U.S. Markets closed

Edited Transcript of APA.AX earnings conference call or presentation 17-Feb-20 11:00pm GMT

Half Year 2020 APA Group Earnings Call

SYDNEY, NEW SOUTH WALES Mar 6, 2020 (Thomson StreetEvents) -- Edited Transcript of APA Group earnings conference call or presentation Monday, February 17, 2020 at 11:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jennifer Blake

APA Group - Group Head of IR

* Peter J. Fredricson

APA Group - CFO

* Robert Anthony Wheals

APA Group - CEO, MD & Director

================================================================================

Conference Call Participants

================================================================================

* Baden Moore

Goldman Sachs Group Inc., Research Division - Research Analyst

* Ian Myles

Macquarie Research - Analyst

* James Byrne

Citigroup Inc, Research Division - Research Analyst

* Mark Busuttil

JP Morgan Chase & Co, Research Division - Equity Research Analyst

* Nathan Lead

Morgans Financial Limited, Research Division - Senior Analyst

* Peter Wilson

Crédit Suisse AG, Research Division - Associate

* Robert Koh

Morgan Stanley, Research Division - VP

* Tom Allen

UBS Investment Bank, Research Division - Director in Equities Research & Lead Analyst of Utilities

================================================================================

Presentation

--------------------------------------------------------------------------------

Jennifer Blake, APA Group - Group Head of IR [1]

--------------------------------------------------------------------------------

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 Wheals, who will present the interim results and outlook with APA's CFO, Peter Fredricson, who will provide more depth on the financials. A Q&A session for analysts will follow the presentations. 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.

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [2]

--------------------------------------------------------------------------------

Good morning, and welcome to APA's Financial Year '20 Interim Results Call. With me today are members of my executive team. As I introduce the 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 Fredricson, CFO, who will present the numbers in more detail. Nevenka Codevelle, 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 Stallan, 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 20 years has been being on the front foot when identifying growth opportunities. This strategic approach underpinned our largest ever investment program of $1.5 billion over the last 3 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 $842.2 million, and operating cash flow has increased 8.9% to $511.9 million. This result was largely due to our new growth assets contributing $38.3 million of EBITDA. These solid numbers stand us in good stead for EBITDA to meet the FY '20 guidance range of $1.66 billion to $1.69 billion of EBITDA.

We continue to invest in Australian energy infrastructure, investing just over $145 million 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 '15, just 6 years ago, but our corporate costs have remained relatively stable over that period. Peter and his treasury team also refinanced around $389 million 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 the February 2019 interim distribution with an additional $0.0365 per security of franking credits to be attached.

Operationally, it's been a busy first 6 months with many positives, including the commissioning and official opening events for some of our newest assets. Importantly, consistent with our customer promise, our integrated operations center has reliably delivered customers' gas 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 the 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 Downs Solar Farm with our customer, Origin Energy; and across in WA, we officially opened the new Yamarna gas pipeline and Gruyere power station assets. The pipeline and power station together ensure that the Gruyere Gold Mine has a reliable 24 by 7 power source.

We also opened the Badgingarra Solar Farm in WA, which is the latest addition to APA's 240-megawatt -- 250-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 2 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 renegotiate-arbitrate model and simplification to 2 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 Part 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 RIS 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 a review period, and we expect a published outcome during financial year '21.

In response to the catastrophic bushfires across Eastern Australia, we made immediate cash donations to various appeals and a further pledge to match employee donations. In addition, as part of our community commitments over in the Dandaragan Shire in Western Australia, where our renewables precinct is located, we donated a state-of-the-art firetruck 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 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 2019. 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 Gippsland 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 TRIFR is headed in the right direction, there is still more work to do to get our many network's 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 3 years to financial year '22. We have 6 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 in 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 '20 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 360-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 into the future.

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.

