Origin Energy Limited · ASX:ORG
Origin Energy — HY2020 Earnings Presentation
53 slides from Origin Energy's earnings presentation, Feb 20, 2020
Slide 1: Origin Energy 2020 Half Year Results
Origin Energy 2020 Half Year Results Half year ended 31 December 2019 Frank Calabria, CEO & Lawrie Tremaine, CFO 20 February 2020
Slide 2: Outline
Outline 1. Performance Highlights - Frank Calabria 2. Financial Review - Lawrie Tremaine 3. Operational Review - Frank Calabria 4. Outlook - Frank Calabria 2 20 February 2020 2020 Half Year Results Announcement
Slide 3: Performance Highlights
Performance Highlights Frank Calabria, CEO 3 20 February 2020 2020 Half Year Results Announcement
Slide 4: HY2020 financial highlights
HY2020 financial highlights Statutory Profit Underlying Profit Underlying ROCE 12 month rolling $599 $528 8.3% million million (34.0 cps) (30.0 cps) 25% decrease including lower net gain 11% decrease: introduction of regulated 0.3% decrease on December 2018 on fair value and FX movements retail elec
Slide 5: Strong operational performance in HY2020
Strong operational performance in HY2020 Integrated Gas Energy Markets • Record half year production - improved upstream • Unplanned generation outages detracted from an field and facility performance otherwise strong operational performance • ERIC pipeline brought online, improving utilisation • Mo
Slide 6: We are committed to delivering for our stakeholders
We are committed to delivering for our stakeholders Transforming customer Committed to safety and Caring about our impact diversity experience Strategic NPS Regional procurement spend as a TRIFR – rolling 12 months % of total spend 5 4.5 Jun-19 Dec-19 14% 4 3.5 - 15% 12% 3 (2) (1) 10% 2 (4) 5% 1 (6)
Slide 7: We are driven by our Purpose of “Getting energy right”
We are driven by our Purpose of “Getting energy right” … for our Customers … for our Communities … for the Planet • Moving to a simpler, digitised • >$200 million direct and indirect • 1.5⁰C scenario analysis published customer experience regional spend in HY2020 for wholesale electricity portfolio
Slide 8: We operate in a rapidly changing energy market
We operate in a rapidly changing energy market NEM forward prices declining Renewables impacting intra-day volatility Gas prices declining (NSW $/MWh) (Average NEM demand July- Sep (GWh) (A$/GJ) 30 14 130 120 28 12 110 26 10 100 24 8 90 22 6 80 20 4 70 18 2 60 Opportunity for flexible capacity 50 16
Slide 9: Executing our strategy to deliver value in a changing energy market
Executing our strategy to deliver value in a changing energy market Executing a clear strategy Building a track record Positioned for growth Energy Markets • >$100m retail cost out on-track, planning next wave of transformation ✓ Transforming culture • Building a digital IoT capability, Accelerate t
Slide 10: Operational performance driving returns for shareholders in FY2020
Operational performance driving returns for shareholders in FY2020 ✓ APLNG targeting in FY2020: ‒ Improved production at upper end of 690-710 PJ range ‒ Lower distribution breakeven at US$29-US$321/boe, including ~US$8/boe project finance principal repayment Operational performance driving ‒ Higher
Slide 11: Financial Review
Financial Review Lawrie Tremaine, CFO 11 20 February 2020 2020 Half Year Results Announcement
Slide 12: HY2020 financial highlights
HY2020 financial highlights Statutory Profit Underlying Profit Underlying EBITDA $796M $592M $1,727M $1,590M $528M 45.3 cps $599M 33.7 cps 34.0 cps 30.0 cps HY19 HY20 HY19 HY20 HY19 HY20 Energy Markets Integrated Gas Corporate Underlying ROCE Free Cash Flow1 Adjusted Net Debt (rolling 12 months) 8.6
Slide 13: Accounting changes adopted from 1 July 2019
Accounting changes adopted from 1 July 2019 AASB 16 Leases APLNG dewatering and workover costs: • Adopted from 1 July 2019, prospectively • Change in treatment from 1 July 2019, prospectively • Lease liability and corresponding right-of-use asset • Previously capitalised recognised • Now expensed as
Slide 14: Underlying Profit decreased 11%
