Origin Energy Limited · ASX:ORG
Origin Energy — Investor Presentation (June 2005)
39 slides from Origin Energy's investor presentation, June 2005
Slide 1: Australian Operations – the value of integration
Australian Operations – the value of integration Karen Moses – Chief Operating Officer June 2005 1
Slide 2: Competitive advantages of Origin's Australian operations
The competitive advantages of Origin’s Australian operations were identified and strategies adopted to enhance them……… •Gas focussed •Market driven – first mover advantage •Local geoscience/operational expertise Exploration & Transmission Distribution Gas Production •Scale •Dual fuel capability Dual
Slide 3: Focus on core operational capabilities
The Australian Operations group is focussed on core operational capabilities … Eastern Australian gas demand Origin Energy estimates 2005 900 E a s te r n A u s tr a lia n g a s d e m a n d (P J ) 800 700 600 500 400 300 200 100 0 2002 2004 2006 2008 2010 2012 2014 Year ending June 30 - Retail sales
Slide 4: Risk management framework requirements
These opportunities are not without risk. Our risk management framework requires • Maintaining a strong focus on risk in relation to the operation and management of all Origin businesses • Using a formal risk assessment process to identify and classify risk • Assigning and communicating accountabili
Slide 5: Commodity risk managed across the whole business
Commodity Risk is managed across the whole business within tightly controlled exposure limits ….. Eastern Australian gas demand Origin Energy estimates 2005 Long Term 900 • Supply/Demand Eastern Australian gas demand (PJ) 800 700 600 • Market Structure 500 400 300 • Assets vs Contracts 200 100 0 • P
Slide 6: Commodity Risk: Electricity - Price
Commodity Risk: Electricity - Price Price vs Load Correlations 7000 6000 5000 Price $/MWh 4000 3000 2000 1000 0 3,500 4,500 5,500 6,500 7,500 8,500 9,500 Victorian State Load MW • Electricity exposure is created by electricity purchases exposed to price volatility of pool, and demand volatility – in
Slide 7: Commodity Risk: Electricity – Liquidity and Credit
Commodity Risk: Electricity –Liquidity and Credit NEM Contract Market Structure Liquidity 40000 Availability Risk Risk Capacity • Generators limit the capacity contracted to 35000 manage “availability” 30000 risk Mass Market Extreme Mass Market Peak • Retailers have a need to 25000 Mass Market Avg c
Slide 8: Risk Control & Reporting Framework: Electricity Portfolio
Risk Control & Reporting Framework: Electricity Portfolio Short Term Exposure checked against Hard Limit New Trade on existing portfolio + new Authorisation/Verification by Trading trade before the new trade is executed Confirmation by Settlements Compliance Group Data Capture Volume Check Portfolio
Slide 9: Commodity Risk: Natural Gas - Volume
Commodity Risk: Natural Gas - Volume Victorian Gas Demand Profile Forecast Daily Demand Extreme Daily Demand y l r n n g b r c t p v Ju Ma Ap Oc Ju Ma Ja Au De Fe Se No • Retailers primarily purchase under long term contract • Management of demand volatility from winter to summer, and within day req
Slide 10: Commodity Risk: Gas - Price
Commodity Risk: Gas - Price Victorian Gas Pool History 10 8 Gas price $/GJ 6 4 2 0 1/01/00 1/07/00 1/01/01 1/07/01 1/01/02 1/07/02 1/01/03 1/07/03 1/01/04 1/07/04 1/01/05 • Victorian gas pool creates similar exposures to electricity pool. Price cap is $800/Gj. Physical contracts and available capaci
Slide 11: Commodity Risk: Oil / LPG / Condensate
Commodity Risk: Oil / LPG / Condensate Spo t and Fo rward Price Perfo rmance Average Monthly Price History Spot Tapis 60.00 3m Futures 6m Futures 50.00 47.03 12m Futures USD per Bbl 40.00 2nd Year Ave Fwd 3rd Year Ave Fwd 30.00 25.94 4th Year Ave Fwd 20.00 5th Year Ave Fwd 95th %ile Spot Bounds 10.0
