Earnings Call: H1 2021

Feb 22, 2021

Good morning. I'm Yoko Kusui, APA's GM Investor Relations and Analytics. Thank you for standing by, and welcome to APA's Interim Results Call. Joining us on the line are APA's CEO and Managing Director, Rob Wheels and CFO, Adam Mortson, who will take you through the presentation followed by Q and A for investors and financial We a of financial to Rob Wheels. Thanks, Yoko, and good morning, everyone. I'm really pleased to address you this morning, and thank you for joining this morning's call. Well, twelve months into the COVID-nineteen pandemic and what a year it's been. I want to say at the outset how proud I am of the way our people have responded to the challenges COVID-nineteen has thrown our way, and thank them for their ongoing commitment and resilience. Against the backdrop of what have been challenging market conditions, APA has again delivered another solid financial performance for the half with strong volume growth in some key markets. Our performance for the period demonstrates the underlying strength and resilience of our business. Our decision to upgrade our financial 'twenty one distribution guidance to $0.51 both reflects our confidence in the business and the capacity that exists within our balance sheet. As we indicated last week, we have taken an impairment on the Orbost gas processing plans in these results, and you will see that reflected in our reporting today. While that is disappointing, I think it is important to note that we are making progress, and recent works to improve the plant's performance are showing positive results. In the last number of weeks, we've seen steady production between 40 to 45 terajoules a day. We also have more confidence in our development pipeline. I'm pleased to say that we now expect that our organic growth CapEx will exceed $1,000,000,000 over the next two to three years. And our refreshed growth strategy incorporates a focus on opportunities in the broader energy infrastructure sector, including gas and electricity transmission, renewables and firming, and of course, North America. We have a wonderful opportunity to invest in innovation and technology through our new Pathfinder program, something we're really excited about. Pathfinder will help us future proof our business by pursuing opportunities in new and emerging technologies like hydrogen to leverage our existing capabilities and assets. Pathfinder will be a key enabler in our efforts to support a lower carbon future and our ambition to achieve net zero operations emissions by 02/1950, which we're also announcing today. We've spent much of the past eighteen months or so putting in place the foundations for this next chapter in the APA story. And so importantly, and you'll be pleased to know, we're now truly in execution mode, and we're ready to capture the significant opportunities before us. I'd like to summarize upfront my key three key three key messages for you today. Firstly, we have a solid set of first half results, a positive long term outlook with earnings reconfirmed, distribution guidance increased and expectation that we will now exceed $1,000,000,000 in growth CapEx between financial years 'twenty one to 'twenty three, supported with a further capital management focus. Secondly, we have confidence in the outlook of for natural gas, both globally and in Australia, as the energy market transitions over the coming decades. And thirdly, we are committed to our vision to be world class in energy solutions with our refreshed strategy. Turning to the next slide. The scale of the opportunity that we see in front of us is enormous, and the graphs on the slide from the International Energy Agency show that. As the global energy market transitions, the IEA forecasts that there will be over USD 50,000,000,000,000 of investment required in energy infrastructure around the world. That's USD 50,000,000,000,000 of investment under whichever scenario you look at. I hope you feel excited by that opportunity as much as we do. And the graph on the right underscores even as the energy market transitions, gas will continue to play a critical role in our energy future, delivering around onefour of global energy demand out to 2,040, again, irrespective of scenario. Here in Australia, we remain absolutely confident that natural gas will continue to be a critical and ongoing part of our national energy mix, delivering energy security, firming and high heat capability for the industrial sector. The Australian government has further underscored the important role of gas in supporting Australia's economic recovery from COVID-nineteen, And APA is central to that plan. Phased expansion of the East Coast grid is the fastest and most efficient way to deliver on the government's objectives, including to address forecast twenty twenty four shortfalls in gas supply to Southern markets. And I'm pleased to say that we've already begun work. Upgrades at our Wollongbilla Gas Hub in Queensland have been completed, and we have front end engineering design studies underway for a three stage program to increase capacity by as much as 50%, that's half, from Wallabilla in Queensland through to Sydney. The scale of those potential investments that I've just described on the East Coast grid and elsewhere give us confidence that we will now exceed the $1,000,000,000 of growth CapEx that we highlighted only six months ago. You already know about more than half of those, including our investments in the Northern Goldfields Interconnect, which we announced during the half, and the Western Outer Ring Lane on the Victorian transmission system. It also includes the Gruyere hybrid energy microgrid, which, while small in the grand scheme of things, is actually an exciting demonstration of our ability to combine multiple energy solutions together to deliver world class solutions for our customers. With that in mind, we can already see a prospective organic growth pipeline of investment opportunities exceeding $5,000,000,000 over the next five to ten years. Let me say that again: an organic growth pipeline exceeding $5,000,000,000 over the next five to ten years. So you have every reason to feel extremely confident in the strength of the organic growth outlook. Next slide. I'll now update you on the focus areas of our refreshed strategy. Consistent with our vision to be world class in energy solutions, our refreshed strategy positions APA for growth in those areas where we either have or are rapidly developing capability. Let me illustrate that for you. So in Australia, there are more than $60,000,000,000 of investment opportunities over the next two decades. But in The U. S, and we know the market is much bigger there, the market is about 40x the size, we estimate there are around US2.6 trillion dollars in investment opportunities. And on top of that, there are potentially $11,000,000,000,000 of investments globally in the hydrogen economy. So there's much to play for, and APA is well placed to benefit. To focus specifically on The United States for a moment, North America remains an extremely attractive market for APA and is key to our refreshed strategy. As you know, we've been in that market now for a while, and we have assessed a number of opportunities. 2020 was, of course, a tough year to acquire assets in North America. There were, in fact, very few transactions as a result of the impact of COVID-nineteen and the election, these factors just making transactions challenging for various reasons. But we've learned a lot, including that The U. S. Is much more integrated than the Australian market. For example, many companies have expanded their energy infrastructure capabilities and expertise across a range of products, such as those integrated across both gas and electricity. And so while we remain completely disciplined in our approach, as evidenced by the period we've been looking at North America, we now very much see our transaction pathway is either via gas pipelines and utilities or via integrated energy infrastructure as we play for our stake in that $2,600,000,000,000 of opportunities that I talked to earlier. And I look forward to updating you further on our progress in North America in due course. Next slide. So the final piece in the puzzle when it comes to our growth agenda is our new Pathfinder program, which, as I said earlier, I'm very, very excited about. Pathfinder will seek out opportunities to extend our core business, including into projects, equity investments and R and D. This will help us unlock the innovation, technology and new opportunities that will make us truly world class in energy solutions. Our initial focus will be on clean molecules, off grid renewables and storage. And as I said earlier, it will be Pathfinder will be a key enabler in our pathway to our new ambition for net zero operations emissions by 02/1950. Next slide. Our first Pathfinder project is relatively small in dollar terms but carries enormous significance for APA and the entire industry. The project is targeted to enable the conversion of around 43 kilometers of the Palmilia gas pipeline, which is near Perth in Western Australia, into Australia's first 100% hydrogen ready transmission pipeline. That could be a real game changer. If successful, this will be one of only a few such hydrogen ready transmission pipelines in the world. Just think about that. And it will create a significant opportunity for the development of a hydrogen hub in the Kwinana Industrial Precinct near Perth. Of course, transmission of hydrogen at scale is a critical part of the Australian Government's hydrogen ambition, And we'll also support the Western Australian Government's hydrogen blending target, which where they're targeting to blend in about 10% into the system by 02/1930. So I really look forward to updating you in the future on both the development of this exciting Pomilla gas pipeline project and also in what I anticipate will be a significant pipeline of Pathfinder projects to come down the line. So to recap, our refreshed strategy creates a stronger alignment with our purpose and vision, and it better enables us to capture the vast and broader energy infrastructure opportunities before us, which I've talked to earlier. We're committed to growing our core business, and as I said, more than $5,000,000,000 of opportunities on the horizon while leveraging our proven capability in energy infrastructure into new opportunities and markets. At the same time, our exciting and new Pathfinder program will help us unlock the innovation, technology and new energy opportunities of tomorrow. We remain committed, of course, to delivering on our customer