GNE - Genesis Energy

[Beagle]

Yes good result and FY16 oil is 80% hedged at US$85 a barrel so earnings for FY16 look okay but spot oil is at 7 year lows of just on US$38 and you can therefore expect a significant impact on earnings in FY17. As mentioned previously the dividend cannot be fully imputed indefinitely when they're paying out far more in dividends from free cash flow than they're actually making in profit. I think general market concerns, (which in my view are serious), and concerns regarding their FY17 outlook will prevail.

[IAK]

Another concern is that their very capable CEO Albert Brantley is retiring. https://www.nzx.com/companies/GNE/announcements/268998

[Beagle]

I know Roger(??) is concerned about the impuation credit position going forward so lets have a more detailed look.

Per the stats on p81, they have 0.1m of IC's so not enough to impute a dividend so they will have to pay more tax (before 31 March 2016) to be able to pay this dividend.

But lets look at their tax position. Current Tax is an asset of $16.2m which given their third installment wasn't due to after year end, means they have already prepaid, not just their final P3 payment, but $16m in excess of that, to be able to be used for 2016. And how much tax do they have to pay a year. Current tax expense per the notes is only $16m, so if 2016 is the same, then they have already prepaid their full 2016 tax liability, even though they need to make an additional payment to be able to impute the 2015 final dividend (that means to be able to impute the final 2015 dividend, they will be paying their 20167 tax liability early!!!). This is not sustainable unless they expect their tax liability to increase significantly going forward or they change their imputation ratio.

Good sleuthing. The full imputation credit thing is a charade. I suspect they only fully imputed this final dividend to save face in regard to initial IPO representations. Yes they are pre-paying their tax and yes this is actually impacting their financial performance because prepaid tax only attracts credit use of money interest at under 2% per annum...one would have thought they could get more attractive commercial returns elsewhere...

CEO stepping down next year before the true impact of oil sales at current spot prices is felt in FY17...i.e.get out while the going is good and it looks good on your C.V. ?

P.S. Just seen the subsequent post and agree there are short term positives but I expect the competition from online retail power suppliers to intensify further over time.

A relatively safe haven, (if there is such a thing in this incredible market), yield investment in very stormy times

[xafalcon]

Fully imputed 16cps dividend on $1.74 sp compares very favourably against MEL & CEN with lower dividends and partial/zero imputation.

Retail customer bleed halted, which was previously their Achilles heel

A 720kT pile of fuel that can be used but doesn't have to be replenished, plus an opportunistic exit path from additional coal contracts

All very good results, most will also help going into the future

If future dividends aren't fully imputed, it's not the end of the world. They expect to increase F16 divvy which will partially/fully offset. The other generators seem to be doing it already.....

[Harvey Specter]

Yes they are pre-paying their tax and yes this is actually impacting their financial performance because prepaid tax only attracts credit use of money interest at under 2% per annum...one would have thought they could get more attractive commercial returns elsewhere...YOu can do slightly better than that through TMNZ etc but still below their weighted debt cost.


If future dividends aren't fully imputed, it's not the end of the world. The other generators seem to be doing it already.....The new normal.

[Beagle]

]YOu can do slightly better than that through TMNZ etc but still below their weighted debt cost.[/B]

The new normal.

Yes I was thinking that myself and posted it but then amended it as most people wouldn't understand what that's all about. Full imputation is just starting to look contrived, disingenuous even...that to me is a little irksome especially when the analysts have locked onto it for the next few years and the company appears to do little or nothing to inform analysts otherwise.

[fish]

They do expect to increase the dividend (this has been a key concern for many) but it may not be fully imputed longer term (say in 2-3 years time).

Overall very good results, slightly ahead of expectations, most oil prices hedged, and dividend confirmed to grow over time, no reason why this stock shouldn't be above the $2 mark again!

Its a great result-EBITA significantly increased.
Full imputation a bonus but this obsession with imputation from some posters is a mere trifle compared to above.
So bought lots more midday .
Gross dividend generous compared to risks-8cents plus imps in October so could take 8 cents of purchase price and then work out yield

[sb9]

Agree fish, what a shame GNE didn't even get fair share their earnings announcement. Thought it was pretty good in the given circumstances, at least from an yield point of view. Never mind.

[fish]

Just about to reply to a post from pse and it disappeared!
Anyway the dividend is from earnings and not from bank borrowing
EBITDAF was $344 million-up 12%-a valuable parameter of performance but don't look at this in isolation-
NET profit $104m-up 113%
Net profit is a figure that can be conjured up by clever accountants
I am aware it was achieved in part by running down coal stocks so also look at free cash flow-$197 million-up 22%.!
Just don't see the concern about imps when you have such good results!

[fish]

Everyone is entitled to their view pse and companies can be as sneaky as investors.
Genesis is working to grow their profits and that's what I like.In the current market it means becoming more efficient
Net profit depends on so many factors-eg ird depreciation rates when the reality is that some assets -such as hydro will actually be increasing.
You have to look at the whole picture and we have a big growth in profit no matter how you look at it.
With getting rid of the coal contract and using their own gas instead we are likely to see growth in profit.

We have a 1000 million shares issued so 10.4 cents per share net of tax credits based on your net profit indicator.
On free cash flow 19 cents per share -so dividend is being paid from cash generated
but 8cents plus imp credits to be paid out in 2 months so the yield per annum is higher than the above figure.

[xafalcon]

With the short-duration electricity contracts that the Aluminium Smelter keeps winning, any certainty about long-term (even medium-term) outlook for NZ electricity generation demand/profitability is almost a wasted exercise. Until this "elephant in the room" is addressed by either closure or long-term contract periods the collective NZ electricity generation industry can't plan efficiently for future needs, or project future profit. This uncertainty costs everyone, except Rio Tinto. Under this cloud of demand & pricing uncertainty, a diversified company like GNE with oil & gas reserves appears lower risk to me.The lower price of oil has a negative effect, but gas is somewhat insulated from international prices as NZ doesn't have LNG infrastructure.

[bull....]

I think the smelter issue is being addressed 1000mw is leaving the supply - anyway good result

[trader_jackson]

Now surely, with interest rates being cut today, and further cuts on the horizon, GNE with its 9+% gross yield at current prices, over 3x that of the OCR, will rise??

Crazy stuff if it keeps in the $1.80's despite falling interest rates... (as I've said somewhere else on here should be $2+!)

[xafalcon]

Now surely, with interest rates being cut today, and further cuts on the horizon, GNE with its 9+% gross yield at current prices, over 3x that of the OCR, will rise??

Crazy stuff if it keeps in the $1.80's despite falling interest rates... (as I've said somewhere else on here should be $2+!)

GNE is a risk-off stock. The majority of investors don't care what NZ's OCR is. Centralised electricity generation is moving into it's twilight years (this twilight will last for many years). Electricity demand is flat. Competition is high leading to discounting (GNE currently offering $250 for 12 month sign-up = 8.3% discount). The high dividend yield is somewhat inflated by distributing amounts above net profit, which can't last.

So what will drive an increase in share price?

[horus1]

These shares are very similar to telecom about 10 years ago and the price path will be much the same. long term a bad hold

[arc]

NZX announcement 5:55pm 16-09-2015 shows 8 directors, from the CEO downwards, have all forfeited beneficial interest in shares held in trust ?... What does that mean/imply

[Snow Leopard]

NZX announcement 5:55pm 16-09-2015 shows 8 directors, from the CEO downwards, have all forfeited beneficial interest in shares held in trust ?... What does that mean/imply

For the official full answer read the 2015 report (https://www.genesisenergy.co.nz/documents/10180/2699552/Genesis+Energy+Annual+Report+FY2015.pdf/fa13f57b-fd37-4262-9bb2-5c591a55aab3) especially the bit about the Long term Incentive Scheme.

But the short answer is Genesis performance has been pretty poor.

Best Wishes
Paper Tiger

[Aaron]

Haven't Genesis lost some retail customers. Their cold calling hard sell bull**** isn't going to get me to sign up any time soon.
Disclaimer; Shares in MRP means loyalty to Mercury for now.

[trader_jackson]

I think GNE is still 'cheap' and I think they can hold the dividends per share up, although I doubt it will grow while the price of petrol is still under so much pressure. Still, if they can keep paying out 16 cents a share in dividends annually, even at a price of $2.27, this would be a yield of over 7%, about double what one would get investing in the average NZ savings account (with the prospect of further interest rate cuts), so I don't believe GNE is anywhere near fair value, but the market is a bit pessimistic about whether GNE can even maintain their dividend (which I do also understand), but I believe it (really) should still have a bit to run/increase before I would consider it at fair value.

[trader_jackson]

True words PSE, I do agree with where you are coming from, basically what I am saying is that it still (even in the $1.90's) looks a bit to cheap, maybe $2.30 is a bit to expensive, but somewhere in between is probably about right. (yes this is more macro/speculation, rather than DCF or some other analysis)

The question now comes to mind, why did it even reach $2.40?

[xafalcon]

There is a need for new generation capacity from about 2018/19, if all the recently flagged thermal shut-downs actually happen. One of the generators will have to commit a lot of capital to fund this, which will reduce/eliminate their ability to continue paying dividends > profit. But which generator will draw the short stick, or will GNE continue to run their 2 rankine units.

I would imagine that potential investors are already building in a likely reduced dividend stream

[Jantar]

......or will GNE continue to run their 2 rankine units.....
Those units are already past their 25 year design life. To continue running them would require huge refurbishment costs. It would almost be cheaper to build a whole new station of 4 Rankine units than to try and refurbish the two boilers.

[xafalcon]

Those units are already past their 25 year design life. To continue running them would require huge refurbishment costs. It would almost be cheaper to build a whole new station of 4 Rankine units than to try and refurbish the two boilers.

Thanks. This is useful info.

So we can expect at least one of the generators to present a substantial CAPEX in the next 12 or so months

It will be interesting to see ROI with current wholesale pricing......

[Harvey Specter]

Wholesale pricing needs to see a lift before people start investing and in my view prices need to be high for a while after so many years of low prices before the business cases stack up. There will also be reluctance because the assets won't be needed when Tiwai does eventually shut down in 10 years or so.
A few years at least.
Agree - even if prices do go up, with the uncertainty of Tiwai, it would be a brave board to pull the trigger on new investment. Expect to see smaller plants, bolt-ons or improved efficiency being the key areas of investment.

[xafalcon]

The govt simply won't allow the electricity generation situation to deteriorate and effect continuity of supply (again).

Raising electricity prices from the current ridiculously high levels won't wash either. NZ Power will rise like a phoenix really quickly. The generators will be very wary of this

That will possibly be the tipping point where Rio Tinto gets the ultimatum of either accepting a long term contract or having to face the remediation costs associated with plant closure. This would be a win-win situation for electricity generators, and is long overdue. Negotiating power is moving towards the generators as XS capacity is removed

Southland economy would be hammered, but that will happen sooner or later anyway. Best it's done on the most favourable terms for NZ inc.

[fish]

True words PSE, I do agree with where you are coming from, basically what I am saying is that it still (even in the $1.90's) looks a bit to cheap, maybe $2.30 is a bit to expensive, but somewhere in between is probably about right. (yes this is more macro/speculation, rather than DCF or some other analysis)

The question now comes to mind, why did it even reach $2.40?

It probably was driven by the change in investor sentiment towards power companies following the election-labour/green coalition were planning to screw them all.
The subsequent bounce down was bigger than expected.
Overall earnings are rising-demand is up-interest rates are falling.
The bigger picture is positive and I feel its scaremongering to suggest the dividend is likely to fall-its equally likely to rise and far more likely to rise in the long-term.
I am looking forward to a big dividend-11.1 cents gross next month.

The alternatives such as a bank oncall deposit with asb for $10,000 to 25,000 is 2.1%.
A no brainer in my opinion

[fish]

Fish I hope you don't lose money because you don't seem to be listening to reason or doing much research into companies you own.
Buying a company just because it has a dividend above the bank rate could get you into scree loads of trouble but I am over warning foolish investors that don't listen to common sense.
Good luck - unfortunately I am quite sure you will need it.
PSE-That posting shows basic cognitive faults.
It is good to make investors aware of potential downsides.
Any posting here is likely biased and I have declared mine-I own a lot of genesis-but its only a small part of my overall investments.
Just because I disagree with you doesn't mean I don't research-it is just that we have come to different conclusions.
People that invested in finance companies 7 years ago were, possibly, foolish and mislead-or just greedy
.I consider my investments and overall have done well and learnt from mistakes
Do you really believe I will lose money?
You can take 8 cents off the cost of buying a share if you buy this month.
In the future the sp could go up or could go down.
Take your own view on this as no one can be sure.
However a big dividend will mitigate any drop in sp and add to big profits if the sp rises

[Jantar]

- just saying the stock is fairly valued. . I agree that the present time the stock is fairly valued. There is downside risk, but demand is currently increasing; 2.5 % in the past 12 months and 1.5% on average over the past 5 years. The drop in demand caused by the Canterbury earthquakes has now recovered and the clean air act in many regions means more heat pumps replacing older fireplaces.
Forward prices are already up 8%, based on the announcements of closing Otahuhu, Southdown, and the last 2 Rankine units, even in the face of a strong El-Nino bringing wet weather to the South Island hydro catchments. So there is upside as well.

I am still holding at an average purchase cost of $1.28.

[trader_jackson]

I am still holding at an average purchase cost of $1.28.

How is this possible??? Post IPO GNE has never dropped below $1.64 (I think?)

I brought in the IPO and have not added not subtracted from my holding since and my average price is $1.453, so I assume you must be subtracting dividends paid to get your "average purchase cost"?

[stoploss]

How is this possible??? Post IPO GNE has never dropped below $1.64 (I think?)
Maybe picked up 100,000 on list . Sold 50,000 plus bonus shares @ 2.20 ish
average for the balance of 50 K be pretty low ???

[Jantar]

Simple. Buy on IPO. Receive the bonus shares. Sell 2/3 of my holding when the price was high, buy them back when the price was low. :D

[horus1]

PSE I agree wityh you but you are an engineer and logical. Not a good share to own.

[tim23]

Gee PSE & Fish - I challenged a couple of very Senior posters on why their TA hadn't picked the Spark bounce when the markets were really ugly a few weeks and got sin-binned - you guys might be on thin ice!

[fish]

Fish I hope you don't lose money because you don't seem to be listening to reason or doing much research into companies you own.
Buying a company just because it has a dividend above the bank rate could get you into scree loads of trouble but I am over warning foolish investors that don't listen to common sense.
Good luck - unfortunately I am quite sure you will need it.

The cognitive fault is thinking you know how my mind works-not libel and not meant to put you down.
You have posted many good points-and believe it or not I respect those related to your area of expertise.
There is no point repeating the many postings I have made about GNE.
They are certainly not just about the dividend.
What do you mean by common sense?
A foolish investor would invest for instance in finance companies that have poor assets JUST because of high interest rates.
Genesis has quality assets-not perfect and you can pick flaws-but look at what they are doing to fix it.
Look at what is happening to increase margins.
Look at EBITA and my previous postings on this.
It is clear that I think beyond the current dividend.
However the current dividend is a measure that many find useful.
As interest rates fall shares with high dividends become more attractive to investors.
I am investing for my retirement and dont see a bank deposit growing - deposit rates minus witholding tax are only a fraction above inflation.
Hence my investments are in 2 properties ,a business,and 6 shares-genesis being about a quarter of my share investments.
Diversification is so important.
You may think investing in genesis is foolish-but is that common sense or just an engineers sense?

[fish]

I don't like companies which pay out more than they earn but at some price it would become attractive enough for me to want to own it.
That's not really an indictment on GNE, 98% of companies are in this category for me as I am looking for deep value.
Hanging on 'till it's overvalued then buying again when it's undervalued as Jantar did is the way to play it.
From nbr-
Earnings before interest, tax, depreciation, amortisation and movements in the fair value of financial instruments, often seen as a preferred measure for underlying performance, rose 12% to $344.8 million.

The company will pay an 8c per share final dividend on October 6, an increase from last year's 6.6c, taking total distributions in the current financial year to 16c, compared with 13c in the previous financial year.

That equates to 80.9% of free cashflow, compared with 80.4% the previous year. Free cashflow, at $197.7 million, was 22% higher than the previous

[fish]

In corporate finance, free cash flow (FCF) or free cash flow to firm (FCFF) is a way of looking at a business's cash flow to see what is available for distribution among all the securities holders of a corporate entity. This may be useful to parties such as equity holders, debt holders, preferred stock holders, convertible security holders, and so on when they want to see how much cash can be extracted from a company without causing issues to its operations.

Everyone is entitled to their opinion but there are so many ways to look at the performance of genesis.
I would be really concerned if genesis was paying out more than they could afford.
PSE-We clearly differ in our interpretation and that is healthy and I thank you for your postings.
Hope you do find the share you are looking for-and I hope you start a thread on it.

[percy]

Gee PSE & Fish - I challenged a couple of very Senior posters on why their TA hadn't picked the Spark bounce when the markets were really ugly a few weeks and got sin-binned - you guys might be on thin ice!

What post was that?

[tim23]

Hi Percy - I'm still at a bit of a loss about that, didn't quite know why was put on ice for a week but assumed was related to SPK thread. I do hold GNE from the IPO and quite happy to hold with the fat yield.

