Crown's investment in Genesis drops in value

The value of the Crown's investment in state-owned Genesis Energy fell by $305 million between June 2008 and June 2009.

In its statement of corporate intent for the 2009/10 financial year, Genesis put the consolidated commercial value of the Crown's investment in it at $1.44 billion at June 30, 2009. A year earlier the value had been put at $1.74 billion.

A key reason for the fall in commercial value included a reduction of $268 million in the value of the generation business because of a fall in projected generation volume from the older thermal units one to four at the Huntly power station, in the Waikato.

The drop in generation volume was a consequence of the older plant at Huntly being displaced by new lower-cost or must-run generation plant, Genesis said.

The value of its retail business was also down $41 million because of lower volumes and lower prices.

New and generally lower-cost or must-run generation, expected to come onto the market in the next few years, would replace the Huntly units one to four in merit order in the next few years, the company said.

As the output from the Huntly units was projected to fall, the plant's operating and maintenance costs were rising.

The company was considering repositioning the role of the Huntly units within its generation portfolio and refocusing its electricity generation activities in the short term on the more profitable elements.

Genesis said it was also exiting upstream gas and coal exploration and production activities, except for its involvement in the Kupe project, to reduce its balance sheet risk.

That was in contrast to its 2008 annual report, in which the company said it viewed its presence in domestic gas exploration as strategically important to enable it to secure priority gas supplies and reduce its reliance on high-emitting coal-fired generation.

In February 2008, Genesis extended the exploration acreage of its Mangatoa permit in north Taranaki.

The seismic programme comprised 300sq km of 2D data, mostly offshore but extending partly onshore. Surveying of the prospect started in March 2008.

The 2008 report also noted that the Momoho exploration well drilled in the Kupe outer field and the Cardiff exploration well, in which Genesis had a 40 per cent interest, were found to contain uneconomic reserves.

- NZPA