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Executives

Mick McCormack – CEO and Managing Director

Peter Fredericson – CFO

Rob Wheals – Chief Executive, Transmission

Analysts

Simon Chan – Merrill Lynch

Hugh Morgan – Deutsche Bank

Paul Johnston – RBC Capital Markets

Sandra McCullagh – Credit Suisse

Ian Myles – Macquarie

Chris Laybutt – JPMorgan

Will Allott – CBA

Paul Mason – RBC Capital Markets

APA Group Stapled Security (OTCPK:APAJF) F2Q2014 Earnings Conference Call February 18, 2013 7:00 PM ET

Operator

Good morning and welcome to APA's 2014 Interim Financial Results Presentation. I'm Mick McCormack, APA's Managing Director and CEO. APA Chief Financial Officer Peter Fredericson is sitting next to me here in our Sydney office, and we'll be presenting our financial results in detail.

I also have some of my executive team here to assist in answering any questions, in particular Ross Gersbach, our Chief Executive, Strategy and Development; Rob Wheals, Chief Executive, Transmission; and John Ferguson, Chief Executive, Networks.

As usual, this morning I'll firstly go through some of the strategic and operational highlights of the half-year. Peter will then cover the financial results in more detail. And I'll close with the outlook for the business, including some significant recent developments, before concluding an update on our guidance for the full year. And we'll go on then to questions.

Now before we look into the numbers, a quick refresher on APA strategy and how we're placed to keep on growing and adapting to a changing gas market. You would all be familiar with the philosophy that underpins our approach to investment. We're focused on growth, whether organic or by acquisition, that utilizes our core skills in gas transmission and gas distribution and that delivers appropriate commercial return.

We're also prepared to invest in adjacent or bolt-on opportunities that are complementary to and driver greater performance and returns from our transmission infrastructure. We've always been disciplined in our approach to growing APA and that's evident in the reach of our network, the successful performance of our recent investments and how we're positioned for the future.

Our recent pipeline acquisitions are exceeding our expectations, and I'll be talking about this later this morning, particularly the [indiscernible] of the east coast gas grid in opening up new opportunities. The grid provides a step change in the way our portfolio fits together.

Grid standalone, we're also very happy with the contribution that's been made by the South West Queensland Pipeline and the Pilbara Pipeline System. We have also now commenced from the expanded Mondarra Gas Storage Facility and from the capacity upgrade to the Goldfields Gas Pipeline where we have been managing construction of this project. The Wallumbilla and Moomba compression projects provide further flexibility in how we respond to changing drivers in demand, creating new revenue opportunities.

We're well-positioned for future growth. Our balance sheet is strong. And we have demonstrated access to funding. I've been saying this for years that we've got in-house management, operating and engineering capabilities that is second to none in this country. And most importantly is no shortages organic opportunities that leverage our infrastructure footprint.

Turning to the numbers, and I'm pleased to be presenting another solid results for APA. When comparing this year with last, you may recall that the 2013 half-year result included significant items related to the HDF acquisition and the sale of Allgas. While there are no significant items on the income statement this time around, we have again set out the numbers on a statutory and normalized basis so that we're able to compare apple to apple.

The normalized numbers are the more relevant measure of their operating performance, and I'll take you through the headline numbers now before Peter gives a more detailed walk-through of the financials later on.

First, our EBITDA increased by some 24% to $399 million. This was largely driven by the full six months contribution of the South West Queensland Pipeline and Pilbara Pipeline System, assets we picked up through the acquisition of HDF; other contributions coming from additional earnings from the expanded Mondarra Gas Storage Facility which was commissioned in July 2013; and an improvement in the performance of our investments. Increased customer contributions in our asset management business also played a part.

However, these increased earnings were partially offset by a lower earnings contribution from the Victorian Gas Transmission System and the absence of the Moomba Adelaide Pipeline System from our portfolio after the successful sale of that asset in May 2013.

The business also continues to generate strong, stable cash flows, with normalized operating cash flow 2% higher, $217 million. The statutory results was a little lower at $208 million due to one-off payments following legal proceedings in relation to fees paid by HDF to Hastings Funds Management, and we're appealing that decision.

Operating cash flow per security was down 13% to about $0.26 on a normalized basis due to improved APA securities on issue following the completion of the HDF acquisition in December 2012. We also confirm the guidance we gave in December relating to the interim distribution. It's up 0.5 cent to 17.5 cents. We're proud of that track record in funding distributions out of operating cash flows as we are for the consistent increasing the distributions we make to our investors.

As I mentioned a moment ago, there's no shortage of attractive organic growth opportunities that leverage our existing infrastructure footprint. Organic investments create the most value for our investors and underpin our target of continuing to grow EBITDA and operating cash flow. We're always thinking one step ahead in terms of how a project will complement our existing portfolio.

During the half-year we spent $154 million expanding our gas infrastructure. That includes gas pipelines in Victoria and Western Australia, in addition, compression facilities at Moomba and Wallumbilla. For financial year 2014 we have close to $400 million in committed gross capital expenditure, and we continue to expect to spend between $300 million and $400 million each year over the medium term. We are expanding capacity on both the northern and southern sections of the Victorian Transmission System, and on the southern lateral of the Moomba Sydney Pipeline.

