APA Group (APA) Earnings Call Transcript & Summary

Welcome to APA Group's Investor Briefing event. I'm Jennifer Blake, Head of Investor Relations. FY '20 has been a year like no other. In Australia, we commenced the new financial year in extreme drought, endured a devastating bushfire season lasting 7 months, followed by flooding and cyclones in March. Today, the COVID-19 pandemic means the whole world is in some level of lockdown. But given the importance of investor interaction, particularly in these uncertain times, we've embraced the virtual communication technology for today's event. Over the last couple of days, each APA Executive has recorded their presentation, and all executives are live on the webcast call today from various remote locations, across Sydney, Brisbane and Houston, Texas, to answer your questions. The logistics for today are fairly simple, and the agenda is up on the screen now. The event is split into 2 blocks of presentations with a 15-minute comfort break in between to stretch your legs and grab a coffee. We will run through the executive presentations in each block followed by a question-and-answer section at the end of each presentation block. You all have access to the Ask a Question icon at the bottom of your webcast screen, and your questions will be put to the executive team during the 2 Q&A sessions, either by myself or Yoko Kosugi, APA's GM of Investor Relations and Analysis. We have some analysts who have also dialed in, and they'll be able to ask their questions via our host operator, similar to results conference call. For those of you who need to leave the webcast at any time, it will also be available on demand to access at a later time via our corporate website. Hopefully, you have a coffee in hand as we commence the event with a short APA video. Our CEO and Managing Director, Rob Wheals, will then kick off the presentations and introduce APA's new leadership team. [Presentation]

Hello, everyone, and thank you for joining this APA Investor Day webcast. I'm Rob Wheals, APA's Chief Executive Officer and Managing Director. I'll begin my presentation by giving an overview of APA and our success over the past 20 years, followed by a discussion on the changing energy landscape, and the opportunities that we see for APA as the world adapts into the future. I'll touch also on our refreshed purpose and our vision and our company values as well as highlight the strategic alignment of our new operating model. This will be followed by commentary on the growth opportunities that we see in front of us. And then I'll hand over to the rest of my executive team to take you through the business in a bit more depth. Today, APA is a leading ASX Top 50 energy infrastructure business. In fact, and I say this with great pride, that APA has been one of the top 15 performing stocks on the ASX measured by total shareholder return on a relative basis over the past 2 decades. Our journey started back in June 2000, and today, we are extremely proud of the extensive portfolio of energy infrastructure assets totaling some $21 billion that we either own and operate. Our asset footprint now includes more than 15,000 kilometers of high-pressure gas transmission pipelines, noticeably our East Coast and West Coast grids. Gas-fired power generation, gas storage, gas processing and renewable energy, both wind and solar, and of course, also electricity transmission. The successive phases of our evolution are shown in the historical staircase on this slide. And we have invested more than $14 billion into the Australian energy market. These phases include the acquisition strategies to establish that East Coast gas grid that I referred to earlier, successful engagement of the LNG export boom and the leveraging of our footprint to drive multiple areas of growth over the period of time. What's not shown is the disciplined asset recycling and portfolio management also undertaken during this time. A consistent theme is the transition of APA from a gas pipeline company to an energy infrastructure business. We're extremely proud of our track record -- our strong track record of creating value for you, our security holders, over the past 20 years. APA's distributions have increased every year for nearly 2 decades. And recently, we confirmed our distributions guidance for financial year '20. And during this time, total shareholder return has grown at a compound annual growth rate of some 17.2%. The question that I'm sure you would like me to address upfront is what will be the impact of the current COVID-19 pandemic and low oil prices have on APA. While the broader human and economic toll of the current crisis is severe, because APA is a pivotal part of the supply chain that keeps all the essential sectors of the economy operating, our capacity contracts and our regulated revenues do offer some near-term protection. Indeed, I'm extremely proud of our employees who have ensured that we've continued to operate our assets safely and efficiently, ensuring that there've been no disruptions to key regions and industries and consumers. Despite the delays associated with Orbost, which we'll cover in more detail later, this has enabled strong continuing results and the recent confirmation of our distributions guidance. But no business, including APA, is entirely immune from longer-term economic downturn. APA is successful when our customers are strong, and our growth is inextricably linked to our customers' growth. It is our expectation that the economic recovery will be a long U shape and possibly longer in some sectors. In this context, near-term organic growth is likely to be impacted as customer financial investment decisions are either deferred or best delayed. As we saw during the global financial crisis, that impact was not prolonged, and the growth project soon gained momentum again once business confidence returned. I'll talk more on this later in my presentation. Another area that may be impacted is the timing of acquisitions, although it is possible too that the current market may create some unique opportunities for APA. As Peter will talk to later, our balance sheet is extremely well positioned to see out any storm that may lie ahead with ample liquidity and available headroom within our credit ratings metrics. As I've said, APA is not entirely immune from the impacts of COVID-19 and the current low oil prices. However, the resilience of our low-risk business model, along with other key fundamentals, which I'll refer to you, we'll continue to ensure that our long-term success remains throughout the business cycles. These other key fundamentals include: ongoing growth in global energy demand; our portfolio of long-life and high-quality assets; our strong internal skills to be able to navigate a changing world; and a laser focus on operational and safety excellence as well as importantly, our financial strength and flexibility, which enables us to maximize value. I'll now discuss the changing energy landscape and the opportunities we see for APA as the world adapts into the future. Let me start by elaborating on what underpins our confidence in the key fundamental I referred to earlier, which is that growing global energy market. Following a history of continuing growth, this chart shows that worldwide total energy demand is expected to continue to increase materially through to 2040 under both the International Energy Agency or IEA's current policy scenario, which shows that energy demand will increase by some 34% from 2018 levels, and the stated policy scenario, which again shows energy levels -- energy demand increasing by 24% over the same period. Under the IEA's sustainable development policy scenario, which assumes that there's a globally concerted effort to meet the Paris agreement, energy demand reduces slightly from 2018 levels, around 7% through to 2040. In summary, global primary energy demand remains strong and continues to grow under most future energy scenarios into the future. Despite varying ideologies and much emotion in the climate debate, the facts are that the energy transformation is already under way. Most significant is the coal to renewables transformation that's happening in Australia. Since 2012, 5.3 gigawatts of coal has left the national electricity market. And solar now represents 13 gigawatts of capacity in that market. The take-up of rooftop solar is a further aspect of the -- this transformation, quite astonishing, some 2.2 million households now with rooftop solar, and it's growing at around 20,000 new households per month. Consumers selling electricity back into the grid, electrification driven by electric vehicles as that cost curve comes down, and customers remotely controlling their energy use are further confirmation that this energy transformation is underway. This transformation presents both challenges and opportunities for an organization like APA. Today, 60% to 70% of electricity is produced from coal. That coal fleet is aging and needs to be replaced by a suite of new generation. Renewable energy, while low-cost cannot support the entire load all day and every day, what I would describe as firming generation, is the key challenge for the energy sector. And it's where significant investment needs to flow. This transformation, therefore, represents an exciting opportunity ahead for APA, with estimates of some USD 120 billion of new generation investment required as we transition Australia's energy system into the future. As I'll touch on later in my presentation, gas and therefore, investment to bring new gas supply to market is another emerging theme, as is investment in new technologies. Transitioning our energy systems is doable. That needs an ambition to reduce emissions. But ambition alone without a plan is meaningless. As Angus Taylor, Minister for Energy and Emissions Reduction, in his February's CEO address said, "That is the worst part of the emissions debate". We've got to get the ideology out of this debate and get focused on the road map. I'm reminded of a statement by Bill Gates on the subject where he said we have 2 problems. We have those that deny climate and those people who think it's easy to fix, and we actually need to educate both of these groups. This transformation will require a holistic approach. And we'll need to reframe the discussion so that it includes the impact of costs, reliability and resilience in the system. Angus Taylor in the same February address said, "the world needs to go through rapid technology development adoption if we are to achieve substantial ongoing reductions in emissions on a global scale". On this point, I should note that the government is part of pursuing the technology inclusive philosophy has ruled in gas-based solutions as part of the future energy mix. So in summary, we need both industry and policymakers to continue to work together to arrive at the optimum energy future. Alternative policy approach is focusing on low through to deep decarbonization will result in varying levels of emissions reductions and new and different investment classes. What is clear, though, is that there's a full spectrum of opportunity and business -- or business opportunity for APA. That is no matter where the world lands on that decarbonization continuum, APA will have no shortage of investment opportunities that we can take advantage of because of our capabilities, just like we did over the last few decades, leveraging our core pipeline capability into developing into an energy infrastructure business of today. I talked earlier to the IEA's future global total primary energy demand scenarios. I'll now touch on the role of natural gas under those scenarios. In the IEA current policies and stated policy scenarios, worldwide natural gas usage is forecast to increase at levels greater in total energy demand, in fact, up 49% and 37%, respectively. As natural gas continues to be part and a critical part of our future energy mix, under the IEA's sustainable development scenario, however, natural gas usage declined slowly, shown by the green line on this chart, and it's an overall 2% decrease over the period. But less than the total energy demand declined over that period, which was 7%, if you might recall. Even so, it's anticipated that about USD 110 billion will be needed to be spent every year over the next 10 years on natural gas and LNG infrastructure. Looking at the APAC region, which is shown in red, you can see that gas remains a growing and key part of the energy mix in the decades ahead. And North American gas demand continues to remain strong. So in summary, natural gas is a key enabler of our future energy mix no matter which scenario plays out into the future, whether that be to enable the decarbonization of electricity, as I talked to earlier, support high-value manufacturing processes that are difficult and costly to electrify or indeed provide a cost-efficient and low emissions energy source for the residential and commercial sectors of our economy. In regards to the latter point, as a guide, the use of natural gas in the residential and commercial sector currently contributes a relatively small 8.5% of total U.S. emissions. It's at least twice more efficient as an energy source in the home and will be cost prohibitive to fully electrify. And that's assuming, of course, that the electricity source that it replaces -- that replaces it is fully decarbonized. And Ross will talk more on this in his presentation. I'll now touch on our refreshed purpose and vision, our company values, as well as highlight the strategic alignment of our new operating model. I indicated at the financial year '19 results that I'd undertake a review of APA's business fundamentals, the aim being to ensure our operating foundations supported APA's future plans and strategy, within that changing energy landscape, which I described earlier. The review covered APA's purpose, that's, why do we exist, our vision, what we aspire to be, our strategic imperatives and our operating model. Importantly, APA's core strategy of investing in energy infrastructure has not changed. APA's purpose 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, being here for future generations, investing in new technologies and new energy, innovating for a sustainable future. Our vision is to be world class, where we are known for high integrity and in credibility, leadership in responsible energy, customer focus, operational capability, safety and environmental performance, where people are proud to work, and where we are known for making a positive impact on communities. We also defined our 6 strategic imperatives, that is those things that we have to excel at in order to be world-class and deliver on our purpose and are listed on this slide. The Decision Compass is a variation on something that's been in APA for some time. It sets out 5 core guiding principles for effective decision making at APA. These principles reflect the essence of what our decisions ought to be, so we can successfully execute our strategy. The Decision Compass applies to every decision at APA, big or small, and by everyone from myself through to our frontline operations staff. Our values or STARS have been part of APA for a while now, and we will apply these in the way we behave and in everything that we do. When it comes to making decisions, we think of the values as the heart and the Decision Compass as the head. And together, we refer to them as the APA Way. And the APA Way really defines how we do things around here at APA. Our customer promise is a commitment to our customers as to what they can and expect from us. And the red dot in the logo represents our customers and reminds all of our people to keep the customer at the center of everything that they do. The words in our customer promise were written by our APA people right across the organization, and they were based on feedback from our customers and from feedback in the business on our -- what -- and the way we provide a service to our customers. At APA, we believe that what's good for the customer is good for business. And so we're undertaking positive and ongoing changes across the business to ensure that the customer always stays front of mind. As discussed, at APA, we're holding ourselves accountable to world-class standards in the way we provide energy solutions. And as such, I've reorganized our operating model to support these efforts. I've streamlined APA's operations to support collaboration on customer service and outcomes to reflect the portfolio approach -- and to reflect the portfolio approach of our energy assets. The operating model supports our focus on a number of things, including an ongoing safe and efficient operations, a promise to our customers of delivering services that they value, our focus on developing a business in North America, and Ross will talk to that shortly, responding to the disruptive forces and opportunities that decarbonization, decentralization and digitization will present, our commitment to sustainability, stakeholder and community engagement. The recruitment process for the group executive strategy and commercial is ongoing. Craig Stallan, who you'll hear from later when he gives you an update on the Orbost project, is currently acting in that position. And Craig has been involved with the Orbost project right from the beginning. He led the negotiations with Cooper Energy, and he's been developing the operational capability to run the facility, and he'll remain accountable for or whilst until it is fully operational. As previously communicated, APA's long-standing Chief Financial Officer, Peter Fredricson, announced his intention to retire during this year. And I've had the privilege of working with Peter for more than 10 years in his capacity as CFO. And as I said before, he is truly the steady hands on the rudder of the APA ship. And the recruitment process is well underway for that role, and I thank Peter for accommodating a smooth transition during this calendar year. I'll now discuss in some more detail the growth opportunities that we see in front of us. I'll then make some concluding comments before handing over to the rest of my executive team to take you through the business in a bit more depth. As I discussed earlier, we are confident in the key fundamentals of the growing energy market. A hallmark of APA's success over the last 20 years or so has been being on, what I call, being on the front foot when identifying growth opportunities. That means understanding the market and engaging directly with our customers on an ongoing basis to meet their energy needs. This strategic approach underpinned our largest ever investment program of $1.5 billion over the last 3 years. And we've seen the benefits flowing to our customers, our business and, of course, you, our security holders. I group the growth opportunities in front of us into 4 buckets shown on the slide with the first 3 focused on domestic growth. As you will hear, there are a large group of opportunities in front of us in our own backyard. In this regard, we have line of sight to over $4 billion of growth opportunities over the next 5 to 10 years. While not all these projects will get up, our experience is that while some projects don't go ahead, they get replaced by the projects over a period of time. As part of this $4 billion that's of line of sight that we have, as much as $1 billion of growth opportunities remain in active discussion with customers for delivery over the next 2 to 3 years. As I mentioned in my earlier part of the presentation, it is our expectation that due to the current economic downturn, it's likely that some customer financial investment decisions maybe deferred or best delayed. It is on this basis that we have changed our growth CapEx guidance from our previous guidance of around $300 million to $400 million per annum, which is consistent with our long-term average, to around $1 billion of growth CapEx over the next 2 to 3 years. You might recall, we provided similar guidance back in 2016 when we pointed to approximately $1.5 billion worth of growth projects, but where we were also uncertain as to the exact timing. That portfolio of growth projects became our largest ever investment program. So on that basis, we continue to be confident in the growth opportunities that are in front of us. I'll now talk to this in a little bit more detail. On the East Coast, it's well documented that more gas supply is needed to meet demand and put downward pressure on energy prices. In this regard, you'll see a number of new gas-based and supply names mentioned on this slide. APA has in place a number of agreements that are subject to customer financial investment decisions and several memorandums of understanding that would help bring these new gas supplies into the East Coast market. Several of these arrangements are mentioned on this slide. The quickest way to get new gas to market is to connect it to the existing infrastructure, and APA's 7,600 kilometers of extensive reach across the East Coast connects to all major demand centers on the East Coast. In the west of the country, there is demand for new infrastructure, for new and existing mines, seeking a reliable source of gas as a fuel source. The more we develop the interconnected infrastructure like the Goldfields and Eastern Goldfields pipeline grids, the more interest and demand we get from these customers, both existing and new. So we continue to see opportunities that will enable us to expand that pipeline infrastructure, both in terms of capacity and footprint. I talked earlier to the energy market transformation that is currently underway. As I said at the time, I believe that transitioning our energy systems is doable. That will require a holistic approach. Regardless of policy approaches adopted as part of this transition, there will be new investment asset classes and significant new levels of investment required. This presents a range of opportunities for APA, and we stand ready to play a leading role in the responsible energy transition. We're already assisting customers such as Origin, Alinta and Synergy with adding renewables into their energy portfolios through the dialing downs, solar farm, the Badgingarra Wind and Solar Farms, and the Emu Downs Solar facilities, which have been added to the existing wind farm. APA's proposed Dandenong Power Station was shortlisted by the government as just one of 2 of the first projects be selected to proceed to agreement of key terms for the UNGI Program, providing much needed firming generation into the NIM. And we're also investigating and investing in new energy technologies such as hydrogen NG and renewable methane. 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've articulated previously what we're looking at and why are we looking at a market outside of Australia. And none of that detail has changed. What's changed is that Ross, as senior executive, has now been on the ground looking at opportunities for us. You will get to hear from Ross shortly, so I won't steal his thunder. As I said, we will only proceed if an opportunity meets our investment criteria. We're pragmatic, and based on our experience and expertise in this sector, we know what we're looking for. If we don't find what we're looking for, we'll have [ stumps ]. That time frame will be determined at an appropriate time. And needless to say, currently, we don't have a definitive time frame. In conclusion, APA is a leading ASX Top 50 energy infrastructure business. Over the last 20 years, we've transitioned from a gas pipelines business to an energy infrastructure business. We're extremely proud of our strong track record of creating value for you, our security holders. And as the energy market decarbonizes, we will continue to adapt as we have done over the last 20 years. We'll take full advantage of the opportunities in front of us. And indeed, there is a full spectrum of opportunity for APA. We remain focused on developing a business in North America. We're committed to working with government and industry, and particularly our customers, to create a cleaner energy future. And we will play our role to continue to invest in our assets, systems and people. I'll finish my part of today's presentation then. Before we go to our first Q&A session in around 30 minutes' time, we'll hear from Ross Gersbach with an update on the U.S. and Hannah McCaughey, APA's new Group Executive, Transformation and Technology. Thank you.

Good morning, everyone. Today, I'd like to update you on what we have been doing in the U.S., why are we doing it and where we're heading. There's obviously a lot of concern, both on the health aspects of COVID-19 and its economic impact, including the difficulties arising from the fall in oil prices. By necessity, this presentation assumes a return to more normal conditions. But undoubtedly, we need to consider the logistics of undertaking a transaction in this environment as well as the economic impacts on demand and supply. So while we are approaching the current dynamics, the pressure many of our pipeline peers are under may provide more opportunities, not necessarily bargains. There’s no doubt we got the other group looking to invest in this market. APA has a small professional team based in Houston, albeit, not in the one place under this current environment. So today, I will refresh attendees with our strategic rationale for the U.S., current industry trends, the regulatory environment, what we look for in an investment, how we see our competitiveness and a key due diligence area of decarbonization. Moving to the next slide, the natural gas market overview. APA remains keen on the U.S. for 2 key reasons: the abundance of low price natural gas; and the continued growth in natural gas demand. Today, the price of gas is well below $2 gigajoule, which while very attractive for consumers, is really too low for producers to make a reasonable margin, and this is putting pressure on many of the shippers on the pipelines. The [ circuitry ] gas has been driven by almost gas being a byproduct of oil production in the southwest of the country, in particular, Permian and Eagle Ford. Fortunately, increasing volumes, [ IMAC ] primarily, for LNG has absorbed much of this gas. But with the slow down of the world economy, this compounding pricing pressures on producers. The other main producing region is Marcellus Utica, which is the largest production region in the U.S., but it's mostly dry gas. And there is some speculation that with the reduced oil production and reduced byproduct of gas in the period that there could be a tick up in natural gas prices. But the Marcellus Utica is probably well positioned to take advantage of any of that. They mostly dry gas, but are very efficient and will continue to provide abundant levels of gas supply at low prices to the U.S. market. Cheap natural gas has resulted in significant new demand for power generation to replace coal and for new industry expanding and relocating to the U.S. The depth of the U.S. gas infrastructure market and the strong growth-oriented fundamentals continues to lead APA to the view that there should be attractive natural gas opportunities, natural gas infrastructure opportunities for us to pursue. Moving on to the next slide, target investment sectors. Which ones are we looking for? Well clearly, it's a fairly straightforward answer. If you look at what we do best and that is the ownership and operatorship of natural gas pipelines or gas networks. In the U.S., gas networks are referred to as LDCs, or Local Distribution Companies. These type of business is at the lower end of the risk spectrum and is consistent with the risk profile of APA's existing business. We have other expertise in renewables, gas processing and storage. But these would be considered once we have our platform and how those areas fit into that platform at the time. In turning to look at our screening criteria, the items here have been continuing to refine as we looked at different opportunities and understood the market more deeply over the last few years. Commercial environment, clearly, it needs to be a risk consistent with what we have in Australia, either regulated or contracted with strong market fundamentals. Operational alignment, as I've said, it has [ sticked ] within our existing operational expertise and targeting gas pipeline through LDCs. Holding our organizational structure and, ideally, when we acquire assets, we also acquire a management team with a proven track record. The credit needs to be supportive of our credit ratings, existing credit ratings with minimum counterparty risk. And the financial returns, of course, need to be affectable IRR. And we've previously talked about, continue to focus on making sure that in the first full year of operations for OCF accretive. In terms of the investment size, we look at a size that is worthwhile to make the effort, but not of a scale to sort of bet the company. And finally, environmental impacts, that it's got to be compatible with what our long-term energy transition objectives are. In particular, we're looking for an acquisition that will maintain its value, has a stable region where it was located, implements a change in the nature of energy supply. Due to the climate in political views and investment in gas infrastructure in California is a lot different to an investment in cold climates away from the coast. I will talk about this more in the later presentation. One of the key differences in terms of regulatory environment is when looking at pipeline returns was a positive ones from regulators in the U.S. to ensure that sufficient capital can be attracted to industry to ensure this continued investment and expansion. It's a framework that's been established over many years by court decisions that entitle infrastructure owners to returns that are competitive with other investments bearing the same level of risk. These court decisions tie the obligations to various provisions of the U.S. constitution, indicating they are a part of the fundamental law of the country. As you've seen, the objective of the Australian energy regulator is much more focused on minimizing tariffs rather than attracting capital into the industry. In pipelines, while ROEs are usually in the 13% to 15% range, of course there's no guarantees that, that level will be achieved. It would depend on the market position of that pipeline compared to competing pipeline tariffs. If returns see this range by an unreasonable amount, the FERC or the shippers can commence a rate case. Although mostly, they are a negotiated settlement without FERC needing to publish a determination. In terms of LDC's returns, they are set by individual state regulators with recent decisions, tuning being in the range of 9% to 10% equity returns with -- based on equity comprising around 50% to 55% of the total capital. This is a level of returns that's been very sticky over long periods of time, even as interest rates have trended downwards. While they have shifted down over recent years, they've been remarkably stable in the still approximately double what can be earned in Australia. Moving on to the next slide, current market trends and valuations in LDCs and pipelines. LDCs have benefited from significant new CapEx programs to renew and reinforce the asset base, supported by regulators on safety basis. These programs involve digging up and replacing old pipe. In some cases, they'll have many years of work ahead of them until they're finished. A sustained period of declining natural gas prices enabled LDCs to recover this capital without lifting rates. On the other hand, pipeline operators have turned inward, the dislocation of 2014-2015 marked the end of a period of significant growth and forced the reassessment of leverage and corporate structures. Since then, changes in tax arrangements and the increasing recognition that many peers spent their available capital on liquids infrastructure has saw higher returns from supporting the increase in oil production. This has reduced access to expansion capital as they have gone up the risk curve. Large greenfield gas projects under construction and recently placed in service have been built to facilitate delivery of byproduct gas produced from oil drilling in the Permian Basin. They are connecting West Texas to Eastern Texas market hubs, LNG export terminals and petrochemical facilities. Other greenfield projects are in the Northeast part of the U.S. and continue to support the expansion in gas production from the Marcellus and Utica. However, the routes across some ecologically sensitive lands and face significant opposition from environmental groups delaying their completion. APA sees opportunities for quality acquisitions in both the pipelines and LDC sectors. The COVID pandemic and oil price declines have forced many midstream operators to urgently reexamine the balance sheets and strategic priorities and consider selling assets to raise capital. Given that many other strategics are grafting the similar problems, APA can differentiate itself to those sellers. On the LDC front, APA has seen asset sale processes initiated as current LDC owners look to crystallize current values, supported by a positive long term. Moving on to the next slide. Clearly, there can be opportunities. But for APA to be able to take advantage of it, it has to be competitive against its peers and other investors in the industry. I've got a couple of comments in that respect. Our U.S. pipeline peers, they have diversified into riskier businesses and as a result, do have a higher cost of capital. So at the strategic to strategic competition, I think APA is well positioned. On the LDC front, our work undertaken to date suggests we have a very competitive cost of capital. Clearly, the likes of the Canadian pension funds are super competitive, but that type of investment generally elects the operating capability to act independently. Overall, our stock over the past few months has traded very strongly relative to our U.S. peers, and that puts us in a good position to deploy capital. We clearly don't have an operating base and few synergies compared to the strategics in the U.S. and time will tell whether we can overcome that position. However, we have invested in excellent internal and external resources to understand the industry and capitalize on opportunities. This issue should resolve naturally after our first acquisition. One of the big topics in the gas industry is the focus on decarbonization, both in the energy chain and economy in general. APA has invested a lot of time and money in understanding the potential impact on the gas infrastructure sector, including the specific question around the electrification of LDCs. There is no single federal policy around this issue, but many states and cities have implemented fairly aggressive emissions reduction controls. Some follow the general framework of Paris, that is, an 80% reduction in emissions by 2050, while others go further and aim to eliminate all net carbon emissions by that time. In terms of LDCs, the bulk of their revenue is from residential and commercial sector, which represents around about 8.5% of total U.S. CO2 emissions. This is a relatively small amount of emissions compared to other sectors like power generation, transportation and agriculture. And under the policies adopted by some states, the more aggressive policies, natural gas emissions from these sectors will still need to be reduced. This effectively requires that natural gas use in homes and business be replaced by a renewably generated electricity to meet that goal? And how realistic is this? Well, Bloomberg is forecasting -- today, is still forecasting a 48% increase in gas-fired power generation capacity to be installed by 2050 over and above existing levels. This is required to address the well-known issues around wind and solar intermittency and will continue to be a difficult problem to solve effectively. Also, the energy efficiency of natural gas delivered to the homes or business is 3x more efficient than natural gas burned as electricity. So unless that electricity is being generated by renewals, then there's a real chance that the electrification of the LDCs would actually result in increased CO2 emissions, which I think policymakers are only slowly beginning to understand this particular issue. If you ignore whether it's actually going to increase or decrease CO2 emissions by electrifying LDCs. The cost of electrification, particularly in the colder climates, is much higher as compared to warmer climates, such as California. About half of the population lives in a part of the country that experiences very cold temperatures and relies on gas for space heating. Utilities in these areas would need massive amounts of new renewable generation to support peak demand as well as upgrades to the transmission and distribution infrastructure. Even setting aside the economics, overreliance in these cold regions on one single energy source for heating creates a real risk, given ice storms and the potential for the electricity network to be down. So the massive generation investment that would be required to support electrification, plus the cost of switching home appliance from natural gas to electricity, combine to make residential electrification a massively expensive option for reducing carbon. This graph compares various decarbonization methods on a cost per tonne of CO2 removed basis. It starts on the left with the use of electric cars, which can actually save money for society, and that also shows other policy and technical approaches that have been used in the past. It even includes projects at the demonstration stages such as direct CO2 removal from the atmosphere. As the graph shows, residential electrification is more than 3x as costly as any other method. This graph actually understates the true cost because it does not include the cost of electrifying commercial buildings nor the additional cost of improving the electricity distribution infrastructure to support more load. Finally, to discuss the decarbonization impacts on gas pipelines. Again, it's -- there are some regional differences, but we see an important role to pipeline infrastructure in any event. LDCs in colder regions will continue to require natural gas. Petrochemicals & Plastics will continue to require it for feedstock. LNG will continue to be exported. Pipeline capacity will be required for peaking capacity at gas-fired power plants. Utility-scale batteries seem many, many years away. The challenges of providing reliable, clean energy infrastructure for the U.S. is immense. And indeed, the electricity and natural gas industries are working together to understand the role that natural gas pipelines can play in that increasingly volatile power sector. And as we investigate pipeline acquisitions, we review the market based on the fundamentals today but also examine how the fundamentals might change over time based on decarbonization trends and, of course, many other measures. To conclude, overall, despite the unprecedented disruption from COVID-19, we still see strong long-term fundamentals for the U.S. gas infrastructure market. But we are unquestionably aware of and respectful of the movement towards decarbonization in the U.S. However, the incredible climatic and political variations across regions of the U.S. means that a single approach cannot realistically work nationwide. Something that works in California, may not work in Kansas. Rather, we see states and regions charting their own paths, subject to their own particular technical, financial and political limitations. As such, we do not see decarbonization as a reason to fundamentally change our investment objectives. We still see many opportunities for us to transact and operate from our position of our financial strength. Thank you very much.

