Global Energy Ventures Ltd (ASX:GEV) (FRA:WS9) shareholders can expect to see the most value generated from their investments in 3 to 4 years once the company’s first compressed natural gas (CNG) vessel is operating, according to an equity researcher at Beer & Co.
In an analysis released yesterday from Beer &Co on the same day as the company’s annual report, research note author Pieter Bruinstroop highlighted the value in GEV’s shipping intellectual property.
Beer & Co co-principal and business analyst Bruinstroop flagged the cost advantages of the marine transport developer’s future gas delivery option.
GEV has developed a method to transport gas that is relatively cheap, when compared with LNG, and very flexible when compared to pipelines.
GEV are able to purchase gas, especially from offshore platforms, and transport it to cities at a modest cost.
In Beer & Co.’s view, there are many ways in which GEV is able to generate value from its technology, though most value will be realised in 3 to 4 years from now, when the first ship is operating.
Pieter Bruinstroop, Beer & Co equity research principal
The research outfit flagged the company had highlighted projects for five possible gas regions and four could produce up to 945 million standard cubic feet a day.
Among these, Beer & Co highlighted three projects that could come to fruition, calculating a possible net present value (NPV) of between US$400 million and US$1 billion.
The NPV calculations translated to a risked NPV-based valuation of $1.40 a share.
Following is an excerpt from Beer & Co’s report:
GEV has developed the CNG Optimum technology to transport 200MMscf of Compressed Natural Gas using a HandyMax size vessel.
GEV has received regulatory approvals, engaged shipyards and is currently working to convert expressions of interest into contracts to buy, deliver and sell gas.
The CNG Optimum technology has lower capital costs and is more flexible than other sea transport technologies, such as LNG and pipelines, within 2,500km.
The flexibility offered, in terms of gas sourcing, supply and delivery, is the greatest asset of the technology and driver of its value.
GEV has developed the CNG Optimum technology, with approvals
The CNG Optimum technology enables a HandyMax size vessel to ship 200MMscf gas in a single voyage. The technology received regulatory approvals in January 2019 and patent applications were then lodged.
The technology fills the hold of a standard HandyMax size vessel with standard gas pipe in a way that gives the ship cross‐sectional rigidity. The regulatory standards offer protection for GEV’s IP.
Valuing the technology
A CNG Optimum ship can moor nearby an off‐shore platform, take on gas that the producer is not able to sell, and then sail to a nearby city and offload the gas into the grid.
GEV could acquire gas for $2/mmbtu (we use $3 in our analysis). International delivered gas prices range from $6 to $9, while all‐up transport costs vary with the distance, ranging from $2.0 to $3.3.
This gives a margin to GEV of $2 to $3.5/mmbtu, or US$ 0.4m to $ 0.7m per voyage and one ship might do 60 up to 140 voyages in a year, depending on the distance, so generate around US$ 40 to $60m.
The greatest cost is US$ 135m to US$ 140m for each vessel. Operating costs expensed to the P&L are less than $1/mmbtu, so generating a payback for each vessel from 2 to 3 years, with a life of 20 years or more.
Expressions of interest; now seeking contracts
GEV requires bankable contracts from off‐takers and evidence of gas resources from suppliers, to secure the debt required to build the ships.
A contract to supply 200MMscf/day, 300km from offshore platform to a city, with one day to load and one day to unload requires 4 ships.
Assuming a gas purchase price of $3.00 and a sale price of $6.50, which is below the cost of LNG imports, Beer & Co calculates an NPV of US$ 1,000m for this contract, if it were signed in December 2019.
The first ship will take about 30 months to be delivered and each subsequent ship a further four months.
GEV released its annual report for the 2018-19 fiscal year yesterday.