Contact Energy Limited · NZX:CEN
Contact Energy — Investor Day (March 2007)
117 slides from Contact Energy's investor day presentation, Mar 27, 2007
Slide 1: Origin Energy cover note: Contact Energy investor presentations
Origin energy To Company Announcements Office Facsimite 1300 300 021 Company Australian Stock Exchange Limited Date 27 March 2007 From Bill Hundy Pages 117 Subject CONTACT ENERGY INVESTOR PRESENTATIONS Attached herewith is a copy of an announcement released to the New Zealand Stock Exchange by Conta
Slide 2: Investor presentation slides available
o COnTactT 27 March 2007 Investor presentation slides available Slides from Contact Energy's investor presentations to be given today in Taupo are now available under the Investor section of the Contact website www.contacteneray.co.nz. Jonathan Hill Communications Manager 04 462 1285 CONTACT ENERGY
Slide 3: Chief Executive Introduction
contract Chief Executive Introduction Presentation to Investors Taupo 27 March 2007 - a COnTaCT
Slide 4: Disclaimer
Disclaimer contract These presentations may contain projections or forward looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-l
Slide 5: Introduction
Introduction contract
Slide 6: Agenda — Tuesday March
Agenda — Tuesday 27 March Tues 10.30am Chief Executive Introduction David Baldwin 11.00am NZ Energy Strategy Bruce Parkes 12.00pm Fuels Update Liz Kelly/Mark Trigg 1.00pm Lunch 2.00pm Rockgas Liz Kelly/ Mark Trigg 3.00pm Break 3.20pm Geothermal David Thomas, Ted Montague, Murray Stanley 5.00pm Chief
Slide 7: Agenda — Wednesday March
Agenda — Wednesday 28 March Wed 7.15am Check out of hotel and be ready to depart All 7.45am Bus departs for offsite and travels to Ohaaki David Thomas, Murray Stanley, and Tauhara Ted Montague 9.15am Wairakei steam field David Thomas, Murray Stanley, Ted Montague 9.55am Bus drives back to Wairakei f
Slide 8: Strategy Overview
Strategy Overview contract
Slide 9: Overview of industry and Contact
Overview of industry and Contact A Growing Market A Growing Company * Demand for electricity and LPG has grown + Contact's earnings have grown around 10% over 2% p.a. over the last 20 years p.a. since listing in 1999 * Gas demand has fallen as larger industrial + At listing, Contact had around 485,0
Slide 10: Business strategy
Business strategy * Over the next 5 years Contact’s primary opportunities lie in: — leveraging opportunities in a carbon constrained market — developing and executing renewable generation options — optimising the value of the integrated business model ~ maximising the value of the customer base - de
Slide 11: Benefits of the integrated energy strategy
Benefits of the integrated energy strategy a0 * Operating cashflow per share has mOCFPS) . 66 increased at a CAGR of over 20% 707 mEPS p.a. 6p 4 GDPS 50 49 + EPS is 60% higher than at listing at “4 42cps 40 8 30 + — Since listing Contact has delivered a g 30 oom bs >» be E E total shareholder return
Slide 12: NZ Energy Strategy and Other Regulatory Issues
NZ Energy Strategy and Other Regulatory Issues Presentation to Investors Taupo 27 March 2007 - a COnTaCT SG conract
Slide 13: Disclaimer
Disclaimer These presentations may contain projections or forward looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking st
Slide 14: Contact's positioning on climate change
Contact’s positioning on climate change + Our belief - climate change is being driven by human activity - the cost of doing nothing is less than the cost of taking action * Contact will take a leadership position on the issue - regarding climate change as a business opportunity not a threat + Our di
Slide 15: The industry challenge — reduce electricity sector emissions by 40 per cent
The industry 40 per cent challenge — reduce electricity sector emissions by 40 per cent within seven years + Our challenge to the sector — we hope other players will take it up as well + This challenge is at the heart of our NZES submission and our positioning on climate change * Can be achieved by
Slide 16: How emissions reduction can be achieved
ieved be ach ton tin emissions can How 40 per cent reduct Forecast CO2 Emissions from Thermal Generation (million tonnes per year) m@ Coal & Gas &] Geothermal | Committed projects Possible projects that are economic 12 5 {ABojoupAy ueaul | 40) peisnlpe) pi ser0z sand ZOD 0Z$ UM se|qemousl mau [eUONI
Slide 17: New capacity will be needed around 2012/13