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [3]

--------------------------------------------------------------------------------

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 2019. And certainly, it's seen the benefits flowing through from the commissioning of a number of new assets and expansions added over the last 2 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 30 June 2019 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-light nature of our business -- and to date, primarily on the East Coast, we've got 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 0.7% down on the previous corresponding period is driven primarily by the higher exchange rate used to convert the Wallumbilla Gladstone Pipeline revenues at 0.7196 for the half versus 0.6717 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 1.5%.

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 Yamarna gas pipeline, the Badgingarra wind farm, the Badgingarra 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 our performance of those assets. Investment returns have grown across the board but particularly out of SEA Gas where we continue with our 50-50 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, we'll 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 re-contracting 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 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 with A- 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 12 years.

In the context of capital expenditure, the vast majority of this first half has been concentrated on completing and commissioning the Gruyere power station and the Badgingarra 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 2019, but delays with the construction contractor have taken commercial operations into the first quarter of 2020. 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 5 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 million to $400 million of growth CapEx over the next 2 to 3 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 securityholders. All of our current organic growth is being funded with operating cash flow, whilst we're also increasing distributions to securityholders. The ratings metrics that we operate to are geared towards ensuring that our Baa2 and BBB 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 million 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 144A euro and sterling markets. We have an Aussie dollar MTN due for repayment in July of 2020 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 $0.50 in total distributions for the full year. We will allocate $0.0365 per security of franking credits to the interim distribution, given that we have paid some $70 million in 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 million.

As we've already noted, we expect EBITDA for FY 2020 to deliver within the guidance range of $1.66 billion to $1.69 billion, 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 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 $505 million to $510 million. And as noted previously, we expect that the full year distribution will end up at around $0.50 per security -- or at $0.50 per security.

With that, I'll hand back to Rob. Thanks very much.

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [4]

--------------------------------------------------------------------------------

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 2018 levels. And also under the Stated Policies Scenario, in there, it's about 24% from 2018 levels. Under those same scenarios, worldwide natural gas usage is forecast to increase at greater levels to total energy demand, and that's about 49% and 37%, 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 the Paris Agreement, energy demand reduces somewhat from 2018 levels, around a 7% reduction through to 2040. In this scenario, natural gas usage declines 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 USD 110 billion per annum would be spent on LNG and natural gas infrastructure between now and 2030.

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, you can see AEMO's prediction of the shortfall in current gas supplies to meet forecast demand over the next 2 decades. AEMO's draft modeling forecast 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 4 buckets, with the first 3 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 5 major projects that, if approved, will deliver in excess of $1 billion 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 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 in 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 Downs Solar Farm, Badgingarra wind and solar farms and the Emu Downs 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 Dandenong power station project was shortlisted by the government as one of the first 2 projects to be selected to proceed to agreement of key terms under the Underwriting New Generation Investments or UNGI 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 U.S. 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 U.S. 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 timeframe will be determined at an appropriate time in the future. Needless to say, currently, we do not have a definitive timeframe.

Looking now at the organization review that was undertaken over the last 6 months and what's come out of it. On this slide, you'll 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 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 in 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 3 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 in 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'll value. The structure ensures we provide a single, 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 particular areas such as sustainability, stakeholder and community engagement to reflect their growing importance within our business.

APA's long-standing CFO, Peter Fredricson, 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 10 years. And so -- and he's 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 our 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 securityholders. On that basis, we reaffirm our financial year '20 EBITDA guidance at the range of $1.66 billion to $1.69 billion and the full year distribution expected to be in the order of $0.50 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 market. 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 timeline. We will only 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're 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 all 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 -- a cleaner energy future, and we will play our role and continue to invest in our assets, systems and people.

With that, we'll now move to Q&A. I'll hand back to the operator to facilitate the process.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Rob Koh from Morgan Stanley.

--------------------------------------------------------------------------------

Robert Koh, Morgan Stanley, Research Division - VP [2]

--------------------------------------------------------------------------------

Congrats on a nice quality result. First question, just on one of your growth projects, the Dandenong power station. Can you give us a sense of what kind of useful life we should be contemplating for that project if you managed to get it away? Is it about 30 years plus whatever repowering?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [3]

--------------------------------------------------------------------------------

Rob, thank you for your question. And -- yes, and thank you for comments on the results. 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 -- and energy requirements for firming in the market.

