Origin Energy Limited · ASX:ORG
Origin Energy — H1 FY2011 Earnings Presentation
71 slides from Origin Energy's earnings presentation, Feb 24, 2011
Slide 1: 2011 Half Year Results Announcement
Half Year Ended 31 December 2010 24 Februaryy 2011 2011 Half Year Results Announcement
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 1. Performance Highlights 2. Financial Review p 3. Operational Review 4. Major Opportunities for Growth 5. Outlook 6. Appendix 3
Slide 4: 1. Performance Highlights
1. Performance Highlights
Slide 5: Underlying EBITDA increased by 16% driven by new investments and improved retail margins
Underlying EBITDA increased by 16% driven by significant contributions from new investments and improved retail margins, despite a higher exploration l i expense Statutory Loss ($136) million down 137% Statutory Earnings per Share (15.4) cps down 136% Underlying EBITDA* $818 million up 16% U d l i P
Slide 6: Strong performance driven by increased capital investments in prior years
Strong increases in performance for the half year has been driven by increased capital investments in acquisitions and new projects in prior years … • First full six month period incorporating Origin’s increased equity in the Otway Gas Project • A full f ll six month h contribution b from the Kupe d
Slide 7: Origin is pursuing two major opportunities
Building on this strong performance Origin is pursuing two major opportunities pp … Completion of the acquisition of a suite of energy assets providing an integrated position in NSW and establishing Origin as the market leader in Australia – The Th Country C t Energy E and d IIntegral t lEEnergy ret
Slide 8: NSW acquisition funded through new debt facilities
Origin’s $3.25 billion acquisition of NSW energy assets will be funded through new debt facilities Origin Debt and Bank Guarantee Maturity Profile as at 31 December 2010 adjusted for NSW Acquisition (1) 2,500 2,250 USPP & MTN Loans & Bank Guarantees drawn 2,000 Loans & Bank Guarantees undrawn 1,750
Slide 9: 2. Financial Review
2. Financial Review
Slide 10: 2011 Half Year Financial Highlights
2011 Half Year Financial Highlights Statutory Loss ($136) million down 137% EPS – Statutory (15.4) cps down 136% Revenue $4,603 million up 7% Underlying EBITDA EBITDA* $818 million up 16% Underlying EBIT $536 million up 10% Underlying Profit $304 million down 14% EPS – Underlying 34.4 cps down 15% G
Slide 11: Income Statement – Reconciliation of Statutory and Underlying
Income Statement – Reconciliation of Statutory and Underlying ($ million) Dec 10 Dec 09 Change Statutory NPAT (136) 371 (507) Items Excluded from Underlying Profit(1) Impairment of assets (154) (8) (146) Decrease in fair value of financial instruments (156) (19) (137) Gain on dilution of Origin’s in
Slide 12: Underlying Financial Performance
Underlying Financial Performance ($ million) Dec 10 Dec 09 Change Revenue 4,603 4,300 7% Underlying EBITDA before exploration expense 915 728 26% Exploration Expense (97) (22) (340%) Underlying EBITDA 818 706 16% Depreciation and amortisation, and ITDA of equity (282) (217) (30%) accounted investees
Slide 13: Underlying EBITDA increased by 16% to $818 million
Underlying EBITDA increased by 16% to $818 million EBITDA ($ million) illi ) Dec 10 D Dec 09 D Change Ch Exploration & Production 125 104 20% Generation 144 98 47% Retail 369 320 15% Contact Energy 180 184 (2%) Total 818 706 16% Exploration & Production: Initial contributions from Kupe and an increa
Slide 14: Depreciation and amortisation, and ITDA of equity accounted investees increased
In combination, Underlying depreciation and amortisation, and ITDA of equity accounted investees increased by $65 million or 30% to $282 million Depreciation and Amortisation ($ million) Dec 10 Dec 09 Change Exploration & Production 113 71 59% Generation 48 20 140% Retail 32 34 (6%) gy Contact Energ
Slide 15: Underlying financing costs increased by $56 million
Underlying financing costs increased by $56 million reflective of the increased investment in the business ($ million) Dec 10 Dec 09 Interest Revenue 18 74 Interest Expense (62) (62) Underlying Financing (Costs)/Income (44) 12 Financing Costs Capitalised 74 78 Weighted average interest rate on borro
Slide 16: Tax Reconciliation
