to me a 6

15                    million tonne project, that is an awfully big leak. I would have thought that takes every molecule or gas that comes out of those fields to try and prove and I think get ready for that project, so I would thought that reduces what you might have to supply the domestic gas markets. So in effect if it takes you from option plate to an LNG plate, I just wonder if you can comment on that.

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            ORG    It is a good point. If I could just try to expand that point a little bit. I mean, one of the things we really want to understand is what that trade off looked like. If we got the same dollar per gigajoule net back, we are indifferent as to which channel that goes through. That is the first point. The key issue for us which

25                    is different from the other people proposing projects is whether we can sell even more and that is not just the gas that would go into those domestic channels, firstly.

 

                        Secondly, in the long run, if you think about an integrated business, that

30                    business still has to parry the proper economic price of the gas. So in the long run, we take the view as gas prices rise and they go to export parity, then we become indifferent whether we buy that gas from other people or whether we produce it into our own business. It is worth what its worth and it has got to deliver that value for shareholders.

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                        So in the long run, we are a bit indifferent as to whether we commit upfront volumes to get the LNG position and then buy gas back from others. Because as I said, in the long run, we will pay the market price of the gas and that is the way it should happen anyway within the business.

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                        I think thirdly, one of the things that we have got, I think perhaps much more comfortable with our last two months, is that we can actually ramp production up to those levels. That means all of our existing contracts and supports the project of that size. I think I could have said that to you with the same

45                    confidence three months ago because we were focusing on getting up to the domestic levels of production. But there has been an enormous amount of work done through the CSG process to be able to put in front of bidders like credible development plan that says we can do that. I think we have a much higher level, well, a much higher level of confidence -- the level of confidence that it can be done. I think we are talking around -- we are going to 100 petajoules per annum by about 2011 and I think we are now talking 6 million tonnes around 600 petajoules per annum at some point, five, six, seven years into the future. We now believe, having done a lot more work on the

5                      development plan, that that is quite achievable.

 

            Q         Great. Thanks. So just last question. Can you just clarify the timeline then when independent experts’ reports are going to come out, bang the same day that you announce the completion of the CSG monetization process or is

10                    there a bit of a timeline conditioning?

 

            ORG    The reason I am sort of waving my hands around a little bit is that the two key timelines is our own CSG process and when that reaches a final conclusion and the second timeline of course is BG, when it either elapses or goes

15                    unconditional. Those are independent timelines, if I could put it that way.

 

                        Now, we are not wanting to drag matters out, so we are driving the CSG process as hard as we can and I would expect the most likely outcome is that an independent expert of recommendation of directors, the necessary

20                    supporting information comes out one time. Quite the relationship of that to either BG’s bid lapsing or going unconditional or some other status is we are not entirely in control of. But what we are very committed to is trying to put all that information in front of shareholders before they have to make a decision and that is something we are very committed to trying to do. But because we

25                    are not in total control of all of the timelines, that is our intention and that is our best efforts.

 

                        Thanks, Jason. I should not have allowed Jason three questions.

 

30        Q         (Inaudible) (0:25:25).

 

            ORG    The 2008 results will be out next week. They will be. The only reason is that implicit in our results is contacts results. Contacts got its own reporting timetable to bring all that forward. It was just a little bit challenging in the

35                    sense that final results -- the Chairman, in his letter, has quite clearly flagged that we do not expect any surprises, that we expect results to be in line with previous guidance or consistent with previous guidance. So I do not think you should see any surprises and we will be back here next Thursday. You will have full year results. I might add it is our intention if it is particularly with our

40                    larger shareholders that rather than (inaudible) (0:26:12) in the next few days but in today’s discussion we will go around after the full year results announcements and have a discussion on both the results and the Target’s statement, just to give people the chance to digest the Target’s statement and also the results. But that is primarily the reason. It would have been nice to.

45                    But just managing the two results was a little bit challenging, I think, is the shortest answer.

 

                        Are there any questions on the telephone lines or are the telephone lines working?