promise, which is to deliver services our customers value. And we'll maintain a laser like focus on disciplined investment, maintaining the strength of our balance sheet and last but not least, growing securityholder value. I'll now shift focus to the how. And as I said at the outset, as a team, we're now firmly focused on execution. We've got our new operating model and organization structure now embedded, and we're continuing to deepen our talent pool so that we have the skills we need to grow our business today and make sure that we can capture those opportunities of the future. We're also focused on efficiencies and economies of scale across the business and unlocking those, enhancing our operational and corporate systems, introducing things like cloud based technology and data storage, and reducing manual handling and duplication through process improvement. So real focus on efficiency. Turning to our net zero ambition. With our new ambition for net zero operations emissions by 02/1950, we take a further step forward in our support for a lower carbon future and the Paris Agreement goals, leveraging the momentum that we've already created over the last little while through our resilience report issued last end of last year, our climate change position statement and, of course, our seven fifty million dollars of investments to date in renewables energy generation. Net zero emissions is a huge challenge for any business, industry or country And our focus will be on those five priority areas, which are detailed on that slide. And we'll our efforts will be underpinned by measurable and transparent interim targets, which we'll announce in financial year 'twenty two. Our commitment to climate action forms part of our broader efforts to strengthen the environmental, social and governance, or ESG, performance of our business, and that includes sharpening up our sustainability and community capability, which we've been focused on over the past year improving controls to identify modern slavery risks across our business and, of course, commitments to diversity and inclusion. I'd like to point out the on the slide, the green Grad Connection Top 100 finalist badge, which we're very proud of. And APA, just in the last couple of weeks, was announced we rose eight places in the most recent rankings. We made further important headway on our sustainability journey during the period, and some of those key highlights are called out on the slide. Of particular note is the climate change resilience report, which we published and I mentioned earlier, which provides a very comprehensive analysis of the resilience of APA's current asset portfolio under three divergent climate scenarios through to 02/1950. And it importantly confirms that our current portfolio of assets remains robust under each of those model scenarios, including the 1.5 degree Celsius pathway. But separately and importantly, it also underlines for us the opportunities we have for diversifying our capital investments as the energy transition happens into the future. All right. Finally, I'm going to turn to our operational performance during the half. Safety is, of course, our highest priority, and we saw some small improvements during the half. Unfortunately, our TRIFR and our lost time injury frequency rate were both above our target for the half, and this is a continuing area of attention for us as we seek to not only drive those numbers down, but most importantly, the safety of our people and our contractors. Personally, I'm determined that everyone who visits one of our sites should go home safely and free of harm. So that remains a critical area of focus, as I said, for myself and my team. More broadly, we've achieved some positive industry recognition for our process safety program. And I'm pleased to say that our progress is tracking to plan. We've also achieved positive milestones in our indigenous engagement and environmental management and heritage protection initiatives undertaken during the half. On the customer and stakeholder front, our pilot program, which we introduced to enhance stakeholder engagement and transparency as we develop access arrangements for our regulated transmission pipelines, actually proved tremendously successful and earned us the prize from the Australian Energy Regulator. With the impacts of COVID still reverberating and true to our customer promise, we continued to support our customers during this difficult period. Many of our customers are understandably under pressure, and we've been working with them. For example, our revised arrangements for the transportation of ethane feedstock to Quinas' botany plant recognizes the significant cost pressures manufacturers currently face. We have a new five year agreement that ensures both the safe and reliable delivery of ethane to the botany plant, but importantly also helps protect Australian jobs and support economic activity right around the country. At an operational level, we again achieved some really outstanding results during the half. Of course, the the the able to And have have COVID-nineteen pandemic. On been which had to be completed during that period. And despite the logistical difficulties, our people completed this project on time and on budget. And the project recorded excellent health and performance in the face of what were