--------------------------------------------------------------------------------

Robert Koh, Morgan Stanley, Research Division - VP [4]

--------------------------------------------------------------------------------

Okay. Yes, 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 are they more independent processes?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [5]

--------------------------------------------------------------------------------

Look, I think, Rob, it would be nice to think that, that does help. But I think I'd be viewing these as independent processes.

--------------------------------------------------------------------------------

Robert Koh, Morgan Stanley, Research Division - VP [6]

--------------------------------------------------------------------------------

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?

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [7]

--------------------------------------------------------------------------------

Yes. Typically, they fall into the operating costs of the business. So at the end of the day -- and I've been quite interested in some of the notes I've seen this morning reflect the fact that we didn't include the impacts of AASB 16 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 4 or 5 years, and we had a sense of what the impact would be.

When we released our results in August last year, the guidance that we provided last year of $1.66 billion to $1.69 billion included that and included everything we expected or we hoped might happen within the financial year. So just for the 2 or 3 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 not the case. And apologies for not saying that guidance included it because it's a very immaterial amount from our perspective. We just moved forward without any reference, really. So that's the only comment I've got on that.

--------------------------------------------------------------------------------

Robert Koh, Morgan Stanley, Research Division - VP [8]

--------------------------------------------------------------------------------

Okay. No worries, Peter. Okay. And just a last question on your renewable methane project. So I presume, if -- Peter, if you've approved the budget, then it's not [cheap] stations. But just wondering if you could talk us through maybe the tentative economics of this project. I guess, if it's taking CO2 from the air and then producing methane, you still actually have a net global warming potential increase from the output. But just wondering if you can give us some color on it.

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [9]

--------------------------------------------------------------------------------

Rob, I'll answer that question. Look, I think the way we need to think about this is, as you said, not sheep stations. It certainly wouldn't have passed our -- passed 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, as I think you mentioned, carbon dioxide from air creating methane and proving the case that, that can both technically and then ultimately, economically can be transported in our pipelines. It's a test case, and the first step is the technical part. And then second order is to be able to prove that it can work both economically on a smaller scale, but more importantly, on a larger scale going forward.

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [10]

--------------------------------------------------------------------------------

I think the only comment I'd make, and I'm not sure I've been that parsimonious in the past, but never mind. The -- it's interesting, 5, 6, 7, 8 years ago, we used to talk about the fact that we were a very much smaller business and we didn't have the capacity to do this sort of R&D type of work to really go and look for stuff. I recall buying -- we bought a business back in 2012 that we might have liked to have bought earlier. But that business was spending $800 million on expanding an asset. We're happy to leave that $800 million 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 are in a business today that's delivering in excess of $2 billion of revenue annually and in excess of $1.6 billion of EBITDA. We've -- and living 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 costs is likely to be closer to the half year number going forward. And it's that reason, really. We are going to have to spend money. We are spending money in North America, with Ross and his team of 2 doing more work than has been in the past. We're spending money in this area. And all of those things are going to add to the fact that as a growing business, we're looking to try and add things to it. And we're not spending in sheep 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.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Your next question comes from Tom Allen from UBS.

--------------------------------------------------------------------------------

Tom Allen, UBS Investment Bank, Research Division - Director in Equities Research & Lead Analyst of Utilities [12]

--------------------------------------------------------------------------------

Congratulations on a solid first half result. A couple of questions from me. The first one relates to corporate costs and APA's new operating model. I note that the first half corporate costs of [$38 million] are a bit higher than the first half '19 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 2?

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [13]

--------------------------------------------------------------------------------

Well, I mean, I'll pick that up and then maybe Rob will make a comment. The operational model hasn't been designed to chop costs out. To be fair, 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 will -- turns into funding more growth with the same resources or, in fact, need 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 it's hitting every business in this town, from the banks through to businesses like ours. It's just a fact of business, really.