Underlying Profit decreased 11% Movements in Underlying Profit ($m) 15 (14) (129) 52 (47) 7 51 592 528 Primarily Higher Primarily Lower Includes lower production & impact of commodity Mortlake self electricity LNG sales AASB16 Lease hedging costs insurance cost gross profit volumes standard HY2019 E
Slide 15: Energy Markets Underlying EBITDA down 15%
Energy Markets Underlying EBITDA down 15% Movements in Underlying EBITDA ($m) Electricity gross profit down $170 million or 24% to $549 million: • Regulation: VDO/DMO price impact (-$55 million) (170) (15) 40 16 • One off unplanned outages: Mortlake and Eraring (-$44 million), 852 Mortlake costs exp
Slide 16: Integrated Gas Underlying EBITDA up 7%, excl. accounting change
Integrated Gas Underlying EBITDA up 7%, excl. accounting change Movements Underlying EBITDA ($m) (36) (59) 25 15 (20) 81 Share of APLNG Share of APLNG Integrated Impact of accounting EBITDA growth Gas - Other 900 changes (-$56 million) (+$15 million) 906 (+$47 million) Up $62 million, or 7% HY2019 W
Slide 17: Free cash flow up 22% on APLNG performance
Free cash flow up 22% on APLNG performance ($m) HY20 HY19 Change • Operating cashflow down 37% to $351 million Cash from operating activities 351 553 (202) – Underlying EBITDA (-$137 million) Distributions from APLNG 520 393 127 – Tax payments (-$115 million) Capital expenditure (258) (189) (69) • D
Slide 18: FY2020 capex driven by generation maintenance and Beetaloo
FY2020 capex driven by generation maintenance and Beetaloo Capex ($m) 600 • Majority of FY2020 generation sustain spend occurred in HY2020 (Mortlake repairs, Eraring maintenance, major overhaul at Uranquinty) 500 • Other sustain weighted to H2 FY2020 (LPG capex, ERP system and spend associated with
Slide 19: APLNG cash flow increasing, oil & LNG hedging/trading costs reducing
APLNG cash flow increasing, oil & LNG hedging/trading costs reducing APLNG estimated distribution and Origin oil/LNG hedging and trading (A$m) 981m 1,400 Actual Estimated Range • Estimated FY2020 APLNG cash distribution to Origin of $1.1 - $1.3 billion 1,200 – Assumes performance is consistent with
Slide 20: Proportionate free cash flow and returns
Proportionate free cash flow and returns Proportionate Free Cash Flow and Yield1 Underlying ROCE 2,500 15% 13.6% 12.2% 2,000 10.2% 10% 9.1% 1,500 7.7% 8.4% 8.2% 8.3% 1,000 5% 500 4.1% - 0% FY18 FY19 CY19 FY18 FY19 CY19 Disposals Share of APLNG Origin Energy Markets Integrated Gas Origin - excl share
Slide 21: Continuing to optimise debt book for cost and tenor
Continuing to optimise debt book for cost and tenor Debt maturity profile - excluding lease liabilities (A$b) • Adjusted Net Debt / Adjusted Underlying EBITDA 2.7x (2.5x excluding impact of lease accounting change) 2.5 • Active refinancing during HY2020 to lower interest rates and 2.0 increase tenor
Slide 22: Operational Review
Operational Review Frank Calabria, CEO 22 20 February 2020 2020 Half Year Results Announcement
Slide 23: Energy Markets
Energy Markets 23 20 February 2020 2020 Half Year Results Announcement
Slide 24: Lower sales volume, stable generation
Lower sales volume, stable generation Electricity sources and uses (TWh) Natural Gas sales (PJ) 20 Short Position Generation Losses Generation 15 Swap Contracts Other Business Business - Gas Wholesale Business - 10 Wholesale Owned and contracted Coal (Eraring) generation Business - Business - 5 Reta
Slide 25: Mortlake back in service, peak capacity improvements installed
Mortlake back in service, peak capacity improvements installed Unit outage • One of the two units at Mortlake was damaged by an electrical fault on 8 July 2019 and was repaired and returned to service on 24 December 2019 • Improvements made to increase capacity by up to 20 MW per unit in hot weather
Slide 26: Strong gas supply position benefiting from lower market prices
Strong gas supply position benefiting from lower market prices Energy Markets East Coast Gas Supply (PJ) 300 Short term volumes purchased to match duration of C&I sales Retail 250 contracts customers 200 150 Flexible Business - supply Business - 100 C&I portfolio Wholesale 50 0 FY19 FY20 FY21 FY22 F