significant challenges moving specialists and parts from overseas and interstate. So really well done to all of those involved in that. Our Phase two plant works undertaken for the Orbost Gas Processing Plant in Victoria have now been completed. Root cause analysis is still ongoing to address the foaming and fouling issues. And there will be ongoing targeted works in 2021 to improve planned operations and increase rates above the current level. I'd like to emphasize that irrespective of the impairment charge, Orbost remains an important asset to APA, and we continue to work with our customer, Cooper Energy, to achieve sustainable and reliable nameplate capacity. And across the business, we achieved a 99.92% reliability on customer gas nominations, which we're very pleased with, and at the same time, delivering operational flexibility and agility as we delivered high performance for our customers. So with that, I'll hand over to Adam. Well, thank you, Rob, and hello to everyone on the call. It's firstly, it's just a real privilege to be able to present to you today. I'm obviously new to APA, and, again, it's a real privilege to be part of the new APA executive team. So I look forward to what will be, no doubt, many conversations to follow. If I take you to Slide 19 of our presentation. And as Rob highlighted, we had a solid half year performance. And ordinarily, we wouldn't suggest that flat revenue growth and EBITDA growth down 2% is solid. But again, when you look at it through the context of the challenging market conditions, which Rob has spoken to, and the growth that we achieved in a number of our key markets, we're really pleased with the result. And importantly, we've tested the resilience of the business during a time when most sectors in Australia and across the globe for that fact have been hit fairly hard. It was a mixed period in terms of revenue. There was growth on the Goldfields Gas Pipeline, the Eastern Goldfields Pipeline, Amadeus Gas Pipeline and the Moomba Sydney Pipeline. However, these were also offset by softer contract renewals on other assets such as the South West Queensland pipeline. We had lower energy consumption in the Victorian transmission system, which was primarily COVID related, and we also had lower variable revenue from some of our renewable assets. EBITDA was down 2.3 at GBP $822,000,000 for the half. Our operating cost growth was broadly consistent with inflation and volume growth. However, we did see significant increases, particularly in insurance and compliance costs. And I know that that's a common theme across the market, and I'll talk to that in a moment. And we also made investments that we are confident will deliver long term value. Our depreciation and amortization increased from a larger asset base compared with the previous corresponding period. The reduction in net interest expense was mostly noncash from realized gains due to the mark to market adjustments, noting that the majority of our debt is actually fixed. And our operating cash flow, which is clearly one of our key performance measures as it is the basis for our distributions, was marginally higher at $519,000,000 benefiting in part from favorable working capital movements. Moving to Slide 20 and the Orbost gas plant announcement was made last week where we recognized a noncash impairment charge of around £249,000,000 pretax. Following the commissioning work in the half and current production levels, we've moderated our view on key assumptions, including higher capital costs to reach nameplate capacity, lower assumed revenue based on the current production rates and higher OpEx largely associated with foaming and fouling in the absorbers. The higher OpEx assumptions are linked to the moderated production assumptions, once again based on current production rates. But I want to emphasize two points. Firstly, the impairment is a non cash charge, and therefore, it doesn't impact EBITDA guidance nor our ability to pay FY 'twenty one distributions. And secondly, and similar to what Rob said before, the impairment does not change our resolve to improve production rates and been The the COVID-nineteen has on the pandemic. If I take you to Slide 21 with our EBITDA waterfall, our EBITDA results included the usual uplift from our CPI linked tariff escalators, although in percentage terms, The U. Debt to unhedged. Revenue from new assets is essentially the Orbost revenues, which is in line with the transition agreement with Cooper. The $17,000,000 net reduction in contract revenue was driven largely by softer contract renewals, predominantly on the on the Southwest Queensland and Carpathetic pipelines. One of the larger contributors was the expiry of a short term contract with with Insertec Pivot, transporting gas from the Northern Territory to its Brisbane plant. The contract expired in December 2019 after Intertek was able to secure energy from nearby fields. We also saw a number of contract adjustments on the East Coast grid, many reflective of changes in the underlying gas sale agreements. But importantly, we believe this is only temporary. It's a dynamic gas market, and we expect Northern Gas will need to make its way south to meet the projected gas short shortfalls in Victoria, which are well known. Earnings from Asset Management was broadly in line with last year, and earnings