Scalper1 News
CEO David W. Crane resigned and the market cheered. Some may have thought it was a green dream undone. The blame belongs to coal and natural gas, not to solar. The resignation of David Crane as NRG (NYSE: NRG ) CEO sent the stock up, and fossil fuel advocates celebrated the demise of a green energy pioneer. The opposite is the case. Crane was undone by a $1 billion bet made on coal, specifically the Petra Nova “clean coal” project outside Houston, which is also taking down about $167 million in Department of Energy money. Crane had offloaded half of the project to a Japanese company, and a story early this year said the plant was operating normally, but a link to it on the NRG site no longer works. The idea of Petra Nova was to find a market for carbon dioxide. Instead of treating it as a pollutant and releasing it into the atmosphere, Petra Nova captures it and ships it via pipeline for injection into oil and gas wells. The carbon dioxide is meant to displace oil and natural gas in the formations, sequestering it from the atmosphere, but pushing valuable hydrocarbons to the surface. It’s a clever idea, but as oil and gas prices have declined it’s as uneconomic as coal itself. As Crane himself indicated in a recent conference call the rest of the company is running smoothly. Crane predicted the company would generate $3 billion to $3.2 billion in Earnings Before Interest, Taxes, Depreciation and Amortization, and $1 billion to $1.2 billion in free cash flow, during 2016. That would mean the company, whose present market cap is $3.3 billion, is now worth barely more than next year’s EBITDA, and less than three times expected free cash flow. The company isn’t out of the financial woods. There was $20.9 billion in debt supporting $31 billion in assets at the end of September. NRG’s plan is to shrink that balance sheet by $1.4 billion over the 2016 fiscal year, and Crane was confident in his call that the “retail” segment of the business would let it do just that. Investors don’t believe that, in part, because of the continued low price of natural gas but also, in part, because of the holes coal has blown in the balance sheet. The stock is down 63% for the year and, before Crane’s resignation, it showed no signs of recovery. Chief operating officer Mauricio Gutierrez is a Crane protégé and, like him, based in Princeton, NJ. Nothing is expected to change under his leadership. Crane, meanwhile, is now free to seek what might, literally, be greener pastures. Scalper1 News
Scalper1 News