GNE - Genesis Energy

[PSE]

PSE -I know you have a lot of experience in the electricity industry and are probably frustrated by my posts-I have no such experience and am just getting my head around how it works.
Clearly you don't like gas but when I research the present and future -eg look at wikipaedia and levelised cost to generate it is clear gas is the cheapest way to build new generation-and that is using old gas prices!

At $1.7 genesis is not too bad, just not cheap enough for me to buy.
Wind and geothermal are the cheapest new build in NZ because we have exceptional resources, the days of the ccgt in NZ are numbered. There may be more aeroderivative 'peakers' built in time.
GNE's free cashflow and dividend is based on wasting assets, gas fields and turbines that need to be replaced.
I think the market at the moment is undervaluing MEL relative to GNE, perhaps not recognising this advantage.

[Snoopy]

Hey snoop, it's the take or pay gas I am against. <snip>
Everyone else takes the risks associated with the market, so should gas companies. <snip>
I could be wrong on GNE sure but I would encourage people to consider take or pay and how the company needs to run E3P regardless of electricity prices.

After much cross website surfing I feel I now have a good estimate as to how much GNE are losing/making on their share of the gas output from their shareholding in Kupe. There are quite a few assumptions in the results table I present here. I will go over those later. I will be prepared to rerun my spreadsheet model using different assumptions if others are interested. Below is my assessment of the present value of Genesis's 31% holding in the Kupe gas field.

Year	Kupe Gas	Value	Resource Depreciation	Net
	(GJ)	Received	and Amortization	Proceeds
2015	6.5E06	$48,360,000	$23,018,794	$25,341,206
2016	5.3E06	$36,671,760	$21,407,478	$15,264,282
2017	6.1E06	$39,252,622	$19,908,955	$19,343,667
2018	6.1E06	$36,504,938	$18,515,328	$17,989,610
2019	5.3E06	$29,497,187	$17,219,255	$12,277,932
2020	5.3E06	$27,432,384	$16,013,907	$11,418,477
2021	5.3E06	$25,512,117	$0	$25,512,117
2022	5.3E06	$23,720,269	$0	$23,726,269
2023	5.3E06	$22,065,430	$0	$22,065,430
2024	5.3E06	$20,520,850	$0	$20,520,850
2025	5.3E06	$19,084,390	$0	$19,084,390
2026	5.3E06	$17,748,483	$0	$17,748,483
2027	5.3E06	$16,506,089	$0	$16,506,089
Total	7.17E07	$362,882,518	$116,083,717	$246,798,801
PV per share				$0.25
PV per share (tax paid)				$0.18

That last figure on the right is the important one. Genesis's 31% share of Kupe means that every Genesis share today contains 18c of 'value' directly attributable to the equity holding that Genesis has in Kupe. Because that value is positive, we can conclude that Genesis is making money (not losing money) from the natural gas attributable to their shareholding in Kupe. 18c is the wholesale market value to Genesis. This wholesale gas can be resold, and Genesis can clip the ticket again on this.

Kupe also has rights to all the other partner's gas production from of Kupe. But this gas will have to be bought at a market price from those joint venture partners. How well Genesis utilises this gas is a separate question that I may address later.

SNOOPY

[Snoopy]

After much cross website surfing I feel I now have a good estimate as to how much GNE are losing/making on their share of the gas output from their shareholding in Kupe. There are quite a few assumptions in the results table I present here. I will go over those later.

Q/ What figure have you used in attributing a dollar value per Petajoule of energy?

A/ I have taken my wholesale gas price from the spreadsheet below from the Ministry of Business, Innovation & Employment website.

http://www.med.govt.nz/sectors-indus...term=gas+price (old web link)

http://www.mbie.govt.nz/info-service...tistics/prices (new web link)

Go to the worksheet titled 'Annual NZD per GJ', then scrool across to 2014 (the latest data available). The wholesale figure is not yet available. But I have substituted the industrial figure of $7.44 which should not be too far away.

SNOOPY

[trader_jackson]

Interesting... so when Morningstar has a valuation of $2.20 we could say that if "the gas was turned off tomorrow" it would have a valuation of $2.02? This would be more than fine for me... and a near 15% premium to the current share price...

[fish]

Thanks for sharing snoopy.
Just to clarify-this is natural gas figures only -and production is unlikely to suddenly stop in 2027-if maui is a precedent we could see production for 50 years-kupe is a big field and we will see more drills and reserves will be expanded.
Then we add the value of light oil and lpg.
It is unmanned so small running costs.

