Origin Energy Limited · ASX:ORG
Origin Energy — H1 FY2009 Earnings Presentation
68 slides from Origin Energy's earnings presentation, Feb 26, 2009
Slide 1: Interim Results Announcement Half Year Ended 31 December 2008
Interim Results Announcement Half Year Ended 31 December 2008 26 February 2009 1
Slide 2: Important Notice
Important Notice This presentation does not constitute investment advice, or an inducement or recommendation to acquire or dispose of any securities in Origin, in any jurisdiction (including the USA). This presentation is for information purposes only, is in a summary form, and does not purport to b
Slide 3: Outline
Outline • Performance Highlights • Financial Review • Operational Review • Outlook 3 3
Slide 4: Performance Highlights
origin energy - Performance Highlights
Slide 5: ConocoPhillips' investment in CSG assets has driven a Statutory Profit of $6.7 billion
ConocoPhillips’ investment for a 50% interest in Origin’s CSG assets has driven a Statutory Profit of $6.7 billion for the half year… • Rejected BG Group’s takeover offer • Conducted CSG monetisation process • Established Australia Pacific LNG (APLNG) with ConocoPhillips to develop Australia’s large
Slide 6: Origin continued to build its existing energy business; Underlying Profit up 38%
Origin has continued to build its existing energy business during the first half with Underlying Profit up 38% to $277 million… Revenue $4,216 million up 10% EBITDAF $686 million up 12% Statutory Profit $6,663 million up 1891% Underlying Profit $277 million up 38% EPS – Statutory 761.0 cps up 1887%
Slide 7: Origin continued to grow its existing business in a challenging environment
As the operating and economic environment for businesses becomes more challenging, Origin has been able to continue to grow its existing business… • Full half year contribution from Otway Gas Project • Continued development of New Zealand business with full half year contribution from Taranaki Basin
Slide 8: Origin is in an unparalleled position to grow with $6.4 billion of cash and facilities
Origin is now in an unparalleled position to continue to grow and develop its business with access to $6.4 billion of cash and undrawn committed debt facilities and substantial additional balance sheet capacity… Source: Origin Source: Origin Note: Excluding Contact • Conservative debt maturity profi
Slide 9: Financial Review
u rgin - Financial Review
Slide 10: Profit & Loss - Statutory
Profit & Loss - Statutory ($ million) Dec 08 Dec 07 Change Revenue 4,216 3,817 10% EBITDAF(1) 686 614 12% EBIT 7,590 634 1098% Net financing costs(2) (95) (104) (9)% Tax expense (676) (146) 363% Minority Interests (16) (49) (68)% NPAT – Statutory 6,663 335 1891% EPS – Statutory 761.0 cps 38.3 cps 18
Slide 11: Profit & Loss - Underlying
Profit & Loss - Underlying ($ million) Dec 08 Dec 07 Change Statutory NPAT 6,663 335 1891% Significant items Changes in fair value of financial instruments (102) Impairment of assets (217) Net Impact of APLNG Transaction 6,706 Total significant items 6,386 (134) Underlying NPAT 277 200 38% Underlyin
Slide 12: Movements in fair value of financial instruments
Movements in fair value of financial instruments Reconciliation of Balance Sheet and Income Statement items associated with financial instruments movements ($ million) Dec 08 Change in net assets (420) Recognised in the Balance Sheet (242) Recognised in the Equity Hedge Reserve (post tax) (165) Reco
Slide 13: Review of asset carrying values has led to impairments
A review of the carrying value of assets has led to asset impairments including producing assets impacted by the decline in oil price… Impairment ($ million) Assets Pre-tax Post-tax Cooper Basin Assets 71 50 BassGas Assets 66 46 Perth Basin Assets 16 11 Heytesbury Gas Storage 20 14 Existing Retail S
Slide 14: Equity accounting method for investment in APLNG
Origin will use the equity accounting method for its investment in APLNG The equity accounting treatment to be used on the Income Statement in relation to APLNG will include: • The EBITDAF contribution of 50% interest in APLNG recorded at the EBITDAF line on consolidation within the Exploration and