I'm the group executive for transformation and technology here at APA. I'm here to lead APA's response to decarbonization and digitization. I've already started looking at new energy opportunities and our tech road map. Taking my 15 years of experience in global energy companies and marrying it with the deep expertise and capability here at APA. At APA, we recognized the energy transformation is underway. We understand the trends and the changes that are driving energy growth, and we're getting ready for the future that's coming. We had the foresight many years ago to step out into new adjacencies, such as solar and wind. And even more fundamentally, we've moved from being a pipeline business to an energy infrastructure business. And now, with the advent of digital and data technology, we can move from being an energy infrastructure business to an energy solutions business. I'm not in a position today to tell you all the outcomes of our thinking. What I am going to share is how we're going about our thinking. And I'm really interested in how this world of energy growth is going to play out and benefit our fantastic infrastructure position. So first, the trends. The energy sector is responding to mega trends around the globe. Our population is growing. By 2050, we'll have another 2 billion people on this planet. And they need energy to fuel their lives and grow the economy around them to live happier, healthier lives. These people are going to live in cities. So today, half the world's population lives in cities. By 2050, that will be 70%. The demand for energy infrastructure is huge. We are part of that megatrend. But the next thing we need to look at is climate change. And our challenge is to decouple this energy growth from emissions growth. And we're already seeing this being possible. And when we look at the developments around us, we see that it's not a single technology that provides a single magical bullet to our energy challenges. It's a range of technologies. It's a portfolio of options that are going to take us to this future where we can serve our communities, keep them growing and decarbonize our future to keep us safe and happy. What I want to do is actually look at these trends a bit more in practice and in particular, look at the role of energy in interconnecting different types of markets and different types of technologies. So there's 4 energy transformations I'd like to look at today that are already playing out: LNG, shale gas, renewables and firming. LNG is essentially a revolution in the way we transport and store energy. It has transformed markets from being diverse, divergent, and driving convergency. We look today, Japan is the biggest importer of natural gas. And gas is the largest source of power generation in Japan today. In 2019, $65 billion of infrastructure was put in place, backed by long-term contracts to make this market transformation possible. And then we have shale, particularly in the U.S., incredible the impact that's had on the U.S. economy. In 2008, gas production in the U.S. increased by 81% on the back of shale technologies. And what's very interesting is just like LNG, these technologies were around at the beginning of the century, but took years and investment and government policy to enable these technologies to come to life and drive the incredible benefits. One of the big benefits of the shale revolution in America has been the decarbonization from coal-to-gas switching. So from 2010 to 2019, coal-to-gas switching as a result of cheap gas in America took out 300 [ megatons ] of CO2 from the atmosphere. These are energy transformations that are still playing out. The other one that we have to touch on is the renewables phenomenon. In the last 10 years, the cost of electricity from solar and from wind has decreased by 80% and 50%, respectively. The deep cost reductions in these renewable energy projects is driving a phenomenon around electrification. It's driving thinking around zero-cost electricity. And the cost of these technologies is forecast to fall further. By 2050, there's estimates that solar could be 60% cheaper again and wind another 50% cheaper. But our renewables phenomenon has spawned another phenomenon, which is intermittency. So these technologies produce great energy when the sun is shining, when the wind is blowing, but when they're not, how will the system cope? So we see a phenomenon around firming technologies. And fundamentally, gas is stepping in and playing this role. Last year, in South Australia, 51% of the electricity output was renewable, one of the highest in the world. But the other 47% was gas, gas filled that and made that renewable production possible. So we see this marrying of technologies coming together to provide the system stability that we need. We think there are other firming technologies that are also worth looking at. We're looking at the lithium-ion batteries, driven primarily by interest in electrifying transport, but now having more interest in the power sector at grid scale. But even though these lithium-ion batteries have huge potential, they only play very well in the 2 to 3-hour firming slot. And so we see they're complementary, but not the whole story in the firming revolution. I worked in the U.K. for 13 years, 7 of which were at Centrica. And I witnessed firsthand the changes in these technologies to the system. In 1990, coal was 75% of the U.K.'s electricity. By 2019, it was 2%. In that same period, renewables had increased from 2% to 30% and gas-fired power generation from 0 to 39%. These are fundamental changes that are happening in our energy system today. And we're starting to see green shoots around the next energy transformation. Green hydrogen is clearly one of these. And this has been spawned from the very low cost of renewable energy because if you can make energy very cheaply and at 0 marginal cost, you can use that in an electrolyzer to create hydrogen. And hydrogen is a fantastic way to store and transport energy. So what do all these different technologies mean for APA and its privileged infrastructure footprint? First of all, gas remains a fantastic way to store and transport energy. We see gas playing a very important role in our nation. But ultimately, if those methane molecules are created in a different way, APA is very supportive. If we think about new export businesses, and the government is saying that a hydrogen export business could be worth $11 billion by 2050 and create 8 million new jobs. Clearly, that would be good for the Australian economy and good for the APA infrastructure network. But more than that, we see a role for APA and our technology in firming, in transportation and industrial use. As we said, renewables will continue to rise. We're very proud of our renewables. We're the fourth-largest corporate holder of renewables in Australia, and we see renewables being an increasing phenomenon, but we're ready to provide the firming that is needed to keep the system stable. We also see batteries can play a role in that, but we see a holistic solution with gas being a part of it. Transportation. We've already touched on the phenomenon electric vehicles. And no doubt, this will drive further electrification of our economy. But there is recognition that electric batteries are unlikely to be the solution in long-haul transport, primarily due to their weight, and their time to recharge. So there are some fascinating developments around LNG in transport or compressed natural gas, again, providing a lower emission source of fuel to that of oil and other petroleum products. So the world of transport is one that we see changing and gas -- and new technologies stepping in. Then finally, industrial use. Electrification will be more of our economy. Gas-fired power stations will be more of that electrification. But electrification cannot fill some areas in industrial use around cement, around steel. And so we're very closely looking at developments in that area, but we recognize the critical role that gas plays in these sectors. So overall, from my 15 years of successive transformations in power generation, in retail, in distribution and transmission, I've learnt there is no silver bullet, it's a thousand sliver pellets. Thank you for your time today.

Thank you. We'll now move to the first of our Q&A sessions. If you have a question, you can submit using the ask-a-question button on your screen. And for those analysts that have dialed in, you can press star 1. I'll hand over to Rachel to start the questions from the analysts.

Thank you. Your first question comes from Rob Koh from MS.

Thank you very much for a really interesting long-range presentation this morning. It's been really fantastic. Just first question, I guess, on the near-term growth prospects. And I think we know well enough that if APA has got a growth pipeline that, that will happen over time. But just wondering in the near term, if there's any discussion with government on maybe stimulus projects bringing forward some of the works?

Rob Wheals here, and thank you for your question and your kind comments. I think the thing that we're most focused on and I made mention of it in my commentary that given the, if you like, business confidence and other effects flowing through from COVID-19 and more generally, economic downturn. The thing that will be most beneficial in stimulating growth and positivity is getting projects approved. And so what we've done and are continuing to do most -- first and foremost, is engage with government along the lines of ensuring that the approval processes for projects that are already in-flight aren't adversely impacted. And if they are, that we can work together constructively to ensure that those projects do continue through their approval processes. Clearly, kicking off new projects is another area of focus. But to get the most benefit in the near term, the focus is on ensuring that projects that are already developed in terms of concept, are already defined and going through their approval processes, don't get slowed down as they go ahead through their approval process.

Our next question comes from Ian Myles from Macquarie.

Thank you for the presentation. A couple of questions. Could you maybe just give -- you talked about that $10 billion of opportunity in growth. Maybe break it down between what you see as core pipeline activity, maybe midstream, and also electricity or renewables as such?

Ian, it's Peter Fred here. I think the number was greater than $4 billion on the presentation slide.

Sorry, it was $4 billion, my mistake.

No pressure, $10 billion, goodness. We talked about this in August 2018 when we released our results in the middle of the CKI offer. And we said then around $4.2 billion of projects over the next 5 to 10 years, and we said $2.4 billion of those were made up by pipelines alone. We were talking then about the Crib Point Pakenham Pipeline, the Western Slopes Pipeline. We were talking about Beetaloo. We're talking about the Galilee Basin. So that was -- that's our sort of -- our wet finger in the air type estimate and the context of that. We haven't really broken it down beyond that. The thing that Rob most referenced to was the fact that projects come and projects go and add to that number. So over the longer term, we are talking about a pretty interesting time frame there of 5 to 10 years. So that's about as much as we've got in respect to that or much as we want to put on the table, to be fair.

And Ian, just one other comment I would add to what Peter has already said is that -- and as you've heard us say many times before, so I'm saying what you have heard many times is that we don't create the market. We invest alongside our customers based on their requirements. And so that mix of projects is always going to be dependent upon what our customers are looking for as part of their energy portfolios. But if you look at those general themes that I've pointed to during the course of my presentation, with the new gas required to be brought into the market on the East Coast. So that -- off the back of that, there's a mixture of gas pipelines and processing, potentially import terminals. So anything that brings new supply into the market. And that mix of pipelines and processing covers the range of the pipelines and midstream sectors that you were referencing earlier. And clearly, the other big theme is around new generation to support that energy transition. So we would expect to see ourselves playing some sort of a role in that firming generation part of the market going forward, alongside investing in renewable generation where it makes sense for us to do so.

Is it possible you could give us a bit more color around how you see the play in firming, given most firming participants are active -- take active market risk in the electricity market, overriding PPAs and trying to provide -- and internally managing that risk. How do you see your position in firming?

Ian, you sort of rightly summarize what our position is, is that we don't enter the market and take merchant risk. But we do see a role for ourselves participating in the market alongside our customers where we can provide -- where we can invest the capital and own and operate those facilities. And where we've got the skills and capability, obviously, these are balance sheets, cost-effective, cost of capital that makes it attractive to our customers.

