Australia’s largest gas infrastructure business, APA Group has released their results for 2012-13 showing a 27.4 per cent increase in net profit to $179 million.
APA Managing Director Mick McCormack said, “This was another busy year and one which delivered pleasing results. We completed expansion projects on a number of our assets and the integration of the HDF pipelines. We also satisfied the competition regulator’s requirements through the sale of the Moomba Adelaide Pipeline System (“MAPS”) in May this year.
“We are benefiting from our strategic HDF acquisition. The addition of the South West Queensland and Pilbara pipelines to our portfolio has strengthened our business with additional revenue and opportunities.
“APA now has a 7,000 kilometre integrated pipeline grid on the east coast of Australia, providing customers with the flexibility to move gas between over a hundred receipt and delivery points across four states. The flexibility that the grid offers is unprecedented in this country, and positions APA to respond to geographic changes in gas supply and demand.”
“Furthermore, our interconnected portfolio, together with our internal capability, enables APA to respond to any shifts in the energy market. There are interesting dynamics in some parts of the gas industry, including the challenge of meeting domestic gas demand through a period of rapid growth in the export-LNG industry.”
During the year APA continued work on expansion projects across its portfolio. APA completed expansion projects on the Roma Brisbane Pipeline and Moomba Sydney Pipeline, while the expansion of the Mondarra Gas Storage Facility was commissioned in July 2013. Work progressed on the expansion of the Goldfields Gas Pipeline and the construction of the Diamantina Power Station. In December 2012, APA announced an expansion of the compression capacity at Wallumbilla hub and continued expansion work on the Moomba compression facility.
“The increased scale and diversity of our portfolio following the investments and developments we’ve completed this year will enhance securityholder returns over the longer term. We see continued opportunity for value-creating investment, given the positive long-term outlook for the industry, coupled with an enviable portfolio of assets,” Mr McCormack said.
“The realignment of APAs’ organisational structure last year assisted in our being able to deliver on all fronts of the business. We now have an increased ability to deliver on multiple energy infrastructure projects simultaneously, as well as benefitting from more efficient management and operation of our portfolio.
During the year, APA issued $1.8 billion in debt securities and repaid $1.3 billion of HDF debt, and issued 191 million new APA securities.
On 16 July 2013, APA proposed an all-share merger with Envestra Limited (“Envestra”), one of Australia’s largest gas distribution businesses. APA, which owns 33.0 per cent of Envestra and is its largest shareholder, manages and operates Envestra’s gas distribution networks and pipelines under a long term agreement. On 5 August 2013, Envestra announced that its independent board committee had decided to reject APA’s proposal. APA remains open to engagement with Envestra in respect of its proposal.
BUSINESS PERFORMANCE
Energy Infrastructure
APA’s Energy Infrastructure segment includes its gas transmission assets and the Emu Downs Wind Farm. Excluding the divested MAPS businesses, this segment contributed $549.9 million EBITDA for the year, a 24.5 per cent increase over the 2012 financial year, mainly due to the nine months’ contribution of the HDF assets.
Segment growth was underpinned by a 3.1 per cent increase in EBITDA from historic continuing assets, which reflects contributions from the expanded capacity sold on the Roma Brisbane Pipeline, and a net increase in tariffs and volume increases across most assets. The exceptions were in New South Wales where earnings were temporarily impacted by the expiry of a gas transportation agreement, with this capacity subsequently recontracted in the second half of the year and in Victoria where volume growth was offset by a decrease in the regulatory tariffs under the new access arrangement.
APA’s acquisition of HDF and integration of the South West Queensland Pipeline and the Pilbara Pipeline System is already making a significant contribution to the growth and development of the business. The two pipelines contributed $94.6 million to EBITDA for the nine months since consolidation of HDF into the APA Group accounts. The HDF transaction also included the Moomba Adelaide Pipeline which was sold during the year.
With the addition of the South West Queensland Pipeline, APA has a 7,000 km integrated pipeline grid on the east coast of Australia and an ability to transport gas seamlessly from multiple gas production facilities to gas users across four states. In May 2013, APA executed a gas transmission agreement to transport gas across three pipelines, and has since trialled a number of similar trans-pipeline services. In August, APA completed the software interface between the South West Queensland Pipeline and the Roma Brisbane Pipeline, enabling the two pipelines to work as one system and facilitating optimised utilisation.
During the year, APA continued the expansion and development of its infrastructure portfolio across the country.
In September 2012, the Roma Brisbane Pipeline expansion was completed, increasing capacity by 10%. The additional capacity has been substantially contracted under long term transportation agreements.
Following the acquisition of the South West Queensland Pipeline, initial works on the expansion of the Wallumbilla compression facilities commenced and APA continued the Moomba compression expansion project which had commenced during HDF ownership. Both projects, totalling up to $325 million of capital expenditure over the next two years, are underpinned by long term agreements, and are due to provide services by 2015.
In New South Wales, APA completed its five-year capacity expansion program of the Moomba Sydney Pipeline at a total cost of $95 million. In Victoria, APA completed a number of expansion projects approved under the previous access arrangement, including the Euroa compressor and Sunbury lateral expansion.
Work on the expansion of the Goldfields Gas Pipeline continued during the year. The two expansion projects, underpinned by 20-year and 15-year gas transportation agreements with Rio Tinto and the Mount Newman Joint Venture respectively, are expected to be completed by the second and third quarters of the 2014 financial year respectively, and will increase pipeline capacity by 28 per cent.
APA completed the expansion of the Mondarra Gas Storage Facility, increasing storage capacity by five times. Commercial operations commenced on 23 July 2013. The majority of the facility’s capacity is contracted for at least 20 years and will contribute approximately $30 million of revenue (increasing as more capacity is sold) for the 2014 financial year. APA continues to actively market storage services for the remaining capacity to other potential users of the facility.
The overall cost of the expansion was above initial estimates, reflecting changes in the design of the project to increase capacity and overall reliability, as well increases in labour costs experienced by the industry, largely due to the mining boom, during the peak construction period.
APA continues to apply a prudent approach to growth in this segment with a requirement that capital invested meets hurdle return requirements and that projects are underwritten by long-term contracts with creditworthy counterparties or relevant regulatory approvals.
Asset Management
APA provides asset management and operation services under long-term arrangements to the majority of its energy investments as well as to a number of third parties. EBITDA for the segment increased by 42 per cent to $45.4 million. The increase is due primarily to customer contributions totalling $10 million ($2 million in 2012), a full year contribution of GDI asset management fees and an increase in fees earned from operation of Envestra’s assets due to increased revenues in its business.
Energy Investments
APA has equity interests in a number of energy investments across Australia, including Envestra Limited. EBITDA for this segment increased by 23 per cent to $51.2 million largely due to an increase in Envestra’s profitability, as well as increases across all of APA’s other investments. This increase was partially offset by a reduced contribution from HDF (in the form of distributions) following consolidation of HDF into the APA Group accounts. During the year APA invested $65.5 million in Envestra through participation in its dividend reinvestment plan and its equity placement in April 2013. At 30 June 2013 APA’s interest in Envestra was 33.0 per cent.
Project under development – Diamantina and Leichhardt power stations
APA and AGL Energy are jointly developing the Diamantina and Leichhardt power stations at Mount Isa, Queensland. The project is expected to be completed in the first half of calendar year 2014 at a cost of around $570m (before financing costs). The project has limited recourse financing in place with APA to ultimately invest equity of $100 million on completion of construction.
