Portland Gas Share Discussion Threads

[shakyhands] 05/11/2008 09:02

Tf they don't have an immediate plan of action - and they have just admitted that effectively - then they should be looking to sell either the asset or preferably the company.If they had announced that they were doing that - instead of making the announcement that they have just made - the shareprice wouldn't have plunged the way it has.
They claim that they are trying to enhance shareholder value,but they've done precisely the reverse ! Are they avoiding a sale because they want to manage the company?

[fairdeal2008] 05/11/2008 09:01

where is the rns - I cant see it

[clearsoup] 05/11/2008 08:42

I feel for you eacn: so I have doubled up!

[darlocst] 05/11/2008 08:42

What a shocking RNS!If they can't get the funding to develop it themselves surely they should just look for a complete sale of the asset.

[mina123golf2] 05/11/2008 08:29

After this RNS is this company now in terminal decline? With funding discussions now halted what if anything is the way forward from here?

[ammons] 05/11/2008 07:23

Looks like a bad week all round for gas storage...................

[eacn] 04/11/2008 10:04

darlocst,

As I noted in an earlier post, depleted fields are a riskier proposition than salt caverns and are more capital intensive. At best E&G is going to cost more to develop and have a shorter life than previously assumed, and at worst the project may no longer be viable.

With the lower resevoir in doubt at Esmond, the IRR for the project may fall significantly since the infrastructure CAPEX is not proportional to storage volume. If the Hewett upper/lower resevoir volumes are a guide, E&G may only be viable for 60% of its planned capacity, or may require more cushion gas (at higher pressures) to allow the lower resevoir to operate.

This is not to say that today's announcement is terminal for E&G, but for the time beinng at least investors can't assume the asset has any significant economic value.

Despite having concerns about offshore depleted fields, I recently bought a few EO. on the basis that if the E&G test result was positive the EO. share price could jump to 50p and if it was negative the PTG share price would probably react positively.

I saw this as a relatively low risk bet since Breagh underpinned an EO. NAV of around 20p. I was well aware that this was a binary bet on the E&G test result (with anything other than a total positive being classed a failure). Unfortunately the bet hasn't paid off, but with a bit of luck we will see some PTG upside in compensation.

[darlocst] 04/11/2008 09:11

I bought into PTG last week when they bounced off 100p, at this price I do think they offer some interesting upside.

With Encore's gas storage project not looking so good this morning perhaps investors/purchaser of gas storage projects might want to look at PTG now instead.

[mina123golf2] 28/10/2008 15:54

darlocst Interesting this. share price now about 110p after a short climb to 117p - changed days from when we were talking about up to £8 a share.If DS is correct and the shares are worth circa 250p on a trader buy then the board of this bloody company have a lot to answer for. They did incredibly well to get this through planning on the 16th May without any caveats at all BUT now they seem to be completely at sea as to the next step forward ie raising capital.I simply cannot decide whether to buy back in or not.

[darlocst] 28/10/2008 10:42

"Project delays hurt Portland
By Bryce Elder and Neil Hume

Published: October 28 2008 02:00 | Last updated: October 28 2008 02:00

Portland Gas hit a record low as doubts grew about its plan to build Britain's largest gas storage facility.

Daniel Stewart analysts said the project was unlikely to come on line before 2017, a delay of at least two years from the plan outlined at its flotation in January. The broker's team also doubted whether joint venture partners would agree to foot the entire £500m project cost in return for just 50 per cent of revenue.

Portland lost 5.6 per cent to 102p. In May, the stock had traded as high as 428p on talk that Centrica was weighing up a bid.

Daniel Stewart said Portland shares would be worth 250p to a trade buyer. However, it expects the group to try tapping the markets for any shortfall in development funds rather than putting the business up for sale."

[money4me] 27/10/2008 19:36

I'll give you 50p (no not per share - for the whole company)

[shakyhands] 27/10/2008 14:26

The downtrend probably won't be broken until details of the MOU are released - in a few weeks time.Unless of course someone bids for the co.

[mina123golf2] 27/10/2008 09:00

DidierDrogba I am not so sure re its terminal status. The big question seems to be the raising of the capital to develop the project.With money tight and Hindle apparently not up to the job the immediate future is not rosy. BUT there is no denying that the UK requires gas storage facilities urgently and on this basis alone I really cannot see the whole project collapsing. The main question as I see it - is the share price now representing a real buying opportunity!!!!!!!!!

[didierdrogba] 27/10/2008 08:00

Yeah, I do have a holding in my SIPP which was once looking very heathy but now looks terminally sick!

[mina123golf2] 27/10/2008 07:32

DiderDrogba I share your ignoramus status. I also share your view re the PTG project. The one who understands the various ramifications of the company is eacn.Are you a holder of the shares Didier???

[didierdrogba] 26/10/2008 23:07

I speak as a complete ignoramus but doesn't the current price disintegration indicate that some investors think there is a real danger that the project could be mothballed?

[mina123golf2] 25/10/2008 11:29

money4me Yes I recall the placing at 355p very well. You may also recall that PIs were aghast at such a LOW price for the placing - I seem to remember the share price was around 390p at that time.How quickly things can change!!!!!!!!

[money4me] 25/10/2008 11:04

they did have that placing at 355p - would have thought whoever took those shares might be asking questions of the mangement?

[mina123golf2] 25/10/2008 10:07

Price has now dropped to 108p from the giddy heights of circa 450p. Is the writing on the wall for this company?? Surely not. In the current climate I would have thought it difficult indeed to raise capital and I suspect our man Hindle is not approaching this in the correct manner as hinted at by eacn. Question is when is the downtrend going to be broken and what will break it???Do you recall the earlier talk of £8 - £10 per share - seems but a dream now.