New capacity will be needed around 2012/13 GWhorMW Supply vs Demand:Firm peak capacity (MW) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 ~ © Pm OD - WN MO fF MH oO KF DBD DR OD Oo Oo Oo _ — — - - _— — — - _ N So O02 G6 0909 00909 9 839 892 292 09090 09 9 AN NAN AN ANN NNN NN NN N AN
Slide 18: There is a window until 2012/13 to develop new renewables
There is a window until 2012/13 to develop new renewables + To bring on renewables in this timeframe needs certainty and support on RMA consenting + We can deliver Te Mihi in 2011 and Tauhara in 2012 with cail-in of at least the Tauhara consent + We have had positive discussions with Government on c
Slide 19: Pricing carbon is the most important policy area
Pricing carbon is the single most important policy area for the Government we conract We support rapid development of a cap and trade system by 2009 We advocate auctioning not grandfathering of consents for generators While the policy can start with electricity generation/stationary energy it must b
Slide 20: Contact's customer challenge on emissions
Contact’s customer challenge - help our customers reduce their emissions by one million tonnes by 2014 . . we conract We are starting with a 2007/08 target to reduce customer emissions by 50,000 tonnes Programme of customer offers around energy efficiency Part of an overall strategy to make joining
Slide 21: Reviews of the Electricity Market
Reviews of the Electricity Market we conract
Slide 22: The Electricity Commission market design review
The Electricity Commission has announced a market design review we conract Covers design of market arrangements — not the fundamental question of whether there should be a market or not Ministerial review leading up to the NZES canvassed alternatives to the market e.g. single purchaser. Conclusion r
Slide 23: Commerce Commission Inquiry
Commerce Commission Inquiry we conract The Commerce Commission is undertaking a review of the electricity market to determine whether there is any evidence of breaches of the Commerce Act i.e. anti-competitive behaviour Our understanding is that the Commission instigated the review as a ‘health chec
Slide 24: Fuels Update
Fuels Update Presentation to Investors Taupo 27 March 2007 - a COnTaCT
Slide 25: Disclaimer
Disclaimer These presentations may contain projections or forward looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking st
Slide 26: Introduction
Introduction + Presentation will cover: — Overview of current industry gas supply/demand — Current gas market issues — Overview of Contact's gas portfolio - Managing the complexity of the gas portfolio we conract
Slide 27: Gas Supply and Demand
Gas Supply and Demand we conract
Slide 28: Industry gas supply and demand position
Industry gas supply and demand position + Supply seems sufficient through to the middle of the next decade, with over supply in the short term + The extent of renewable construction will be significant driver of demand NZ Gas Supply Potential (with P85 ROFR, Turangi & Karewa, demand adjusted for hig
Slide 29: Industry gas supply and demand position
Industry gas supply and demand position + If the Maui P50 gas is confirmed it is possible that the market may stay long into the next decade + Key question remains the gap from about 2016 -18, depending on demand Karewa NZ Gas Supply Potential development (with P50 ROFR, Turangi & Karewa, demand adj
Slide 30: Key Activities
Key Activities (March 2007) Northland The area in red is closed to PIT Petroleum permit application until further notice. Seismic programmes will be carried out on one permit area in 2007. Onshore Taranaki There are well commitments on eight permits in 2007 Seismic programmes will be undertaken in f
Slide 31: Current gas market issues
Current gas market issues we conract
Slide 32: Current gas market issues
Current gas market issues + The gas market is dominated by long term contracts and until recently there has been little drive for short term trading + New gas fields and associated contracts have little flexibility and the transmission arrangements are more rigid + Accordingly there is increasing ne
Slide 33: Gas transmission arrangements
Gas transmission arrangements Gas Retailers Hova Gas wangarut Gas ones vector Hove Gas Powerea , ‘s, Roprosones Righ prossuire transmyseson Nova Gas ms Vector From Oct 2005, the Maui gas pipeline has been available for transmission of non Maui 367 gas (known as open access) Gas is transmitted from O
Slide 34: Overview of Maui open access arrangements
