Origin Energy Limited (Origin) today announced that the Board of Australia Pacific LNG Pty Ltd (Australia Pacific LNG) has approved a Final Investment Decision (FID) on the second train of its two-train CSG to LNG project in Queensland.

• FID taken on the second train of the Australia Pacific LNG project (FID2)
• Marketing complete for Australia Pacific LNG's two-train project with binding agreements in place with Sinopec and Kansai
• Shareholdings following completion of Sinopec's additional equity subscription: Origin (37.5%); ConocoPhillips (37.5%); Sinopec (25%)
• Since announcing FID1 in July 2011, there has been no significant change in the US$20 billion cost of the Australia Pacific LNG project other than as a result of movements in foreign exchange rates, which at the time converted to A$23 billion
• The project is estimated to cost A$23 billion from FID1 to first LNG from the second train
• A US$35 per barrel break-even oil price over the project life¹ would cover all estimated project costs and project finance debt service obligations. US$50 per barrel over the project life1 would allow Origin to recover its weighted average cost of capital on its estimated cash injection into Australia Pacific LNG
• The project is on schedule and budget to deliver first LNG in mid-2015
• Origin and ConocoPhillips are commencing a joint process to further dilute their interests in Australia Pacific LNG

Origin Energy Managing Director, Mr Grant King said, "The final investment decision for the Australia Pacific LNG project's second train marks a major milestone for the project, and in the growth of Origin.

"As one of Australia's largest LNG export projects, the Australia Pacific LNG project stands to deliver significant value to Origin shareholders and to Australia, as well as jobs for the Australian community," Mr King said.

"The incremental benefit of the second LNG train will strengthen the project's already robust economics," Mr King said.

The two train project is on track to deliver LNG from its first train in mid-2015. First LNG from the second train is expected in early 2016.

Australia Pacific LNG shareholding dilution

With the taking of FID2, the subscription agreement for Sinopec to increase its shareholding in Australia Pacific LNG from 15 to 25 per cent² is now unconditional with completion due to occur shortly. At that completion, Origin's shareholding in Australia Pacific LNG will be diluted from 42.5 to 37.5 per cent.

Sinopec's additional equity subscription provides Australia Pacific LNG with a net payment of US$1.4 billion for value determined as at 1 January 2011. That amount is then adjusted for Sinopec's share of capital expended since that date, resulting in Sinopec injecting an estimated US$2.1 billion into Australia Pacific LNG. These funds will be used to meet project expenditure before any additional funding is required from Origin, ConocoPhillips or Sinopec.

Origin and ConocoPhillips have agreed to commence a joint process to further dilute their interests below 37.5 per cent. Origin is looking to retain around a 30 per cent stake in Australia Pacific LNG over the longer term.

LNG sales agreements

In January 2012, Australia Pacific LNG and Sinopec signed binding agreements for the supply of an additional 3.3 million tonnes per annum (mtpa) of LNG bringing the total sales to Sinopec to 7.6 mtpa³. Australia Pacific LNG has also signed a binding agreement to supply The Kansai Electric Company with approximately 1 mtpa of LNG. The signing of these LNG off-take agreements concluded the marketing for both LNG trains. The agreement with The Kansai Electric Company is now unconditional. The agreement to supply Sinopec the additional 3.3 mtpa will become unconditional upon completion of the Sinopec subscription.

Project update

Project description: CSG-to-LNG export project -two LNG trains approved, each with a 4.5 mtpanameplate capacity Shareholdings⁽¹⁾: Origin Energy 37.5% ConocoPhillips 37.5% Sinopec 25.0% Off-take Agreements: 7.6 mtpaLNG supply for 20 years to Sinopec⁽²⁾
~1.0 mtpaLNG supply for 20 years to The Kansai Electric Company Project cost: A$23 billion from July 2011 until start-up of Train 2 in early 2016, in line with the US dollar cost estimates announced at FID1 APLNG economics: US$35/bbl breakeven oil price⁽³⁾ to cover estimated project costs and project finance debt service obligations
US$50/bbl breakeven oil price⁽³⁾ for Origin to recover its weighted average cost of capital on its estimated cash injection into Australia Pacific LNG
APLNG reserves⁽⁴⁾ (at 31 December 2011): 2P: 12,810 PJ 3P: 16,022 PJ
Additional 4,240 PJ (2C) or 10,614 PJ (3C) of contingent resources Timing: First LNG: Train 1 expected mid-2015, Train 2 expected early-2016