[tim23]

Hi Percy - I'm still at a bit of a loss about that, didn't quite know why was put on ice for a week but assumed was related to SPK thread. I do hold GNE from the IPO and quite happy to hold with the fat yield.

[percy]

Hi Percy - I'm still at a bit of a loss about that, didn't quite know why was put on ice for a week but assumed was related to SPK thread. I do hold GNE from the IPO and quite happy to hold with the fat yield.

Who put you on ice?
I am just a little concerned.We have lost great posters such as Phaedrus,Belgarion, and Sauce . Noodles is having a holiday.
Just wondering whether Vince should email them, and ask them why they left the site?.I was far from impressed, when I had my few hours holiday.
I will point out I had a PM from Phaedrus before he left, pointing out why he would be leaving,and have always felt the site should not have allowed him to leave.

[trader_jackson]

This is turning into the PEB thread... great posters leaving, "personal attacks" rising...

[tim23]

I never got an email, just got a message on this site saying I unable to post for 7 days - never mind was sunning myself by the pool on an Indonesian Island at the time. I did persevere with my question (that was never answered) and assumed that someone complained?

[percy]

I never got an email, just got a message on this site saying I unable to post for 7 days - never mind was sunning myself by the pool on an Indonesian Island at the time. I did persevere with my question (that was never answered) and assumed that someone complained?

Seems a draconian measure.

[percy]

This is turning into the PEB thread... great posters leaving, "personal attacks" rising...

Been a few too many "well informed" experienced posters leaving.The standard of research,views, is poorer for their leaving.

[xafalcon]

Don't take offence, but

Seems like a lot of this belongs in "off market discussion" section.

Or perhaps start another thread.

[fish]

I have found 6 shares that are presently deep value and will provide me with exceptional returns so that I don't need to worry about the average ones.
You still haven't understood my point fish, maybe you will understand if I post an internet link from another value investor.
http://www.forbes.com/sites/brentbeshore/2014/11/13/ebitda-is-bs-earnings/

Thanks for that informative article about EBITA from Forbes.
The extract I quoted from was specifically about genesis and published a few weeks ago by NBR
You stated that GNE was paying out more than they earn
I think you may have misunderstood that the point was not about EBITA but that Genesis had a free cash flow of $180 million and were paying out 80% (only 55% EBITA)-which means in my eyes-but not yours-that they are paying out 80% of what they are capable to maintain operations.
I do realize that you are probably referring to net profit and I do understand that different investors place emphasis on different financial parameters.
Perhaps we should agree to differ as we both have valid points .
cheers

[Hoop]

GNE has just confirmed that its uptrend is primary and its a new bull cycle ..($1.92 break but still in the margin of error)
TA would have gotten you in at around $1.80 a month ago.

http://i458.photobucket.com/albums/qq306/Hoop_1/GNE%2018092015.png (http://s458.photobucket.com/user/Hoop_1/media/GNE%2018092015.png.html)

[trader_jackson]

GNE has just confirmed that its uptrend is primary and its a new bull cycle ..($1.92 break but still in the margin of error)
TA would have gotten you in at around $1.80 a month ago.

http://i458.photobucket.com/albums/qq306/Hoop_1/GNE%2018092015.png (http://s458.photobucket.com/user/Hoop_1/media/GNE%2018092015.png.html)

What I think will be interesting is to see how GNE holds up after its gone ex-dividend... MRP has held up pretty well but I have a feeling that this 'new bull cycle' is only because of the 8.0c dividend opportunity before the 30th...

Thoughts welcome.

[Hoop]

What I think will be interesting is to see how GNE holds up after its gone ex-dividend... MRP has held up pretty well but I have a feeling that this 'new bull cycle' is only because of the 8.0c dividend opportunity before the 30th...

Thoughts welcome.
TJ .. if you think this new Bull cycle is false then you have to assume that GNE is going to fall and create a lower low (<$1.63)..If you don't think the next fall will be lower than $1.63 then it will form a higher low, the uptrend is readjusted, and the bull cycle is deemed to be still operating....There is often a price throw back towards the break out point(s) after a decent rally giving an opportunity to top up near than breakout support level ...going ex may be part of that future throw back process..who knows..

[Traderx]

Small piece of good news for GNE. Massive downpour for the East coast of the NI has delivered 258mm at the monitoring site for Waikaremoana over the last 7 days and a consequent large jump in stored energy of about 45GWh or about $3.5 million worth of rain :-)

On the contra El nino conditions will not be helpful for Hydro at all this coming summer, however the contra to that is the remaining rankines units may get a good work out at higher prices, with Otahuhu and Southdown exiting over the course of the period.

Interesting times in the power sector, GNE looking well set up with optionality to delay or keep open its thermal plant while MRP and CEN head for the exits early.

Disc small long GNE

[Jantar]

On the contra El nino conditions will not be helpful for Hydro at all this coming summer, .....
Why would you think the El-Nino would not be helpful for Hydro during this coming summer? All of the published literature tells us that flows tend to increase in the hydro lakes during El-Nino summers and decrease during La-Nina summers. This research goes back to McKerchar and Pearson (1994), McKerchar et al (1998).
El-Nino means stronger westerlies which in turn means wetter in the west and drier in the east, so drought is likely for Hawkes Bay, Central Canterbury, East Otago etc, but higher flows in the Clutha, McKenzie country and Manapouri.

Latest research is showing that the Pacific Decadal Oscillation has a greater effect than El-Nino and that is also positive. There are 2 papers (in press) that will be published later this year that show this stronger relationship.

[fish]

Why would you think the El-Nino would not be helpful for Hydro during this coming summer? All of the published literature tells us that flows tend to increase in the hydro lakes during El-Nino summers and decrease during La-Nina summers. This research goes back to McKerchar and Pearson (1994), McKerchar et al (1998).
El-Nino means stronger westerlies which in turn means wetter in the west and drier in the east, so drought is likely for Hawkes Bay, Central Canterbury, East Otago etc, but higher flows in the Clutha, McKenzie country and Manapouri.

Latest research is showing that the Pacific Decadal Oscillation has a greater effect than El-Nino and that is also positive. There are 2 papers (in press) that will be published later this year that show this stronger relationship.
Thanks for that Insight Jantar.
What effect is most likey for NI hydro?

Electric Cars are starting to get decent Range .Interesting article in the Herald today -Mercedes -Benz really competing with Tesla.
We now need more overseas legislation restricting polluting VW cars and others from urban areas.
When I was flying over the Industrial midlands and nw England last September I was struck by the haze over motorways and cities from polluting trucks and cars.A major health hazard and I hope legislation will get much tougher giving clean electric vehicles the sales boost they need.
As you posted earlier legislation against fossil fires is giving aircon and electricity a boost

[Jantar]

Thanks for that Insight Jantar.
What effect is most likey for NI hydro?

Electric Cars are starting to get decent Range .Interesting article in the Herald today -Mercedes -Benz really competing with Tesla.
We now need more overseas legislation restricting polluting VW cars and others from urban areas.
When I was flying over the Industrial midlands and nw England last September I was struck by the haze over motorways and cities from polluting trucks and cars.A major health hazard and I hope legislation will get much tougher giving clean electric vehicles the sales boost they need.
As you posted earlier legislation against fossil fires is giving aircon and electricity a boost
North Island hydro lakes generally don't fare as well as they rely on easterlies for their summer top up. Two things do go in their favour though: They are starting out with above average storage, and with El-Nino there is an increased chance of tropical cyclones getting down as far as the central North Island in late summer - autumn, and if that happens it gives the North Island lakes a boost.

[Traderx]

Why would you think the El-Nino would not be helpful for Hydro during this coming summer? All of the published literature tells us that flows tend to increase in the hydro lakes during El-Nino summers and decrease during La-Nina summers. This research goes back to McKerchar and Pearson (1994), McKerchar et al (1998).
El-Nino means stronger westerlies which in turn means wetter in the west and drier in the east, so drought is likely for Hawkes Bay, Central Canterbury, East Otago etc, but higher flows in the Clutha, McKenzie country and Manapouri.

Latest research is showing that the Pacific Decadal Oscillation has a greater effect than El-Nino and that is also positive. There are 2 papers (in press) that will be published later this year that show this stronger relationship.

I stand corrected - thank you sir!

[Snoopy]

Have had a nice quiet sit down with the just posted Genesis Annual Report for FY2015. I find it fascinating how events are spun.

EBITDAF is claimed to have incresed by 12% yoy (p12). However, if you adjust for the one off effects of the float costs and the Tekapo planned maintenance outage, and the coal contract termination, I calculate that EBITDAF has actually gone from from $345.9m to $341.8m, a 1.2% decrease.

I am a little bemused at some of the language used in the chairman's address too:

"The company is committed to tangible change in order to adapt to the market and meet the future needs of its customers. We will accomplish this in the shorter term by further developing our digital capabilities and processes that improve service interactions and increase value while lowering costs. In order to provide new smart services and new energy related technology for our customers, the company is focused on creating strategic partnerships."

Pardon Dame Jenny?

I assume this is all connected to the:

"moving towards being an enabler of desirable, simple, smart energy solutions that meet the needs of our customers large and small." (p12)

Well, I am one of those small customers. I must admit I like the graph of annual power usage, split into two month blocks that appears at the top of each bill. Better for me than Genesis though, since I installed double glazing! I am slightly annoyed to see the extra charge Genesis make 'after the event' when I have paid my bill at the post office. With interest rates so low, I now tend to try and estimate my next month's bill and pay that too to minimise my 'bill paying charges'. At least Telecom (oops I mean Spark) are up front when they demand extra cash from me up front when I dare to pay my bill at the post office desk in cash. Actually the soft secret charging of Genesis may be better, because I always walk out the post office being annoyed with Genesis but really angry with Spark!

There is a write up on the GEN traders, beavering away in their office 24 hours a day worrying about half hour period purchases of power. Very little detail of what they actually do. But the fact this Genesis is the only power company which has highlighted the role of traders in operations is both interesting and worrying. For every trading strategy there is always an alternative counter strategy available to competitors. Perhaps Genesis's traders really are smarter than 'the others'? But will they stay that way?

My mind spins to the recent NBR article by Tim Hunter on the enginerering of future power price rises that will be caused by shutting down existing capacity, in which Genesis, with the Huntly Rankine units, is complicit.

One point that did pique my interest was the 'Schoolgen' program (solar photvoltaic panels on school roofs, now totalling 247kW) (p15) being expanded into something more commercial. This is the kind of thing that horus has talked about as being disruptive for the gentailers. Will Genesis be the first Gentailer to fully embrace it?

"Takapuna and Milford schools is part of a pilot commercial scheme to increase our understanding of customer's needs and to test a variety of business models in the solar arena" (p15)

Over on p19 we learn:

"Genesis Energy is currently New Zealand's only energy provider with a team dedicated to supporting building and construction companies and tradespeople with their new electricity and gas connection needs. Currently we are achieving 10% year on year growth in the trade and construction sectors in the Auckand, Canterbury and Waikato regions."

Then we have a revolution in gas marketing on p20

"The gas value packages gives our customers the certainty of paying the same amount for gas every month even if they use a little extra."

All good, interesting niche stuff. Genesis is looking more of a marketing company that their competitors! But with the signalled wind down of their actual power generation capacity, will they be able to maintain margins in a tightening supply markey? Cannot all this 'niche stuff' they are doing easily be duplicated by competitors?

SNOOPY

discl: Slightly uneasy shareholder

[horus1]

I went to flickelectric as a supplier and reduced my bill by at least 15%.

[Snoopy]

Its a great result-EBITA significantly increased.
Full imputation a bonus but this obsession with imputation from some posters is a mere trifle compared to above.


Actually, if you take out the one off effects of the float, the loss of profit from the scheduled maintenance to the Tekapo canal and the costs associated with the cancellation of the Solid Energy coal contract, then EBITDA went down just over 1% yoy.

But my real concern with Genesis, unlike say MRP, is that they do not have assets overall that can be valued upwards as a scarcity of generation capacity lifts wholesale power prices. The table below of historic asset revaluations/devaluations illustrates what I mean:



YearExtraordinary RevaluationExtraordinary Devaluation


200800


2009$232.8 (hydro)-$261.4 (thermal)


201000


2011$394.162 (hydro)-$96.816 (Tekapo acquisition)


201200


2013$155.6 (hydro)0


201400


201500


Total$782.6$358.2m



Thus the net increase in value of power stations since 2008 has been:

$782.6m -$358.2m = $424.4m

The overall company position is not as good as that, because I haven't included any share of Kupe writedowns.

The problem here is it is doubtful IMO that in the future Genesis can build a new power station of any size without raising new capital (cost of the Unit 5 turbine {386MW} and associated electrics only in 2006 was $525m). The other funding alternative is stopping dividends. This is exactly what happened in FY2011 and FY2012 with the last big acquisition (Tekapo). What I am saying here is that Genesis may not be the steady high dividend payer that more recent public shareholders some think it is!

SNOOPY

[horus1]

All generator /retailers should move down on Monday as a result of the decision by the EA to expose customer loads to all . It will show haw domestic customers re being ripped off.

[Jantar]

All generator /retailers should move down on Monday as a result of the decision by the EA to expose customer loads to all . It will show haw domestic customers re being ripped off.
I would suspect that the long term effect would be more profit for gentailers. The new rules won't lower the cost of generation, or transmission, or frequency keeping, or spinning reserve etc. It will just allow customers more certainty over which supplier is the cheapest. As more customers switch to the cheapest supplier, that supplier will be short on generation and will have to buy off the market, either at wholesale, or via hedges.
That will in turn mean more profit for those that are long and hence net pivotal in the market.

The overall effect will be that no supplier can afford to be substantially cheaper than any of the others.

[fish]

Snoopy stop being a slightly worried shareholder.Be happy with all the promised dividends too come.
I too re-read the annual report ,checked out other reports such as those in nbr-and chose to buy more gne as the dividend is expected to be maintained
The company will pay an 8c per share final dividend on October 6, an increase from last year's 6.6c, taking total distributions in the current financial year to 16c, compared with 13c in the previous financial year.
The dividend is easily paid out from free cash flow-
That equates to 80.9% of free cashflow, compared with 80.4% the previous year. Free cashflow, at $197.7 million, was 22% higher than the previous year

[fish]

snoopy I have been pondering over your last posting and the cost of building a new CCGT and the need capital raising.
With closure of the rankine units Genesis would have spare land/site/electricity transmission in place.
They have the gas from kupe which will be cheap.
Perhaps it might not be such an additional cost.
Interest rates on borrowings would be less so a capital raising might not be necessary.
Possibly a smaller unit.
I seem to recall Todd have plans to build a gas plant and much lower cost-but that might be a peaker

[Snoopy]

snoopy I have been pondering over your last posting and the cost of building a new CCGT and the need capital raising.
With closure of the rankine units Genesis would have spare land/site/electricity transmission in place.
They have the gas from kupe which will be cheap.


Fish, the cost we know about was for the Unit 5 turbine {386MW} and associated electrics only in 2006: $525m. You are right about Genesis not neediing a new site or new resource consents. A new unit could replace one of the old Rankine ones inside the Huntly box. But that was also the case for Unit 5. So there are no extra resource consent and set up savings to be made over and above what happened when Unit 5 was installed.

I remember in the prospectus, reading about an excess of contracted gas damaging profitability which would abate with time. I think this comment was made when three Rankine units will still fully commissioned. I am unsure if that means the 'overhang' of gas will now go out further into the future than envisaged in the prospectus. I know that coming into the winter just finished, power prices did not spike up as much as expected at the Huntly node. This also points to the gas overhang extending a bit.

Furthermore since the prospectus, a contract has been concluded with Contact Energy, now doubt at low margin. This will allow Contact to run its Stratford peaker, and the Combined Cycle Station, in competition with Genesis's Huntly. All thanks to Contact being able to store 'cheap' gas in the Ahuroa storage field. That Kupe gas may be cheap. But I am picking Genesis have let some Kupe gas go to Contact Energy at an almost equally cheap rate.

I thought the flow chart on p27 of AR2015 was interesting. This shows a take or pay contract of other gas of 25PJ, greater then the output of Kupe (24PJ) which Genesis also has contracted. Of that during FY2015 21PJ was used to generate electricity over FY2015. (1PJ = 277.7 GWh)

p30 of AR2015 has gas generation outputs of 2,772GWh, =10PJ

So overall efficiency of gas generation for FY2015 was: 10PJ/21PJ = 47.6%. That is pretty good I think, considering the average will have been lowered by the operating of the relatively inefficient Rankine units. Nevertheless the amount of gas used overall in FY2015 was down 5.4% on FY2014.

So could Genesis technically put a new , perhaps slightly smaller, turbine than Unit 5 in at Huntly to replace one the the retiring Rankine units? Technically, I think yes. Could such a unit compete with the combination of Contact's combined cycle and peaker plants at Stratford, both fed by the Ahuroa gas storage reservoir? I'm not so sure.





Perhaps it might not be such an additional cost.
Interest rates on borrowings would be less so a capital raising might not be necessary.
Possibly a smaller unit.
I seem to recall Todd have plans to build a gas plant and much lower cost-but that might be a peaker

From http://www.stuff.co.nz/taranaki-daily-news/69350710/Tenders-out-for-multimillion-dollar-New-Plymouth-power-station


-----


The next step in developing a multimillion dollar gas fired power station just south of New Plymouth is underway.

