Origin Energy Limited · ASX:ORG
Origin Energy — Investor Day (November 2017)
61 slides from Origin Energy's investor day presentation, Nov 28, 2017
Slide 1: 2017 Investor Day
2017 Investor Day 28 November 2017 Origin Energy | November 2017 Investor Day 1
Slide 2: Safety moment
Safety moment • Alert tone (“beep, beep, beep”) − Follow instructions of Wardens − Be ready to evacuate • Evacuation tone (“whoop, whoop, whoop”) − Evacuate via nearest exit − Proceed calmly to assembly area Origin Energy | November 2017 Investor Day 2
Slide 3: Schedule
Schedule 28 Nov (Sydney - Dexus, Level 15, 1 Farrer Place) Time Duration Topic Presenter 10:00 5 mins Introduction Peter Rice (GM, Capital Markets) 10:05 15 mins Strategic overview Frank Calabria (CEO) 10:20 15 mins Capital management Lawrie Tremaine (CFO) 10:35 30 mins Upstream Mark Schubert (EGM,
Slide 4: Strategic Overview
STRATEGIC OVERVIEW Frank Calabria Origin Energy | November 2017 Investor Day 4
Slide 5: Context
Context 1. Delivering on near term priorities 2. Rebuilding the right to grow 3. Global energy markets accelerating to a low carbon future 4. Origin part of the energy solution and positioned to prosper in a changing energy world 5. Near term catalysts Origin Energy | November 2017 Investor Day 5
Slide 6: Delivering on FY2018 priorities
Delivering on FY2018 priorities REDUCING DEBT AND LEADERSHIP IN LEADERSHIP IN IMPROVING RETURNS ENERGY MARKETS INTEGRATED GAS Sale of Lattice for $1,585 million Secured 41PJ of additional gas for Business reset (zero base) On track for Adjusted Net Debt the domestic market Targeting A$500m
Slide 7: Rebuilding the right to grow
Rebuilding the right to grow Asset sale program largely complete Making good progress on balance sheet repair Capital discipline strengthened Renewing efforts to lift the bar on organisation complexity and cost Origin Energy | November 2017 Investor Day 7
Slide 8: Changing global energy markets
Changing global energy markets Renewables expected to be the fastest growing source of energy with gas continuing to play an important role under all IEA carbon reduction scenarios World primary energy demand by fuel and scenario (Btoe) 20 16% 20% 15 24% 14% 25% 29% Btoe 5% 22% 10 6% 5% 28% 25% 27%
Slide 9: Changing global energy markets: LNG supply and demand
Changing global energy markets LNG market is forecast to be oversupplied near term, but moving into a deficit position from early 2020s 600 Global LNG Supply and Demand Balance (mtpa) Under Construction Current Capacity LNG Demand 500 400 mtpa 300 200 100 0 2013 14 15 16 17 18 19 20 21 22 23 24 25 2
Slide 10: Changing global energy markets
Changing global energy markets ‒ Efforts to tackle climate change continue to support strong Decarbonisation growth in renewables and gas as a partner of renewables ‒ Technological advancement enabling consumer empowerment Decentralisation and transition towards a decentralised energy future ‒ Chang
Slide 11: Australian energy market
Australian energy market As markets transition there is heightened concern for reliability & affordability Historical Monthly Average Wholesale Gas Prices1 Historical Monthly Average Wholesale Electricity Prices 16 250 14 200 12 10 150 A$/MWh A$/GJ 8 6 100 4 50 2 0 Nov-15 Nov-16 Nov-17 Sep-15 Sep-16
Slide 12: Origin is focused on being part of the energy solution
Origin is focused on being part of the energy solution Increasing Eraring output (to 15.5 – 16 TWh) Recently secured 41 PJ of additional gas from APLNG for the domestic market Brought 240 MW of generation back on line in SA Providing energy reliability via Australia’s largest fleet of peakin
Slide 13: Origin's strategy is designed to capture value in the future energy world
Origin’s strategy is designed to capture value in the future energy world Leading the transition to a cleaner, smarter and customer-centric energy future Connecting customers to the energy and technologies of the future Develop Leading customer Accelerate Embrace a resources to meet experience and t
Slide 14: Near-term catalysts
Near-term catalysts Continued deleverage Capturing value from our energy market position Running Eraring harder in response to high wholesale prices Gas supply position to grow market share and support generation Growing renewables, partnered with existing gas fleet Step change cost redu
Slide 15: FY2018 guidance reaffirmed
FY2018 guidance reaffirmed Energy Markets FY2018 EBITDA is expected to be in the range of $1.7 - $1.8 billion, provided that market conditions and the regulatory environment do not materially change Origin’s share of APLNG production is expected to be 245 - 265 PJ In FY2018, APLNG is expected
Slide 16: Capital Management
CAPITAL MANAGEMENT Lawrie Tremaine Origin Energy | November 2017 Investor Day 16
