Earnings Call: H1 2020

Feb 17, 2020

Good morning to everyone, and thank you for joining this webcast of APA's half year results for financial year 2020. I'm Jennifer Blake, head of APA's investor relations team. Today, we have APA's CEO and Managing Director, Rob Wheels, who will present the interim results and outlook with APA's CFO, Peter Fredrickson, who will provide more depth on the financials. A Q and A session for analysts will follow the presentation. For any media on today's call, time has been separately set aside for your questions and interviews following the webcast. I'll now hand over to Rob. Good morning, and welcome to APA's financial year 'twenty interim results call. With me today are members of my executive team. As I introduce team, you may note some title changes as a result of the recently completed review of APA's operating model. I'll talk about the review and outcomes in more detail during today's presentation. In the meantime, in the Sydney office with me today is Peter Fredrickson, CFO, who will present the numbers in more detail. Nevenka Kodavil, Group Executive Governance and External Affairs Kevin Lester, Group Executive Infrastructure Development Darren Rogers, Group Executive Operations Elise Manns, Group Executive People Safety and Culture and Craig Stellen, Acting Group Executive Strategy and Commercial. Ross Gersbach, who is looking after our North America Investigations, is in Houston and is not with us on the call today. Peter and I will take you through the half year results and business highlights, leaving time at the end for analyst questions. If you have any follow-up questions that we don't get to, please contact the Investor Relations team whose details are included in today's presentation pack. A hallmark of APA's success over twenty years has been being on the front foot when identifying growth opportunities. This strategic approach underpinned our largest ever investment program of $1,500,000,000 over the last three years, and we have seen the benefits to our customers, our business and security holders coming through in this half. During the half, earnings before interest, tax, depreciation and amortization increased 6.9% to 8 and $42,200,000 and operating cash flow has increased 8.9% to 5 and $11,900,000 This result was largely due to our new growth assets contributing $38,300,000 of EBITDA. These solid numbers stand us in good stead for EBITDA to meet the FY 'twenty guidance range of $1,660,000,000 to $1,690,000,000 of EBITDA. We continue to invest in Australian Energy Infrastructure, investing just over $145,000,000 for the reporting period in growth CapEx. In addition to investment in the Orbost plant, there were a raft of expenditures on other growth projects, all of which will contribute to meeting our customers' energy needs and advancing Australia's energy sector. Corporate costs for the half have reduced period on period despite the growth in EBITDA. To give you an idea of our corporate cost discipline, our EBITDA has more than doubled since first half financial year 'fifteen, just six years ago, but our corporate costs have remained relatively stable over that period. Peter and his treasury team also refinanced around $389,000,000 of higher cost debt at lower rates and for a longer term, which helps reduce our borrowing costs. Today, the Board declared the interim distribution to be $0.23 per security. This represents a 7% increase on February 1100 2019 interim distribution with an additional 3.65¢ per security of franking credits to be attached. Operationally, it's been a busy year strong in We a delivered customers' guest growth nominations 99.9% of the time during the reporting period. In terms of new assets, I've had the pleasure of attending a number of openings for our new assets across the country, a very proud moment as a CEO. Not only do you see firsthand the amazing engineering feat achieved, usually in remote locations and challenging environments, and the pride in the team that built them, but you also hear directly from customers about what this asset will do for their business and ultimately for their customers. In Queensland, we celebrated the opening of the 110 megawatt Darling Down solar farm with our customer Origin Energy. And across from WA, we officially opened the new Yamana gas pipeline and Gruyere power station assets. The pipeline and power station together ensure that the Gruyere Gold mine has a reliable 24x7 power source. We also opened the Badgingarra Solar Farm in WA, which is the latest addition to APA's two forty megawatt two fifty megawatt renewable energy precinct. We operate and build our assets for our customers, and they are at the center of everything we do. During the period, we put a lot of work into further progressing customer focused initiatives and turning those commitments into meaningful and effective actions. We've improved our communications, timing of planned and unplanned maintenance events, introduced better complaints handling processes, and sought input from customers as part of our decision making processes. Our efforts were detailed in APA's first energy charter report to the Independent Accountability Panel, who delivered their findings for the group of 19 industry signatories in early December. APA is actively involved in the energy charter, where energy industry participants are working together for the common good of the end customer. On the regulatory front, we submitted APA's responses to the two regulatory impact statements or RIS processes currently underway, looking at gas pipeline regulation and gas market transparency. In this regard, APA recommends a hybrid option for the regulatory framework, including retaining the negotiate arbitrate model and simplification to two classifications of regulation, heavy regulation and a lighter regulation based on Part 23, and therefore we support removal of the current light regulatory framework. We have successfully demonstrated since the introduction of 23 that by listening to our customers and providing them with the energy solutions that they are looking for, that they do not seek to invoke the arbitration process. In the instance, however, if a customer did want to invoke the arbitration process, we have advocated in our risk submission for the retention of a commercial arbitrator and limited cost exposure for the benefit of the customer. In addition, we are working with stakeholders under the Energy Charter Better Together initiatives to co design further information disclosure that is useful to all stakeholders. The submissions are now subject to review period and we expect a published outcome during financial year 2021. In response to the catastrophic bushfires across Eastern Australia, we made immediate cash to various appeals and have further pledged to match employee donations. In addition, as part of our community commitments over in the Dandarrigan Shire in Western Australia, where our renewables precinct is located, we donated a state of the art fire truck when we officially opened our newest asset in that region, the Badgingarra Solar Farm. It was a very proud day for me as CEO. We are part of many of the communities impacted over the summer period by the bushfires, and we are working with these communities to determine how we can help how we can get help to them and get them back on their feet. Moving to Slide 6. This photo of APA's Orbost Gas Processing Facility was taken last week. The facility has been under the control of our operations team since late December twenty nineteen. Completion of the site has run late in the main due to delays with the construction contractor. This was further compounded over the summer period by the East Gibson bushfires. The site was evacuated on a number of occasions late December, early January due to the severe fire risk and activity in the region, and subsequently due to the smoke and poor air quality that followed the fire threat. Fortunately, there was no direct impact on the safety of our people or the asset itself as a result of the fires. Importantly, all approvals and required consents to commence operations are in place. The gas engine generators have been successfully commissioned over recent weeks. Gas was safely introduced into the plant from the Eastern Gas Pipeline yesterday, and raw gas from Cooper Energy's sole gas field is scheduled to be brought into the plant by late February. Commencement of commercial operations