Nova Energy Limited, a subsidiary of the Todd Corporation, is seeking expressions of interest (EOI) from parties interested in a build, own, operate and transfer (BOOT) contract for a new 100 megawatt gas-fired power station.

The 100 MW open cycle gas turbine (OCGT) power plant is located on green fields land between SH3 and Mangorei Rd, south of New Plymouth.

Nova communications manager Mark Reynolds would not quantify the cost of the contract given the EOI process was underway but confirmed it was a multimillion dollar project.

"To give a sense of scope, Nova Energy's last plant, McKee, was a similar size and was an investment of about $100 million in the New Zealand energy sector," Reynolds said.

------

100MW output for the proposed Todd Unit is quite small compared with 250MW for a Rankine unit.

Yes building a smaller unit, with the possibility of some of it being funded by borrowing could happen. The problem with that is that as Kupe runs down, Genesis will have less income with which to service such a loan, regardless of what happens to the oil price. As at 30th June 2015, Genesis has a debt ratio of:

$1,702.6 / $3,528 = 48%, before payment of our bumper upcoming final dividend of $80m. Given Genesis has a shrinking asset base going forwards, I am not sure how much borrowing headroom remains in Genesis's balance sheet.

SNOOPY

[fish]

Quality research-thanks snoopy.

Certainly got me thinking

Genesis will have a number of options in the event of demand exceeding supply.
In this event the price of electricity would be much higher so more profit and less need -if any for bank borrowing
They could just refurbish and convert the rankine unit to gas only-especially if they had surplus gas and efficiency wasnt a priority.
Then I started speculating on other possibilities-eg can a gas turbine be added to provide waste steam for extra power to the rankine unit?-ie it would become a ccgt
No need to store gas just burn it and turn the hydro up or down to meet demand
Really need some engineering input here before I get lost.

[Snoopy]

Quality research-thanks snoopy.

Certainly got me thinking

Genesis will have a number of options in the event of demand exceeding supply.
In this event the price of electricity would be much higher so more profit and less need -if any for bank borrowing
They could just refurbish and convert the rankine unit to gas only-especially if they had surplus gas and efficiency wasnt a priority.


I think the Rankine units run on coal or gas now. So no refurbishment to 'convert' 100% to gas would be needed.



Then I started speculating on other possibilities-eg can a gas turbine be added to provide waste steam for extra power to the rankine unit?-ie it would become a ccgt


The best way to increase thermal efficiency is to increase the temperature your tubine operates at. A modern CCGT operates at such high temperatures that the 'waste' steam from stage 1 is in itself useful as a power source. I think it is doubtful that an older gas turbine would have a suitable material construction to allow very high temperature combustion to happen.



No need to store gas just burn it and turn the hydro up or down to meet demand
Really need some engineering input here before I get lost.

This is what MRP are doing now with their geothermal plant being used as their base load and hydro being spilled to fill the gaps. OK, there is quite a lot of regular hydro spilling at MRP going on! But the principle still stands.

The problem with GNE doing that is that their largest power station provides in flow to Taupo. So local Maori, let alone MRP might have something to say if GNE deliberately turned off the Taupo tap!

SNOOPY

[fish]

The Rankine units if kept in operation beyond 2018 would probably need major refurbishment-the EA did a review of thermal power stations in 2009 and suggested that at 20 to 40% cost of new they could be refurbished with engineering improvements.
Clearly coal is out and the processing unit for coal could be removed.
What I am thinking is if it would be a possibility for the latest gas turbine to be acquired and built in so that the heat from the exhast could be used to generate steam for the rankine unit to generate electricity thus converting a dated rankine unit to combined cycle?
from wikipaedia-
Combining two or more thermodynamic cycles results in improved overall efficiency, reducing fuel costs. In stationary power plants, a widely used combination is a gas turbine (operating by the Brayton cycle) burning natural gas or synthesis gas from coal, whose hot exhaust powers a steam power plant (operating by the Rankine cycle). This is called a Combined Cycle Gas Turbine (CCGT) plant, and can achieve a best-of-class real (HHV - see below) thermal efficiency of around 54% in base-load operation, in contrast to a single cycle steam power plant which is limited to efficiencies of around 35-42%. Many new gas power plants in North America and Europe are of this type. Such an arrangement is also used for marine propulsion, and is called a combined gas and steam (COGAS) plant. Multiple stage turbine or steam cycles are also common.

[Jantar]

The Rankine units if kept in operation beyond 2018 would probably need major refurbishment-the EA did a review of thermal power stations in 2009 and suggested that at 20 to 40% cost of new they could be refurbished with engineering improvements......
The main issue with the Rankine units, and what the EA failed to understand, is that the turbo generators can be refurbished quite easily, even at a cost of 20 - 40% of new. It is the boilers, that bit that uses the heat to turn water into steam, that can not be easily refurbished, and that is the part that is at the end of its life. At Huntly, the boilers are part of the building. They are suspended from the top so that thermal expansion would not be an issue, and the boiler housing is in a water bath to get an airproof seal. Removing the old boilers will mean dismantling part of the building and that is what makes extending their life uneconomic.

[trader_jackson]

https://www.nzx.com/files/attachments/221708.pdf

Good to see GNE manager increasing/creating a holding...

[Sideshow Bob]

Got my voting papers yesterday, with Dame Jenny retiring by rotation.

Hardly ever bother voting with companies, but this year I did! :p Not that it will make a material difference! :t_down: But made me feel better! :cool:

[Zaphod]

Got my voting papers yesterday, with Dame Jenny retiring by rotation.

Hardly ever bother voting with companies, but this year I did! :p Not that it will make a material difference! :t_down: But made me feel better! :cool:

I'd certainly encourage you to vote. There's always a block of people who vote (directly or by omission) for the status quo and this needs to be counteracted. Overall we need to keep the board on their toes!

[kiwichick]

I've just recently purchased Genesis shares, so I'm only just finding out more about this company. Is Jenny Shipley a poor chair?

[macduffy]

I've just recently purchased Genesis shares, so I'm only just finding out more about this company. Is Jenny Shipley a poor chair?

There may a bit of political leaning showing here ;) but Ms Shipley's association with Mainzeal - and its demise - still rankles with some!

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10867172

[Jantar]

I've just recently purchased Genesis shares, so I'm only just finding out more about this company. Is Jenny Shipley a poor chair?
She was part of the National party Cabinet that dismantled the previous efficient Electricity system we had here in New Zealand, and caused our energy prices to sky-rocket. As PM for only 2 years, she would have to be the 2nd worst PM we have ever had.

[Harvey Specter]

There may a bit of political leaning showing here ;) but Ms Shipley's association with Mainzeal - and its demise - still rankles with some!Political leans are irrelevant as it rankles me too.

[kiwichick]

I was 11/12 years old when she was in power, but I still remember people weren't very happy with her then. The Mainzeal collapse is interesting. Looks like I have some reading to do.

[fish]

I was 11/12 years old when she was in power, but I still remember people weren't very happy with her then. The Mainzeal collapse is interesting. Looks like I have some reading to do.
Hopefully she is older and wiser .
Genesis has great cash flow -and the likely coming drought and increase oil prices will help.

[Coles Killer]

The main issue with the Rankine units, and what the EA failed to understand, is that the turbo generators can be refurbished quite easily, even at a cost of 20 - 40% of new. It is the boilers, that bit that uses the heat to turn water into steam, that can not be easily refurbished, and that is the part that is at the end of its life. At Huntly, the boilers are part of the building. They are suspended from the top so that thermal expansion would not be an issue, and the boiler housing is in a water bath to get an airproof seal. Removing the old boilers will mean dismantling part of the building and that is what makes extending their life uneconomic.

I'm only vaguely keeping track of what the analysts are saying about 2018, and the impression I got was that there is "potentially" a shortfall of MW with the removal of Southdown / Otahuhu B / 2 remaining Huntly units. So what is going to fill this shortfall? I.e. which of the gentailers is going to be the one that stumps up some capital and pushes one of their projects? I had a look at this document from the EA (http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/modelling/interactive-electricity-generation-cost-model) today and interesting to see that Contact Energy have the next cheapest 4-5 generation options in the list by LRMC. Or is it that they are just the most optimistic with their pricing? Also, I thought they had all but ruled out their HMR windfarm being built... and I can't see them going for a new CCGT on the Otahuhu site, so that just leaves Tauhara and the Hawea gates.

[Jantar]

The cheapest of all those proposals still has a LRMC of almost $80 per MWh. No-one is going to build any new generation until the wholesale price reaches that value. At present the average wholesale price is around $65 per MWh and is unlikely to rise above that as long as we are over saturated with wind generation. The geothermal options listed are all base load and these also tend to lower the wholesale price, and are unable to assist in meeting short term peak demand.

The best options for new generation do not even appear on the MBIE list. probably because no company can consider them. These are the Onslow pumped storage scheme (1200 MW at a cost of $3B) or Hawea pumped storage (120 MW, but not permitted under the Wanaka conservation act).

Pumped storage will support double its installed capacity of wind generation without destabilising the grid.

[fish]

I'm only vaguely keeping track of what the analysts are saying about 2018, and the impression I got was that there is "potentially" a shortfall of MW with the removal of Southdown / Otahuhu B / 2 remaining Huntly units. So what is going to fill this shortfall? I.e. which of the gentailers is going to be the one that stumps up some capital and pushes one of their projects? I had a look at this document from the EA (http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/modelling/interactive-electricity-generation-cost-model) today and interesting to see that Contact Energy have the next cheapest 4-5 generation options in the list by LRMC. Or is it that they are just the most optimistic with their pricing? Also, I thought they had all but ruled out their HMR windfarm being built... and I can't see them going for a new CCGT on the Otahuhu site, so that just leaves Tauhara and the Hawea gates.

Contact have a surplus of generation so I wouldn't have thought they need to make a capital spend-I have a feeling they have no intention as a shortage of generation suits them

[Coles Killer]

In August (https://www.nzx.com/files/attachments/221085.pdf) it says they sold 880GWh of energy and produced 868GWh of energy, so I really don't think they have such a large surplus of practically useful* generation.

*I.e. generation that isn't ruinously expensive to run, like running your gas turbines / CCGT at minimum load, or trucking a whole lotta diesel down to Whirinaki to fire up those jet engines strapped to a lump of concrete (credit to Mark Binns for that phrase there).

[fish]

I think at times contact will buy power when its really cheap-cheaper than burning gas-don't forget contact have a massive storage potential.
They can then burn gas when prices are such they can make bigger profits.Could be saving it for the El Nino drought that's looking highly likely

[Coles Killer]

She was part of the National party Cabinet that dismantled the previous efficient Electricity system we had here in New Zealand, and caused our energy prices to sky-rocket. As PM for only 2 years, she would have to be the 2nd worst PM we have ever had.

I'm with you there, her being on this board is a shocker, surely the big instos don't like it either... but does any of that matter? isn't her position all but guaranteed by having 51% backing from the government (National).

[Sgt Pepper]

I'm with you there, her being on this board is a shocker, surely the big instos don't like it either... but does any of that matter? isn't her position all but guaranteed by having 51% backing from the government (National).

I am at a loss to understand her appointment. She has no formal commercial qualifications that I am aware of. Trained as an ECE teacher then became a professional politician. Since leaving office she has managed to be appointed to numerous boards by the government, in addition to her position on China Development Bank. Isnt Mainzeal being litigated, which I thought may have dampened the governments enthusiasm. But apparently not. I assume John Key is a fan.

[xafalcon]

I am at a loss to understand her appointment.

She has "connections", that is her qualification

[Sgt Pepper]

She has "connections", that is her qualification
Wish I was " connected" it would exponentially increase my income like Jennys. Oh well just have to keep working my 90+ hours per fortnight in the health service a while longer!

[Harvey Specter]

She has "connections", that is her qualificationConnections are helpful for the China Development bank (and probably mailzeal). But they are of no use to Genesis. You dont need political contacts when you are owned by the Government, you just contact your 50% shareholder!

[xafalcon]

Connections are helpful for the China Development bank (and probably mailzeal). But they are of no use to Genesis. You dont need political contacts when you are owned by the Government, you just contact your 50% shareholder!

Connections work both ways, and probably got her the position on the GNE board....... ie. Jobs for the "boys" as they call it

[Harvey Specter]

Connections work both ways, and probably got her the position on the GNE board....... ie. Jobs for the "boys" as they call itI realise how she got the job, butthat is a one way benefit for her, no benefit for the company (unlike CDB where the benefit actually works both ways). In the post SOE environment she should be removed - institutions should demand it and the Government shouldn't block it.

[Xerof]

83,000 No votes from me... a drop in the bucket but....

Mobilise people!!

[trader_jackson]

A friend and I have also voted no, although together we don't even have 1/10th in GNE that you have Xerof!
But every vote counts right?

[axe]

Sold GNE the other day. There's a "taint" in market sentiment toward GNE caused by association with the Mainzeal collapse.
I do not think the "taint" make an impact on the operation performance of GNE, but I fear it will hinder share price growth in the future.


Money went to catch fally knife.

[tim23]

The taint you may be right about ex-MP on the board and in this case the chair, I still kick myself for not selling my TTK shares as soon as Roger Sowry appeared!

[sb9]

Juicy divvy in the bank today :t_up:

[fish]

[QUOTE=sb9;594349]Juicy divvy in the bank today
Yep
Its going to be reliable regular great return
Who would invest in an ausssie bank when this is available

[unhuman]

Fully imputated as well.

I thought there was talk in this thread that the company wouldn't have any IC's due to breaking he minimal shareholding change?

[Harvey Specter]

Fully imputated as well.

I thought there was talk in this thread that the company wouldn't have any IC's due to breaking he minimal shareholding change?
If they were short, they may have prepaid tax. If it's a structural shortage, prepaying is only a short term fix.

[Tomtom]

Wish I was " connected" it would exponentially increase my income like Jennys. The dividend yield should be fair warning of the companies ambition to tread water, they just don't require thoughtful people with brilliant ideas.

[IAK]

The dividend yield should be fair warning of the companies ambition to tread water, they just don't require thoughtful people with brilliant ideas.

Agree. It will be interesting to see who they appoint as the new CEO. IMO If this company is to prosper they'll have to take full advantage of their retail customer base.

Disc. Small holding

[Sgt Pepper]

The dividend yield should be fair warning of the companies ambition to tread water, they just don't require thoughtful people with brilliant ideas.

I wonder what the other directors REALLY think of Jenny Shipley as their Chairman, inexplicably parachuted in courtesy of her obvious connection to the National Party

[sb9]

https://nzx.com/companies/GNE/announcements/272041

Very encouraging numbers at first glance, hopefully they're turning a corner...

[Beagle]

https://nzx.com/companies/GNE/announcements/272041

Very encouraging numbers at first glance, hopefully they're turning a corner...

Looks okay to me. A reasonable case to be made for a modest sized holding as a yield investment despite only approx. 2/3rd's imputation credits going forward by my estimate.
Talk of a modest dividend increase this year. Disc - I bought back into a very modest stake as a diversification / yield play.

[trader_jackson]

Increasing dividend (already 13%!), customer losses have now reversed, generation fairly stable, whats not to like? (no reason for GNE to march towards the $2+ mark now...)

[skid]

Bit of a misprint there tj ,but we get what your saying...

[bull....]

losing customers was a big problem for them, they have done a good job reversing that trend. own a small parcel

[belted galloway]

losing customers was a big problem for them, they have done a good job reversing that trend.

Although at what cost? There has been a significant level of incentive offered within the market at present.

Genesis are currently offering the first month free on a 12 month term.

[bull....]

Although at what cost? There has been a significant level of incentive offered within the market at present.

Genesis are currently offering the first month free on a 12 month term.

hasn't had a big impact on margins from what I see

[xafalcon]

Although at what cost? There has been a significant level of incentive offered within the market at present.

Genesis are currently offering the first month free on a 12 month term.

If Genesis aren't price competitive, they will continue to loose customers. They had to arrest that, and have actually managed to reverse it.

Sometimes profitability will increase when price is reduced due to increased volume. eg sell 10% more domestic units at 8% lower price = more profit

Domestic sales are high margin, so a small margin loss probably isn't the end of the world.

Importantly they are also culling low margin commercial business.

The terms of Genesis's offer is that all the "free" power is charged if the customer leaves inside 12 months. And after 12 months the contract is automatically rolled over while only offering the customer a very limited window to switch out before being automatically re-contracted for another 12 months. This should increase the "stickiness" of the newly contracted customers and further reduce Genesis's churn in 2016. This is very smart and other retailers will surely follow their lead

[axe]

If Genesis aren't price competitive, they will continue to loose customers. They had to arrest that, and have actually managed to reverse it.

Sometimes profitability will increase when price is reduced due to increased volume. eg sell 10% more domestic units at 8% lower price = more profit

Domestic sales are high margin, so a small margin loss probably isn't the end of the world.

Importantly they are also culling low margin commercial business.