Slide 17: Performance highlights
Performance highlights $m $m 3,000 Underlying EBITDA 5,000 Capex plus net APLNG contribution 4,000 2,000 3,000 1,000 2,000 1,000 - FY2015 FY2016 FY2017 - FY2015 FY2016 FY2017 Contact Share of APLNG Origin (remaining) Contact Net conribution to APLNG Origin remaining $m $m Asset sales Adjusted net de
Slide 18: Resilient capital structure
Resilient capital structure Target capital structure Manage Capital asset allocation portfolio Maximise cash generation Debt/EBITDA1 7x 6x Goal to achieve stable investment grade rating • BBB/Baa2 • Debt/EBITDA times 5x Upgraded rating action following Lattice Energy sale and FY2017 results 4x Stabl
Slide 19: Management of debt portfolio
Resilient capital structure Management of debt portfolio Manage Capital asset allocation portfolio Debt & bank guarantee maturity profile Debt composition Maximise cash (as at 31-Oct-17) (as at 31-Oct-17) generation 14 6,000 Average interest rate 12 5,000 10 0.79% 4,000 8 3,000 A$million A$bn 6 4.8%
Slide 20: Capital investment: rebuilding the right to grow
Resilient capital structure Capital investment Manage Capital asset allocation portfolio Rebuilding the right to grow Maximise cash generation • Disciplined capital allocation process established • Improved business case and economic analysis tools and methods • Opportunities ranked on returns and s
Slide 21: Priorities for use of capital
Resilient capital structure Priorities for use of capital Manage Capital asset allocation portfolio Maximise cash generation Debt reduction and servicing Sustaining capital to stay in business Growth capital Dividends Will pursue high quality growth Triggered by target capital structure Return surpl
Slide 22: Disciplined capital spend
Resilient capital structure Disciplined capital spend Manage Capital asset allocation portfolio Maximise cash generation Capital expenditure 2,000 FY2018 capital expenditure • Mandatory spend ($80 -100 million) • Digital metering (retail system upgrade) 1,500 • Upstream commitments • Sustaining ($17
Slide 23: Oil price risk management
Resilient capital structure Oil price risk management Manage Capital asset allocation portfolio Principles • Objective to protect cash flow to ensure target deleveraging Maximise cash generation • Structured to protect downside and may include capping some upside • Will reassess as leverage is reduc
Slide 24: Manage asset portfolio
Resilient capital structure Manage asset portfolio Manage Capital asset allocation portfolio Maximise cash Sale of Lattice Energy generation • $1,585 million sale of Lattice Energy announced on 28 September 2017 • Transition planning including managing stranded costs progressing well • New Zealand r
Slide 25: Upstream
UPSTREAM Mark Schubert Origin Energy | November 2017 Investor Day 25
Slide 26: Building a low cost operating model over 18 months
Building a low cost operating model over 18 months Delivered In Focus Targets Strong resource position Aligned and simplified June 2019 run rate targets: supplying organisation Long term LNG contracts A$500m+ p.a. reduction in Streamlined processes capital and operating Around 20-30% of
Slide 27: APLNG project is complete and exceeding performance expectations
APLNG project is complete and exceeding performance expectations TJ/d APLNG upstream supply1 2,500 Train 1 Two-train • 175+ LNG cargoes delivered 2,000 operational operational test test • Proven production performance >10% above nameplate capacity 1,500 • >95% upstream plant reliability 1,000 • Stro
Slide 28: APLNG FY2018 breakeven guidance maintained
APLNG FY2018 breakeven guidance maintained FY2018 Guidance @ Capital expenditure (breakdown %) 100% APLNG (A$bn) 0.75 AUD/USD Capital expenditure – Sustain 1.4 Capital expenditure – E&A 0.3 Operated Sustain Operating expenses – pre capitalisation 1.6 E&A Operated SIB (Stay-in-business) Less: Spot LN
Slide 29: Implementing a new operating model
Implementing a new operating model To achieve a step change reduction in cost and breakeven within 18 months Approach Key focus areas • In scope: Capex, opex, production and A Aligned & simplified organisation, project finance interest streamlined processes • Starting point: Zero based B Capex • Inc
Slide 30: Aligned and simplified organisation, streamlined processes
A Aligned and simplified organisation, streamlined processes Today Tomorrow FY19 Functional Structure Asset Structure Organisational Supporting a multiple conventional & Unconventional operating model replicating Structure unconventional asset portfolio independent US shale gas best practice O
Slide 31: Capex: targeting material reductions in new well costs
