Dampier Bunbury Pipeline

Revenue streams

Almost all of DBP’s revenue is derived from contracted gas transportation tariffs, charged to wholesale customers for shipping gas along the pipeline. DBP has entered into standard long-term contracts with the major shippers using the pipeline – other than Alcoa. Under these contracts, more than 80% of the tariff is paid on a capacity reservation (take-or-pay) basis, with the remaining 20% depending on the shipper’s actual throughput.

Alcoa, as the foundation shipper, has an evergreen contract with tariff agreements that differ from those of other shippers.

Competitive position

DBP has long-term contracts in place until at least 2019 with all of the shippers on the pipeline, ensuring stable and predictable revenues. The DBNGP is essential infrastructure with no direct competition from other pipelines or a material risk of bypass by other pipelines and substantial barriers to entry for a competing pipeline to be built. It has an expected remaining useful operating life of over 50 years and has a strong track record of 26 years of reliable operation.

Development and growth potential

Natural gas consumption in Western Australia has increased by 4% per annum over the past 10 years. Known gas reserves in Western Australia’s North West Shelf are estimated to be in the order of 117,000 PJ, including proved and probable gas reserves of 21,814 PJ. This is approximately 73% of Australia’s known gas reserves. The $675 million Stage 5B expansion, completed in 2010, increased the firm full haul pipeline capacity by around 110 TJ/day to a total of 845TJ/day of firm full haul capacity.

Further expansions of the pipeline will be considered as economic growth in the south-west of the state drives demand from gas-fired electricity generators and industrial customers. DBP will only invest in expansion projects on the basis of firm, long-term contractual commitments by shippers.

Pipeline operations

During the year DBP undertook a review of operations with the intent of enhancing the reliability and efficiency of the pipeline. The work has resulted in new operating protocols to reduce operating costs and enhance the ability of the pipeline and compressor system to respond to changes in demand and supply and thereby improve the reliability of gas supplies to the shippers on the pipeline and to their customers.

Pigging

DBP is currently implementing a scheduled pigging program to clean and inspect the interior of the pipeline. This will give confidence as to the long-term integrity of the pipeline. The program has progressed smoothly, and results to date have confirmed that the pipeline is in very good condition.

Labour market

Growth in the oil and gas sector in Western Australia has resulted in an increasingly competitive labour market, with skills shortages in specialised areas and rising salary expectations. In response to this environment, DBP is developing and implementing ongoing strategies for the recruitment and retention of high quality staff.

Regulation

DBP has long-term gas transportation contracts in place until at least 2019 with all of the major full haul gas shippers on the pipeline. However, it is still a requirement under the Western Australian gas regulatory regime that proposed Access Arrangement revisions are lodged with the Economic Regulatory Authority (ERA) for its approval at least every five years.

The ERA released its draft decision for the Dampier to Bunbury Natural Gas Pipeline in March 2011. The draft decision proposes a 7.6% increase in the reference tariff, escalating annually in line with inflation. The reference tariffs do not apply to the existing gas transportation contracts until 2016 (except Alcoa’s contract, to which the reference tariffs will never apply). Importantly, the ERA has rolled in $1.8 billion of expansion capital expenditure invested by DBP since 2005 into the regulated asset base. The final decision is expected in Q4 2011.

Operational overview

FY2011 financial performance

In the year ended 30 June 2011 DBP reported revenues of $431 million and EBITDA of $360 million.

Financial summary

Capital management

DBP refinanced a total of over $1 billion of debt in the sixmonth period to 31 December 2010 in the domestic bond and bank debt markets.

DBP repaid $76 million of SOLA subordinated debt to DUET in the year to 30 June 2011, leaving a remaining balance outstanding of $32 million.

DBP proposes to raise $200 million from its owners (DUET share: $160 million) with $32 million of the proceeds to be applied by DBP to repay the remaining SOLA balance and $168 million to be used to pay down DBP’s most expensive bank debt facility. The investment is subject to receiving all necessary Alcoa approvals.

Credit ratings

Rating levels as at period end were: