CHI - Channel Infrastructure Ltd (NZR)

[SailorRob]

~42% owned by mobil, z and bp, combined.

Nor, follow the money.

Forget the dividend, look at the cash that has come through the front door over the last decade and examine what has been done with it.

Correct the oil/gas industry isnt at deaths door, probably in its early days if anything. However this has no relation to boiling oil on a beach in Northland. Correct also regarding the non oil company shareholders as they would be getting subsidised by the oil co's which common sense will tell you wont continue for long.

What you need to figure out is how much free cash can be generated by a terminal and what will the costs be to convert and then demolish the existing Refinery. Can get figures from the Australian ones they have done similar to.

[Nor]

I see there is pretty much a consensus that most capital expenditure has been wasteful, but Te Mahi Hou at least by lifting the margin could pay off in this low margin environment though it didn't do much when the cap was being exceeded. I just reckon they should run it into the ground so to speak and get some of that capital back while they can.
I wonder what the wording of the processing agreement is and if the oil companies can just walk away from it. Also wonder if they would be able to vote on matters regarding it or if they would have to abstain?

[SailorRob]

I see there is pretty much a consensus that most capital expenditure has been wasteful, but Te Mahi Hou at least by lifting the margin could pay off in this low margin environment though it didn't do much when the cap was being exceeded. I just reckon they should run it into the ground so to speak and get some of that capital back while they can.
I wonder what the wording of the processing agreement is and if the oil companies can just walk away from it. Also wonder if they would be able to vote on matters regarding it or if they would have to abstain?

A team of specialist lawyers would struggle with the agreement. I think they can vote on all matters however I'm not 100% sure.

Te Mahi Hou will never pay off under any circumstance and this much was clear long before it was built. $365 million, an appropriate return on that invested capital would be $35 million a year, the whole company hardly does that. It's not even that CAPEX is wasteful that is the real problem, the real problem is that virtually all cashflow has to go into CAPEX. IF it was only half and that was wasteful then ok you can still survive...

[Nor]

A team of specialist lawyers would struggle with the agreement. I think they can vote on all matters however I'm not 100% sure.

Te Mahi Hou will never pay off under any circumstance and this much was clear long before it was built. $365 million, an appropriate return on that invested capital would be $35 million a year, the whole company hardly does that. It's not even that CAPEX is wasteful that is the real problem, the real problem is that virtually all cashflow has to go into CAPEX. IF it was only half and that was wasteful then ok you can still survive...

It seems to have been an expensive toy funded by shareholders. But all free cash flow doesn't have to continue to go to capex, they could come to their senses so to speak and just maintain it while generating what returns they can. This solar farm seems to be just another wasteful fun project which shouldn't go ahead.

[SailorRob]

It seems to have been an expensive toy funded by shareholders. But all free cash flow doesn't have to continue to go to capex, they could come to their senses so to speak and just maintain it while generating what returns they can. This solar farm seems to be just another wasteful fun project which shouldn't go ahead.

Solar farm long dead. Yeah unfortunately even maintenance costs consume most of the cash flow. Though if the toy hadn't be built things would be different.

Announcement tomorrow morning.

[Sideshow Bob]

https://www.nzx.com/announcements/360901

Refining NZ finalises simplified refinery plans

5/10/2020, 9:00 amMKTUPDTEOn 25 June 2020, Refining NZ announced completion of the first phase of its Strategic Review, taking forward a near-term proposal to simply refinery operations and in parallel explore with customers a possible future staged transition to an import terminal.
The Company has now finalised its proposal to operate the refinery in 2021 under the current Processing Agreement, which will enable it to extend cash neutral operations in a low-margin environment at the Fee Floor.
This proposal includes:
• Reducing refinery throughput to 90,000 bbls/day (equivalent to levels at the time of commencement of the Processing Agreement in 1995) and the cessation of bitumen production;
• c$20M reduction in opex compared with 2020 primarily through lower labour and other costs;
• Undertaking the deferred 2020 turnaround of Crude Distillation Unit 1 and the CCR Platformer. Total capex for 2021 is forecast at $50M; and
• Estimated restructuring costs in 2020 of c$5M, which will be funded using proceeds from asset sales.
The simplification proposal for 2021 follows the action already taken in 2020 to reset the cost base to Fee Floor levels through $70M in opex and capex cost reductions.
During the last quarter, the Company has also progressed import terminal discussions with customers. These discussions are ongoing and any decision to proceed with a conversion to an import terminal will ultimately be a decision voted on by non-customer shareholders.
Refining NZ chairman Simon Allen said: “We are pleased we have been able to find a way to continue operating the Marsden Point refinery in the most challenging environment Refining NZ has faced since deregulation of the oil industry in 1988. Our focus at this time is on operating the refinery safely and on our people who are impacted by the changes we need to make. We are working closely with local, regional and national authorities and agencies to ensure that the proposed transition is smooth and the impact on our people and the region is minimised.”
For further information:
Ellie Martel
Government and External Affairs Manager
Ellie.Martel@refiningnz.com
+64 (0)20 4174 7226

[peat]

you were pretty much on the money Nor....
limp along... do what they can...

