Contact Energy to sell AGS to Gas Services New Zealand

21 December 2017
Contact Energy to sell AGS to Gas Services New Zealand (GSNZ)
Contact Energy Limited (Contact) has announced the sale of its Ahuroa Gas Storage facility (AGS) to
Gas Services New Zealand (GSNZ) for NZ$200 million, while retaining the rights to use the facility to
meet its future needs.
Situated in Taranaki, the AGS facility was opened by Contact in 2010 to store gas for use at its nearby
Stratford Power Station. GSNZ is a provider of operational services to First Gas and other customers.
GSNZ operates one of New Zealand’s largest gas networks, with 2,500 kilometres of high pressure
gas transmission pipelines and around 4,800 kilometres of gas distribution pipelines in the North
Island.
New Zealand’s share of renewable electricity generation is among the highest in the world, and
growing, however the high level of hydro-electric generation means the system needs flexible fuel to
cope with dry periods and peak demand during winter.
“Gas-fired thermal plant plays a key role supporting renewable generation in New Zealand when
hydro generation is below average or during peak demand, and AGS helps us to store gas for use at
those times,” said Dennis Barnes, CEO Contact Energy.
“By selling AGS to GSNZ we maintain access to a flexible and cost effective fuel supply. The deal has
the additional advantage of seeing AGS operated by a dedicated gas infrastructure company, letting
us focus on the generation and customer sides of our business.”
“I believe with GSNZ as the owner, AGS is more likely to get new customers and we’ve committed to
an initial expansion of AGS to facilitate this. We will receive a reduction on our payments to GSNZ as
more customers use AGS,” said Barnes.
GSNZ’s, Paul Goodeve sees AGS as an important part of New Zealand’s gas infrastructure. “Flexibility
is one of the major attractions of using natural gas. By expanding the services offered at AGS, we see
an opportunity to provide gas producers, shippers and end-users with more flexibility to manage
their energy needs.”
The proceeds of the sale will be put towards repaying debt and the tax paid on the sale could allow
Contact to fully impute the FY2018 target dividend of 32 cents per share.
Until there are additional long term customers of the facility, S&P will capitalise the storage services
payments. The S&P net debt / EBITDAF ratio remains substantially unchanged post transaction.
Contact expects the transaction to have no impact on its BBB credit rating from S&P.
Completion of the sale of the AGS is subject to the fulfilment of certain conditions set out in the
transaction agreements, including receipt of certain regulatory approvals as described in the
investor briefing materials.

Webcast and audio conference
Contact Energy’s Chief Executive, Dennis Barnes, and Chief Financial Officer, Graham Cockroft, will
make a presentation for investors outlining the transaction at 11.00am NZT, Thursday 21 December
2017. An archived replay will be available following the briefing on our website.

If you would like to join the Conference Call.
 You will need to register in advance of the conference using the link provided below. Upon
registering, you will be provided with participant dial-in numbers, Direct Event passcode and
unique registrant ID.
 In the 10 minutes prior to call start time, you will need to use the conference access
information provided in the email received at the point of registering.
 Note: Due to regional restrictions some participants may receive operator assistance when
joining this conference call and will not be automatically connected.

Direct Event online registration:
Conference ID 7178357
http://apac.directeventreg.com/registration/event/7178357

For further information please contact:

Investor enquiries:
Matthew Forbes
Investor Relations Manager
+64 21 072 8578

Media enquiries:
Jason Krupp
Communications Advisor
+64 21 701 898

(ENDS)

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INVESTOR BRIEFING
Thursday, 21 December 2017

Sale of the Ahuroa Gas Storage facility

Delivering on our strategy through portfolio optimisation

Contact has entered into an agreement to sell the Ahuroa Gas Storage facility and associated assets
(AGS) to Gas Services New Zealand (GSNZ), an associate of First Gas Limited, for a cash
consideration of NZ$200 million. As part of the transaction, Contact has retained access to
competitive long term gas storage services compatible with its requirements for flexible thermal
generation.

Contact’s strategy is to optimise the Customer and Generation businesses to deliver strong cash
flows which are ultimately for distribution to shareholders. The strategy is underpinned by a
disciplined and transparent approach to operating and capital expenditure while ensuring our portfolio
of assets are delivering returns for shareholders.

In line with this strategy, Contact identified higher value owners for this long life infrastructure asset
and initiated a negotiated sales process to unlock value for shareholders.

Creating value for Contact shareholders through the commercialisation of AGS

The AGS reservoir is larger than Contact’s requirements and is capable of supporting the provision of
storage services to other potential customers. GSNZ, as an independent owner of AGS and key gas
industry participant, is well placed to accelerate the commercialisation of AGS. With a lower cost of
capital and opportunity for a sharing of operational synergies, GSNZ will be a higher value owner of
the facility.

