Good morning, everyone, thank you for joining this morning's call. I want to start by acknowledging the traditional custodians of country throughout Australia and pay my respects to their elders, past, present, and emerging. Because of COVID restrictions, I'm joining you today from my home on the Gadigal lands of the Eora Nation in Sydney, where like all Sydneysiders, unfortunately, I've been in lockdown since June. APA CFO Adam Watson is joining us from his home on the Wurundjeri land in Melbourne. Where are we at? Well, once again, I'm pleased to report that APA delivered another solid financial performance in financial year 2021. Compared with last year, our revenues were marginally higher. Underlying EBITDA was relatively stable and within guidance range. Full-year distributions are up 2%. This underscores a to security holders.
I call it a no surprises set of results, with a reliable, solid performance that you've come to expect from us, even in these challenging market conditions. We further strengthened our balance sheet with the debt refinancing activities we undertook earlier, and this has resulted in lower ongoing interest costs and higher ongoing free cash flow. Reflecting our confidence in the outlook, we have upped our distribution guidance for financial year 2022 to AUD 0.53 per security, a 3.9% increase on financial year 2021. As we said at the half year, we are in execution mode, focused on the more than AUD 2.8 trillion worth of opportunities we see before us in our chosen markets of Australia and North America. Let me move to the operational part of the business now. Front and center has been our focus on safety.
We have made meaningful improvements in this critical area with a 80% improvement in our total recordable injury frequency rate, or TRIFR. While that's positive, safety must and will remain an area of relentless focus. We have, again, delivered high-reliability operational performance for the year, with 99.9% of our customers' gas transmission nominations being delivered. That means 99.9% of the time, our customers are getting exactly what they asked for. We've made strong progress across all four key areas of our strategy, and I'll briefly comment on each in turn. Firstly, we have strong growth now forecast across the portfolio with our organic growth pipeline now in excess of AUD 1.3 billion. We continue to see the U.S. as an attractive market. In fact, during the period, we participated in a process where we learned a lot.
Above all, we know that we can be competitive, and we will continue to remain disciplined as we seek out opportunities in this market. Secondly, we've further expanded our new energy portfolio and capabilities through our Pathfinder program. Thirdly, we've made tangible steps to better support our customers and strengthen our stakeholder engagement. Lastly, we have continued to have a laser-like focus on creating value for all our security holders. Let me point now to some examples. That AUD 1.3 billion of organic growth pipeline that I referred to earlier includes the three projects you see on this slide. The expansion of the East Coast Grid is a critical investment for the country, increasing winter peak capacity by up to 25%, so that's a quarter, through a two-staged expansion. This will deliver much needed additional energy security for Southern gas markets.
We're also delivering the Northern Goldfields Interconnect in Western Australia. We continue to make good progress on project approvals. Our current schedule is to break ground in December. We're pleased to be working exclusively with Snowy Hydro to develop the pipeline and storage link to the new Hunter Power Station, which was announced by the federal government a few months ago. We make these investments with absolute confidence in the role that gas will continue to play well into the foreseeable future.
When it comes to our energy mix, gas is the workhorse of the grid, and it was gas and APA's gas infrastructure that saved the day when the energy system was recently put under enormous pressure by the perfect storm that was created by the recent Callide Power Station outage in Queensland, the flooding at Yallourn, production issues at the Longford gas plant capped off by a cold snap in Victoria. It was the flexibility and the storage capability of APA's East Coast Grid that enabled us to step in and keep the heaters and the lights on in Victoria. This point was further underscored just last week when the ACCC highlighted just how important gas storage capability will be in managing supply and demand risks over the longer term.
Furthermore, they've highlighted that a gas supply shortfall remains a possibility, and more needs to be done to ensure sufficient gas is brought to market. While we remain confident about the ongoing role of gas, we are also very much focused on the challenge of the energy transition. This energy transition offers enormous opportunity for APA to utilize our existing capabilities and to broaden our business into other growing energy infrastructure markets. It is about making our vision to be world-class in energy solutions a reality. One of the exciting projects is the development of our first hybrid microgrid alongside the Gruyere Power Station in Western Australia, and there is strong demand from the mining sector for these types of energy solutions that both lower costs and emissions.