is therefore scheduled for March. We are obviously very disappointed by the delays that have impacted our customer from commencing their operations and delivering gas to their customers. We've kept Cooper Energy regularly up to date so they can make appropriate decisions and announcements to manage their business and their customers' expectations. Our focus on-site has been bringing gas safely into the plant so that the startup process can be commenced and the site reach full operation capability. Safety first is foremost at APA. We won't put our people, communities, environment, or the safe operations of our assets at risk purely to meet a deadline. And as I've just talked about, Orbost is a good example of that playing out. I'm disappointed at the TRIFR metric of 7.37, which tells me we are still having too many injuries no matter how minor they are. While our employee, Tripper, is headed in the right direction, there is still more work to do to get our many networks contractors up to the same level of safety. We've stepped up the contractor management process or focus with end to end reviews of the contractor engagement process, beginning at procurement level right through to the company safety standards and performance. From a whole of company perspective, we recently set the health, safety and environment strategy for the next three years to financial year 2022. We have six key themes, as you can see on the slide, and contractor management is one of those key focus areas. I look forward to presenting a better safety result going forward. On the environment front, we've been actively engaging with stakeholders on a raft of issues to ensure we prevent or minimize our impact on the environment. APA recently received the 2019 Australian Pipeline and Gas Association's Environment Award for the Development of Site Planning and Landscape Guidelines. These guidelines are an industry first in proactively engaging with developers in greenfield growth areas as well as local planning authorities to enhance the functionality of pipeline easements from an environmental perspective. On the previous results call in August, I outlined a list of my priorities for the financial year 'twenty year ahead. So I thought it pertinent to give you an update on how my to do list is tracking, given we're halfway through the year already. I'm pleased to update that we've now completed the operational review of APA's vision, purpose, culture and operating model, and we are well into the implementation stage. I'll take you through some of the detail after Peter presents the financials. But briefly, my review was a three sixty degree process and look at our business fundamentals. The aim being to ensure our operating foundations supported APA's future plans and strategy within a dynamic operating environment. Importantly, APA's strategy has not changed. But given the changing operating environment, a more agile operating model is required to continue to successfully deliver on that strategy The focus has been to clarify accountabilities, enable our people to make decisions at the right level and ensure we have the right skills and resources to deliver on our strategy. I'll now hand over to Peter to go through the financials in more detail. Thanks, Rob, and good morning, everyone. As Rob has already noted, this result is generally in line with the guidance that we gave to the market in late calendar twenty nineteen. And certainly, it's seen the benefits flowing through from the commissioning of a number of new assets and expansions added over the last two years or so. Growth in EBITDA has come primarily from those new assets as CPI increases on established contracts on the larger asset portfolio have largely been offset by the effects of a higher exchange rate on the Wallumbilla Gladstone pipeline revenues as disclosed in the financials last year. Interest expense is largely up due to lower capitalization of interest in the half, with the overall rate payable across the debt portfolio dropping from 5.53% at thirty June twenty nineteen to 5.35% at the half year. Operating cash flow per security continues to grow as we fund our organic growth projects with operating cash flow retained in the business. This growth in operating cash flow has once again enabled us to increase distributions for the half and maintain guidance at €0.50 per security for the full year. As we continue to build on the grid like nature of our business, and to date, primarily on the East Coast, we've had an East Coast grid, but laterally, we have developed more of a West Coast grid to add to the East, We look at the results based on those grids due to the multi asset, multi service nature of our business. On the East Coast, the overall result of EBITDA being some point 7% down on the previous corresponding period is driven primarily by the higher exchange rate used to convert the Wollumbilla Gladstone pipeline revenues at point seven one nine six for the half versus point six seven one seven a year ago. Absent that impact, there would be a 2% increase year on year across the East Coast grid, primarily representing a CPI increase of in the order of one and a half percent. The Northern Territory was somewhat affected by the sharing of third party revenue with a foundation shipper, and the West Coast was driven by the commissioning of a number of new assets, including the Yamuna Gas Pipeline, the Badjigarra Wind Farm, the Badjigarra Solar Farm, and the Gruyere Power Station. Asset management benefited from ongoing growth in the networks businesses that we operate for third parties and incentives received for outperformance of those assets. Investment returns have grown across the board, but particularly out of Seagas where we continue with our fifty fifty joint venture partner to fully fund the business and earn greater returns as a result. Corporate costs are impacted by the removal of last year's one off expenses, but increasing costs of regulatory compliance and from a business that continues to grow will see corporate costs going forward at a run rate of around the current half year level. I've spoken already about the impacts of the majority of the waterfall amounts depicted here. Of note, though, is the reduction period on period in variable revenues as more firm contracting of capacity sees our variable revenues drop below the historical average of closer to 1% of revenues. This outcome is primarily a result of a maturing of the market as customers settle contracts for firm capacity based on their historic usage, more than looking to use spot services that we are generally unable to guarantee on a daily basis. This plays out further in the increase in net contract expiry and renewals, with customers recontracting for services or contracting for new services that replace variable revenue services in the longer run. The one thing this result does is confirm the low risk business model that we operate. Nothing has changed in that regard, with the with in excess of 90% of our revenues coming by way of take or pay contracts or from regulated assets. 93% of our revenues come from customers with investment grade credit ratings, with close to half of that coming from customers customers with a minus or better ratings. And we remain focused on delivering services across a diverse customer base, servicing the energy, utilities, and resources sectors in particular with a small but consistent over the longer term presence in the industrial sector. The weighted average contract term on a revenue basis remains above twelve years. In the context of capital spend expenditure, the vast majority of this first half has been concentrated on completing and commissioning the Gruyere Power Station and the Badgingar wind and solar farms in the West, and working through the construction and commissioning of the Orbost gas processing plant in Victoria. Orbost was expected to be commissioned during the fourth quarter of calendar two thousand and nineteen, but delays with the construction contractor have taken commercial operations into the first quarter of twenty twenty. Other than this, we have been working on a number of other smaller projects, all of which in time will deliver new revenues to APA. We currently have five environment environmental processes underway for projects that will add to our portfolio once our customers reach their FIDs and approvals are received. These include the Western Slopes Pipeline and the