I imagine there might be a few questions on Diamantina after recent developments around the well-documented collapse of the Forge business. This project is nearing completion, and I will turn back to this a little later in the presentation.

Now let's take a look at APA's east coast grid, one of my favorite topics. As you may know, the grid now includes more than 7,000 kilometers of pipeline across five states and territories. The great has great strategic value as we've effectively combined well infrastructure in Eastern Australia to operate as one system. It allows us to provide improved service capabilities and flexibilities to our customers across all the major gas basins and demand setters [ph] in the region. It's great to see the financial benefits of the grid reflected in these results, but I want to stress that we've only scratched the surface in terms of what it will ultimately deliver.

The grid ensures we are best equipped to deal with issues and opportunities for our industry. It means the best place to bring on and deliver new sources of gas. And we have the leaders needed to respond to changes in demand domestically and in the exports market. Our business can withstand and most likely benefit from changes in industry dynamics

We're still at the early stages of exploring ways to extract value from the grid. During the half-year we signed new commercial agreements with EnergyAustralia, Origin and Lumo Energy [ph]. We felt these customers address uncertainty around the supply of gas into New South Wales by enabling them to source additional supply from Victoria. The agreements required us to increase capacity on our Victorian Transmission System by around 145% with the CapEx underwritten by the customers' contracts.

In addition to provide a better solution to our customers, the incremental capacity increases in the Victorian Transmission System strengthened the east coast grid for the long term. Further north, we have work underway to bring on additional compressors at the Wallumbilla hub and at Moomba on the South West Queensland Pipeline. We're aiming to complete this project in this calendar year which will ensure our work we're well-placed to deliver gas to Gladston [ph] as export LNG projects reach the commissioning stage.

In addition to the underlying contracts acquired as part of the HDF transaction, we signed a number of short-term agreements on the South West Queensland Pipeline, due to rise in capacity we've been able to make available as a result of operating pipeline as part of the grid. We've also signed an agreement to move gas from Wallumbilla to Bloomingdale [ph] which underwrites a small project to install bidirectional capability on that pipeline.

We and our customers are reaping the benefits of the grid and I believe there is much more to come. And as I will discuss shortly after Peter has talked through the details of the financial results, there are further benefits by APA and indeed the Australian economy in extending the grid to connect Northern Territory into the east coast gas market.

With that, I'll now pass over to Peter.

Peter Fredericson

Thanks, Mick, and good morning everyone. As Mick has pointed out as he opened his comments this morning, in the previous corresponding period of 31 December 2012, there were a number of significant items totaling some $100 million above the EBITDA line that arose due to the accounting for the HDF transaction and due to us recovering some $18 million in costs that had been booked in respect of the Allgas transaction.

These items were reported as part of our statutory accounts and therefore remain in our comparatives from a statutory perspective. However, we believe that our normalized earnings, which excludes these one-off significant items more readily reflect the ongoing operations of the business, and so we will talk about those in a comparative today.

In that regard, it's pleasing to see EBITDA some $77 million or 24% ahead of the previous corresponding period. Our initial guidance for the full year was signaling between 11% and 13% increase in EBITDA. And the current is not significantly different from this. However, this higher comparative increase for the first half is driven by a number of circumstances.

First, we have a full six months of contributions in this half in the acquisition of both the South West Queensland Pipeline and the Pilbara Pipeline System, compared with only three months contribution from those assets in the previous corresponding period. And second, we have had a significant customer contribution project booked in the first half of this financial year which has contributed to that increased comparative.

All in all, we do need to remember that we have a natural seasonality attaching to our business. Generally we expect to see a split of something in the order of 52% to 48% between first and second halves. This year though, it looks like that will be something more in the order of 54% to 46% due to the customer projects that I will speak more of later.

The increases in depreciation, interest and tax expense for the first half all come from increased sizes of business post the acquisition of HDF, with each of these numbers falling under the category of as expected or on-trend fully expanded business.

The energy infrastructure business continues to drive APA's financial performance as we would expect it to, with representing some 80% plus of our EBITDA. As we signaled in August 2013, Queensland has benefited by the addition of the South West Queensland Pipeline and WA has benefited from the addition of both the Pilbara Pipeline System and the commissioning of the Mondarra Gas Storage Facility in July 2013.

Revenues in Victoria are down, again as expected, due to a new access arrangement that come into force on July 1, 2013. But increased exports of gas through Culkin [ph] and our ongoing engagement with customers to deliver other services out of Victoria and to New South Wales has lessened the impact of the excess arrangement somewhat and maintained some year-on-year growth in New South Wales.

In 2013 financial year we received only three months of contribution from the South West Queensland Pipeline with the HDF transaction going unconditional on 9th of October 2012. In fiscal year 2014 we have a full six-month contribution from the South West Queensland Pipeline, plus ongoing growth in each of the other assets that we operate in Queensland.

We continue to benefit from higher and balanced revenues and lower controlled costs across each of the [indiscernible] Roma to Brisbane and South West Queensland Gas Pipeline. We continue to expect through that year-on-year growth out of Queensland going forward based on projects that are currently underway and the continued ramp-up of revenues from the South West Queensland Pipeline expansion that was completed in January 2012.