And I'm sorry to persist on this. Are you seeing much interest about that? Because when you talk to the retailers who have participated in firming, they typically balk at a third-party owning a gas plant because decisions about turning gas plants on and off and how you operate them actually have real maintenance cost implications that make it very difficult to set up a typical type firming contract.

That is true, Ian. I think the thinking where we are at the moment is that, yes, our typical model is that we would build, own and operate. But if that means -- if it means that we build and own, but we come to an arrangement where it makes more sense for the end customer to operate for the reasons you've just described, that's something that we certainly feel is part of our operating model.

Okay. That's great. And could I ask one more question? Just on -- look, in the U.S., really interesting presentation. Interested in how you could view the political risk because we're in a political world where Trump policies are quite extreme. But let the -- the Democrats' policies are probably somewhat extreme on the other side. Does that influence the timing of when you might consider investing in the assets in the U.S.?

Ian, I'll make some general comments around that, and then I'll throw it to Ross who's, I think it's his daily entertainment watching the election process unwind in the U.S. And so he'll be able to make more on-the-ground comments. But I think the point to note is that we're a business that invests over the long term. And so as I made reference in my presentation through different economic cycles, but also different political cycles with different -- in the case of Australia, different prime ministers and I've lost count how many we've had over the last 10 years. The point is that we have to look through that, look past this and look at the fundamentals as we make our decisions, not being, I guess, too focused on what one particular individual might have to say or be leaning towards but I'll point -- I'll throw it to Ross now. He'll be able to make some more specific comments as he's been watching that election process unfold in the U.S., Ross?

Thanks, Rob. I suppose there's 2 levels. A lot of the political decisions that impact on the industry is taken at the state level and which causes considerable frustration for the federal. But I also should say that certainly Biden being apparently going to be the Democratic nominee takes away some of the extreme policies that were being discussed. From a pipeline perspective, I think if Democrats were reelected, then it makes -- it will make things more difficult for greenfield pipeline opportunities, but I don't see much impact on the LDC front. Certainly, from the -- from where we sit here today, we're very much focused on a state-by-state policy position.

Our next question comes from James Byrne from Citigroup.

I wanted to ask about -- I think it's Slide 15 and 16, a spectrum full of business opportunity for APA. And I do appreciate your remarks on the outlook for energy transition and the role of gas in that. But I think gas as a transition fuel is not necessarily a given. And I'm certainly finding more and more fund managers are bringing a pretty healthy skepticism to that viewpoint as well. Now on that slide that I mentioned, you've looked at the different technologies to invest in, given the different spectrum of decarbonization. But if I look at those technologies, batteries, hydrogen, et cetera, I would have thought that batteries makes more sense for network operators and generators. For something like hydrogen, I think that makes more sense for those that actually have the greater depth of operational expertise in processing gas in much more complicated plants than APA own and operate. So the question really is why is hydrogen, batteries and like your expertise and not better done by someone else?

Thanks, James. Well, probably the first thing I'd say is -- and I forget now which slide it was, but just in terms of the theme that the IEA outlooks all point to growth in energy demand, so there's strong growth in energy demand, all except a sustainable development scenario, which has it decreasing marginally over that 20-years horizon through 2040. And as I said, when I pointed to the role of gas in that transition over the next 20 years, gas has a significant and important role to play in that. So I suppose the first point I wanted to make is that as we look at that decarbonization continuum, gas has an important role to play in no matter where you sit on that. And so from a point of view of APA continuing to invest in that space, we still see a positive outlook. And that's supported by a number of people focused on the sector, including Alan Finkel. The second I'd say is that as we look at the -- how that future unfolds. There's a number of different futures. There may be a future -- and there's a lot of talk about how hydrogen might play a role in that energy future going forward. Clearly, to have hydrogen flying around a system, it's got to be transported. There may be a role for APA's assets in that instance. But importantly, the generation of hydrogen in the first instance, is very, very energy intensive. And if we want to have hydrogen developed in a low-carbon way that requires significant investment in renewable technologies because hydrogen is a very intensive -- or the development of hydrogen and therefore -- and then the storage is very, very energy intensive. So that, in itself, presents an opportunity. You might have seen today that we announced the approval and funding from ARENA to support the development of what we're calling renewable methane, where not only do we take the step of using energy to create hydrogen, but then we then take carbon from the air and convert that hydrogen into methane, so that it can actually flow in our pipelines. So that's a trial project to prove, one, the technical capability, but then secondly, also the economics of it on a more industrial scale. That, again, if that proves itself out, that presents a significant opportunity going forward in that space. But to move on from, let's call it, cleaner molecules to a future where there may be more electrification required as part of their decarbonization. Clearly, there's a cleaner generation, and we've talked about the requirement for firming generation as part of that energy mix. But also you pointed to and noted on the slide, we talk about the role of batteries in that. Now that might be a place that the network operator might participate. But batteries, on a larger scale, we see no difference in terms of significant investment required in energy infrastructure. So look, I think the fact remains that as this energy market transitions, the -- it's going to require significant investment, whether it's in the generation capacity. I talked about the coal fleet aging and needing to be replaced with a suite of new generation. That presents an opportunity. And my comments on that particular -- at that particular juncture, in relation to this slide, were in relation to the full suite of opportunities as this energy market transitions, which is why we remain very positive and confident about our role in that going forward.

That makes sense. Do you think though that, that future, whatever it looks like, will be increasingly crowded? If I take the European super majors, as an example, the Shells and Totals of the world, they are continuing to increase the amount of capital they allocate into, let's call it, new energy, quite significantly. I think Total was out the other day with a big new target for CapEx by 2030. Now the reality is that they don't yet know where the economic rent lies in a fully electric world. So they're allocating capital across the spectrum there. So do you think that the returns in the future are implicated at all by competition? Or do you think that APA's cost of capital is really competitive enough in the same vein that you talk about having an advantage and when you look at the U.S. as a parallel?

Yes. I think you've sort of almost answered your own question there. I think, look, there's always going to be competition. We compete already today in today's market, and we run-up against others in many different processes. We don't win all of those processes. We think that we've got not only the strength of the balance sheet and cost of capital but also the skills and capability. And as you've heard, both myself and also Hannah McCaughey talk about that transition where we're actively bringing those skills into our business to start to think more actively around what that energy future is. And so will we -- when you look at that energy transformation, that's -- inevitably going to happen over the next 20 to 30 years, we, like others, are going to compete in that space, and we don't see ourselves necessarily having a distinct competitive advantage nor a distinct competitive disadvantage. We'll compete alongside all the other players.

Your next question comes from Tom Allen from UBS Investment Bank.

First question relates to the U.S. growth plan. So Ross noted in one of the slides there that LBCs in the U.S. typically have capital structures with 50% to 55% equity. It's obviously a higher equity component than we see in Australia. Is that a regulatory requirement in the U.S.? Or should we continue to expect U.S. acquisition would adopt a similar capital structure to what you did for the Wallumbilla Gladstone Gas Pipeline acquisition?

Ross, do you want to take that question?

Certainly at the asset level, the regulators generally insist on that 50% to 55%. We may, up the chain, put all gearing against that. That 50% to 55% is at the asset level.

Okay. That makes sense. And then for the capital structure for the entire acquisition, should we still be thinking about that as being similar to what you implied for Wallumbilla Gladstone Pipe?

I think the answer to that question is that is yes. The short answer is yes. The longer answer is that as we acquire anything -- when we acquire anything, we're very committed to maintaining the BBB, Baa2 metrics at the group level. And so that does clearly give us an ability, once we consolidate through an acquisition that might have that 55/45 type of a structure, to add a little bit of depth at the parent company level to support that. So we'll always look to the metrics at the parent company level as the overall driver.

Yes. That makes sense, better. And can you just share a little bit more color on what you consider an acceptable IRR for an investment of this risk profile in the U.S.?

It's Rob Wheals here. Look, we've talked about before the sorts of equity returns that we see for regulated assets here in Australia. And obviously, when we look to invest in nonregulated assets in Australia, we'd always look to take an appropriate return in excess of that low-risk regulatory return commensurate with the risks that we'd be taking. And that typically ends up in the 9% to 11% range. And clearly, sometimes more depending on the type of assets and the counterparty and development risk, et cetera. In terms of North America, I think we've been clear before that from a regulatory return perspective, and I think Ross talked it in his presentation, that we see certainly in the LDC space in that 9%, 10%, 11% equity returns is typical. And on the pipeline space, sometimes a little bit more than that, again, dependent upon the asset and it depends upon the risk and that we would see as being an acceptable return, given the risks that we're taking on in that market.

Sure. That's clear. And then just one last question, if I may. Just on that growth spectrum presentation a little bit earlier. I noticed one of the items there was offshore NT. I'm just interested in if you can share a bit more color on whether that related to Barossa or Ichthys? And then also, Beetaloo obviously remain a bigger opportunity onshore going forward. Anything you can share on how the, I guess, COVID or the collapse in the oil price might have impacted the time line for that project? And what your updated sort of route to market plans are?

Yes. We'll just commenting specifically on -- I think you picked up under our list of Frontier Basin opportunities. Clearly, the -- as offshore northern territory develops further resources there, if those resources need to be either pay prices or then take into domestic market, we'd be looking to participate in supporting that process the same way as we would for any onshore development. So that's just providing some clarity around their comments. My apologies, if you could repeat the second part of your question, Tom?

It was just an update on how, I guess, COVID-19 and the collapse in the oil price might have impacted your time line for Beetaloo, I guess, and what an updated route to market might look like?

Yes. Look, I think my comments earlier around the fact that we invest -- we don't create the market, we invest alongside our customers. I think it's public knowledge that those projects and the proponents of those projects have had to look at -- relook at the CapEx spend in the context of low oil prices. So I think back to my comments earlier around customers potentially deferring some of the decision-making even in regards to that project or other projects is really the key point I was making there. Do we have an exact timetable? No, because the development timetable is going to be driven by those proponents, the same true for any other project.

We have some further telephone questions from analysts. But for participants wanting to ask a question through the webcast, please use the ask webcast function on the webcast screen. We now have questions from Peter Wilson from Crédit Suisse.

A few questions on the U.S. actually and the growth kind of profile there. So to start with demand on some of these LDCs you're looking at. Can you just give us an idea of what the recent trends are in terms of demand? And then what you're assuming -- what you're putting in your models going forward?

Thanks, Peter. I'll just make one comment and then I'll ask Ross to address that question. I think the -- I'm guessing your reference to demand is in reference to the current COVID-19 situation and the outlook?

It's actually on just the kind of underlying demand.

Okay, right. Well, I was going to go through a different question then. I might just hand over to Ross.

It's fair to say that demand has been fairly constant, fairly flat over recent years. What's been driving the growth in the revenues has been a very significant capital expenditure program to renew and refresh a lot of the pipelines within those LDCs, but we're not expecting demand to increase over, if you like, the growth in, I guess, itself.

Perfect. And given that flat demand outlook, I mean, what is the expectation going forward in terms of, I guess, organic growth in assets?

Well, the organic growth will match population growth, but also there are, depending on the state and the LDC, there's still a lot of money to spend on renewing the LDC, but it's very much different from LDC to LDC.

I guess another way to ask it is, if you look at the, I guess, the Australian business, next 10 years, the -- I guess the picture is that you continue to spend $300 million to $400 million, which is 2% to 3% asset growth per annum. Do you think maybe the LDCs in the U.S. are going to be higher than this 2% to 3% or lower than 2% to 3%?

Certainly, there are quite a few out there that are higher. They've been growing at sort of 5% recently. So -- but again, it depends on the region, the cold of the region, the more fundamental demand there is compared to the warmer regions.

Okay. And the flat demand, I guess part of your presentation was the fact that -- well, I guess, your opinion that the electrification of residential heating is not viable. I mean, in Australia, reverse cycle air conditioners have displaced gas as the cheapest form of residential heating. Is there anything different about the U.S. market?

A fundamental difference is just the temperatures, the winters and the costs that get allocated by household to their heating. To switch across to that would have -- be significantly more expensive and less effective, is the fundamental difference.

Okay. And I guess, you're talking about to switch from an existing gas appliance as opposed to the cost differential of a new gas appliance?

Yes. I mean, it's the actual cost of the energy, as such. Electricity is much more expensive than gas in this part of the world. And that would be -- their annual bills would be significantly higher to switch from the gas heating across to electric heating, ignoring the cost in the appliance itself.

Okay. And just one last one. So some of the LDCs in the U.S. I understand are more vertically integrated, as in they have responsibilities for things like sending out bills. In terms of the assets you're looking at, can you confirm, I guess, what level of vertical integration those assets would have?

Well, indeed, most of them are vertically integrated, but most of them -- in terms of also running a retail operation, et cetera. But then depending on the state. A lot of those have got protection over what the cost of gas is and a flow-through that -- to flow through to the end user. So they may take a bit of volume risk. But in terms of medium-term risk in pricing, that gets passed on to the end consumer. It's just a different model, and it's a model that works pretty well.