Tax Reconciliation ($ million) Dec 10 Dec 09 Underlying Profit before Tax 492 501 Prima facie tax on Underlying Profit at standard rates 151 150 Recognition of tax benefits not previously brought to account - (21) Share of net profit of equity accounted investees (5) (4) Tax losses unrecognised on e
Slide 17: Operating Cash Flow
Operating Cash Flow ($ million) Dec 10 Dec 09 Underlying EBITDA 818 706 Change in working capital (62) (162) Stay-in-business capex (69) (85) Share of APLNG OCAT net of EBITDA 10 7 Exploration expense 97 22 Other 8 (12) Tax paid (8) (51) Group OCAT 794 425 Net interest paid (102) (65) Free cash flow
Slide 18: Segment Cash Flow Returns
Segment Cash Flow Returns Operating Cash Flow Productive Capital OCFR (%) ($m) % Change ($m) % Change Dec 10 Dec 09 Exploration & Production 345 88% 2,316 64% 14.9% 13.0% Generation 223 57% 1,807 66% 12.3% 13.1% Retail 529 68% 2,745 9% 19.3% 12.5% Contact Energy 297 10% 3,423 0% 8.7% 7.9% Note: Prod
Slide 19: Capital expenditure declined as major investment projects draw towards completion
Capital expenditure declined as a period of major investment in Exploration & Production and Generation projects draws towards completion and expenditure in APLNG continues to be funded by ConocoPhillips Growth Capex1 • $557 million, million 30% lower lo er than in the prior half year ear reflecting
Slide 20: Origin will continue to manage its balance sheet to fund capital expenditure
Origin will continue to manage its balance sheet to provide flexibility to fund expected capital expenditure in addition to the NSW acquisition Origin Debt and Bank Guarantee Maturity Profile as at 31 December 2010 adjusted for NSW Acquisition (1) • NSW acquisition expected to be 2 500 2,500 q y and
Slide 21: A fully franked interim dividend of 25 cps declared
A fully franked interim dividend of 25 cps, in line with the prior half year, has been declared … • Ex-dividend date 1 March 2011 • Date of record 7 March 2011 • Payment Date 1 April 2011 • Dividend payout ratio of 73% of Underlying EPS • Dividend Reinvestment Plan will apply to this interim dividen
Slide 22: 3. Operational Review
3. Operational Review
Slide 23: Exploration & Production
Exploration & Production O origin
Slide 24: Exploration & Production delivered 20% EBITDA growth
Exploration & Production delivered 20% EBITDA growth despite higher exploration expenses … Exploration and Production Segment • Underlying EBITDA up 20% reflecting additional 400 200 contributions from Kupe and Otway, increased Dec-10 APLNG production production, partially offset by higher 350 175 e
Slide 25: Continued growth in CSG production led to a 36% increase in gas production
Continued growth in CSG production, Origin’s increased share of Otway and the commencement of Kupe led to a 36% increase in gas production 1 • Production capacity p y at APLNG reached APLNG over 320 TJ/day and production increased dilution 44% on the Dec 2009 half. Severe weather conditions late in
Slide 26: Liquids production increased to record levels
Liquids production increased significantly to record levels driven by contributions from Kupe and Otway PJe Origin Liquids Production by Half Year mmboe 10 1.7 9 1.5 • Kupe contributed 3.5 PJe of liquids during the period, taking its total liquids 8 1.4 production to over 7 PJe after 12 months of 7
Slide 27: Kupe completed 12 months of operation; Origin operates Otway
Kupe completed 12 months of operation, and Origin assumed operatorship of Otway from Woodside on 1 July 2010 Kupe • Production net to Origin was 8.1 PJe during the period; 4.5 PJ gas, 470 kbbls light crude, 19.4 kbbls LPG • Gas demand lower than average for some months due to high New Zealand hydro
Slide 28: Perth Basin gas discoveries commercialised through a gas sales agreement
Recent gas discoveries in the Perth Basin were commercialised through a gas sales agreement, which utilises existing processing capacity Perth Basin • Contract signed for gas sales up to 25 PJ over 5 years to AWE subsidiary; sufficient reserves at Redback established to meet recoverable volume condi
Slide 29: Australia Pacific LNG production continues to increase
Australia Pacific LNG production continues to increase and is now supplying gas to Rio Tinto Alumina and Darling Downs Power Station • CSG production increased by 44% on the comparable CSG Annual Production (Gross APLNG)* period in 2009, providing gas to the new Rio Tinto Alumina and Darling Downs P