 

      Operator    Your first question over the telephone comes from Matt Spence from Merrill Lynch. Please ask your quarter, Matt.

 

5          Q         Hi, Grant. We missed the first 25 minutes or so, so hopefully these do not repeat. One of the market’s concerns is your lack of experience in LNG development, can you just confirm that some of your bidders are LNG developers and not just off-takers or foreign users of LNG?

 

10        ORG    Yes. Good day, Matt. I can certainly confirm that. I mean, at the time the EOIs or expressions of interest came in, we had a substantial number and we chose from those unquestionably those that had the capability to deliver the key elements of an LNG project that we are less able to do so. Clearly, we feel confident going back to Jason’s question to deliver on the CSG

15                    production side, but the development and marketing of LNG are skills we do not yet claim to have and that is what we will be seeking from our partners and there is no question in our mind that those participating in the process have those skills.

 

20        Q         Okay. I take your point on reversionary rights or this academic once you get a bid in. But can you say whether or not you have had conversations we Tristar recently about reversionary rights?

 

            ORG    Just to, in fact, broaden that answer, Matt, Tristar, we have had -- not just in

25                    recent times, but over the last few years, Tristar, for example has taken those rights to market for example, and that is generally recently well known other than the BG. Those writes, for those that looked at them, they were able to review those rights and form a view about whether they want to buy them. Now they approached us to buy those rights, it must be about two years ago,

30                    (inaudible) (0:28:31). So we have had discussions with them as a potential seller of those rights. We provided them with the necessary information under the agreement for them to monitor their rights under the agreement and that dialogue is an ongoing dialogue. But that is a normal dialogue, if you like. We provide them regular schedules and information request so they can monitor

35                    the rights as they are expressed in the sale and purchase deed or particularly reversionary clause in the sale and purchase deed. Of course, there is an operational dialogue. They have, I think, about a 1% interest in the Spring Gully field, so there is also an operational dialogue with them as well as a joint venture member.

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            Q         Have you talked to them recently about cash-settling those rights?

 

            ORG    No, no, we have not yet.

 

45        Q         Okay, that is great. Thanks for that.

 

      Operator    Your next question comes from Stuart Baker. Please ask your question, Stuart.

 

            Q         Good morning, Grant. I just wanted to follow up on an observation you made during the conference that you would be quite relatively indifferent to net back or any marketing channel which goes to the whole net back story that we heard a lot about, and that is (inaudible) (0:29:44) LNG but you have got to

5                      put 10 billion on the table on the table and you take significantly greater risk. I am just interested to explore a little bit about what risk mitigation strategies you might have going down the LNG route. From the way I see it, you have got capital at risk that is not an all-time high. You have got scale-up risk in the field, and ultimately, you will have a higher degree of price risk in the LNG

10                    contract than you have probably ever seen in the domestic market. I am just kind of interested to explore what risk mitigation strategies you have, and particularly whether you would be, for example, hedging out the oil price risk.

 

            ORG    Stuart, if I could try and answer that in several parts. In the first part is in the

15                    CSG sale or solicitation for monetization process itself. Because we went out to potential bidders with a very wide -- We said here is the CSG resource, tell us what you want to do with it. We did not specify a particular project in a particular size of project technology nor the commercial arrangements. Now, what that means is and what we frankly expect is to get a variety of final

20                    submissions that will, for example, some may say, “We will fix the capital cost” or “We will carry you through your share of the capital cost.” So one of the risks that you might want to mitigate is the capital cost. There is some cost and a potential cost overrun. Others may say that they will lift our share of production and offer us an off-take agreement, and we will look at that as

25                    well.