Elsewhere, we are active in discussions with our customers in the Mount Isa region to bolster energy supply solutions and energy security. Back over in the West, we continue to make good progress on our project to potentially convert a section of the Parmelia gas pipeline to be 100% hydrogen ready. This is a really important project because we know that as technology develops, our existing gas infrastructure will be vital to connect Australia to the energy solutions of tomorrow. Also vital to our ongoing success is our relationship with communities. Through our national footprint, we have a presence in more than 170, that's 170 local government areas across the country, working with and strengthening those local communities is core to our purpose and the execution of our strategy.
I'm proud to say that right across our operations, our teams work hard to build strong and enduring relationships, and they do that through projects like the Gibson Island Rehabilitation Project, which is adjacent to the Roma Brisbane Pipeline. There, our Queensland staff donated volunteer hours to planting more than 1,000 native plants and clean-up events during the year. We've also established a new community sounding board for the business, which is an industry first, and that's through our stakeholder advisory panel. The panel includes a broad cross-section of senior leaders in the industry and will convene regularly to provide input and advice to APA on policy matters, strategic programs, and plans. The panel will help us identify matters that are of importance to our stakeholders and communities, and importantly, will ensure that we now have a critical community voice at the decision-making table.
The execution of our strategy is underpinned by our commitment to a sustainable future, which includes our ambition for net zero operations emissions by 2050. We unveiled this ambition at the half year and at that time committed to announcing interim targets in FY 2022, and I'm pleased to say that work is well underway for that. We also launched our sustainability roadmap to create a further step change in the way we look at sustainability. At the same time, we've enhanced our approach to social performance. We're dialing up local content on our projects and taking a more involved and inclusive approach to working with our stakeholders. We've also strengthened our focus on engagement with First Nations communities, and I'm really proud of the work the team is doing with communities on the Northern Goldfields Interconnect project over in Western Australia.
Also the care and effort shown by our people on the Victorian Northern Interconnect Expansion Project, which has included returning more than 2,000 cultural artifacts uncovered during work there during the project. First Nations engagement will be an ongoing focus for APA into the coming year. We also continue to invest in the broader community and our people. More than AUD 700,000 in support was delivered to communities in need during the year. This is through organizations like the Red Cross, Rural Aid, and the Business Council of Australia. We made further strides forward in our efforts to make APA an employer of choice. We did this by increasing our senior leadership female representation by almost 7%, maintaining our place in the top 100 graduate employers, making the top 40 for our refreshed intern program, and launching our new national apprenticeship program. Our people.
Our people are the key to our success, and without their commitment, resilience, adaptability, and capability, we simply would not have been able to achieve what we have during this challenging year. They've tackled ongoing border closures, lockdowns, and other health restrictions. I've been so impressed by how well they have responded and kept delivering both on our strategy and for our customers. I want to take this opportunity to publicly thank each and every one of our nearly 2,000 people, as well as our myriad contractors and partners, who support us around the country, and for the hard work and dedication they've shown to make the results we've announced today possible. As I wrap up my opening remarks, I think you'll agree, we're a business very much in execution mode on the strategy we unveiled just six months ago.
I'll now hand over to Adam Watson to take you through a deep dive into the financials.
Thanks, Rob. Good morning, everyone. It has certainly been a challenging year for our communities and for many of our customers. The impacts of COVID and the associated lockdowns are well-known to all of us. It's with this backdrop that we see our FY 2021 results, where we've been able to hold our revenues and EBITDA largely flat year-on-year as evidence of our strong financial foundations, delivering stable, reliable returns for our investors. I'll talk to the detail behind the results in the coming slides. Importantly, we've made sure we call out significant items and other non-operational impacts on our results so you get a clearer picture of our underlying performance.
What is worthy of an early call-out is our FY 2021 distributions of AUD 0.51 per security, which is up on last year by around 2%, as Rob said, and it continues APA's proud record of delivering strong returns for our investors. We've also guided to further growth and distributions in FY 2022, a demonstration of the confidence we have in APA's long-term future. I don't intend to go into the detail of our statutory results, but I will call out our profit after tax before significant items at AUD 282 million, which is down on last year because of the flat EBITDA and the uplift in depreciation owing to the expanding asset base. Our profit after tax, as reported, at AUD 3.7 million, was impacted by two significant items. The first was the non-cash impairment of Orbost, which was communicated to you back in February.