Slide 12: Operational risk managed under Health Safety & Environment system
Operational Risk is managed under the Health Safety & Environment Management System Operational Risk covers areas such as: • Plant & Equipment Failure • Exposing employees or contractors to potential harm • Reliability / Availability • Business Continuity and Disaster Recovery • Systems integrity Sa
Slide 13: Focus on core operational capabilities
The Australian Operations group is focussed on core operational capabilities … Eastern Australian gas demand Origin Energy estimates 2005 900 E a s ter n A u s tr a lia n g a s d em a n d (PJ ) 800 700 600 500 400 300 200 100 0 2002 2004 2006 2008 2010 2012 2014 Year ending June 30 - Retail sales pr
Slide 14: Large consumers drive gas production and base load investment
Large consumers are key driver for gas production and base load generation investment and mass market customers drive capacity investments 2000 Volume Customer Nos 12 1800 Industrial & 10 1600 Commercial 1400 8 1200 Millions PJe 1000 6 800 4 600 400 Mass Market 200 2 0 0 Industrial & Commercial I&C
Slide 15: Natural Gas
Natural Gas Spring Gully Page 15 15
Slide 16: Origin has a competitive gas supply portfolio
Origin has a competitive gas supply portfolio 25% Control of 2P Reserves % of 2P Reserves in Eastern Australia 20% Uncontracted Reserves Other Purchases 15% Purchases from ORG 10% 5% 0% e x P L s n ct n so ) XU to ge id AG BH Ge gi re Es ri n ds er (T Di Sa O er oo En P w CL W Po Using the flexibili
Slide 17: Privatisation in Victoria opened the market to new opportunities
Privatisation in Victoria opened the market to bring forward new opportunities • Origin’s retail and contract position in Victoria allowed BassGas and Thylacene/ Geographe to proceed ahead of other projects • SEAGas pipeline provided option to deliver Thyalcene/sales in both SA and Victoria • Retail
Slide 18: Investment in Coal Seam Gas adds to near term growth
Investment in Coal Seam Gas adds to near term growth…. • Initial CSG contracts underpinned by conventional resources and contracts • Spring Gully Development is underpinned by gas sale to AGL • Knowledge of market and portfolio of reserves and contracts led to gas being delivered via “Swap” with Coo
Slide 19: Electricity Generation
Electricity Generation Roma Page 19 19
Slide 20: Competitive electricity supply - medium term wholesale contracts
Origin has a competitive electricity supply - primarily medium term wholesale contracts 30 4,000 4,000 Annual Demand and Generation dispatched (Twh) Energy Peak • Owned generation has been developed but only covers less Peak Demand and Installed Capacity (MW) 25 Demand Demand 3,000 3,000 than 10% of
Slide 21: Ladbroke Grove Generation demonstrates how integration works
Ladbroke Grove Generation is a good demonstration of how integration works • Ladbroke Grove gas resource unsuited to retail sales • Generation allows gas to be monetised • Low cash cost of total investment allows plant to operate baseload • Retail electricity sales provides revenue certainty • With
Slide 22: Generation plants externally or internally contracted
Generation plants are either externally or internally contracted, focussing Generation group on plant availability and operational integrity Major Origin Origin Capacity Type Operation Availability Contracting Power Int. % MW Party Plants Worsley 50 120 Cogen Base 98% Western Power & Worsley Bulwer
Slide 23: Forward curve gives no signal new generation is required
Current forward curve for electricity gives no signal that new generation capacity is required……… Monthly $70 Average Spot Price Victoria Electricity Price New Entrant Costs Rolling 365 $60 day Average Spot Price Wholesale Electricity Price $/MWh 2008 Historical Forward Price $50 2007 Historical For
Slide 24: When is new capacity required?
