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GreenHunter Resources’ (GRH) CEO Gary Evans Discusses Q1 2015 Results – Earnings Call Transcript

GreenHunter Resources, Inc. (NYSEMKT: GRH ) Q1 2015 Earnings Conference Call May 15, 2015 09:00 ET Executives Kirk Trosclair – Executive Vice President and Chief Operating Officer Gary Evans – Chairman and Interim Chief Executive Officer Analysts Brian Butler – Stifel Operator Good morning. My name is Mariama and I will be your conference operator today. At this time, I would like to welcome everyone to the GreenHunter Resources First Quarter 2015 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Executive Vice President and Chief Operating Officer, Mr. Trosclair, you may begin your conference. Kirk Trosclair Thank you, operator. Welcome everyone to today’s first quarter financial and operating results conference call. Before we start today, I will go ahead and read the Safe Harbor statement before we get started. Today is Friday, May 15, 2015. And before we begin with the content of today’s call, I would like to advise you that today’s call may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The following discussion provides information, which management believes is relevant to an assessment and understanding of our financial condition and results of operations. The discussion contains forward-looking statements that involve risk and uncertainties and may include statements regarding our expectations, beliefs, intentions, or strategies regarding the future. Actual events or results may differ materially from those indicated in such forward-looking statements. This discussion should be understood in conjunction with the financial statements accompanying notes and risk factors included in our SEC filings. The discussion should not be construed to imply that results contained herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment by our management. Actual events or results may differ materially from those indicated in such forward-looking statements. This disclaimer is an effect for the duration of this conference call. Okay. We will get started here on the first quarter financial and operational highlights. We know it’s only been pretty much exactly 30 days since we have had our 10-K operations update call, but we have had some changes and want to give you an update on all of different projects with the use of proceeds in the capital that we are putting to work from our funding process, which happened in April 15, which we haven’t announced to you guys on the call in the K. So, we will go back through the first quarter here just some of the highlights that we hit in the first quarter and substantially improved our operating margins related to water disposal itself year-on-year from 32% in the first quarter of 2014 to 42% in the first quarter of 2015. Also improved the operating margins as it related to internal trucking, you can see how those went from 12% last year up into the 20s of this year. We mentioned this on the 10-K call as well that’s mostly due to eliminating significant portion of the third-party trucking that we were utilizing inside of our own group and dispatching those trucks in handling the billing for those third-party companies. We have pretty much stopped that and using our internal trucks first and foremost, when you can see what happens with the results when we do that having much more control over that fleet. We also decreased our SG&A from $2.1 million, down to $1.7 million in the first quarter, which is equated to a decrease of 19%. And then also we had mentioned to you guys that we had our first deployment of our rented MAG Tank, which we sent out in late February and so that was – that was really good news in the first quarter. On March 16, we closed our sale of the last remaining renewable asset in the Mesquite Lake project biomass plant for $2 million. And then we also in the first quarter we finished paying off the 2.2 promissory note that with the financing in place for the initial purchase of the first three disposal wells in Appalachia. So, we retired that debt setting us 66,000 or so a month in principal and interest. And then as you all know where at the same time, we have the call on April 15, we announced the new money, the $16 million financing for the capital projects, which we will go into more detail about the actual percentage of completion and where we are at with those projects right now. The operational numbers on the results of the first three months, you can see where the loss from continuing operations was $1.4 million in 2015 and $1.3 million, that’s pretty flat in that area. The revenues were down basically this quarter $5.1 million to $8.5 million. And I will go through the reasons why on that in a second. The majority of that was due to our increased margins in third party trucking, I mean internal trucking by not having that third party expense out there. And then you also were made aware of in our K from the call that we still had a couple of wells that were running at 50% capacity and one of the wells that was down in the first quarter. So and then we also had a – from year-on-year we had a MAG Tank sale in the