Apa Group · ASX:APA
Apa — Investor Day (November 2016)
74 slides from Apa's investor day presentation, Nov 10, 2016
Slide 1: APA investor day: connecting Australia's energy future
APA investor day connecting Australia’s For personal use only energy future. 10 November 2016, Sydney
Slide 2: Disclaimer
disclaimer This presentation has been prepared by Australian Pipeline Limited (ACN 091 344 704) as responsible entity of the Australian Pipeline Trust (ARSN 091 678 778) and APT Investment Trust (ARSN 115 585 441) (APA Group). For personal use only The information in this presentation does not conta
Slide 3: Introductions and overview
section 1 introductions For personal use only and overview. Peter Fredricson, Chief Financial Officer 3
Slide 4: Today's agenda
today’s agenda For personal use only 8:30 1 introductions and overview Peter Fredricson 9:00 2 gas market dynamics & growth strategy Ross Gersbach 9:30 3 organic pipeline growth opportunities Rob Wheals 10:00 4 opportunities in power generation Sam Pearce 10:20 5 capital management Ian Duncan 10:40
Slide 5: APA today
APA today experience. track record. sustainable. For personal use only OUR PEOPLE LOOKING AFTER $20B IN ASSETS • Approx 1600 employees & • 15,000 km gas transmission pipelines 1200+ field contractors • 27,300 km gas distribution mains & pipelines • Working in 60 city, regional • Gas storage & proces
Slide 6: What we are about
what we are about infrastructure. success. For personal use only “owner and operator of energy infrastructure underwritten by long term contracts with highly creditworthy counterparties” We’ve responded to the We’re providing customer - We’ve become experts in dynamic gas market by: centric solution
Slide 7: APA's core strategy
APA’s core strategy We’re an ASX 50 company with a clear objective: For personal use only To provide the best return for our Securityholders how we’ll deliver this enhancing our facilitating the portfolio of energy capturing development of pursuing infrastructure energy-related opportunities that st
Slide 8: Gas in a dynamic energy market
gas in a dynamic energy market east coast gas production by field For personal use only Source: APPEA (~2003); EnergyQuest (2004-2015); AEMO (forecast) electricity market drivers – significant changes FY01 electricity generation by fuel FY15 electricity generation by fuel Source: Australian Energy S
Slide 9: We've created a unique set of energy assets & expertise
we’ve created a unique set of energy assets & expertise For personal use only • Interconnected gas transmission pipeline grid: 7,500km on the East Coast, and growing 1,800km into Goldfields region • Integrated Operations Centre (IOC) • Flexible contracts • Complementary gas assets provide option
Slide 10: Delivering long-term sustainable returns to securityholders
delivering long-term sustainable returns to securityholders For personal use only TSR CAGR: 17.6% p.a. over 16 years Distributions CAGR: 4.7% p.a. over 16 years 10
Slide 11: Health, safety & environment
health, safety & environment Safety initiative example - SafeDrive+ program strategic framework For personal use only SafeDrive+ is a structured management program targeting the risks associated with driving compliance themes environment management contractor management fatal risk protocols Safeguar
Slide 12: Diversity & inclusion strategy
diversity & inclusion strategy For personal use only vision Value & harness the unique talents, experiences & perspectives of our people which contribute to strengthening our culture, our brand & sustained business performance 4 key foundation areas inclusive work culture knowledge & collaboration A
Slide 13: Gas market dynamics & growth strategy
section 2 gas market dynamics & For personal use only growth strategy. Ross Gersbach, Chief Executive Strategy & Development 13
Slide 14: Gas supply and demand – Queensland is the key
gas supply and demand – Queensland is the key For personal use only Expected east coast gas supply • Significant uncertainties – mostly on (post LNG ramp-up) the supply side Cooper Other 5% • Meeting east coast gas demand 4% requires substantial continuing drilling plus drilling success by Qld coal
Slide 15: Growth strategy
growth strategy Grow our gas pipelines by expanding existing assets; For personal use only building new assets and via acquisitions Develop a portfolio of wind, solar and gas generation facilities, underwritten by long term offtake contracts Expand Australian mid-stream energy infrastructure portfol
Slide 16: Focusing on the core business is critical
focusing on the core business is critical in this context, we have identified in excess of $5.0B growth capex For personal use only opportunities in our core gas transmission asset portfolio over FY16-30 16