Slide 15: APLNG Balance Sheet
APLNG Balance Sheet ($ billion) Dec 08 Receivables from Shareholders 0.8 Other current assets 0.2 Current Assets 1.0 Receivables from Shareholders 7.9 Property, plant & equipment(1) 1.0 Other non-current assets 0.2 Non-Current Assets 9.1 Total Assets 10.2 Total Liabilities (0.2) Net Assets 10.0 Orig
Slide 16: Gain on APLNG transaction
Gain on APLNG transaction ($billion) Dec 08 Pre-Completion Increase in cash 6.9 - 50% equity accounted investment in APLNG 5.0 - Discounted payable to APLNG (3.3) 1.7 - Consolidation of APLNG (formerly known as OECSG) - 1.0 Tax payable on transaction (0.8) Total 7.8 1.0 Movement in Balance Sheet 6.8
Slide 17: APLNG transaction has transformed Origin's Balance Sheet
APLNG transaction has transformed Origin’s Balance Sheet ($ billion) Dec 08 Jun 08 Cash 4.1 0.1 Other Current Assets 2.1 2.4 Total Current Assets 6.2 2.5 Investment in Equity Accounted Investees 5.0 - Other Non-Current Assets 10.8 10.0 Total Non-Current Assets 15.8 10.0 Tax Payable (0.9) (0.1) Other
Slide 18: APLNG transaction has provided substantial funding capacity
APLNG transaction has provided Origin with substantial funding capacity… As at 31 December 2008 Undrawn Available Adjusted Committed Funding (1) (2) (1) Gross Debt Cash Debt Facilities Capacity Source: Origin … with cash and undrawn committed debt facilities of $6.4 billion (1) Net Cash/(Debt) exclu
Slide 19: EBITDAF of $686m is up 12%
EBITDAF of $686m is up 12% primarily due to growth in the Retail and Exploration & Production segments Segments ($ million) Dec 08 Dec 07 Change Exploration & Production 175 133 32% Generation 21 33 (34)% Retail 300 201 49% Contact 190 248 (24)% Total 686 614 12% Note: Corporate costs of $51m have b
Slide 20: Depreciation & Amortisation
Depreciation & Amortisation ($ million) Dec 08 Dec 07 Generation property, plant and equipment 59 65 Non-generation property, plant and equipment 79 62 Amortisation in producing areas (1) 50 42 Other 1 2 Total 189 171 • Higher depreciation and amortisation resulting from: Otway Gas Project include
Slide 21: Interest
Interest ($ million) Dec 08 Dec 07 Interest revenue 55 6 Net Financing costs 95 104 Unwinding of discount on provisions (13) (7) Unwinding of discounted liability payable to APLNG (35) - Net interest expense 48 97 Capitalised interest 60 24 Net interest expense + capitalised interest 108 121 Net int
Slide 22: Tax Reconciliation
Tax Reconciliation ($ million) Dec 08 Dec 07 Profit before tax 7,355 530 Prima facie tax 2,207 163 less non-assessable gain on APLNG transaction (1,501) - less recognition of change in net loss position (14) (2) less share of net profit after tax of associates (14) (1) less other (2) (14) equals Tax
Slide 23: Capital Expenditure
Capital Expenditure ($ million) Dec 08 Dec 07 Stay-in-business 115 70 Growth Exploration & Production 286 305 Retail 59 38 Generation 556 240 Contact 129 56 Total capital expenditure 1,144 708 Acquisitions (net of cash) 131 6 Capex including acquisitions 1,275 714 • Growth capex has risen with the s
Slide 24: Operating Cash Flow
Operating Cash Flow ($ million) Dec 08 Dec 07 EBITDAF 686 614 Equity Accounted Investees (EBITDAF less dividends) (14) (9) Exploration Write-Off 4 16 Change in working capital (51) (61) Stay-in-business capex(1) (115) (70) Other (29) (23) Tax paid (117) (83) OCAT 363 385 Net interest paid (147) (126
Slide 25: Segment Cash Flow & Cash Flow Returns
Segment Cash Flow & Cash Flow Returns Operating Av. Funds OCFR (%)(2) Cash flow(2) Employed(3) ($m) ($m) Dec 08 Dec 07 Exploration & Production(1) 305 1,267 24.0 22.9 Generation 37 294 12.7 30.3 Retail 369 2,402 15.4 9.2 Contact Energy 319 3,444 9.3 11.2 • E&P: Increased operating cash flows followi
Slide 26: On-market share buyback of up to $1.275 billion
Origin announced that on completion of the APLNG transaction it would undertake an on-market buyback of shares of up to $1.275 billion Share Buyback Activity Shares purchased to date 12.1 million Average price paid $16.11 per share Total consideration $195 million • The buyback commenced on 13 Novem
Slide 27: Fully franked interim dividend of 25 cps declared
