Daily Energy Digest - 9/24/2010

SOLAR PROJECTS After US market close yesterday, Eurus Energy and NRG announced 3 PV projects totaling 45MW (AC). While NRG already owns a 20MW PV project built by FSLR in Blythe, this project will use Quanta (PWR) as the EPC, and thin film panels from Sharp. One might think this is not positive for FSLR. However this is positive for broader solar and even for FSLR for several reasons: (i) From a news flow perspective, there may be several other projects breaking ground before year end due to the expiration of cash grants, which may help the sector near term as panel companies win 2011 contract deliveries (e.g., 92MW Alpine/NRG, 45MW for Santa Teresa/Wildcat by NRG; Ajo/Bagdad/Salt River in AZ etc); (ii) Some of these projects, even potentially the other projects developed by NRG, could end up with FSLR as the EPC supplier (recall FSLR has visibility on 300-400MW of self developed projects, and needs 200MW of EPC projects to hit its 600MW guidance in 2011); (iii) The implied economics of these projects appear attractive, which is consistent with the view on the attractive economics of the self-developed FSLR projects. Details of today's 45MW project announcement: (i) Projects are located in California (20MW Sun City, 19MW Sand Drag, Avenal Park 6MW), to be co-owned by NRG and Eurus 50-50; (ii) Project EPC to be performed by Ryan Company, a wholly owned subsidiary of Quanta services (PWR) with ground breaking to start immediately on the first two projects; (iii) Project to use thin film solar panels from Sharp; (iv) Project will cost $220mm; (v) Project has PPA prices above 2009 MPR of 10.1c/kWh (2011 deliveries), PPA is with PG&E; (vi) Project capable of delivering high teens levered equity IRR after incentives and taxes. Recall earlier this week, Sharp Solar was in the news, acquiring the solar pipeline from Recurrent Energy. The PPA document from PG&E notes Eurus Energy as the signatory of the PPA and not NRG. The involvement of Eurus, which has a Japanese ownership, likely had a role to play in the decision to use Sharp's thin film panels for the project. In addition, our industry checks also suggest some US solar projects are getting pushed out of 2010 due to the lack of panel availability.

Denbury (DNR) acquiring carbon dioxide reserves in Wyoming. Denbury Resources Inc. agreed to acquire a 42.5% nonoperated working interest in the Riley Ridge federal exploratory unit in southwestern Wyoming for $115 million. The transaction includes 33% of the carbon dioxide rights in 28,000 acres adjoining the Riley Ridge unit. The Riley Ridge unit and the adjoining acreage are in LaBarge field. Closing, subject to due diligence, is expected by Oct. 31. Denbury estimates the Riley Ridge acquisition contains proved reserves of 185 bcf of natural gas, 6.6 bcf of helium, and 1 tcf of CO₂, net to the interest being acquired. The additional adjoining acreage is estimated to contain an additional 1 tcf of probable CO₂ reserves, net to the same interest. Denbury expects net development costs associated with the Riley Ridge unit to be $24 million during 2010 and $32 million in 2011. The estimate includes the costs of drilling an additional producing well and constructing processing facilities to separate the natural gas and helium. The full well stream is expected to consist of 65% CO₂, 19% natural gas, 10% hydrogen sulfide, 0.6% helium and other gases. Initially the operator plans to re-inject the CO₂ and hydrogen sulfide, but Denbury will have the right to separate and take the CO₂ and reinject the H₂S. Denbury said no decision has been made whether or when to construct processing facilities to separate CO₂ from the H₂S. Bottom line: Positive for DNR since the acquisition enables the company to develop its Rock Mountain tertiary recovery projects.

Hess Corp. (HES) Reports emerge of stealth oil shale play in China. Dow Jones reported yesterday that Hess is leveraging its experience in North Dakota's Bakken Shale to open the door to a potential Bakken look-alike in China. In a joint effort, Hess and state-controlled PetroChina (PTR) are targeting an oil shale zone in China's aging Daqing field. The field, China's largest, has been producing for 50 years from conventional reservoirs but is facing declines. The fact that PetroChina has apparently chosen Hess to partner with is not surprising (of all the Western integrated majors, Hess has the most experience in the Bakken, having discovered the play half a century ago). Hess has the second-largest acreage position of any Bakken operator, and its production there is expected to reach 20,000 Boe/d by year-end, up from 13,000 Boe/d in March.