 

                        Now one of the things we will need to do is to try level those off in terms of value because unquestionably each of those different sorts of approaches will have a different price attached to them as well in terms of, for example, a

30                    headline price for the CSG. We do expect that we -- well we know in so far as the dialogue we are having with the bidders, that those are a range of things that interest them and interest us in terms of the way they might express their final proposals. The significance of that as well is that that is why it makes sense to give you an independent experts’ report on completion of the

35                    process because each of them do involve different prices, if you like, and different risk profiles, and it does not make any sense to anticipate what they might look like. So that is one of the reasons we are waiting to provide an independent experts’ report on completion of the process.

 

40                    Going forward, I think you are right, Stuart, in your observation that quite clearly, that part of, and it would be a large part of CSG production going into that sort of project, will have an oil price risk to it. I have decided at this stage -- I mean, we have not even really begun to discuss whether we would try and fix that exposure. Having said that, if I was to take a point and express a

45                    view, it would probably less likely than more because as you run your models and do your analysis, it would be a very large project and a very large part of Origin’s future income. I think overtime, therefore, investors will, I think, have a preference to see the earnings reflect the underlying price. That is not a particularly well-thought review, Stuart. It is not something we have come to a final end.

 

            Q         Okay. Thanks very much for that.

5

      Operator    Your next question comes from Derek Francis from UBS. Please ask your question, Derek.

 

            Q         Thanks very much. I have two questions. I will just start with the CSG

10                    reversion question first. I read somewhere that the methods for calculating the CSG reversion historical costs get uplifted 8% per annum, but historically revenues do not, and then the reversion only occurs when the revenues non-uplifted exceed the cost. Is that basically right in terms of the calculation?

 

15        ORG    Yes, that is the basic calculation cost, both operating and capital. Costs go in, overhead cost. You have an uplift factor which is 8%. Revenue is not uplifted and of course that is a calculation you update every period and it rolls forward until such time as reversion triggers.

 

20        Q         Right. I may have a digit. I did a sort of rough modelling exercise and that has got absolutely no relationship with the cost of capital under that thing. I mean (inaudible) (0:33:56) rate of return of 60% that stood us and revert.

 

            ORG    Well, I am delighted you can do that calculation. We think it is quite simple,

25                    and I am surprised BG cannot particularly since they have got the agreement. But, anyway.

 

            Q         Okay. My second question is just I am trying to get some firming on the timing of the actual auction process versus the BG bid. (Inaudible) (0:34:20)

30                    minimum they have the lead for bid open a month, but you might have a sort of a chicken and egg situation where they will not want to close the bid until they see the outcome of your auction process and you guys might sort of drag out your timing as well. I am just wondering if there is sort of a three-week minimum for the outcome of the auction process, six weeks maximum

35                    or something like that, and if we can be sort of fairly guaranteed that we will have the outcome sort of in at least a week or so before the BG bid closes.

 

            ORG    Look, again, we will be doing our best to make sure that -- so if I just go back to my earlier comment, I mean, we do not control BG’s timeline and whilst we

40                    have some control over our CSG’s timeline, we are not going to compromise that for the sake of a day. But it is certainly our view that shareholders would want information for at least week and in order to be able to assimilate that information we would like to do more. But if you could realize as we get close to the event, we will know have those timelines are running. But we would

45                    think shareholders would want at least a week to be able to review all of the information, if they were confronted with the decision at a point in time.

 

            Q         So you are planning to at least get the stuff out at least a week before the BG bid closes?

 

            ORG    That is correct. Bear in mind that we know BG’s current bid closes on the 26th of September, I think. We have no knowledge as to what they will do, whether they will extend, whether they will have their regulatory approvals.

5                      But I just keep saying that is our intention and we will be doing our best to achieve that. Having said that, we are not going to cut our process short for day if that makes a big difference in value. So we will be doing our best to get that information to you and we will also be doing our best to get the best outcome we can from the CSG process.

