Origin Energy Limited · ASX:ORG
Origin Energy — FY2010 Earnings Presentation
74 slides from Origin Energy's earnings presentation, Aug 24, 2010
Slide 1: 2010 Full Year Results Announcement
Financial Year Ended 30 June 2010 g 24 August 2010 Celebratingg a decade of growth 2010 Full 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 g , in anyy jjurisdiction (including securities in Origin, ( g the USA). ) This p presentation is for information p purposes p only, y, is in a summaryy form,, an
Slide 3: Outline
Outline 1. Performance Highlights 2. Financial Review 3 Operational Review 3. 4. Outlook 5. Appendix 3
Slide 4: 1. Performance Highlights
1. Performance Highlights
Slide 5: Underlying Profit increased by 10% driven by strong Retail performance
Origin’s Underlying Profit increased by 10% driven by strong Retail performance and contributions from new projects Statutory Profit (1) $612 million down 91% St t t Statutory E Earnings i g per Sh Share (1) 69 7 cps 69.7 d down 91% Underlying EBITDA $1,346 million up 10% Underlying Profit $585 mill
Slide 6: Access to funds and redeployment into operating assets driving growth
Access to funds as a result of the dilution of Origin’s CSG interest in Australia Pacific LNG and their ongoing redeployment into operating assets have been a significant contribution to growth over the last two years … Compound Average Growth Rate since listing: g • Total Shareholder Return: 28% •
Slide 7: Major projects successfully completed during the year
During the year a number of major projects were successfully completed that added to earnings in the current year … • Completed expansion of the Mt Stuart Power Station • Commenced commercial operations p of the Cullerin Range g Wind Farm • Achieved full commercial production from Kupe • Contact com
Slide 8: New opportunities to access additional resources
We have created new opportunities to access additional resources … • Acquired 100% interest in the Ironbark CSG exploration permit (formerly Pangaea) • Achieved drilling success at Trefoil and Rockhopper in the Bass Basin and Redback South and Redback in the Perth Basin • Increased interest in shall
Slide 9: 2. Financial Review
2. Financial Review
Slide 10: 2010 Financial Highlights
2010 Financial Highlights Statutory Profit $612 million down 91% EPS – Statutory 69.7 cps down 91% Revenue $8,534 million up 6% Underlying y g EBITDA $1,346 $ , million up p 10% Underlying EBIT $896 million up 9% Underlying Profit $585 million up 10% EPS – Underlying 66.6 cps up 10% Group OCAT(1) $9
Slide 11: Profit & Loss – Reconciliation of Statutory and Underlying
Profit & Loss – Reconciliation of Statutory and Underlying (($ million)) Jun 10 Jun 09 Change Statutory NPAT 612 6,941 -91% Items Excluded from Underlying Profit(1)(2) Impairment of assets (23) (218) Increase (decrease) in fair value of financial instruments 10 (114) Gain on dilution of Origin’s int
Slide 12: Underlying Financial Performance
Underlying Financial Performance ($ million) Jun 10 Jun 09 Change Revenue 8,534 8,042 6% U d l i EBITDA Underlying 1 346 1,346 1 219 1,219 10% Underlying EBIT 896 819 9% Underlying net financing costs (13) (32) -59% Underlying tax expense (232) (183) 27% Non-controlling Interests(1) share of Underly
Slide 13: Underlying EBITDA up 10% to $1,346 million
Underlying EBITDA up 10% to $1,346 million Segment ($ million) Jun 10 Jun 09 Change Exploration & Production 250 264 -5% Generation 182 107 70% Retail 568 479 19% Contact Energy 346 369 -6% Total 1,346 1,219 10% • Exploration & Production: Contributions from Kupe and increased interest in Otway were
Slide 14: Depreciation & Amortisation increased 11%
Depreciation & Amortisation increased 11% as capital intensive investments commenced contribution … ($ million) Jun 10 Jun 09 Change Exploration & Production 170 158 8% Generation 44 18 144% Retail 65 58 12% Contact Energy 129 135 -4% Total 408 369 11% • Exploration & Production: Increased depreciat
Slide 15: Share of ITDA of Equity Accounted Investees increased 35%
Origin’s share of Interest, Tax, Depreciation and Amortisation (ITDA) of Equity Accounted Investees increased 35%, with a full year of the Australia Pacific LNG JV compared d with ith 8 months th iin th the prior i year ($ million) Jun 10 Jun 09 Change Exploration & Production 32 20 60% Generation 7
Slide 16: Underlying financing costs reduced