Slide 17: Long list of growth opportunities by distance from core
a long list of growth opportunities was constructed, with varying degrees of distance from the core For personal use only Core Close adjacencies 1 step (“0.5 step”) 2 steps ≥ 3 steps • Natural gas • Non core • Non gas • Other • International transmission, businesses transmission infrastructure other
Slide 18: Non-pipeline growth opportunities
non-pipeline growth opportunities Criteria used to filter the long list: For personal use only • Closeness to the core to increase the odds of execution success • Attractive fundamentals (e.g., large/growing market, attractive returns, value chain disaggregation etc) • Strong investment thesis for A
Slide 19: Midstream opportunity
midstream opportunity • Market has grown to meet LNG gas demand, expected to reach For personal use only 9,600TJ/d capacity by 2030 • Three types of processing & gathering assets: Industry context ― Junior processing: ~2% of market, owned by small cap E&P companies with high risk-return profile ― Do
Slide 20: US due diligence
US due diligence • USA has delivered ~2% p.a. growth in gas production since 2011, driven by For personal use only unprecedented growth in shale gas production (~15% p.a.) that has fundamentally changed the market Industry context • ~$45B growth capex in gas infrastructure assets from 2011-15 with s
Slide 21: Organic pipeline growth
section 3 organic pipeline For personal use only growth. Rob Wheals, Group Executive Transmission 21
Slide 22: Organic pipeline growth opportunities
organic pipeline growth opportunities • $700m pipeline extension and expansions opportunities identified over the short For personal use only term ( ~ 3 years) • Target growth areas: ― Supporting the LNG industry ― Firing up the resources sector ― Bringing new gas supply to market ― Transitioning to
Slide 23: Delivering to customer requirements
delivering to customer requirements For personal use only customers how APA delivers: want: • 1 contract: - multiple services & pipelines Simplicity • 1 invoice “Origin is now able to think differently • 1 APA customer manager about how to best manage our gas portfolio with the new range of transpor
Slide 24: Supporting the LNG industry
supporting the LNG industry MARKET OPPORTUNITY CASE STUDY: RCWP For personal use only • transporting third party gas supply • new 50km 18 inch pipeline, capex $80m • managing interruptions to supply chain • connects APLNG with Wallumbilla Hub • facilitating market opportunities • 300TJ/d bi-directio
Slide 25: Firing up the resources sector
firing up the resources sector MARKET OPPORTUNITY CASE STUDY : EGP For personal use only • competitive supply - electricity • new 293km 8 inch pipeline, capex $140m generation • extends GGP, total distance 1800 km • managing process plant interruptions • delivers gas to Tropicana, Sunrise Dam & • re
Slide 26: Bringing new gas supply to market
bringing new gas supply to market MARKET OPPORTUNITY CASE STUDY : COMET RIDGE For personal use only • new infrastructure connecting gas • non-binding MOU - deliver gas to supply with existing pipeline system market • cost competitive access to • explore pipeline & midstream market(s) infrastructure
Slide 27: Transitioning to renewables
transitioning to renewables MARKET OPPORTUNITY CASE STUDY : SA ELECTRICITY MARKET For personal use only • gas as transition fuel • reliance on wind (40%), shutdown of coal/gas • managing the peak • perfect storm: 7 July 2016 • security of supply • gas brought back on! APA RESPONSE FUTURE OPPORTUNITI
Slide 28: Enabling gas market liquidity
enabling gas market liquidity MARKET OPPORTUNITY CASE STUDY : WALLUMBILLA HUB UPGRADE For personal use only • gas trading hubs • de-bottlenecking , capex < $20m • improves flexibility & use of • removal of physical constraints compression facilities • pipeline flexibility • increases capacity of hub
Slide 29: Summary
summary Continued innovation & investment to meet customer requirements For personal use only Pipelines playing a key role in domestic and now LNG gas markets $700m pipeline extension and expansions opportunities identified Supplying gas to Origin’s Uranquinty Power Station in NSW 29
Slide 30: Power generation
section 4 power For personal use only generation. Sam Pearce, Group Executive, Networks & Power (from 1 December 2016) 30
Slide 31: Power assets – existing footprint
power assets – existing footprint For personal use only Thermal Generation • DPS/LPS (302MW) • X41 (42MW)* • Daandine (33MW)* Renewable Generation • EDWF (80MW) • NBHWF (132MW)* Transmission • Directlink (168MW)* • Murraylink (220MW)* * Part owned • power generation portfolio of significant scale, f
Slide 32: APA's power portfolio against changes in the power generation sector