A fully franked interim dividend of 25 cps (up 108%) has been declared… Dividends History 50 • Ex-dividend date 3 March 2009 • Date of record 10 March 2009 40 25 • Payable 25 March 2009 cents per share • Dividend payout ratio of 79% of 30 Underlying EPS, or 3% of Statutory EPS 20 • Dividend Reinvest
Slide 28: Operational Review
Operational Review 28
Slide 29: Executive Management Team reorganised
The Executive Management Team of Origin has been reorganised to best reflect the challenges and opportunities for our existing business… … and to continue the development of a stable and effective management team and to target new opportunities for growth 29 29
Slide 30: Exploration & Production
Exploration & Production 30
Slide 31: Record Production, Sales and Revenue
Exploration & Production: Record Production, Sales and Revenue reflect contributions from new assets… • EBITDAF of $175m up 32% with increased 400 400 production from Otway Gas Project, Taranaki Dec-08 assets and CSG partially offset by lower 350 Dec-07 350 Total Revenue & EBITDAF ($m) production fr
Slide 32: Gas production increased
Gas production increased on contributions from the Otway Gas Project and Taranaki Basin… • Otway Gas Project provided first full half year of production, operating reliably at or around peak design rates during high winter seasonal demand • Taranaki assets provided first full half production, althou
Slide 33: Liquids production grew significantly
Liquids production grew significantly during the half with contributions from new projects and the Cooper oil program… • The Cooper Oil Program has delivered incremental growth to Cooper oil production • Perth Basin production continues to decline • First full six month contribution from both Tarana
Slide 34: Oil to condensate price spread widened
The oil to condensate price spread widened abruptly in the December half coinciding with both the decline in oil price… • Residual exposure to benchmark spreads impacted H1 realised prices due to extreme oil price volatility and shifts in supply/demand patterns • The average price received for crude
Slide 35: Establishment of APLNG is progressing well
Establishment of APLNG is progressing well APLNG Established • Origin & ConocoPhillips senior executives appointed to APLNG Board • Board has appointed Project Director, Chief Financial Officer, Commercial Manager and LNG Marketing Manager • Initial Advice Statement seeking significant project statu
Slide 36: APLNG continues strong growth in CSG production and reserves
APLNG continues strong growth in CSG production and reserves… Source: Origin APLNG’s CSG Interests(1) (PJ) 30 Jun 2008 31 Dec 2008 Change(2) Increase 1P Reserves 1,375 1,527 + 152 + 11% 2P Reserves 4,751 5,482 + 731 + 15% 3P Reserves 10,138 11,110 + 972 + 10% Contingent Resource (2C) 15,869 14,964 -
Slide 37: APLNG has a leading CSG reserves position
APLNG has a leading CSG reserves position… Eastern Australia 2P CSG Reserves by Company Eastern Australia 3P CSG Reserves by Company Source: RLMS Eastern Australia CSG Reserves 19/2/09, updated for APLNG’s reserves position announced on 26/2/09 … both on a 2P and 3P basis 37 37
Slide 38: Kupe Gas Project and Ahuroa Gas Storage update
With the next phase of APLNG’s CSG development to be funded by ConocoPhillips, and a number of development projects nearing completion… Kupe Gas Project • Offshore operations were successfully completed early in the half year • Project is 90% complete with commercial operations expected to commence
Slide 39: Exploration program reviewed and exposure reduced
Origin has reviewed its exploration program and reduced exposure by surrendering areas assessed to have low prospectivity… Kenya Origin surrendered one permit and renegotiated work program on Block L8 to acquire 300 sq km of 3D seismic instead of a drilling a well. Farminees will be sought to fund t
Slide 40: Significant exploration opportunities to be drilled over the coming year
Notwithstanding the review of exploration opportunities and expenditure… An active seismic exploration program is being undertaken in New Zealand, including 2D surveys in the Northland and Canterbury basins, and a large 3D survey over the prospective Carrack and Caravel prospects and is close to com
