Contact gas sale secures payout, export industry

By Mark Reynolds

Contact Energy has signed a gas sales deal that will more than double its expected profit this year and guarantees a future for New Zealand's $400-million-a-year methanol export industry.

The deal means Contact's 240,000 shareholders should receive a cash bonus for the second half of the company's financial year.

Contact forecast a dividend of 3.9c a share for the second half when it was privatised earlier this year, but it has a policy of paying out 80 per cent of profits to shareholders.

If it sticks to that payout ratio the dividend will be closer to 14c a share.

The profit boost is assured because Contact has secured a major gas-supply agreement with synthetic fuels manufacturer Methanex, which exports methanol made from natural gas.

The deal will reduce by about $195 million a liability Contact has that would have forced it to buy gas even if it did not have a use for it.

The take-or-pay contracts oblige Contact to buy gas from the Maui field off the coast of Taranaki.

The Methanex contract will not make big profits for Contact, but it will dramatically reduce the company's potential liabilities.

As a consequence of the Methanex sale, Contact will value at $72 million a bank of gas it has paid for but has not been able to market in recent years.

That represents a boost of nearly 12c a share for each of the 604 million shares sold when the company was privatised earlier this year.

"This recognition will flow through into Contact's results for this financial year, more than doubling the profit forecast of $65.5 million after tax for 1999 made at the time of listing," the company said.

Chief executive Paul Anthony said the arrangement was "very beneficial" to the company.

"This will have a substantial positive effect on the company's value and future profits."

The arrangement will see Methanex buy 130 petajoules of gas from Contact over the next nine years.

That is equivalent to more than six years of gas usage at the company's just-completed Otahuhu B power plant in South Auckland.

The plant is capable of producing about 5 per cent of New Zealand's electricity.

The deal has big implications for Methanex, because it means the company's methanol plant at Waitara now has an assured future.

The agreement staves off the real threat that the Waitara facility would have to be closed from early next century because of a lack of an assured fuel supply.

Methanex managing director Bruce Aitken said the deal was important in securing his company's survival in New Zealand.

Methanex is one of the country's major export earners, with fuel sales of about $400 million a year.

The only downside of the latest arrangement between Methanex and Contact is that it raises the question of where state-owned power retailer and generator Genesis will get its future gas requirements from.

Genesis - formerly part of the Electricity Corporation - needs to find more gas to fuel its Huntly power plant and it was widely expected it would secure it from Contact.