The second was the one-off bond note redemption costs associated with our March refinancing activities, and I'll touch on that later in the presentation. Our EBITDA waterfall chart is designed to highlight the key movements that occurred during the year. I'll start with tariff escalation. It was up AUD 22 million for the year, once again, reflecting the continuation of low levels of inflation. We haven't seen the recent increase in inflation materially flow through to our results yet because, for the majority of our contracts, there is a delay from when the escalators kick in. Operating revenue was down AUD 41 million. However, it's important to point out that this is an extrapolation of what you saw in the first half, with no evident deterioration in the second half.
The negative impacts to operating revenue were driven by three primary factors, which all reflect the challenging market conditions our customers are facing. First, we have seen weaker contract renewals in some parts of our business. The best illustration was a large customer in Queensland who was temporarily sourcing gas from the Northern Territory, but can now source its gas again from Queensland, thereby reducing its transport costs. Now, that makes perfect sense, and they remain a customer of APA. But in the first half this year, they took advantage of changes in gas supply when we were rolling over our existing transportation contract. Secondly, we also noted in the first half that a number of our customers, in particular the retailers, have chosen to reduce their contingency arrangements, including, for example, a major customer who reduced their contract with our Dandenong storage facility.
This just simply reflects the challenges they are under to maximize their earnings in these difficult market conditions. Thirdly, we have been impacted by the lower volume demand from the commercial and industrial sectors who were impacted and continue to be impacted by the COVID lockdowns. This was most notable in Victoria, where we have a greater exposure to volume fluctuations. The shining light for the period continued to be the performance of our business along the West Coast, where we have seen ongoing strong demand from our resources customers.
In summary, again, against the backdrop of a AUD 1.6 billion EBITDA line, whilst we don't like to see a net negative in our operating revenue year-on-year, we see the FY 2021 performance as a solid result, again, given the challenging circumstances. Moving to some of the other items, we had new assets contribute AUD 21 million from the Orbost processing plant, which commenced operations in late August 2020.
We generated good returns from our asset management division. Finally, we had lower energy investment earnings because of the one-off dividend and shareholder loan note interest received from SEA Gas in the prior year, in FY 2020. Energy investment earnings were otherwise stable. Moving on to our costs. I'll firstly call out Orbost again, which had costs of AUD 12 million in its first year of operations. Operations and maintenance costs were broadly in line with inflation, reflecting another solid performance from APA's operations team.
Asset management costs have reduced this year, primarily due to some one-off system upgrades that were made in the prior year. Our corporate costs reflect the intentional investment we are making to strengthen our capability. This is critical to ensure we are positioned to execute our growth opportunities and ultimately create sustainable long-term value for our investors. Our Investor Day in May was designed to share with you our areas of strategic focus and to give you confidence that we are on the right path to make sure we have the necessary capability in place to grow. Our recent investments are consistent with that focus. We've established our Pathfinder program, and we have a team on the ground in Houston to support our ongoing focus on North America.
We have enhanced our capability for our corporate and commercial development teams, which is already paying dividends, evidenced by the progress we have made with our organic growth pipeline. We have increased our project evaluation costs, having participated in several organic and inorganic growth opportunities during the period. We've also seen an increase in other corporate costs during the year. Some of this increase has been driven by market factors, such as seeing more than AUD 3 million of higher insurance premiums year-on-year. There's also been a step-up in compliance costs to facilitate obligations such as our regulatory reporting requirements. Most of the corporate cost increase has been driven by our intent to build the capability of the business to take us into the next generation of growth.
We are strengthening our investment in areas such as sustainability, community engagement and cybersecurity. We had a number of one-off costs associated with the development of the new APA leadership team. Again, all of these are important investments to ensure we can deliver growth over the long term. As I discussed at our Investor Day, we've moved our distribution guidance to be based on a targeted 60%-70% payout ratio of free cash. This was designed to ensure, firstly, that we cover our staying business CapEx, then to balance our payment of healthy distributions with ensuring we are largely funding our organic growth projects from internal cash flows. When assessing our free cash flow performance, you need to firstly back out the AUD 39 million we received last year in FY 2020 from SEA Gas as a one-off distribution.
We've had higher tax payments this year owing to the higher taxable income in the prior years. The additional interest payments relate to Orbost interest no longer being capitalized to the project. Our working capital was very positive. This was partly due to the timing impacts from FY 2020, which included a number of prepayments made last year for items such as our insurance premiums. We also received an AUD 11 million contribution from a customer for capital works at the Orbost plant this year. More broadly, though, I'd like to thank the team at APA for their strong focus on working capital during the year, especially the procurement team, which has been focused on improving our collection arrangements with our suppliers. Finally, you'll see that we had significantly higher staying business CapEx in FY 2021, and this is owing largely to the scheduled overhaul of the Diamantina Power Station.