The terms of Genesis's offer is that all the "free" power is charged if the customer leaves inside 12 months. And after 12 months the contract is automatically rolled over while only offering the customer a very limited window to switch out before being automatically re-contracted for another 12 months. This should increase the "stickiness" of the newly contracted customers and further reduce Genesis's churn in 2016. This is very smart and other retailers will surely follow their lead

GNE are automatically recontracting customers with only a small window that they may not have knowledge of?
I am not a lawyer but I have my doubts if the customer can legally be signed into another contract automatically.
Even if the contract is legal Consumer rights watchdogs will get their teeth into this.

Considering the high level of churn in the NZ market and the fact that powerswitch is supported by consumer affairs using a tactic such as this will not go down well.
Churn is being actively encouraged in the NZ market as it is a gauge of effective competition and contracting like this could be viewed as anti competitive.

If GNE are actually trying to contract like this it is a very short sighted desperate move to stop the bleeding.

[horus1]

It is interesting that spot prices changed and were lower when the thermals were running . That points to other generators wanting to get generation away and explains why Huntly is shutting down . It also plays into the hands of flick who buy of the spot for domestic customers. I was with genesis , changed to flick , saved 20% , since and have had better service. When I changed genesis took back $250 which I did not think they were entitled to do but couldn't be bothered fighting it. The behaviour above confirms my opinion of the major generator retailers. as new technology arrives the inclination will be for small consumers to leave the grids. it doesn't take many to do that to affect results.

[xafalcon]

GNE are automatically recontracting customers with only a small window that they may not have knowledge of?
I am not a lawyer but I have my doubts if the customer can legally be signed into another contract automatically.
Even if the contract is legal Consumer rights watchdogs will get their teeth into this.

Considering the high level of churn in the NZ market and the fact that powerswitch is supported by consumer affairs using a tactic such as this will not go down well.
Churn is being actively encouraged in the NZ market as it is a gauge of effective competition and contracting like this could be viewed as anti competitive.

If GNE are actually trying to contract like this it is a very short sighted desperate move to stop the bleeding.

Relax, it's not being hidden from anyone. I found out when I called their info line. This was simply one of the conditions of the offer. Judging by the increase in subscribers, it doesn't seem to be putting many people off (although it did for me)

I think it is a very smart move by Genesis, getting the consumer to actively opt-out of a roll-over, rather than simply transforming them into regular customers at the conclusion of the contracted period. It uses peoples apathy to hopefully retain customers

[kiwichick]

I must say, I wasn't aware of the roll-over condition on the latest offer (obviously didn't read it too thoroughly!), so I am happy it was mentioned here. Put a reminder in the calendar to opt out next June!

[Harvey Specter]

With the Roll Over Condition, do they inform you or do they do it on the sneaky? On the sneaky looks bad, if informed may induce churn. And do you get a special deal if you renew, otherwise what is any potential break fee for?

[Coles Killer]

Yeah that role over condition sounds like a good idea (from SH point of view) but I'd be pretty offended if that caught me out... not sure its a great idea in terms of keeping happy customers long term. Maybe that's the play though, lock in customers for the next year or so while wholesale prices are relatively low, and then start shedding them from 2017 on when prices may start to pick up again as generation comes out of the market.

[xafalcon]

With the Roll Over Condition, do they inform you or do they do it on the sneaky? On the sneaky looks bad, if informed may induce churn. And do you get a special deal if you renew, otherwise what is any potential break fee for?

They informed me, it wasn't a hidden detail. The break fee was for the first 12 months only. They send you a letter at the end of the fixed period explaining your options. If you don't take action within 4 weeks (from memory, I called them about 6 weeks ago now) you are re-contracted at fixed energy pricing for another 12 months. I didn't discuss any further, this offer wasn't for me

[trader_jackson]

Interesting research note out from ForBarr today indicating that they are "of the view that GNE will reverse its decision and decide to keep the Rankine units open. If electricity demand continues to grow as it has done over the past 18 months, the Rankine units will be the swing generator, picking up that load."

As a result, they have revised their price target up 10c to $2.04...

I'm not wondering whether when or if GNE will actually come out 'confirming' this... Thoughts welcome...

[xafalcon]

Interesting research note out from ForBarr today indicating that they are "of the view that GNE will reverse its decision and decide to keep the Rankine units open. If electricity demand continues to grow as it has done over the past 18 months, the Rankine units will be the swing generator, picking up that load."

As a result, they have revised their price target up 10c to $2.04...

I'm not wondering whether when or if GNE will actually come out 'confirming' this... Thoughts welcome...

There is apparently a very significant refurbishment cost involved due to boiler design. Read Jantar posts on the topic. Significant cost = lower FCF = lower divvy (and probably lower SP)

[Harvey Specter]

Interesting research note out from ForBarr today indicating that they are "of the view that GNE will reverse its decision and decide to keep the Rankine units open. If electricity demand continues to grow as it has done over the past 18 months, the Rankine units will be the swing generator, picking up that load."
Why do they think Huntly, rather than Otahuhu or Southdown will remain open. Which is the cheapest to keep open (ie. doesn't need a refurb yet) and which has the lowest opex costs.

[trader_jackson]

I'm not sure, I'll try and post a bit more extracts/explanations of their logic soon, but they seem to be quite sure that Huntly will remain open...

[Jantar]

Why do they think Huntly, rather than Otahuhu or Southdown will remain open. Which is the cheapest to keep open (ie. doesn't need a refurb yet) and which has the lowest opex costs.
Otahuhu has already been shutdown, Staff let go, etc. Decommissioning is well on the way, so it is completely out of the picture.

[trader_jackson]

https://www.nzx.com/companies/GNE/announcements/272404

https://www.nzx.com/companies/NZO/announcements/272402

These sorts of announcements should reduce doubt about if GNE can sustain its extremely high (13% gross!) dividend.

What will be interesting to see is what GNE's independent report shows (ie if it is the same, worse, better)

[IAK]

https://www.nzx.com/companies/GNE/announcements/272404

https://www.nzx.com/companies/NZO/announcements/272402

These sorts of announcements should reduce doubt about if GNE can sustain its extremely high (13% gross!) dividend.

What will be interesting to see is what GNE's independent report shows (ie if it is the same, worse, better)

I'm not so sure, what are they going to do with the extra gas?

[Joshuatree]

From Craigs in-depth 23 page electricity sector research

Will Huntly stay or go? Not the real issue
With a forward CY19 price of just NZ$81/MWh, this is unlikely to encourage a new build. Webelieve that the forward price is reflecting a risk that Tiwai will exit ahead of CY19 which if occurred would have the potential for prices to go down to as low as NZ$60/Mwh for a period.Retailers can’t risk selling into this uncertainty without a fully hedged position, and will likely tighten up prices as their current CY19 book begins to get filled. While this will likely trigger aprice response at that stage, it is likely to be too close to the critical event to give enough leadtime for a new build and Huntly could already be past the point of shutdown reversal withoutmaterial cost implications. While we still expect that the market will pay for Huntly to remainopen for a period, the price offered will have to be meaningful in order to compensate Genesisfor taking on further Tiwai risk.

[Joshuatree]

]In summary, where the risk is misconstrued as being with the gentailers, it is in our view actualwith retail, and C&I in particular. There is however the risk that political constraints might lead tothe Electricity Authority intervening.
AND The bottom line is that Genesis is in a good position holding its cards face down as



If it is not materially compensated to keep Huntly open, that is if prices are not high enoughto compensate them for the risk of being stuck with Huntly if Tiwai closes abruptly postCY19, then it will be shut. In this situation, wholesale prices will be higher, GNE’s gas kit willbe modified to be more variable, and retail prices will be far higher. On its current residentialload the company will have to pull back on some fixed price C&I, similar to what it has donein the past
If it is compensated, then the company is in a winning position.

[xafalcon]

From Craigs in-depth 23 page electricity sector research

Will Huntly stay or go? Not the real issue
With a forward CY19 price of just NZ$81/MWh, this is unlikely to encourage a new build. Webelieve that the forward price is reflecting a risk that Tiwai will exit ahead of CY19 which if occurred would have the potential for prices to go down to as low as NZ$60/Mwh for a period.Retailers can’t risk selling into this uncertainty without a fully hedged position, and will likely tighten up prices as their current CY19 book begins to get filled. While this will likely trigger aprice response at that stage, it is likely to be too close to the critical event to give enough leadtime for a new build and Huntly could already be past the point of shutdown reversal withoutmaterial cost implications. While we still expect that the market will pay for Huntly to remainopen for a period, the price offered will have to be meaningful in order to compensate Genesisfor taking on further Tiwai risk.

Thanks Joshuatree

[xafalcon]

Lot's of comments at MEL's annual shareholder meeting about encouraging Huntly Rankines to stay in service. Not just limited to MEL, but "other industry players" as well. Worth a read. Could be a sign that the refurbishment cost may be shared between several parties

https://nzx.com/files/attachments/224262.pdf

[Traderx]

Very little SP movement on the back of NZO's Kupe upgrade. What are peoples thoughts? News of the review was not unexpected but the size of the upgrade was not previously known. Any ideas as to how many cents per share the reserves upgrade may be worth?

Disc: hold

[Beagle]

IIRC Craigs had a value of about 30 cps on GNE's interest in Kupe so you would have thought with a 34% reserve upgrade we would have seen more of a positive SP reaction being theoretically worth about 40 cents now.

[xafalcon]

Story in todays NBR again highlighting that the best option for dry-year electricity security post 2018 is that Genesis Energy's remaining Rankines stay in operation. This can only be positive for GNE

[trader_jackson]

Story in todays NBR again highlighting that the best option for dry-year electricity security post 2018 is that Genesis Energy's remaining Rankines stay in operation. This can only be positive for GNE

When everybody was talking about there inevitable shutdown (due to it being seemingly to uneconomic to refurbish - or something along these lines) , I was one of the first to say that they are 'expected' to remain open (based on Forsyth Barr's research).

It seems many brokers, and even other power companies (like Meridian recently) also wants GNE to keep Huntly open... which yes, can only be good for GNE.

[Traderx]

GNE showing some SP strength in recent days.

To me a number of positives have come to light recently:

Wholesale prices are on the up - good for a generator with optionality like GNE
Customer numbers continue to grow (electricity customers up 1265 in October) showing GNEs retail offerings finding traction
GNE seems to be in a strong negotiating position re Rankine closure - MEL/others may pay up to keep them - must be NPV positive for GNE.
Kupe reserves increase - confirmation coming before end of year
NZD down again (back at 64cpl) giving a less negative NZD POO for Kupe output post hedged period
Labour/Green abandonment of NZ Power

Disc - small long.

[Traderx]

GNE looking good today, heading towards a circa 6 month high (1.97), if it breaches that would be classed as entering an uptrend?

Alongside other factors outlined above the interest rate differentials in the market vs GNE are starting to look extreme. 1 year mortgage 3.99, 3 year mortgages at 4.49, 5 year mortgages around 4.79, Term deposits struggling to get above 3.5%. Westpac and ASB both forecasting OCR to 2%.

GNE dividends at around around 17cpl for next year, even if we don't get full imputation lets say only 5cpl imputation so 22cpl gross or 11.34% @$1.94

disc: long

[Beagle]

Yes Traderx I think many high yielding shares are getting a boost from interest rates which are now at a 50 year low.

[xafalcon]

Any idea when genesis are releasing the Kupe update? Last I heard was "sometime before year end". Has a more precise release date been set?

[Beagle]

Any idea when genesis are releasing the Kupe update? Last I heard was "sometime before year end". Has a more precise release date been set?

Tomorrow by the look of the SP :D Disc: Modest stake held in my ledger.

[Sideshow Bob]

Tomorrow by the look of the SP :D Disc: Modest stake held in my ledger.

Even NZO was up 1c today. That's a sure sign!

[Jantar]

If that is the case then definite insider trading. Does the Com com ever look into this type of thing?

[Sideshow Bob]

Think we are taking the Mick there Jantar - but who knows!

[xafalcon]

I was just looking for the underlying driver for the SP rally over the past few days to help me determine an exit point. But it seems it was a common theme with several of the generators having a strong day yesterday.

[Beagle]

http://www.interest.co.nz/bonds/78790/asb-economists-change-call-and-now-pick-low-point-offiical-interest-rates-2-next-year
Interest rates at 50 year lows are driving yield starved investors out of fixed interest and into high divvy yielding shares. GNE, other gentailiers, HNZ and several others have been major beneficiaries of this in the last week or two IMO. I expect this to be a major trend in 2016. High divvy yielding shares will find widespread support going forward as many retired investors simply have to get a decent return on their money to enjoy a decent retirement.

[trader_jackson]

I've always said this stock should be $2+, good to see it hit $2 on a day that was weak for the market as a whole.

[Snoopy]

Any idea when genesis are releasing the Kupe update? Last I heard was "sometime before year end". Has a more precise release date been set?


I notice that NZOG released a more comprehensive statement on the Kupe field upgrade on 27th October, than Genesis did on 28th October. I don't know why Genesis Energy, another part owner in the field did not release this information in the same detail.

The NZOG news release is here if that helps.

https://www.nzx.com/files/attachments/223531.pdf

SNOOPY

[Bobdn]

Thanks, looking forward to seeing what Genesis' independent assessment comes up with.

[trader_jackson]

Forsyth report says GNE was the biggest gainer and added +1,279 customers to its books, knocking TPW from its perch as the fastest growing brand! What a turn around! Target price up 2 cents to $2.09

[Bobdn]

Cool, thanks for the info. At $2.09 I'll still be down (not counting dividends:)

[xafalcon]

At long last

https://nzx.com/files/attachments/226518.pdf

[Traderx]

At long last

https://nzx.com/files/attachments/226518.pdf

Market seems totally disinterested.. I guess it is not unexpected.

[xafalcon]

It was as poorly written as the CEN market update a couple of days ago, and we all know how that bombed........

It lacked a simple explanation of key information that allows people to associate the field reserve update to company value and future eps.

So only the more astute people will understand how much value GNE gained as a company and how much capital spend will be deferred as a result

And releasing it a day after an investor presentation. Such poor timing. Why not release it the morning of an investor presentation and use the presentation as an opportunity to explain the effects......

[Poet]

I also note that the investor presentation contained confirmation that future dividends, including 2016, are unlikely to be fully imputed (as pointed out here by some posters a few months back)

[Snoopy]

At long last

https://nzx.com/files/attachments/226518.pdf

Below is the table produced by NZOG on the Kupe field upgrade on 28th October 2015. (NZOG owns 15% of the Kupe field.)



NZOG share of Kupe ReservesPrevious 2P Developed Reserves 30-06-2015Previous 2P Developed Reserves less production since 01-10-20152P Developed Reserves at 01-01-2015Percentage Change


Sales Gas (PJ)18.417.423.3 (+5.9)+34%


LPG (kilotonnes)79.975.797.4 (+21.7)+28.7%


Light Oil (millions barrels)0.80.71.0 (+0.3)+43.2%


Millions of barrels of oil equivalent (total)4.44.25.6 (+1.4)+34.7%



Now compare that to the table released by Genesis Energy today. (Genesis Energy owns 31% of the Kupe field.)



Genesis Energy share of Kupe ReservesPrevious 2P Developed Reserves 30-06-2015Previous 2P Developed Reserves less production since 01-10-20152P Developed Reserves at 01-01-2015Percentage Change


Sales Gas (PJ)38.136.047.7 (+11.7)+32.6%


LPG (kilotonnes)165156.5199.4 (+42.9)+27.4%


Light Oil (millions barrels)1.61.42.0 (+0.6)+42.1%


Millions of barrels of oil equivalent (total)9.18.611.4 (+2.9)+33.4%



The only differences in percentage gains can be put down to rounding errors. No news here. The only question is, why did GNE take more than a month longer than NZO to release the same results to the market?

SNOOPY

[Snoopy]

It was as poorly written as the CEN market update a couple of days ago, and we all know how that bombed........

It lacked a simple explanation of key information that allows people to associate the field reserve update to company value and future eps.

So only the more astute people will understand how much value GNE gained as a company and how much capital spend will be deferred as a result


I think that given the tanking in the oil price, there will be no particular incentive to speed production from the Kupe well head to increase oil barrel earnings, and as a result, gas earnings due to the associated extra volume in the short term.

The need to defer secondary drilling to further extend the life of Kupe means now no exploration expenditure surprises for a while. The can has been kicked down the road about 12-18 months is how I interpret the figures. Good news, but not earnings defining news. I don't see any annual increase in eps flowing through. But the Kupe field will have at least 12 to 18 months added to its economic life by this announcement.

As to how much will be saved by not having to drill so soon, that may not be knowable. Drilling a hole to hit a new economical vein of supply is to an extent a 'hit and miss' event.

SNOOPY

[xafalcon]

A few months back you re-valued the "Kupe contribution to share price" as condensate = $0.12 & gas = $0.19. Total $0.31

An extra 33% of reserves should add an additional $0.10 contribution per share. Granted the underlying price assumptions may have changed, but still a reasonable guide

Unlike drilling a "hit or miss" well, not needing to drill a well will always benefit shareholders

Deferred drilling/pumping etc = more fcf available to pay out as dividend.

[jonu]

A few months back you re-valued the "Kupe contribution to share price" as condensate = $0.12 & gas = $0.19. Total $0.31

An extra 33% of reserves should add an additional $0.10 contribution per share. Granted the underlying price assumptions may have changed, but still a reasonable guide

Unlike drilling a "hit or miss" well, not needing to drill a well will always benefit shareholders

Deferred drilling/pumping etc = more fcf available to pay out as dividend.