Crib Point Pakenham Pipeline and the Western Outer Ring Main. All in all, our ongoing discussions with our customers give us confidence that the 300 to $400,000,000 of growth CapEx over the next two to three years guidance that we provide remains appropriate, albeit this year's is likely to fall closer to the bottom end of that range. Balance sheet remains in good health, and we remain confident of our ability to fund in a way fund growth in a way that will add value to security holders. All of our current organic growth is being funded with operating cash flow, whilst we're also increasing distributions to security holders. The ratings metrics that we operate that we operate to are geared towards ensuring that our b, double a, two and triple b ratings are not put at risk, and they give us further future flexibility in respect of funding. Whilst we will always look to fund any significant acquisition with an appropriate amount of equity, the growing strength of those metrics is giving us further flexibility in that regard. We repaid around 400,000,000 of Maple Bonds and USPP notes during the period, and we're using our domestic bank facilities currently with no immediate need to issue longer term debt, notwithstanding the currently historically low interest rates available to us in offshore markets. The debt portfolio remains diversified across a number of markets, including shorter term domestic bank facilities and longer term bonds issued in The USPP one forty four a, euro, and sterling markets. We have an Aussie dollar MTN due for repayment in July of twenty twenty, but at this stage, we expect to use our shorter term domestic facilities to deal with that. The longer term markets remain open for us should we see the need to fund current maturities into longer term markets or should an appropriate acquisition present itself going forward. Meanwhile, we maintain our distribution policy that effectively says distributions will generally grow in line with growth in operating cash flow. Distributions will be sustainable over the longer term and will be fully funded by fully covered by operating cash flow. We will look to maintain funding within the business to support our organic growth, and we will take into account economic conditions when determining any level of distribution. In that context, the interim distribution represents an increase of in the order of 7%, and we retain our guidance of $50 in total distributions for the full year. We will allocate 3.65¢ per security of franking credits to the interim distribution given that we have paid some 70,000,000 tax for FY 2019. We expect to be able to allocate additional franking credits to the final distribution for FY 2020 based on the expectation that our cash tax impost for the FY 2020 year should be around $90,000,000 As we've already noted, we expect EBITDA for FY 2020 to deliver within the guidance range of 1,660,000,000.00 to 1,690,000,000.00, albeit at the lower end of that range due to the delays with the commissioning of Orbost. Just as an aside, notwithstanding those delays, we remain comfortable with the returns that we will earn on that asset, and we will not lose any revenues over the life of of the sole field as Orbost will process all gas extracted from that field on behalf of our customer, Cooper Energy. We fully expect interest expense to be at or even a little below the bottom end of the guidance range of $5.00 5,000,000 to $510,000,000. And as noted previously, we expect that the full year distribution will end out at around 50¢ per security or at 50¢ per security. With that, I'll hand back to Rob. Thanks very much. Thanks, Peter. So let me elaborate on what underpins our confidence in our continued growth strategy. I'll address the broader market and then drill down to what this means for APA and ultimately how our new operating model and purpose and vision fits into it all. Worldwide total energy demand is expected to increase materially through to 2040 under the International Energy Agency current policies that forecast is about 34% from twenty eighteen levels. And also under the stated policy scenario, and there it's about 24% from twenty and eighty levels. Under those same scenarios, worldwide natural gas usage is forecast to increase at greater levels to total energy demand, and that's about 4937% respectively, as natural gas continues to grow as a critical part of our energy mix. Under the IEA Sustainable Development Policy scenario, which assumes that there is a globally concerted effort to meet Agreement, energy demand reduces somewhat from twenty eighteen levels, around a 7% reduction through to 02/1940. In this scenario, natural gas usage declined slowly, shown by the green line on the chart, an overall 2% decrease over the period, but less than the total energy demand decline. Even so, it is anticipated that USD110 billion dollars per annum would be spent on LNG and natural gas infrastructure between now and 02/1930. Looking at the APAC region in red on the left hand side, you can see that gas remains a growing and key part of the energy mix in the decades ahead in our region. So in summary, natural gas continues to play a critical role in our future global energy mix no matter which future scenario plays out. Looking at the domestic market in the right hand side chart, can see AEMO's prediction of the shortfall in current gas supplies to meet forecast demand over the next two decades. AEMOS draft modeling forecasts that new gas supplies and associated pipeline infrastructure will need to be discovered and developed capable of delivering over 200 petajoules of additional gas to the domestic market each year from 2025 through to 2037 to help meet residential, commercial, industrial gas demand, gas for LNG export and gas supply for gas fired power generation. This represents an opportunity for APA as gas infrastructure will be required to process and bring this gas to market. APA has long been saying we need governments to take their foot off the hose and help with the process of getting more of Australia's abundant natural gas resources to market. In this regard, I was encouraged to hear recent sentiments expressed by our prime minister at his latest national press club address regarding accessing Australia's gas resources and that any credible energy transition plan must involve greater use of gas as an important fuel. Australia's chief scientist, Alan Finkel, said last week that the energy transition will be the biggest engineering challenge ever undertaken and will take many decades. New technologies are being developed, but until they are scalable, gas will continue to have a critical role to play in our energy mix. I'll now take you through the opportunities that APA has in front of it, including why we are well positioned for growth. I've split the growth opportunities into four buckets, with the first three focused on domestic growth opportunities. You can see that there is a large pool of potential projects in our backyard. In fact, we have environmental approval processes underway for five major projects that, if approved, will deliver in excess of $1,000,000,000 of growth CapEx over the coming years. As I've just talked about, on the East Coast, more gas supply is needed to meet demand and put downward pressure on pricing. In this regard, you can see a number of new gas supply base basin names mentioned on the slide. APA has in place a number of agreements subject to customer financial investment decision and several memorandums of understanding that would help bring these new gas supplies into the East Coast gas market. The quickest way to get new gas to market is to connect to existing infrastructure, and APA's 7,600 kilometer East Coast grid has the extensive reach across Eastern Australia. In the West of the country, demand has been driven for new infrastructure for new and existing mines seeking a reliable supply of gas as a fuel source. The more we develop interconnected infrastructure, like the Goldfields and Eastern Goldfields pipeline grid, the more interest and demand we get from these customers, both existing and new. So there's opportunity to expand that pipeline infrastructure, both in terms of capacity and footprint. APA already has already assisted many of its customers, such as Origin, Alinta and Synergy with adding renewables into their energy portfolios through the Darling Down Solar Farm, Badgingarra Wind and Solar Farms, and the Emi