To support potential new customers of AGS, GSNZ has committed through to an expansion of the
AGS facility within approximately two years of completion of the sale transaction, which will reduce
the cost per unit of gas storage services.

Contact preserves long term value by maintaining its capacity rights to the expansion of the AGS
facility along with reductions in its annual fee for gas storage services provided by GSNZ where third
party customers are contracted by GSNZ.

Consideration

The total consideration for the disposal is NZ$200 million payable in cash at completion. The sales
proceeds arising from the disposal will be subject to income tax payable of approximately $48 million
with net transaction proceeds of NZ$151 million (after transaction costs of $1 million) applied to the
reduction of debt. The tax payment will result in the creation of additional imputation credits which
could allow for the FY18 target dividend of 32 cents per share to be fully imputed.

As a result of the disposal, Contact is expected to record an unaudited estimated gain on the disposal
of assets of approximately NZ$15 million based on the consideration, the carrying value of the assets
at 30 November 2017 and the estimated transaction costs.

Until there are additional long term customers of the facility, S&P will capitalise the storage services
payments. The S&P net debt / EBITDAF ratio remains substantially unchanged post transaction.
Contact expects the transaction to have no impact on its BBB credit rating from S&P.

Completion

Completion of the sale of the AGS is subject to the fulfilment of certain conditions set out in the
transaction agreements, including receipt of certain regulatory approvals.

The regulatory approvals include Ministerial consent under the Crown Minerals Act for the sale of the
Ahuroa petroleum mining permit and change of operator, and Contact and GSNZ each obtaining
required consents under the Overseas Investment Act 2005. Other conditions include GSNZ
obtaining an IRD binding ruling as to the tax treatment of the main assets it is acquiring, and a third
party taking up (or waiving) its limited entitlements to gas storage capacity in respect of the AGS.

Contact is targeting the satisfaction of these conditions and completion of the transaction by 30 June
2018.

On-going agreements

Contact’s need is for competitive storage services compatible with our requirements for flexible
thermal generation, including the Stratford peaking plant. Contact has therefore entered into a 15
year agreement with GSNZ for the provision of gas storage services at a competitive annual fee.
Contact also has the ability to extend the term of this agreement for further periods of five years at a
time.

In addition, Contact will enter into an agreement with GSNZ to provide transitional services, such as
operational support and IT services, for three months after completion of the sale transaction.

Background

The AGS facility is a gas processing and compression plant and underground gas storage reservoirs
located at Stratford in the Taranaki region of New Zealand. The AGS facility is currently used by
Contact for gas injection, storage and withdrawal, and is capable of supporting the provision of
storage services to other potential users. The storage capacity of the AGS is up 18 petajoules, its gas
injection capacity of up to 27 terajoules per day and gas extraction capacity of up to 45 terajoules per
day.

In 2007, Contact acquired from Origin Energy the rights to develop a gas storage facility using the
depleted Ahuroa gas field at a cost of $164m. Between 2011 and 2017, Contact invested $58m in the
development of the AGS facility, providing the ability to inject pipeline specification gas.

Since taking over the operations of the facility in 2013, Contact has improved the integrity, reliability
and costs of operation. The facility cost Contact $6m p.a. to operate in FY17, compared to historical
levels of >$12m p.a.

About Gas Services New Zealand

GSNZ provides operational services for First Gas and other customers. GSNZ operates one of New
Zealand’s largest gas networks, with 2,500 kilometres of high pressure gas transmission pipelines
and around 4,800 kilometres of gas distribution pipelines in the North Island.
ENDS
Investor enquiries: Matthew Forbes +64 21 072 8578

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Contact EnergyAnnual meeting of shareholders
December 2017
Portfolio optimisation
Saleof the AhuroaGas Storage facility
21 December 2017
Dennis Barnes, Chief Executive Officer
Graham Cockroft, Chief Financial Officer

Contact EnergyAnnual meeting of shareholders
December 2017
Disclaimer
2
Contact EnergySale of the Ahuroa Gas Storage Facility
December 2017
Notfinancial product advice: This presentation is for information purposes only and is not financial or investment advice or a recommendation to acquire Contact
Energy's (Contact) securities, and has been prepared without taking into account the objectives, financial situation or needsofindividuals. Before making an investment
decision, prospective investors should consider the appropriateness of the information having regard to their own objectives,financial situation and needs and consult an
NZX Firm, or solicitor, accountant or other professional adviser if necessary.
Past performance: Past performance information given in this presentation is given for illustrative purposes only and should not be relied uponas (and is not) an
indication of future performance.
Future performance: This presentation may contain projections or forward-looking statements regarding a variety of items. Such forward-looking statements are based
upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number
of important factors and risks. Although management may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be
realised.
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Contact does not guarantee any particular rate of return or the performance of Contact.
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illustrative purposes only and is not represented as being indicative of Contact's views on its future financial condition and/or performance.
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Contact EnergyAnnual meeting of shareholders
December 2017
3
Contents
Strategic rationale
Key transaction terms
Financial impact and timeline
CommercialisingAGS
AGS history
4 -7
8
9 -10
11
12
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December 2017