Aside from this I have been researching continuous combined gas turbine-current one inststalled 2007-probably about 50% efficient in converting gas to electric energy-latest technology 60% efficient and so if upgraded or replaced less hot water into Waikato so more use in drought conditions ,less co2,more cost -effective
Gas peakers-ie gas turbines wit hno use of hot exhaust less efficient.I would have thought better to let hydro flow increase at the push of a switch could provide peaking

[trader_jackson]

On another note, I think my call (along with a potentially several others on this thread) that GNE has bottomed out in the high $1.60's appears to be right so far, another nice increase today, something that will most likely continue next week as OCR is cut to a record low

[xafalcon]

Aside from this I have been researching continuous combined gas turbine-current one inststalled 2007-probably about 50% efficient in converting gas to electric energy-latest technology 60% efficient and so if upgraded or replaced less hot water into Waikato so more use in drought conditions ,less co2,more cost -effective
Gas peakers-ie gas turbines wit hno use of hot exhaust less efficient.I would have thought better to let hydro flow increase at the push of a switch could provide peaking

E3P efficiency is 56% according to this http://www.power-technology.com/projects/ep3/

I would expect a market reaction across all generator stocks similar to previous experience once Tiwai Pt decision is announced in 2 weeks, or maybe sooner. I believe this will dwarf the "OCR effect", which is probably been built into the share price already since it is a near certainty

[Snoopy]

Interesting... so when Morningstar has a valuation of $2.20 we could say that if "the gas was turned off tomorrow" it would have a valuation of $2.02? This would be more than fine for me... and a near 15% premium to the current share price...

The 18cps I have calculated reflects the wholesale market savings that Genesis make by being an equity holder in Kupe. If Genesis were not an equity holder in Kupe then they would have to buy more wholesale gas on market. The present value of that purchase would be 18c.

Put another way, if:

1/Kupe was shut down permanently and
2/ the wholesale gas price did not change from $7.44/GJ right up until 2027.

THEN, the amount extra that Genesis would have to pay to the wholesale market, to retain their current level of retail business up until 2027 would add up to 25cps. That in turn would reduce profit by 18cps, once the effects of tax are taken into account.

SNOOPY

[Snoopy]

After much cross website surfing I feel I now have a good estimate as to how much GNE are losing/making on their share of the gas output from their shareholding in Kupe. There are quite a few assumptions in the results table I present here. I will go over those later.

Q/ The amount of Kupe gas you are projecting as being extracted from 2015 until 2027 follows no obvious pattern. Where have you got these figures from?

A/ Much more detail on the prospects for Kupe is available in the NZ Oil and Gas Annual Report (NZO). NZO are also partners in the Kupe field with a 15% shareholding. Genesis hold 31%. So we can translate the Kupe shareholding figures from NZO to the equivalent figures for Genesis Energy by using a multiplication factor of 31/15.

Page 13 of NZO AR2014 shows a bar graph of "Production Actual & Forecast". The Kupe Gas figures are the dark purple section on the top of each bar. We can therefore scale the forecast production of gas from Kupe up until 2012 from that graph. Subsequent to that graph being published the Kupe resource has be reevaluated. That work shows that Kupe can be expected to keep producing until 2027. I have therefore extended my own forecast assuming the forecast 2021 production pattern continues until 2027.

The next problem is that the graph lists the gas energy in terms of "Millions of barrels of Oil Equivalent".

Page 7 of the interim report for FY2015 gives the conversion factor from "Millions of barrels of Oil Equivalent" to 'Joules' (the metric measure of energy).

----

Society of Petroleum Engineers (SPE) guidelines, as provided below.

Conversion factors used were: 163.40 barrels of oil equivalent per Terajoule of natural gas

------

S, 163.4 booe = 1TJ

<=> 163,400 booe = 1PJ
<=> 1,000,000 booe = 6.1PJ


SNOOPY

[Snoopy]

After much cross website surfing I feel I now have a good estimate as to how much GNE are losing/making on their share of the gas output from their shareholding in Kupe. There are quite a few assumptions in the results table I present here. I will go over those later.

Q/ The 'value received' figures for the same amount of gas is not consistent through the years for the same amount of gas. Why not?

A/ With any series of earnings flows stretching far into the future there is always a 'time value of money'. Money received 'this year' is worth more than the money received in a years time. The question arises, what 'time value of money' discount factor should I use to reflect this?

Personally I regard the time value of money of an existing gas field with proven resources to be a good bet. So I am prepared to use the actual interest rates that Genesis are paying to their banks as a proxy for this discount factor.

Genesis is a relatively stable company. Finance expense in AR2014 , Note 11 is listed as $69.1m. Total borrowings are listed at $989.4m (AR2014, note 28).

So the implied interest rate is:

$69.1m/$989.4m = 6.98%

Thus for each year into the future, the earnings flow of that year should be reduced by a factor of

(1-0.0698) = 0.9302

This accounts for the same energy creating different 'present day' earnings flows in future years.

SNOOPY