Are you worried at all about retail contestability over the very long term?

Not in the states that we're looking at, no.

Your next question comes from Daniel Butcher from CLSA.

Thanks for the extra data on the U.S. Just a couple more questions on that, please. You mentioned 145 LDC targets, around 69 for the pipeline targets. I'm just curious what sort of percentage of those, firstly, meet APA's criteria in terms of size and other things that you're looking at? And secondly, it seems like -- just trying to understand the big disconnect between the seemingly amazing equity returns of -- right now, you're saying 9% above the government bond rate for pretty low-risk assets. And to reconcile that so you wouldn't have had the last 3.5 years of looking to actually push the button and buy one. There's obviously a pretty rosy picture painted in the presentation. Just trying to work out why lead up in terms of price to end up lower returns in the final analysis?

Well, if we were looking 4 or 5 years ago, I have to say LDCs were a lot cheaper than what they are today. I think that they -- their value and their gap between the cost of funds versus what they're able to charge is pretty reflected -- is reflected in their values. And that is one of the challenges that we are looking at is to make sure that they can still justify our returns and to date the work that we have done, we believe that we can be competitive. In terms of the number of targets there, certainly, not -- all of those targets aren't on the market. But I would say a good portion would satisfy our criteria. I don't have the precise number. But by the same token, we're not taking a scatter gun approach. We're selecting those key opportunities that make sense and tick most of the boxes and concentrate on those. So I don't have a precise answer on that percentage of those targets.

Your next question comes from Rob Koh from MS.

Good day again, guys. I do have a few questions at the start. I wasn't just going to offer you a softball. If I can maybe direct a question to Mr. Gersbach about Slide 38, which is the -- which is non-APA Research, that's the Gas Association of Americas residential study from 2018. Just wondering if you can give us some color on what kind of electricity cost assumptions have gone into that study? Because wind and solar costs in the U.S. have like halved over the last year. And you did also mention that the key difference for gas and electricity in the home is the weather. And clearly, Australia doesn't have the brutal winters of much of the U.S. does. But Europe does, and Europe has quite a strong trend towards residential electrification. So just wondering if you can give us a bit of color on that front.

I think in terms -- I can't give you precise assumptions into that study. But I will say that we are doing our own internal studies, and we're partway through to -- critique ourselves, sort of outcomes, just to understand how they got to those numbers and to make sure that we're comfortable with those numbers. The nature of the -- I think the North America has got an entirely different culture in terms of the willingness to switch cross from gas to electricity compared to Europe. And it's fascinating. The state of New York tried to -- well, because they weren't approving new expansions coming into that state, the utility started to restrict new connections. And there was an uproar from the community that they still wanted gas. So even in the coastal regions, which are much more pro new energy, there is still an ongoing demand for natural gas. And a desire to keep it especially for space heat.

Yes. Okay. So my last question and perhaps more of a longer-term question given the tone of the introductory pro those. So can you talk to some of the longer term, I guess, terminal value type scenarios in the way that the company thinks about its investment? Like are there alternate uses for the steel pipelines? Is there progress on steel embrittlement with hydrogen? Is there a point where the kind of 20 to 40-year investment framework just gets too close to a net-zero 2050 that the company needs to pivot towards a bigger transformation?

Rob, that's a question which is probably not easily answered in a couple of minutes, but I'll just give you some thoughts and perspectives. The first is that you made reference to a net zero by 2050 and I think the important word in all of that is "net" zero. So as this -- as our energy markets transitioned, and you've heard the commentary from both myself and Hannah today, referencing not just our own views, but also that of other experts, where gas is going to be a key enabler of the energy transformation going forward. So the first important point to note in this discussion. I think that as we look at -- and I think you made -- threw a question around pipeline embrittlement and so forth. I think that might have been a reference to the ability for high-pressure transmission pipelines to be able to transport future fuels like hydrogen. We're an active participant in those research studies through the future fuel CRC and actively is not only participating, but also funding that work. That's going to play out over a number of years. There's no doubt. But I think the bigger question is as we look at every new investment, whether that be in renewable -- in the renewable space or whether it be in the pipelines -- gas pipeline space. Any investment decision always looks at what assumptions we need to make about -- beyond a contract period. I'll point to renewables. You sign a long-term renewables contract to underpin a renewables investment. Views have to be taken as to what the future price of electricity is going to be. And so when we're looking at pipeline investment, we have to make decisions around how -- what the demand and the supply and the use of natural gas will be in beyond that contract period. So difficult to be able to answer specifically, Rob, but those decisions and thought processes are very much alive, is part of anything we do, no matter the investment class.

There are no further questions at this time. I will now hand over to Jen.

Thanks very much. To stay on schedule, we'll take a short 10-minute break right now and come back at 10:20. So that's in 10 minutes' time, and there will be a timer on your webcast screen that you can follow. [Break]

Good morning. I am Darren Rogers, the group executive for operations. This morning, I'll step you through 4 key areas: firstly, APA's ability to leverage scale and efficiency to deliver value; our ongoing customer focus; how the Integrated Operations Centre has been integral to the safe operation of our assets in the COVID-19 environment; and lastly, how APA thinks about operational excellence. The new operating model brings together Power, Midstream, Transmission and Network assets under 1 group, who will safely drive efficiency and effectiveness by leveraging our scale. The operations leadership team consists of: senior asset managers; market specialists; operations and maintenance line leaders; direct health and safety professionals; and our networks leadership team. This combined effort is all about delivering value for our customers. The strategic imperatives that Rob mentioned earlier, resonate well with operations in that we are executing these imperatives day-to-day, month-to-month in the front line, delivering customers and stakeholders. Operations consists of around 1,250 full-time APA employees and 1,500 contractors across Australia working together for a responsible energy future. APA's asset base continues to grow, with Korea Power Station, Darling Downs Solar Farm, Badgingarra Wind and Solar Farms, and the Moomba to Sydney capacity expansion all added in the past 18 months. As a business, we continue to evolve and think about how we best meet our customer needs and operate our assets. All of these new assets are meeting expectations and have been integrated into APA's operating model. Our customer base remains diverse with utility, energy, resources and, of course, industrial customers continuing to do business with APA. A key strategic pillar for APA is operational excellence. We've continued to ensure we have the right people with the specialized industry experience to operate our assets as efficiently and safely as possible for our customers. APA is very fortunate to have a senior operations management team, who have in excess of 200 years, operational and commercial experience across Transmission, Networks, Midstream and Power assets. Alongside this management team is a diverse group of asset managers, technicians, engineers, commercial operations and professional line leaders who look after our assets on a day-to-day basis and continually look over the horizon at what our customers require and how we can meet their needs. APA is a geographically spread business across Australia, and so is our workforce. During the COVID-19 border closures, APA has seamlessly continued to deliver essential services for these customers. APA has in excess of 700 field technicians, engineers and line leaders in the field, in city centers and the regions continuing to manage and operate our business over the past few months. And I'd personally like to thank these employees, in particular, for their professional and committed approach to delivering energy across Australia. Being a customer-centric organization, the central point of contact, which is our integrated operating center, have proven itself in the past few months, enacting our business continuity plans and providing a coordinated operational control, gas scheduling, market operations and commercial settlement for all of our operating regions and customers. APA's operating model further supports collaboration on customer service and outcomes. We now have a portfolio approach to energy assets with several of our power assets now integrated into the integrated operations center. All customer accounts and commercial operations are now included in the IOC model of operation. To give you a sense of scale, the IOC monitors 7.5 million kilometers of driving every year through our vehicle monitoring program, controls and monitors 70-plus compressors, which includes 156,000 control points. The IOC processes 6,500 shipper nomination points each day, reliably delivering energy to where our customers require it. Our phones never stop ringing, with 107,000 phone calls from the field customers and various hotlines every year. The investment in the IOC and technology has enabled the safe operation of all of our assets for our customers over the past few months. This investment in technology stretches to our engineers being able to remotely troubleshoot assets from various locations, compile big data across our assets and utilize international specialists to provide additional remote troubleshooting where required. The control measures implemented during the COVID-19 period have included separation of the grid controllers into 2 teams working from 2 different locations as well as implementing work from home arrangements for commercial operations and support functions. This is all being supported through the use of technology. Our control rooms participated in virtual fly-through assessments by leading industry medical professionals to ensure we had implemented the very best controls for the protection against COVID-19. Health and work controls have been implemented for our field and office employees and contractors. To date, this has been very successful. The safety of our people, plant and equipment is of paramount importance to all of us at APA. An area of outstanding performance in the last 2 years has been our continued improvement and sophistication of our process safety implementation. At APA, we take safety seriously, and we have built an improved safety program on best-in-class standards, a 2-year implementation plan that is focused on process, equipment and importantly, the cultural elements of process safety we've upskilled our technical and operating teams with employees who have specialist experience in process safety. This upskilling has allowed us to drive the process safety program that I know we are all very proud of at APA. We now have key measures in place that drive decision-making and performance from the field, all the way through to reporting key safety process metrics to our Board. We will remain vigilant in this area and continue to drive safety improvement as part of the way we work. A key technology plank in the way we operate our assets is utilizing leading integrity and reliability programs to continuously improve the way we operate and maintain our assets. Our integrity maintenance program includes intelligent pigging of our pipelines, direct inspection of our facilities and pipelines, and importantly, APA employees remain key contributors to many Australian standard technical committees which are well regarded worldwide. Our risk-based inspection program ensures we concentrate our resources where they matter, and importantly, where the asset requires it. Our efficiency drive is underpinned by a comprehensive reliability centered maintenance program, which will remain a key area of continuous improvement as we refine our maintenance efforts to continuously meet customer needs. This program is all aimed at getting the right tasks on the right equipment at the right time. In closing, APA's new operating model leverages scale and efficiency by integrating all of our assets into the way we work. We do remain customer-focused and have demonstrated the benefit of technology and continuing to supply central energy for our customers over the past few months, something we are very proud to have been involved in. And lastly, APA is fortunate to have a diverse and experienced skill set across Power, Midstream, Pipelines and our Network assets. We will continue to pursue excellence across the business. Thank you for your time today, and I'll be happy to take any questions in the Q&A session later today.

Hi, I'm Craig Stallan. I'm the Acting Group Executive of Commercial and Strategy for APA. I will be spending the next few minutes with Kevin Lester talking to you through the Orbost Gas processing plant. APA acquired the Orbost Gas plant from Cooper Energy in 2017. As part of this acquisition, APA entered into a development agreement, which documented the respective scopes of work and how Cooper Energy and APA would work together during the development phase. A gas processing agreement was also agreed for the multiyear gas processing phase. The original plant was constructed and commissioned in 2003 for the Patricia and Berlin gas fields, which are now depleted. The Longtom gas field was connected to the facility in 2008, and our mercury recovery unit was installed. The facility was eventually shut-in, in 2015, where the plant was put into care and maintenance mode. This slide shows the current plant in comparison to the original plant that was purchased in 2015, the top left-hand slide being the 2015 photo and the bottom right-hand's showing the current status of the plant. As can be seen, APA has made significant upgrades. APA stepped into the project during detailed design and has taken accountability from finishing the design all the way through to commissioning. The plant is currently in commissioning and has successfully delivered on spec gas from Sole, exported through the eastern Gippsland pipeline to market. During commissioning, a problem has been encountered with a [ foaming ] in absorbers, which has restricted the plant from achieving its design throughput. And the subsequent commencement of the plant performance test. A methodical root cause analysis is currently underway with our technology partners and Cooper Energy to isolate the cause and determine the most effective solution. The facility will be shut down next week to make a number of improvements. The results of these modifications will inform the team on what, if any, additional changes will be required to achieve the design throughput. Orbost is currently connected to a number of supply sources, including the original depleted gas fields, Patricia and Berlin, owned by Cooper Energy. The facility also remains connected to the Longtom gas fields owned by Seven Group. Our understanding is that Seven Group remaining 2P reserves in Longtom have a number of appraisal and near-field exploration opportunities. The Sole gas field is connected to Orbost through a 65-kilometer pipeline connecting new field to Orbost's facility. Cooper Energy also owns the Manta gas field that APA has a development and processing agreement with Cooper Energy. Finally, Emperor Energy, who are in the Judith gas field, located between the Longtom and Manta fields, is where APA have recently signed and announced a memorandum of understanding with Emperor Energy to develop the concept work for this field. I'll now hand over to Kevin, who will take you through further details on the project.