APA’s power portfolio has developed against the backdrop of changes in the power generation sector For personal use only 2009 2011 2011 2014 2016 2016 EII 132MW APA 80MW DPS/LPS DPS/LPS 100% DPS EDSF: ARENA Halllet 4 EDWF Announced Commissioned Acquired Funding Acquisition Acquisition 302MW 2012 201
Slide 33: Case study - Diamantina and Leichhardt Power Stations
case study - Diamantina and Leichhardt Power Stations • Efficient gas fired generation For personal use only • Long term contracts in place for: MIM and Ergon – each to 2030 OEM for major maintenance Gas supply to 2023, with gas supply obligation reverting to electricity offtaker after then •
Slide 34: Renewable generation is a growing sector
renewable generation is a growing sector WIND GENERATION For personal use only WIND CAPACITY GROWTH OF ~36% P.A. ONLY 5% OF NEM IN 2015 Wind power installed capacity in Australia (MW) 2015 Electricity generation by source in NEM (Gwh) • wind has been the most successful over the past 15 years, but i
Slide 35: Government policy expected to continue to drive renewable generation
government policy expected to continue to drive renewable generation development RET TARGET 33,000GWH REQUIRES ADDITIONAL ~7600MW RENEWABLES For personal use only Exact mix of solar/wind will depend on speed of solar cost reduction. Expect more wind to be added earlier, and solar later. Target by Na
Slide 36: Case study – Emu Downs Solar Farm
case study – Emu Downs Solar Farm • EDSF generation profile expected to For personal use only complement EDWF • Transmission connection is de-risked and cost efficient as it utilises EDWF • Total capex of ~$50m, ARENA funding of $5.5m. • Long term offtake arrangements being finalised Key Statistics
Slide 37: Power generation current opportunities
power generation current opportunities • Gas fired generation opportunities in WA, NT, QLD aimed at stand alone For personal use only customer requirements • APA also has a large potential gas fired NT generation site in Vic Gas fired: (Wollert), proximate to ~ 50 – 100MW electricity transmission QL
Slide 38: Capital management
section 5 capital For personal use only management. Ian Duncan, General Manager Capital Markets 38
Slide 39: Debt maturity profile
debt maturity profile • APA maintains a diverse range of funding sources and a long-dated spread of maturities For personal use only • $10 billion of bond issues, loans and headroom, comprising: - bank facilities, AMTN, EMTN (EUR, GBP, CAD, JPY), 144A, USPP & ASX listed sub-notes (hybrids) Notes: -
Slide 40: Balance sheet
balance sheet • APA’s debt portfolio has grown in step with growth in its Total Assets For personal use only • Gearing in the range of 65% - 68% results in metrics consistent with maintaining stable BBB and Baa2 credit ratings Metrics Jun 2016 Jun 2015 Gearing (per bank compliance certificate) 66.4%
Slide 41: Business-as-usual funding
business-as-usual funding • BAU debt raising over the next several years will focus on: - refinancing maturing US Private Placement notes in long term public markets; & For personal use only - terming out bank borrowings in those markets as benchmark parcels of drawn loans accrue 41
Slide 42: Risk management culture
risk management culture • APA’s Treasury & Risk Management Policy (“policy”) addresses: For personal use only ― risk appetite and risk limits (interest rate, foreign exchange, counterparty exposure, liquidity & refinancing risks, et al) ― hedging approaches ― governance principles such as reporting
Slide 43: Credit ratings
credit ratings • Continuously stable ratings from S&P and Moody’s since initiation in 2009 & 2010 respectively For personal use only • Ratings components: ― Business Risk: “EXCELLENT” classification: large and diverse portfolio of quality gas pipelines and energy infrastructure assets long-term
Slide 44: Distribution policy
distribution policy • Securityholder distributions are funded fully from Operating Cash Flow For personal use only • Grow generally in line with Operating Cash Flow • Regard for capital needs of the business and economic conditions • Sustainable over the long term Normalised operating cash flow Dist
Slide 45: Investment discipline
investment discipline • Capital expenditure and acquisitions are funded with an appropriate mix of cashflows retained in the business; equity; and debt, to comfortably maintain BBB/Baa2 credit For personal use only ratings • At mid points of FY17 guidance, EBITDA less funding costs and distributions
Slide 46: Debt facilities
debt facilities • Total committed debt facilities at 31 October 2016 For personal use only A$ million Facility Drawn Tenor amount amount 2015 & 2016 Bilateral bank facilities 550 30 2 to 5 year facilities maturing between May 2018 to May 2021 2015 Syndicated bank facilities 830 622 2.25, 3.25 and 5.