I think Snoop's point is that POO has dropped from $48-50 a barrel to $38 in the meantime

[Snoopy]

A few months back you re-valued the "Kupe contribution to share price" as condensate = $0.12 & gas = $0.19. Total $0.31

An extra 33% of reserves should add an additional $0.10 contribution per share. Granted the underlying price assumptions may have changed, but still a reasonable guide

Unlike drilling a "hit or miss" well, not needing to drill a well will always benefit shareholders

Deferred drilling/pumping etc = more fcf available to pay out as dividend.


xafalcon, it was you who mentioned future 'eps'. My immediate point was that eps would not increase in the near future, because there is no particular incentive to up the extraction rate from Kupe. Down the track eps could well be higher than it would have been because the field life is extended. It is unlikely to be higher in absolute terms though. As for the savings through 'not exploring'. As you say these are real and tangible. But GNE is 'not exploring' now. So again there will be no short term incremental change as a result of discovering there are more petrochemical resources within Kupe than we all thought.

However, if we move back to the idea of valuing Genesis Energy then as you recall, my method was to:

1/ estimate the value of Kupe over the life of the field.
2/ convert this dollar valuation to a 'per share' valuation.
3/ subtract the 'per share' valuation from the Genesis Share price.

The answer to that little puzzle is the underlying value of 'Genesis the Gentailer'. And this is of interest because Genesis is easier to compare with other gentailers with Kupe decoupled from it.

Talking in these terms, then the confirmation of new Kupe reserves is very important, because the increase affects the value of the 'lifetime Kupe field' valuation. There is a problem with my Kupe financial model though.

I have done all my Kupe analysis from NZOG annual reports (adjusting for the fact that NZOG owns 15% of Kupe vs 31% for Genesis Energy), because junior field partner NZOG reports on Kupe in more detail and more promptly than Genesis Energy. However this model reports that the prospective 2P output over the field lifetime from Kupe -before the field upgrade - is greater than the 2P field contents after the field upgrade.

This can't be correct, and I am somewhat baffled as to how to fix it. The only explanation I can think of is that because the projections are going out to 2028, the operators of Kupe are assuming that some of what is now a '3P' resource will become a '2P' resource further down the track. But I have no idea if that sort of thinking is common among oil field operators.

SNOOPY

[xafalcon]

It lacked a simple explanation of key information that allows people to associate the field reserve update to company value and future eps.


I raised two areas of impact

Company value which is increased by greater 2P reserves. The rough calculation I did on your earlier numbers refers. Approx 10cps added company value

EPS is theoretically increased by not having to drill so soon. The extra eps will come to shareholders whenever they were previously expecting to start drilling, not sure when that was. I have no idea of this cost. Any ideas?

Reading your reply above, we are saying the same thing, just with different words

And yes, I'm sure the field operator would be "questioned" if they think extracting oil more quickly when prices are so depressed is a good idea. Service the natural gas market & contracted crude volumes, leave the rest for when prices are better

[Snoopy]

I think Snoop's point is that POO has dropped from $48-50 a barrel to $38 in the meantime

Actually I wasn't specifically thinking about that. Much of the oil output is forward hedged, and I think it is a mistake to assume that all other oil will end up being sold at the spot price 'today'. At prospectus time, the people who drew that up were swearing oil would be selling a US$97 /barrel about now. And these were respected industry experts!

SNOOPY

[Snoopy]

EPS is theoretically increased by not having to drill so soon. The extra eps will come to shareholders whenever they were previously expecting to start drilling, not sure when that was. I have no idea of this cost. Any ideas?


To further prospect Kupe, I imagine the field operators (Origin Energy) would have to bring a drilling rig into the Kupe field. I imagine that actually bringing the rig here and the time value of money associated with having the rig here would be the main cost. Whether they drilled just one well or six wells is probably a smaller incremental expense.

I am not sure what other gas interests Origin have in Taranaki. Maybe they already have a rig not far away? If so, the incremental cost of further exploring Kupe might be quite small.

SNOOPY

[Snoopy]

Time to revalue the 'gas' part of the Kupe resource from a current financial year perspective.



YearKupe GasValueResource DepreciationNet


(GJ)Receivedand AmortizationProceeds



20165.3E06$39,432,000$23,018,794$16,413,206


20176.1E06$42,207,120$21,407,478$20,799,642


20186.1E06$39,252,622$19,908,953$19,343,667


20195.3E06$31,717,405$18,515,328$13,202,077


20206.1E06$33,949,592$17,219,255$16,730,337


20216.1E06$31,573,121$0$31,573,121


20225.3E06$25,512,117$0$25,512,117


20236.1E06$27,307,592$0$27,307,592


20246.1E06$25,396,061$0$25,396,061


20255.3E06$20,520,850$0$20,520,850


20266.1E06$21,965,053$0$21,965,053


20276.1E06$20,427,499$0$20,427,499


Total7.00E07$359,261,032$100,069,810$259,191,223


PV per share$0.26


PV per share (tax paid)$0.19



Assumptions used:

1/ 80% of Gas at $NZ7.44/GJ (long term contract). 80% of Gas at $NZ7.44/GJ (spot price).

2/ Time value of money annual discount factor used: (1-0.07)=0.93

Something needs explaining here. Why, when the gas wholesale price used has remained the same, has the value of the gas resource gone up, even though a year's worth of extractions have happened since the last gas field valuation a year ago? The answer is that when scaling my gas production values from the NZOG annual report, the amount of gas forecast to be pumped has increased. Yet the quantity of oil reserves has not increased. I don't fully understand how this can be. But I have to go with the values implied in the NZOG annual report.


The FY2015 annual report from NZOG has come out. This provides a better insight into the value of Kupe for FY2016 going forwards, because the projected production decay over time is more nuanced. So time to update my previous prediction of the wholesale value of Kupe gas (equity owned share only) to Genesis Energy.



YearKupe GasValueResource DepreciationNet


(GJ)Receivedand AmortizationProceeds



20167.00E06$47,320,000$26,445,887$20,874,113


20177.00E06$44,282,056$24,748,061$19,533,995


20186.50E06$38,479,209$23,159,236$15,319,923


20195.1E06$28,253,093$21,672,413$6,580,680


20206.3E06$32,660,243$20,281,044$12,379,199


20216.3E06$30,563,455$0$30,563,455


20225.1E06$23,153,418$0$23,153,418


20235.6E06$23,981,181$0$23,791,181


20245.6E06$22,263,788$0$22,263,788


20253.5E06$13,021,533$0$13,021,533


20263.2E06$11,141,075$0$11,141,075


20272.3E06$7,493,556$0$7,493,556


20288.00E05$2,540,580$0$2,540,580


Total6.43E07$324,963,186$116,306,640$208,656,546


PV per share$0.21


PV per share (tax paid)$0.15



Assumptions used:

1/ 80% of Gas at $NZ7/GJ (long term contract). 80% of Gas at $NZ5.80/GJ (spot price).

Prices sourced from here:
http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/statistics/documents-image-library/prices.xlsx

2/ Time value of money annual discount factor used: (1-0.0642)=0.9358

SNOOPY

[Snoopy]

YearKupe GasValueResource DepreciationNet


(GJ)Receivedand AmortizationProceeds




Total6.43E07$324,963,186$116,306,640$208,656,546





Herein lies the problem. The total gas taken from the field by 2028 (6.43E07 GJ), the period I have modelled (before the field is revalued upwards) is greater than the assessed content of the field after it has been revalued upwards (4.77E07 GJ) (cf my post 1898).

Insights on what might have gone wrong appreciated :-(

SNOOPY

[xafalcon]

Looking at the background, I would review the extra 6 years of field life you added into your model back around post #1650. I think your reasoning was "expected field life extension" (I paraphrase). So it looks like you already factored something in, but it was an guestimate

Not related, but somehow your units have changed from GJ to PJ but the figures haven't been changed by a factor of 1M

[Snoopy]

Q/ Why are there no more 'Resource Depreciation and Amortization' after FY2021? You are continuing to extract gas, so surely the field is continuing to deplete?

A/ Total 'Depletion, Depreciation and Amortization' charge for the field in FY2014 was $56.4m. Under note 21 of AR2014, the total Oil and Gas producing Assets on the books are $324.5m. If these are depreciated at the FY2014 rate on a straight line basis, then all of the
'Depletion, Depreciation and Amortization' assets will be fully off the books after.

$324.5m / $56.4m/yr = 5.8 years

I have put another 6 years of depreciation into my model at the FY2014 rate. That will fully account for all 'Depletion, Depreciation and Amortization' assets on the books.

Ideally you would spread out the 'Depletion, Depreciation and Amortization' expenses over the whole operation period of the field. For whatever reason Genesis don't appear to have done that. I don't know why not (anyone know?). But the way that I have written off the D,D&A expenses is in line with the policy of Genesis Energy, or so it seems!


I have managed to answer my own question by reading the fine print in the annual report. From p86 in AR2015

"Depletion of oil and gas producing assets is based on the amount of units produced during the period in comparison to the total expected to be produced from the proven reserves (1P). Proven reserves (1P) are the estimated quantities of oil and gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years, from known reservoirs, under existing economic and operating conditioins. Proven reserves (1P) are those which have a 90% likelihood of being delivered. The proven oil and gas reserves used to deplete oil and gas producing assets is reviewed annually."

So there is the answer. Productiion plans are graphed out as '2P' (proved and probable). But in the accounts depletion is written off only on the '1P' piece of the future projected production plans.

SNOOPY

[Snoopy]

FY2015 is now done, although not quite dusted from a dividend perspective. But it is now time to look ahead to the current year.

This case assumes 80% of FY2016 fuel sales are hedged at $US84.50 per barrel. This means we can calculate the average oil sale price, assuming the balance is sold on the spot market at USD55 as follows:

0.8*USD84.50+0.2*USD55 = USD78.60





YearNo. of Oil & LPGOil BarrelKupe CondensateResource DepreciationNet


Equiv barrelsPrice USDRevenueand AmortizationProceeds


201644000078.6$45,505,263$33,381,206$12,124,057


201744000055$34,100,000$31,044,522$3,055,478


201844000055$31,713,000$28,871,405$2,841,595


201942000055$28,152,495$26,850,407$1,302,088


202046000055$28,675,327$24,970,878$3,704,449


202144000055$25,508,574$25,508,574


202244000055$23,722,973$23,722,973


202342000055$21,059,530$21,059,530


202444000055$20,510,000$20,510,000


202546000055$19,949,092$19,949,092


202644000055$17,746,018$17,746,018


202742000055$15,753,624$15,753,624


Total5.26E06$312,403,896$145,118,418$167,285,477


PV per share$0.17


PV per share (tax paid)$0.12



1/ Time value of money annual discount factor used: (1-0.07)=0.93

2/ USD/NZD Exchange rate is held constant from the previous example. The exchange rate used is $NZ1 = NZ66c

Result: Compared to the previous years' estimate, the value of Kupe Oil has shrunk by 1cps. This is not unexpected as the resource is depleting as the oil is extracted.


Time to use the latest extraction profile to update the all up value of Kupe Condensate (oil & LPG) as it applies to FY2016 up to and including the end (2028).



YearNo. of Oil & LPGOil BarrelKupe CondensateResource DepreciationNet


Equiv barrelsPrice USDRevenueand AmortizationProceeds


201664000076.6$64,189,474$28,854,113$35,651,113


201762000045$39,558,818$27,001,679$12,567,139


201857900045$34,571,102$25,268,171$9,302,931


201953700045$30,004,886$23,645,954$6,358,932


202055800045$29,176,617$22,127,884$7,048,723


202147600045$23,291,139$23,291,139


202239300045$17,995,312$17,995,312


202343400045$18,596,859$18,596,859


202439300045$15,758,884$15,758,884


202526900045$10,094,114$10,094,114


202622700045$7,971,221$7,971,221


202714500045$4,764,859$4,764,859


20286200045$1,906,558$1,353,062


Total5.333E06$298,195,663$126,897,802$171,297,861


PV per share$0.17


PV per share (tax paid)$0.12



1/ Time value of money annual discount factor used: (1-0.0642)=0.9358

What we have here are changes in different figures leading to a result that is very similar.

SNOOPY

[Bobdn]

On the Genesis website, Kupe is predicted to run dry by 2025. What's the deal now with the recent update?

[Snoopy]

On the Genesis website, Kupe is predicted to run dry by 2025. What's the deal now with the recent update?


The answer unfortunately Bobdn, is that the field life depends on several different things. As I base case I would assume that the extraction rate does not change. Work out today's extraction rate, then figure out how much more time the extra declared resouce will add to the field life in terms of years. Then you have an answer.

I believe that I have some understanding of the principles of gas field extraction, and a working knowledge of the laws of logic. But I am certainly no expert and have never worked in the gas extraction industry. So take my comments in that light, and please feel free to dissect them if you think that I have joined the wrong dots.

The first point I would make is that the Kupe field reservoir was declared larger in '2P' terms. Now 2P includes 'Proved' and 'Probable'. Genesis also said that the larger reservoir than expected means that they can defer further field exploration expenditure. Logic then tells me that the increased reservoir must fall into the 'proved' category, not 'probable'. Genesis are very definite about the deferral of further Kupe field exploration, so this implies that they know the field is bigger (1P), not merely that they probably believe the field to be bigger (2P). Yet 1P is a subset of 2P, so an increase in 1P (proved only) will automatically imply an increase of 2P (proved and probable) which is what was declared.

How does a field operator 'measure' that the reservior is larger than they think? I am guessing it is through pressure. The more gas/condensate compacted under the ground, the harder it will push to get out. This is how Genesis have declared the reserve to be larger without doing any significant more exploration work. To convert a 'probable' reserve to a 'proven', I think this means more drilling in an adjacent geotechnically similar petrochemical field pocket. You could look on a seabed map and have an educated guess as to where more resouces might be. But you won't actually know if resouces are there in an economically extractable form until you drill.

SNOOPY

[Bobdn]

Snoopy, thank you for your detailed answer which I devoured.

[Snoopy]

Time to use the latest extraction profile to update the all up value of Kupe Condensate (oil & LPG) as it applies to FY2016 up to and including the end (2028).



YearNo. of Oil & LPG


Equiv barrels


Total5.333E06





The 5,333,000 equivalent barrels of oil (condensate and LPG) in my table includes 3,141,000 barrels of condensate.

Compare this to the just 2,000,000 barrels of condensate of Genesis 2P 'light oil' after the just completed field evaluation and you can see my model is budgeting on extracting a lot more oil out of Kupe than the current 2P reserves.

My figures were obtained using data interpolated from the NZOG AR2015 which contained a fancy bar graph of all NZOG's projected Taranaki output, and a specific break down of what was due from Kupe. Worried at my apparent errors (+57% on petroleum reserves, +35% on gas reserves) I went back to that AR2015 NZOG graph and rescaled my input data again. The result though, was not meaningfully different.

My best explanation(s) at what is happening here is that:

1/ the NZOG Kupe field projected production data, stretching way out to 2028 (twelve years away) must contain some Kupe content that is currently 3P but is expected to become 2P in just a few years. After all, if more drilling will be required before 2028 to allow the field life to stretch that far, some of that information later in the graph in particular has to be educated guess work.

2/ Maybe the graph I am trying to scale data from is not drawn precisely enough to allow such data scaling to reliably take place. It all looks nicelty tarted up and flash in print. But put lipstick on a pig, and you still have a pig underneath.

Either way, it does appear that the just announced increased 2P reserves at Kupe are already built into my data, as is the next increase in reserves!

SNOOPY

[Snoopy]

Time to use the latest extraction profile to update the all up value of Kupe Condensate (oil & LPG) as it applies to FY2016 up to and including the end (2028).



YearNo. of Oil & LPGOil BarrelKupe CondensateResource DepreciationNet


Equiv barrelsPrice USDRevenueand AmortizationProceeds


201664000076.6$64,189,474$28,854,113$35,651,113


201762000045$39,558,818$27,001,679$12,567,139


201857900045$34,571,102$25,268,171$9,302,931


201953700045$30,004,886$23,645,954$6,358,932


202055800045$29,176,617$22,127,884$7,048,723


202147600045$23,291,139$23,291,139


202239300045$17,995,312$17,995,312


202343400045$18,596,859$18,596,859


202439300045$15,758,884$15,758,884


202526900045$10,094,114$10,094,114


202622700045$7,971,221$7,971,221


202714500045$4,764,859$4,764,859


20286200045$1,906,558$1,353,062


Total5.333E06$298,195,663$126,897,802$171,297,861


PV per share$0.17


PV per share (tax paid)$0.12



1/ Time value of money annual discount factor used: (1-0.0642)=0.9358

What we have here are changes in different figures leading to a result that is very similar.


Just to reprise. The re-evaluation of the Kupe petrochemical field looks good for GNE. But it appears my modelling has (largely) already taken this into account. Nevertheless there is one benefit I have not yet modelled. Because the field will last longer, that means the field depletion and depreciation charges incurred to date should be spread out over a longer time frame. If I add two years into that timeframe, here is what happens.