Contact EnergyAnnual meeting of shareholders
December 2017
4
Will deliver value by providing customers
with choice, certainty and control while
reducing cost to serve and improving the
customer experiencethrough systems-
enabled operational improvements
A low cost, long life and flexible generation
portfolio with a continuous improvement
programme focusing on safety, spend,
reliability and resource utilisation to improve
the efficiency of our generation assets
Contact’s strategy is to optimise the Customer and
Generation businesses to deliver strong cash flows
GenerationCustomer
Underpinned by a disciplined and transparent approach to operating and capital expenditure
while continuing to investigate ways to optimise our portfolio of assets
Contact EnergySale of the Ahuroa Gas Storage Facility
December 2017

Contact EnergyAnnual meeting of shareholders
December 2017
5
Executing our strategy –Transaction summary
»Contact has entered into an agreement to sell the AhuroaGas Storage facility (AGS) to Gas Services New Zealand (GSNZ) an
associate of First Gas Limited (First Gas).
»GSNZ is a provider of operational services for First Gas and other customers. GSNZ operates one of New Zealand’s largest
gas networks, with 2,500 kilometres of high pressure gas transmission pipes and around 4,800 kilometres of gas distribution
pipes in the North Island.
»As part of the transaction, Contact has entered into a 15 year agreement for gas storage services with GSNZ at a level required to
support Contact’s generation portfolio. Contact will also provide certain transitional services for three months after completion of the
sale.
»The sale price of $200 million, which is payable in cash at completion, will be subject to tax of approximately $48 million. Contact
will apply the net proceeds to the reduction of debt. The payment of tax will provide additional imputation credits, which could
enable FY18 dividends to be distributed fully imputed to New Zealand shareholders.
»To support potential new customers of AGS, GSNZ has committed to an expansion of AGS within approximately two years of
completion of the sale of the transaction.
»Until there are additional long term customers of the facility, S&P will capitalise the storage services payments. The S&P net debt /
EBITDAF ratio remains substantially unchanged post transaction. Contact expects the transaction to have no impact on its BBB
credit rating from S&P.
Contact EnergySale of the Ahuroa Gas Storage Facility
December 2017