Thanks, Craig. My name is Kevin Lester, Group Executive of Infrastructure Development. The Orbost gas plant is designed to remove hydrogen sulfide from the sour raw gas stream, which can be up to 3,000 parts per million at 68 terajoules per day. The process uses fire pack proprietary technology to achieve this. Scope of the APA plant upgrade included a complete new front-end to manage and process the sour gas stream, which included: new inlet metering and quality monitoring; new gas separation equipment; mercury removal unit; sulfur removal and handling equipment; Dew point control unit; additional power from new gas generators; and relocated flare facilities. The work included subsea control interfaces with the Sole field and integration of the gas plant into the APA communications and control system. Major integrity works on the existing plant were carried out, including overhaul of the compressors and replacement of instruments and other equipment as required. As can be seen on the slide, gas comes in from the Sole field offshore into the front end of the plant. There were some initial steps to capture bulk water to remove any sour liquid hydrocarbons and to scrub the gas stream for mercury before the gas arrives at the absorber towers. The gas is flowed through the fire pack solution in the absorber towers, where the solution absorbs the hydrogen sulfide, cleaning it from the gas stream. The gas stream is then processed to remove any water before arriving at the compression shed. This is where the gas is pressurized to be above the Eastern Gas Pipeline pressure. The gas leaves the plant through the export pipeline up to the middle station for measurement before entering the Eastern Gas Pipeline, which is approximately 10 kilometers west of the plant, where it's then delivered to customers. The hydrogen sulfide that was absorbed in the fire pack solution is sent to the bioreactors, where the biological material consumes the hydrogen sulfide, converting it into elemental sulfur. The clean solution is then sent back to the absorbers, ready to absorb more hydrogen sulfide. A sidestream is also sent to the materials handling area where the sulfur is concentrated and extracted from the solution before being trucked off-site. The Orbost gas facility, when at full production, supplies approximately 10% of Victoria's gas demand. The facility is classified as a major hazardous facility and all approvals, including strict requirements around noise and emissions, water discharge and sulfur disposal are all managed by APA. During construction, a number of challenges have been experienced. APA took over a number of contracts already in place with Cooper Energy, including the fire pack technology contract, engineering contract and a number of large supply items. APA used a number of smaller local suppliers to deliver earthworks, piling, swivels and water supply to allow engineering to be sufficiently advanced toward a single, structural, mechanical, piping, electrical and instrumentation contract. There were delays with engineering, which flowed into procurement. And together with industrial relations, which was the responsibility of the principal contractor, all contributed to a delay in construction. The bushfires in the East Gippsland area caused some delays at the end of construction and during commissioning, where the facility was evacuated twice and the team needed to manage hazardous smoke conditions. The team also needed to manage the site during the imposed restrictions as a result of the current coronavirus crisis in recent months. APA and Cooper Energy continue to work well together, and the project has had a very positive impact on the local community. The project has delivered significant employment in the region. We support the local community, sponsoring local events and sporting teams. Although the construction of the facility has had its delays, it has been done with an excellent safety record, whilst delivering a high-quality facility that will be a significant asset within our portfolio for many years to come. We will take questions on the Orbost during the upcoming Q&A session. Thank you very much.

Welcome, everyone, and again, thanks for taking the time to listen to us all today. My name is Peter Fredricson. I'm the Chief Financial Officer at APA Group. I'm going to go over very quickly how capital management and the balance sheet are integral to what we do at APA. There have been very few changes to this over the past 11 years and much of what say will not be news to anyone who knows the company well. As Rob pointed out at the very beginning of the day, we are a low-risk business, and steps we take to reduce risk allow us to manage the balance sheet and capital of the business in a way that keeps our cost of capital as low as is reasonably possible. The bedrock to that is the long-term nature of the contracts that we have in place with a small group of highly creditworthy counterparties. This gives us confidence that we will see stability in operating cash flows over the longer term. This, in turn, gives us further confidence to issue longer-term debt and grow distributions to security holders from operating cash flows in a sustainable, albeit relatively conservative manner. The ability to fund organic growth in SIB CapEx, and increasing distributions from operating cash flow gives both the company and our stakeholders confidence over the longer-term, prospects for increasing investment returns. All the metrics on this slide are positive and have remained so for a number of years. We've always maintained an appropriate level of liquidity and primarily through undrawn but committed, syndicated and bilateral bank facilities. As I noted in the opening, full funding of growth in SIB CapEx and growing distributions has, for the last 5 years, enabled us to rely on the undrawn bank funding as only -- as our only real source of immediate flex. In the current environment, we, like others, have looked at what a COVID-19 and low oil price environment might deliver. Whilst it is almost impossible to determine definitively a likely outcome, it was clear to us early on that liquidity was important for the longer-term insurance purposes. The EUR 600 million long term, 10-year bond issue that we have undertaken and completed within the last 2 weeks provided us with a number of positive outcomes. First, confirmation that we continue to be well supported in the most liquid global debt capital markets and for volume at very competitive pricing. Second, our liquidity position that ensures that we can roll through the current market disruptions with a level of stability, that enables us to run the business without extraneous distractions of where we will be funding and pending, i.e., July 2020 or any other debt repayments. And third, confidence that we do not have any debt to refinance for at least 2 more years. And even if we wanted to address some of that debt funding earlier, we could with the liquidity that we are now carrying. The Moody's and Standard & Poor's ratings are very important to us. They're our line in the sand, and everything we do is measured against the implications for those 2 ratings. We continue to operate at the upper end of strong range for both ratings, further ensuring that we are insulated against the worst that the market can throw at us in uncertain times. The metrics continue to strengthen. And as we have said many times in the past, will offer us ongoing support in the context of any future acquisition. Whilst we fully expect that any significant acquisition will be supported by an appropriate amount of equity raised, the balance sheet today remains fully capable of funding organic growth and any lower level investment opportunities that might present themselves in the current environment. The debt portfolio continues to support the longer-term nature of both our assets and our contracts with customers. The recent euro issue allowed us to push the average tenure of the debt portfolio out to 6.5 years and reduced the annualized interest costs across the portfolio to around 5.2%. The more important aspect of the issue is that we will repay the AMTN that we issued in July 2010 at 7.75%, with funding that is costing us 3.86% and annual saving on that $300 million alone of $11.7 million. As you'll see from the debt maturity profile, our next maturity beyond July is not until 2022, when we have some USPPs and our initial euro issue from 2015, June. Our current strategy is to see how the economic environment immediately in front of us plays out with cash in the bank, and thereafter, when we are more confident of what's ahead more generally, we'll see how we manage the balance sheet and any excess liquidity at that point in time. This slide epitomizes the low-risk nature of APA's business, that around 90% of our revenues come from take-or-pay capacity charges or regulated assets, and that in excess of 93% of our revenues come from highly creditworthy counterparties with investment-grade credit ratings is paramount to our understanding the certainty around our revenues. The average outstanding length of our contracts with customers remain -- it remains in excess of 12 years at the 31st of December 2019, and assists us in providing the market with confidence around expected financial outcomes, subject only to the very rare events like the recently announced delay in the commercial operations of an Orbost -- an asset like the Orbost gas processing plant. All in all, the update we provided to the market in terms of guidance on April 21 is what we remain comfortable with today. The delay to commercial operations of the Orbost gas processing plant is the only material contributor to the guidance adjustment. The important point to note is that at the bottom end of the range, accommodates no revenue from Orbost plant in FY 2020. Even at this bottom end of the range, the result is still expected to deliver an outcome that is some 3.8% ahead of fiscal year 2019. It is in that context and in the context of that operating cash flow outcomes for FY 2020 reflect that growth. And indeed, fund a lower level of growth CapEx coming off the back of the recent $1.5 billion program that we feel comfortable with maintaining the estimated full year distribution at $0.50 per security. As always, and in line with our distribution policy, the distribution will be fully funded from operating cash flow, is inclusive of growth that is generally in line with the growth in operating cash flow, and takes into consideration both the needs of the business to fund that growth and the economic conditions that we are trading in today. With that, I'll end my presentation there, and I'm happy to take questions in the Q&A session. Thank you.

My name is Nevenka Codevelle, and I'm Group Executive of Governance and External Affairs at APA. APA's purpose, which goes to the heart of why we exist, is to strengthen communities through responsible energy. This means we have to create value for all our stakeholders. It also means that we need to take a long-term view and be here for future generations. We recognize that APA is part of an interconnected system within the energy industry, the broader economy and also the community. What we do impacts others and what others do impacts us. Understanding and managing these interconnected relationships is absolutely critical for APA to be able to deliver on its purpose and create a sustainable business for the longer term. Turning first to our customers. They are the reason we exist, and they are at the epicenter of what we do. Last year, we launched and rolled out our Customer Promise, that is: to listen to understand, to enable our people to respond and to do what we say we'll do. These commitments were developed not only with our own people but in consultation and collaboration with our customers. The Customer Promise is supported by the Red Dot Program, which comprises specific initiatives aimed at improving the customer experience and overall customer outcomes. APA was a founding member of the energy industry's Energy Charter. This was launched last year, and the charter brings together the energy industry, recognizing that the whole system, the whole energy system is required to be aligned in order to deliver better customer outcomes. As well as disclosing performance against specific customer principles, Energy Charter signatories are involved in a number of Better Together initiatives, aimed at delivering tangible customer outcomes through coordinated action across the supply chain. This includes streamlining connection processes, delivering tariff relief for vulnerable customers and also improved information disclosure. Constructive engagement with consumers has become increasingly important for all parts of the energy supply chain, including for APA. While we are primarily a B2B business, consumer sentiment of the energy industry as a whole affects policy and regulatory settings, including those that directly impact APA. APA has been actively engaging with consumer groups to better understand their issues and their perspectives. Last year, we set up on a voluntary basis, our first consumer reference group, to get consumer group views on the proposed access arrangements for the Amadeus Gas Pipeline. We are currently doing the same for the Roma to Brisbane Pipeline and will continue to that approach for regulatory reset processes for our other transmission pipelines. And we are also actively involved in the Energy Charter initiatives, working closely with an end-user consultative group to really understand where the consumer the voice is coming from. We have also expanded our focus on delivering value and supporting local communities. In addition to community investment as part of our infrastructure development projects such as Orbost, APA contributes through its continuing community investment program as well as specific programs, including bushfire and COVID-19 relief. Looking now at governments and regulators. Governments and regulators are critically important stakeholders for APA. And consumers, customers and the community are critically important stakeholders for government and regulators. This is reflected in the way policy is set and in regulatory determinations. In addition to our regulatory reset processes, which I just discussed, we now actively seek out broader stakeholder views as part of policy development processes as well. This includes the current government's review regulatory impact statements on information transparency and on pipeline regulation. As well as creating value for our stakeholders, delivering our purpose means taking a long-term view. We are guided in that by our risk management system, which looks over the horizon, well and truly beyond just the here and now. We also focus on culture and nonfinancial as well as financial risk. APA was an early adopter of culture and nonfinancial risk thinking and recommendations, including those of APRA in its review of the Commonwealth Bank and the fourth edition of the ASX's Corporate Governance Principles and Recommendations. In relation to climate risk. Last year, APA committed to the recommendations of The Task Force on Climate-related Financial Disclosure or TCFD. We conducted our first climate scenario analysis last year, concluding that APA is expected to be resilient to climate risk to 2030, giving our weighted average contract tenor of in excess of 12 years. Building on the work that was done last year, we will be conducting further climates scenario analysis with extended time frames and an extended scope. We recently published climate change position statement principles, and have developed and are implementing our carbon management plan. We understand that adopting a whole business integrated approach to climate and ESG risk is an important part of ensuring a sustainable business for the longer term. And that is absolutely integral to delivering on our purpose. Now that concludes my presentation. I'd like to thank you for listening, and I'm happy to take questions at the appropriate time.