YearNo. of Oil & LPGOil BarrelKupe CondensateResource DepreciationNet


Equiv barrelsPrice USDRevenueand AmortizationProceeds


201664000076.6$64,189,474$20,610,081$43,895,113


201762000045$39,558,818$19,286,913$20,271,905


201857900045$34,571,102$18,048,694$16,522,408


201953700045$30,004,886$16,883,967$13,114,919


202055800045$29,176,617$15,805,632$13,370,986


202147600045$23,291,139$14,790,910$8,500,229


202239300045$17,995,312$13,841,334$4,153,978


202343400045$18,596,859$18,596,859


202439300045$15,758,884$15,758,884


202526900045$10,094,114$10,094,114


202622700045$7,971,221$7,971,221


202714500045$4,764,859$4,764,859


20286200045$1,906,558$1,353,062


Total5.333E06$298,195,663$119,273,530$178,922,132


PV per share$0.18


PV per share (tax paid)$0.13



Not exciting. But that extra cent added onto the value of each Genesis share is still worth noting.

SNOOPY

[Snoopy]

The FY2015 annual report from NZOG has come out. This provides a better insight into the value of Kupe for FY2016 going forwards, because the projected production decay over time is more nuanced. So time to update my previous prediction of the wholesale value of Kupe gas (equity owned share only) to Genesis Energy.



YearKupe GasValueResource DepreciationNet


(GJ)Receivedand AmortizationProceeds



20167.00E06$47,320,000$26,445,887$20,874,113


20177.00E06$44,282,056$24,748,061$19,533,995


20186.50E06$38,479,209$23,159,236$15,319,923


20195.1E06$28,253,093$21,672,413$6,580,680


20206.3E06$32,660,243$20,281,044$12,379,199


20216.3E06$30,563,455$0$30,563,455


20225.1E06$23,153,418$0$23,153,418


20235.6E06$23,981,181$0$23,791,181


20245.6E06$22,263,788$0$22,263,788


20253.5E06$13,021,533$0$13,021,533


20263.2E06$11,141,075$0$11,141,075


20272.3E06$7,493,556$0$7,493,556


20288.00E05$2,540,580$0$2,540,580


Total6.43E07$324,963,186$116,306,640$208,656,546


PV per share$0.21


PV per share (tax paid)$0.15



Assumptions used:

1/ 80% of Gas at $NZ7/GJ (long term contract). 80% of Gas at $NZ5.80/GJ (spot price).

Prices sourced from here:
http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/statistics/documents-image-library/prices.xlsx

2/ Time value of money annual discount factor used: (1-0.0642)=0.9358


As with the oil and condensate, the gas field proportion of depletion and depreciation can likewise be spread out over 7 years, not 5. So here are those changes.



YearKupe GasValueResource DepreciationNet


(GJ)Receivedand AmortizationProceeds



20167.00E06$47,320,000$18,889,919$28,480,081


20177.00E06$44,282,056$17,677,187$26,604,869


20186.50E06$38,479,209$16,542,311$21,936,898


20195.1E06$28,253,093$15,480,295$12,772,798


20206.3E06$32,660,243$14,486,460$18,173,783


20216.3E06$30,563,455$13,556,421$17,007,026


20225.1E06$23,153,418$12,686,106$10,467,312


20235.6E06$23,981,181$0$23,791,181


20245.6E06$22,263,788$0$22,263,788


20253.5E06$13,021,533$0$13,021,533


20263.2E06$11,141,075$0$11,141,075


20272.3E06$7,493,556$0$7,493,556


20288.00E05$2,540,580$0$2,540,580


Total6.43E07$324,963,186$116,306,640$208,656,546


PV per share$0.22


PV per share (tax paid)$0.16



SNOOPY

[xafalcon]

So based on your updated figures, which include the revised 2P reserves, the increase in company value as a result of the revised 2P reserves is

(($0.13 + $0.15) / 1.33) x 33% = $0.07 contribution per share. A 3.7% increase based on current SP

Or should I be working on pre-tax, since this is company value rather than profit/distributions to shareholders?

In which case, (($0.18 + $0.21) / 1.33) x 33% = $0.10 contribution per share. A 5.1% increase based on current SP

[Hectorplains]

Anyone have a take on Marc England's appointment?

[Snoopy]

So based on your updated figures, which include the revised 2P reserves,


xafalcon, using the gas figures as an example:

1/ my first iteration for FY2016 (based on the FY2014 NZOG annual report graph) modelled the field with 7.00E07GJ of gas.
2/ my second iteration for FY2016 (based on the FY2015 NZOG annual report graph) modelled the field with 6.43E07GJ of gas.
3/ my third iteration for FY2016 (based on the FY2015 NZOG annual report graph), but now stretching the depletion and depreciation costs over seven years , not five, modelled the field with 6.43E07GJ of gas (same as iteration 2).

All of these three iterations were based on graphs of P&P field contents before the October 1st 2015 measured field content re-evaluation.

After the field has be reevaluated we are told the gas content as at 1st October 2015 is 4.77E07 GJ.

This is less than any of the amount of gas I was modelling in iterations 1, 2 or 3. So I have to conclude that all three of my attempts to model the present value of equity accounted wholesale gas owned by GNE all unwittingly include the updated field revaluation contents, even though the re-evaluation was announced after the data I was working with was released!

It was lucky I was able to telepathically incorporate this information before it was announced, as well as the next field upgrade that hasn't yet been announced ;-). Or maybe the data I am using, all interpolated from NZOG bar graphs remember) is a bit sloppy? I guess what I am saying is that there was no 'before' and 'after' field upgrade modelling. It ended up all being 'after', even though I didn't know it at the time!

So I can't really give a 'before' and after' comparison! The bit about extending the depletion and depreciation (iteration 3) is really only a half pie accounting adjustment.



the increase in company value as a result of the revised 2P reserves is

(($0.13 + $0.15) / 1.33) x 33% = $0.07 contribution per share. A 3.7% increase based on current SP

Or should I be working on pre-tax, since this is company value rather than profit/distributions to shareholders?

In which case, (($0.18 + $0.21) / 1.33) x 33% = $0.10 contribution per share. A 5.1% increase based on current SP


I am using 'post tax' for my comparison purposes. (*) Adjusting the depletion and depreciation rates from five to seven years gives (the before and after between iterations 2 and 3) .

1/ the improvement for gas is 16c - 15c = 1c
2/ the improvement for petroleum is 13c -12c = 1c

I make that a grand total of 2cps : YAY! (or maybe that should be yay!). Hardly enough to get too excited about. Maybe that's why the market didn't excatly leap on the day the announcement was made?

SNOOPY

(*) Note: I have subsequently changed my mind and decided the field should be valued on a pre-tax basis.

[Snoopy]

Anyone have a take on Marc England's appointment?


It is interesting that unlike Mighty River, Genesis have chosen an external candidate for the top job.

From the announcement:

------

"His vision, strategy and execution track record is exactly what Genesis Energy needs as we enter our next chapter to fulfil our aspirations of delivering further value for our customers, shareholders and stakeholders”, Dame Jenny said."

"Marc’s general management experience is also underpinned by strong finance, strategy, marketing and procurement experience with leading blue chip companies in the industrial sector. He has an MBA from the highly regarded Imperial College, London, and a degree in Mechanical Engineering. Marc also brings a very good understanding of investments like Kupe, from his time at Halliburton Energy Services in the Oman as a Petroleum Engineer."

------

Genesis seems to have been in a kind of limbo since the government forced aquisition of Tekapo. It sounds like Dame Jenny is expecting Mark to 'shake things up'!

SNOOPY

[Jantar]

...... It sounds like Dame Jenny is expecting Mark to 'shake things up'!

SNOOPY
The best shake up would be if Dam Jenny was replaced.

[horus1]

It is the start of facing up to the threats of solar, batteries and IT changes which are starting to drop margins on domestic customers and pose a threat. Never buy shares in a company chaired by an x politician from bitter experience.

[xafalcon]

xafalcon, using the gas figures as an example:

1/ my first iteration for FY2016 (based on the FY2014 NZOG annual report graph) modelled the field with 7.00E07GJ of gas.
2/ my second iteration for FY2016 (based on the FY2015 NZOG annual report graph) modelled the field with 6.43E07GJ of gas.
3/ my third iteration for FY2016 (based on the FY2015 NZOG annual report graph), but now stretching the depletion and depreciation costs over five years , not seven, modelled the field with 6.43E07GJ of gas (same as iteration 2).

All of these three iterations were based on graphs of P&P field contents before the October 1st 2015 measured field content re-evaluation.

After the field has be reevaluated we are told the gas content as at 1st October 2015 is 4.77E07 GJ.

This is less than any of the amount of gas I was modelling in iterations 1, 2 or 3. So I have to conclude that all three of my attempts to model the present value of equity accounted wholesale gas owned by GNE all unwittingly include the updated field revaluation contents, even though the re-evaluation was announced after the data I was working with was released!

It was lucky I was able to telepathically incorporate this information before it was announced, as well as the next field upgrade that hasn't yet been announced ;-). Or maybe the data I am using, all interpolated from NZOG bar graphs remember) is a bit sloppy? I guess what I am saying is that there was no 'before' and 'after' field upgrade modelling. It ended up all being 'after', even though I didn't know it at the time!

So I can't really give a 'before' and after' comparison! The bit about extending the depletion and depreciation (iteration 3) is really only a half pie accounting adjustment.



I am using 'post tax' for my comparison purposes. Adjusting the depletion and depreciation rates from five to seven years gives (the before and after between iterations 2 and 3) .

1/ the improvement for gas is 16c - 15c = 1c
2/ the improvement for petroleum is 13c -12c = 1c

I make that a grand total of 2cps : YAY! (or maybe that should be yay!). Hardly enough to get too excited about. Maybe that's why the market didn't excatly leap on the day the announcement was made?

SNOOPY

But I am referring to company value increase as a result of greater 2P reserves than previous assumed.

No matter which way you look at it, a 33% increase in something is a 33% increase.

If you over-estimated gas reserves by 33%, knock that much off. This isn't intended to be a super-precise calculation. Just an estimate

((($0.13 + ($0.16*67%)) / 1.33) x 33% = $0.06 increase in company value per share.

Note that this uses the new gas figure you changed since my earlier post

I also believe the oil price in later years will be higher than you model, it's not some rubbish heavy crude, so some upside potential there IMO

[Snoopy]

It is the start of facing up to the threats of solar, batteries and IT changes which are starting to drop margins on domestic customers and pose a threat.

But Genesis are at the forefront of solar energy development, the only big Gentailer to be doing so! From slide 10 of the AGM slideshow:

"New ventures group established with focus on solar"

SNOOPY

[horus1]

you are kidding me. Those at the forefront are actually doing it , not trying to block it thru denigrating it . Those at the forefront are independent of the energy market

[Snoopy]

But I am referring to company value increase as a result of greater 2P reserves than previous assumed.

No matter which way you look at it, a 33% increase in something is a 33% increase.


If you want to account for that you should take 33% off my previous field size estimate. Not add 33% to current field size I am modelling. My previous overestimate was due to lack of field data on what the size of the field was back then.



If you over-estimated gas reserves by 33%, knock that much off.


Yes I could have done that, and adjusted my historical valuation of Kupe downwards. But what's the point? That overestimate is now historical. I can always only use the best data I have at the time.



This isn't intended to be a super-precise calculation. Just an estimate

((($0.13 + ($0.16*67%)) / 1.33) x 33% = $0.06 increase in company value per share.

Note that this uses the new gas figure you changed since my earlier post


Apologies for changing the figures on you. I put that unfinished post in as a placeholder. There was a hint there that I was planning to adjust it later.

Those figures for gas (16c) and petroleum (13c) are the total value of the 31% equity accounted wholesale price (for gas) and pre-refining price (for oil) of the Genesis share of the Kupe field over the lifetime of the entire field. Sure the changes are worth millions of dollars. But when you spread those new millions over the billion shares on issue, the changes in value for GNE shareholders are still small.

Multiplying either of those two figures by a fraction (like you did), assumes the same pricing profile over the life of the field. With oil, that is certainly not true. With gas it is nominally take or pay, so that might be true. But I wouldn't be surprised if there is some reset price clause after say 5 years (from field start in 2011). In fact I have assumed this in the revised gas model data (Iterations 2 and 3).

Furthermore since there is no call to suddenly boost production, all of this gain from new resources would be in future years and that would be subject to 'time value for money' discounting. Current production of oil profitability is significantly increased by prudent hedging. I don't think the increased field contents would even sell for half of todays prices (and that is before time value of money discounting).



I also believe the oil price in later years will be higher than you model, it's not some rubbish heavy crude, so some upside potential there IMO


You may be correct xafalcon. I still haven't found any definitive source for that 'sweet crude premium' that Kupe oil supposedly enjoys. My oil price for FY2017 is almost certainly too low in any case. I know this because we are told that Genesis has the policy of some hedging 12 to 24 months out.

But it may be my US$45 (based on $NZ1 = 0.66US) in latter years is too high. The crude price is currently $US35. So I am modelling a price recovery of some 30% from today's prices.

SNOOPY

[Snoopy]

you are kidding me. Those at the forefront are actually doing it , not trying to block it thru denigrating it . Those at the forefront are independent of the energy market

I am talking about the 'Schoolgen' program horus. This is the one where Genesis have an equity stake in the panels on School rooftops. And yes, Genesis are actually doing it right now.

The fact that Genesis aren't offering to buy the solar energy from your roof horus, relates to your panels not being numerous enough AND/OR not being able to guarantee a boost in supply at peak usage time.

SNOOPY

[Snoopy]

But I am referring to company value increase as a result of greater 2P reserves than previous assumed.

No matter which way you look at it, a 33% increase in something is a 33% increase.

If you over-estimated gas reserves by 33%, knock that much off. This isn't intended to be a super-precise calculation. Just an estimate

((($0.13 + ($0.16*67%)) / 1.33) x 33% = $0.06 increase in company value per share.

Note that this uses the new gas figure you changed since my earlier post

I also believe the oil price in later years will be higher than you model, it's not some rubbish heavy crude, so some upside potential there IMO

Summary: My slightly crude and possibly still overestimating of reserves Kupe model shows:

1/ the present value of Genesis oil from Kupe (equity accounted share, post tax) to be 13cps AND
2/ the present value of Genesis gas (equity accounted share, post tax) to be 16cps (from Iteration 3).

These are the 'right now' figures, as best as I can ascertain them, with the information I have (interpolated data from a bar graph in the NZOG annual report for FY2015).

SNOOPY

[xafalcon]

If you want to account for that you should take 33% off my previous field size estimate. Not add 33% to current field size I am modelling. My previous overestimate was due to lack of field data on what the size of the field was back then.SNOOPY

FYI this is what my formula did in red - the division of your theoretical value contribution per share divided was by 1.33 to remove the "extra" 33%

((($0.13 + ($0.16*67%)) / 1.33) x 33% = $0.06 increase in company value per share.

This value was then multiplied by 33% in blue to calculate the "field increase effect" on company value per share, as 33% was the magnitude of the increase

My calculation was never intended to be super accurate. I just wanted a guide to better understand the effect on company value that the increased 2P reserves provided.

Having thought more about using your pre- v's post- tax figures, I think pre-tax is more appropriate as asset appreciation isn't taxed until it is sold and partially distributed as a dividend

So using your most recent figures, the increased company value becomes

((($0.21 + ($0.22*67%)) / 1.33) x 33% = $0.09 increase in company value per share, or 4.7%

PS. I really do appreciate the well researched and clearly explained analysis that you provide us with Snoopy :)

[Jantar]

I notice that GNE have not yet included any change in Gas reserves into their own calculations of company assets. Maybe that is because the falling gas price almost exactly cancels out the increase in gas quantity.

[xafalcon]

I notice that GNE have not yet included any change in Gas reserves into their own calculations of company assets. Maybe that is because the falling gas price almost exactly cancels out the increase in gas quantity.

I would not expect gas prices to fall significantly. There is no real competition in the NZ gas market, so no reason to lower prices. Crude oil is a different situation, however

[Jantar]

I would not expect gas prices to fall significantly. There is no real competition in the NZ gas market, so no reason to lower prices. Crude oil is a different situation, however
With Otahuhu and Southdown gas fired stations closing this year, that is a huge drop in demand for gas. However LPG does not see the same drop in demand, and the only way to get LPG is to continue extracting gas from the ground. Therefore buyers have to be found for that gas. Other than electricity generation, Methanex is the only other large user of gas, and they will only buy at quite low prices.

[xafalcon]

With Otahuhu and Southdown gas fired stations closing this year, that is a huge drop in demand for gas. However LPG does not see the same drop in demand, and the only way to get LPG is to continue extracting gas from the ground. Therefore buyers have to be found for that gas. Other than electricity generation, Methanex is the only other large user of gas, and they will only buy at quite low prices.

LPG can easily be imported, if it ever became a financial driver. Probably at similar costs, because LPG is often the "waste product" of gas extraction.