Slide 47: Morning tea
morning tea For personal use only recommence at 11am 47
Slide 48: East coast grid
section 6 east coast For personal use only grid. Ivan Byak, General Manager Commercial East Coast 48
Slide 49: Development of transmission services
development of transmission services 1969 - 2011 2012 - 2015 2016 & beyond For personal use only single asset multi asset multi asset & grid service • Single asset • East Coast Grid • Customer Gas Portfolio • Single direction • Linking of assets • Management of gas • Multiple GTA’s • Standard GTA’s
Slide 50: Multi asset services
multi asset services Old contract Contracts today For personal use only • Underwritten by firm contracts • Underwritten by firm contracts • Typically capacity + throughput • Flexibility • Point to point • Storage • No flexibility • In-pipe trades • Capacity trading Benefits • IOC managed for custome
Slide 51: What the future looks like – grid services
what the future looks like – grid services Currently engaged in: • customer engagement For personal use only • prototyping Key objectives • Simplicity reduced nominations • Flexibility and Optionality access to any receipt / delivery point combination • Transparency supports informed decision making
Slide 52: Types of services
For personal use only types of services 52
Slide 53: MSP update
MSP update For personal use only Moomba Moomba TO Dec 2015 Sydney Sydney Pipeline Pipeline Sydney markets Southern Flow reversal skid connects to pipeline for bi-directional flows 53
Slide 54: APA's submission to the Vertigan Review on gas pipeline coverage criteria
section 7 APA’s submission to the For personal use only Vertigan Review on gas pipeline coverage criteria. Nevenka Codevelle, Company Secretary & General Counsel 54
Slide 55: Vertigan Review - how we got here
Vertigan Review - how we got here April 2015 ACCC commences 12 month East Coast Gas Inquiry (ECGI) following For personal use only request by Commonwealth given concerns as to sufficiency of gas supply April 2016 ECGI Report released Aug 2016 CoAG considers report and asks Dr Michael Vertigan to con
Slide 56: APA submission - key points
APA submission - key points APA RESPONSE: For personal use only ACCC Monopoly pricing PROPOSITION: claim is CEG Economics FLAWED Widespread Impact of lower monopoly tariffs on delivered CEG Economics pricing price of gas is UNCLEAR resulting in inefficient Cost of increased outcomes regulation and j
Slide 57: Pipelines have delivered – innovation and investment
Pipelines have delivered – innovation and investment since 2000 …enabling optimised efficient use of network of assets and innovative service delivery For personal use only service availability industry $30bn reliability flexibility APA supporting a trebling of demand $12bn+ $120m - $150m sin
Slide 58: Pipeline tariffs - impact on gas prices
pipeline tariffs - impact on gas prices • Transmission pipeline tariffs make up 5-10% of the delivered price For personal use only of gas for retail customers • Gas transmission charges have not increased in real terms year on year since 2002 notwithstanding a 65% increase in delivered gas price in
Slide 59: Pipeline tariffs are outworkings of competitive process or regulation
pipeline tariffs are outworkings of competitive process or regulation South West Queensland Pipeline (SWQP) • Tariffs are outworkings of a For personal use only Carpentaria Gas Pipeline (CGP) number of competitive • Light regulation pipeline processes over many years • Constructed 1997, competitive
Slide 60: ACCC findings of monopoly pricing are flawed
ACCC findings of monopoly pricing are flawed For personal use only • ACCC accepts active competition for pipeline development with shippers securing competitive price outcomes • ACCC relies on 3 flawed propositions: 1. excessive rates of return on incremental projects 2. pricing for ancillary servic
Slide 61: Flawed ACCC position - detail