New South Wales continues to be an integral part of APA's east coast grid, providing the connection between the Victorian Transmission System to the south and the South West Queensland Pipeline and LNG export facilities to the north. The MSP continues to provide gas to New South Wales, and whilst forward expectations are that revenue profiles will change in the longer term, we remain confident that the capacity that the industry provides in the portfolio can continually be used for the significant economic benefit of APA going forward.

Whilst the new access arrangement for the Victorian Transmission System kicked in on 1 July 2013 and revenues have reduced as a result, the performance year on year are exceeding our expectations due to ongoing demand from our customers to deliver gas north from Victorian gas fields. We continue to see demand for transport of increased amounts of gas through Culkin [ph] and the three contracts with Origin, EnergyAustralia and Lumo [ph] announced during the period under review bear witness to the success both current and further expected of APA's east coast grid strategy.

In the West, the results for the period vindicate both the investment and the expansion of the Mondarra Gas Storage Facility and the acquisition of the pipeline -- of the Pilbara Pipeline System. Each of these assets has delivered significant growth as previously forecast. And given the long-term contracts that support each asset, we'll continue to do so going forward. Furthermore, each has surface capacity rate that can add further to APA's performance as we talked to customers about their future needs going forward.

As indicated when we released our annual results for the year ended 30th of June 2013, asset management has again benefited from ongoing customer contributions as we worked to meet our customers' needs across our network.

The top left-hand graph on this slide looks for detail longer-term contributions to the business, noting that FY -- fiscal year 2012 when we received very little customer contribution income was the anomaly. And on average, we can expect and do see a reasonable level of this income every year.

The first half in 2014 has certainly benefited more than we have typically experienced in this area. But again we iterate this is a normal and ongoing path of our business and we will see more of this income in the second half.

Investment income has benefited from investors' increase in profitability from our $100 million in FY 2013 to the current guidance of around $145 million in fiscal year 2014. Again a deal of the seasonality of APA's results arises from the fact that around 60% of investors' results are generally reported in the first half of the financial year.

Operating cash flow for the period grew by 1.9% due to growth in equity accounting profit not being matched by growth in dividends received from those investments, and due to a full six months of interest costs incurred on the $1.65 billion in debt raised to repay all HDF debt and to fund the cash portion of the HDF offer compared to only three months of that interest cost in the previous corresponding period. Funding differences relative to changes in working capital also have an impact on the operating cash flows for the six months.

The ongoing growth in both EBITDA and operating cash flow has meant that APA has again looked at distributions and a decision was made to increase the interim distribution by 0.5 cent or 2.9% to 17.5 cents per security. This represents the payout of 67.5% of operating cash flow, and we've confirmed that we expect distributions for the full year to be at least 36 cents per security. Again APA continues to retain between 30% and 40% of operating cash flow in the business to support its growth going forward. And we continue to maintain a distribution policy that considers growth in operating cash flows alongside the need to maintain funds in the business to support growth and financial market conditions facing the business.

Capital expenditure to date remains in line with our expectation of spending in the order of $300 million pre-acquisition or pre-HDF acquisition guidance and $400 million post HDF acquisition guidance going forward.

Mick has already shown you the more significant projects that we have underway. These include the expansion of the Goldfields Gas Pipeline in the west and the two major compression projects at Moomba and Wallumbilla in Queensland. Add to this the $150 million of projects announced within the last three months to expand Victoria to New South Wales capacity, but the many smaller projects that we have in flight, we remain confident that we will continue to see fully underwritten or access arrangement approved projects in the order of $300 million to $400 million per annum going forward.

Gearing at 63.8% remains just below our capital management policy target of 65% to 68%. We currently have sufficient available resources to meet our capital growth expectations over the coming 12 months as well as the $241 million cash contribution to the investor transaction should that proceed. We continue to enjoy open access to a broad range of debt markets, with four bilateral bank facilities extended in December 2013. Each of these $75 million facilities was upsized to $100 million and extended out to new due date of December 2018, again ensuring that we maintain flexibility in the funding of our balance sheet.

We continue to target and have retained our BBB/Baa2 investment grade ratings from Standard & Poor's and Moody's respectively. During the period, each of the rating agencies completed reviews of our ratings and placed their continued confidence in APA with stable ratings and outlook.

Under our capital management policy settings, we remain committed to BBB/Baa2 level rating. This objective will be retained -- this objective will be retained for the enlarged APA Group should the investor transaction proceed. Again both agencies have commented on the proposed transaction with investor and their view is that the enlarged group will retain that level of rating going forward based on a transaction structure as it is seen in the public domain today. APA's debt portfolio and balance sheet structure remain a strength of the business.

As of 31 December 2013 there was no drawn debt due for repayment or refinancing within the next 12 months, although we will be looking at our syndicated bank facilities within the next six months to further reset these for our longer-term needs once the outcome of the investor transaction is more visible.