Down Solar facilities added to the existing wind farm. And we're investigating and investing in new energy technologies such as hydrogen energy and renewable methane. During the reporting period, APA's proposed Dandidong power station project was shortlisted by the government as one of the first two projects to be selected to proceed to agreement of key terms under the Underwriting New Generation Investments, Ouanggi, program. We continue to work with the government on progressing the key terms as well as working with potential customers. Our North America due diligence actively continues with Ross Gersbach now based in Houston. It's a well known fact that increased gas usage in The US has lowered their overall carbon emissions level and as a result of the vast supply of available and affordable gas. Gas is a critical part of The US energy mix and more investment in gas infrastructure continues to be required. So it makes sense for us to be looking at this market. We have articulated previously what we are looking at and why we are looking in a market outside of Australia, and none of that detail has changed. What has changed is that Ross, as a senior representative of the business, is now on the ground looking at opportunities for us. If we don't find what we're looking for, we won't progress, and that time frame will be determined at an appropriate time in the future. Needless to say, currently, we do not have definitive time frame. Looking now at the organization review that was undertaken over the last six months and what's come out of it. On this slide you see APA's refreshed purpose and vision and some highlighted key words of responsible energy and world class. I indicated at the financial year 2019 results that I would undertake a review of APA's business fundamentals, the aim being to ensure our operating foundation supported APA's future plans and strategy within a very dynamic operating environment. The review covered APA's purpose, which is our reason for being, our vision or our aspiration, our culture, how we do things as well as APA's operating model. Importantly, as I've stressed before, APA's core strategy has not changed. APA's purpose now includes the words responsible energy. And by that, we mean doing the right thing even in tough situations, creating value for all of our stakeholders, taking a long term view and being there for future generations, investing in new technologies and new energy and innovating for a sustainable future. Our vision is to be world class, where we are known for high integrity and credibility, leadership in responsible energy, customer focus, operational capability where people are proud to work and making a positive impact in our communities. As discussed, at APA we are holding ourselves to world class standards in the provision of infrastructure and services and have reorganized our operational model to support these efforts. I've streamlined APA's operations to support collaboration on customer service and outcomes and to reflect our portfolio approach to our energy assets. The new group executive team that I've put in place supports this philosophy. There are probably three noticeable changes. The old networks and power generation function has been merged with transmission into the single group under operations headed up by Darren Rogers. Operations will oversee the safe and efficient operation of all of APA's energy infrastructure. With Ross vacating the strategy role to take up his position Houston, I've also grouped together all of our strategy and commercial functions to support our promise to our customers of delivering services that they value. The structure ensures we provide a single, simpler simpler touch point at our end, and an executive recruitment process is well underway to head this function. The transformation and technology function is new and is about ensuring APA effectively responds to the disruptive forces and opportunities that decarbonization, decentralization and digitization will present and be at the forefront of this rapidly evolving environment. An external recruitment process is also underway for this role. Across the other existing functions, we've bench strength particularly areas such as sustainability, stakeholder and community engagement to reflect their growing importance within our business. APA's long standing CFO, Peter Fredriksen, announced his intention to retire during this year. I've had the privilege of working with Peter in his CFO capacity at APA for at least ten years. And he is truly the steady pair of hands on the financial rudder of the APA ship. A recruitment process has also commenced for this key role, and I thank Peter for accommodating a smooth transition over this calendar year. So in summary, our new operating model is about streamlining our operations to deliver on our promise to customers as well as strategy for the benefit of all of our stakeholders. So to summarize this morning's presentation. This half, we've seen a meaningful uplift in financial performance on the previous corresponding period as the benefits of our largest ever capital expenditure program begin to come through. Increases in revenue and earnings have resulted in increased distributions to security holders. On that basis, we reaffirm our financial year 'twenty EBITDA guidance at the range of GBP 1,660,000,000.00 to GBP 1,690,000,000.00, and the full year distribution expected to be in the order of $0.05 0 per security plus any additional franking credits that may be attached. I'm very confident in the opportunities that are ahead for APA. We've seen continued investment and growth opportunity in Australia as we develop new infrastructure to connect new gas supplies to markets. The decommissioning of aging coal fired power generation will create significant new investment opportunities in infrastructure, including new technologies. We continue to look at the opportunities in North America and the relocation to our Houston office of Ross Gersbach is testament to the seriousness of this endeavor. There is no fixed time proceed if it meets our strict investment criteria. We are pragmatic. And based on our experience and expertise in the sector, we know what we are looking for. If we don't find what we're after, we'll up stumps. In conclusion, APA has a big role to play in positively contributing to a better and responsible energy outcomes for Australians. There's growing recognition of the importance of gas and that more supply is needed to bring down prices and meet the energy needs of Australians in a way that is both reliable and sustainable. We are committed to working with government, industry and particularly our customers to create a future energy cleaner energy future, and we will play a role and continue to invest in our assets, systems and people. People. With that, we'll now move to Q and A. I'll hand back to the operator to facilitate the process. Your first question comes from Rob Koh from Morgan Stanley. Congrats on a nice quality result. First question, just on one of your growth projects, the Bandung Power Station. Can you give us a sense of what kind of useful life we should be contemplating for that project if if you manage to get it away? Is it about thirty years plus whatever repowering? Rob, thank you for your question. And yes, and thank you for comments on the result. The Dandenong Power Station will be the assumptions we'll be making will very much depend on what outcomes we achieve with our customers from a contractual point of view and our long term view on the future of energy requirements for firming in the market. Okay. Yeah. No no worries. And should we be interpreting the fact that you're in active discussions with the federal government, that that maybe helps you a little bit on the broader regulatory front, or or are they more independent processes? Look, I think, Robert, it would be nice to think that that does help, but I think I'd be viewing these as independent processes. Okay. Cool. Cool. All right. And so just another question for Peter possibly. On Slide 12 with the EBITDA bridge, can you perhaps just reconcile for us where the small adjustments for AASB 16 fit into that bridge? Yeah. Typically, they they fall into into the operating costs of the business. So, you know, at the end of the day and I've been quite interested. Some of the notes I've seen this morning, reflect the fact that we didn't we didn't include, the impacts of