Overview of Maui open access arrangements * Open access is the opening up of the Maui pipeline to allow non Maui 367 gas to be transported — Maui 367 gas is “delivered” — it therefore does not attract transportation charges ~ Maui 367 gas has priority rights to the available capacity in the Maui pip
Slide 35: Overview of Vector gas transmission arrangements
Overview of Vector gas transmission arrangements + Unlike the Maui system Vector’s transmission arrangements are based on capacity rights - Contact has long term fixed price transmission contracts for each of the power stations — these were recently amended to allow for the consequences of open acce
Slide 36: The nomination regime
The nomination regime + Contact makes nominations each day for gas to be injected into the Maui pipeline + These nominations also address which point on the pipeline the gas is to be shipped to + Ifthe gas taken at the points nominated is different from that actually taken an imbalance arises + Gas
Slide 37: Implications of the transmission regime for Contact
Implications of the transmission regime for Contact + The market is still adapting to the new regimes but the implications of the move toward daily balancing allied with the lack of field and contract flexibility are already being experienced * Contact has spent considerable effort in ensuring that
Slide 38: Overview of gas portfolio
we conract Overview of gas portfolio 15
Slide 39: Overview of gas portfolio
Overview of gas portfolio + This is high level view of the gas portfolio + Demand is based on a mean year view for hydrology and therefore actual takes can vary + Itillustrates the process of transition from the relative dominance of Maui 367 to increasing utilisation of Maui ROFR and Pohokura gas f
Slide 40: Future gas requirements
Future gas requirements + Contact is beginning the process of contracting for gas to fill the gap beyond 2010 * The Pohokura joint venture participants have been keen to get the field operational and the offshore wells tied in before seriously engaging in follow on discussions +* Akey element in the
Slide 41: Characteristics of core gas contracts
Characteristics of core gas contracts + The utilisation of gas is increasingly complex as each coniract has different constraints and value * This graph illustrates total gas available in each year (not all of this must be used) and represents the least flexible to the most flexible sources. As Maui
Slide 42: Managing the Complexity of the Fuel Portfolio
Managing the Complexity of the Fuel Portfolio we conract
Slide 43: Changes to portfolio optimisation
Changes to portfolio optimisation + The historical Maui flexibility enabled Contact to adopt an optimisation strategy where thermal operation was unconstrained (in either direction) by fuel supply + Moving forward that flexibility reduces, producing a range of possible thermal operation + In the sho
Slide 44: The role of generation in managing flexibility
The role of generation in managing flexibility we conract Optimised for Electricity Market Only INPUTS Spot prices Hedge Position Gas price Inflows. ‘ PORTFOLIO OPTIMISATION } OUTPUTS Gas nomination Optimised for Energy Portfolio INPUTS Spot prices Hedge Position Gas contract parameters Gas price In
Slide 45: Optimisation techniques
Optimisation techniques + Like any storage modelling, the objective is to derive the opportunity cost of gas, by calculating the option value of gas retained in the reservoir for future use * This modelling is already being used by Contact with national hydro storage to derive fundamental short term
Slide 46: Gas profile for one hydrological sequence
Gas profile for one hydrological sequence ia io r i ii i i l Vy nual) i I ql A i SA ‘an | i i. ‘hi Te i : i) ii Fi i Hi gi eS 8 SH : Si ain i : conta in anion Gs contact 23
Slide 47: Gas profile for a different hydrological sequence
Gas profile for a different hydrological sequence lg ae Oe Ja ii = ii | i ce ~“ a ih iw aii MUM ATTA iia ni ii ue Gs COnTaACT 4
Slide 48: Consequences for Portfolio Management
Consequences for Portfolio Management + In order to manage the transfer of flexibility from fuel supply to thermal generation, the portfolio needs to be at higher hedge levels than previously targeted over the next 3 years * Ideally this is achieved through further gas sales, however that market rem
Slide 49: Earnings Volatility
Earnings Volatility + The increase in hedge levels and the constraints on fuel do however have some consequences for earnings volatility * The indications are that we will perform strongly through a large range of hydrological conditions but may now be adversely affected by extreme events at either