And we are spending money on things like the methane program, like the U.S., et cetera. So from that perspective, I think that we've maintained corporate costs at a level of around sort of $70 million for a number of years. And whilst continuing to grow the EBITDA and the business, 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.

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [14]

--------------------------------------------------------------------------------

And Tom -- and thanks for your comments on the result, too. Just to add to what Peter said and to emphasize that the new operating model has all been about streamlining and then if they're -- and reinvesting in other areas. And I think I mentioned up-weighting or bench-strengthening some areas like sustainability, community engagement, et cetera. So is -- in short, it was never about cutting costs. It was about streamlining and then redistributing and investing where we think we need to going forward.

--------------------------------------------------------------------------------

Tom Allen, UBS Investment Bank, Research Division - Director in Equities Research & Lead Analyst of Utilities [15]

--------------------------------------------------------------------------------

Yes. Okay, that's clear. 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 making 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?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [16]

--------------------------------------------------------------------------------

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 opportunities in front of us. I talked about the East, the West, the future LNG outlook and, obviously, looking in North America as well. In regard 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 a particular project.

In regards to your question around import terminals, we're engaged in -- with as you know, with AGL for the Crib Point project and, 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 at the time.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

Your next question comes from Ian Myles from Macquarie Group.

--------------------------------------------------------------------------------

Ian Myles, Macquarie Research - Analyst [18]

--------------------------------------------------------------------------------

I have a couple of mundane questions. The Goldfields Gas Pipeline performed really well. I think it was up by 27%. I was wondering if you could give a bit more color for what drove that? And also what the implications are for the tariff increase on the rate component going up 9% from the half year?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [19]

--------------------------------------------------------------------------------

I'll provide some commentary and I'll look to Peter to add to it. I think the -- from the tariff perspective, there is some history in that. That is an adjustment based on -- it's an adjustment year-on-year, where the full effect of the regulatory impact was felt in 1 year. And once the new tariff came into effect, it was normalized. So don't see that as a step-up per se. It's on a normalized basis. You'd see -- you wouldn't see that step-up.

But in terms of the growth, it's pleasing that you've 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 in place for some time playing out in the resources sector in Western Australia.

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [20]

--------------------------------------------------------------------------------

And Ian, just to close that off, the gas that's going through the Eastern Goldfields Pipeline and now through the Yamarna Gas Pipeline and to also Mt Morgans -- through the Mt Morgans Gas Pipeline, which are all of the Goldfields Gas Pipeline. That gas has got to come through the GGP. It's coming from up north to get there. And so what you're seeing there, as we've commissioned the Yamarna Gas Pipeline, in particular, in the half, that's where that gas is coming from, and that's what's driven increased output from the GGP.

--------------------------------------------------------------------------------

Ian Myles, Macquarie Research - Analyst [21]

--------------------------------------------------------------------------------

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?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [22]

--------------------------------------------------------------------------------

Ian, it's an interesting question you asked. Clearly, a lot of the miners are all looking at what -- 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 without a 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, it might be in the order of 30%, and they're going to run a 24/7 operation, and that's where gas comes into to play.

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [23]

--------------------------------------------------------------------------------

I think the other thing to add to that, Ian, is that 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 done it with Origin, who are our 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 number of years, the Emu Downs Wind Farm where that customer is Synergy Energy. And we've added the solar farm there for them again, and the 2 assets of Badgingarra, both solar and wind for Alinta, one of our larger customers. So there's nothing to stop us.

And indeed, 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 yes, 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.

--------------------------------------------------------------------------------

Ian Myles, Macquarie Research - Analyst [24]

--------------------------------------------------------------------------------

Okay. And then one final question on the U.S. I appreciate the process is starting. Have you had any sort of -- have you gone through any auction process 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.