AASB 16 in in our guidance. I'm not sure that there's anywhere I've seen in terms of our guidance last year that we said that that was the case. I mean, certainly, we've been thinking about AASB 16 for four or five years, and we had a sense of what the impact would be when we released our results in August. The the the guidance that we provided last year, of 1,660,000,000.00 to 1,690,000,000.00 included, that and included everything we expected, we hoped might happen within, the financial year. So just for the the the the two or three papers that I've seen out so far this morning saying that we didn't include that last year in the guidance, that's clearly, you know, not the case. And and apologies for not saying that guidance included it because it's a very immaterial amount from our perspective. We just, you know, we just moved forward without any reference, really. So, that that's that's the only comment I've got on that. Okay. No no worries, Peter. Okay. And just a last question on your renewable methane project. So I presume if if, Peter, if you've approved the budget, then it's not not cheap stations. But just wondering if you could talk us through maybe the, the tentative economics of this project. I guess if it's taking c o two from the air and then producing methane, you still actually have a net, global warming potential, increase from the output. But just just wondering if you can give us some some color on it. Rob, I'll answer that question. Look, I think the way we need to think about this is, as you said, not cheap stations. Certainly wouldn't have passed past Peter's desk if it was if there's anything other than that. And this is simply a piece of work where we'll look at both the development of hydrogen using energy from renewable energy and then extracting, I think you mentioned, carbon dioxide from there, creating methane and proving the case that that can both technically and then ultimately economically can be transported in our pipelines. It's it's a test case, and the first step is the technical part, and then second second order is to be able to prove that it can work both economically on a smaller scale, but more importantly, a larger scale going forward. Yeah. Okay? The the only comment I'd make, and, you know, I'm not sure I've been that parsimonious in the past, but never mind. The it's it's interesting. You know, five, six, seven, eight years ago, we we we used to talk about the fact that we were a very much smaller business, and and we didn't have the capacity to to, you know, to do this sort of r and d type of work to to really go and and look for stuff. I recall buying we we bought a business back in 2012 that that we might have liked to have bought earlier, but that business was spending $800,000,000 on expanding an asset. We're happy to leave that 800,000,000 spend on their balance sheet until it was done because we didn't have a big enough balance sheet to do it. I think we're in a business today that's delivering in excess of $2,000,000,000 of revenue annually and in excess of $1,600,000,000 of EBITDA. We've and we live in an environment where things are changing. We have to spend money to think about what is possible. And you'll have seen us allude to the fact that the run rate in corporate cost is likely to be closer to the half year number, going forward. And and it's it's that reason, really. We we we are gonna have to spend money. We're spending money in in North America, with Ross and and his team of two, doing more work than has been in the past. We're spending money, in in this area, and, you know, all of those things are gonna add to the fact that, you know, as a growing business, we're we're looking to try and add things to it. And we're not spending cheap stations, but we are investing in a prudent way to see what we can do to change the shape of the business over the longer term in front of us. Your next question comes from Tom Allen from UBS. Congratulations on a solid first half result. A couple of questions for me. The first one relates to corporate costs and APA's new operating model. I note that the first half corporate cost of 38,000,000 are a bit higher than the first half 'nineteen after adjusting for those one offs. And you mentioned that the step up was due to higher regulatory compliance and that we should interpret this as a new baseline going forward. I just wanted to clarify whether there were any corporate cost savings coming from the new operational model that might flow through in the next year or two? Well, the I mean, I'll I'll pick that up, and then maybe Rob will make a comment. You know, the the operational model hasn't been hasn't been designed to to chop costs out, to be fair. The The operational model has been designed to make the business to give the business a better level of efficiency with the resources that we're using. And we will see as we go forward whether or not that changes or turns into funding more growth with the same resources or, in fact, needing less resources going forward. But the driver was not about cutting costs to the business, to be fair. We have incurred growing expenditure. And regulatory or compliance cost is one area where you know, it's hitting every business in this town, you know, from the banks through to businesses like ours. It's just a fact of the of business, really. And and and, you know, we are spending money on on things like the the the methane program, like like The US, etcetera. So from that perspective, I I think that, you know, we've we've maintained corporate costs at a level of around sort of $70,000,000 for a number of years. And, you know, whilst continuing to grow the EBITDA in the business, I I think we're sort of just getting to that point where we needed to spend a little bit more money to support the ongoing growth, and that's starting to flow through. Tom, thanks for your comments on the results too. Just to add to what Peter said and to emphasize that the the new operating model is all been about streamlining and then if they're and and reinvesting in other areas. And I think I mentioned up waiting or bench strengthening some areas like sustainability, community engagement, etcetera. So this, know, in in in short, was never about cutting costs. It was about streamlining and then redistributing and investing where we think we need to going forward. Yes. Okay. That's clear. Thanks, Peter and Rob. My next question relates to growth opportunities. I agree with your comment, Rob, that there appears to be a large pool of them, but they all also appear to have a few unique challenges. With regard to the Dandenong power project, can you please describe management's threshold for merchant exposure to make an FID on that project and then possible timing on an FID? And then secondly, you also referred to growth in the LNG import terminal infrastructure. Just wanted to clarify if that was just the pipelines connecting those terminals to the market or whether you're also considering owning, operating any of the actual terminal infrastructure itself. Thanks, Tom. Look, just to maybe just pick up on your point around growth, we are very confident around what we can see in terms of growth opportunity in front of us. I talked about the East, the West, the future energy outlook and obviously looking in North America as well. In regards to the Dandenong Power Station, like anything that APA has done, we apply a disciplined approach and we look for a customer or customers, and that's exactly what we'll be doing in this regard. So in terms of your question around merchant exposure, that's not APA's business. We always look to have a customer or customers working with us on particular project. In regards to your question around import terminals, we're engaged in with AGL, for the Crib Point project, obviously, in conversations with others as well. Our focus is, first and foremost, on pipelines, but if there are opportunities as they develop over time to invest in some of the other infrastructure, we'll assist that based on the merits of the time. Okay. That makes sense. That's all for me, guys. Thanks a lot. Thank you. Your next question comes from Ian Myles from Macquarie Group. Please go ahead. Good morning. I have a couple of mundane questions. The Goldfields gas pipeline performed really well. I think it was up by 27%. So if you can give a bit more color for what drove that and also what implications are for the tariff increase on the