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Kupe earnings bolster Genesis 1H profit by 125%

Wednesday 29th February 2012

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Genesis Energy, the state-owned gas and electricity company, reported a 125 percent increase in first-half net profit, reflecting increasing earnings from its share of the Kupe oil and gas field, the addition of new hydro stations and higher wholesale power prices.

Tax-paid profit for the first half was $38.3 million, compared with $17 million in the same period a year earlier.  Earnings before interest, tax, depreciation, amortisation and changes in the value of financial instruments (ebitdaf) were up 27 percent to $190.5 million.

In its retail business, however, earnings were flat despite a 2 percent increase in total customer numbers to 669,138, making Genesis by far the country’s largest energy retailer. Ebitdaf for the customer segment came in at $25.6 million on sales of $629 million, compared with earnings of $23.1 million on $630 million of sales in the same period a year earlier.

“Gains in customer numbers and increased sales of LPG were offset by lower energy demand,” said chief executive Albert Brantley, in the management discussion of the result.

The company continued to grow its South Island customer base, which nearly doubled to 60,714 customers, compared with December 2010, reflecting its purchase of the Tekapo A and B hydro stations on the Waitaki River as part of government-ordered electricity reforms, he said.

The North Island electricity customer base shrank 3.9 percent to 493,139, partly reflecting tough competition and the impact of the Electricity Authority’s customer switching campaign.

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 is also working to reduce inventory costs caused by ongoing delivery of coal for the increasingly disused Huntly power station.

While coal sales saw “other revenue” rise to $10 million from $3 million in the same period the year before, coal stockpiles increase from 1.3 million tonnes to $1.5 million tonnes, “reflecting long term supply agreements and a relatively lower coal burn than prior periods.”

The company is seeking to “re-profile” its coal supply arrangements.

Meanwhile, operating earnings from Kupe oil and gas sales rose 8% to $44.7 million, as oil production recorded in the period rose 18.2 percent, largely thanks to the timing of shipping schedules. Higher production, marketing and distribution costs offset the increase from Kupe, partly reflecting repairs and maintenance costs, some of which may be reclaimed under insurance policies.

Reflecting a drop in water stored in hydro lakes over the period, wholesale electricity prices rose and the average retail electricity purchase price for the half-year was $84.19 per MWh, compared with $58.31 in the same period a year earlier.

The company also expects to roll out its 250,000th retail electricity smart meter in coming months, and is trialling new tariff structures with Auckland customers, using smart meter technology.

While Genesis began seeking resource consents for a major new wind farm in the Wairarapa, called Castle Hill, during the period, it considers the market is currently “saturated” with new generation proposals that will more than meet weakly growing electricity demand in the near future.

Genesis confirmed the first of its four older 250 Megawatt units at Huntly will go into storage in December this year, with a second unit scheduled for removal from service in December 2014.

No dividend was declared for the half-year. Genesis is one of three electricity generator-retailers being considered for partial privatisation, although industry observers expect it will be the last in which up to 49 percent will be offered for sale, after MightyRiverPower and Meridian Energy.

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