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [25]

--------------------------------------------------------------------------------

Ian, as you know, with the finance year '19 results, I 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 end of September. So it's really 6 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 in that exploratory stage.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from James Byrne from Citigroup.

--------------------------------------------------------------------------------

James Byrne, Citigroup Inc, Research Division - Research Analyst [27]

--------------------------------------------------------------------------------

I have a couple of questions just on the guidance and the outlook. And let me caveat my 2 questions by saying I think you've got a commendable track record on delivering against your guidance. Firstly, for FY '20 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?

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [28]

--------------------------------------------------------------------------------

I think that the answer to that is, there's always stuff in a business 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 $1.66 billion to $1.69 billion is a $30 million swing. So in the context of losing a quarter, as much as a quarter-plus actually of revenues from one particular asset, to actually deliver within the range, in that context, is probably not a bad outcome.

You might have expected that having lost more than a quarter of revenue given that we're talking now about mid -- 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 $1.660 billion to $1.690 billion range, it's only $30 million, and you've lost 3, maybe 4, maybe more months of revenue from a project like Orbost, you 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 million in there from -- which is a full year number actually from AASB 16. I mean that's always been in there. So the $1.660 billion was never going to be -- or the $1.690 billion was never going to be improved by AASB 16, the $1.660 billion was never going to be let down by AASB 16. So from that perspective, there's lots of stuff that play.

--------------------------------------------------------------------------------

James Byrne, Citigroup Inc, Research Division - Research Analyst [29]

--------------------------------------------------------------------------------

Got it. Okay, that's clear. Secondly, just on this potential for $1 billion of CapEx over the next 2 to 3 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, things like the Western Slopes 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?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [30]

--------------------------------------------------------------------------------

James, I -- the way we sort of think about this, as you probably heard us, both Peter and I, speak before is we've got a strong track record of growth. And if you look at the last 10 years in excess of, on average, in excess of $300 million per annum of CapEx growth, and over the last 5, in excess of $400 million. And when we look at our -- the opportunity 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 billion 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 million to $400 million and in that range is something which we can continue to expect out into the future.

There's certainly going to be different opinions on which projects 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 would 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.

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [31]

--------------------------------------------------------------------------------

And just to finish out a process thing more than anything else, James. Our Board 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 detail where we think our guidance is in respect of everything that we give guidance on. And $300 million to $400 million of CapEx over the next 2 to 3 years is part of that. And so we presented a paper to the Board yesterday that gave them comfort that, that number is still an appropriate number because 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, et cetera, et cetera. So there's a process behind what we do. These are not numbers that are just picked out of the air. There's not only a process behind what we do. There's authorization and due diligence done by our Board before we even talk to you about these sorts of numbers.

--------------------------------------------------------------------------------

James Byrne, Citigroup Inc, Research Division - Research Analyst [32]

--------------------------------------------------------------------------------

Okay. In that case, let me give you the benefit of the doubt here and assume that you can spend $1 billion over that 2- to 3-year time horizon. 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 growth rates they've seen over the last few years?

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [33]

--------------------------------------------------------------------------------

I think so. I mean you look at our numbers today, we're talking $1 billion-plus of operating cash flow, $1.07 billion or something in a full year, which is something I've just told you that we hadn't talked about, but -- as you got something for free. But you take that, and you say $600 million of that is distributions, and you've got $500 million left to invest in that growth CapEx. And we haven't borrowed another -- a $1 to fund growth CapEx in the last year, and we don't intend to and don't expect to. So from our perspective, we're nicely set. We've also got -- you'll see that the rating metrics, admittedly, our calculations, both on our website this morning and the documentation here, but in excess of 3x FFO to interest, in excess of gold cost 11%, and FFO to debt. These are strong metrics relative to what the expectation is for us on the BBB, Baa2 rating. So we've got capacity there to fund that sort of growth, if necessary. But my view is we fund growth and increased distributions from our operating cash flow, which continues to grow.

--------------------------------------------------------------------------------

Operator [34]

--------------------------------------------------------------------------------

Your next question comes from Mark Busuttil from JPMorgan.