[Waikaka]

https://www.theleader.com.au/story/6...rks-completed/

Kurnell refinery was about the same size as Marsden point and cost 200m AUD to decommission and convert to an import terminal.

NZR Mkt cap is down to $190Mil, debt is $250Mil.

Infrastructure assets are on the books for:

Refinery to Airport pipeline = $105Mil
Jetty and buildings = $94.3Mil
Freehold land = $26.8Mil
Catalysts = $35Mil
Oil, cash and receivables of $163Mil

and the elephant of $790Mil of refinery kit.

Not much of a puff left in it but I am still modestly adding to my holdings on the belief that the essential infrastructure underlying the business is at a discount, the strategy of hauling back on production, trying to keep oil company shareholders happyish, continue to be cashflow neutral and avoiding decommissioning means that post-covid significant value could be released.

I am only happy to support a business dying in the gutter if it has the ability to produce significant free cashflow and has quality underlying assets. Less debt would be nice but cant be too fussy when feeding in unloved parts of the market. NZR fits well with my portfolio of deeply unloved stocks that everyone has given up on.

[SailorRob]

https://www.theleader.com.au/story/6...rks-completed/

Kurnell refinery was about the same size as Marsden point and cost 200m AUD to decommission and convert to an import terminal.

NZR Mkt cap is down to $190Mil, debt is $250Mil.

Infrastructure assets are on the books for:

Refinery to Airport pipeline = $105Mil
Jetty and buildings = $94.3Mil
Freehold land = $26.8Mil
Catalysts = $35Mil
Oil, cash and receivables of $163Mil

and the elephant of $790Mil of refinery kit.

Not much of a puff left in it but I am still modestly adding to my holdings on the belief that the essential infrastructure underlying the business is at a discount, the strategy of hauling back on production, trying to keep oil company shareholders happyish, continue to be cashflow neutral and avoiding decommissioning means that post-covid significant value could be released.

I am only happy to support a business dying in the gutter if it has the ability to produce significant free cashflow and has quality underlying assets. Less debt would be nice but cant be too fussy when feeding in unloved parts of the market. NZR fits well with my portfolio of deeply unloved stocks that everyone has given up on.

There are opportunities in the Deep value space and particularly oil and gas right now that you only get a handful of times in a lifetime.

This is not one of them.

You might do really well out of this at current prices or you might not. This is speculation, not investing. The fact there are so many far better opportunities in this space makes it even less appealing to speculate in front of a train.

A quick glance at the half year cash flow statement will tell you that they’re anything but cash neutral, spent 22 million on predominantly tank maintenance first half alone. Also the cash isn’t neutral at all, it’s a subsidy from the customers which will not last.

Debt is at 280 million not 250, yes there’s 30 cash sitting there but it’s been borrowed for a reason.

No question the terminal and infrastructure assets have value, but already a lot of debt and conversion money tied up in them. You just have to work out the cash the terminal would make which involves having a good handle on the CAPEX - which will have a lot of tank maintenance attached and then apply a 20 or even 25 multiple to that. Not much left for debt reduction.

There is NO ability to produce any cash flow let alone significant free cash flow.

But boy is there some stuff out there now that can in this space, massive free cash flow yields everywhere you look.

[Nor]

There are opportunities in the Deep value space and particularly oil and gas right now that you only get a handful of times in a lifetime.

This is not one of them.

You might do really well out of this at current prices or you might not. This is speculation, not investing. The fact there are so many far better opportunities in this space makes it even less appealing to speculate in front of a train.

A quick glance at the half year cash flow statement will tell you that they’re anything but cash neutral, spent 22 million on predominantly tank maintenance first half alone. Also the cash isn’t neutral at all, it’s a subsidy from the customers which will not last.

Debt is at 280 million not 250, yes there’s 30 cash sitting there but it’s been borrowed for a reason.

No question the terminal and infrastructure assets have value, but already a lot of debt and conversion money tied up in them. You just have to work out the cash the terminal would make which involves having a good handle on the CAPEX - which will have a lot of tank maintenance attached and then apply a 20 or even 25 multiple to that. Not much left for debt reduction.

There is NO ability to produce any cash flow let alone significant free cash flow.

But boy is there some stuff out there now that can in this space, massive free cash flow yields everywhere you look.

This tank farm idea seems a bit odd. The company would go to enormous expense (both new and writing off the old) to provide an alternative to the service it currently provides, but if they were not so philanthropic the customers would have to use the existing one anyway.