In the meantime we'll retain access to and support from a wide variety of debt markets, including the local bank and syndicated debt markets, which provide shorter-term funding options, the Australian and European medium-term note markets, which include the sterling and made-for-bond [ph] markets amongst others, U.S. 144A market and even the U.S. private placement markets. As a result we remain very confident that we can continue to fund APA's operations in a cost-effective and efficiently structured way going forward.

With that, I'll hand back to Mick and look forward to any questions you might have at the end of the presentation. Thank you.

Mick McCormack

Thanks, Peter.

Moving on to outlook and guidance, one topic that's been receiving a lot of attention recently is how the Diamantina and Leichhardt power stations are positioned in light of the recent collapse of the Forge Group. You would be aware that the Diamantina project is a 242-megawatt combined-cycle gas-fired power station at Mount Isa, and adjacent is the Leichhardt project, a 60-megawatt open-cycle gas-fired power station. In 2011 we announced an agreement to construct the project with our partner AGL Energy. A long-term supply agreement entered into with Xtrata [ph] and Oerlikon Energy [ph] in 2011 underwrote construction of the power station. And the project is now in the commissioning stage.

Forge is our EPC contractor at Diamantina, while the EPC contract for the Leichhardt Power Station is with Leighton. With Forge's lenders having appointed receivers last week, it's a good opportunity to provide an update on where things stand.

Fortunately, perhaps unfortunately, we had plenty of time to prepare for these latest developments as Forge's troubles had been well-known for some months. APA and AGL are committed to complete the project and negotiating to provide a smooth transition away from Forge. We remain confident the development in the power station will be fully commissioned in line with the mid-2014 timetable.

Let me be very clear, despite the Forge collapse, construction and commissioning activities are continuing on the Diamantina project as we speak. Power generation asset like Diamantina is an attractive offering for APA, it's competitive in a high gas price environment. There are opportunities to do more in the region with power generation possibly serving existing mines and new mines coming on stream. This would be great for Diamantina and also supports continued use of Carpenteria Gas Pipeline.

Now let's turn to our latest expansion initiative. That's the decision we've announced today to complete a feasibility study exploring the possible construction of a pipeline to link the east coast grid with our Northern Territory assets. The idea to connect our Territory pipelines to our east coast network has been floated by APA for some time now, and I am pleased with the very strong indicative interest in creating such a link, interest across the board from government through to producers and customers.

When you sit back and think about it, there is a real logic to connecting the Territory to the east coast and our network makes APA the best-placed infrastructure player to establish the link. If it goes ahead, this project is going to expand our network and potentially provide customers in Eastern Australia to South Australia and the Northern Territory with gas from any source between the Timor Sea and Bass Strait. It would confirm our position as a one-stop shop and will increase our ability to offer customers unrivalled cost-effective options, flexibility and security.

The benefits of the proposed connection would fly both ways. With the dynamics facing gas supply on the east coast, this infrastructure will stimulate investment in gas production in and around the Territory and in South Australia that then can be transported east. And all of the six states and territories connected by this link will also benefit, with our existing pipeline providing the backbone for additional security in supply.

Through the feasibility study, we hope to gain a sound understanding of the gas production potential in the Territory and South Australia, and the actual demand for potential gas buyers on the east coast. We will consider how to finance structure the development and address land access and engineering issues.

In terms of government support, we will seek to have the project given major project status and as well as land access and regulatory approvals. However, while it's pretty popular to ask for government handouts these days, we do not intend to seek funding assistance at this stage.

Overall the study is expected to cost around $10 million whilst concluded will be in a position to negotiate commercial terms with shippers and hopefully be able to make a final investment decision sometime within the next two years.

Before I close the presentation with formal guidance for the remainder of the 2014 financial year, I'll provide an update on where we are with the proposed merger with Envestra. You may recall that on 17 December last year we agreed with Envestra that we will progress the scheme of arrangement to combine the businesses. This followed a revised offer from APA which implies a value of $1.17 per Envestra share, plus we expected an Envestra distribution of 3.2 cents per share.

Good progress has been made in the weeks since 17 December. Due diligence is substantially complete, and while a number of conditions still need to be satisfied, we haven't hit any hurdles that would prevent the scheme being completed by the end of the financial year. A successful transaction would be a good result for investors in both Envestra and APA.

We've spoken before about the benefits that the transaction promises to bring to investors in both groups through additional scale, geographic spreads and asset diversity, as well as the growth opportunities I've just referred to.

That said, I'm particularly excited about the opportunity the merger will provide for us to take a holistic approach to investment decision-making across the combined transmission and distribution businesses.

Turning now to our formal guidance for the 2014 financial year, as we detailed this morning, there's activity across the group as we pursue a range of investment opportunities that will further expand our asset base to meet customer requirements and develop additional service offerings on our integrated pipeline grid. And we're working hard on the investor scheme of arrangement.

Taking all these factors into account, we expect to generate EBITDA of between $730 million and $740 million for 2014. This represents an increase of approximately 13% to 14% over 2013 financial year EBITDA, of course if you adjust to move the contribution of MEPS [ph] during the 2013 financial year.

Net interest cost is expected to lie between $315 million and $325 million. And when it comes to distribution, we expect to deliver distributions for the full year of at least 36 cents, that's 0.5 cent higher than what's paid in the 2013 financial year.