--------------------------------------------------------------------------------

Mark Busuttil, JP Morgan Chase & Co, Research Division - Equity Research Analyst [35]

--------------------------------------------------------------------------------

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 2, 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 USD 6 billion. I mean is the scale of the project something you would potentially be interested in as well?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [36]

--------------------------------------------------------------------------------

Mark, thanks. It's Rob. 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 will be our standard response to any of those sorts of questions. What I would just offer is that, from time -- 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 offtake. But certainly can't comment specifically about particular processes.

--------------------------------------------------------------------------------

Mark Busuttil, JP Morgan Chase & Co, Research Division - Equity Research Analyst [37]

--------------------------------------------------------------------------------

Okay. Well, can I say if, hypothetically, you were to buy into a project of that scale, what would it mean for your balance sheet? Or how would you pay for it?

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [38]

--------------------------------------------------------------------------------

Well, hypothetically, that's -- if we were to buy a business in the U.S. that was, let's call it, USD 4 billion, which is what we've talked about in the past, the balance sheet today is not set for acquisition of that, absent raising equity. And so those sorts of acquisition levels, like back in 2014 when we acquired the Wallumbilla Gladstone Pipeline $6 billion, it took us -- the balance sheet was very strong at -- on the day we did it. But we raised $1.8 billion of equity and USD 3.7 billion in debt. So those sorts of things.

We've set 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 and appropriate amount of equity and funds to retain the business. So where that number starts and finishes is -- will always depend on the day.

But we've said in the past, we said it back in February 2018 when we funded $1.5 billion worth of projects. We said, what, $500 million worth of equity sounds about right for that. $1.5 billion 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 -- those sort of organic growth things need any further equity support. But any acquisition will.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

Your next question comes from Baden Moore from Goldman Sachs.

--------------------------------------------------------------------------------

Baden Moore, Goldman Sachs Group Inc., Research Division - Research Analyst [40]

--------------------------------------------------------------------------------

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?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [41]

--------------------------------------------------------------------------------

Thank you. Look, just quite simply, the project, as we've said, has had delays driven by the construction contractor. We took operational control of the plant late December. And what's giving us the confidence that March is when we'll commence commercial operations is because we safely introduce gas into the plant yesterday, and we're -- and that sales gas will be -- we're forecasting that we'll be introducing raw gas from the Sole Gas plant this month in February. And that -- those 2 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 the guidance point, I might just refer to Peter for that question.

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [42]

--------------------------------------------------------------------------------

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 APA has got some very disciplined methodologies for doing this sort of stuff. And we're now commissioning an asset. And 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 get it daily, and we know what's going on. In fact, I got a photograph this morning at 4 a.m. of the flair that was ignited late last night, I think, so.

In respect of guidance, mate, we're at $1.660 billion to $1.690 billion 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, and 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 Orbost involved. So we'll go from there.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

Your next question comes from Nathan Lead from Morgans Financial.

--------------------------------------------------------------------------------

Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [44]

--------------------------------------------------------------------------------

Just 3 quick questions from me. So firstly, Peter, you're talking there before about funding capacity. Can you maybe just have a bit of a stab first about how much capacity you think you got on your balance sheet before you need to actually tap the market for equity? Just how much capacity to fund new projects?

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [45]

--------------------------------------------------------------------------------

All of that -- that's a very interesting comment, Nathan. And it's probably not a given number, as you sit here today. We sit down and we've always done this 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 evaluations 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, and as 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 we -- people ask us, why aren't you considering capital management and buying back securities, et cetera? Well, the answer is it'd be dumb for us to think about buying back securities tomorrow to maybe deal with $500 million worth of headroom, if that's what it is, and then come to you in 3 months' time and say, we want money to buy an asset in the U.S. 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.

--------------------------------------------------------------------------------

Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [46]

--------------------------------------------------------------------------------

Okay. Second question to you, Peter, also. Obviously, you've got tax losses there that are sort of -- mean that your cash tax paid is probably a bit 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?

