GNE - Genesis Energy

[PSE]

Agree more positives than negatives here on solar and electric vehicles. I am an old school value investor so I think buy if it gets cheap enough.
As JP Morgan said when asked to predict what the sharemarket will do 'it will fluctuate', the charts are all greek to me don't ask me what will happen in May.
I also have a long term view on investments and like to buy companies I will be happy with in 10 years time i.e. when the Kupe gas runs out and E3P reaches its half life of 15 years and has to find some more gas. I understand that GNE is locked into take or pay contracts until 2020, so is running E3P at a loss until then.
CEN is being the swing producer with it's more flexible gas.
The Tekapo canal was a bit of a dog, MEL handed it over just as $160m of work needed to be done and GNE has paid for this. Maybe more work will be needed in the long term future.
It's been a while since I looked at the balance sheet but basically the good hydro assets are covered by liabilities and what you are buying are some aging thermal stations, a gas field that is running out and the largest retail customer base - in a market that is proving competitive.

For every dog there is a price at which a value investor would become interested, however I think it is unlikely to fall enough for me to become interested because I am so damn stingy. Maybe in the next sharemarket firesale/crash.

Everything I said was generally correct as a first approximation. This is sort of a first pass analysis rather than pretending the future can be understood to a higher level of accuracy than is realistic.
Value investors look at the past and try to protect themselves from an uncertain future buy buying cheap so if my comments are quite negative it is because I have absorbed this viewpoint.
The half life may be in 2027 rather than 2025, pretty good guess as I didn't know e3p that well.
When Kupe runs out and money needs spent on e3p, the shareholders equity to total assets won't be looking great if they keep paying out free cash.
Present wholesale prices maybe $70 for the next three years but these are changeable so I err on the side of caution for a lot of this time e3p will be at a loss and hopefully capitalise by running more when the price is high. The history is of extended periods running at a loss.
It depends who shuts down their thermal, by writing off the rankines e3p is more valuable right.
The price of the thermal assets on the books is not clear to me at first glance, I think it should be.
Maybe there is a good chunk of hydro for your money.
Then if I buy and the truth is somewhat better I do well.
I guess it's fair enough to argue with me.

[PSE]

I can let hundreds of maybe good investments pass and only buy the 6 or 7 that I consider have enough elements in place to give me a margin of safety.
As Buffett says investing is like baseball with no strikes, wait through as many balls as you like you are only looking for the home runs. Don't blame me for just standing on the pitch without swinging.

[Snoopy]

I see the CCGT making money when wholesale prices are above $70 more or less depending on how much they pay for gas etc as per the various EA spreadsheets - there is one online for e3p somewhere on the EA website.
When I was working for gentailers recently this was the figure bandied about. You will note the wholesale price is not infrequently below this and future expectations are widely varied and as you say included in GNE's yearly evaluations of the value of assets which I have not disputed.

Present wholesale prices maybe $70 for the next three years but these are changeable so I err on the side of caution for a lot of this time e3p will be at a loss and hopefully capitalise by running more when the price is high. The history is of extended periods running at a loss.

PSE, I am pushing for more information on this gas profitability as I think I need this information to feed into my old steam abacus that is slowly cranking away working out the value of GNE, even as Roger's expensive german abacus has failed.

That means I am very curious about your $70 break even valuation being altered by the amount that GNE is paying for gas. I know oil is more or less a global market. But it is much more difficult to ship gas overseas than oil. So am I correct in saying that the price of gas is set locally, and furthermore by Contact and Genesis (being by far the biggest customers)?

If Genesis/Contact control the local 'free' market for gas, does the concept of a floating price of gas in NZ make sense? Or is the price fundamentally just set by Genesis/Contact, even though they would never admit that?

Is that $70 price you have quoted just reflecting the Kupe extraction price, and nothing to do with any fluctuating market price (if that phrase makes sense).?

If they sell gas to themselves for less than it is worth then they are just shifting the loss. Same stuff different label - semantics.
As they have customers (unlike some other companies we may mention) the overall situation has never been a loss.
But if you say the gas makes less profit to cover the CCGT or there is less profit on the retail customers they sell to it's all the same isn't it.

If the extraction cost is a certain figure, and Unit 5 gas is bought for more than that figure, and more gas is sold to other customers at a higher figure, that doesn't mean Unit 5 is operating at a loss.

What you are highlighting is a lost opportunity cost of not having more independent customers to buy gas at a higher price. That is not the same thing as making a loss.

SNOOPY

[Beagle]

just changed my electricity from genesis to another supplier saved $60 mth according to switch me.

Savings will vary from one customer to the other but at its core this is one of the nubs of the issue for GNE. Strip away their marketing incentive, presently first month free for new customers to a maximum value of $250 and their retail rates are far from compelling. As the biggest retailer with circa 500,000 customers they have the most to lose from consumers apparently ever increasing propensity to use the power price comparison website.

[bull....]

http://www.scoop.co.nz/stories/BU150...nder-morel.htm

another entrant

[PSE]

As I say $70 was what we were told on site some years ago.
There was an EA spreadsheet that had as input gas price, carbon price etc.
From analysts reports I understand Methenex puts a floor under the gas price as they can take a lot. They negotiate it based on us gas prices, on the threat that they can shift to the US.
Sounds right to me, if you trust the analyst.
Sorry I just can't find this spreadsheet, but it would be good to prevent abacus burnout.

[PSE]

I am sure it was freely available online, associated worth the pb power report I attached.

[PSE]

Savings will vary from one customer to the other but at its core this is one of the nubs of the issue for GNE. Strip away their marketing incentive, presently first month free for new customers to a maximum value of $250 and their retail rates are far from compelling. As the biggest retailer with circa 500,000 customers they have the most to lose from consumers apparently ever increasing propensity to use the power price comparison website.

I agree this is also significant, especially for GNE.

[Jantar]

......That means I am very curious about your $70 break even valuation being altered by the amount that GNE is paying for gas. I know oil is more or less a global market. But it is much more difficult to ship gas overseas than oil. So am I correct in saying that the price of gas is set locally, and furthermore by Contact and Genesis (being by far the biggest customers)?.....SNOOPY

An interesting situation has developed today that shows the issue of trying to determine gas price for profitability.

The Wholesale electricity price has dropped to between $10 and $15 per MWh. At those low levels none of the thermal plant can be making any profit when looked at in isolation. But right now Huntly's E3P plant is on minimum load, MRP are still running a Southdown unit and CEN have one of their peakers at almost full load. Meanwhile in the South Island Hydro plant are being backed off and spilling water.

This pervers situation occurs because of Gas take or pay arrangements. The gas producers are still producing gas and feeding it into the pipelines. Pipeline pressure is climbing, and if the thermal plant doesn't burn it then they will be penalised for not taking their nominated take or pay quantities. So the overall most economic solution for the generators is to burn gas and spill hydro. The most economic solution for NZ INC is to reduce the gas flow into the pipelines and back off thermal plant to allow hydro to go harder, but because there is not a true gas market that cannot happen.

[Joshuatree]

Just having one account for my gas and electricity bills keeps me with them atp.