… So when is new capacity required? Electricity supply and demand in the NEM* 45,000 Area of potential shortfall in 2010 • Origin believes the 40,000 electricity market is currently in oversupply but Generation capacity and demand (MW) 35,000 that new capacity will be 30,000 required by 2010 25,000
Slide 25: Integrated players will drive next round of generation investment
Origin believes it is most likely that integrated players will drive the next round of investment in generation……… Victorian monthly average pool prices and retail tariffs 150 125 Internalising Retailer risk - risk squeezed margins reduction 100 provides $/MWh 75 potential value capture for 50 integ
Slide 26: Retail Mass Market
Retail Mass Market Page 26 26
Slide 27: Post privatisation, scale and dual fuel drove consolidation
Post privatisation, scale economies and dual fuel drove the first round of consolidation Eastern Australia Eastern Australia Market share of customers: 1998 Market share of customers: 2003 Origin Energy 16% Origin Origin Energy Energy Listed Companies 4% Government owned Page 27 27
Slide 28: Integration of gas and electricity has occurred
Integration of gas and electricity has occurred. Retail and generation integration is increasing. 3,500,000 3,000,000 * 2,500,000 Government 2,000,000 * Owned Electricity 1,500,000 Gas 1,000,000 * Vic new entrant includes Red Energy, Vic 500,000 Electricity & 0 * * Power Direct AGL Origin CLP EA Int
Slide 29: Levels of churn reflect underlying market structures
Levels of churn reflect the underlying market structures…. Mass Market Churn: Completed & Pending 40% • Initial low levels of 35% VIC Elec Vic Gas churn reflect low % Churn: Monthly data annualised NSW Elec NSW Gas 30% SA Elec SA Gas available margin 25% • Increased margins in 20% Vic and SA has led
Slide 30: Customer contracting requires more sophisticated targeting
The extent of customer contracting means acquisition will require more sophisticated targeting and value propositions… Open to Switching Retained & Switched & Contracted Contracted Will not Switch … requiring enhanced system functionality and a Page 30 competitive cost base 30
Slide 31: Improving systems and processes to reduce cost to serve
Origin has moved to improve systems and processes and thereby significantly reduce its cost to serve …. Outsourcing not an ‘Big bang’ is too option right now risky – Process – Large billing/CRM characteristics not replacement currently projects often fail In-House evolution favourable What is Origin
Slide 32: Increasing focus on volume, margin and valuable customers
….and increasing focus on volume, margin and targeting valuable customers • Detailed market understanding – through data analysis, segmentation and product development, focussing on high volume / high margin customers • Be competition enabled in all markets – ensure that we are able to compete when,
Slide 33: Market is now dual fuel
Market is now dual fuel with focus on simplicity and payment structure Page 33 33
Slide 34: LPG focus is on appliance penetration
LPG focus is on appliance penetration All products utilise the call centre for sales fulfilment Page 34 34
Slide 35: New markets are becoming available
New markets are becoming available….. Page 35 35
Slide 36: Ability to differentiate products
… and there is ability to differentiate products Page 36 36
Slide 37: "Green" continues to develop as a core offering
“Green” continues to develop as a core offering • Only ~8% of Origin electricity base and ~1-2% of total VIC/SA/NSW electricity base currently on green. OE up-selling GreenEarth now to 1 in 3 customers moving home …and complements our asset position Page 37 37
Slide 38: Margins sustained despite customer losses
Despite customer losses, with focus on customer segmentation and operating costs, margins have been sustained Retail Gross Margin ($) and EBIT Margin (%) 600 6.0% Product Gross Margin ($ million) (bars) 500 5.0% EBIT Margin (%) (line) 400 4.0% 300 3.0% 200 2.0% 100 1.0% 0 0.0% 2000 2001 2002 2003 20
Slide 39: Many opportunities to improve performance
There are many opportunities to improve performance • Strengthen operational performance • Upgrade operational capabilities • Identify and implement operational synergies • Capture the vale of vertical integration • Enhance the customer experience • Make the right choices at the right time - to expl