flawed ACCC position - detail incremental project returns For personal use only minor ancillary services older pipelines • Some perspective – in • Ancillary services made up • ACCC assertion that aggregate, the 6 APA less than 0.5% of APA’s total once the construction projects account for less reven
Slide 62: Coverage test
coverage test • Since Hilmer in 1993, three reviews by Productivity Commission (2013, 2004 and 2001) and the Harper Review (2015) – no substantive change recommended For personal use only • ACCC asserts the current test does not deal with monopoly pricing, non vertically integrated industries and in
Slide 63: Consequence of ACCC's test is uncertainty
consequence of ACCC’s Test is uncertainty… stymies investment For personal use only ACCC acknowledges dampening effect of regulation on investment and innovation Current alignment between the gas pipeline coverage test and general National Access Regime would be broken Would lose 20 years of establi
Slide 64: A final word
a final word • Industry has delivered for the market – unrivalled record of investment and innovation For personal use only • ACCC claims of monopoly pricing are flawed, no case for change to current coverage test • ACCC test would destroy investment and innovation, at a time when particularly neede
Slide 65: General regulatory update
section 8 general regulatory For personal use only update. Peter Bolding, General Manager Strategy & Regulatory 65
Slide 66: Gas market development
gas market development For personal use only In response to the fundamental changes in the East Coast gas market a package of gas market changes has been initiated by the Council of Australian Governments Energy Council at its August 2016 meeting The package of changes addresses ― Gas Supply ― Marke
Slide 67: Gas market – changes proposed
gas market – changes proposed For personal use only • Market operation establish two trading hubs for gas commodity: o a physical Northern Trading Hub at Wallumbilla o a virtual Southern Trading Hub over the VTS • Gas transmission pipelines capacity auctioning for contracted but un-nominated cap
Slide 68: Gas market – implementing the changes
gas market – implementing the changes • Reforms to be implemented by Gas Market Reform Group (GMRG), headed by Dr For personal use only Michael Vertigan, and supported by dedicated project team • GRMC to consult with stakeholders (industry, consumers, governments), and stakeholders to be represented
Slide 69: AEMC review of the Victorian declared wholesale gas market
AEMC review of the Victorian declared wholesale gas market • AEMC draft final report was released 21 October 2016 For personal use only • AEMC recommends: a new Southern Hub model where gas trading would occur on a voluntary, continuous basis (in contrast to current mandatory pool) a mandatory,
Slide 70: Roma Brisbane Pipeline access arrangement
Roma Brisbane Pipeline access arrangement • Next access arrangement period 1 July 2017 – 30 June 2022 For personal use only • LNG projects have resulted in changes in gas flows in the region midline injections from CSG fields are becoming more prominent changes in the Brisbane and power generati
Slide 71: Victorian transmission system access arrangement
Victorian transmission system access arrangement • Next access arrangement period 1 January 2018 – 31 December 2022 For personal use only • Revision proposal due 1 January 2017 Preparation of proposal is well advanced • AEMO forecasts some reduction in gas demand in Victoria However, APA experie
Slide 72: Questions?
For personal use only questions?
Slide 73: Thank you
For personal use only thank you.
Slide 74: For further information contact
For personal use only For further information contact: Name Yoko Kosugi Title Head of Investor Relations Tel +61 2 9693 0049 E-mail yoko.kosugi@apa.com.au Or visit the APA website at: www.apa.com.au