In closing, let me say that it's very pleasing to be able to report to you today on APA's solid financial performance underpinned by continued successful execution of our strategy.

Thank you very much. And now we'll move to questions.

Might I ask the analysts ask their questions first? And time has been set aside to talk with journalists after the presentation.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]

The first question comes from Simon Chan of Merrill Lynch. Go ahead. Thank you.

One moment please. Thank you. Go ahead, Mr. Chan.

Simon Chan – Merrill Lynch

Hi. Thanks. Good morning, Mick and Peter. My question relates to guidance. I was just doing a back-of-the-envelope. It suggests that, say the midpoint of your guidance, you really only need to do about 3% EBITDA growth in the second half this financial year versus second half of FY13, but am I missing something or do you mind outlining just the key assumptions around the guidance?

Mick McCormack

Happy to do that, Simon. And as Peter suggested there's a fair bit of seasonality in the result. But I'll pass over to Peter to give you some further detail.

Peter Fredericson

Yes. Look, I think that when you're talking about the midpoint of that guidance, you're probably right, Simon. The guidance is based on what we expect to be happening given what we're seeing in the market. And as you'll be aware, we have a pretty good visibility on our revenues a long way out. So we're not uncomfortable with that. I think the comparative first half was significantly higher than the previous year or the previous corresponding period as much as a result of the customer contributions if anything else. And we won't be seeing that level of customer contributions in the second half, although we'll see some.

So really it's more based on what we fully expect to be happening. We do see of course a change year on year or period on period that comes from Victorian Transmission System lower excess arrangement or lower tariff. So that will take away from the sort of level of growth that you might expect to see period on period, if that's helpful. But we're pretty comfortable with the guidance.

Simon Chan – Merrill Lynch

Sure. So just on customer contribution, how should we think that the second half, like that [indiscernible] as your slide 13 suggests or, you know, what should we [indiscernible]?

Peter Fredericson

We wouldn't be uncomfortable with that. I think we put that slide in just to give investors an understanding of the fact that we do see on average $9 million, $10 million generally in this sort of stuff. And so we wouldn't be uncomfortable with a number that's sort of bottom end of the half of that range.

Simon Chan – Merrill Lynch

That's all I got. Thanks.

Operator

Thank you. The next question comes from Hugh Morgan of Deutsche Bank. Go ahead please.

Hugh Morgan – Deutsche Bank

Good morning, Mick, Peter and team. [Indiscernible] questions around the proposal to link the Northern Territory and east Australian grid. Mick, I know in the past you've always said that you're not going to spend a dollar of capital until you've got an [indiscernible] contract to support that investment. I'm just wondering whether that still holds here, and how we should think about potentially where new suppliers and new customers within those two regions are going to come from, i.e. are you waiting for someone else to sanction a major project before that grid interconnect can occur?

Mick McCormack

You know, Hugh, to the first point about not spending capital unless underwritten, that continues to be our mantra, our theme. But in this particular case you've got to have regard for the fact that this is a pretty major project. And for us all the signals point to the fact that in the medium to longer term, get away from issues on the east coast in respect to gas supply. In particular I'm referring to well-documented issues around Culkin [ph] gas in New South Wales and other parts. We firmly believe that the medium to long-term solution of gas supply in into west Australia, including any additional gas necessary to support the LNG projects in Gladston [ph] will come from Cooper and beyond.

So this project is really about APA stepping up, taking the lead, committing that level of funding which I will say straight up, if we commit that money and there's a project that does not happen, that's money that's off. But that said, the scale of the business these days, APA plays a leading role in the industry and we are very encouraged given that we've been talking to various parties, as I said in my presentation, from government through to producers, customers. There are a number of prospective producers, I'll say, throughout the Northern Territory. There's obviously some very well-known incumbents that do currently produce gas and oil in those regions. And I'm referring to the southern part, the Northern Territory and across to the Cooper Basin.

And when you put that up against talk about gas prices, going on the east coast from 6, 7, 8, 9, 10, 12, 15, whatever the number is, we think that the time is right to see if the appropriate finance centers for all concerned can be matched. And that being the case, APA does own infrastructure at both ends of these things, so we are the industry leader in this country and we'll give it a really good going [ph] to the project happening.

Hugh Morgan – Deutsche Bank

Okay. Thanks for that. Just a follow-up question if I could to Peter, just looking at some of your capital management metrics. I noticed that the average maturity for debt sale [ph] fairly reasonably on 12 months. So I'm just wondering whether two plus two equals four here and what you've done in terms of lowering that interest expense guidance is that you've been able to get your hands on some of [indiscernible] I guess comparing that to the previous strategy to increase, can you? Is that a fair conclusion?

Peter Fredericson

Look, it's a fair conclusion. It's, you know, we obviously use a lot of -- we use a lot of bank and shorter-term debt that is unhedged, and so we benefited from that through the period. And as much as anything else that drove our change in interest cost guidance in December where we'd seen a good six months of lower short-term bank rates available to us and, you know, we're managing through that.

The reason for the drop in average term of course is that we're six months further on and we've not really changed much in terms of much -- in terms of the portfolio from a long-term perspective. So, you know, I don't read much into that. We don't really look at that hard, to be fair, the average term.