from Energy Investments slightly lower. The latter results reflects normalized equity income from our Sea Gas investment, remembering that in the last period, we benefited from shareholder loan interest generated from that investment. And we also had slightly lower tariff earnings from GDI and EII in the period. To our cost base on Slide 22. And in short, our operations and maintenance costs performed very well. They were higher due to inflation and higher volume, but really tracked those levels as well as the throughput and the inclusion of Orbost. Asset management costs were lower largely due because last year, in the last corresponding period, we had a system upgrade where the works this year were obviously not recurring. And then we call out our corporate cost movements during the period, and we categorize those into three buckets. So firstly, we generated good cost savings, although a lot of that was from lower discretionary spending on items like travel, COVID and the like obviously was a part of that. Secondly, increases in costs like insurance and compliance, which I know is a common theme across the market. And thirdly, our growth related costs, which APA is investing in further strengthening our capabilities, as Rob mentioned, whether it be people, systems or processes. It includes costs associated with building the new APA leadership team, and we're continuing to invest in the development activities to ensure we are well positioned to capture the significant growth opportunities before us. On to capital expenditure on Slide 23, where we saw growth 20 The first 19, sustainability of our distributions underpinned by strong cash flows. Even in challenging market conditions, we've increased the interim distribution to $0.24 per security, and we've also stepped up our distribution guidance for the full year to $0.51 per security. This reflects our confidence in generating sustainable operating cash flows, the timing delay in growth CapEx funding requirements and our strong balance sheet capacity. As always, distributions are fully funded by the cash flow generated by the business, with the interim distribution payout ratio at 55%. I'll just call out also that we had working capital movements during the period, as highlighted in the waterfall on the slide, which was in due was in part due to the normalization of payments impacting the first half of last year's results, so they didn't recur this year, And the balance is largely timing. I wanted to point out this next slide, which was an important one given a lot of noise in the market around a rising rate environment. So Slide 25 really presents a position to remind investors that we are positively disposed to a rising rate environment as it relates to our earnings, owing to APA's prudent hedging profile and coupled with the fact that the majority of our revenue benefits from CPI linked escalation. To Slide 26 and the final slide for me. And APA's balance sheet continues to be strong with considerable liquidity and headroom available to fund the ongoing growth opportunities. And whilst we're comfortable with our hedging positions, there is around a 200 to 300 basis point differential between the current spot interest rates and APA's average cost of debt. Now this presents APA with a significant opportunity to maximize the efficiency of their capital structure. In the coming months, we are reviewing our capital management strategy, including our distribution policy, which will be guided by the following principles. So firstly, security holder returns, which is our focus on maximizing available free cash and consistently growing distributions. Secondly, access to capital, which is our commitment to maintaining our investment grade credit metrics coupled with the diversification of our funding sources. Thirdly, capital allocation, where we will take a disciplined approach to investments, ensuring alignment with strategy and embedding investment hurdles that drive long term value. Risk management, where our funding strategy is focused on diversification, tenor, and maturity management with treasury policies that support strong liquidity and minimize earnings volatility. And last but not least, market engagement, which includes our proactive investor relations program, both debt and equity, and reporting enhancements to improve the market's understanding of our business. I really look forward to taking you through the outcome of this review in more detail at our Investor Day, which we currently schedule for May year. So with that, I'll hand you back over to Rob. Thanks, Adam, and I'm on Slide 28. So to bring this all together, I'll first wrap up with our financial year 'twenty one guidance and outlook. Based on the current operating plans and available information, we reconfirm our financial year 'twenty one EBITDA guidance of sixteen twenty five million dollars to $1,665,000,000 dollars and our net interest expense of $490,000,000 to $500,000,000 As I've said already, while it was disappointing but necessary to impair the Orbost gas processing plant, I want to emphasize that the Orbost plant is profitable. It is generating good cash flow. And we remain focused on working with our customer, Cooper Energy, to improve the plant's operation and processing capacity. As Adam noted earlier, we are pleased to announce an