Hello. My name is Elise Manns. And I am APA's Group Executive for People, Safety and Culture. I've also, most recently, been the leader of APA's Crisis Management Team during the COVID-19 pandemic. So my presentation today will talk you through, at a high level, what APA has been doing to continue to deliver for its customers during these unprecedented times as well as an overview of the key focus areas with respect to APA's people programs, their safety and their culture. Let's start with COVID-19. COVID-19 came at us off the back of managing a long summer of bush fires, floods and cyclones, impacting several of our assets and our people, but thankfully with no significant interruptions or losses. Preparations and actions throughout this crisis have always had 2 key principles in mind: keeping our people and our contractors safe and healthy; and keeping our assets and services delivering for our customers and for the communities that we work in. As an essential service, our business continuity plans were activated in late February on multiple levels. At this time, proactive stakeholder management commenced with customers, government, regulators and key suppliers. Operational plans were also established, especially for critical sites and processes, and capacity planning with respect to IT services and equipment were escalated. By the 16th of March, our Crisis Management Team was established with daily check-ins with management representatives from across the country. And just over a week later, over 1,000 normally office-based APA employees and contractors were working remotely from home. Whilst the situation is far from over, and there have been many challenging issues to deal with, to date, there are also many successful and positive stories and outcomes from COVID-19. We've had no material safety or operational incidents. Social distancing practices, new travel arrangements and revised operational protocols are in place to allow all our assets to continue to operate safely and minimize the risks to the more than 700 employees continuing to work on critical sites or in the field. Employees have embraced our new technology and ways of working to adapt to remote working and continue to be productive to deliver support to our customers and to our front-line employees. Cross-functional groups have been established to identify and assist our vulnerable customers, distressed suppliers and vulnerable employee groups. And our leaders have stepped up and learned new skills to continue to lead their teams remotely, and demonstrate the innovation, agility and collaboration required during these challenging circumstances. Right now, we are focused on continuing to perform, whilst preparing for an eventual and phased return to our workplaces. But we want to capture the best parts of this crisis and build them into how we will continue to work going forward. I would like now to cover some of the other areas focused on in our -- the [ PSE ] function. In health, safety and environment, last year in October, we signed off a new 3-year HSE strategic plan with 6 key foundational themes, which you can see on the next slide. Each of these areas are critical to APA to live up to our vision of caring for our people, communities, the environment and our assets. And each has targeted interventions to improve the performance, governance and capability with shared ownership of these areas across the business and HSE hedge functions. Right now, unfortunately, our TRIFR performance is not where we would want it to be, especially with respect to our contractors. However, our lost time injury performance remains on target. There have been no material safety or environmental regulatory breaches. And whilst this is pleasing, strong compliance is only a ticket to the game and not the overall objective. Recently, we have made some changes to the operating structure that has placed more of our health and safety resources directly with our operational frontline teams, and they are supported by a small capable corporate team to deliver the necessary standards, systems and initiatives for a safe and healthy workplace. I'd like to move on now to talk about people and culture at APA and some of the key areas of focus in that part of our business. As Rob talked about earlier today, the refreshed purpose and vision for APA has been fundamental and core to everything that we do, as are our values and they continue to be strong in what we do in relation to our culture. We are also looking through our new organizational model and the new ways of working to enhance aspects of our culture, specifically to become more customer-centric to have empowered people and decision making, greater collaboration and increased innovation in the way that we operate our business. Another key area of focus at the moment is the digital strategy that we have in relation to people. At the beginning of FY '21, APA will introduce for the first time an integrated human resource information system that will provide simplified and improved people processes across the business as well as giving our leaders access to people data to assist them in their decisions in the way that they manage their teams and their business. Also, we are reshaping the recognition and reward programs throughout our organization to increase the level of recognition and to ensure that we are supporting the performance and culture that we desire at APA. And finally, the leadership and results that have been demonstrated recently throughout the crisises (sic) [ crises ] that APA have managed, along with lots of other businesses in recent months, has really demonstrated the effectiveness of the development programs put in place at APA over recent years and ones that we continue to roll out and develop for our people, developing, attracting, retaining our talent is key to what we want at APA in relation to our people and our culture. The final slide here in my presentation is an overview of the HSE strategic plan for FY '20 through to FY '22. As you can see from this slide, these are the 6 key foundational areas that we're looking to focus on over the 3-year period to improve and grow our capability with respect to health, safety, environment and heritage at APA. Thank you for listening to my section of the presentation. I'm more than happy to answer any questions in the Q&A section that's coming up shortly. Thank you.

Good morning. I'm Yoko Kosugi, GM, Investor Relations and Analytics. Before I hand over to the operator for the on-the-phone questions from analysts, I just wanted to remind everybody that there is a function for you to be able to ask questions through the webcast. There should be a button at the bottom of your screen. At the moment, we have one webcast question, which we will address at the end unless it is asked during the telephone question. With that, I'll hand over to Rachel to take us through the questions on the line.

Your first question comes from James Byrne from Citigroup.

I wanted to understand the maximum liability to APA if the issue at the Orbost gas plant cannot be resolved and get to spec gas rate of 68 terajoules a day. So I presume you've been paying delayed liquidated damages to date, and I understand that they've got a cap on them. But what about the exposure to performance liquidated damages during more normal operating conditions?

Thanks. Thanks for your question. Look, the first thing that I'd say is that the contract and the terms of the contract between APA and Cooper Energy are, obviously, commercial in confidence. And the second thing I can say is that all cost and revenues associated with the Orbost project are reflected in our revised guidance, which we put to the market on the 21st of April. We are confident, and I think Kevin and Craig talked to the -- where things are at with the plant. We are confident the plant will achieve full production as we work through the various steps of the root cause analysis. Bear in mind that the plant is based on a proprietary technology that removes the hydrogen sulfide and it's actually -- all the plants and equipment is in place. We're working through the process of balancing their chemistry, working constructively with Cooper Energy and also with our proprietary technology partner. So like I said, the arrangements between ourselves and Cooper Energy are commercial in confidence, but we're confident that we will achieve the full production, bearing in mind that, of course, we are producing assets. [indiscernible] has been exported into the Eastern Gas Pipeline as we speak.

Okay. Appreciate you're confident in being able to resolve it. But from a risk perspective, what's the -- is there a potential exposure to future earnings beyond FY '20? And if I thought about -- and I ask about performance liquidated damages, that's typically a big check in the mail that's calculated as the NPV of foregone revenue to Cooper Energy, but if you can't get the plant to spec for example, and I don't presume that, that would be reflected in FY '20 guidance.

So no, the -- I think your question is saying, are we not going to get the plant up and running to spec? Well, let's -- that the -- in the full extent of the guidance that we provided, we've reflected a range, which reflects other -- some revenues from the Cooper -- from the Orbost Gas Processing Plant, all the way through to no revenues associated with that, including the impact of liquidated damages. So that's all -- it's all reflected in our financial year '20 guidance.

Okay. I'll leave that one there and maybe take it offline. But in the prior Q&A, Tom had asked you about your deferral of CapEx from the outlook from low oil prices. So let's suppose that CapEx is indeed back-weighted relative to your 2- to 3-year outlook. And perhaps you don't buy anything in the U.S. A question for Peter is, do you just book that balance sheet headroom and leave it until a point where you can pay the CapEx? Or if you -- or would you consider perhaps a higher distribution in the short term?

James, we've never really looked at -- as an organization, you'll be aware of this. And you'll have seen it from all of our presentations over the years, our distributions have been categorized as sustainable over the longer term. We have never reabsorbed our distributions based on extra cash being available and then sort of dropped our distributions back at a point in time when we've had more capital to fund. So the answer is that our current -- our distribution policy wouldn't see that happening. Our distribution policy would continue to see us paying distributions that we believe are sustainable at that level over the longer term, and that number today is $0.50 per security. If we continue to see growth in operating cash flow then shareholders are likely to see growth in distributions, if indeed, the long-term sustainability of that increase is achievable. And so that's where we come from. The liability management -- sorry, the liquidity management into the longer term is very much dependent on what the market is doing and how the market is looking. And we've said in the past that we're seeing about $1 billion of operating cash flow come in the door today, we're spending about $600 million of that on payments to security holders by way of that distribution and $400 million to $500 million on growth in stay-in business CapEx. We don't see those numbers being materially different into the longer term. If you see $150 million, $160 million stand versus CapEx, you're probably seeing $240 million to $340 million of growth CapEx. Yes, that's sort of $400 million to $500 million. We don't see this as being a material issue. What we see is -- what we've obviously done in the last little while is put a significant amount of liquidity into the business be -- by way of the EUR 600 million issue that we did 2 weeks ago. Primarily because a number of security holders have asked us over the past sort of 6 weeks as we've moved into COVID-19 in the low oil environment, whether or not we had liquidity and whether or not the banks would withdraw the committed undrawn facilities that we have. We don't believe they will. But nevertheless, we felt that it was an important step to take to ensure that liquidity was put front and center, and people saw that, that funding was there. That funding will be used to manage the balance sheet rather than to increase distributions that may subsequently be reduced.

Great. That's very clear. That's all for me. But I should say congratulations on raising that bond. Actually, that was very good to see in this current environment.

Well, James, I might take the opportunity to answer the one question that's on the webcast at this point in time because now that you've raised it. The question is, what's the likelihood that APA will be tapping the [indiscernible] market for additional capital via a raising? And I think what that question relates to is an equity raising, and it's one of the things that we thought about through the process, and we said, do we need equity here or can we access very cost-effective debt? And at the time and today and based on everything we see in front of us, we're very comfortable with our rating metrics. And you'll see from the presentation here today and the presentations at the half year results and the presentation that we put up in respect of that fundraising or that bond issue, you'll see they remain very strong, BBB and BAA2 rating metrics, and we're very comfortable with that. That's what drives our need for equity, and we continue to see that strength going forward. So what we felt was the liquidity could come from the debt capital markets. And as I said in the presentation, the support that we got, we saw EUR 4.5 billion bid into our book of -- when we're looking to raise EUR 600 million. It gave us a lot of confidence and the pricing again, was very good. So thank you for that. But from our perspective, we don't see the need for raising equity as at this point in time. But we have said again that we would we would support a reasonable-sized acquisition with equity as we've always said.

Your next question comes from Tom Allen from UBS Investment Bank.

And thanks, Craig and Kevin, for the additional detail in Orbost. But I also -- just following up James with a few follow-up questions on Orbost. I hope you don't mind me stepping into a bit further detail. Firstly, where the fire pack process is currently applied across the world, does it currently knock out hydrogen sulfide at that 3,000 parts per million as designed for Sole? Or is it current use at lower levels?

Thanks, Tom. I might just have Craig and/or Kevin answer that question.

I'll jump in. So 2 points there, it's Craig here. One, the gas we actually received from Sole is not at 3,000 parts per million. We actually are receiving gas somewhere between 1,000 and 1,200 parts per million. So the plant is designed for that full 3,000 feedstock. There certainly are facilities around the world that operate with much higher levels than the 1,000 to 1,200 parts per million. And I suppose the comment I would also make is that one of the reasons we're confident that we can achieve the full objectives is that we actually do -- the process actually does work. We're just a little bit rate restricted at the moment.

So on the rate, and you refer to finding new absorbers. I understand that finding a new absorber is an issue that has come up where fire pack has been used during the commissioning phase in the U.S. Do you know how those issues were overcome? And what additional time and cost was required to get those plants online and overcome the finding?

I don't think I can comment on processes done on other facilities. We certainly have spoken to a number of people that own this technology to assist in the root cause analysis for our particular challenges. Kevin, did you want to add anything more to that?

I think we've got a process we're working through. And we're confident we'll get there at the end of the day.

Okay. Sure. Last one then. You mentioned that APA will go over the fire pack contract from Cooper. Are there any warranties in place that you believe give you complete protection or full recourse to the license owners if Orbost can't knock out hedge duress at the levels required themselves?

I think, as I said, any agreement we have with Cooper is commercial in confidence. Sorry, Rob?

Yes, I was just going to say the same thing, Kevin. That's going to a level of detail around the commercial constructs and arrangements we have with not only Cooper but also the -- our technology partner.

Your next question comes from Rob Koh from MS.

Can I ask a question perhaps of Mr. Rogers about the kind of ongoing efficiency and effectiveness of the maintenance programs. Just wondering if you're monitoring any kind of new things that might give you a step change in effectiveness and/or efficiency and things like drone inspection or use of AI with all the data coming in.

Yes, Darren here. Thanks for the question. We cast our net pretty broadly. So we have, in the last 12 months, actually looked at where drone technology might fit into our right-of-way and depiction programs, just as one example. AI technology does fit in our technology review, particularly in the integrated operations center. So we do actually use a couple of bots now within the IOC. And we'll continually keep appraised of that technology and see what we can draw into the business to improve our efficiency.

Okay. Great. And if I can ask one more question, please, of Ms. Manns on the people and culture side. And I do also want to say that I appreciate the STARS feature of the culture. That's also a -- the STARS is a very important part of the culture. Just wondering if we could get a comment on how you're thinking about diversity within the organization, please?

Yes, thank you. Yes, diversity inclusion is a strong program within APA. We're just in the process of renewing that strategy at the moment as well. And we have a range of gender targets, which we're also reviewing to look to increase over what we've currently got. We have a number of working groups that work across a couple of the areas of particular interest, such as improving our flexibility, which has been given a huge nudge recently with all the world working remotely, but also inclusiveness and also around our age demographics. And finally, we have a working group around employer of choice. So yes, it is a key focus in part of -- as part of our program that, again, has sponsorship right across the organization.

Okay. Fantastic. And then just, I guess, a more general question. If there's any -- because there's obviously been a lot of work practice adaptations. Just if there are any kind of learnings for efficiency going forward once we recover from the current situation.

Certainly, I think probably, there's 2 key areas that we have seen significant changes that we want to take advantage of is definitely the remote working. While there's clearly people who were looking forward to being able to return to the office, we are at the moment, looking at ways that we can take advantage of what we have learned and the ability to work more remotely that gives people more flexibility, increase productivity and also may, in time, have a look at the way that we establish our offices. The other piece is the way that we deliver some of our training. We have a quite a large amount of technical training that we need to deliver ongoing to our field employees, in particular, to ensure that they stay current with their accreditations and competencies. And we've been able to fast-track some of the work we were thinking of doing around delivering that in a way remotely and found it to be quite effective. I don't think it will replace all of our training, but it's certainly going to give us a way of delivering training in a more cost-effective and timely way. So they're probably 2 of the key ones at the moment.

Your next question comes from James Nevin from RBC.