10

            Q         Okay. A third question, just in terms of defence. I am just sort of trying hypothetical. But let’s say just hypothetically you get some bid for 50% of your CSG and it values at say about 13 bucks a share or something, or others say you basically get a cash injection of about 7 billion. If you are doing a math on

15                    that, let us say 13 bucks (inaudible) (0:36:27) lead market plus $20 for the whole company, but the company might necessarily worry right to that level because shareholders will think all the money from that seven years down the track, etc. is sort of a hypothetical valuation today. Would you consider with that 7 billion cash injection doing, say, a share buyback for some of the

20                    shares, like 10% or 20% of the capital, let us say something like 18 bucks a share as part of the defences? Also, investors have an option that is sort of better than the BG bid?

 

            ORG    The short answer is probably yes. We would consider a lot of those things.

25                    When I say that, I mean the first thing is we would probably consider a fairly good outcome if there was a $7 billion check sitting there. Can I say to you, we are not blessing or endorsing any number or even the benchmarks. I mean, the process will give us an answer and we will know that in about five or six weeks. That is the first point.

30

                        The second point is that, going back to an earlier answer, just how those responses come in in terms of money upfront carry your consideration on FID for a project, how some of the project risks are mitigated, there is quite a possible range of outcomes. But certainly, one of those ranges is a

35                    substantial amount of money upfront. The simple and obvious answer is we would apply that to best purpose. Quite clearly, if the money was received, we would reduce debt. But any subsequent purpose would be whatever the best decision was for our shareholders.

 

40                    Now if it turned out that money upfront came with a carry, then you would say we might apply that money in a different way than if for example, we had less than money upfront or more money upfront and had to carry, invest our own cost in the project. So that is something we will make some commentary on when we see what the outcome of the process is.

45

            Q         Okay, thanks.

 

            ORG    That probably would not be a bad outcome if we got a check for 7 billion, but I am not suggesting that would be the case.

 

                        Is there any other question? I know there was another question. I think there is a question here in the room.

 

5          Q         (Inaudible) (0:38:41) from Argo Investment. Grant, there are number of other smaller LNG projects being contemplated by smaller players with smaller reserves. My understanding is the economics of these things improve the bigger the project gets basically, I mean. There are strategic advantages that Origin sees in perhaps down the track trying to draw some of those reserves

10                    or potential production into a single big project or is that just at the moment?

 

            ORG    It is too hard in a sense that one would not try and do that contemporaneously with the process we are running, firstly. Secondly, there is no question now in our mind having gone well into this process and when

15                    you look at the nature of the Santos-PETRONAS transaction where there is effectively a kicker for a second try that people do value the scale, the economies of scale that come with the larger projects that they materially value there. Thirdly, we are interested in the entire CSG resource and how that resource is developed and accesses the various markets. I think it is

20                    quite likely, and it goes back, I am not sure whether it was Jason on an earlier question that to the extent that if we needed to commit a substantial amount of our reserves upfront to sort of a two-train project, we would be quite happy to buy CSG from other people for our existing business or to swap CSG for example, that might go into the project.

25

                        I think you will find, if you look at where CSG is in the sort of the Permian coal and the Barren Basin and the Walloons and Surat Basin, and then you think about the sort of infrastructure that is going to be developed, I think you will find sort of sitting beneath that industry will be quite a bit of commercial

30                    activity that will happen to rationally develop the resources. So I think you will find people who will swap reserves and do all sorts of things, and it will be driven by this growing channel to LNG markets.

 

                        It also depends on the interest of who the successful party might be if we

35                    proceed down this path. Some may prefer it, some may not. Certainly, we are very open to working with others and always have been.

 

            Q         Okay, thanks.

 

40  Operator    Your next question over the phone comes from John Hirjee from Deutsche Bank. Please ask your question, John.

 

            Q         Good morning, Grant. At last count, Grant, there are at least five different proposals for CSG to LNG in Queensland alone. Do you agree that the first to

45                    get to market using the CSG to LNG has a particular strategic advantage, i.e. the lock-up contractors, the lock-up human capital, things like that? What is your view on that?