first quarter of 2014 that we did not have a sale in the first quarter of 2015. So that’s the majority of the difference in your revenues. So we also provided you guys in there a pro forma on the selected balance sheet. If you had a chance to review the press release this morning and in the filings, you will see that we placed the pro forma to show you how much we have improved the balance sheet with the funding that we have in place. And I will go into some more details how that use of proceeds is being put to work currently right now. So I think what we will do is just go straight into that and give you an update on all the projects. And since it’s been a short time and really after I give you this update we will probably just go ahead and open it up for questions. And I had failed to mention earlier that Gary is on the line as well with me. And we can answer those questions for you as soon as I go through the update on the projects itself. So I guess the biggest improvements that we have had is obviously been done in the Mills – at the Mills facility, that is our largest project, our hub. And we have – I will give you basically some updates on each individual step of what’s been taking place since we started putting the capital to work. But before I do that, I guess I want to give you guys an update. We announced the funding on April 15 and there was a good process for us here at GreenHunter Resources, it really made us dot our eyes and cross our tees and get everything cleaned up in the back office. You know that when you do a senior secured funding like that you really have to have everything in order and it really it was a good process for us. And it will help out here going forward. We were delayed a little bit in funding because of some of that and had to jump through hoops to get all this type of back end paperwork and recording of some leases that were not recorded and things like that. But we have gotten that cleaned up and we have been funded as of two weeks ago. And we are ready and proceeding as quickly as we can with the projects. So at Mills the last time we had spoken we had only had maybe 10% or 15% of the actual injection lines in the ground. The pipe was actually on-site, but it was not deployed. Now we have made considerable progress and all but one line has been laid to all of the additional four injections wells at the Mills Hunter facility. The final line will be complete in approximately two weeks. It’s the furthest away from the injection facility. And we will get that complete in the next couple weeks. All the roads and the creek borings have been done. And we have witnessed those yesterday. I was in the field in Appalachia and we saw where those guys had just completed all the bores. So that allows them to really move forward and finish this rather quickly. The pump house section is currently 90% complete. The last few electrical items are being installed today. And we should have the completion of the pump house to write it at about 100% by the end of next week. The construction on the third pump house, we had to do a little redesigning of the facility, which will in turn save us the money and become more efficient on our processes. So we started construction of that third pump house. We witnessed that yesterday and it’s been under construction for about three weeks now and will be complete in about five to six weeks for the second two wells. So what’s crucial to understand there is that the initial pump house that’s almost 100% complete, will feed the two wells that will go online first. If you remember, we had mentioned in the last call, we will have two wells that will go online in approximately – now that we have a little delay, will probably in the second week of June for those, the first two wells to get operational. And then in that time, we’re finalizing the third pump house and all of the lines will be complete, all the pumps would be in, and the second two wells to make the total of six wells at Mills Hunter will go online near the end of June. The secondary containment is complete, about 95% complete. We have to do a little dressing up on the walls and then we’re awaiting the installation of the 20,000 barrel tank, which is about three to four weeks out. The first set of the aged pumps will arrive next week and be installed in the first pump house and then the following set of pumps will come in the following week. And then as you remember in the use of proceeds, we also have other aged pumps coming in to change out the existing pumps at all of our facilities, which will help us decrease that maintenance expense at all of the facilities. But we will wait to deploy those additional pumps at the other facilities once we complete Mills, that’s our number one priority right now is getting Mills up and running. An update on the Ritchie Number 2, we had mentioned I think when we were on the call K, that we were actually just completing the drilling of that well. The well is complete and it’s ready for injection. We’ve done everything we can do on our side. We’re awaiting the final permit from the West Virginia DEP, which we hope to have in the next 30, 45 days. It’s been brought to our