GNE - Genesis Energy

[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.