GNE - Genesis Energy

[ari]

Since Key and National have been at the helm, NZ government overseas debt has nearly tripled since 2008. How's that for governmental incompetence?
See the Reserve Bank Graph -- 11) Government overseas debt has nearly tripled since 2008 at--
http://www.forbes.com/sites/jessecol...d-in-disaster/

The picture is worth a 1000 words.

"New Zealand’s government took advantage of the plunging yields on its bonds (which is courtesy of the global QE and ZIRP-driven bond bubble) after the Global Financial Crisis to nearly triple its overseas borrowing:

Overseas Debt

Source: Wikipedia; BENZ

The global bond bubble has provided New Zealand’s government with a low-cost borrowing opportunity that is unlikely to be replicated anytime soon, especially now that the U.S. Federal Reserve is slated to completely taper or end its QE3 bond buying program this year.

12) The New Zealand dollar is overvalued

Hot money inflows (a byproduct of QE and zero interest rate policies) into New Zealand after the financial crisis helped the New Zealand dollar to strengthen by 85 percent against the U.S. dollar:

NZD/USD

Source: XE.com

After its strong appreciation against both the U.S. and Australian dollars over the past decade, the New Zealand dollar is now overvalued by as much as 20 percent according to some estimates. New Zealand’s Finance Minister Bill English stated in February that the overvalued dollar is “a concern” because it risks harming the country’s exporters. If the New Zealand dollar’s overvaluation was to abruptly correct and even overshoot to the downside (a possible result of the Fed’s taper), New Zealand’s central bank may be forced to hike its key interest rate to prevent further declines.

How New Zealand’s Economic Bubble Will Pop

New Zealand’s economic bubble will likely pop as a result of rising interest rates across the yield curve, which would put pressure on the country’s property and credit bubbles. New Zealand’s key interest rate is expected to continue rising after its March hike due to rising domestic inflationary pressures, while longer-term bond yields are likely to rise as a side-effect of the Fed’s taper and eventual Fed Funds rate increase. The popping of Australia and China’s bubbles are two other external factors that have a high probability of contributing to the popping of New Zealand’s bubble.

Here is what to expect when New Zealand’s economic bubble truly pops:

The property bubble will pop
Banks will experience losses on their mortgage portfolios
The country’s credit boom will turn into a bust
Over-leveraged consumers will default on their debts
Stock and bond prices will fall; the New Zealand dollar may weaken
Economic growth will go into reverse
Unemployment will rise"

And the next government is still National! Thank god for democracy!...and what were you saying about Genesis?

[lambton]

Pie trade what has this rant got to do with GNE just now? Should I bail, buy more? Save the world, not me sorry.

[brend]

"

This guy predicts bubbles everywhere and uses the Forbes website as his blog. He generates income when people visit it.

He cherry picked the worse stats nothing more

[horus1]

The P/E in the NZ market are very high . It is a time for caution

[skid]

I think what Pies article has to do with Genesis is the same as it has to do with most shares--which is DYOR on your particular shares,but keep an eye on the outside markets as well,and the New Zealand economy.
Sometimes the ''rock star'' economies can fail (remember Ireland)
If things DO start to unravel,it may be time to bail--Genesis will still be there when you return.
Their aint many choices out there politically and National is best for power companys ATM,but it doesnt mean that there arent things that they couldnt do better.
I dont see any conflict in being happy with my Genesis shares,but still doing what I can to keep National honest.
If there was a way to get a National gov,minus the absurdly stupid TPP agreement with the States they are working on--I would do it in a flash.
Meanwhile as hours says -time for caution(not panic,but caution)

I read in the paper ,they are predicting theres a good chance of another El Ninio this year(which means drier areas ,more dry(drought) and wet areas more wet.)
I believe it said starting in the spring--Im not sure how this would affect Genesis but its good to note.
As time goes on ,it will most likely become more obvious (its all about the movement of warm currents) but if it comes to pass and Genesis's catchments are in dry areas it could affect the bottom line. (forgive my lack of research on the lakes)

[Snoopy]

MorningStar recommendation just released

$1.60 REDUCE

And $1.60 is assuming the smelter will continue.

From p2 of the Morningstar report

"Meridian Energy’s new agreement with the owners of the smelter last year. We have not factored in the
closure of the smelter in our forecast."