Slide 30: Floods affected APLNG areas of operations
Recent flood conditions have affected many areas in Queensland, including APLNG’s areas of operations. Despite the severe conditions APLNG was able to meet all customer nominations Flood waters in the Dalby region Flood waters at Chinchilla • Of 267 wells operated by APLNG that were in production in
Slide 31: Expanded offshore and international exploration drilling campaign
An expanded offshore and international exploration drilling campaign was conducted in the half together with domestic and overseas evaluation activities Other Exploration Activities (1H 2011) Khorat Plateau, Laos (1H 2011) Domestic Onshore: Testing of Bang Nouan-1 Aug 2010; • Ironbark appraisal dry,
Slide 32: Generation
Generation e) origin
Slide 33: Darling Downs commencement drove 47% EBITDA increase for Generation
The commencement of Darling Downs Power Station drove a 47% increase in EBITDA for Generation Generation Segment 250 500 Dec-10 • Underlying y g EBITDA increased 47% or $ $46 million Dec-09 to $144 million reflecting increased capacity TDA ($m) payments due to the increase in Origin’s 200 400 genera
Slide 34: Darling Downs Power Station commenced commercial operations
Darling Downs Power Station commenced commercial operations in July 2010 … • Australia’s largest combined cycle power station; includes three 120 MW gas turbines and a 270 MW steam turbine • $1 billion investment; located 40 km west of Dalby • Powered by CSG piped from APLNG’s gas fields; project in
Slide 35: Commissioning of the 550 MW Mortlake power station
Commissioning of the 550 MW open cycle power station project at Mortlake in Victoria commenced in January 2011 … Aerial shot of Mortlake Power Station Mortlake Power Station switchyard • 550 MW gas fired open cycle power station near Mortlake in south-western Victoria • Construction of the 83 km gas
Slide 36: Origin has 3,670 MW of secured thermal generation options
Origin has 3,670 MW of secured thermal generation options, providing flexibility to respond to market, regulatory and price signals … 2 Feasibility 1 Planning and Permitting DA Approved pp • Origin’s thermal generation pipeline includes 3,670 MW of gas fired options comprising sites near existing fa
Slide 37: Origin is pursuing the development of geothermal technologies
Origin is pursuing the development of geothermal technologies • Origin’s Australian geothermal interests include: ¾ 30% non-operated interest in Innamincka Deeps Joint Venture ¾ 50% operated interest in Innamincka Shallows Joint Venture ¾ 100% interest in a large geothermal exploration tenement (GEL
Slide 38: Geothermal opportunities in growing markets offshore
Origin is pursuing the untapped potential of geothermal opportunities in growing markets offshore … Indonesia Geothermal • Origin and Tata Power of India, in consortium with PT Supraco Indonesia, were awarded th Sorik the S ik Marapi M i geothermal th l exploration l ti • It is estimated the Sorik M
Slide 39: Retail
Retail origin
Slide 40: Retail EBITDA increased 15%
Retail EBITDA increased 15% as a result of lower energy costs due to effective wholesale portfolio management, higher tariffs largely driven by the pass through of higher network costs costs, and strong growth in solar sales … Retail Segment • EBITDA increased 15% to $369 million due to higher 4000
Slide 41: Wholesale electricity prices decreased significantly
Wholesale electricity prices decreased significantly compared with the prior half year as a result of increased generation capacity, high hydro levels and mild weather 1 Prices exclude Tasmania • Sustained periods of low market prices during the period resulted from increased generation capacity hig
Slide 42: Electricity gross profit increased due to wholesale portfolio management
Electricity gross profit increased primarily due to effective management of the wholesale energy portfolio, while increased tariffs were driven by the pass th throughh off hi higher h network t k costs t Performance Metrics and % Electricity Natural Gas LPG change from Dec 09 Commodity Revenue ($m)
Slide 43: Gross profit for gas and electricity customers improved per customer
Gross Profit for gas and electricity customers improved by 15% over the period to $197/customer Gas & Electricity Customers Dec 10 Dec 09 Change Customer numbers ((’000) 000) 2,609 2,606 3 Underlying EBITDA / Sales 11.9% 10.4% 1.5% Underlying EBIT / Sales 11.1% 9.7% 1.4% $ Per Customer: Gross Profit