B Capex - targeting material reductions in new well costs Simplified and streamlined well delivery Lower cost Surat wells1 targeted by June 2019 • Well factory approach • Simple, standardised surface facilities allow rebased service and supply contracts ~50% A$M/WELL • Lower cost well electrificatio
Slide 32: Opex: targeting material improvements in operational efficiency
C Opex - targeting material improvements in operational efficiency Lower unit operating costs1 Lean and simplified operations: • Reducing amount of work (e.g. rationalised maintenance strategy) • Lean, agile and multi-skilled workforce ~20% • Front line asset responsibility drives A$/GJ planning and
Slide 33: Production optimisation gets more from existing assets
D Production optimisation gets more from existing assets Debottleneck existing assets • Existing constrained wells can be debottlenecked to improve production o Installation of surface facilities, pumps and loop lines to reduce surface pressure o Downhole solutions to increase production and add res
Slide 34: Targeting step change reduction in cost from June 2019
Targeting step change reduction in cost from June 2019 With further reductions targeted beyond 2019 Key Outcomes Initial Targets Metric FY18 Guidance June 2019 Run Rate Cost reduction and Well cost1 A$m/well 2.4 1.2 productivity improvement Operating cost2 A$/GJ 1.3 1.0 Opex and Capex A$b 3.3 <2.8 O
Slide 35: APLNG exploration upside
APLNG exploration upside Material plays are being explored to: • Lower the cost of future production • Increase incremental sales • Extend the life of operations past LNG contract periods East Bowen Deep prospect confirmed as a new CSG play with pilots planned for 2018/2019 Net Coal thickness >20m G
Slide 36: Revisiting Ironbark development
Origin is revisiting Ironbark development and value in preparation for FEED Ironbark • 100% owned Queensland CSG resource, adjacent to APLNG and QGC infrastructure • Adopting a lean operating model • Ironbark is ideally located to supply to the east coast domestic market via the Wallumbilla Hub • Ex
Slide 37: Improvements can leverage Beetaloo economics
Improvements can also be leveraged to improve economics of Beetaloo Beetaloo • 70% owned Northern Territory resource • Upstream capital and operating cost savings can be applied to all project stages • 2C Resource 6.6Tcf1 (gross) • Origin continues to support the NT Government’s Scientific Inquiry i
Slide 38: Energy Supply & Operations
ENERGY SUPPLY & OPERATIONS Greg Jarvis Origin Energy | November 2017 Investor Day 38
Slide 39: Energy supply and operations
Energy supply and operations • Flexible generation portfolio running harder in high wholesale price Electricity environment • Growing customer volumes Gas • Monetising gas through electricity generation • Lowest cost new build generation today Renewables • Target 1,500 MW of new renewable offtake su
Slide 40: Eraring running harder in response to high wholesale prices
Electricity Eraring Eraring isplays running harder than a significant roleever in portfolio in the response to high and wholesale the focus prices is on coal supply Eraring monthly generation output 1,800 1,500 • FY2018 output expected to be 15.5 – 16 TWh 1,200 (higher than previous guidance), suppo
Slide 41: Gas: strong and flexible portfolio enabling growth
Gas Strong and flexible portfolio enabling growth in sales volumes Energy Markets East Coast Gas Supply Portfolio Energy Markets gas sales 200 300 250 150 200 PJ PJ 150 100 100 50 50 - - FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY15 FY16 FY17 LTM Oct-17 Retail Business & Trading LNG Fixed Price Oil
Slide 42: Renewables: capturing benefit of falling costs
Renewables Origin is capturing the benefit of falling renewable costs Bundled PPA Prices1 Origin Installed Renewable Capacity2 (Large scale wind and solar) MW $/MWh 2,000 160 1,800 530 1868 1,600 120 1,400 1,200 371 80 1,000 235 800 600 732 40 Costs continuing 400 to fall 200 0 FY2012 FY2013 FY2014
Slide 43: Flexible portfolio well positioned in a changing energy market
Flexible portfolio well positioned in a changing energy market Flexible energy position Balanced capacity position 45 10,000 40 Exposure managed Short position via peakers and cap 35 products 8,000 Business (recontract 30 Contracts Hedging matching over 1-3 customer contracts 6,000 TWh MW years) 25
Slide 44: Gas will play a significant firming role as renewables increase
As renewable penetration increases, gas will play a significant firming role Generator response times Potential impact of distributed solar penetration on NEM demand 27,000 Batteries 25,000 23,000 Pumped 100% Load Hydro 21,000 OCGT With increased solar, gas will play 19,000 a key role in supporting
Slide 45: Opportunities for investment in renewables, fast-start gas and storage