For example, when Maui was producing huge quantities of natural gas, XS LPG was being sold to aussie for 1-2 cents/litre

While some natural gas fired plants are closing, new ones are also opening (not necessarily solely for electricity generation). NI dairy industry preferentially uses gas where it is available for example. There is also talk of more gas peaking capacity being the back-up plan if GNE retire the remaining rankines in 2 years, and if GNE do not retire them, then they probably use natural gas once the coal stockpile is gone

The company I work for has not seen any meaningful gas price decrease, and our usage has increased 200% due to expansion in the last year. We use about 16,000GJ/month, so a reasonable quantity

[Jantar]

.......
The company I work for has not seen any meaningful gas price decrease, and our usage has increased 200% due to expansion in the last year. We use about 16,000GJ/month, so a reasonable quantity

The company I work for uses over 50,000 GJ/day and we have seen our gas costs reduce by more than 30% over the past 12 months. :lol:

[xafalcon]

The company I work for uses over 50,000 GJ/day and we have seen our gas costs reduce by more than 30% over the past 12 months. :lol:

Thanks, I'll pass that up the feeding chain here

I assume that is just the energy cost? How have distribution costs changed over the same period?

[xafalcon]

The company I work for uses over 50,000 GJ/day and we have seen our gas costs reduce by more than 30% over the past 12 months. :lol:

Thanks, I'll pass that up the feeding chain here

[Snoopy]

I notice that GNE have not yet included any change in Gas reserves into their own calculations of company assets. Maybe that is because the falling gas price almost exactly cancels out the increase in gas quantity.


I notice on the quarterly pricing data for gas from the excel spreadsheet available here: ...

http://www.mbie.govt.nz/info-services/sectors-industries/energy/energy-data-modelling/statistics/prices

...that wholesale gas prices have fallen from 2.08c/kWh (June 2015 quarter) to 1.78c/kWh (September 2015 quarter). This is a 14% fall in price, albeit in the energy cost component only. However, that price fall alone would not fully devalue a 33% increase in gas reserves.

All this is assuming all sales are on the spot market. We know this assumption to be false, because most sales are on longer term contracts, and may be even "take or pay". However, I assume that long term gas contracts would have some price readjustment points built into those supply contracts (?). And 2016 is conveniently close to five years (a nice round figure reset time?) since the field started producing in commercial quantities. All this gas contract stuff is educated speculation on my part. It would be nice if someone on the customer side could confirm!

So, most likely, I would deduce that Genesis have not got around to adjusting parts of their website for the increase in 2P gas resource.

SNOOPY

[Snoopy]

The company I work for uses over 50,000 GJ/day and we have seen our gas costs reduce by more than 30% over the past 12 months. :lol:

The decline in wholesale price from the mbie website is recorded as going from 2.35c/kWh to 1.78c/kWh over the last year. This is a decline of 'only' 24%. So your negotiating team has done well to get 30% Jantar!

SNOOPY

PS 50,000GJ /day divided by 24 is:

2,083 GJ/hour
= 2,083,000 MJ/hour
= 34,717 MJ/minute
= 578.6 MJ/second = 579MW !

That is one heck of a lot of power.

[fish]

The decline in wholesale price from the mbie website is recorded as going from 2.35c/kWh to 1.78c/kWh over the last year. This is a decline of 'only' 24%. So your negotiating team has done well to get 30% Jantar!

SNOOPY

I wonder if jantar works for contact?
Please don't answer jantar
But snoopy what effect will this have on contacts profits-I guess they can buy it cheaply on the market and store it

[trader_jackson]

Not sure if it has already been discussed, but what does everyone think of the new CEO?

[Snoopy]

Not sure if it has already been discussed, but what does everyone think of the new CEO?

Refer to my post 1920

SNOOPY

(speaking for myself, not 'everyone')

[Snoopy]

Just to reprise. The re-evaluation of the Kupe petrochemical field looks good for GNE. But it appears my modelling has (largely) already taken this into account. Nevertheless there is one benefit I have not yet modelled. Because the field will last longer, that means the field depletion and depreciation charges incurred to date should be spread out over a longer time frame. If I add two years into that timeframe, here is what happens.



YearNo. of Oil & LPGOil BarrelKupe CondensateResource DepreciationNet


Equiv barrelsPrice USDRevenueand AmortizationProceeds


201664000076.6$64,189,474$20,610,081$43,895,113


201762000045$39,558,818$19,286,913$20,271,905


201857900045$34,571,102$18,048,694$16,522,408


201953700045$30,004,886$16,883,967$13,114,919


202055800045$29,176,617$15,805,632$13,370,986


202147600045$23,291,139$14,790,910$8,500,229


202239300045$17,995,312$13,841,334$4,153,978


202343400045$18,596,859$18,596,859


202439300045$15,758,884$15,758,884


202526900045$10,094,114$10,094,114


202622700045$7,971,221$7,971,221


202714500045$4,764,859$4,764,859


20286200045$1,906,558$1,353,062


Total5.333E06$298,195,663$119,273,530$178,922,132


PV per share$0.18


PV per share (tax paid)$0.13



Not exciting. But that extra cent added onto the value of each Genesis share is still worth noting.


I have done a backflip on my previous opinion that the value of Kupe prior to the October 1st 2015 valuation was not worth detailing. Iteration 4 is not a better version of Iteration 3 (Iteration 3 still stands as my best guess valuation).

For Iteration 4 I have taken a couple of years of production (827,000 barrels of oil equivalents based on actual oil and LPG) which roughly approximate the increase in 2P resrves just announced. There are several ways I could have done this. I have chosen to take out the old FY2023 and FY2024 (434,000+393,000=827,000). In turn I have moved the production from what was 2025 and beyond up the table. This adjustment preserves the expected production decay, but sees the field life shortened by two years. Consummate with this, I have returned the depletion and depreciation write off so that it all expires after five years again, not seven.



YearNo. of Oil & LPGOil BarrelKupe CondensateResource DepreciationNet


Equiv barrelsPrice USDRevenueand AmortizationProceeds


201664000076.6$64,189,474$28,854,113$35,651,150


201762000045$39,558,818$27,001,679$12,556,139


201857900045$34,571,102$25,268,171$9,302,931


201953700045$30,004,886$23,645,954$6,358,932


202055800045$29,176,617$22,127,884$7,048,733


202147600045$23,291,139$0$23,291,139


202239300045$17,995,312$0$17,995,312


2023269,00045$11,526,624$0$11,526,624


2024227,00045$9,102,460$0$9,102,460


2025145,00045$5,441,085$0$5,441,085


202662,00045$2,177,162$0$2,177,162


Total4.506E06$267,350,449$126,897,802$140,452,648


PV per share$0.14


PV per share (tax paid)$0.10



We can see the October 1st 2015 revaluation has resulted in the value per share of Genesis increasing by 3cps (condensate component only)

SNOOPY

[Snoopy]

As with the oil and condensate, the gas field proportion of depletion and depreciation can likewise be spread out over 7 years, not 5. So here are those changes.



YearKupe GasValueResource DepreciationNet


(GJ)Receivedand AmortizationProceeds



20167.00E06$47,320,000$18,889,919$28,480,081


20177.00E06$44,282,056$17,677,187$26,604,869


20186.50E06$38,479,209$23,159,236$15,319,973


20195.1E06$28,253,093$15,480,295$12,772,798


20206.3E06$32,660,243$14,486,460$18,173,783


20216.3E06$30,563,455$13,556,421$17,007,026


20225.1E06$23,153,418$12,686,106$10,467,312


20235.6E06$23,981,181$0$23,791,181


20245.6E06$22,263,788$0$22,263,788


20253.5E06$13,021,533$0$13,021,533


20263.2E06$11,141,075$0$11,141,075


20272.3E06$7,493,556$0$7,493,556


20288.00E05$2,540,580$0$2,540,580


Total6.43E07$324,963,186$116,306,640$208,656,546


PV per share$0.22


PV per share (tax paid)$0.16





For Iteration 4 I have taken a couple of years of production (11.2PJ) which roughly approximate the increase in 2P resrves just announced. There are several ways I could have done this. I have chosen to take out the old FY2023 and FY2024 (5.6PJ+5.6PJ=11.2PJ). In turn I have moved the production from what was 2025 and beyond up the table. This adjustment preserves the expected production decay, but sees the field life shortened by two years. Consummate with this, I have returned the depletion and depreciation write off so that it all expires after five years again, not seven.



YearKupe GasValueResource DepreciationNet


(GJ)Receivedand AmortizationProceeds



20167.00E06$47,320,000$26,445,887$20,874,113


20177.00E06$44,282,056$24,748,061$19,533,995


20186.50E06$38,479,209$23,159,236$15,319,973


20195.1E06$28,253,093$21,672,413$6.580,680


20206.3E06$32,660,243$20,281,044$12,379,199


20216.3E06$30,563,455$0$30,563,455


20225.1E06$23,153,418$0$23,153,418


20233.5E06$14,869,488$0$14,869,488


20243.2E06$12,722,164$0$12,722,164


20252.3E06$8,557,007$0$8,557,007


20268.00E05$2,785,269$0$2,785,269


Total5.31E07E07$283,645,402$116,306,640$167,338,76 2


PV per share$0.17


PV per share (tax paid)$0.12



We can see the October 1st 2015 revaluation has resulted in the value per share of Genesis increasing by 4cps (gas component only).

The total boost to per share value of Genesis (gas and condensate) as a result of the field revaluation is therefore 7cps, based on this particular valuation model.

SNOOPY

[Snoopy]

<snip chart>

The total boost to per share value of Genesis (gas and condensate) as a result of the field revaluation is therefore 7cps, based on this particular valuation model.



FYI this is what my formula did in red - the division of your theoretical value contribution per share divided was by 1.33 to remove the "extra" 33%

((($0.13 + ($0.16*67%)) / 1.33) x 33% = $0.06 increase in company value per share.

This value was then multiplied by 33% in blue to calculate the "field increase effect" on company value per share, as 33% was the magnitude of the increase

My calculation was never intended to be super accurate. I just wanted a guide to better understand the effect on company value that the increased 2P reserves provided.


xafalcon, in this instance my reworking of the spreadsheet, and your quick adjustment calculations have produced quite similar results (6cps vs 7cps is only 1cps difference.) Or looked at another way my valuation is (7/6= 1.16666) is 16.7% higher than yours, a reasonable difference, but not that much when expressed in per share GNE value.

So I take back what I implied about your quick and dirty recalculation not being good enough :-). You should also remember that my calculation, despite being more complex, is not 'super accurate' either.

There are other factors like:

1/ royalties and
2/ an estimation of the explortion costs needed to convert 2P to 1P

that I have not modelled.



Having thought more about using your pre- v's post- tax figures, I think pre-tax is more appropriate as asset appreciation isn't taxed until it is sold and partially distributed as a dividend

So using your most recent figures, the increased company value becomes

((($0.21 + ($0.22*67%)) / 1.33) x 33% = $0.09 increase in company value per share, or 4.7%

PS. I really do appreciate the well researched and clearly explained analysis that you provide us with Snoopy :)

I think it doesn't really matter which figures you use for comparison, as long as you are consistent in your bias, one way or the other.

I continue to favour the after tax comparison. My logic here is that any profit from the Kupe field will ultimately be taxed and dividends from the gentailer part of GNE are certainly 'tax paid' once shareholders get them.

SNOOPY

[Snoopy]

I know Roger(??) is concerned about the impuation credit position going forward so lets have a more detailed look.

Per the stats on p81, they have 0.1m of IC's so not enough to impute a dividend so they will have to pay more tax (before 31 March 2016) to be able to pay this dividend.


A positive company Imputation Credit balance means that the company concerned has already paid their legal tax requiremnet to IRD. This means that when those profits are passed on to shareholders, by the way of dividends, that the tax is paid (barring a wash upwithholding tax) so that the company profits are not taxed twoice (at company level and owner level).

Provisional tax is normally paid in three bites, with a wash up settlement due months later on, in the February following the close of each tax year. Any company would no doubt have a very good idea of what their provisional tax bills will be. Am I correct in saying that this 'future tax due' is recorded as a deferred tax liability (p81, AR2015)?

Can the deferred tax liability, if it is too low, be a measure of excessive forward payment of tax that will allow unrealistic expectations of fully imputed dividends going forwards?



But lets look at their tax position. Current Tax is an asset of $16.9m (Note 8 AR2015, Snoopy correction from $16.2m) which given their third installment wasn't due to after year end, means they have already prepaid, not just their final P3 payment, but $16m in excess of that, to be able to be used for 2016. And how much tax do they have to pay a year. Current tax expense per the notes is only $16m, so if 2016 is the same, then they have already prepaid their full 2016 tax liability,


If you look under note 8, you will see that the underlying current year tax was $37.6m (not $16.9m). There was a significant tax remediation settlement of $18.5m, based around Tekapo canal remediation costs. It is this, I believe, that has boosted the imputation credit balance to allow up to:

$18.5m/0.28 = $66m

of profits to be paid to shareholders with full imputation credits, when this otherwise would have required -further- huge prepayments by Genesis to the IRD to achieve the same result.



even though they need to make an additional payment to be able to impute the 2015 final dividend (that means to be able to impute the final 2015 dividend, they will be paying their 20167 tax liability early!!!). This is not sustainable unless they expect their tax liability to increase significantly going forward or they change their imputation ratio.


Maybe the imputation of dividends is even more precarious than you thought? I think the dividend going forwards (all dividends from here) will probably only be 50% imputed. That would be a major blow to dividend hungry shareholders

SNOOPY

[Harvey Specter]

Snoop Dogg.

Deferred tax relates to items like fixed assets where accounting and tax depreciation is different. As such, you know you are going to pay tax, just not this year.

Current tax is like your account with IRD. You know how much you have owed and how much you need to pay. Ideally when the 3rd installment is paid (1 month after balance date) it should be zero (ie. you have paid the right amount for the year). So without re-looking at their accounts, the fact they had a $16.9m asset, and their third installment wasn't due yet, means they have prepaid their tax. (normally you would expect the year end current tax liability to be 1/3 or the expect current year tax due which represents the 3rd installment payment).

The only reason to prepay tax is to impute a dividend. DM me if you have any questions.

[Bobdn]

Am I right in thinking that dividends are increasing next year and this will make up for the loss of imputation credits?

[xafalcon]

Am I right in thinking that dividends are increasing next year and this will make up for the loss of imputation credits?


GNE did say that F16 dividends would be higher and they also said that dividends will no longer be fully imputed. But I did not see any finer details about either to judge the offsetting effect

Regardless of future imputation credits, I see GNE as a stock that has been (and I believe still is) under-valued.

[Snoopy]

GNE did say that F16 dividends would be higher and they also said that dividends will no longer be fully imputed. But I did not see any finer details about either to judge the offsetting effect.


You have summed the situation up succinctly xafalcon.

The following table shows what has happened over the last two years



20142015


Free Cashflow (per share)16.2c19.8c


Dividends (per share)12.1c14.6c


Earnings (per share)8.0c8.5c



As you can see there is plenty of free cashflow there to increase dividends, if the company wanted to do that. 5.6c of that cashflow relates to depletion and depreciation of the Kupe resource in FY2015. Lets say all of that (equating to 5.2c, because 0.4c has already been added) was added to the dividend in FY2016. That means the final and interim dividend would both rise to 10.8cps.

However if only 50% of that dividend was imputed, the net half year dividend (equivalent to what Genesis pays now) reduces to:

5.3 + (0.7)5.3 = 9.0cps

In this case, the increase in dividend has more than compensated for only having 50% imputation.

However, one could argue that a dividend which is paid unimputed is in effect a return of capital to shareholders but with a tax bill attached. This begs the question. Why not sell your shares now? That would return your capital without the associated tax bill!

SNOOPY

[Snoopy]

I put 'Tapis'and 'Kupe' into the search engine and finally found out what you are talking about!

https://www.nzog.com/dmsdocument/53, on page 4

Written on 24th July 2007

----

Global oil supply is tight. While there may appear to be spare oil production capacity globally, much of this is thought to be in heavy sour crude oils, which are not as marketable to refineries as sweeter light crude oils, such as WTI and Tapis. The end result is much less spare capacity and therefore a tight market for high quality crude oils. This situation makes the market very sensitive to any supply disruptions, such as the shut in of Nigerean crude oil, northern hemisphere summer storms, geopolitical concerns and maintenance down time of production facilities. Considerable uncertainty also surrounds the willingness and capability of OPEC to increase supplies of crude oil and reduce prices.

{there is a graph on the page showing APPI Tapis Oil is sold at a premium to Nymex WTI. The premium price margin of APPI Tapis Oil over Nymex WTI is shown diagramatically. The price looks to vary between $7 per barrel and $2 per barrel, with the APPI Tapis Oil price nudging USD80 a barrel. There is no mention of the premium to 'ordinary' Brent Crude Oil.}

<snip>

Tui crude oil has been sold against the Tapis benchmark.

--------

The booklet says 'Tui' not 'Kupe'. But of course Kupe was not producing anything in 2007, the field was still under development.



A bit more information on the quality of Kupe Oil.

From: https://www.nzog.com/producing-assets/kupe-gas-and-oil-field/

----

The hydrocarbons in the field were derived from Late Cretaceous to Paleocene, organic-rich, sedimentary source rocks which were thermally cooked in the basin kitchen areas after deep burial, and then migrated updip into the shallower sandstone units within the structural traps. This geological evolution has created one of New Zealand’s richest condensate fields.

The output from this geological structure is waxy condensate and an untreated crude at a pour point of around 18 oC.