uplift in our financial year 'twenty one total distributions per security guidance to zero five one dollars per security, which is an increase of $01 per security or 2%. And as I said earlier, growth capital expenditure over financial years 'twenty one to 'twenty three is expected to now exceed the original $1,000,000,000 that we had anticipated just six months ago. And then my final slide before taking questions. As I've said earlier, we've begun this second half of financial year 'twenty one well and truly in execution mode with a clear strategy aligned with our purpose and our vision, our vision being to be world class in energy solutions. We see significant opportunities for growth across our organic pipeline and in new asset classes, energy futures and geographies. Leveraging our significant experience and core capabilities, we are investing in the skills and experience we need to thrive as the energy transformation accelerates, with dedicated resources now in place to extend our core business into the energy solutions of tomorrow. We'll continue to find efficiencies across the business and maintain a strong balance sheet to further strengthen our ability to fund those growth opportunities. And in the year ahead, we look forward to providing greater detail on our Parkway to 2,050 and our net zero ambition. Personally, I'm enormously excited about the scale of the opportunities before us, and I'll now hand back to Yoko and look forward to addressing your we're And to do that. Name to be Your first question comes from Tom Allen of UBS. Please go ahead. Thanks, Yoko. And good morning, Rob. Mentioned that you're seeing softer renewals on the Southwest Queensland pipeline, but then also progressing fee for a three stage program to increase capacity by 50% on parts from Wallinvilla in Queensland down to Sydney. Can you perhaps describe your outlook for demand on that multi asset service from Queensland to Sydney and Victoria? And then also how an LNG import terminal in New South Wales might influence future revenues? Thanks, Tom. Just addressing your first part of your question around softer contract renewals on, I think Adam talked to, the Southwest Queensland pipeline and also the Carpentaria pipeline. What we see, as you know, with a more than 7,500 kilometers of pipelines on the East Coast grid and multi asset services taking gas from multiple receipt points to multiple delivery points, over time, when you see the dynamics of the gas market change, we tend to see customers sourcing the gas from different areas and therefore seeking changes to what their portfolio might need to look like from a gas transportation perspective. So in that context, the South West Queensland pipeline contract renewals, I don't have the details in front of me, but my expectation is that it's more to do with potentially gas flow in an easterly direction because we're seeing strong demand for services from a northerly direction to a southerly direction. So I think in summary, what I would say is that in a dynamic gas market, you're always going to see changes in customers' requirements and how they adjust their portfolios. This is what we're seeing at this point in time. But there's certainly a predominance in an interest in demand for services coming from Queensland through to Southern markets. To your question around LNG import terminals, clearly, there's been a number of proposals, as we've talked about before, kicking around for quite some time. I think all told, the last time I looked, possibly six of those. I think the economics is always going to be challenging on a long term basis for long term supply. And I do see perhaps one or two of those terminals playing a role to manage the winter swing. But on an ongoing basis, we certainly, from what we can see in the market, strong interest in customer demand to bring gas from Northern supply sources. Thanks, Rob. That was comprehensive. I'll just sneak one more. I think that you mentioned that growth in The U. S. Could either be gas pipelines and utilities or integrated energy infrastructure companies. Can you just clarify what additional assets that might bring into scope in addition to gas transmission pipelines and or LDCs and whether or not you think this reflects a slight change in the risk profile? Tom. Obviously, the plant in The United That. Yes, sure. Look, I think I'll maybe just start off with just making it real clear that we have refreshed our strategy with a lens to looking at the broader energy infrastructure sector. You would have heard me say that electricity transmission, firming, renewables is all part of that mix. In that context, and as we've looked at The U. S. And as I said, assessed a number of opportunities as we understood the market, what we found is a number of those businesses over in The U. S. Are lot more integrated than what we see in Australia. So they have integrated gas and electricity infrastructure and services for their customers. What we're suggesting there is that as we look at the transaction pathway for entry into The U. S, clearly, the gas pipeline, LDC gas LDC is unchanged. But as we look at the opportunities presented to us, have decided to, based on what we've seen, broaden our lens to include those integrated gas and electricity businesses. In terms of your question around increased risk profile, they