Opportunities for investment in renewables, fast-start gas and storage Queensland • Opportunities to increase flexibility and expand capacity at Darling Downs (largest gas generator in QLD today) • > 400 MW of solar expected to come online by FY2019 • Opportunities for large-scale batteries on exist
Slide 46: Retail
RETAIL Jon Briskin Origin Energy | November 2017 Investor Day 46
Slide 47: Retail overview
Retail overview • Customer activity increasing driven by price rises and spotlight on affordability Market Dynamics • Market remains highly competitive • Defending share and managing for value • Leading customer experience and service • Low cost business model Customer Strategy • Increase customer l
Slide 48: Increasing customer activity
Increasing customer activity Driven by affordability and price-based competition Customer switching rates in market Defending share and managing for value Electricity and Natural Gas Churn Rates 30% 25% • Campaigning in market 20% 15% 10% 5% 0% Origin Churn Market Churn Source: AEMO; Origin internal
Slide 49: Building a leading digitally-enabled customer experience
Responding by building a leading digitally-enabled customer experience Innovative products and services that increase customer lifetime value Innovative & Leading customer Low cost Increase customer differentiated experience and business model lifetime value products and service services Segmented c
Slide 50: Digital-first design
Digital-first design Customer experiences that are simple, smart, personalised, connected and empowering Price transparency with Origin App New digital channels Origin Savernator Facebook Livechat Messenger Artificial Digital intelligence marketing AI • New personalised online • View usage and bills
Slide 51: Digitisation and automation driving cost reduction
Digitisation and automation driving continued focus on cost reduction Process innovation, optimisation and removal of effort Increasing digital interactions Managing operational performance Online sales up 33% MyAccount registrations Reducing back office FTE Increase in front office up 9% FTE (↑ cus
Slide 52: Managing for value
Managing for value Customer differentiation driving value Data and analytics underpinning deep Driving value-based customer strategies customer knowledge Targeted acquisition Customer lifetime value Tiered product architecture Behavioural segmentation Targeted retention Tailored offers Attitudinal s
Slide 53: Growth opportunities
Growth opportunities New markets and adjacencies creating new revenue streams Centralised Energy Services WA market entry Adjacencies Integrated energy solutions for high- Partnering to provide a value-add rise residential developments Moving Services proposition Serviced hot water Embedded elec
Slide 54: Future-focussed innovation
Future-focussed innovation Pipeline of new solutions Incubate new ideas and trial fast Focus areas Putting customers in the picture on use Explore future needs of customers Launching into smart home with Home HQ Connect connected customers with home market leading solutions Trialling new Creat
Slide 55: Wrap up / Q&A
WRAP UP / Q&A Origin Energy | November 2017 Investor Day 55
Slide 56: Wrap Up
Wrap Up Continuing to deleverage and rebuilding the right to grow Moving to a simpler and leaner operating model Capturing value from our energy market position (Eraring, gas supply, renewables) Step change cost reduction in APLNG Transforming customer experience through digital, innovativ
Slide 57: Appendix
APPENDIX Origin Energy | November 2017 Investor Day 57
Slide 58: Important Notices
Important Notices Forward looking statements This presentation contains forward looking statements, including statements of current intention, statements of opinion and predictions as to possible future events. Such statements are not statements of fact and there can be no certainty of outcome in re
Slide 59: Important Notices (cont)
Important Notices (cont) Reserves and resources Disclosures of Origin and APLNG’s reserves and resources are as at 30 June 2017. These reserves and resources were announced on 16 August 2017 in the Annual Reserves Report. Origin confirms that it is not aware of any new information or data that mater
Slide 60: Glossary - Non-Financial Terms
Glossary - Non-Financial Terms Term Meaning A reference to Australia Pacific LNG or APLNG is a reference to Australia Pacific LNG Pty Limited (and its related entities), an APLNG incorporated Joint Venture between Origin, ConocoPhillips and Sinopec in which Origin holds a 37.5% shareholding. Origin’
Slide 61: For more information
For more information Peter Rice Liam Barry Jeremy McNally General Manager, Capital Markets Manager, Investor Relations Manager, Investor Relations Email: peter.rice@originenergy.com.au Email: liam.barry@originenergy.com.au Email: Jeremy.mcnally@originenergy.com.au Office: +61 2 8345 5308 Office: +61