Underlying financing costs reduced reflecting ongoing benefit of Australia Pacific LNG transaction ($ million) illi ) Jun 10 Jun 09 Interest Revenue 113 137 Interest Expense (126) (169) Underlying Financing Costs (13) (32) Unwinding of discounted liability payable to APLNG (Item Excluded (111) (140)
Slide 17: Tax Reconciliation
Tax Reconciliation ($ million) illi ) J 10 Jun J 09 Jun Underlying Profit before Tax 883 787 Prima facie tax on Underlying Profit 268 236 Recognition of change in net tax loss position (23) (34) Share of net profit of equity accounted investees (6) (6) Other ((7)) ((13)) Underlying Tax Expense 232 1
Slide 18: Operating Cash Flow
Operating Cash Flow (($ million)) Jun 10 Jun 09 Underlying EBITDA 1,346 1,219 Change in working capital (179) (103) Stay-in-business y capex p ((179)) ((209)) Share of APLNG OCAT net of EBITDA(1) 18 (14) Other 61 24 Tax p paid ((102)) ((120)) Group OCAT(1)(2) 965 797 Net interest paid (165) (136) Fr
Slide 19: Segment Cash Flow Returns
Segment Cash Flow Returns Operating Cash Flow Productive Capital OCFR (%) ($m) % Change ($m) % Change Jun 10 Jun 09 Exploration & Production 227 -9% 1,882 32% 12.0% 17.5% Generation 172 122% 1,210 81% 14.2% 11.6% Retail 381 24% 2,613 7% 14.6% 12.6% Contact Energy 287 1% 3,428 0% 8.4% 8.3% • Explorat
Slide 20: Increase in expenditure on acquisitions led to higher capital expenditure
A significant increase in expenditure on acquisitions led to an increase in total capital expenditure of 17% … Growth Capex • 28% lower than the prior year • Reductions in Generation resulting from Darling 2,837 Downs progressing from construction to 2,426 commissioning, completion of Uranquinty and
Slide 21: Forward committed growth capital program is declining
Origin’s forward committed growth capital program is declining providing funding flexibility to address new opportunities • O Origin’s ’ committed d investment in generation will decline post 2011 with the completion of the Darling Downs and Mortlake power stations • Upstream expenditure reflects on
Slide 22: Fully franked final dividend of 25 cps declared
A fully franked final dividend of 25 cps, in line with the prior year, has been declared … • Ex-dividend date 31 August 2010 • Date of record 6 September 2010 • Payment Date 28 September 2010 • Dividend payout ratio of 75% of Underlying EPS • Dividend Reinvestment Plan will apply to this final divid
Slide 23: 3. Operational Review
3. Operational Review
Slide 24: Exploration & Production
Exploration & Production origin
Slide 25: Exploration & Production: EBITDA reduced 5%
Exploration & Production: EBITDA reduced 5% as contributions from new assets were offset by APLNG dilution, production constraints and higher exploration expense … • Underlying y g EBITDA reduced 5% to $ $250 million with positive contributions from Kupe and Otway offset by APLNG dilution, productio
Slide 26: Gas production increases from Kupe and Otway offset constraints
Increases in gas production from Kupe and Otway have offset production constraints in the Bass and Cooper basins and declines in other minor assets • APLNG has increased production rates to in excess of 270 TJ/day • Kupe commenced production in January 2010; Origin’s share of gas production totalled
Slide 27: Liquids production increased over the year
Liquids production increased over the year with contributions from Kupe and increased equity in Otway … • Production of liquids from Kupe commenced in December 2009 Kupe • BassGas production reduced due to planned maintenance outage from 22 November to early April 2010 and subsequent unavailability
Slide 28: 2P reserves increased by 38% to 6,207 PJe
Origin’s 2P reserves increased by 38% over the year to 6,207 PJe with a 40% increase in CSG reserves … Proved plus Probable Gas LPG Cond Oil TOTAL Reserves (PJ) (kT) (kbbls) (kbbls) (PJe) 30-Jun-09 4,267 1,650 17,312 6,691 4,484 Additions & revisions 1,774 510 5,887 (395) 1,827 Production (89) (94)
Slide 29: Australia Pacific LNG increased production capacity
Australia Pacific LNG has increased production capacity to supply the Darling Downs and Rio Tinto contracts … • APLNG remains Australia’s largest producer of CSG as it meets domestic market contracts • Production capacity has increased to over 300 TJ/day, and is expected to increase to 350 TJ/day or
Slide 30: Australia Pacific LNG project progressing toward final investment decision
Australia Pacific LNG project continues to progress on track in readiness for a final investment decision at the end of the year Timing Milestone (Calendar Years)) 9 Initial Advice Statement (IAS) submitted Q1 2009 Project declared as Significant by the 9 Queensland Government Q Q2 2009 9 Curtis Isl