 

            ORG    There are just several views. Firstly, when one gets into discussions with these larger organizations, I think the general view is resources is not a constraint. I think in Qatar, there are seven trains being built simultaneously and they are nearing completion. When we talk with some of the major

5                      developers and contractors, there has in fact been a bit of a (inaudible) (0:41:52) projects over the last few years. I think you will find much is being made, I think -- I think I recall someone saying there has only been two LNG projects approved in the last few years. I do not know whether others recall that number. So when you think about this as a global industry with

10                    contractors dedicated to construction of LNG plants, actually we surprisingly do not see the sorts of resource constraints that might have been speculated. I can tell you some of the projects in Qatar have 20,000 people working on them. So we do not necessarily see the constraint at that level. We do not necessarily see the constraint in the CSG development.

15

                        I think when we finally sat down and looked at development plans to scale a lot a lot, looked to my colleague Karen, I think we are sort of building hundreds of drilling rigs and I think we figured there were seven. We need seven drilling rigs to scale up five times to the level of production necessary

20                    to support that project. That seems to us to be very manageable. I do believe that, to extent, Gladstone is talked about as being the location for many of these projects. It is certain and I suspect it would be the case that the port authority will have some views about rationalizing some of these projects and some of this infrastructure. I think the final point is that it does seem to us,

25                    again, in our discussions now that the LNG customers are used to contracting of proven reserves, 1P. I think in the case of CSG they were contract of 2P. But I do not think they are contract of 3P. If you look at the 2P position that can be committed to an FID decision, Origin is way ahead than anybody else in terms of 2P reserves. Our ability to convert 3P to 2P is way ahead of

30                    anybody else.

 

                        So, it is still to be determined whether the critical path here is in fact the site. Probably, it simple whether the critical path is a site or whether the critical path is proven reserves. I suspect there is probably a neck-and-neck race as

35                    to what is the critical path. We would contend that we were probably late to the LNG process, but we are well ahead on the reserves side. So I think it is a line ball. But I do think at the end of the day a two-train project, a 6 million tonne project developed in a reasonable timeframe would be a very, very strong competitive position.

40

            Q         So, Grant, do you think that in the timeframe that you envisage for development that you are talking a similar sort of start-up, say, about 2014 or 2015 like others are targeting, is that your vision at the moment?

 

45        ORG    That will be a key part insofar as we have got a number of participants and we will ultimately hopefully choose between them. There will be a variety of different proposals, I am quite sure. Each of them have different views about sites and technology. But certainly, that is the sort of timeframe we would be targeting. But I do expect some difference in the proposals that come in around those sort of areas.

 

            Q         Right.

5

            ORG    But that broadly is the sort of timeframe.

 

            Q         Thanks, Grant.

 

10        ORG    There is one more question here. I am just conscious that it is a busy day for announcements today and some of you may have…

 

            Q         Graham Cartwright from Independent Asset Management. Just I guess drawing at those last couple of questions, does there need to be a

15                    rationalization in the Gladstone area given so many projects announced? Is that gone into Origin’s thinking about who Origin’s approach is talking to develop future projects as a way of getting sort of the site off the critical path?

 

            ORG    I mean, that will become evident I guess in the outcome. What I can say is

20                    Origin has not of itself gained a site independently of the process. Those that are participating have views on that. To me, that will be evident in the outcome. One thing is we, Origin ourselves, have not secured a site in Gladstone or anywhere else.

 

25                    I will take another question.

 

            Q         Grant, a couple of questions on reversion and then two others. You got a (inaudible) (0:46:05) opinion on reversion calculation. Is there a doubt or dispute between you and Tristar on how that is calculated?

30

            ORG    There is no doubt in our mind about how it is calculated. The reason we got that opinion was, and if I could answer it by analogy, I said earlier it is not unusual from time to time, and an easy example I gave is that every now and then the tax office, for example, comes along and says you owe us a lot more

35                    money than you thought. Now companies do not put on the table all of their tax records. They say to shareholders we have taken appropriate advice, we are confident in the advice, we are confident in our position. That is what we are saying in relation to reversion. We felt the best way to do that was to lift that level of confidence to the same level you would apply to any other issue

40                    where perhaps there was some difference, where someone is putting before you a different view than what the company says, which BG is. We are saying there is no doubt in our mind.