we'll obviously assess each one as we look at them. But the for the most part, it's energy infrastructure regulated assets, and we see them in a similar risk profile as the gas LDCs. Your next question comes from Ian Myles, Macquarie. Know you mentioned transmission. I noticed you made that comment. There are not many publicly listed or available transmission lines. Are you implying something like Copperlink two point zero is something which might issue? Or are there other opportunities in West Australia which might exist? Myles, good day. Sorry. That's okay. Malzey. There we go. That's what I really meant. The way we look at it, and I think if you step back to what's happening in the energy transition and the announcements made, just by the way of example, Queensland, Victoria, New South Wales with their energy infrastructure plans and more specifically, the New South Wales in November of last year, to their electricity road map, requiring really focusing on the development of renewable energy zones for the construction of solar wind batteries plus also, therefore, the transmission infrastructure required to connect that into the system. There's, as I mentioned in my discussion earlier, a significant opportunity from an investment point of view for that infrastructure to be built out. And my expectation is that, that infrastructure will be contestable, whether it's New South Wales or any of the other states that we participate in already with our customer set. Okay. And then on your Parmelia pipeline, you talked about converting 43 kilometers. I think the policy in WA is to have that hydrogen hub at Jelton, but I'm sort of wondering why you wouldn't convert the whole pipeline. Of of year, address each one of those individually. Initial focus of is on the southern end into of the Pommila pipeline into the Kwinane area because there really are customers that use hydrogen. And so there's certainly a need and an opportunity. The other aspect is, of course, that when you look at the Western Australian government's target around blending into its network system, the network could well be one of the biggest, if you like, customers And the 43 kilometers down the southern end obviously services that gas network. So that's our initial focus. To broaden the question, would we consider the whole of the Pommilla pipeline? Well, that might come as a Phase two, but we initially focused on that 43 kilometers as an R and D project and ultimately to make that happen in reality. Your question around the Northern Gas interconnect, there's we haven't designed the pipeline specifically to take hydrogen today, but we've done enough work to understand what it would take to convert that pipeline to be hydrogen ready into the future. And don't forget that, that pipeline is one once it's constructed, part of a grid of pipelines in Western Australia. So having one pipeline that's, if you like, hydrogen ready today in and amongst a broader network on its own doesn't make much have an impact. It's about designing the whole system to be able to be hydrogen ready, which is what which is where our focus is. Okay. And just one final question on your South West Queensland pipeline, you see. Do you actually believe you can have the economics of your expansion deliver gas cheaper than an import terminal and the pipeline networks and the equivalent they need to put in? I think the very short answer to that is yes. I could go into some more detail. But based on our assessment and our discussions with our customers delivering that gas to Southern Markets, it makes a whole lot of sense vis a vis the vagaries of trying to understand what the long term LNG import prices might look like. The next question comes from Rodney Forrest from Contact Asset Management. I'm just hoping, please, to unpack this comment around capital management, please, review underway. I sort of heard three of the points around hurdles and treasury function. But just leading into that was around the comments around the dividend and the financing. Can you just explain this a little bit more? I'm just a bit confused around what that implies, please. Sure. And I might just throw to Adam, who's obviously new here at AGAIN in doing a thorough review of our capital management strategy. So over to Adam. Yes. Thanks, Rob and and Rodney. I guess I've had the opportunity, albeit a short time here, to start to think about our capital strategy through a fresh pair of eyes, and I I think there's a couple of things with that. So one is, looking at our cost of funding at the moment. And as I mentioned before, six year average tenure at sort of 5.2%, 5.3% average cost of interest and knowing that spot rates at the moment in a six year tenure could get you something in the early 2s potentially. There's a significant opportunity potentially to refinance that debt. Now that's got to be balanced with the swap termination costs and all of those sorts of things. But one of the things that we're looking at is, is there an opportunity to basically rebase the balance sheet as it relates to our debt funding and obviously lower the ongoing cost of debt and ensuring that it was value creative and all those or at least value neutral and all of those sorts of things. So that's one limb. As it looks as we look at our distribution, as I mentioned before, in terms