Slide 27: Disciplined approach to managing for Customer Lifetime Value
Disciplined approach to managing for Customer Lifetime Value In Situ vs moves churn (Monthly) Wins/Retains (’000s) Customer movement 25% Residential (‘000 customers) 1,400 10 HY2020 1,200 20% 5 1,000 15% - 800 10% 600 (5) 400 (10) 5% 200 Origin moves NPS +49 (15) 0% - Sep-18 Sep-19 Jul-18 Oct-18 May
Slide 28: Cost to serve reducing in line with our >$100 million target
Cost to serve reducing in line with our >$100 million target (10) (10) 307 (8) (12) 267 Transformation activities: $28 million benefit • Increasing digitisation • Targeted marketing and optimised channels • Transforming customer journeys • Leaner operational structure • Automated processes and outso
Slide 29: Focused on customers, cost and growth
Focused on customers, cost and growth Grow w revenue Transform customer Target market Growstreams new revenue experience leading cost position streams Digital Interactions/Call volumes Online sales (%) CES Gross Profit ($ million) Six months ended +580% Call volume Digital interactions 20 17 39 15 3
Slide 30: Medium term drivers in Energy Markets
Medium term drivers in Energy Markets Key Drivers Market context Origin context • Relatively fixed cost generation position on 15-20 TWh of supply • Forward electricity and LGC prices trending • Fixed cost PPA position on ~3 million certificates p.a. Wholesale prices down (prior to including Stockya
Slide 31: Integrated Gas
Integrated Gas 31 20 February 2020 2020 Half Year Results Announcement
Slide 32: Record APLNG production from improved field & facility performance
Record APLNG production from improved field & facility performance APLNG Production 400 (100%) (PJ) • Record production of 358 PJ in HY2020, up 5% from 350 HY2019: 300 – Record operated daily production rate of 1,612 TJ/day achieved on 3 December 2019 250 200 • Higher production due to: – Improved p
Slide 33: Record production and lower capex resulted in lower unit costs
Record production and lower capex resulted in lower unit costs Capex & Opex excl. purchases 1,600 4.0 • Unit costs reduced to $3.5/GJ, down 13% from HY2019 1,400 • Lower costs due to: 1,200 3.0 – operated cost per well2 down from $1.7 1,000 million to $1.2 million – operated costs3 down from $1.1/GJ
Slide 34: APLNG sales mix and realised prices
APLNG sales mix and realised prices Sales Volume (PJ) Average realised gas Price (A$/GJ) 400 14 350 12 300 10 250 8 200 6 150 4 100 50 2 - - HY18 HY19 HY20 HY18 HY19 HY20 LNG contract LNG spot Domestic legacy contracts Domestic other contracts LNG Domestic Weighted average • No Downward Quantity Tol
Slide 35: Upstream field performance underpins upgraded FY2020 guidance
Upstream field performance underpins upgraded FY2020 guidance FY20 previous FY20 updated APLNG (100%) FY18 FY19 guidance guidance Production (PJ) 676 679 690 – 710 690 - 710 Capex + opex, excl. purchases1 (A$bn) 2.6 2.7 2.8 - 3.0 2.5 - 2.7 Unit cost A$/GJ 3.8 4.0 3.9 - 4.3 3.5 - 3.9 Distribution bre
Slide 36: APLNG commercial update
APLNG commercial update • Long term LNG customers have declared DQT for calendar • Tri-Star proceedings year 2020 – APLNG’s position remains unchanged since 2014 that • Cash flow from calendar year 2019 deferred cargoes reversion has not occurred received in January 2020 – APLNG expects to file its
Slide 37: Reserves base continuing to perform well
Reserves base continuing to perform well APLNG reserves position1,2 (PJ) 18,000 • Reserves converging towards 3P since FID 15,000 • Field performing in line with expectations 12,000 • Continue to mature the resource and reserves base via acquisitions (Ironbark), exploration and 9,000 appraisal such
Slide 38: Beetaloo – stage 2 appraisal update
Beetaloo – stage 2 appraisal update Kyalla shale liquids rich gas play • Vertical section successfully drilled in November 2019 • Operational issues encountered on initial horizontal section • New horizontal section successfully drilled in February 2020, preparations are underway for the next phase