rate component going up 9% from the half year? I'll some commentary and I'll look to Peter to add to it. I think the from the tariff perspective, is some history in that. That is an adjustment year on year where the full effect of the regulatory impact was felt from one year. And once the new tariff came into normalized. So don't see that as a step up per se. It's on a normalized basis. You'd see it you wouldn't see that step up. But in terms of the growth, it's pleasing that you picked up on that. We've had a big focus, and we've been talking for quite some time about the opportunities in the Western Australian market around other existing mines adding to their energy requirements or new mines seeing that they are now within proximity of our expanded footprint and wanting to add on to that. So that what you're seeing is effectively that growth strategy that we've had place for some time playing out in the resources sector in Western Australia. And Ian, just to close that off, the gas that's going through the Eastern Goldfields pipeline and now through the Yamana gas pipeline and to also Mount Morgans through the Mount Morgans gas pipeline, which are all off the off the Goldfields gas pipeline. That gas gotta come through the GGP. It's coming from up north to to get there. And so what you're saying there, as we've as we've commissioned the Yamuna gas pipeline in particular in this in the half, that's where that gas is coming from, and that's what's driven increased increased output from the GGP. Okay. That's great. And just on that, you're hearing a lot of miners adding solar batteries, maybe not build some batteries into their system. How does that influence that growth outlook for the pipeline? Is that moderating a bit of it, or is it not really having an impact? Ian, it's an interesting question you ask. Clearly, a lot of the miners are all looking at a portfolio approach to energy. And that's in part why you see the operating model changes that we've made to ensure that we're bringing together all of our operations and running that as a portfolio and how we face off to our customers with our single strategy and commercial touch point. So what we're finding is many of these miners are looking to have some form of renewables as part of their portfolio and energy mix. But as we all know, the capacity factor on solar might be in the order of 30%, and they're going to run a 20 fourseven operation, and and that's where gas come comes into into play. I think the other thing to add to that, Ian, is that, you know, what we've shown over, again, a long period of time is that working with customers, we can deliver them different forms of energy. We've we've done it with Origin who are a significant gas customer in the East, and now we're delivering them solar energy through Darling Downs. We've done it in the West where we had, for a a number of years, the Emmy Downs Wind Farm, where the customer is Synergy Energy, and we've added the the the solar farm there for them again. And the two assets at Badgingarra, both solar and wind for Alinta, one of our larger customers. So there's nothing to stop us. And indeed, you know, what we have our commercial people doing is talking to our customers about those very outcomes. So why wouldn't we be delivering gas fired electricity to a customer and also offering to provide them with that solar solution if they want to green up their energy source in some way? So from our perspective, our commercial guys are out there talking about those sorts of things to customers. And and and, yes, you know, don't be surprised if you see us announcing, a solar farm for a particular customer that we're already delivering gas fired electricity to. Okay. And then one final question on The US. Appreciate the process is starting. Have you had any sort of have you gone through any auction processes as such yet? Or are you still more in that discovery phase? Because you've been doing it for a little bit a little while. Ian, as you know, with the financial nineteen results, indicated that I'd asked Ross to go and take up residence in Houston, and he was on the ground, I think, something like the September. So it's really six months in the exploratory stage, and that's an important part of the work that we do. As you know, we've always taken a very disciplined approach to how we look at things, and The U. S. Is a big market. So that was the long answer. The short answer is no, we're still at that exploratory stage. Your next question comes from James Byrne from Citigroup. Go ahead. Good morning, Rob and Peter. Thanks for taking my questions. I have a couple of questions just on the guidance and the outlook. And let me caveat my two questions by saying I think you've got a commendable track record on delivering against your guidance. Firstly, for FY 'twenty EBITDA, where you'd mentioned here on the call that you expect to come in at the bottom end of that range. Were there other drags on your guidance aside from Orbost that were unexpected? I I think that, the the answer to that is there's always stuff in a business that that happens, on a day to day basis that might you might not expect. We try to consider everything that might happen in a given year, and and and, you know, 1.66 to 1.69 is a $30,000,000 a $30,000,000 swing. So in the context of losing a quarter, you know, as much as, you know, a quarter plus actually of of revenues from one particular particular asset, to to actually deliver within the range, in that context is probably not a bad outcome. You might have expected that having lost, you know, more than a quarter of revenue, given that we're talking now about mid, you know, delivering revenues out of Orbost in March, as there is gas now in the plant. You're talking about a quarter more than we expected because we were talking about Orbost contributing in the fourth quarter of last year. So in that context, you might say, well, if you can deliver within that $16.60 to $16.90 range, it's only $30,000,000, and you've lost, three, maybe four, maybe more months of revenue from a project like Orbost, you've actually had some upside that's come into the thing and delivered to get you into that level of outcome. So from our perspective, there's lots of stuff that plays on this. As I said, I've seen a couple of papers this morning that said we didn't have $15,000,000 in there from which is a full year number, actually, for from AASB 16. I I mean, that's always been in there. So, you know, the 1660 was never gonna be the 1690 was never gonna be improved by AASB 16. The sixteen sixty was never gonna be let down by AASB 16. So from that perspective, there's lots of stuff at play. Got it. Okay. That's clear. Secondly, just on this potential for $1,000,000,000 of CapEx over the next two to three years. Can you perhaps help us understand how the market ought to think about the risk associated with that? Again, acknowledging you've done well relative to your guidance in the past. But as I look through the opportunity set, you know, things like the Western Slope Pipeline, I'm not necessarily convinced that that's the pipeline route that Narrabri will end up choosing, for example, if and when it takes the second phase of drilling? James, the way we sort of think about this is, as you've probably heard us, both Peter and I speak before, is we've a strong track record of growth. And if you look at the last ten years in excess of average, in excess of $300,000,000 per annum of CapEx growth and over the last five, in excess of 400,000,000 And when we look at our the opportunities set in front of us, one of which you just mentioned, which is a collection of projects which we collectively said if they eventuate, there's $1,000,000,000 of growth CapEx. But the better way to think about that is we've got a strong pipeline of growth opportunities in front of us that give us the confidence that 300 to 400 and in that range is something which we can continue to expect out into the future. There's certainly going be different opinions on which projects are going to proceed, whether it's going to be import terminals or gas pipelines from gas projects or maybe a combination of both. Ultimately, it will be the customers that decide those. But the important thing is we've got ourselves into a very strong position, having relationships and memorandums of understanding and agreements with all of those parties. And just to finish out process thing more than