Whilst on the topic of capital expenditure, we have seen CapEx grow across all markets this year, but for the East Coast, where FY 2020 was influenced by the construction of Orbost. If we were to ignore Orbost, it shows that all of our markets are growing, which is obviously a very positive sign. Looking forward, you can see that we continue to make progress with our organic growth pipeline.
It has grown a further AUD 300 million since the first half, now at AUD 1.3 billion for the next three years. For some good context regarding the progress we made, when measured based on the value of the projects that achieved financial investment decision or FID during the period, we've progressed AUD 600 million of projects this year compared to around AUD 150 million in FY 2020. That's a four-fold increase, which will no doubt pay dividends in future years.
We know that a strong balance sheet is essential to support growth and to protect the financial interests of our investors. Against the backdrop of an already strong balance sheet, we executed a significant refinancing project in March this year, which has made our balance sheet even stronger. The project, which included raising AUD 2.2 billion of new debt to replace a number of existing facilities, increased the average tenor of our debt to nearly eight years. It reduced our average interest rate to around 4.8%, and it created balance sheet capacity of around AUD 1.9 billion, as measured by our cash and undrawn committed facilities. There was a significant one-off interest charge associated with the bond note redemptions. However, when you take into account the ongoing savings from the lower fixed interest rates, the initiative was NPV positive and delivered a step up in our free cash flow generation.
Our balance sheet puts APA in a very strong position to execute our strategic growth agenda. Looking forward into FY 2022 and beyond. Importantly, we expect free cash flow to continue to grow in FY 2022, despite the expectation that the challenging market conditions are likely to continue. As such, we expect FY 2022 free cash flow growth will largely be driven by lower tax and interest payments. FY 2022 distributions are guided to AUD 0.53 per security, which will be almost 4% higher than FY 2021. We have developed a distribution policy that is designed to get the balance right between paying healthy distributions as well as funding growth. As I said at Investor Day, our security holders have overwhelmingly communicated their desire for APA to continue to focus on funding organic growth CapEx from our internally generated cash flows.
In the longer term, our recent investment in growth CapEx will translate into earnings growth as the new assets come online. Supporting our pursuit for sustainable growth, we will continue to invest in building the capability of our business. We know our success in the past doesn't guarantee success in the future, we are making sure we have the right people, the right systems, and the right processes in place to ensure we stay efficient and we can grow at scale. To wrap up, our investment fundamentals remain strong. We're focused on delivering stable and reliable cash flows. We're focused on balancing strong distributions with the internal funding of our organic growth CapEx. We strive to be transparent and insightful with our investor communication. We maintain high levels of liquidity and are committed to our investment-grade credit metrics. We have low cost of capital.
We ensure we have a diversified pool of funding sources, we remain disciplined with our investment decisions, as Rob said before. We remain focused on ensuring our balance sheet supports this growth agenda. As always, I'd like to thank you for your time. With that, I'll hand it back to Rob. Thanks, Rob.
Thanks, Adam. To wrap up, APA has again delivered a solid financial performance in financial year 2021, despite the challenging market backdrop, and we're very, very much in execution mode. Our organic growth pipeline is now AUD 1.3 billion, up from AUD 1 billion at the half year. Our balance sheet is strong, and we remain confident in the outlook for APA and determined to keep delivering for you, our security holders, with distributions expected to increase again in financial year 2022 to AUD 0.53 per security. In summary, we see enormous opportunities for this business to grow and prosper in the energy transition, and I'm confident that we have the strategy and the capability to deliver our vision and to keep APA always powering ahead. With that, we'll now move to Q&A.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. You may press star two if you wish to remove your question. If you are on speakerphone, you may need to pick up your handset before asking your question. One moment as we poll for questions. Our first question comes from Ian Myles with Macquarie. Please proceed with your question.
Good morning, guys. Well done on the results. Couple of different questions here. Maybe first up, NGI. Maybe give us an update on how you're going on the contracting of the pipeline itself.