Contact EnergyAnnual meeting of shareholders
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Creating value for Contact shareholders through
the sale of AGS
GSNZ is a higher
value owner
Reduction in gas
storage costs
Independent
owner of storage
The AGS
reservoir is
larger than
Contact’s
requirements
and is capable
of supporting
storage
services to
other
customers
»GSNZ has a lower
cost of capital than
Contact.
»GSNZ existing
operations based in
Taranaki present
opportunities for
operational synergies
and enhanced gas
market services.
»Committed to an
initial expansion of
AGS, which reduces
the cost per unit of
storage.
»Contact’s effective
share of operating
costs will reduce as
AGS signs up new
customers.
Monetising unused
capacity
»By selling the last
units that Contact
uses from AGS,
Contact is effectively
selling the least
valuable units of its
current capacity to
someone for whom
the units will be the
first and more
valuable.
»Without upstream
or downstream
interests, GSNZ is
likely to be seen by
potential new
customers of AGS
as a more
independent
counterparty than
Contact.
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Contact retains access to competitive storage
services compatible with thermal requirements
Flexible
thermal
generation is
fundamental
to the
renewable
New Zealand
electricity
market
Economically
delivering flexibility
15 year gas
storage agreement
Flexible gas at
reasonable cost
»The amount of
flexible thermal fuel
to provide a reliable
electricity supply
ranges between 40
and 50 PJ/annum.
»Newer distributed
and battery
technologies cannot
economically
compete yet.
»Contact’s own
flexibility requirements
from AGS for the
operation of the
Stratford peaking plant
are contracted for 15
years.
»Contact retains the
ability to extend for
further periods of 5
years at a time until
2050.
.
Supporting
renewables
»New Zealand’s
renewable electricity
supply peaks in
summer while demand
peaks in winter. The
primary role of gas
storage in the
electricity market is to
provide fuel for thermal
generation when
hydro-generation is
below average.
»Gas storage
makes large
quantities of gas
instantly available,
for electricity
generation, without
the requirement to
commit to long
term take or pay
arrangements with
gas producers.
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Key transaction terms
On Completion
(targeted June2018)
Post initial expansion
(Completion +24 months)
Saleprice$200m
-
Net cash proceeds
-after tax payable and $1million in transaction costs
$151m
Accountingbook value$184m
Termof storage services
Initial term of 15 years,with the ability to extend for further periods of 5
years at a time until 2050
AGSfacility initial expansion
GSNZtoexpand the facility within approximately 2 years of completion.
Contact maintains its capacity rights following the expansion of the AGS
facility.
Facility capacity
27 TJ/day of injection and
45 TJ/day of extraction
65 TJ/day of injection and
65 TJ/day of extraction
Contact contracted capacity
75% of injection (up to 20.25
TJ/day) and extraction (up to
33.75 TJ/day)
69% of injection (up to 45 TJ/day) and
extraction (up to 45 TJ/day)
Third party customers -Contact fee reduction
Contact’s annual fee payable for gas storage servicesprovided by GSNZ
reduces where third party customers are contracted
Contact annual fee payable to FirstGasover an initial
term of 15 years
$20m+ PPI
Less than $20m + PPI if fully
contracted
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Contact EnergyAnnual meeting of shareholders
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Key financial impacts
EARNINGS PER SHARE
(EPS)
OPERATING FREE
CASH FLOW
ADDITIONAL
IMPUTATION CREDITS
EBITDAF
($14m)
0.3 cps
no change
Annual storage service fee less Contact’s
historic costs to operate the facility.
Reduction in interest and depreciation costs
greater than the decrease in EBITDAF
Lower EBITDAF offset by lower interest
and capital expenditure
BORROWINGS
$151m
Net cash proceeds applied to borrowings
03
04
05
01
02
FY18 dividend of 32 cents per share could
be fully imputed
FY18 dividend fully imputed
Economics of the
transaction expected to
improve with Contact’s
foundation rights maintained
»AGS initial expansion will
facilitate further third party sales
and potentially trigger a change
in the S&P treatment of the
Contact storage agreement
»AGS expansion increases plant
resilience and availability
»Fee reduction mechanism
where third party customers are
added reduces cost to Contact
of gas storage services
»Potential for further expansions
CREDIT METRICS (S&P
NET DEBT / EBITDAF)
substantially unchanged
Until there are additional long term
customers of AGS, S&P will capitalise the
storage services payments
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Conditions precedent and transaction timeline
Ministerial consent for the transfer of
the petroleum mining permit and
change of operator
Overseas Investment Office (OIO)
consent for GSNZ topurchase AGS
OIO consent for Contact to enter into
the gas storage servicesagreement
GSNZ to obtain an Inland Revenue
binding ruling on tax treatment of AGS
Agreement from a third party to take up
or waive its entitlements to limited gas
storage capacity
03
04
01
02
Limited conditions precedentContact is targeting transaction completion by the
end of FY18
December 17
onwards
Satisfaction of
conditions
precedent.
Q2 2018
Targeted transaction
completion.
Repayment of
borrowings.
Targeted end of
the transition
period.
August 2018
05
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Commercialising AGS -Available capacity at AGS
for new customers
25% of the capacity of AGS is available for long term contracting. This will increase post expansion.
Gasstorage
services
Current available
capacity for
additional
customers
Post initial
expansion
(Completion
+24 months)
Storage capacity4.5PJ4.5PJ
Injection capacity
6.75 TJ/day of
injection
20 TJ/day of
injection
Extraction capacity
11.25TJ/day of
extraction
20TJ/day of
extraction
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AGS history
»In December 2007, in conjunction with Origin Energy’s
acquisition of the New Zealand assets of Swift Energy, Contact
acquired from Origin the rights to develop an underground gas
storage facility using the depleted Ahuroa gas field. The cost of
the acquisition was $164m, including 4 PJ of cushion gas.
»Between 2011 and 2017, Contact invested $58m in the
development of the AGS facility, providing the ability to inject
pipeline specification gas.
»Origin was originally the operator of the AGS facility and also
provided reservoir management services for Contact. When
Origin sold its onshore NZ assets to New Zealand Energy
Company (NZEC) in 2013, Contact entered into agreements for
operational services with NZEC.
»Contact has improved the integrity, reliability and costs of
operation since 2013. The facility cost Contact $6m p.a. to
operate in FY17, compared to historical levels of >$12m p.a.
Contact EnergySale of the Ahuroa Gas Storage Facility
December 2017