Slide 50: Conclusion
Conclusion + The gas market is in a period of transition as new gas fields come on line and the industry beds down new transmission regimes * The market is relatively long gas in the next few years but still faces some uncertainty about the extent of reserves beyond the middle of the next decade * T
Slide 51: Rockgas Acquisition
Rockgas Acquisition Presentation to Investors Taupo 27 March 2007 - a COnTaCT
Slide 52: Disclaimer
Disclaimer These presentations may contain projections or forward looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking st
Slide 53: Introduction
Introduction + Presentation will cover: — Overview of acquisition and the Rockgas business — Synergies and Opportunities we conract
Slide 54: Overview of the Acquisition and Rockgas Business
Overview of the Acquisition and Rockgas Business we conract
Slide 55: Overview of Rockgas acquisition
Overview of Rockgas acquisition * Contact has announced that it will purchase the Rockgas business from Origin Energy. The acquisition is subject to Overseas Investment Office approval * The price to be paid by Contact will be $156m (assuming a 1 July 2007 transaction date) + Rockgas is New Zealand’
Slide 56: Overview of Rockgas
Overview of Rockgas + Rockgas is an LPG specialist which has been operating since 1934 + Supplies over 50% of the New Zealand market + Supplies over 300 bulk industrial customers, 7,000 commercial customers, and 17,000 residential customers + Distributes to a further 15,000 customers through an exte
Slide 57: The New Zealand LPG Industry
The New Zealand LPG Industry + Liquefied Petroleum Gas (LPG) is the generic name for a mixture of two hydrocarbons, LPG Market Segments propane and butane Small Cylinders 19% * The most common LPG supplied to the New Industrial Zealand customer is general product, which is 27% 60/40 mix of propane a
Slide 58: The New Zealand LPG Industry (continued)
The New Zealand LPG Industry (continued) + The total New Zealand market for LPG is estimated at 175,000 tonnes in 2007 and has shown steady growth since 1999 + The LPG business in New Zealand is strongly influenced by seasonality, with demand peaking during the cooler winter months + All of New Zeal
Slide 59: Overview of industry - segment characteristics
Overview of industry - segment characteristics Market Competitive Profile Segment Future Drivers Environment Dimensions Immediate value Natural gas, 23,600 Tonnes Strong growth benefits and suitability for application electricity, industry competitors. Ease of meeting high demand loadings. drivers I
Slide 60: Overview of industry - segment characteristics
Overview of industry - segment characteristics Market Environment Competitive Profile Segment Dimensions Future Drivers Environmental and long term economic benefits Competes with oil distillates, natural gas, electricity 40,000 Tonnes Growth with new applications, some attrition High level of Intra
Slide 61: Overview of industry — sources of LPG
Overview of industry — sources of LPG + Maui and Kapuni LPG have historically dominated supply + Imports will play an increasing role until the development of the Kupe gas field + Rockgas has access to Rimu and Waihapa LPG as well as Maui LPG from Liquigas + Rockgas has negotiated rights to Origin’s
Slide 62: Overview of Liquigas
Overview of Liquigas Liquigas is owned by four shareholders: — Vector: 60.3% ~ BOC: 18.7% ~ Todd: 12.5% — Rockgas: 8.5% Liquigas sources LPG from the Maui field at a fixed price. Liquigas determines its own wholesale price based on market conditions Liquigas also acts in a supply management capacity
Slide 63: LPG supply infrastructure
LPG supply infrastructure * The bulk of North Island demand is supplied by Maui and other local fields (Kapuni, TAWN) + Liquigas acts as a distributor through its purchase of the Maui LPG and ownership of the key infrastructure. * Once processed at Oaonui the LPG is then transferred to Liquigas faci
Slide 64: Growth in LPG use in New Zealand and historic Rockgas growth
Growth in LPG use in New Zealand and historic Rockgas growth + The LPG market has grown significantly in the past few years, primarily in the non-automotive market + Rockgas volumes have grown in line with that underlying sector growth Industry LPG Sales Volumes 200 160 Tonnes, 000s 3 s 1999 2000 20
Slide 65: Breakdown of Rockgas sales volume by segment
Breakdown of Rockgas sales volume by segment Segment % contribution by volume 100% 80% 4 60% 4 40% 5 20% 4 0% 2006/7 2010/11 (estimated) & Reticulation m Bulk & Key @ Franchise & Service Station - Autogas @ Service Station - Bottle Fill Domestic 45 @ Commercial 45 & Forklift & Bottlefill we conract
Slide 66: Rockgas distribution network
Rockgas distribution network + Rockgas has a significant presence in the South Island where Contact also has 40% of its customers Otahubu & —~ Oishuatis A }~ Auckland Sales Team " New Plymauth Taranaki Combined Cycte NO Stoibupi Ra Lower Hutt Retaib Serviewe Centre Clyde, Cluthe River : Key UGB eset
Slide 67: Overview of franchise arrangements
Overview of franchise arrangements + Rockgas has a series of franchise arrangements with parties in various locations throughout New Zealand * These provide the franchisee with the right to operate the franchise and use Rockgas’ trademark in a defined area. Rockgas retains the right to operate whole
Slide 68: Proposed Structure post acquisition
Proposed Structure post acquisition + It is proposed that Rockgas will become an operational division of Contact Energy with the GM Rockgas becoming a member of the senior management team * The operational aspects of Rockgas will remain intact in this group for the immediate future. As sales and mar
Slide 69: Synergies and Opportunities
Synergies and Opportunities we conract
Slide 70: Rationale for purchase by Contact
Rationale for purchase by Contact + There are a number of benefits for Contact in the purchase of Rockgas — Key element in positioning Contact as an “energy solutions” company — LPG is the major alternative energy source in the South Island where there is no domestic gas reticulation — 40% of Contac
Slide 71: Illustration of relative fuel cost forecasts
IHtustration of relative fuel cost forecasts we conract Residential Cost to Customer ($/GJ)} 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 =2014/15 2015/16 w= athe + LPG - Reticulation/Buik & Key —@— Electricity - Residential —*X— LPG - Domestic 45/Bottlefill —H— Gas - Resi
Slide 72: Fuel Cost Comparison - Commercial Customers
Fuel Cost Comparison - Commercial Customers Commercial Cost to Customer ($/GJ) 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 LPG - Reficulation/Bukk & Key —O— Electricity - Business He Electricity - TOU ==We— Gas - Business —@— Gas - TOU/AM ~* LPG - Commerci
Slide 73: Retail Markets
Retail Markets Auckland * There are approximately 250,000 homes in Auckland that front a natural gas main pipeline + Of those only 28% are connected, leaving some 180,000 homes without gas currently + Some causes are: — houses some distance from pipeline making connection uneconomic — volcanic rock
Slide 74: Peak Shaving
Peak Shaving + Contact continues to develop as an energy solutions provider to the commercial and industrial market + Adding LPG to its stable of products creates a wider range of potential solutions + In essence it provides a small scale storage option that can be economic in certain industrial pro
Slide 75: Infrastructure Synergies
Infrastructure Synergies + The combination of the business infrastructure assets presents some potential future opportunities that require significant further analysis * Those synergies are likely to revolve around using existing sites from one business line for development of infrastructure assets
Slide 76: Channels to Market
Channels to Market + Rockgas has a very different market channel strategy to Contact through its branch and franchise network * This opens up a broader range of opportunity for Contact in getting its product to market + The franchise channel in particular we expect to embrace the opportunity to dive
Slide 77: Summary
Summary + The acquisition of Rockgas presents an exciting opportunity for Contact + The transaction represents a value enhancing proposition to both Contact and Origin given Contact's ability to derive more value through cross selling and other synergies * This positions Contact as the only energy r
Slide 78: Geothermal Contact Investor Site visit
Geothermal Contact Investor Site visit Presentation to Investors Taupo 27 March 2007 conTacT
Slide 79: Disclaimer
Disclaimer we contact These presentations may contain projections or forward looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward
Slide 80: Topics covered
Topics covered a contact Introduction — Geothermal Fields ~ Geothermal 101 ~ Geothermal Strategy Wairakei ~ Wairakei/Tauhara Lands - rights and issues — Resources Consents — status and subsidence ~ Steam Winning - drilling results and reinjection requirements ~ Wairakei Redevelopment - Proposed Te M
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