Slide 44: Higher tariffs led to increased churn rates
Higher Victorian and Queensland electricity tariffs led to increased market activity and higher churn rates while market average gas churn also increased over the period Combined Gas and Electricity Churn Rates Market Churn: 6 Month Average 30% State Fuel Dec 09 Change Dec 10 % Chrun: Monthlly Data
Slide 45: Depressed REC prices enabled building a renewable certificate portfolio
Recently depressed REC prices enabled Origin to continue building a substantial portfolio of renewable certificates … • On 1 January 2011 the Renewable Energy Target was split into two parts: the Large-Scale Renewable Energy Target (LRET) and the Small- The REC price fell by $10 Scale Renewable Ener
Slide 46: Investing in new business lines for customer offerings
Origin has continued to progressively invest in developing new business lines to provide a greater range of customer offerings in a carbon-constrained, technology-enhanced h l h d world ld • The current portfolio includes products such as solar hot water, solar photovoltaic rooftop systems, serviced
Slide 47: Retail Transformation will enable innovative energy solutions
Retail Transformation will enable Origin to deliver innovative energy solutions while optimising cost to serve • Origin continues to transform all aspects of its Retail business to improve business process efficiency, optimise cost to serve and further enhance customer service • This will result in
Slide 48: LPG revenue increased 4% driven by higher benchmark prices
LPG revenue increased 4% to $334 million driven by higher international benchmark LPG prices … 1,200 Jul 07 to Jun 08 Jul 08 to Jun 09 Jul 09 to Jun 10 Jul 10 to Dec 10 • Revenue increased 4% or A$840/t A$718/t A$740/t A$751/t $13 million to $334 1,000 million, driven by an Jul 09 to Dec 09 Jan 10 t
Slide 49: Contact Energy
Contact Energy
Slide 50: Contact EBITDA flat at NZ$225 million
EBITDA as reported by Contact in New Zealand was flat at NZ$225 million, however declined by 2% in AUD terms due to foreign exchange translation Contact Segment 1000 250 • Encouraging performance in a challenging environment Dec-10 Dec 10 of high hydrology and portfolio inflexibility 900 225 Dec-09
Slide 51: Contact's strategy to add portfolio flexibility and grow market share
Contact’s strategy is to continue to add portfolio flexibility and grow market share through increasing its generation footprint Geothermal ¾ 166 MW Te Mihi project committed ¾ Up U to 250 MW Tauhara T h 2 project j consented d– follows Te Mihi in national merit order ¾ Taheke – two exploration well
Slide 52: 4. Major Opportunities for Growth
4. Major Opportunities for Growth
Slide 53: Origin to acquire Integral and Country Energy retail businesses and Eraring GenTrader
Origin has agreed to acquire the Integral Energy and Country Energy retail businesses, and enter into the Eraring GenTrader arrangements for $3 250 million1 $3,250 Integral Energy + Country Energy retail businesses Acquisition Price: $2,300 million Customer accounts as at Electricity: 1.6 1 6 millio
Slide 54: Eraring GenTrader arrangements increase generation flexibility
With the addition of the Eraring GenTrader arrangements Origin’s generation portfolio provides increasing operational flexibility … The payment structure for the Eraring GenTrader arrangements include an Annual Capacity Charge, Ongoing Payments and Fuel Costs Pool Revenue Annual Capacity Charge/Toll
Slide 55: Expected contribution of NSW acquisition to Retail
The value of the NSW acquisition reflects an expectation that it will make a contribution to the Retail segment g in line with the current EBIT to sales margins of 8% to 9% in Origin’s existing Retail business • The Eraring and Shoalhaven GenTrader arrangements support margins in the retail business
Slide 56: Transaction secures Origin's position as leading integrated energy company
This transaction secures Origin’s position as the leading Australian integrated energy company … 9 Australia’s A t li ’ llargestt energy retailer t il with ith around d44.6 6 million illi customer t accounts t 9 One of Australia’s largest generators with capacity and contractual arrangements in exce
Slide 57: APLNG continues to mature its reserves positions