Slide 41: Generation
Generation 41
Slide 42: Generation: EBITDAF lower due to Worsley plant outage
Generation: EBITDAF was lower primarily due to the Worsley plant outage… 50 600 • EBITDAF was $21 million, $11 million lower Dec-08 than the prior half year 45 Dec-07 540 • The Worsley cogeneration plant in WA had Total Revenue & EBITDAF ($m) 40 480 an extended outage after a power turbine failure i
Slide 43: Plant Performance
Plant Performance Generation Plant Type Availability Ladbroke Merchant 86% Quarantine Merchant 79% Roma Merchant 60% Mt Stuart Merchant 98% Bulwer Island Contract 98% Osborne Contract 97% Worsley Contract 30% • Earnings impacted mainly by major turbine failure at Worsley. An insurance claim is to be
Slide 44: Gas-fired fleet well placed in a carbon-constrained environment
Origin’s fleet of gas-fired power stations is well placed to benefit in a carbon-constrained environment… • Addition of Uranquinty and Quarantine expansion has more than doubled Origin’s generation equity interests to 1,465 MW • Origin has committed to build an additional 1,340 MW of power generatio
Slide 45: Doubling generation capacity as price volatility increases
Origin is doubling the capacity of its generation fleet at a time when electricity price volatility is increasing… … and higher forward prices provide significant 45 opportunities Source: NEMMCO, AFMA & Origin 45
Slide 46: Uranquinty and Quarantine Power Stations
Uranquinty Power Station is now completed and fully operational… All 4 completed Uranquinty PS turbines New unit at Quarantine PS Uranquinty Power Station Quarantine Power Station Expansion • 640 MW Peaking Plant (4 x 160 MW OCGT) • 120 MW expansion (1 x 120 MW OCGT) • Located near Wagga Wagga, New
Slide 47: Darling Downs and Mortlake Power Stations
Darling Downs Power Station is progressing well… Darling Downs PS Turbine Building steel erection Impression of Mortlake PS once constructed Darling Downs Power Station Mortlake Power Station • 630 MW Base Load plant • 550 MW Peaking plant • Largest CCGT plant in Australia • Expected to be completed
Slide 48: Renewable energy options: wind, geothermal, solar
Origin also continues to develop a number of renewable energy options… Wind • Construction of the 30 MW wind farm at Cullerin Range is well progressed with commissioning expected in mid-2009 • Origin has development sites for another 58 MW and an option over up to 500 MW of wind farm development sit
Slide 49: Retail
Retail 49
Slide 50: Retail: EBITDAF grew by $99 million to $300 million
Retail: EBITDAF grew by $99 million to $300 million. Higher gas and electricity revenues were realised following tariff increases in the prior period leading to a very strong first half… 3,500 350 • EBITDAF grew by $99 million or 49% from $201 Dec-08 million to $300 million 3,000 Dec-07 300 • Cost t
Slide 51: Tariff increases led to increased gas and electricity revenues
Tariff increases in the prior period led to increased revenues for gas and electricity… Performance Metrics and % Natural Gas Electricity LPG change from Dec 07 (1) Product Revenue ($m) 539 +12% 1,972 +12% 353 +22% Gross Profit ($m) 89 +46% 377 +46% 73 +18% EBITDAF ($m) 291 +64% 8 -65% Underlying EB
Slide 52: Margin expansion from higher tariffs and lower purchasing costs
Tariffs were higher and purchasing costs of electricity were lower than in the prior corresponding period resulting in significant margin expansion… Source Electricity Chart: NEMMCO, AFMA & Origin Source Gas Chart: Origin and VENCorp … however the wholesale cost of energy is expected to be substanti
Slide 53: Gross margin and EBITDAF per customer up significantly
Gross margin and EBITDAF per customer up significantly as tariff increases from prior period flow through… Gas & Electricity Customers Dec 08 Dec 07 Customer numbers (’000) 2,613 2,678 EBITDAF / Sales 11.6 % 7.9 % Underlying EBIT / Sales 10.9 % 7.3 % $ Per Customer (Half Year): Gross Margin / Custom
Slide 54: Origin acquired over 238k new accounts to maintain customer numbers