kitchen that those guys at the WVDEP, our backlog quite a bit at this point and that’s why we were typically getting those permits and turned around in less than 60 days. And it’s already been 60 days since we filed, but – so they have up to six months and we just – we anticipate we will see in the next 30, 45 days. We are also looking at some additional wells around the Ritchie County area. As you can imagine that’s a hotbed for Marcellus and the Stacked Utica play in the Northern portion of West Virginia there, it is right off of Route 50. So we look to doing somewhat similar to what we did on at Mills and find additional wells that we can hook into the existing facility and maximize our efficiency there. The trucks we – that’s part of the use of proceeds as well. We’re evaluating bids right now on new and some pre-owned trucks that are out there to mix and match between straight trucks and tractor-trailers. The availability on 407 trucks out there is still pretty tight at this point, but we have gotten in several bids over the last couple of weeks and we plan to make that decision and get those trucks ordered possibly today or no later than Monday or Tuesday of next week. The MAG Tank, we’re still working on securing some new contracts. As you are definitely aware with commodity prices kind of had a low rebound this week, but has been a little slow in Appalachia on the completion side, therefore slowed down the process of actual deployment of tanks. We have been in contact with our clients that had requested the court back in February and in March. And they are still very interested. It’s just a little slowdown in the actual drilling program and the completion that follow. So we still anticipate that to pickup during the second half of the year. We are – something that’s new right now to tell you guys about, we’ve started in the first quarter and into the second quarter, the initial stages of securing some LOIs for a pooling agreement with several E&P companies to utilize brine and freshwater pipeline network in the Southeastern Ohio area and basically taking that down through via the trunk line to the Ohio River for anticipation of barging brine further south. So just to give you an update on that, now you guys can ask some questions about the Coast Guard on the permitting. We have hired an internal government relations manager, who will help us expedite that process and we have also hired outside help to basically provide a detailed plan to the Coast Guard of how we plan to execute the barging of oilfield waste. We were actually at the site yesterday with one of the professionals from the Appalachian region who barge this product up and down the Ohio River every day and looking at the dockside facility and given us some recommendations on how we can expedite that as far as once we have given the forego ahead to have a dock in place and ready to go. So all-in-all everything, the outlook for the company with the funding in place is really good. We have a lot of work to do in a short time to get it done. And I can’t express my gratitude enough to our management staff and our field employees out there in the Appalachian region here in the office, in the corporate office that had helped us get everything done and expedite the process. So with that, I’ll go ahead and open it up to some questions. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from the line of Michael Hoffman from Stifel. Your line is open. Brian Butler Michael, this morning. Kirk Trosclair Good morning, Mike. Brian Butler This is Brian. Kirk Trosclair Hi, Brian. Brian Butler Hi, just kind of on a macro activity level on the Utica and Marcellus. You touched on it a little bit about completions going on. But can we get a little bit more color on kind of where the drilling stands and the trend. Is it rising, declining and then what you kind of just thoughts on it progressing through 2015? Gary Evans This is Gary. Maybe I can respond to that a little better. Of all the shale plays in the United States, the Marcellus and Utica has seen the least drop in activity, predominantly for a couple of different reasons. Number one, it’s the lowest finding cost reserves in the country with respect to gas, but number two, most of the companies are very well-capitalized, larger companies and they have ongoing programs. So we’re turning down about 20 to 25,000 barrels a day of water that we can’t handle because we’re full. And based on the drilling programs and the budgets that had been established by our customers and others, we don’t see that changing. As soon as we get all these wells up and running they will be full. And so we got to go to the next level of where do we go to take this from 30,000 barrels a day to 50 to 60,000 barrels a day. So, we are in a very unique area. Water has to be handled properly. There’s people bringing water six and eight hour truck drives to get disposal. So we don’t see that changing. The permitting process is a long process. The states are not – they don’t bend over backwards to get these permits push through. So we’re in a unique part of the country that is going to require us to continue to build out new disposal capacity. Brian Butler