Genie Energy – Energy Retailer With Exploration and Oil Shale Upside

oil-gas-exploration_800x333Oil Voice

By Edison Group

Genie Energy offers investors exposure to two exciting prospects: exploration in northern Israel, and oil shale developments in Israel, Mongolia and Colorado utilising its proprietary in-situ technology. Genie’s US energy retail arm, Genie Retail Energy, provides a valuation foundation and helps finance upstream activities. The northern Israel exploration campaign will kick off by H115, with three wells to be drilled in the next 12 months. The oil shale projects are in early stages, requiring permit approvals and successful pilots before commercial production can start in the next decade. Our RENAV, based on Genie Retail and Israel exploration only, is $11.3/share. Oil shale success could add material upside.

 

Year end Revenue (US$m) EBITDA
(US$m)
PBT*
(US$m)
Operating CF
(US$m)
Net cash/(debt)
(US$m)
Capex
(US$m)
12/12 229.5 3.2 0.4 (1.0) 69.4 (4.2)
12/13 279.2 0.7 (2.6) 1.2 73.9 (3.0)
12/14e 287.6 (16.0) (18.1) (9.6) 77.4 (7.0)
12/15e 297.8 (0.8) (2.7) (3.9) 52.8 (14.1)

Note: *PBT is normalised, excluding intangible amortisation, exceptional sand share-based payments.

Pioneering exploration in northern Israel and oil shale

(1) Israel exploration: Genie will drill three wells back-to-back (with an option for up to 10 wells) in shallow formations in northern Israel, thought to hold billions of barrels of oil and gas trapped in the low-permeability source rock. Genie’s model is based on a single well log and surveys. A 250mmboe discovery could be worth c $3/boe, or $2.6/share on a net risked basis. We calculate initial flow rates need to be at least 250boepd to achieve decent (15%) returns. (2) Oil shale projects provide long-term upside. Genie estimates its Israel and Mongolia licences hold a combined 74bnboe of oil in place, which it plans to unlock with its proprietary in-situ process. Genie intends to first test its concept in small pilots and start commercial production after 2020. There could be substantial value creation from oil shale, but it will take time to monetise the resources given permitting issues, notably in Israel.

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