Hugh Morgan – Deutsche Bank

Okay, great. Thank you.

Operator

Thank you. The next question comes from Paul Johnston from RBC Capital Markets. Go ahead please.

Paul Johnston – RBC Capital Markets

Thanks. Hi, Mick and Peter and everyone. A couple of questions for me. Just you mentioned the additional costs [ph] from Victoria to New South Wales which offset the impact of the reset, and that definitely [indiscernible] our number. Is that a permanent change? And in terms of the revenue you obtain from that, is that in fact the same tariffs [ph] you get from the access arrangements of these [ph] higher volumes or how should we think about that?

Mick McCormack

Yes, interesting question, Paul. It's interesting in the way that I'll try and answer it. Make a comment first off that when you look at the Moomba Sydney Pipeline, these days it's part of a grid, so the value of the Moomba Sydney Pipeline needs -- start to be seen as such. The gas market in the southeast, particularly New South Wales, is very, very dynamic. I can point to a couple of short-term contracts that this time six months ago I had no idea were going to be signed [indiscernible] for a couple of months. That's quite in addition to the three contracts that you're referring to with the question.

On the Victorian side, yes, ultimately the CapEx will generate regulated returns. And on the Moomba Sydney Pipeline, generally speaking, that revenue was incremental to us. I'll say that a little guardedly because it's well-known over the next few years and indeed in the recent past that there are a number of contracts that come up for renewal on the Moomba Sydney Pipeline. So depending on what happens in respect of whether those contracts are renewed in full or in part, the question as to whether the revenue [indiscernible] referring to that we made reference to today is permanent.

So I'll say yes today, but in 6, 12, 18, 36 months, it may be a different answer, if you can follow the -- my line of reasoning there, Paul.

Paul Johnston – RBC Capital Markets

[indiscernible] specify the identity of the shipper, but is it not the shipper that has a major contract that is due to expire in 2016? Is it like new, in a way, sort of new volumes and new demand for gas transmission?

Mick McCormack

Yes, at the moment, yes it is. Yes, it is. But again I'm very cautious in saying that that will be the case permanently because if that [indiscernible] not mentioned contract isn't renewed in full in 2017, obviously we'll see some revenue impact. If it's renewed in full in a revenue sense, what we've signed in the last couple of months is additional.

So I'm simply trying to be as clear as I can that it is very dynamic in the next couple of years. But all of that, as we've talked about six months ago, we're very clear on our guidance. The expectations for the business, vis-à-vis the east coast grid, continues to be promising for us. If we don't see it that way, that will be made clear in any guidance.

And finally, talking with you today, there's nothing that I see that will be material to the broader APA group at that time.

Paul Johnston – RBC Capital Markets

Thanks. There's a couple of more follow-ups, but the floor [indiscernible] mentioned there's a couple of new shorter-term contracts on [indiscernible] are they material and what is the timing of that [indiscernible]?

Mick McCormack

I didn't say [indiscernible] what I was referring to was the Moomba Pipeline System, Moomba Sydney Pipeline System, just some very -- a couple of short-term contracts there. But [indiscernible] in the big scheme of things, they're not material, but [indiscernible] to have a year-on-year performance [indiscernible].

Paul Johnston – RBC Capital Markets

That's good. And just one follow-up question. The additional compression at Wallumbilla and Moomba, I know they're pre-announced contracts and arrangements and the work is still ongoing. In terms of the timing of those, has there been any change there? And are they very much [indiscernible] to when first gas is delivered by the relevant LNG project or is it actually a firm guidance sort of when those contracts start delivering revenue?

Mick McCormack

No, all continue to be positive. It's -- they have firm start dates. I'm looking at Rob Wheals, there's no -- they're not linked to any export gas, it's just simply time-based.

Rob Wheals

Time based.

Mick McCormack

Big nod from Rob.

Paul Johnston – RBC Capital Markets

Okay. I'll let someone else have a go. Thank you.

Mick McCormack

Thanks, Paul.

Operator

Thank you. The next question comes from Sandra McCullagh from Credit Suisse. Go ahead please.

Sandra McCullagh – Credit Suisse

Good morning folks. Just on Forge [indiscernible] Peter, what's the impact at all of equity at risk from that contract collapse?

Mick McCormack

I'll pass to Pete on the equity bit. But just to be clear, Sandra, we've, with AGL, had a very -- kept a very close eye on the project. You know, I'd be kidding myself and you folks on the line to suggest that there won't be a cost impact. You realize this [ph] when these circumstances occur. But we've got a team up there as we speak looking after or indeed they've taken control of the site. I absolutely don't believe the cost impact and, importantly, the schedule will be materially impacted, but which then will go to the equity contribution which, I'm looking at Peter, won't be --

Peter Fredericson

And Sandra, right from the beginning of the project, both the partners, ourselves and AGL, have expected that the equity contribution would be in the range of $100 million to $120 million. And the circumstances have not changed those views. We still believe that we will be contributing in that range when we get to project completion.

There are LCs in place and you'll see that in our balance sheet, you'll see the contingent liabilities reflect those LCs. So that sort of level of equity commitment, we don't think that changes.