Slide 31: Progress on regulatory approvals, FEED studies and early works contracts
Significant progress has been made on regulatory approvals, FEED studies and early works contracts … Significant FEED and Early Works Contracts Awarded • $220 million contract signed with Savanna Energy Services for the provision of proprietary hybrid drilling and workover rigs for a five year term
Slide 32: APLNG 2P reserves increasing by 40%
APLNG continues to mature its reserves and resources base with Proved plus Probable reserves increasing by 40% over the year • APLNG remains the largest holder of CSG reserves in Australia • APLNG participated i i d iin 317 wells ll dduring i the h year • 2P reserves increased by 2,878 PJe to 10,143
Slide 33: New LNG projects well placed to meet growing worldwide demand
New LNG projects coming online from 2015 are well placed to meet the expected growing worldwide demand for gas … bcm Capacity of New LNG Projects • Substantial volumes of new LNG capacity 100 has reached the market in recent years, however relatively limited capacity will be 80 added between now and
Slide 34: Kupe production and increased Otway interest
Kupe has delivered six months production and an increase in initial reserves … Kupe • Construction and commissioning completed • Reliable plant operation established • Origin share of 6 months production was 4 4.8 8 PJ of gas, and around 620 kbbls of liquids • Initial 2P reserves increased by 11% in
Slide 35: Bass Basin and Cooper Basin production constrained
Production from the Bass Basin was constrained due to an extended maintenance program and subsequently recommenced production from one well … Maintenance activities being undertaken at BassGas Floodwaters in Coopers Creek BassGas Project Cooper Basin • Maintenance campaign at BassGas completed durin
Slide 36: Expanded offshore and international exploration program in FY2010
In FY 2010 Origin commenced an expanded offshore and international exploration program Khorat Plateau Bang Nouan-1 B N 1 was suspended d d iin M May 2010 pending testing of the gas encountered in the Triassic Kachanarai sands. Costs capitalised at 30 June. Tested in August 2010 and found to be tight
Slide 37: Elevated offshore and international drilling continues in FY2011
In FY 2011 Origin will continue with the elevated level of offshore and international drilling activity seen in FY 2010 Khorat Plateau Two onshore appraisal wells on the Dao Ruang gas discovery in Block L15/50, Northeast Thailand, will be drilled towards the end of calendar year 2010 Offshore Vietna
Slide 38: Generation
Generation origin
Slide 39: Generation: investments provided a 70% increase in EBITDA
Generation: Investments in new generation capacity provided a 70% increase in EBITDA with all new capacity contracted to the Retail segment … • Underlying EBITDA increased 70% or $75 million to $182 million reflecting increased capacity payments f from the th Retail R t il segmentt as O Origin i i i
Slide 40: Cullerin Range Wind Farm and Mt Stuart expansion
The Cullerin Range Wind Farm commenced commercial operations on 1 July 2009 and provided a full year’s contribution … Cullerin Range Wind Farm Mt Stuart Power Station Expansion • Commercial Operation date of 1 July 2009 • Completed in November 2009 • Annual capacity factor of 41% for full year • Loc
Slide 41: Darling Downs Power Station commissioned in June 2010
Darling Downs Power Station was successfully commissioned in June 2010 becoming the largest combined cycle gas turbine plant in Australia • 630 MW baseload combined cycle gas plant including three 120 MW gas turbines and a 270 MW steam turbine • Emits less than half the greenhouse gas and requires l
Slide 42: Mortlake development continues to progress
The Mortlake development continues to progress with commissioning expected to commence in the December Quarter 2010 … Mortlake PS • 550 MW gas-fired peaking plant • Designed for conversion to CCGT at a later stage if required • Final project costs approximately $710 million(1) • Enables Origin to ma
Slide 43: Renewable energy target will drive generation development to 2020
Without a price on carbon the renewable energy target will drive the type of generation developed between now and 2020 to meet underlying growth th in i ddemandd • Origin’s modelling suggests 6,000 MW of Represents mandated 2020 renewable energy target new wind capacity required to be built by 2020
Slide 44: Mortlake completion lifts thermal generation capacity above 3,600 MW
The completion of Mortlake Power Station in FY 2011 will take thermal generation capacity available to Origin to over 3,600 MW … MW Origin's Thermal Generation Portfolio 7,000 • Darling Downs Power Station increased 6,000 Origin’s operating thermal generation capacity to 2,220 MW 5,000 2,670 • The M
Slide 45: Wind generation expected to dominate renewable energy
In the absence of a competitive alternate renewable technology, wind generation is expected to be the dominant source of energy to meet the Renewable Energy Target • Exercised option to acquire the Yass Valley Wind Farm project from Epuron with a capacity of between 222 MW and 420 MW, depending upon
Slide 46: Retail demand increasingly covered by Origin generation capacity
Origin Retail demand is increasingly covered by Origin operated or contracted generation capacity … … reducing risk to retail earnings and creating opportunities for growth 46
Slide 47: Retail
Retail origin
Slide 48: Retail: gross profit for gas and electricity increased
Retail: Gross profit for gas and electricity increased from the combined impact of effective wholesale portfolio management and tariff increases … • Underlying EBITDA increased 19% to $568 million driven by higher gross profit and contributions from solar PV sales,, while cost to serve p per custome
Slide 49: Integrated strategy in Australia across the energy supply chain
Origin continues to develop its integrated strategy in Australia thereby optimising value across the energy supply chain Origin Owned/Contracted EPIC QSN Pipeline contract Gas-Fired Power Stations Enables Qld gas to be transported Uranquinty, Roma, Ladbroke to southern gas and electricity Grove Quar
Slide 50: Low average electricity pool prices reduced energy costs
Low average electricity pool prices during the year reduced energy costs for Origin’s net load … (1) (1) (1) … while volatility over the summer period provided additional returns from cap contracts and internal generation 50 (1) Average of pool prices capped at $300/MWh
Slide 51: Electricity, natural gas and LPG performance metrics
Effective management of wholesale energy costs together with the revised QCA decision and other electricity tariff increases, resulted in an 8% increase in electricity gross profit Performance Metrics and Electricity Natural Gas LPG % change from Jun 09 Commodity Revenue ($m) 4,210(2) +6% 1,044(1) +
Slide 52: Gross profit per customer improved to $323
Gross profit for gas and electricity customers improved by 9% over the year to $323/customer … Gas & Electricity Customers Jun 10 Jun 09 Change Customer numbers (’000) 2,589 2,610 (21) Underlying EBITDA / Sales 9.5% 8.8% 0.7% Underlying EBIT / Sales 8.8% 8.1% 0.7% $ Per Customer: Gross Profit / Cust
Slide 53: Market churn continues to increase
Market churn continues to increase in most segments … Market Churn: 12 Month Average State Fuel Jun 09 Change Jun 10 Vic Electricity 27% - 27% Vic Gas 23% + 6% 29% QLD Electricity 19% + 3% 22% QLD Gas 12% - 12% SA Electricity 15% - 1% 14% SA Gas 11% - 11% NSW Electricity 12% + 2% 14% NSW Gas 4% + 3%
Slide 54: Customer numbers remained largely stable
Customer numbers remained largely stable against increasing market competition with a decline of 0.8% relative to June 2009 Account Numbers (000’s) Natural Gas Electricity Total • A marginal net increase in gas customers was Jun 2009 867 1,743 , 2,610 , more than offset by a net decrease in Change +
Slide 55: Retail Transformation program progressing as planned
The Retail Transformation program is progressing as planned • Retail Transformation is Origin’s long term investment in transforming the Retail business to build capability that will support an improved customer experience and future market flexibility, and to improve underlying operating efficiency
Slide 56: Sales of solar photovoltaic panels more than doubled
Sales of solar photovoltaic panels in the year has more than doubled … • Origin has grown its solar business over the past five years and is beginning to see the benefits of this strategy with a doubling of residential and commercial sales revenue over the last 12 months to in excess of $100 million
Slide 57: Additional sustainable energy offerings introduced
Origin has introduced additional sustainable energy offerings … • During the year Origin completed the acquisition of Cogent Energy, a niche provider of co- and tri-generation solutions • The business was integrated into the Origin business and two new plants installed and commissioned Illustration