 

            Q         We see CE overheads are included. In the reversion calculation in the 1990

45                    court case between Tipperary and Tristar, overheads were excluded. Does that have any relevance or is that a different permit and it is quite clear that overheads are included?

 

            ORG    You are well researched there, Sandra. My memory of the history was that there are a few things that were included with lunches at restaurants in Brisbane because that was a dispute over operating cost charge to the joint venture.

5

            Q         Yes, it was.

 

            ORG    That is very different from the reversionary formula.

 

10        Q         Okay.

 

            ORG    That was a long, draw-out and painful dispute between Tristar and Tipperary. But it was about the detail of what was being charged to the joint venture.

 

15        Q         Okay. So it has no relevance.

 

            ORG    We do not do lunches at Origin, so that is not an issue.

 

            Q         Do you have any pre-emptive right over those reversions if Tristar sells them?

20

            ORG    Not that I recall, no, no.

 

            Q         BG has made a lot of press about the change in methodology for calculation of the reserves. I guess, personally, I have always had a view that your

25                    reserves were probably there and you did not need to book them as 2P because the market was not there, and therefore trying to do a calculation based on the number of wells drilled over the last 12 months is not an adequate way of trying to assess whether the 2P reserves are there. Can you make a comment on the change of methodology and whether the reserves

30                    are now able to be booked because the market is changed?

 

            ORG    Tell me if I am not answering your question, Sandra. I mean, you now have seen the charts where in conventional EMP terms, the revert to the P50, that the mean outcome is more likely the P50 outcome. In the case of CSG, the

35                    more likely outcome tends to be conversions towards the 3P outcome, and that has been the history. We showed some charts in the last presentation that evidenced that that was our experience.

 

                        You are quite right in saying the move from 3P to 2P, you normally would not

40                    spend money if it was not going to earn 10, 15 or 20 years in the future. In a domestic market sense, you would not do that. You would prove up into the 2P and obviously into production as you needed the reserves and as you needed the production. But of course, the sanction will go to FID on an LNG project if you want a higher level of certainty. So yes, you get out and you

45                    move more from 3P to 2P and you pre-invest in doing that. We would do that in the coming 12 to 18 months, which would be the sort of FID timetable, probably about 18 months, to go from where we are to FID. So we would move a lot more into that 2P category. That really is more about just well space, I think is probably the simplest answer. We just need to increase the well density to get that confidence.

 

                        The conversion of the contingent into 3P does require both economic and

5                      technical work whereas I can say the same, 3P to 2P is really technical work, it is just greater well density; whereas moving from contingent to 3P, we would need to be confident about prices as well as the technical parameters.

 

                        Now, having said that, what is reported as 2C or contingent is clearly -- I

10                    mean, technically the gas is there. It is just whether the cost of production or the price or revenue received for that production makes it commercial, and clearly one or both of those tests is not yet met. But as prices go up, that could make the test.

 

15                    I think the other thing is the costs come down and scale reduces cost, the test may also be met by reducing cost, not just by increasing price.

 

                        Does that answer your question, Sandra, or sort of?

 

20        Q         I will move on. I had one last question. How’s the Board going to judge an old cash-up versus the CSG monetization process? Are they going to rely on the independent experts’ report?

 

            ORG    I think the independent experts’ report will be very important in helping both

25                    the Board and the shareholders. They are clearly at work already. It is not something that is yet to be done, and they do have access to all the information necessary to do that work. Having said that, at the end of the day, I think we would acknowledge that there is still some judgment required and I think one of the earlier questions was -- Let me break it into two parts. I

30                    mean, the Board, in my view, is very focused on value, and its job is to say what is the value of the company. But there are also judgments around what might the company share price trade at under other alternatives. I think, at the end of the day, all of those things, independent experts’ report, the nature of the proposal, etc., etc., will help us make that judgment. But I can say the first

35                    and primary focus is on value. That is where the independent expert will also be focused on, what is the value range for the company.