Thanks, Ian. It's Rob here, and I'll take that question, and thanks for your comments on the results. It is another solid performance and one which we're very pleased about. In relation to your question on NGI, we continue to engage with customers. There's still strong demand. You will recall that the reason we've gone down that path of building the NGI is because the Goldfields Gas Pipeline is currently fully contracted, and we've got ongoing demand from customers, so we continue to engage. The contract book, if you like, is just as good as it was when we started this process, if not stronger. We make good progress on both the contracting but also the project approvals.
I think I mentioned earlier in my comments that we're expecting to be breaking ground in the December month, which will put us into a pipeline being available to be commissioned in the first quarter of financial year 2023.
Just as an aside on that, inflation, I think people were talking about getting labor in W.A. has actually been pretty difficult. Are you finding the same challenge that you're having cost impacts as a result of that?
Yeah, look, the market is tight. I think it's fair to say that we did a lot of work ahead of time on that project to get our costing for the project well understood, engaged with construction parties well in advance, got the long lead items in terms of pipeline and compressors well understood. We remain confident around the costs associated with that project, Ian.
Okay. Look, we saw yesterday Viva talking about a gas import terminal in Victoria. I was just wondering if you could give us a bit more color. You saw at Origin, and they made the suggestion that the threat of import terminals is increasing competition, and how you're seeing the opportunities and threats of those import terminals emerging.
Yeah, look, it's an interesting one, Ian. As we know, there's been talk of import terminals for, I've lost track of how many years. Must be at least five years now. We haven't seen any yet being commissioned. Certainly, there's been lots of talk up and down the coast on different opportunities. As a general comment, with the outlook for gas, and I think in my earlier comments, I made the point that the outlook is that the southern markets in particular will be tight in terms of supply with the declining production in Victoria. We see more gas coming into the system as a net positive. The development of a project like the one you mentioned, is effectively like another production source into the market.
I think there's always going to be a challenging business case around these import terminals, particularly with those that might be looking to seek long-term off-takes on LNG contracts. Certainly, I think there's that opportunity to provide swing gas capability into market arbitraging the northern hemisphere cheaper summer gas into the southern hemisphere winter market down here.
One final question. You talk about opportunities in Mount Isa around your power station up there. I'm just wondering if you maybe give us a Is it similar to what Alinta is doing in W.A., where they can putting solar with their gas-fired plants and batteries. I guess why you haven't put a battery up there. Finally, on what you're seeing on with CopperString 2.0 and the threat there.
Look, I think the first thing, Ian, is we've been supporting that market for a very long time. We know it well. We've invested about AUD 1 billion of capital in pipelines and generation over the time. The market's well-served, and we've got a strong track record of reliable supply. One of the other things, of course, we're proud of is that the emissions intensity of the power station there is half or less than half than it was in the rest of the NEM. We continue to work with customers around different solutions that not only help to lower their cost, but also help to lower their emissions. I'll explain that in just a moment.
That, obviously for customers needing 24/ 7 energy, which is a reliable supply coming from a gas generator, but if they can take some of the energy supply from solar during the day, that can reduce the gas off-take. You'll recall that most of what we do is toll other people's gas through our systems. That's an opportunity for customers to lower their costs but obviously lower the emissions intensity further for their overall supply. In terms of CopperString, we're watching that one closely. Obviously, what we are most wanting to see is a transparent process develop. As you know, a number of years back, we competed in a competitive process against CopperString 1.0, and we won that competitive process. We're not afraid of competition. What we do want to see is transparency in what will develop in front of us.
We are encouraged by the fact that it appears the government will be running a consultative risk process. I think that's going to be important so that the costs and benefits can be understood. For any bit of infrastructure like this, AUD 2 billion and more, or the question is always going to be who's going to pay, and we'd hate to see all of Queenslanders having to be slugged with additional costs in this instance.
Well, that's great. Thanks.
Thanks, Ian.
Thank you. Our next question comes from Rob Koh with MS. Please proceed with your question.
Good morning. My first question just goes to, I guess, revenue quality, and if you could just provide us some color on the kind of number of contract renewals that went into the year and the kind of resultant weighted average tenure, if you have that data handy?
G'day, Rob. Yes, just in terms of revenue quality, I don't have to hand the exact details to be able to answer your question specifically. I think as you've heard me say on many occasions, in our business with in excess of AUD 2 billion worth of revenue, we've got hundreds of contracts. During any one year, there's going to be multiple contracts coming up for renewal. As Adam said, whilst we always like to see a net positive, in this particular year, we've seen a net negative. As a general theme, this will come as no surprise to you, on the East Coast, there's a general theme of shorter-term contracting. That's just reflective of the market and where customers can source their gas. That's to be compared and contrasted with over in the west, where we continue to see long-term contracting.