Sandra McCullagh – Credit Suisse

Okay, that's good. And one other question, the operating cash flow per share, when do you expect to see that recover and surpass what you've had in the past with the ramp-up of South West Queensland?

Peter Fredericson

Yes, I mean it's obviously down this half because of the fact that, you know, we've had 835 million securities on issue for the full extent of this half and we didn't have that sort of level of securities on issue for anywhere near that period of time in the comparative half. You know, we've always said that we expect a ramp-up in the revenues from the South West Queensland Pipeline expansion in FY15 and that's a year or so away. So, FY15, FY16, we see that coming through.

The other thing I think that benefits us is that we've been able to fund the likes of the expansion of the compression, the extra compression projects at Moomba and Wallumbilla without issuing more equities. So as those come on stream, they start to add more to the operating cash for security going forward.

So we should see, you know, a change in that certainly in FY15 and FY16.

Mick McCormack

If I can just add to that question, Sandra, just going back to Diamantina, it might be useful for people on the call where we are with the project is at least 95% complete. All the manager kit, the big-ticket items are all on site. We are now down to the I call the high-value add tail-end of construction and commissioning activities. So that's the basis on which we're fairly comfortable that we've got the project in control.

Sandra McCullagh – Credit Suisse

Okay. Thanks guys.

Mick McCormack

Thanks, Sandra.

Operator

Thank you. The next question comes from Ian Myles of Macquarie. Go ahead please, sir.

Ian Myles – Macquarie

Good morning. Just on the connection of pipeline between Northern Territory and the eastern coast [indiscernible] what this scale -- the sort of capital scale of that sort of pipeline is. And I guess the sub-question is, how much upgrading of the existing [indiscernible] parts will be required to then move the gas to the quick [ph] location? Because I can only presume it's for LNG purposes.

Mick McCormack

I wouldn't -- that would be a starting assumption in. We're thinking medium to long term, so, you know, five years, beyond it would hopefully, for LNG purposes, would form at least part of the underwriting of that. But we're also targeting the southeast market generally.

As to scale, on the slides there you'll see that there's two obvious options. The shortest route typically in pipelines is also the cheapest, and that's where we go across from Tennant Creek [ph] to hit the Isa or Mount Isa. We [indiscernible] on a map, so that's about 900 million. And the longer route, which will -- is from, generally speaking, I'll say [indiscernible] heading southwest or southeast, going around some particular wetlands and whatnot, is probably about 1.3 billion. And in terms of scale, 60 petajoules, something like that, 170 terajoules [indiscernible] inches and doesn't calculate much gas.

It's really about if the incentive is there for the [indiscernible] in particular to get access to that sort of infrastructure to bring that gas to the southeast, there's more options for the whole market. And over the longer term [indiscernible] gas in the market, buy more, producers competing with each other should see the Australian economy benefit with cheaper gas prices.

Ian Myles – Macquarie

Okay. And just the other simple question is, on your customer contributions [indiscernible] a corresponding capital expenditure amount at the same time?

Mick McCormack

Yes. It's a quirky accounting treatment that Peter can talk about. It's [indiscernible] comes up [indiscernible] which was, yes, it's a bit high this year, we spent more time on customer contributions and building the connection from [indiscernible] to Queensland. But anyway, Peter?

Peter Fredericson

So here you can tell Mick's an accountant, right? It is. There is a capital expenditure attributed to it. There generally is also some cost involved above the EBITDA line because you are replacing assets that have been in the ground but typically that's not -- you're not replacing the same value of asset because you're moving something around. But as I say, we do this on a daily basis, it's part of that business, and our asset management guys do a lot of it.

Ian Myles – Macquarie

Okay. I just wanted to make sure, that's all. Thank you.

Operator

Thank you. The next question comes from Chris Laybutt of JPMorgan. Go ahead please.

Chris Laybutt – JPMorgan

Morning, Mick; morning, Peter. Just I think the big-ticket item has been covered, in relation to this HDF court decision, I was wondering if you could give us some color around that one and what's going to happen next.

Mick McCormack

[Indiscernible] prices they charge, but they were very good at -- they're probably still very good [indiscernible] not charging us. They charge themselves a fee which they paid whilst they control that business, we disagree with the calculation of that fee. We had a bit of a spat that got to court. We didn't like the outcome because we thought it was wrong. So that matter is being appealed and it's [indiscernible] or thereabouts. So, yes, it simply made reference to because it did have an impact, but the facts of the matter are pretty straightforward. They were simply a disagreement. We continue to disagree. And we've sought recourse through legal process to finalize that.

Chris Laybutt – JPMorgan

Okay.

Mick McCormack

And we're hopeful that we'll get the money back.

Chris Laybutt – JPMorgan

So you've launched an appeal already or you're in the process of doing that?

Mick McCormack

It has been launched and the matter will be heard in May.

Chris Laybutt – JPMorgan

In May, okay.

The other question I had was just in terms of your gearing. You're kind of sitting pretty comfortably. I'm just wondering whether you can give us some sense where we're heading at the end of the year, because you've got investor happening, of course we don't know what's going to happen with the mix and match cash component, but if we assume that all gets utilized and your gross CapEx profile, how close to that sort of range are we heading? Have you got a sense of that at the moment?