 

                        I am just conscious again of your time. But if there is one more question on the telephone, one more.

40

      Operator    Your next question on the telephone comes from Simon Oaten from Austock Securities. Please ask your question, Simon.

 

            Q         All right. Good morning, Grant. Could you give us an indication of whether

45                    Australian carbon credits would be internationally traded and whether they would be included or excluded from any CSM asset transaction, please?

 

            ORG    I am not sure I can give you -- I mean, a good answer, I think that answer is going to be embodied in the sort of final detail of any emissions trading scheme. I know certainly one of -- just to the extent that there is allowed international trading, are requital is going to be one of those sort of core areas of debate. But I just do not have any particularly knowledgeable view there, Simon. I am sorry. I mean, certainly as it relates to any LNG activity in

5                      Australia, people would be interested in the design of the carbon pollution reduction scheme. But I do not have any special insight into the actual trading of permits internationally. Sorry, I cannot help you there.

 

            Q         No problem. Thank you.

10

            ORG    Again, if there are any other questions.

 

      Operator    You have one more question on the phone. This comes from Ivor Ries from Baillieu. Please ask your question, Ivor.

15

            Q         Grant, I guess at the end of the day, we will all form our own opinions about LNG and what is the right deal for you. One of the problems we have in valuing the LNG option is working out what is the actual cost of running these things is going to be. We can all make a stabbing guess at the cost of building

20                    an LNG plant, but the operating cost side of running a coal seam gas-based LNG plant is completely new territory. Can you give us some thoughts on what you think the range of operating cost is going to be on one of these plants? Operating cost per gigajoule or tonne or whatever you want to use?

 

25        ORG    What we are seeking from the bidders, Ivor, is that, amongst other things, quite a lot of technical information as to cost, as to operating cost, etc. I can tell you in discussions there is a range of views depending on the technology you choose. I think it probably is an important that whilst a fair bit has been said about it, our view now is that there are not any particularly insoluble

30                    challenges in turning CSG into LNG. Certainly there are people keep -- the Kenai project Alaska was one of the first LNG projects which was a lean gas project. So there is a long experience in operating plants on a lean gas feedstock. Having said that, again, I am sorry I am a little bit unhelpful, rather than speculating on the number, we will know the answer to that question

35                    when our final bids come in, and that will able then to be put before shareholders.

 

            Q         While we are talking, well north of 250 or is it sort of - can you tell or is it less than that?

40

            ORG    I am sorry. I just do not have a number in my mind that I feel confident to give you. I am out on the capital cost side. I have got a sense of where the range of dollars per tonne of capacity is, but on the operating cost side, I would be plucking a number out of the air and I just do not feel confident.

45

            Q         So on the capital side, what do you think it is per tonne?

 

            ORG    Well we see numbers ranging sort of, say, $800 to $1200 in that range. Again, clearly, that is one of the things that will be bid as part of the process. That is the sort of range of numbers that we see.

 

5          Q         Thank you.

 

            ORG    Thanks a lot.

 

                        Thanks very much for the time you have taken. I apologize very much for

10                    those of you on the telephone lines who missed the earlier part. Certainly, if you wanted to ring, particularly Angus who is actually not here right now, but Angus or any of us for further information, give us a call. Other than that, thank you very much for your time and your questions, and hopefully you will enjoy your reading and we will look forward to the next step, I guess a few

15                    weeks away.

 

                        Thank you very much.

 

      Operator    That does conclude our conference today. Thank you for participating. You

20                    may all disconnect.

 

PRESENTATION CONCLUDED

 

 

 

 

Contact brr@brr.com.au for more information

 

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