Forum Archive Index - December 2002

[" Hans van der Voorn" <vandervoorn@xtra.co.nz>]

Hi Snoopy,

The NGC gas contracts are fairly complex and I'm not 100% sure of all the
detail.

However when NGC was first set up it purchased part of the Crown's right to
Maui gas, the 3 buyers of Maui gas from the Crown are Methanex, CEN and NGC.
Post redetermination it is expected that Methanex will have used all of its
entitlement. The price was set in the 1970s and increased at half the rate
of inflation since. Somewhere along the line both CEN (via Electricorp) and
NGC had significant volumes of prepaid gas. This was gas paid for up front
with a capital payment, at a much lower price than would prevail today. I'm
guessing a bit but it would be well under $2/GJ (say $1.50/GJ less than
todays price). CEN, when Paul Anthony was in charge, first of all wrote down
the capital value of the prepaid gas to zero. Then a year later sold it and
booked what looked like a healthy profit (and no doubt earning Paul a big
bonus). NGC are still selling their prepaid gas and making (a guess, but
say) $1.50 more/GJ on it than if they had to repurchase gas on the market.
The danger for them is that a proportion of the prepaid gas may not be there
(because of the Maui shortfall) but in any event when it runs out their
profits will reduce. There is nothing untoward about the prepaid
arrangement, but from an investors point of view if future profits from a
significant business segment are expected to reduce, that should be
reflected in the share price. I don't know the exact volume but the effect
could easily be in the range of $20-30m/year.

One point to note is that in the short term (ie this year and maybe next),
NGC may actually be able to make higher profits if selling prices goes up
but their buying costs stay the same.

In an environment of short gas supply, you wouldn't expect gas fired power
stations to be worth as much. They will become the highest cost operators.
In that context it will be interesting to see how much NGC can sell the TCC
for.

regards


Hans



----- Original Message -----
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Saturday, December 07, 2002 11:52 PM
Subject: Re: [sharechat] CEN, NGC


>
> Hi Hans,
>
> >
> >Bear in mind that Project Aqua is
> >
> >a) far from a reality,
> >b) at least 10 years from completion, and
> >c) in the wrong island.
> >
> >We may see a number of gas discoveries in the next 2-3 years, but
> >most of them will be tiny in comparision to Maui. Pretty risky to
> >assume a big field will be found tomorrow. A strategic investor
> >would at least take this issue into account, acknowledging the
> >outcome is uncertain at best.
> >
> >
>
> Sure, but it is not necessary to fined a gas field as big as Maui.  A
> number of smaller fields will do.  In fact I think the future of
> power generation in New Zealand will lie in many more small
> generators coming on line, rather than the grandiose projects we
> have seen in the past.
>
> >
> >
> >The value issue for NCH is that they have been buying gas
> >significantly cheaper than their competitors, through having paid
> >the Crown a capital sum for the privilege.
> >
> >
>
> I must admit to not following NCH all that closely.  Can you give us
> some background as to how when and why this significantly
> advantageous contract that NCH has came about?
>
> >
> >
> >Your point about the trees is valid, but I guess FFS investors would
> >hope the trees are worth more than firewood.
> >
> >
>
> Well it wasn't meant to be taken too seriously.  I trust you saw the
> smilie!
>
> >
> > Most primary processing
> > uses energy so costs will increase.
> >
> > NZ Steel at Glenbrook. If it was marginal with cheap
> > energy, what will it be like with higher costs amid
> > a worldwide glut of steel production capability?
> >
>
> For the answer to that keep an eye out for the final installment of
> my steel industry soap opera, where I will be looking in detail at
> the prospects of BHP Steel, owner of NZ Steel.
>
> SNOOPY
>
>
>
> ---------------------------------
> Message sent by Snoopy
> e-mail  tennyson@caverock.net.nz
> on Pegasus Mail version 2.55
> ----------------------------------
> "You can tell me I'm wrong twice,
> but that still only makes me wrong once."
>
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