Certainly for new infrastructure, we're always looking for longer-term contracts to support new investment. Aside from the example which Ian Myles talked to or raised the question around earlier with the Northern Goldfields Interconnect, which is a particular case and example.
Yeah. Okay. That makes sense. If I turn to OpEx, and I really don't want to make too much of OpEx because I take on board your comments about investing, but you have called out that there'll be continued investment in FY 2022. Could we just get some comments on, I guess, what you think is the right level of expenditure?
Hey, Rob, Adam here. Look, we will always continue to focus on the long-term growth. You know our style, which is not to try and skimp today to impact tomorrow. We'll continue to invest in the areas which creates value. I think there's been an obvious shift over the last year or so into areas around community engagement, as I said before, and development and trying to drive growth and support our sustainability agenda. We'll keep going on at that level. There's also opportunities to potentially take cost out as well. Look, I don't want to put an exact number out to you. I'm not trying to suggest that it's going to grow materially next year. If the opportunity is there to invest in growth, then we will do that, and we won't hide from that.
Okay. Thanks, Mr. Watson. Just one last question, if I can, on an ESG front. You've talked to the targets for net zero emissions for the company interim targets. I guess your current scope 1 and 2 emissions is only about 1.5 million tons a year, or not even, after the measurement adjustments. I guess at the current cost of carbon, that it'd cost about AUD 30 million-AUD 35 million to offset. Should we be thinking about the carbon reduction targets as earnings neutral, or is that a cost which we should be trying to think about?
Yeah. A very good question, Rob. The short answer is we'll know that answer when we've finished doing our work over the course of this year. There's a number of different ways, obviously, to get to a particular outcome. Putting a price on it and think of it in terms of offsets is one, but our starting point is always to see how we can reduce emissions and mitigate in the types of investments we make and the infrastructure we've already got in place. Some of what we will do will naturally come through rethinking how we run particular systems, reducing those emissions. We'll see some of the change. I've no doubt expect to come through some investments we'll make through our staying business CapEx, which might come with a smaller price tag.
Look, I think let's wait till we've done that work rather than speculate as to what the overall cost is going to be.
Okay. Sounds good. Can't wait. Thanks so much. Cheers.
Rob, just going back to your first question, the weighted average contract lasts still at around about that 11 years. It hasn't moved much.
Oh, okay. Great. Thank you.
Yeah.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question is from Tom Allen with UBS. Please proceed with your question.
Morning, Rob, Adam, and the team. There's a number of midstream infrastructure sell-down opportunities, obviously, that are emerging across the upstream oil and gas sector at the moment. If I recall correctly, APA has said that you won't pursue those opportunities where the interest is purely financial, and that there needs to be a strategic case to leverage your expertise as an owner-operator. Can you just elaborate on your criteria for these investments and whether or not that requires majority ownership, operatorship or some other broader benefits?
Good day, Tom. I'll take that question. It's Rob here. I think you've almost answered your own question because we own and operate energy infrastructure, and that's one of the things that I think the secret to our success over the last 21 years is the skills that come with operating and leveraging the infrastructure into new areas. A financial interest is not of particular interest to us. I think that goes to probably more fully answer your question.
If there are opportunities, Rob, that might include a minority or a passive ownership stake that still somehow provide you the ability to leverage that expertise, is that an opportunity that you would pursue?
Look, I think you can never say never. I'm trying to sort of paint the picture of where we start. There's always a case-by-case situation which you have to have a look at and see whether there is a benefit. As you know, we have sold down some infrastructure over the years and put them into unlisted vehicles where we do continue to operate because they've been lower growth investment opportunities. I think, I've just provided some examples where on a case-by-case basis, we have done things like that. As a general rule, we always look to want to focus on full ownership and operatorship. I think also, Tom, there's going to be lots of opportunities out there in the future.
We've been very clear and transparent, at the half year with our strategy and more so over the last number of years, around our focus on growth in North America. We don't really want to be commenting on particular opportunities that might be in the marketplace just at the minute.
No, that's clear. Thanks, Rob. Just following up an earlier question. You've reported lower revenue over the year from your key gas assets in Queensland and New South Wales. Recognizing that nearly all of those revenues are adjusted for CPI, can you provide a little more color on the contracting pressures you're seeing on those pipelines, and the drivers of your confidence that your AUD 270 million investment in additional compression on the South West Queensland Pipe and the Moomba Sydney Pipe are going to deliver strong returns over the life of that project?
