GNE - Genesis Energy

[macduffy]

I havn't researched Genesis' customer retention but I can believe that they are making every effort to retain and attract retail customers. Last week I had two calls from them seeking my modest business.

Memo to self: Must consider ditching that pesky landline!

[mshierlaw]

I havn't researched Genesis' customer retention but I can believe that they are making every effort to retain and attract retail customers. Last week I had two calls from them seeking my modest business.

Memo to self: Must consider ditching that pesky landline!

Got three calls within a short space of time about 4 months ago.

Wrote to them asking them to consider more effective means of utilising shareholders funds. E mail back .... "please give us your phone # & the date & time of each call so we can fully investigate". Why bother!

It's been nice & quite since.

[Snoopy]

Curious Snoopy me ol mate. Why are you holding GNE given your above post ? Disc: I am unimpressed by the most recent quarterly report. Customer retention has again emerged as a serious issue. Sold late last week.

Roger, I have a reputation on this forum for commenting harshly on those who I feel put up a flawed investment case for making a share investment, and being relentless in following up on my view if circumstances require it. Therefore I think it is only proper that I should hold myself up to that same standard. I have never been a cheerleader for my own investments. Constant scrutiny is I believe the best way to keep any investor (including myself) honest. So if I see something not going quite in accordance with the company script, I think it is right to point that out.

I am genuinely curious about all the emission unit trading (ETUs) activity at Genesis. With Contact in particular closing Otahuhu which is:

a/ more modern that the Rankine Units and
b/ slightly better located (closer to Auckland)

I guess a large chunk of the potential emission unit trading market is now gone. Genesis had previously announced that all the Rankine Units were to be closed down. So I would have thought that the logical thing to do would be to pre-sell down any associated surplus ETUs, even at a loss, to clear the decks. Yet in actuality Genesis bought a whole lot more ETUs and sold them at a profit? As I said previously, brilliant for GNE shareholders. But what were they doing, apparently speculating in the ETU market? Not the sort of behaviour you might expect from a 'conservative gentailer', 51% government owned. I was genuinely curious as to what back story could be behind this?

Having said this, Genesis is a multifaceted investment with the oil and natuiral gas interests from Kupe. They also have quite a progessive attitude to solar power. The schools partnership, using solar power from the roof of schools to power the classrooms during the day is well established. None of the other gentailers seem to be interested in that. What I am saying here is that GNE is not a black and white investment case. Of the three gentailers I hold: CEN, GNE and MCY, it is Genesis that has delivered the best overall return to me (so far). My next task is to rerun my modelling on the oil and gas revenues, given the market recovery in both. Like you I don't believe the current dividend yield is sustainable. But even if the dividend yield is reduced, that doesn't mean the investment case doesn't stack up.

I remain watchful of Genesis Energy, but not ready to quit my holding just yet.

SNOOPY

discl: hold GNE

[Beagle]

Fair enough mate. All the best with it.

[fish]

Snoopy do you suspect a degree of self-interest or even market manipulation in the closure of Otahuhu by CEN and retention of Rankine units by GEN.
Contact generate more than they retail whilst the opposite applies to GNE

[Snoopy]

Snoopy do you suspect a degree of self-interest or even market manipulation in the closure of Otahuhu by CEN and retention of Rankine units by GEN.
Contact generate more than they retail whilst the opposite applies to GNE

Otahuhu has effectively been replaced by Contact's new Te Mihi geothermal station. I am not sure it was always planned that way. Originally I think Te Mihi was meant to replace Wairakei! But rising carbon charges meant it was Otahuhu that got the chop. So yes the closure of Otahuhu was definitely a self interest win for Contact (not that I am implying there is anything wrong with this - management are clearly responsible for shareholders interests, over and above any national interest).

My overall view is that having a balance between generation capacity and customers is the way to go. Genesis Energy, however, appear not to think this way. Yet so far, with an excess of generating capacity meaning cheap wholesale power prices, the Genesis strategy seems sound. So maybe my generation/customer balance ideas are not right in this market? Yet the futures market seems unpredictable. I think Genesis were surprised about how low the wholesale power price remained even in times of possible shortage.

From outside the tent, the whole power market thing is obviously difficult. Genesis to me is the 'street smart alley cat' of the power industry. The scruffy runt of the gentailer litter, that somehow manages to position itself in just the right 'sweet spot' to dive in for the food morsels amongst the heavy traffic and escape with its tail intact to scrap another day. You have to hand it to Genesis's employees for being able to operate like this. But how much is skill and how much is luck? Is the wily old alley cat that is Genesis one day going to push his luck too far?