[eacn] 21/10/2008 20:12

mina123golf2,

Your guess is as good as mine. PIs are dumping the stock because it increasingly looks as if Hindle means what he says and is intent on building an independent gas storage company rather than a company which develops gas storage assets and sells them on to majors. That strategy may end up delivering a share price of £4 or more but you may have to wait until 2014 to see it. Most PI's don't have that sort of patience.

Indeed PTG may never get that far if they insist on retaining control of gas storage assets. They have little or nothing to add during the construction phase and if I were a major I would be very wary of getting involved in a multiparty farm-in deal, particularly if PTG is required to raise cash to ensure completion as has been suggested by Daniel Stewart.

If they had any sense they would follow the Caythorpe example and sell the asset to a major for between £250M and £300M and return most of that to shareholders, retaining suficient funds to complete Larne and develop a few European assets. Unfortunately, Hindle doesn't seem to recognise that simple is sometimes best.

[mina123golf2] 21/10/2008 12:24

eacn We now have reached an share price of 140p and no signs of a halt in the decline are apparent.As someone who is fully tuned in to this share can you predict a bottom price?I obtained shares via Egdon in what seems a long time ago - at a price of 85p( not a bad price for Egdon at the time).The share price on Ptg and is rapidly approaching this.

[eacn] 20/10/2008 08:52

Holism,

Cost of capital is a key issue.

Andrew Hindle's aim of building an independent gas storage business relies on other people lending him the money to develop the facilities. When money was cheap and plentiful that was fine, but we are now entering a period when companies will hoard cash and commercial loan rates spreads will be several hundred basis points higher than they were heretofore.

The fact that we are going to see much lower short term rates in the near future has little or no bearing on long term project finance. The key is the long term return on gilts which will remain between 4% and 5% whatever happens to base rate (it needs to stay there to ensure there is a steep yield curve, allowing the banks to make profits on lending short and borrowing long to rebuild their balance sheets).

I would expect the spread on long term project finance to be 3% to 4% for the majors when borrowing from banks (compared to say 1% in the era of cheap credit), which means that they will be looking for a higher rate of return when "lending" on to juniors such as Portland.

I suspect that whereas a 12.5% IRR would have been acceptable in the past, the majors will now be looking for 15% minimum for projects where they are providing finance to a thrid party, which implies that they will want a 65% share rather than the 50% mooted by PTG back in April 2008. It is possible that they will want even more than that.

On the basis of 27p/therm as the current storage rate for Portland rising to: 40p by 2014; 60p by 2019; and increasing in line with inflation thereafter, that implies a value of c. 250M for the Portland asset in todays money or 320p a share.

The second key assumption is the projected rise in the price of gas storage.

Given the volatility of the market at present there is every reasons to believe that in the short to medium term short cycle gas storage will command a premium rate.

The intrinsic value of a gas store with a cycle time of 50 days is effectively the difference between the price of gas for the 25 days of the year when gas is cheapest and the 25 days of the year when gas is most expensive (in fact because injection takes longer than withdrawal the calculation isn't symmetric but we can ignore that for the purposes of this discussion).

The differences between cheapest and most expensive days have widened in recent years and will continue to do so as North Sea supplies decline. It is therefore reasonable to suppose that there will be an increase in intrinsic value until such time as the UK has, say, gas storage capacity for 15% of its annual usage. Thereafter as storage volumes increase to 20% of annual usage the average price of gas storage may well fall.

Short cycle facilities will however continue to command a premium because they can take advantage of intraday swings in gas spot prices. Until the UK has at least 4% of its annual usage in short cycle storage I would expect short cycle storage to command at least a 50% premium to say depleted field stroage where cycle times are more than 200 days.

I therefore remain reasonably happy with the storage price projections I have made above for the period to 2017 but suspect that after that prices may well fall in real terms.

Plugging this into the model and assuming a price peak of 50p in 2017 with a real terms decline of 2% p.a. therafter, reduces the farm in partners IRR by roughly 2% to 13% on a 65% share, but only reduces the value of the Portland asset to £240M. If the farm in IRR has to stay at 15% then that value falls to less than £150M.


My conclusion is that the "independent" gas storage business model is broken and that PTG should be focusing on the early stage development of gas storage projects with a view to selling these on to the majors. Majors will demand a lower rate of return for internal projects over which they have complete control and PTG will therefore get a higher price for these assets than through a farm in model. Furthermore that price will be payable today in a lump sum rather than as a series of cashflows over an extended period. The ROCE for shareholders in such a model will be significantly greater than that from a utility like gas storage business.

[holism] 20/10/2008 08:11

eacn- just mulling over the assumptions we made over the last two years. What has changed apart from the market for shares generally. For example has the cost of capital changed? It must have gone up a bit maybe by as much as 1% for a long term project. And what about gas storage tarriffs? We were looking at a spread of 30p to 40p per therm. Variable costs were negligeable at under 3p/ therm. Any views?

[dorset64] 17/10/2008 14:31

Not sure if someone else has posted previously, but maybe of interest to you guys. I had this sent to me today.





A section of the article reads:

'Meanwhile Chicago Bridge and Iron, based in Paddington in London, and which is already performing engineering work for new UK LNG terminals, has been awarded a first phase engineering, procurement and construction contract to develop the Portland gas storage site at Upper Osprey in Portland Port, the site of a former UK naval base on the Isle of Portland'.



All the best

Dorset

[shakyhands] 17/10/2008 14:17

High turnover today.Maybe something's brewing.