But they don't rate the overall electricity market for 3 to 5 years. In analyst terms that means forever!

"Electricity demand is expected to remain anaemic while price increases, other than cost pass-throughs,
are likely to be limited. Because of this, top-line growth is likely to remain subdued during the next
three to five years."

SNOOPY

[BlackPeter]

MorningStar recommendation just released

$1.60 REDUCE

I normally don't put too much emphasis on Morningstar predictions, however, just looking at the PE predictions for four of our big electricity suppliers:
GNE 44.5
CEN 21.5
MELCA (based on full share price) 17.3
MRP 13.0

Looking at these numbers, I agree (with Morningstar) that GNE might not be the best investment these days in the electricity sector. Remember - what goes up, must come down.

Discl: hold MRP and MELCA; DYOR

[Snoopy]

The take or pay contract from Kupe is a double edged sword for Genesis. The contract secures more than enough gas to keep running Unit 5 at Huntly, and presumably gives certainty to Genesis on the cost of that gas. (According to the investment statement, Genesis actually has so much gas under contract it is negatively affecting their profitability.)

But it also means that in times of low power prices, the margins at Genesis will be squeezed as the marginal cost of producing incrementally more substitutable renewable hydro energy is close to zero. With low power demand and increasing supply (both Mighty River and Contact have brought new geothermal stations on line over the last year) gas and coal fired thermal stations are looking very unattractive over the medium term.

I am interested in finding out the details of the Genesis take or pay contract with 31% owned Kupe, but I am finding the information difficult to pin down.

Page 115 of the Genesis prospectus tells us that the total (Kupe) field production is volumes forecast for natural gas are 22.3PJ (FY2014) and 21.1PJ (FY2015). The implication is that Genesis may 'take or pay' for 31% of that.

On the NZO thread, post 12621 by 'Lord Percy' (interesting aside this is the only Sharetrader post by 'Lord Percy'. Does it belong to our regular Percy, before he was stripped of his title?) where he states:

"Genesis takes NZOG 12 % on a take or pay contract. Vector buys the Kupe LPG on the same basis."

Lord Percy doesn't specify, but the implication of this comment is that Genesis takes NZOGs 12% share of natural gas on a "take or pay basis". Why would Genesis do that if they weren't already fully utilising the 31% of natural gas they are entitled to as a shareholder? This ties in with Genesis taking its full shareholder entitlement of natural gas from Kupe, and some more.

We can therefore infer that Genesis takes at least 31% + 12% = 53% of Kupe natural gas output.

The problem is the Genesis prospectus p37 says that NZ Oil and Gas has a 15% interest in Kupe, not 12% as implied by Lord Percy. Or am I reading that wrong, and NZOG splits their Kupe natural gas share 12 percentage points to Genesis and 3 percentage points for other customers?

Those waters off New Plymouth are still murky for me.

My grand objective is to find out how much gas Genesis have contracted so that I can estimate the total electric power that Genesis's unit 5 at Huntly generates annually effectively 'for free' (at no incremental cost to GNE). I am still some way from my goal as I write this

SNOOPY

[Snoopy]

Page 115 of the Genesis prospectus tells us that the total (Kupe) field production is volumes forecast for natural gas are 22.3PJ (FY2014) and 21.1PJ (FY2015). .

Trawling back via the NZ Herald website, gives the following quote from an article published on Wednesday 29th February 2012.

-----

"However, its take-or-pay contracts for Kupe gas also meant the company paid $65.4 million for natural gas, which it sold to customers at a net loss of $2.2 million."

"We continue to sell surplus gas contracted ... at a loss, given it is more cost effective than using it for generation," said Brantley. (Genesis CEO)

------

I must say I don't understand that last comment. If you have a take or pay contract, then isn't the effective cost of generating electric power with that gas close to zero? Why is selling gas to customers at a loss better than generating electric power with that surplus gas?

SNOOPY

[Harvey Specter]

I must say I don't understand that last comment. If you have a take or pay contract, then isn't the effective cost of generating electric power with that gas close to zero? Why is selling gas to customers at a loss better than generating electric power with that surplus gas?

SNOOPY

Because if they used it to generate power, they would have incurred a bigger loss. I assume they know at what spot rate it becomes more economical to just shut down rather than incur all the other costs as well.