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We have had a couple of threads suggesting that HARL should dispose of the IslandMagee project but what are the pros and cons of doing this.
Pros
First It would give HARL a guaranteed minimum forty year income stream. I arrived at forty years by looking at the Marine License terms. The marine license is for a minimum of 25 years. It is also determinable on 25 years notice but the 25 years notice cannot be given in the first 25 years. That gives us an effective 50 years license. From this I took off years for legal wrangling and to build the facility. The 2019 term sheet RNS calculated that the annual storage charge would be £50m. Adjusted for inflation using figures from https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator you get £58,523,544.09. However that is based on the assumption that the annual charge would remain the same and does not allow for any increase in the storage charge.
Second If the cost of building the facility is funded at the project level i.e. by loans or equity in IMEL then the value of IslandMagee would impact favourably on the value of HARL. If we value IslandMagee on a P/E ratio of 8 due to the guaranteed this would value Island Magee at £400m. I arrived at that figure based on the assumption that the running costs for IslandMagee would be £8.5m. Jabido doyouagree that a P/E ratio of 8 would be the right figure.
Cons
First the construction costs would need to be met. I saw a capex figure of £300m mentioned. The question is how will this be met. It will probably have to be met by a mixture of debt and equity which will probably impact on the second point under pros.
Second HARL does not have the relevant experience as far as I know in operating a facility of this kind. This would dictate bringing in the necessary expertise. This would have to be either by sub contract or direct employment.
Morning Stokey, in short it's difficult to put a value on the p/e. I can't find any other listed companies that solely operate a gas storage facility, with most having diverse portfolios including exploration and extraction of resources. I am anticipating a broker's note from cenkos once the fss is signed, and another once the JR is complete. Hopefully that will assist you much better than I can!
Thanks for your continued contributions to the board and others sharing decent views. It's difficult keeping track of the decent posts at the moment so I've switched off somewhat. However, it's a minor irritation as I'd much rather be invested in the now popular Harl than staring at an SP of 5p :)
I'm still very confident we will all do extremely well in Q1 and beyond. Good luck all and keep well!
Jabido thanks for your 11.45 post. Hopefully we will get a decision on IMduring H1 2023 and it is not appealed.
Hi Stokey,
I wouldn't mind seeing H&W own and operate the facility or going into a partnership with a major player (eg Shell, Storengy, Jim Ratcliffe )with skills transfer. I think there is sufficient knowledge base within UK and Ireland covering physical and commercial operation of storage facilities and their interactions with System Operators Control Rooms. I don't think headcount requirements are high?. Thought I read somewhere that the Energy Bill might change the rules on who was allowed to own storage / generation assets. This might change the game on who we could partner with. I think AR also has a commercial background in gas which hopefully supports a proper evaluation of options with other experts.
.
LSE03 ref 12.04 post You actually triggrered a memory when you mentioned about who HARL can partner with. If I recall the National Security and Investment Act correctly a mandatory referral may be required if a foreign national individual or company sought to purchase an interest above 25% in a UK company carrying out certain types of business. If I recall energy companies or certain energy companies were covered by these provisions. I wonder if they are going to extend the range of energy companies caught by the need for a manddatory referral. If that is the case that would reduce the options for partners, or ensure HARL keeps at least 75% of IMEL.
I discussed this with Arrun at the Belfast meeting earlier in the year, you would have to assume that the project carries more value today, my point to Arrun was that I felt HARL should keep a % lets say 25/33 % as it is a guaranteed yearly revenue stream, even through times of recession, and let a major take 66/75 % and run the project, with HARL also benefitting from the fabrication of the build.
Evening all. :) Nice to see so considered and coherent posts, uninterupted by rampish nonsense.
On Stokey's point regarding HARL not having the relevant experience in operating a facility of this kind. It is worth noting that AR came to us with previous experience in this sector.
This from an article when was initially appointed, "Arun Raman has spent the past 20 years within the commodities and infrastructure sector. While at Star Energy Group plc (now known as Petronas Energy Trading Ltd.), Arun was responsible for commercialising its 10BCF Humbly Grove Underground Gas Storage Project, including the negotiation and commercial delivery of the Gas Storage Agreement with Vitol SA as the capacity offtake client. He also negotiated and executed agreements with the National Grid in relation to physical gas flows between the Humbly Grove gas storage facility and the National Transmission System. On the trading side, Arun set up trading desks for natural gas, power and carbon emissions for the group.
Following on from there, Arun was hired by Vitol Services Ltd. in London where he was actively trading carbon emissions and other commodities. Arun specialises in commercial negotiations and monetising assets underpinned by commodity flows as well as trading of commodities around such assets."
Then we have the more recent appointment of Katya Zotova, who was Non-Executive Director for Vedanta Resources plc, a globally diversified natural resources company with revenues of more than $10 billion.
So there is a bit of experience already inhouse.
PS. Been away since Friday afternoon, so nice to return and read of attempts to bring this board back on track. Well done all those that keep pushing through the noise.
GLA. Si. :)
Si_Derman ref 21.17 post this raises the question are there any cons against HARL retaining IM left. The only con left is the Capex needed to build the facility. Even this would not be insurmountable.
There’s far more regulatory and non regulatory hurdles for IM than just the ML you know.
Aren’t you hanging your hat on the ML?
If not are there any other regulatory hurdles you see causing specific problems? I wasn’t aware of any that weren’t routine compliance once the ML is reapproved (if indeed it is)