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [47]

--------------------------------------------------------------------------------

Yes, it's a difficult one. The tax losses we have today 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 of the -- what you use is based on valuations and et cetera, et cetera. So -- but look, from our perspective, what we've done in the past as 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. So 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 securityholders.

--------------------------------------------------------------------------------

Nathan Lead, Morgans Financial Limited, Research Division - Senior Analyst [48]

--------------------------------------------------------------------------------

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?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [49]

--------------------------------------------------------------------------------

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 to cover that off. The simple answer is that from time to time, there is available capacity on the asset side. And it really differs by asset, by pipeline and also how we, over time, use the system as a grid whether we're 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.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

Your next question comes from Peter Wilson from Crédit Suisse.

--------------------------------------------------------------------------------

Peter Wilson, Crédit Suisse AG, Research Division - Associate [51]

--------------------------------------------------------------------------------

Peter, to the extent that you're willing, can you give us a guide on second half D&A, given that Orbost will be coming online in that timeframe?

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [52]

--------------------------------------------------------------------------------

Sorry, can you -- what?

--------------------------------------------------------------------------------

Peter Wilson, Crédit Suisse AG, Research Division - Associate [53]

--------------------------------------------------------------------------------

Second half D&A. Where we should expect the step up given Orbost is coming online?

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [54]

--------------------------------------------------------------------------------

I haven't thought about it, to be fair my friend. So there is something we can take offline. But again, yes -- no, I don't have a number off the top of my head.

--------------------------------------------------------------------------------

Peter Wilson, Crédit Suisse AG, Research Division - Associate [55]

--------------------------------------------------------------------------------

Okay. That's fine. And then given what's happening with spot LNG prices, it looks like there's going to be -- maybe the gas which is going to try and find its way to domestic market. I'm wondering whether there is an upside opportunity for you guys there, either in -- an increase in variable revenue or some shorter-term contracts?

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [56]

--------------------------------------------------------------------------------

Peter, I'll take that one. And look, we were 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 our multi-asset, multi-service contracts. Our integrated operations center is always looking that on a day-to-day basis. So to the -- 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.

--------------------------------------------------------------------------------

Peter Wilson, Crédit Suisse AG, Research Division - Associate [57]

--------------------------------------------------------------------------------

Okay. I mean it does seem to be, if anything, kind of escalating given what's happening regionally. Where 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.

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [58]

--------------------------------------------------------------------------------

I can't answer that question with any specificity, Peter. I think that's part of what we do every day is respond to those sorts of opportunities, and trying to put a number on it is certainly difficult for us.

--------------------------------------------------------------------------------

Peter J. Fredricson, APA Group - CFO [59]

--------------------------------------------------------------------------------

But I think the other thing to keep in mind, Peter, is that more gas coming from Wallumbilla because of lower LNG prices, that gas could be using capacity that we've already sold to a customer. It -- from our perspective, as we've said, most of the last 10 years, the capacity that -- all the capacity on these pipelines are sold in long-term contracts to our customers. And 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 going to flow to our customers who are acquiring that gas at -- from Wallumbilla cheaper than what they might be able to get their gas from, say, Longford. And therefore, they're bringing it south on capacity they already own, if you like, that they're already paying us for.

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [60]

--------------------------------------------------------------------------------

The other thing I'd just add to that, Peter, is I think if you look in the report for -- the financial report for the half, there is a breakout box that gives it 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 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.

--------------------------------------------------------------------------------

Operator [61]

--------------------------------------------------------------------------------

There are no further questions at this time. I'll now hand back to Mr. Wheals for closing remarks.

--------------------------------------------------------------------------------

Robert Anthony Wheals, APA Group - CEO, MD & Director [62]

--------------------------------------------------------------------------------

Thank you. 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 for 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, the 8th of May, and you can contact our Investor Relations team for further detail. Thank you again for your interest in APA.