Yeah, look, I think, just the first comment I'd make is that over this last period, we've seen low inflation. The uptick that we get from the CPI is minimal as it flows through to revenues. Adam, I think, spent some time describing the sorts of pressures and customer decisions that we've seen that have led to that step down in operational revenues during the year. When you think about it, they're all quite specific. The case example of a customer moving its gas source from Northern Territory to closer to its demand center. I think I've described before a situation where you've got customers changing their supply mix, bringing it from the south to the north, or then shifting it from the north to the south. You're always going to see shifts in customers' supply sources and therefore how they contract.
To your question around investing the capital at this point in time, and we've announced the 25% expansion to bring more gas, a 25% expansion in the capacity to bring gas from Wallumbilla through to southern markets. That total expenditure, as you mentioned, Tom, is about AUD 270 million. We've committed to stage 1 of that at the moment because that's where we are very certain around the customer commitments and in demand. We will commit to the other stage 2 part as and when we get more confident. In terms of revenues, we see a continuation of the sorts of contracting that we've been able to achieve in the past.
Okay. All right, thanks, Rob. Just a last one, just with respect to the Wallumbilla to Gladstone Pipeline, can you please just confirm that the annual U.S. CPI adjustment occurs in January, I think? Should we expect to see some favorable CPI adjustments flow through in your second half 2022 result?
Yeah, Tom, that's right. I think that a lot of our contracts are actually start of the calendar year. I pointed out in my speaking notes that you do get that delay, whether it's six months, nine months, between the flow-through to inflation. You can actually see that the way that it flowed through, we had a higher contribution from inflation in the first half relative to the second half, because of the way that the inflation has been moving up and down. Short answer to your question, yes, we would expect it to flow through more strongly next year. Still pretty low number though.
All right. Thanks, Adam. Thanks, Rob.
Thanks, Tom.
Thank you. Our next question is from Gordon Ramsay with RBC Capital Markets. Please proceed with your question.
Thank you very much. Energy transition, clearly your investment in that area is going to grow over time. Just trying to get a feel for, it's all early stage, what kind of returns this generates in comparison to your existing core business at the moment? Clearly it's a very topical subject.
Thanks, Gordon. I'll make some initial comments and happy for Adam also to make some comments. I think, as a general rule, what we've done is we've looked at the development of hurdle rates across a broad section of different energy infrastructure that we're going to invest in. Those hurdle rates effectively are derived through looking at the long-term weighted cost of capital, and then adding on a buffer to give us that hurdle rate. For different classes of assets, we do have different hurdle rates. There's no doubt that in particular the, let's call it in the solar variable renewable energy space, it's highly contested, very competitive, low barriers to entry, and we're seeing very, very tight returns on those projects.
What we'll be doing in that instance and we have done in the past, is to remain disciplined and make sure that we get comfortable around the credit quality, the long-term nature of the contract and the returns. In many instances, choosing not to invest. I'll leave my comments there and just throw to Adam, if, Adam, you'd like to add to that.
Thanks, Rob. Look, I'll just repeat what I said at Investor Day, that we have a strong sense of our cost of capital based on the different risk profiles of the different assets that we're pursuing. Thankfully, that risk profile is quite narrow, nonetheless, there is a difference between certain assets, whether they're contracted or regulated. We look at that very regularly. We don't adjust as the numbers change. We've got to look at that through the cycles. We all know things like cost of debt and the like will continue to change over time, you have to take a conservative view that you assume that they're going to work against you over the longer term. Therefore, you build that into your cost of capital or your hurdle rate assumption, you can generate a return through the cycle.
Where we sit today, importantly, we're really competitive, and that's largely because we're very focused on making sure we've got a strong balance sheet and it all sort of is self-fulfilling because at the end of the day, if you've got a strong business model investing in the right assets with a strong balance sheet, then you've got good ratings and good access to capital markets and it keeps feeding itself. That's our approach.
Lastly, from the midstream assets, again, obviously the Orbost gas plant didn't go to plan, and you've had a substantial write-down there. Is that something you need to be invested in longer term, considering the performance of it and the issues that you've had relative to the impact that it has on your profitability and balance sheet?