SNOOPY

[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.

Year	No. of Oil & LPG	Oil Barrel	Kupe Condensate	Resource Depreciation	Net
	Equiv barrels	Price USD	Revenue	and Amortization	Proceeds
2016	640000	76.6	$64,189,474	$20,610,081	$43,895,113
2017	620000	45	$39,558,818	$19,286,913	$20,271,905
2018	579000	45	$34,571,102	$18,048,694	$16,522,408
2019	537000	45	$30,004,886	$16,883,967	$13,114,919
2020	558000	45	$29,176,617	$15,805,632	$13,370,986
2021	476000	45	$23,291,139	$14,790,910	$8,500,229
2022	393000	45	$17,995,312	$13,841,334	$4,153,978
2023	434000	45	$18,596,859		$18,596,859
2024	393000	45	$15,758,884		$15,758,884
2025	269000	45	$10,094,114		$10,094,114
2026	227000	45	$7,971,221		$7,971,221
2027	145000	45	$4,764,859		$4,764,859
2028	62000	45	$1,906,558		$1,906,558
Total	5.333E06		$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.

The reserves extracted during FY2016 have been officially 'depleted'. So what is the value of the oil and natural gas still in the ground in Kupe to 'Genesis Eneregy' today?

Year	No. of Oil & LPG	Oil Barrel	Kupe Condensate	Resource Depreciation	Net
	Equiv barrels	Price USD	Revenue	and Amortization	Proceeds
2017	620000	57.01	$53,070,511	$15,335,747	$37,734,763
2018	579000	53.58	$39,921,568	$14,262,245	$25,659,322
2019	537000	50	$32,253,563	$13,363,888	$18,989,675
2020	558000	50	$31,168,834	$12,235,416	$18,833,418
2021	476000	50	$24,727,275	$11,471,937	$13,255,338
2022	393000	50	$18,986,495	$10,668,901	$8,317,924
2023	434000	50	$19,499,565	$9,922,078	$9,577,487
2024	393000	50	$16,421,420	$9,227,533	$7,193,887
2025	269000	50	$10,453,299		$10,453,299
2026	227000	50	$8,203,702		$8,203,702
2027	145000	50	$4,873,433		$4,873,433
2028	62000	50	$1,937,946		$1,937,946
Total	4.693E06		$261,717,609	$96,487,745	$165,029,864
PV per share					$0.17
PV per share (tax paid)					$0.12

A few things have changed year to year.

1/ I have updated the FY2017 and FY2018 hedged posiotions for oil in accordance with the forward hedging disclosed in the AR2016 results presentation.
2/ I have lifted my 'spot value' of oil from $US45 a barrel to $US50 a barrel, in light of the rallying oil price on world markets over the last six months. In addition my 'spot value' exchange rate is now $NZ1 = $US0.72, up from $NZ1 = $US0.66.
3/ The depreciation that I previously modelled over 7 years from FY2016 inclusive has now been modelled over 8 years from FY2017 inclusive. Furthermore, because oil is now a lesser share of revenue, in percentage terms, the proportion of Kupe field depreciation that I have apportioned to oil has reduced.
4/ The discount rate for future cashflows remains at 7%.

The result, a mere 1cps decrease in the financial value of reserves after a full years operation, would have to be pleasing to shareholders. Previously undisclosed relatively favourable hedging positions to current market prices have helped. The rise in spot price I have assumed from USD45 to USD50 a barrel has been partially undone by the consummate rise in exchange rate. The slowing rate of depreciation and amortisation at Kupe is perhaps the most significant effect in the 'increased valuation' (when compared year on year).

SNOOPY

[Beagle]

Good work Snoopy, you are to be commended for putting in such a stellar effort.

[fish]

snoopy is doing great work.
I do see more value in kupe than suggested.
Its the value of synergy and insider knowledge that Genesis has through its large shareholding.
Contact has to pump surplus gas into an old field to store.
Can Genesis just ask for more or less flow as needed-I don't know but it would be a great way of getting more value if done?

[Bobdn]

I am just returning from a whistle stop tour of a few countries in Asia (Korea, Vietnam, China)So many people, so much development. Dr Doom Marc Faber thinks oil will hit $70 and soon. The reason is infrastructure development in places like the Philipines and Indonesia. Worth seeking out the article (cnbc) online. I really hope it gets there soon. Apart from my Air NZ shares, just about everything else i own would benefit including my bank shares.