Northland Power's Nordsee One project finally completed

Nordsee One is a huge project just like Niagara Falls in the picture above.It was planned in 2015 and work started in late 2016 and  it has finished in December 2017.It has been constructed in the North Sea which has the strongest winds in the world.It has 335MW of generating power and will produce 1300 gigawatts-hours of electricity. Acquiring Nordsee One and it's completion entitle Northland for the rights to own Nordsee 2 and 3.Project completion means that conditions have been met that will ensure the reduction of financing costs.

Nordsee One Inc.

In 2009 Northland set up a company called Nordsee One Inc.This limits their liability and reduces stress on Northland Power.The project was budgeted to cost EUR 1.2 billion and it is on budget and on time.70% or EUR 840 was financed by senior debt and this appears to have been converted to cheaper convertible debentures..The remainder or EUR 360 million was financed upfront by NPI and it's partner Innogy SE.This blog feels that there will be no more charges against NPI from Nordsee One as any interest charges will be covered by dividends from Nordsee One Inc.So it will be a self-sustaining corporation.And cash flow will move from Nordsee One into NPI.This will increase adjusted EBITDA and may force Northland Power to raise 2017 and 2018 guidance.   

                                              Other Nordsee projects
         When Northland Power bought Nordsee One from Innogy SE it also acquired the rights to build Nordsee 2 (384MW) and 3(400MW).According to the blog called 4-C Offshore, Northland and Innogy SE have acquired the right to build Nordsee 2 and 3.But they will not likely  even start to build until 2019.In the meantime Northland also acquired a partially-built wind farm called Deutsch Best which will have 252MW of power upon completion.Present schedules show that it will not be built much before the end of 2018.This means that by 2019 Northland Power will be a major player in the North Sea which generates more wind than any other source.                       getr updated news on NPI's Nordsee One  ; get updated news on NPI's north sea projects

Transalta has a good quarter and is in transition

       It is true that oil drilling has picked up  in Alberta as has the price of oil.Transalta says that" comparable EBITDA for the third quarter was the strongest third quarter result since 2013".Free cash flow was up $24 million over 2016.But these factors were not the main ones affecting TA.It is in transition in a couple of ways.Coal power generation is being gradually replaced.Consequently TA will get $215 million in 2018 from the Alberta government representing the net book value of it's assets. But coal will be it's largest earnings producer for the next 3 years.Also Transalta announced that it's South Hedland power station in Australia has begun commercial operation.EBITDA from it's Australian operation is now it's fourth biggest segment.And this blog expects more investment in Austaralia in the near future.
                  Structural Changes
  Transalta has used coal substantially to generate it's power in the past.In fact coal ( Canadian and U.S) is still the largest single source of earnings.Formal notice has been received to terminate their Sundance power purchase agreements.They will receive $215 million(the net book value of assets) to terminate Sundance in 2018.At the same time their Australia (South Hedland) power station has begun commercial operations.As a result their Class B shares will be converted to common shares.Consequently Transalta cancelled it's $350 million credit agreement with Transalta Renewables and reduced it's $1.5 billion credit facility to $1.0  billion.Transalta still owns between 70 to 80% of Transalta Renewables (RNW).This blog believes that TA is reasserting it's position in RNW again.In addition, their Kent Hills wind farm has completed a $260 million bond offering.Lastly Transalta expects to receive $335 million for the purchase of their Solomon  power station in Australia.
            Cash Flow
     Transalta's operations still generate a lot of profit and free cash flow.Adjusted EBITDA will be about $1025 million in 2017.While cash flow from operating activities will be about $750 million.This will leave free cash flow of about $325 million.And there will be another $215 million award from the Alberta government. But this money will be almost all used to update their  Canadian coal operations.Transalta is experiencing changes in all of their coal operations (including the shutdown of their Mississauga cogeneration plant).Cogeneration  and complete cycle power generation seems to be the way to go for their existing coal operations.Also look for more future projects in Australia.
                 Transalta Renewables
         Transalta has over the last 3 to 4 years downloaded most of it's renewable assets to RNW.In return it has retained 70 to 80% of RNW.There is little left to download now and so there will likely not be any more substantial downloading to RNW.Renewable energy products have not been as volatile as coal-fired and natural gas power.So this would not seem to be a good time to sell a small amount of their equity in RNW as their stock price is below the five year average price.Transalta may be content with updating some of their operations with their construction program expenditures and using free cash flow ($325 million) to start construction on a small wind farm project.        

The Transition

Transalta like most of north America is switching out of coal towards cleaner energy.The $215 million awarded by the Alberta government will help.Coal fired power will be switched to cogenerated plants and complete cycle plants.Transalta has one wind farm coming onstream called Kent Hills and may have another small one in 2018.Look for Transalta to announce another plant under construction in Australia.This is largely an unserved and less regulated market and offers good opportunities to TA.But Transalta will not move dramatically and this blog sees it in the $8.50 to $9.00 in 2018.

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Western Energy Services (WRG) gets it's chance to move up

    On November 9 a small oil drilling service reported it's results and they did not disappoint it's shareholders.On the other hand, the price did not barely budge.However a stock that was very little watched suddenly had more admirers (including this blog).It showed 40 to 50% increases in all performance measurements over the third quarter of 2016.This has been done with only a slight improvement in the price of oil.WRG's ace in the hole seems to be that it has a lot of new and modern technological equipment.Investors will be watching to see if it can repeat it's performance in the next quarter which should be a slower quarter traditionally with the cold weather.       

Financial Performance   

In the third quarter operating revenue increased by $20 million or by 67% to $51 million.Both drilling and production  services revenues were up.There was higher utilization of equipment in both segments.The increase in utilization was partly due to the quality of WRG equipment.In addition, two rigs were on long term contracts and a 4% increase in hourly rates.More importantly adjusted EBITDA increased from $.9  in 2016 to $6.9 million.This was combined with a slight increase in  administrative expenses of $.6 million to $5.4 million.And there was an increase in capital expenditures from $2.3 million in Q3 2016 to $6.3  million in 2017.

Finances 

Western Services got a new $215 million second lien from Aimco in return for 7 million common warrants at an exercise price of $1.25 per share.Also they made a private placement  of 9.1 million common shares to Aimco at a price of $1.25 for gross proceeds of $11.4 million.Lastly they completed a number of amendments to their Revolving Facility from $50 to $70 million.Still their property and equipment was valued at $720 million down from $663 million in 2016.

Year to Date

Performance for 9 months was even better than for Q3.Operating revenues increased 112% from $75 million to $160 million.Drilling revenue was up 142% and production services up 54%.Utilization of equipment was 36% compared to 14% in 2016.While adjusted EBITDA was $25.6 million up from $2.3 million in 2016.And administrative expenses was only up 12% over 2016.

What's Next? 

WRG is not expecting another big jump in oil prices in 2018.But this blog sees oil prices trending upwards in 2018.Both drilling and production services should be up over that seen in 2017. Adjusted EBITDA is likely to hit $35 million for the year.That will make e.p.s at about $.35 per share and the P/E ratio at only 3 to 4.This is a good buy with only a marginal increase in the price of oil.This blog suggests that some of these new earnings be  used to pay down the $215 million Aimco second lien.And if possible convert it to convertible debenture at a lower interest rate.Good results from the next quarter might send WRG to the $1.40 to $1.50 price level.But news on paying back part of the second lien will also help it get to $1.50

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