Yes, I just have a question in relation to the uses of capital. And just around -- I just want to understand better just the risks around the growth CapEx guidance, so around that $1 billion over the next 2 to 3 years and like if that's probability weighted. So maybe do you have like visibility over something like $1.5 billion over the next 2 to 3 years? But maybe you think only $1 billion of that would reach FID? Or does it mean that your actual total projects you're looking at is about $1 billion? And if there's further kind of deferrals in those and CapEx could actually come in below that?

James, I think the -- that guidance, if you want to call it that, is very similar to what we did in 2016 when we talked about $1.5 billion over the next 3 years. We just weren't sure of the timing. And when the timing is at the behest of customers reaching FID for their projects, we can't be certain about their timing. And so we can't be certain about our timing. So our view is that the $1 billion over the next 2 to 3 years are projects that we are in deep discussions and advanced work with customers on. And there are things like -- to give you a couple of examples, the Crib Point Pakenhnam Pipeline, which is AGL, the AGL Crib Point LNG terminal, for instance, Western Slopes Pipeline, which is the transaction we're working with Santos on a pipeline to bring the Narrabri gas into the East Coast market. So it's those sorts of projects that we are talking about, but we're just not certain and can't be certain today about what the FID progress might be of those. Now our expectation is that 2 to 3 years is a good number. But yes, there's a possibility that, that $3 billion -- that $1 billion could be at the end of year 3. There's also the possibility, as occurred in 2016, that we had $1.2 billion pretty much signed up within about 6 months of -- or 6 to 8 months of that whole guidance. So it's as much as that, to be fair.

And the only other thing I would add to that is, on that chart that we referred to, where we said we had visibility or line of sight of in excess of $4 billion worth of projects over the next 5 to 10 years, and that certainly comes from a much bigger list. We're probability weighted that. And in regards to your question, is the $1 billion that we're talking about in the next 2 to 3 years? Is it an exact list that adds up to exactly $1 billion? No, it's not. There's some projects that -- the full list is in excess of that, but we take your views to likelihood.

Your next question comes from Ian Myles from Macquarie.

Just one on Orbost. You talked about a lot of the additional opportunities at Orbost. Given the challenges you're having with the SOL gas, does that constrain? Or how does that influence the ability to grow the business?

Look, I think -- it's Rob here. And Ian, thanks for your question. Our first priority, obviously, and clearly is to get the Orbost plant operating at its full nameplate capacity. And I think we've seen before that we've had it successfully running at around 40 terajoules a day out of its nameplate of 68. So that's first priority. And we're certainly not going to be putting any focus or attention on the next growth opportunity beyond that until we have that sorted and our focus is to make that happen as soon as practicable. But clearly, over and beyond that, once we have that bedded down, our focus will then shift to what those other future opportunities might be and how they might be able to -- how we might be able to take advantage of the footprint that we will have developed and proven in the Orbost Gas Processing Plant.

Maybe just extend that a little further. On that East Coast pipeline grid, you talked about deploying an amount of gas volumes coming out of the Victorian markets. How much remuneration cost the industry, and I guess, principally APA, to actually make the pipes big enough from Queensland down to New South Wales and Victoria to actually replace that lost volume?

That's a question, which is not that straightforward to answer. But what I would say is a short answer to that, Ian, is as -- and you probably heard us say this many times before, there's no end to the ability to be able to expand our infrastructure. Right now, that infrastructure is running at near full capacity in terms of bringing gas from Queensland down into southern markets. There is some limited amount of available capacity, but as we speak -- but we're in constant dialogue with all those parties up in the north that have available gas. And we've always got plans ready to go should we need to be able to execute on them. So simple answer is no end -- no limit on our ability to be able to bring that gas to southern markets and we've got a fairly attractive tariff out there in the market, which a number of parties have been taking advantage of and that which is now on our website.

Yes. Okay. On the West Coast, I was interested -- [indiscernible] our conference yesterday was talking a lot about how their technology is changing and they're putting in more renewables, batteries, reducing the amount of gas, they're still using gas. I was curious to understand how has that influenced the demand on your pipe? And how many of the participants along your pipe can actually have renewable solutions added to their processes and change the demand profile? And I guess the extension is can you participate in it?

Yes. Ian, -- and that's a good observation. Look, first thing I'd say is that our Eastern Goldfields and Goldfields Gas Pipeline grid as we're starting to call it, is at full capacity. And we have a long list of customers that we're talking to who are looking to want to participate and support an expansion of their systems, which we're currently looking at. What we tend to find is customers will look to have a reliable gas supply source for 24/7 as their primary source of energy. But we'll look to -- more and more, we're starting to see them want to complement that to some form of renewable energy. And we've got skills and capability in that space. We've got people on the ground to support that, and we're actively engaged in those conversations as well. So we see them as quite complementary. We're -- but first and foremost, if you've got a 24/7 mine site, you need 24/7 energy supply.

Okay. That's great. And look, one other question, just associated with the U.S., which I forgot to ask. The LDC and even the pipeline, how exposed are they to recessions and bad debt? Because obviously, the Australian networks don't suffer that and you've got high-quality credit around the system.

Ross, do you want to take that question?

Yes, that's certainly a focus at the moment. They will have to be impacted in the short term. Now with, what today, 33 million people now unemployed, it's got to impact them, and we'll look with great interest at the quarterly update next time around.

Your next question comes from Peter Wilson from Crédit Suisse.

If I could please put a question to Nevenka. Just on the regulatory impact statement. Very broad in scope. I'm just wondering if you had any thoughts at this stage about potential outcomes from that review or maybe just some focused areas?

Great. Thanks, Peter. Yes. So there are 2 regulatory impact statements, one on information transparency and the decision, which has already come out and it's really just waiting for COAG to give effect to that. The other one on pipeline regulation has been a really interesting process. It's been a very comprehensive look at pipeline regulation. And I think all in all, there were about 30 submissions received. Probably a very detailed range. What was really interesting, I think, in the submissions was -- but there were some key themes of consensus that came out across the board. And I think one of them was that there was generally widespread support for the negotiate arbitrate model -- for the Part 23 model that the nonregulated pipelines are currently operating under. And the other thing was that there was not a great appetite for increased heavy legislations across pipelines. So -- and the third aspect, I think, is there was general consensus that the light regulation regime is one that's now being proceeded and can be dropped. So I think in terms of outcomes, we'll see how it goes. And our expectation is, I think the July time line that the government has took, the realization that price may be a little ambitious, given COVID and disruptions. But I suppose in terms of looking into the future, where we would expect things to land, I'd probably look to the areas of consensus of those stakeholders as giving a pointer to where I think the process may guide.

Okay. And your comment there on the consensus around the regular arbitrate model. The consensus is that, that model is working. Is it?

Yes. I think there will obviously be a few differences among the 30 submissions. But generally speaking, there was support for maintaining that negotiate commercial arbitrate model because it provided flexibility. And as a general theme, as I said, there'll be some variance around the edges. But as a whole, there was support for the Part 23.

Your next question comes from Nathan Lead from Morgans Financial.

Thanks for your presentations today, guys. Really good stuff. Just a couple of questions, if I could. Just first up, just in the context of Slide 63, where you talk about your revenue quality, 90% of revenues from take-or-pay or regulated. Now over 90% of your revenues from investment-grade counterparties. I'm just interested there to how to marry up your initial comments, Rob, right at the start of the presentation where you said take-or-pay and regulated revenues offering some near-term protection. Am I looking too far into that? It sounds like you're more cautious than your -- you really need to be? Or is there something we need to know about on that front?

Nathan, I think maybe you're looking at my words too closely. I think what I'm trying to say there and communicate is that in the long, long term, if there's a long-term economic downturn, and I don't think we can all -- anybody can today predict exactly how and when we're going to recover and what that shape of that recovery is going to be. I made some comments about it being, in our view, our base case being a long U-shape. But to the extent that there is a very long economic downturn, I don't think any business that I can think of on this planet is going to be protected as customers have contracts to come up for renewal, they'll be thinking about how and when those that needs to be part of their portfolio going forward. So those comments were, in particular in relation to the near term to the medium term. Clearly, in the long term, it's an uncertain world we're all living.

Okay. I suppose on that front, can you make any comment or provide any data about the level of contracted capacity utilization?

All right. What I can say is, for the most part, all of our infrastructure is 100% contracted or close to and fully utilized. We have a commercial team, whose job it is every day to be making sure they're engaging with customers about recontracting. And without going to lots of detail, there is information on our website that does show the capacity outlook for all of our assets, which if you got some time and the inclination, you can have a look at.

And it's very difficult to give that sort of detail on any given day. If you think about the Wallumbilla Gladstone Pipeline, which goes -- which is going to Gladstone for a couple of customers. And we've got 100% take-or-pay on 1,500 terajoules a day, and I don't know the exact numbers today, but you could probably imagine that, that is not moving 1,500 terajoules of gas today. And it might have yesterday but it probably didn't the day before, just because of what we know about where prices are on stuff, but we're getting paid. So sometimes, it's not a question that's that relevant to us in that context.

The other thing I would just add to that, Nathan, is in terms of our business, and we've been looking at looking at volumes over, let's say, the last 6 or 8 weeks as compared with the same period last year, and there's always differences with lots of different reasons. But generically, well, generally speaking, our Western Australian volumes look to be holding up clearly strongly as compared as what we've seen in the past. And if you think about our exposure there, it's predominantly to the resources, mining sectors. And they need that energy to keep running. If I take our Victorian business as a proxy for our retail and commercial sectors, we're seeing strong utilization in volumes. And again, nothing to point to that things have shifted and changed. And then more generally across the East Coast Grid, there's always movements up and down for varying different reasons, gas going north or gas going south and so forth. But again, nothing to point to that's leading us to reach conclusion that there's been a significant impact on the way our customers are using volumes. And again, we've got to look at who are our customers. We've -- as I said in my presentation, we provide a pivotal part of the essential service supply chain. So whether we've got large high creditworthy customers providing essential services in the form of AGL, Origin, from customers like that to end consumers, whether we've got manufacturing sectors or miners, using energy is a key part of their processing. And then also, as we see in the LNG sector, where despite the fact oil prices are where they're at, I think there's enough market evidence out there that suggests that given where -- what they've managed to do with their cost structures that they're still managing to -- if only just produce LNG above the short-run marginal costs. So all of those factors give us some confidence, notwithstanding the fact that the economy is impacted, and there's no doubt. I think the treasurer the other day pointed to the significance of the downturn as compared to the GFC. And I think we've got to look at it in that light.

Yes. And just a final one for Peter is on capital management. If we're looking at the Wallumbilla Gladstone Pipeline, it's about 1/3 of your earnings. And that initial contract term ceases in, what, 15 years, how do we think about how you're running capital management in the context of that decline in earnings that could come through? Within that self-funding model, are you sort of thinking about debt repayments to take it -- to sort of meet or to assist their credit metrics beyond that 2035 period?

Well, first and foremost, Nathan, it's a long way away, and there's a lot of water to go under the bridge before we get there. And I think we've had this discussion generally in the past, our models continue to show. So if we've got growth in the business, we can continue to fund that growth with the debt profile and the debt portfolio that we have. To the extent that we don't have growth, we do generate a significant amount of cash between now and then that enables us to repay debt in an appropriate way. So we've not set ourselves today to the exact strategy in 2035. We're mindful of it. And we're mindful of what we think may happen in our business between now and then. And it goes one way or the other. It goes a lot of growth, which generates a lot more revenue and a lot more income that replaces it over the longer term or it generates less growth and the cash flow enables us to repay debt. So there's 2 different scenarios that we continue to monitor.

Fair enough. Peter, just another thing. The bond issue, does that mean you got enough liquidity there, you sort of pull back on your undrawn bank facilities? Or you leave those in place?

No, no. We'll leave them in place. They're cost-effective for us in being in place. I think the syndicated debt facility, we've got 2 tranches of that of $500 million in June 2023 and at $500 million December 2023. They're very well priced. We don't need to remove them at this point. We don't need to do anything with them at this point. But at the end of the day, what we'll do as we see a bit more -- well, we'll get more visibility out the back of what we're dealing with globally in the COVID-19 scenario, we'll start to think about whether or not we need to maintain as much cash as we've currently got, and that becomes the next exercise, if you like.

There are no further questions at this time. I'll now hand back to Yoko.

Thank you. And there are no further questions that have come through from the web. So I will hand over to Rob for closing comments.

Thanks, Yoko. And well, first of all, a very big thank you to all of you for joining us today on our Investor Day webcast and Q&A. And given the current environment, I hope that you found this useful, albeit a different way to share information with you on APA and how things are tracking. I wanted to say a big thank you to the -- my executive team for all their hard work and preparation, presentations and also to our Investor Relations team, who've been pushing us hard to make sure that we are ready for today. So that's very much appreciated. If you have any further questions that we haven't been able to answer today -- or ask today or get answered, please make sure that you contact our Investor Relations team. Thank you once again. Keep well.