Slide 58: LPG Underlying EBITDA was $50 million
Underlying EBITDA was $50 million, up 11% from $45 million in the prior year • Sales S l volumes l were 491 ktonnes k f the for h year, up 3% on the h prior i year • Customer accounts currently 349,000, up 2,000 compared to June 2009 • CP prices increased $22/tonne 58
Slide 59: Contact Energy
Contact Energy @) origin
Slide 60: Contact Energy: earnings were lower
Contact Energy: Earnings were lower due to higher energy, network and take-or-pay p yggas costs not fullyy recovered in the wholesale and retail markets due mainly to higher than normal rainfall • EBITDA was $346 million, million down 6% on last year, year primarily due to a lower margins in the Ele
Slide 61: Major projects due for completion will restore portfolio flexibility
A number of major projects due for completion in the coming year will restore flexibility to the portfolio … • Te Huka (23 MW, NZ$100m): The first phase of low- variable cost geothermal generation from the Tauhara resource area completed early early, below budget and operating above expected capacit
Slide 62: 4. Outlook
4. Outlook
Slide 63: Projects and acquisitions expected to increase contributions
In the coming year a number of development projects and acquisitions are expected to make initial, or increased contributions, to Origin’s performance • A full year contribution from the Kupe in New Zealand; • A full year contribution from Origin’s higher equity in Otway which increased from 31% to
Slide 64: Expanded offshore and international drilling continues in 2011
In 2011 Origin will continue with the expanded level of offshore and international drilling activity seen in 2010 … …including two appraisal wells in the Khorat Plateau in Thailand… …two exploration p wells in the Northland Basin New Zealand… …and the Silvereye exploration well in the Bass Basin… Ba
Slide 65: $3.4 billion of available liquidity to fund growth
Origin has significant financial capacity to fund future growth with $3.4 billion of available liquidity including cash and undrawn facilities • Completed C l t d refinancing fi i off A$2 A$2.00 billion billi of FY2011 debt and A$0.6 billion of additional financing in April 2010 • A$150 million bank
Slide 66: Pursuing a wide range of opportunities to drive growth
Over the next year Origin is pursuing a wide range of opportunities to drive continued growth … • A final investment decision by Australia Pacific LNG on its LNG project • The New South Wales Government’s energy asset sales process • Pursuit of a substantial portfolio of renewable energy opportuniti
Slide 67: 2010 Full Year Results A Decade of Growth
Full Year Ended 30 June 2010 g 24 August 2010 Celebratingg a decade of growth 2010 Full Year Results A Decade of Growth
Slide 68: Further Information
Further Information Investors Angus Guthrie Group Manager, Investor Relations g g g gy Email: [email protected] Office: +61 2 8345 5558 Mobile: + 61 4 1786 4255 Website www.originenergy.com.au 68
Slide 69: 6. Appendix
6. Appendix
Slide 70: Profit & Loss – Australia Pacific LNG
Profit & Loss – Australia Pacific LNG Summary of Australia Pacific LNG’s performance Origin’s 50% Total ($ million) Jun 10 Jun 09 Jun 10 (12 mths) (8 mths) Operating Revenue 250 Operating Expenses (161) Underlying EBITDA 89 45 29 Depreciation & Amortisation Expense (47) Income Tax Expense (15) U d l
Slide 71: Asset Impairments
Asset Impairments ($ million) Pre-tax Post-tax Hovea Assets 14 10 Jingemia Assets 3 2 Brompton Site 4 3 N New Z Zealand l dO Onshore h A Assets t 8 6 LPG ships 4 3 Impairment of Assets 33 23 71
Slide 72: 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) Jun 10 Change in net assets 24 Recognised in the Statement of Financial Position 9 g Recognised in the Equity q y He
Slide 73: Capital Expenditure by Segment
Capital Expenditure by Segment ($ million) Jun 10 Jun 09 Stay-in-business 179 209 Growth Exploration & Production 294 531 Generation 764 1,155 Retail 88 79 Contact Energy 328 288 Total Capital Expenditure 1,653 2,262 Acquisitions (net of cash) 1 184 1,184 165 Capex including Acquisitions 2,837 2,426
Slide 74: Invested $2.8 billion in growth projects, stay in business capital and acquisitions
Over the year Origin has invested $2.8 billion in growth projects, stay in business capital and acquisitions … Balance Sheet Capacity as at 30 June 2010 $ billion Cash 0.8 Adjusted Gross Debt (2.5) Adjusted Net Debt(1) (2) (1.7) Undrawn Committed Facilities 2.6 Available Funding Capacity 3.4 (1) Net