Slide 39: Outlook
Outlook Frank Calabria, CEO 39 20 February 2020 2020 Half Year Results Announcement
Slide 40: FY2020 Guidance update
FY2020 Guidance update Provided on the basis that market conditions do not materially change and the regulatory and political environment do not adversely impact on operations • Energy Markets (unchanged), lower than FY2019 FY19 FY20 previous FY20 updated reflecting: guidance guidance ‒ Electricity
Slide 41: Questions
Questions 41 20 February 2020 2020 Half Year Results Announcement
Slide 42: Appendix
Appendix 42 20 February 2020 2020 Half Year Results Announcement
Slide 43: Segment summary
Segment summary Energy Markets Integrated Gas Integrated Corporate Total 1,2 1,2 - Share of APLNG Gas - Other ($m) HY20 HY19 HY20 HY19 HY20 HY19 HY20 HY19 HY20 HY19 Underlying EBITDA 723 852 1,033 1,042 (127) (142) (39) (25) 1,590 1,727 Underlying EBIT 484 657 359 307 (139) (150) (39) (25) 665 788 U
Slide 44: Underlying ROCE – rolling 12 months
Underlying ROCE – rolling 12 months As at 31 Dec 2019 31 Dec 2018 Change Change ($m) ($m) ($m) (%) Capital Employed Net Assets 13,733 12,788 945 7 including: Investment in APLNG 7,323 6,590 733 11 MRCPS issued by APLNG 2,662 3,445 (783) (23) Non-cash fair value uplift (24) (26) 2 (8) Adjusted net as
Slide 45: Reconciliation of Adjusted Net Debt
Reconciliation of Adjusted Net Debt Issue Issue Hedged Hedged AUD $m AUD $m AUD $m Currency Notional Currency Notional 31-Dec-19 31-Dec-19 31-Dec-19 Interest- Debt and CCIRS Adjusted Net bearing fair value Debt liabilities adjustments AUD debt AUD 803 AUD 803 803 - 803 USD debt left in USD USD 1,191
Slide 46: Oil and LNG hedging and trading
Oil and LNG hedging and trading FY2020 oil and LNG hedging and trading FY2021 oil hedging • FY2020 estimated underlying oil price of US$68/bbl1 • Oil hedging positions: compared to US$73/bbl in FY2019 ‒ 3.1 mmbbl A$90/bbl fixed price swaps • FY2020 oil and LNG hedging and trading costs expected to ‒
Slide 47: Electricity forward price by state
47 70 80 150 100 110 130 50 60 90 120 140 70 80 150 110 100 130 50 90 120 60 140 Jul-16 Jul-16 Aug-16 Aug-16 Oct-16 Oct-16 Dec-16 Dec-16 Feb-17 Feb-17 Source: AEMO/Bloomberg Apr-17 Apr-17 20 February 2020 Jun-17 Jun-17 Aug-17 Aug-17 Oct-17 Oct-17 Dec-17 Dec-17 Feb-18 Feb-18 Apr-18 Apr-18 Jun-18 Jun-
Slide 48: LREC prices and LREC position
LREC prices and LREC position LREC forward prices Origin’s LREC position ($/cert) 80 7 Millions 70 6 60 5 50 4 40 3 30 20 2 10 1 - - Jul-18 Sep-18 Nov-18 Feb-19 Apr-19 Jul-19 Sep-19 Nov-19 Feb-20 CY2020 CY2021 CY2022 CY2023 CY2024 CY19 CY20 CY21 Legacy & Contracts Recent solar deals FY20 Average FY2
Slide 49: Beetaloo timeline
Beetaloo timeline CY2019 CY2020 CY2021 Stage 2 E&A Liquids rich plays KYALLA Results Site & drilling prep Drilling Stimulation & EPT & analysis VELKERRI Site & drilling prep EPT, results Drilling & stimulation & analysis Stage 3 E&A Two horizontal Preparation wells, target depends Drilling, stimulat
Slide 50: Beetaloo – multiple stacked plays increases chance of success
Beetaloo – multiple stacked plays increases chance of success CY20 Velkerri CY20 Kyalla liquids-rich Shale Shale Play1 Play1 1) Well locations are illustrative only Stage 2 targeting Kyalla and Velkerri liquids rich gas plays • Kyalla shale liquids rich gas play: • Velkerri shale liquids rich gas pl
Slide 51: 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 52: Important Notices
Important Notices All figures in this presentation relate to businesses of the Origin Energy Group (Origin, or the Company), being Origin Energy Limited and its controlled entities, for the reporting period ended 31 December 2019 (the period) compared with the reporting period ended 31 December 2018
Slide 53: For more information
For more information Peter Rice General Manager, Capital Markets Email: [email protected] Office: +61 2 8345 5308 Mobile: + 61 417 230 306 Liam Barry Group Manager, Investor Relations Email: [email protected] Office: +61 2 9375 5991 Mobile: + 61 401 710 367 www.originenergy