Origin acquired over 238k new accounts to maintain customer numbers December 2008 Origin Customer Numbers(1) Natural (000’s) Electricity Total Gas Jun 2008 880 1,729 2,609 Change -2 +7 +4 Dec 2008 878 1,735 2,613 • Opening customer numbers revised (-45k) following customer data review as part of sys
Slide 55: Wipro Technologies and SAP selected as preferred partners
Origin has selected Wipro Technologies and SAP as its preferred partners for the next step in evolution of the Retail business… • Wipro Technologies, the global IT services business of Wipro Limited (NYSE:WIT) and global software vendor SAP have been selected as the preferred partners in a program t
Slide 56: Active margin management and LPG result
Active margin management has strengthened underlying customer margins… Average Australian Dollar Propane Price • EBITDAF down 65% to $8m as the 1200 rapid depreciation of the Jan to Jun 08 Jul to Dec 07 A$921 Jul to Dec 08 Australian dollar resulted in the A$759 A$823 booking of significant foreign
Slide 57: Contact Energy
u rgin - Contact Energy 57
Slide 58: Contact Energy: earnings reduced by weather and transmission constraints
Contact Energy: While earnings were significantly reduced due to the combined impact of weather conditions and transmission constraints… • EBITDAF was $190m, 24% lower than the prior half 3000 300 year primarily due to an unusual combination of Dec-08 weather events and transmission constraints Dec-
Slide 59: Transmission constraints
Overview of transmission Transmission constraints affecting half year constraints performance • Two high voltage DC cables (Poles 1 & 2) connect the North and South Islands • Pole 1 was unexpectedly removed from Transmission service in Nov 07 resulting in the islands constraints north operating as s
Slide 60: South Island drought conditions constrained generation
Early in the half year South Island drought conditions constrained Contact’s ability to generate electricity and resulted in Contact paying more for its purchases of energy for its retail customer base than it was earning for its generation… Wholesale prices South Island Source: Contact Energy rise
Slide 61: Contact projects committed for development
Contact has a number of projects committed for development with substantial additional opportunities, particularly in geothermal generation • Gas-fired peaking plant Construction of 200 MW of peaking capacity at Stratford, Taranaki well advanced. Operational in 2010 • Gas storage First stage und
Slide 62: Outlook
u rgin ~ Outlook 62
Slide 63: Second half expected to be more challenging than the first half
The second half of the financial year is expected to be more challenging than the first half • Lower margins in the Retail business due to higher wholesale electricity costs, although margins for the full year are expected to be consistent with the prior year • Future well commitments replaced by le
Slide 64: Major projects expected to contribute after the current financial year
Origin will continue to progress the development of several major projects which are expected to make contributions following the end of the current financial year… • Construction of the 30 MW Cullerin Range wind farm in New South Wales which is due for completion in mid 2009 • The Kupe Gas Project
Slide 65: Strategy as a fuel-integrated generator retailer creates opportunities
Origin’s strategy as a fuel-integrated generator retailer will continue to create opportunities for the existing business and APLNG creates a major opportunity for growth and access to international markets Source: Origin Source: Origin Note: Excluding Contact With access to $6.4 billion of cash and
Slide 66: Further Information
Further Information Investors Angus Guthrie Manager, Investor Relations Email: angus.guthrie@originenergy.com.au Office: +61-2-8345 5558 Mobile: + 61-4-1786 4255 Website www.originenergy.com.au 66 66
Slide 67: Appendix
Appendix 67
Slide 68: Reserves Statements
Reserves Statements • The information in this Reserves Statement has been compiled by Tim Scholefield, a full-time employee of the Company. Tim Scholefield is qualified in accordance with ASX listing rule 5.11 and has consented to the form and context in which this statement appears. • The 2008 asse