Mick McCormack

Yes. And look, we obviously have a different profile if the two businesses are put together by the end of the year, which is our expectation based on the current timetable if the transaction proceeds. But we're comfortable that will still be towards the bottom end of that 65% to 68% range. You know, I don't have a number or an expectation off the top of my head, because as you pointed out, there's a reasonable degree of flex around that mix and match, if it actually gets used. So, you know, we're comfortable that we're still at the bottom end of the range though, if not a little bit underneath it if the transaction doesn't proceed.

Chris Laybutt – JPMorgan

Okay. Thanks, Mick.

Operator

Thank you. The next question comes from Will Allott from CBA. Go ahead please.

Will Allott – CBA

Thanks guys. Just a question on Pilbara. Obviously a good pickup in revenues from that pipeline. But just looking at growth opportunities there, sort of the one area that probably hasn't got as much attention today, not really look at the two contracts loss last year [indiscernible] your views on what the growth opportunities you see coming from that area over the sort of next 12 to 24 months.

Mick McCormack

Yes, it's a good question, Will. And obviously we're very disappointed to not win those two bits of business there. But that's life in competitive markets, you win some, you lose some. But that said, let's reflect on the facts. The two recent expansions increased the Goldfields Pipeline by around 30%. So we'll take that any day of the week.

Yes, the Pilbara will -- any further demand for gas in that region will be subject to competitive forces and also [indiscernible] local geography sits up there with respect to the existing infrastructure by ourselves and the other outfit that operates in that area.

But looking at the Goldfields Gas Pipeline, we continue to talk with customers along the pipeline. So I remain very confident about the prospects we have in Western Australia.

Will Allott – CBA

And [indiscernible] on New South Wales [indiscernible] I guess sort of more east coast, but just looking at storage opportunities. Again I guess the focus has been on more what's happening with [indiscernible] so some of the bidirectional opportunities. But has there been much of an increase in discussions around increasing storage potential -- particularly as we head into the ramp-up phase for the LNG projects?

Mick McCormack

Not so much on Moomba Sydney. But that said, the value of any storage available in the Moomba Sydney Pipeline I’ll say will increase as any supply side or demand side issue materializes in New South Wales between now and 2017. It's been well [indiscernible] by various parties through the market over the last couple of years that on or around 2017, depending on who you believe, New South Wales is going to run out, I guess. We don't believe that. And demonstrably we've helped other customers increase their ability to bring gas into New South Wales. Some people say there'll be constraints on peak loads during that time [indiscernible] those couple of years. And that's to my point that if there is sufficient gas that is not available on peak days, that's where the value of storage. And there is a long record of providing storage service on the Moomba Sydney Pipeline. So it goes back to the answer to an earlier question. The dynamics of what's happening around the New South Wales market sort of change every second or so through the day, given the different sorts of queries we get from customers.

But yes, storage isn't doing much for us on the Moomba Sydney Pipeline as I speak, but I firmly believe that the value of storage product we can offer on the Moomba Sydney Pipeline in particular will increase significantly as we deal with any I guess market issues around 2017.

Will Allott – CBA

Cool. Thanks guys.

Operator

Thank you. The next question comes from Paul Mason from RBC Capital Markets. Go ahead please.

Paul Mason – RBC Capital Markets

Hi guys. Just a question on the Roma Brisbane Pipeline, on slide [indiscernible] bidirectional capability on it. I'm just wondering what the rationale for that is, or what opportunity there is on the other end of the [indiscernible] for that?

Mick McCormack

It's basically all around LNG. And the one you mentioned, the rationale, is not our rationale. We're simply responding to what the customers want. Last week they wanted to get it from that way to this way, and this week they want to go the other way. So we've got to have the bidirectional capability there.

Paul Mason – RBC Capital Markets

All right.

Mick McCormack

-- this is -- to do that in some cases is pretty significant capital, in others it's not. But from an engineering standpoint, it's pretty straightforward. I won't say it's necessarily easy, but it's pretty simple.

Paul Mason – RBC Capital Markets

Yes. All right. And just on the same [indiscernible] you mentioned now that South West Queensland [indiscernible] to operate as a single pipeline. Does that have any implications for RBP's regulation in the future?

Mick McCormack

No. No, it's just reflective of the engineering principles that previously -- it's probably an answer I'd love to get into some details with you when we catch up, Paul, but the Roma Brisbane Pipeline [indiscernible] to operate on [indiscernible] control, so it meant that it was basically full all the time. Once the [indiscernible] had to switch to full control. So it was a constant [indiscernible] one end and that meant that it wasn't always at its physical capacity. Now we own both pipelines. We just opened the valves [ph] and the whole system can operate on pressure control, which means that generally speaking the whole system operates at its physical capacity. So, more gases available.

Paul Mason – RBC Capital Markets

Thanks a lot. Okay.

Operator

There are no further questions at this time, Mr. McCormack. Please continue.

Mick McCormack

I think that's the end. Thank you very much for your attention today.

Peter and I of course look forward to catching up with you in due course [indiscernible] bid you farewell and look forward to doing the same thing again in six months' time. Thank you.

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