of the distribution outlook for this year, being upgraded, in part, that's because we do have a lot of capacity in our balance sheet. So one of the things that we're looking at is there a different approach to that? We need to make sure that our distribution policy is sustainable, and that it's efficient in terms of the way that we fund, the rest of our development opportunities. But it's just something that we want to have a look at, and we'll continue to review over the coming months and, hopefully, have some views, which may be not to do anything, but to have some views at Investor Day in May. Okay. Okay. That's that's what we get. I mean, that's, well, that's 240,000,000 saved interest costs. That's assuming that's assuming you refinance the entire book. I'm not suggesting that you need to refinance the entire book, but there could be opportunities Yeah. Okay. Well, I think you did this at PCL for success. So yeah. That's good. And then, obviously, the distribution, yeah, obviously, just clarity and time, of course, would be very helpful. It's important to us, obviously, if it's FFO like you've done in the past with TCO. Yes, we recommend that, obviously, is something that we focus on quite strongly. But congratulations, I guess, on the result, and thanks for clearing that up for Thank you. The next question comes from Rob Koh from Morgan Stanley. Please go ahead. Thanks, Yoko. Good morning, everybody. Can I just ask a follow on question about the North America strategy? That's very clear about the asset class scope increase. Previously, APA put out some quite specific parameters for that deal as well, controlling stake, operating cash flow accretive in the first full year and enterprise value in the order of USD 2,000,000,000 to 4,000,000,000. Would you just perhaps get an update on those parameters, if you're willing to share? Rob, thanks for your question. And look, I think the main thing that you would have heard us talk about there is broadening our lenses to the sorts of things we're going to be looking at. We haven't changed our view in any specific detail around size and so forth. We're going to look at each opportunity as it presents itself and whether or not it makes sense to look at that as a stand alone or whether we were to bring in a partner. We haven't changed our view specifically as to dollars and cents. Yes. Question again, looking at things the company has previously disclosed, which was the average tenure of the contract, and it was about twelve years in August at the full year result. I noticed you haven't disclosed that this time around. I guess at a minimum, it's possibly six months less than that now, but could we best get an update on your average contract tenant? Yes. It's you've hit the nail on the head. So it's basically a roll forward. I think one of the things that we're alive to is such a big proportion of that is WGP. So and that's a big part of our business, and that continues to wind down. So we want to ensure that we're focused on the right parameters in the business, and that's certainly an important parameter for us. But for us, it's about the broader risk profile of our business, which remains consistent and hasn't changed in that it's either largely contracted or regulated assets that we continue to invest in. And again, that approach is not changing. Thank you, Mr. Watson. Last question, I guess, just I guess in that same vein. With the NGI project, that was hit FID with the work that APA had done looking at customers in the Midwest region. And you're very confident that there were going to be more things like the Gruyere microgrid. Can you maybe just give us an update on what you're seeing there and your confidence that you'll be able to do more expansion projects in that region? Yes. Thanks, Rob. Well, you almost answered your own question, actually. But what I would say is we've the NGI is quite a unique project in that we well, obviously, we've had a long history of being in that market. We know the market well. Our Goldfields gas pipeline is fully full capacity. We're seeing a lot of increase in requests for new services and demand, which we could have made through expanding the Goldfields gas pipeline, but we felt on balance that it was going to be far more efficient and effective to build the Northern Gas interconnect, which achieves the same outcome in terms of increased capacity delivering to the Goldfields region, but does so more efficiently, but at the same time, has the added benefit of bringing in a new supply source and then traversing lot four sixty kilometers or 500 kilometers of country where we can tie in other opportunities along the way. So multiple reasons why it's a good thing to be doing. We committed to that project off the back of our understanding of the market, and none of that has changed. In fact, the list of opportunities is longer, not shorter, and we're making really good progress. There are no further questions at this time. I'll now hand back to Rob for closing remarks. Well, everybody, thank you very much for joining us today. As I said, hopefully, you've got a good insight into our refresh strategy, the fact that as a team, we're well set up and fully and truly in execution mode. And I look forward to catching up with you individually over the course of the coming weeks. Thank you very much.