-----

A 'high pour point' is apparently between "+30 °C to +36 °C" (reference below)

http://www.thefreelibrary.com/Sudan+issues+tender+for+600k+barrel+of+Nile+blend+ crude-a0238031772

Pour points can vary between 32 °C to below −57 °C

http://www.britannica.com/technology/pour-point

The pour point is the lowest temperature at which a particular crude oil will flow. It is an indication of the wax content of the oil. Some of the famous Indonesian Waxy oils have pour points of 37.8 dec C

Heavy oil characteristics such as high pour point, paraffin deposition, and higher viscosity, cause problems in production systems, particularly wellbore and pipeline and increase production costs. Dissolved gas in oil can improve flow and reduce heavy oil's viscosity.

The pour point is generally increased by a high paraffin content. The chemical term for paraffin is an alkane, a saturated hydrocarbon.

Different hydrocarbon chain lengths all have progressively higher boiling points, so they can all be separated by distillation.

The proportion of light hydrocarbons in the petroleum mixture varies greatly among different oil fields, ranging from as much as 97 percent by weight in the lighter oils to as little as 50 percent in the heavier oils and bitumens. The hydrocarbons in crude oil are mostly alkanes, cycloalkanes and various aromatic hydrocarbons.

84 percent by volume of the hydrocarbons present in petroleum is converted into energy-rich fuels (petroleum-based fuels), including gasoline, diesel, jet, heating, and other fuel oils, and liquefied petroleum gas.[38] The lighter grades of crude oil produce the best yields of these products.

Oil refineries are increasingly having to process heavy oil and bitumen, and use more complex and expensive methods to produce the products required. Because heavier crude oils have too much carbon and not enough hydrogen, these processes generally involve removing carbon from or adding hydrogen to the molecules, and using fluid catalytic cracking to convert the longer, more complex molecules in the oil to the shorter, simpler ones in the fuels.

SNOOPY

[Jinx]

With oil continuing to fall for the foreseeable future, how much of a negative impact will this have on GNE?
Perhaps a silly question, sorry if so!

[Snoopy]

With oil continuing to fall for the foreseeable future, how much of a negative impact will this have on GNE?
Perhaps a silly question, sorry if so!

Not a silly question at all Jinx. In fact it is a question I have been wrestling with for some time. I can't answer you exactly. But here is what I have discovered so far.

1/ GNE’s policy is to hedge (oil) 50-75% of 12 month forward exposure (on rolling basis) and 25-50% of 12-24 month forward exposure. So whatever happens on the market today will have a significantly delayed effect on the price that Genesis gets.
2/ The Kupe field operators have been running hard pumping out oil when the price is high. But the real 'value product' that comes out of Kupe is gas. You can't elect to 'only extract gas' or 'only extract oil'. Most gas from Kupe I believe is used locally for sale as gas or to generate electrical power. So how hard the field pumps is largely dependent on the local energy market. And that is heavily tied into the local electricity market.
3/ The oil from Kupe is benchmarked in value by the international oil prices. But the quality of the oil is not 'average'. So I believe the price obtained is higher than the benchmark quoted prices.

So it all is far more complicated than you think. Probably not the answer you wanted :-(

SNOOPY

[Jinx]

So it all is far more complicated than you think. Probably not the answer you wanted :-(

SNOOPY

Not at all, if I wanted a straight foward answer I wouldn't be here! Thanks for insight, will continue to research.

[Traderx]

Hi all, happy new year!

Despite the doom and gloom in oil-land weighing on GNE's share price, just think of it as your personal fuel hedge i.e most of us are benefiting at the pump.

One good piece of news - GNE continues to hold is ground in the retail market (hopefully at reasonable prices), customer numbers now circa 5300 up off recent lows with another circa net 300 gain in the slow month of December

http://www.emi.ea.govt.nz/

Interesting to see commentary recently on Tiwai economics still looking reasonable and lower kiwi in last few days continuing that theme, this strengthens GNE's hand in the negotiation over the Rankine future which presumably is ongoing.

Looking forward to results and comment in Feb

Disc - very small long

[xafalcon]

A good result for GNE

https://nzx.com/companies/GNE/announcements/276899

This is presumably where MRP's customers have switched to......

[sb9]

A good result for GNE

https://nzx.com/companies/GNE/announcements/276899

This is presumably where MRP's customers have switched to......

Agreed, some impressive numbers!!!

[Beagle]

Nice to see them using up some of that coal stockpile profitably. Very good customer numbers too. I hold for dividend income.

[trader_jackson]

Forsyth released a research note on the whole sector recently, in short, they like GNE with a $2.09 price target on it and a expected half year DPS annoucement of 8.5c per share (the use of coal on the ground is releasing working capital, boosting GNE’s operating cash flows), and also anticipate GNE can continue to increase their dividend payment (in contrast to what some have thought). They also estimate that GNE will have repaid ~$50m of debt during 1H16, which is always nice

Not sure if I should put this on the GNE forum or BRL form...
What I found particularly interesting is the note "GNE needs to start thinking about buying more coal given its exposure to providing cover under its swaption contract during a dry year"... they believe they will need more coal in 4 months or so... and now that solid energy is gone, could Bathurst potentially capitalize on this?

Look forward to people's thoughts (or if they know of any other brokers who have updated their analysis yet)

[Traderx]

GNE results out this morning.

Points of interest will be Div policy given improving cashflows & balance sheet position noted above. Any mention of HLY rankine unit retention "negotiations", and particularly retail margins/cost to serve, they've been holding market share very well - have they been paying for it or is it more sustainable?

I'd love them to talk about Castle Hill development but sadly I think that is on the back burner. It would be great to get some more idea of the future vision of this company in a post Kupe, high cost of carbon world. But probably people are more interested in the short term divvys (which are and will be very nice).

[xafalcon]

I think the future oil & gas revenue reduction will likely be the main driver of market sentiment for GNE. In NZD terms, oil has halved in price over the past 18 months. Gas prices have reduced, but I don't have a firm number. I have heard figures of 25%

It would take a very impressive increase in electricity customers to overcome this headwind

[trader_jackson]

https://www.nzx.com/companies/GNE/announcements/278174

Results look impressive to me... Thoughts?

[Traderx]

Well very much a BAU report, sounds like negotiations are moving slightly in GNEs favour re HLY, a softening on the tone re closure in the remark IMO.

Slightly disappointed in the DPS uplift re FCF but that may reflect more a view of the out-year CF in a low POO environment.

Not much vision unfortunately.

[xafalcon]

Kupe hedging (Fx and bbl price/proportion) is much much better than I expected, excellent contracting by someone. They deserve a bonus

Recovery in customer numbers still has a long way to go, but is trending in the right direction. They must keep their focus on continuing to improve this all-important metric

Dividend % of SP is the highest (that I have seen) in the generator sector with good imputation credit attached

As noted above, not a huge amount of forward vision, but the Tiwai situation does make that difficult. The Huntly rankines also sound like they are under discussion, so probably can't reveal too much at this stage

IMO this is a very good report (seems better than MEL which I also skimmed through)

[Beagle]

Solid report and happy to hold for dividend income. Pleased with the dividend uplift and imputation level.

[sb9]

Seems to be back in reckoning by the market.

[trader_jackson]

People buying for the dividend... about time the share price got close to the $2 mark again!

[Andrew]

Its a hold for me. Some reported as a flat result. But, I thought in this difficult economic climate and many companies not doing so well, this was a good result. Maybe I've been down for so long its looks like up for me.

[xafalcon]

Seems to be back in reckoning by the market.

When I read the GNE report and compared it to the MEL report issued on the same date, I thought the market reaction last week was bizarre. IMO the GNE report was much stronger, yet MEL SP rose considerably and GNE SP was flat. The declared dividend definitely favours GNE on a SP corrected basis, even including the MEL special dividend. Go figure

Maybe there has been some re-reading of the report over the weekend. Or perhaps some info on the Huntly Rankines role beyond 2018 is leaking??

[trader_jackson]

When I read the GNE report and compared it to the MEL report issued on the same date, I thought the market reaction last week was bizarre. IMO the GNE report was much stronger, yet MEL SP rose considerably and GNE SP was flat. The declared dividend definitely favours GNE on a SP corrected basis, even including the MEL special dividend. Go figure

Maybe there has been some re-reading of the report over the weekend. Or perhaps some info on the Huntly Rankines role beyond 2018 is leaking??

Yes, there could be a few whispers, the fact GNE continually refuses to say 'we are definitely closing it, no questions asked' already says something (in my view - if you catch my drift...)

[Beagle]

Its not a great sign for the market overall that utilities in general are doing well...people need power even in a deep recession.
Or maybe its just the nice safe yield thing. I see ANZ have changed their view and now see two further OCR rate decreases this year taking us down to an all time record low of 2%. I reckon it could even go lower than that if dairy stays in the doldrums.

[xafalcon]

Its not a great sign for the market overall that utilities in general are doing well...people need power even in a deep recession.
Or maybe its just the nice safe yield thing. I see ANZ have changed their view and now see two further OCR rate decreases this year taking us down to an all time record low of 2%. I reckon it could even go lower than that if dairy stays in the doldrums.

NZ market utilities provide exception dividend yields, and have tangible (and valuable) asset backing. It goes without saying they produce a necessity of life and therefore have a captive (but competitive) market

If an investor can stomach the SP swings, NZ utilities appear better than money in the bank earning 3% (or whatever pittance the banks currently pay). Off shore, bank deposit rates are even lower, making yield differentials greater albeit with a potential forex risk/benefit

The only foreseeable on-shore "risk" to generator SP is the perpetual Tiwai uncertainty saga, which must resolve in the next few months if 2019 dry-year supply generation commitments are to be met

My view is firmly in line with your second scenario, this is a nice safe yield thing

[Beagle]

Tiwai uncertainty saga...yes it's a saga alright...if it wasn't for that I'd back the truck up on this one.

[RTM]

Its not a great sign for the market overall that utilities in general are doing well...people need power even in a deep recession.
Or maybe its just the nice safe yield thing. I see ANZ have changed their view and now see two further OCR rate decreases this year taking us down to an all time record low of 2%. I reckon it could even go lower than that if dairy stays in the doldrums.

It possibly might. And one wonders what our dollar will do ? If the above happens, and USA have another rate hike, no matter how small...does our dollar go to less than US$0.60 ? That will help NZ Inc a bit.

[sb9]

Genesis considering bond offer, seem to be a pattern with Gentailers of late with Meridian doing the same recently. Well, if its cheap to raise money through this manner why not eh?

[xafalcon]

What happened to market closing trading today? At 5.05pm there were over 50k shares matched at 209, but not showing as trades. I checked later and at 5.25pm there is still 38k matched at 208, but trades not showing

I trade through ANZ securities. GNE page still showing market close price auction at 5.30pm??

[thestg]

Check news - Bond offer at close so trading suspended.

[xafalcon]

Yep, that's it.

Unusual (stupid) timing for a price sensitive information release

Interesting that GNE got a significantly lower interest than MEL. I would have expected a similar figure

[Traderx]

GNE in a seemingly inoxerable uptrend - basically a straight line!

A few interesting tidbits

GNE have put prices up in a few lines company regions but not all. In Wellington i'd estimate the non lines co increase at circa 3% eff 1 April. NB no pricing change in Vector/AKL however.

GNE seems to have launched a solar business..
http://solar.genesisenergy.co.nz/

oil trending up off the lows
GNE holding customer levels steady

No news on Huntly rankines

Tiwai push out suggests deal in the works ot maintain full output (my take only)

Divvy record date 31st march.

Cheers

Disc- very small long

[Joshuatree]

Well trust power made some pretty good offers to switch and i agreed. Genesis rang me pretty smartly and offered cash and 25% off my gas and a small reduction in electricity so I'm staying as i use gas for heating and hot water.

Craigs latest update on thegentailers suggest that trust power are the main cause of churn currently and unlikely to stop for 18 months.

And if correct the below is not good.
Flick and Electric Kiwi point the way for product differentiation, billing disclosureand risk premiums
A new threat has emerged, which in our view removes the possibility that historical gentailerpremiums will return. New electricity retailer Flick has highlighted the consumer thirst for a spotproduct and bills customers in a way that clearly defines all the cost components of the bill making comparability easy. Electric Kiwi is a low cost technology driven offering that offers afixed priced residential contract, covered by the forward ASX hedge curve. This offering capswhere risk cover pricing can head. It is our view that any premium for risk mitigation by having agentailer model will likely be arbitraged away by the combination of technology and clarity ofwhat is being paid by that customer for the risk.

top picks a buy on CEN and MEL Hold on GNE and MRP and TPW.

[Bobdn]

Cool, NZO confirms even more gas and oil in Kupe. At this rate this field will never run out and Genesis dividends will flow for decades to come.

Naturally the market greeted the news with a 1.5% drop for GNE. So passive aggressive :)

[Anna Naum]

Worth about 2cps to GNE from this announcement. Question is can they turn gas reserves into CF....need to find a buyer for all that additional gas I suggest.

[Bobdn]

I was thinking that maybe we just get a few more years out of the field rather than the need to find additional buyers. I think at one point Kupe was due to run out at around 2027? Something like that.

[sideline]

I was thinking that maybe we just get a few more years out of the field rather than the need to find additional buyers. I think at one point Kupe was due to run out at around 2027? Something like that.

With coal being phased out at Huntly I would expect more gas to be burned there.

[kiora]

With coal being phased out at Huntly I would expect more gas to be burned there.

No,don't expect more gas to be burned there.The gas doesn't burn hot enough so there is increasing use of coal again at Huntly

[sideline]

No,don't expect more gas to be burned there.The gas doesn't burn hot enough so there is increasing use of coal again at Huntly

Aren't there some generators already running on gas? Surely the coal burning is just using up the stockpile.
Are you expecting more coal to be bought??

[kiora]

Aren't there some generators already running on gas? Surely the coal burning is just using up the stockpile.
Are you expecting more coal to be bought??

Yes,a new contract for huntly coal

[trader_jackson]

Yes,a new contract for huntly coal

Could Bathurst Resources come to the rescue?
(in terms of a new coal contract)

Disclosure: Yes, I hold this penny dreadful

[sideline]

Yes,a new contract for huntly coal

Wow, with the changes flagged for the ETS coal could turn out to be expensive fuel.

Also I don't see the rational for that. With GNE's take or pay agreements for Kupe gas they'd
be wise to use more gas and less or no coal. Until 2020 they had excess gas available.

[trader_jackson]

https://www.nzx.com/companies/GNE/announcements/281343

Only had a brief look, but looks good to me (given market conditions)

Important part for me was confirmed turnaround in retail...

Thoughts?

[Mickey]

https://www.nzx.com/companies/GNE/announcements/281343

Only had a brief look, but looks good to me (given market conditions)

Important part for me was confirmed turnaround in retail...

Thoughts?

I agree TJ - looks like it is 'steady as she goes' to me. I too am encouraged that their customer retention initiatives are starting to reduce the amount of churn and new customer numbers are on the rise. It will be interesting to see if this continues through the high consumption months when 'bill shock' tends to be a bit more prevalent.

Discl: holding with a view to increasing

[trader_jackson]

http://www.stuff.co.nz/business/industries/79386998/deal-will-see-huntly-coal-generators-remain-in-service-until-2022
https://www.nzx.com/companies/GNE/announcements/281406

Fantastic or Fantastic?
Should allow them to continue pumping out that dividend... share price now clearly undervalued (in my view)

[Beagle]

http://www.stuff.co.nz/business/industries/79386998/deal-will-see-huntly-coal-generators-remain-in-service-until-2022
https://www.nzx.com/companies/GNE/announcements/281406

Fantastic or Fantastic?
Should allow them to continue pumping out that dividend... share price now clearly undervalued (in my view)

Yes a very good result indeed...right out to the end of 2022, very nice extension of life for the Rankine units. Extra resource from the Kupe field as announced the other day by New Zealand Oil and Gas also a nice value accretive announcement. Nice commentary too on how the wholesale market has changed significantly. Happy to hold for superb dividend yield and now more confident this will grow in line with inflation as stated in the IPO documentation intentions. Might add a little.

[Bobdn]

GNE feeling some hot love over the last few days.

[bull....]

people need income

[Bobdn]

Yeah, same with Chorus by the looks of it. Relatively safe income stocks.

[bull....]

could be breaking out, chart consolidation suggests a retest of previous highs

[trader_jackson]

could be breaking out, chart consolidation suggests a retest of previous highs

Would be nice to see it back at $2.40...

[tim23]

Practically there if you include 1:15 bonus issue $2.40cb = $2.25xb
could be breaking out, chart consolidation suggests a retest of previous highs

[trader_jackson]

Practically there if you include 1:15 bonus issue $2.40cb = $2.25xb

I don't believe this was a true 'bonus' issue of new shares, the shares were simply transferred from the crown to shareholders who held the shares since IPO for 1 year (ie the crown owned more than 51% at IPO).. but it would be great if someone could confirm/deny this

[tim23]

Well I rec'd another 1000 shares having held 15000 from float to ex date.
I don't believe this was a true 'bonus' issue of new shares, the shares were simply transferred from the crown to shareholders who held the shares since IPO for 1 year (ie the crown owned more than 51% at IPO).. but it would be great if someone could confirm/deny this