anything else, James, you know, our board is very is is is very detailed in the context of what they allow us to talk to the market about in terms of guidance. And we have to justify to them in in detail where we think our guidance is in respect of everything that we give guidance on. And 3 to $400,000,000 of CapEx over the next two to three years is is part of that. And so we presented a paper to the board yesterday that gave them comfort that that number is, is still an appropriate number because, you know, we talk to them about the things that we are seeing, and the things that we are talking to our customers about and, the likelihoods of timing, etcetera, etcetera. So there's a process behind what we do. These are not numbers that are just picked out of the year. There's not only a process behind what we do. There's authorization and and and due diligence done by our board before we even talk to you about these sorts of numbers. Okay. In that case, let me give you the benefit of the doubt here and assume that you can spend a billion dollars over that two to three year time horizon. Do your operating cash flows and new debts, more than cover that level of CapEx while still being able to grow the distributions to shareholders at the kind of, you know, growth rates we've seen over the last few years? I think I think so. I mean, you you look at our numbers today, we're talking a billion plus of of of operating cash flow, you know, 1.07 or something in the full year, which is something I've just told you that we hadn't talked about. But, you know, so you got something for free. But but, you know, you take that, and you say $600,000,000 of that is distributions, and you've got $500,000,000 left to to invest in that growth CapEx. And we haven't borrowed another a a dollar to to to fund growth CapEx in the last year, and and we don't intend to and don't don't expect to. So from our perspective, we're we're nicely set. We've also got you know, you'll see that the, the the rating metrics, admittedly, our calculations, both on our website this morning and the documentation here. But, you know, in excess of three times FFO to interest, in excess of, close to 11% in FFO to debt. These are, strong metrics relative to what the expectation is for us on the triple b b double a two rating. So, we've got capacity there to to fund that sort of growth if necessary. But my view is we fund growth and increase distributions from our operating cash flow, which continues to grow. Got it. Great. That's all for me. Thanks so much. Thank you. Your next question comes from Mark Buscetto from JPMorgan. Please go ahead. Morning, gents. Just a quick question about potential growth opportunity. In the last week or so, we've been hearing that Woodside is planning on selling down Pluto Train two, which sort of feels like it fits within the category of what you're looking for an energy related asset with fixed price offtake. Can you give us a sort of give us an idea of the level of interest in something like that? I mean, have you already started doing due diligence on a project like that? And equally, even if you just bought it in at cost, I mean, the expansion is $6,000,000,000 U. S. I mean, the scale of the project something you'd potentially be interested in as well? Mark, thanks. It's Robert. I'll take that question. Look, it's clearly, we wouldn't be able to comment on as to whether we're participating in a process or not, regardless of whether it's that one or any others. And that would be our standard response to any of those sorts of questions. What I would just offer is that from time to we're an energy infrastructure business, and we're always looking at those sorts of opportunities that where there's energy infrastructure, and we've got a good off take. But certainly can't comment specifically about particular processes. Okay. Well, can I say if hypothetically you were to buy into project of that scale, what would it mean for your balance sheet, or how would you pay for it? Well, yeah, hypothetically, that's you know, if we were to buy a business in The US that was, let's call it, 4,000,000,000 US dollars, which is what we've talked about in in the past. There's you know, the balance sheet today is not set for acquisition of that absent raising equity. And so those sorts of acquisition levels, like like back in 2014 when we acquired the Wallumbilla Gladstone Pipeline, $6,000,000,000, it took us you know, the balance sheet was very strong at that on the day we did it, but we raised $1,800,000,000 of equity and and 3,700,000,000.0 US in debt. So, you know, those sorts of things. We've set this this business today for, and the balance sheet today for operational capability. There is nothing that we are doing operationally that I believe we need, to go to the market for equity for. But, again, we have always said in the context of a significant acquisition, we will always support it with equity, an appropriate amount of equity and funds retained in the business. So, you know, where that number starts and finishes is will always depend on the day. But, you know, we've said in the past, we said it back in February 2018 when we funded $1,850,000,000 worth of of projects. We said, you know, what $500,000,000 worth of equity sounds about right for that? 1,500,000,000.0 was a lot more than we'd been sort of used to. As we sit here today, we've generated a lot more cash flow, and so we don't think that the operating, that that that those sort of organic growth things need any any further equity support, but any acquisition will. Okay. That's all for me. Thanks so much. Thank you. Your next question comes from Baden Moore from Goldman Sachs. Please go ahead. Hi, Rob and Peter. Just a just a quick one from me. I was interested just with the delays at Orbost. What gives you the confidence now that you're going to hit February and March? Just is there anything specifically in that project that was holding you up into December that's now done that you could reference? And then what are you including into your guidance into this year to contribute from Orbost? Thank you. Look, just quite simply, the project, as we've said, has had delays driven by the construction contractor. We we took operational control of the plant late December, and what's giving us the confidence that that March is when we'll commence commercial operations is because we safely introduced gas into the plant yesterday. And we're and that sales gas will be we we are forecasting that we'll be introducing raw gas from the Solgas plant this month in February. And that those two things together with all the other activities happening on-site give us the confidence that we'll be commencing commercial operations in March. In terms of your guidance point, I might just refer to Peter for that question. Yes. What I'll add to Rob's question before I answer that is that since we took operational control of the site in December, our people have been providing us with a daily schedule of completion and a daily target for completion, and we get that on a daily basis. And, you know, APA has got some very disciplined methodologies for doing this sort of stuff. And, you know, we're now we're now commissioning an asset, and the the confidence we get is from the people doing that commissioning and, what they're showing us on a daily basis, not on a weekly or not on a monthly basis. We we get it daily, and we know what's going on. In fact, I got a photograph this morning at 4AM, of the flare, that was, ignited late last night, I think. So, in respect of guidance, mate, we're we're at sixteen sixty to sixteen ninety, and that includes everything. We're not going to give you numbers from this or that or anything else, to be fair. We've been pretty good with our guidance over a number of years, we're confident that we'll be within that range, albeit, as I said earlier, a little bit towards the bottom end of that range. And hopefully, that the market will understand that, and we'll give some guidance next year about what will happen with the full year of all Boston involved. So we'll go from there. Your next question comes from Nathan Lee from Morgan's Financial. Go ahead. Thanks for your presentation, Rob and Peter. Just three quick questions for me. So firstly, Peter, you're talking there before about funding capacity. Can you maybe just have a bit of a stab for us about how much capacity you think you got on your balance sheet