Thanks, Gordon. Rob here. I'll take that one. I think we've said this before, that we've invested in gas processing plants before the Mondarra underground gas storage facility. A big component of that is gas processing, and we've got gas processing in Queensland. The gas processing plant at Orbost, what's different about it is the front end of the plant, has a sulfur recovery unit, which is where, if you like, the issues have arisen with sulfur deposition building up and impacting the processing capability. I think our focus right now on Orbost is to continue down the path where we've headed, which is to improve the operating capability, the production.
We've seen quite a step up in consistent production since we did what we called our phase II-A works. We've got some more works planned over the next six months to improve reliability of production further. As to where we go from there will be a matter for ourselves to consider into due course. Right now, we're most focused on ensuring that their production is stable and improved and working collaboratively with our customer, making sure that ultimately there's gas supply into a market that needs it.
Okay. Thank you very much.
Thank you. Our next question is from Nathan Lead with Morgan Stanley. Please proceed with your question.
G'day, gentlemen. Thanks for your presentations. First one from me, the asset management, EBITDA, AUD 80 million there. Looks like there's been quite a spike in customer contributions coming through. Just, I suppose, where is the sustainable level of that asset management EBITDA going forward?
Nathan, it's Adam here. Look, that business does move around from time to time, depending on what services we're providing for our customers. It can be a bit lumpy. I think you can see it's been growing consistently for a number of years. Somewhere between that, I would say AUD 60 million and AUD 80 million mark is sort of an average level. Again, it's always hard to predict because it often depends on the pipeline of services that our customers are requesting of us. I think the best guide I can give you is to just use the range that we've seen in the past.
Okay. Second one, the Wallumbilla to Gladstone Pipeline, the FX hedging. Doesn't look like it's being rolled. I was just wondering, as it's sort of getting closer to the end of the current program, what's your strategy there going forward?
Yeah, Nathan, it's a good pickup. It's going to be rolled shortly. There will be an impact in the FY 2022 results. There are a couple of hedging resets that occur over the next couple of years. I'll say more to that probably at the half-year results. The short answer is that there will be a reset during the period.
Is the aim just to sort of continue to roll it on a short-term basis, Adam?
Oh, no. The aim is to try and make it as stable as possible as you can in the longer term. I don't propose to be doing lots of short-term ones. It's really also about the market conditions at the time. We're not just going to wait until for it to be due before we roll it over. We're doing work on that now.
Okay. Just a final one from me. Just the claim filed against APA regarding the construction of the Orbost plant. Can you just talk through the, I suppose, the monetary risk involved in that? Is that potentially meaningful?
Look, if we could measure it reliably and if it was meaningful, then we'd be required to put something in the accounts. All we've flagged is that there is a claim. Claims on construction projects happen all the time. It was a large construction project. I'm not saying it's a large claim, I'm just saying it was a large construction project. Obviously we don't comment on items that are in dispute.
Okay. Thanks, guys.
Thanks, Nathan.
Thank you. Our next question comes from Rob Koh with Morgan Stanley. Please proceed with your question.
Hi, guys. Thank you for indulging me in a return. Can I ask a question about the U.S. transaction that you said you participated in and came away with some learnings? I guess just the usual disclosures here. What did you bid on? What did you bid? How much did you miss by? That kind of stuff.
Rob, how long have you got? Thanks for your follow-up question. I think the point of my comments there earlier was to highlight that there's a lot of activity that Ross and the team have been looking at, lots of opportunities. Some are opportunities that are available in a sale process. Some we identified, did some door-knocking on. The one that I made reference to, we were very competitive in that process, and I think that gave us a lot of confidence.
As to why we weren't successful in this particular instance, there's always a range of reasons. I think one of the things that we have identified, and I think Ross made mention of that at our Investor Day, is that some assets are whole business for sale, some there's a carve-out of another business. That just creates a little bit more challenges for a business like yourself that doesn't yet have our platform on the ground. I'll probably just leave my comments there. Suffice to say, we still remain very optimistic about the opportunities in that market, very attractive market. Not only from the fundamentals around gas in North America, but the energy transition that's going to be underway there. It will be great platform for growth for APA into the future.
Okay, great. Thank you so much.
Thanks, Rob.
Thank you. There are no further questions at this time. I'd like to hand the call back over to Rob Wheals for any closing remarks.
Well, thanks, everybody. Thanks for your time today. I'm sure we'll be talking to many of you over the coming weeks. Thank you for your time.