APLNG continues to mature its reserves positions … PJe Reserves & Resources (Gross APLNG) 28,000 3P = 14,602 24,000 3C = 11,478 3C = 10,446 • APLNG remains the largest holder of CSG reserves in Australia 20,000 2C = 4,844 2C = 4,329 4 329 • APLNG participated in 100 wells during the 16,000 2C = 4,32
Slide 58: Substantial progress by Australia Pacific LNG across the project
Substantial progress continues to be made by Australia Pacific LNG across all areas of the project • Following responses to public submissions received on the Environmental Impact Statement (EIS) the Queensland Coordinator-General granted state approval on 9 November 2010 • The Federal Government co
Slide 59: Conditional realignment on timing of FID contingency payment
Origin and ConocoPhillips have agreed a conditional realignment on timing of the FID contingency payment • To better align the economic interests of Origin and ConocoPhillips to progress a final investment decision in the near term, agreement has been reached with ConocoPhillips which includes a pot
Slide 60: 5. Outlook
5. Outlook
Slide 61: Origin expects full year Underlying EBITDA to increase by around 35 per cent
Based on prevailing market conditions, Origin expects full year Underlying EBITDA to increase by around 35 per cent compared with the prior year • Origin expects the trend in operational performance observed in the first half to continue into the second half, half with the following factors also inf
Slide 62: Forward capital expenditure remains significant
Forward capital expenditure remains significant although decreasing in relation to prior years Major commitments in the forward capital program include • Mortlake Power Station • Te Mihi geothermal development • Retail Transformation • BassGas Mid Life Enhancement • Fairview development • Ironbark e
Slide 63: Origin continues to develop significant growth opportunities
Origin continues to develop a number of significant growth opportunities which will expand p the scale and scope p of its business and p provide earnings g growth • Thermal and renewable generation development options options, including new greenfields developments and potential expansion of existin
Slide 64: 2011 Half Year Results
Half Year Ended 31 December 2010 24 Februaryy 2011 2011 Half Year Results
Slide 65: Further Information
Further Information Investors Angus Guthrie Group Manager, Investor Relations g g g gy Email: [email protected] Office: +61 2 8345 5558 Mobile: + 61 4 1786 4255 Website www.originenergy.com.au 65
Slide 66: 6. Appendix
6. Appendix
Slide 67: Income Statement – Australia Pacific LNG
Income Statement – Australia Pacific LNG Summary of Australia Pacific LNG’s performance Total Origin’s 50% ($ million) Dec 10 Dec 10 Dec 09 Operating Revenue 178 Operating Expenses (114) Underlying EBITDA 64 32 24 D Depreciation i ti & A Amortisation ti ti E Expense (35) Unwinding of discount on res
Slide 68: EBITDAX increased $187 million or 26%
EBITDAX increased $187 million or 26% reflecting significant growth in the Exploration p & Production and Generation segments g … Expanded p offshore and international exploration p p program g Higher D&A in line with higher earnings growth Higher financing costs due to increased productive capital
Slide 69: Changes in fair value of financial instruments
Changes in fair value of financial instruments Reconciliation of Statement of Financial Position and Income Statement items associated with financial instruments movements ($ million) Dec 10 Change in net assets (243) Recognised in the Statement of Financial Position 22 Recognised g in the Equity q
Slide 70: Capital Expenditure by Segment
Capital Expenditure by Segment ($ million) Dec 10 Dec 09 Stay-in-business 69 85 Growth1 Exploration & Production 162 119 Generation 210 477 Retail 61 45 Contact Energy 124 155 Total Capital Expenditure 626 881 Acquisitions (net of cash) - 669 Capex including Acquisitions 626 1,550 (1) Includes capit
Slide 71: Origin invested $0.6 billion in growth projects and has $3.0 billion funding capacity
Origin invested $0.6 billion in growth projects, stay in business capital and acquisitions q … Available Funding Capacity as at 31 December 2010 $ billion Cash 0.7 Adjusted Gross Debt (2.7) Adj t d N Adjusted Nett D Debt bt(1) (2) (2 0) (2.0) Undrawn Committed Facilities 2.3 Available Funding Capaci