before you need to actually tap the mark for equity? Just how much capacity to fund new projects? Oh, look. That's all that that's a very interesting comment, Nathan, and and it's probably not given number as you sit here today. You know, we we sit down and we've always done this when we when we look at acquiring things, and we talk to, the rating agencies through the process. It's part of our due diligence process. We actually go through ratings evaluation services and ratings assessment services with both the rating agencies as we lead up to finalizing transactions so that we exactly know what we can and can't do with the balance sheet in respect of a particular asset. And in the context of the way the rating agencies look at the various different things, they do have different views on different assets, as and do we. So we may have a different view on a regulated LDC in The U. S. To a wind farm that we might build or buy or try to buy, want to buy in Australia. So it differs, to be fair. But what I'd say is that we've got a strong balance sheet. It's a balance sheet that you know, we we people ask us, why aren't you considering capital management and buying back securities, etcetera? The well, the answer is, you know, it'd be dumb for us to to think about buying back securities tomorrow to, you know, maybe deal with $500,000,000 of headroom, if that's what it is, and then come to you in three months' time and say, we want money to buy an asset in The US. Now it's not saying we're stockpiling, but it's saying that we've got a balance sheet that is strong enough to withstand issues in markets, but it also gives us some ability to deal with things that are going forward that might acquire smaller assets. Okay. Second question to you, Peter, also. Obviously, you've got tax losses there that are sort of meaning that your cash tax paid is probably lower than what it otherwise normally would be if that those losses weren't there. Could you just sort of talk through maybe when you expect those losses to be fully utilized? Yeah. It's that's a it's a difficult one. The tax losses we have today are are what are what's called available fractions losses. And so we can't even sort of tell you how much of those we're going to use in any given year because what you use is based on valuations and etcetera, etcetera. So but look, from our perspective, what we've done in the past is we've given guidance in respect of tax. It's been a little bit more informal guidance. I think we gave you some informal guidance today about what the tax looks like this year. It's very difficult to tell you what the tax looks like beyond that because, again, it comes down to what shelter you get from accelerated depreciation of new assets that you put on the balance sheet by way of either acquisition or that capital growth, and that changes as well. We've not talked about the available fractions in terms of numbers and how long they last, but we are using them, and that's getting that's flowing through as a benefit to security holders. Okay. And maybe one for you, Rob. We've talked a lot today, I suppose, about growth investment opportunities. But can you talk about maybe the latent value in your existing assets? I suppose one of those places could be uncontracted capacity, but maybe if you could just chat a little bit about that. Thanks, Nathan. And it's good that you saved a question for me as well. Thank you. Look, clearly, we're obviously very confident and optimistic about the growth, and I've covered that off. The simple answer is that from time to time, there is available capacity on the assets. It really differs by asset, by pipeline, and also how we, over time, use the system as a grid, whether providing storage or other services. By way of example, the Goldfields gas pipeline is fully contracted and at capacity, and anything more that needs to happen in that regard will require further capital and expansion. It really does differ, and it's very hard to be able to comment specifically around those opportunities. But the commercial team are fully charged with making sure that they look to commercialize any available capacity and respond to our customers' needs. Your next question comes from Peter Wilson from Credit Please go ahead. Thanks. Good morning. Peter, to the extent that you're willing, can you give us a guide on second half DNA given that Orbost will be coming online in that time frame? Sorry. Can can you what? Second half, D and A, where we should expect a step up given Orbos is coming online. Haven't thought about it, to be fair, my friend. So, it is something we can take offline. But, again yeah. No. Don't have a number off the top of my head. Okay. That's fine. And then given what's happening with spot LNG prices, it looks like there's going to be a bit of gas, which is going to try and find its way to the domestic market. I'm wondering whether there's an upside opportunity for you guys there, either in an increase in variable revenue or some shorter term contracts? Peter, I'll take that one. Look, we're always looking at those opportunities in the market. And if we're not looking at them, our customers are talking to us about those opportunities. We're well set up with our East Coast grid and with multi asset, multi service contracts. Our integrated operations center is always looking at it on a day to day basis. So due to the and in effect, on a day to day basis, we are seeing those opportunities come through. So I think the short answer is that's our business. And to the extent that there's available gas and there's a market for it, we'll always be looking to find ways to get that gas to that market. Okay. But it does seem to be, if anything, kind of escalating given what's happening regionally. Were the did the first half results benefit to any extent from that theme? So I did notice, for example, that in the pie chart you gave, the proportion of variable revenue had increased only a small amount, but it had increased versus the full year amount? I can't answer that question with any specificity, Peter. I think that's part of we do every day is is respond to those sorts of opportunities, and trying to put a number on it is is is certainly difficult for us. I I think the other thing to keep in mind, Peter, is that that, you know, more gas coming from Wallumbilla because of, you know, lower LNG prices, that gas could be using capacity that we've already sold to a customer. It it from from our perspective, as we've said, you know, most of the last ten years, capacity all the capacity on these pipelines are sold in long term contracts to our customers. So if one of our customers manages to acquire some gas that's cheaper at Wallumbilla, as has been the case over many years, they're just using capacity that we've already sold them. So the as available revenues that come to us are about using capacity that's not used by a customer and of delivering a service that may allow us to use some capacity that's not used. But generally, the phenomenon that you're talking about, the benefits are gonna flow to our customers who are acquiring that gas at from Wollumbilla cheaper than what they might be able to get get their gas from, say, Longford, and therefore, they're bringing itself on capacity they already own, if you like, that they're already paying us for. The only thing I'll just add to that, Peter, is I think if you look in the half the the the report for the the financial report for the half, there is a breakout box that gives you some examples of some of the things that we've been doing just by way of example and responding to those sorts of opportunities. So if you if you find that page, I don't have it directly in front of me, but I think you'll get a good sense for how our business is working closely with our customers in that regard. Okay. That's good. I'll leave it there. Thank you. Thank you. There are no further questions at this time. I'll now hand back to Mr. Weals for closing remarks. Thank you. And and thank you to everyone for joining the call this morning. I'm sure I'll catch up with many of you in person over the coming weeks. And just one last note from me is that regarding the date for APA's Investor Day, which I did postpone last year due to our operating model review that was underway, that Investor Day will now be held on Friday, May. And you can contact our investor relations team for further detail. Thank you again for your interest in APA.