Okay, that’s helpful. And on that new capacity, it sounds like almost all of its going to be up and running on – at the beginning of the third quarter. Is that the right way to think about, does it ramp immediately to near capacity, full capacity or is there a ramp up timeline as the next capacity comes on? Gary Evans It’s a ramp up there. As Kirk mentioned, we’ll be able to turn a couple of wells on mid to late June, they could add between 5 and 8,000 barrels a day of capacity, then there would be other wells coming on. So it will be a gradual increase in June, July, August. Would you agree with that, Kirk? Kirk Trosclair Yes, I agree, Gary. I mean – the volumes are there, but we definitely want to – we are known for protecting our wells and we don’t want to just turn this, pick it on and start pumping aggressively at that point, we’d like to take it easy for the first couple of days and really massage the well and then go to full capacity after that. So yes there will be a small ramp up period and then obviously you’re going to have your cash flow lag as invoices go out and you start to see them payables come in. So you will have somewhat of a lag but it won’t be that much. Brian Butler Okay. And of those wells that are coming on, kind of in the next, call it month or so. That’s the two wells at the Mills facility and the Ritchie well, right? Kirk Trosclair And as the Ritchie well is ready to go we are just waiting on the state. Brian Butler Right. But that’s 30 days or 45 days, so it’s not going to taking anything for a month? Kirk Trosclair Mills Hunter, Brian, already has two active injection wells currently today that we are injecting into now. And then the second too will come on in a couple weeks through two or three weeks out. And then following that will be the last two wells, which will go, one will be like a week later and then the final well which is the furthest away from the injection facility is the one injection line that still has to be completed and that will be the last one to come on. So you will have two come on at same time, then one first to follow and then the last one will come on sometime late June timeframe. Brian Butler Right. That’s just to know [indiscernible] that will be in addition to that once you get the permit? Kirk Trosclair That’s correct. Brian Butler And that’s typically incremental 16,000 plus barrels per day. Kirk Trosclair Because if you remember, right, we had to pull back our injection capacity at the Ritchie while we were drilling that well until we get the permit for the new Ritchie number two we are running at half capacity at the Ritchie number one. Brian Butler Okay. So then thinking it through by the end of the third quarter we should expect these are at – all the new wells are more or less that capacity or very close? Gary Evans That’s correct. But end of the third quarter you should have them all operating at 100% utilization and capacity, ready to go. Brian Butler Okay, that’s good. And then on the new plan for the barging, so what’s the timeline now look like for when you might actually see barrels offloaded on from the barges? Kirk Trosclair We are still looking at September, August timeframe. So we have given the new group that we have hired to help along with our government relations manager a 90-day push period to try to get this thing done. They have already been to DC once last week – week before last. And they have got several more meetings lined up with some dignitaries and congressional health and we are trying to get with the coast guard to work through the issues to lay out the plans on how we proposed to operate at the terminals. I would propose to do everything to the – to load the barges and offload down at Mills and just have everything in place once for that final go ahead. Brian Butler Okay. And then we will have another one now kind of in the fourth quarter hopefully you will be able to taking volumes from the barges? Kirk Trosclair That’s correct. Brian Butler Okay. And last one here, just any update on – or maybe one more – two more – any update on the MLP status? Gary Evans We received a letter from the IRS about a month and a half ago asking specific questions about our business. We responded to that letter and we have been told that other water companies are looking to go public got similar letters. And we are waiting for that response. So, it’s back in the IRS hands. I will still say though they have given out some more information it appears that water is going to be clear. Their real focus has been on chemical companies’ ethylene, polyethylene, various chemical products that we are trying to do MLP. So we feel pretty good about the feedback we have been hearing regarding our sector. Brian Butler Okay. And then this one for you a little last one. Just regulation wise, with news about seismic activity on the disposal wells, any color on what maybe going on or if there is any pending changes? Gary Evans Our neck of the woods, we haven’t seen anything. The areas that had seismic issues, there had been areas that have either been injecting into a much deeper horizons or near falls. And we have been very careful in the selection of our disposal wells, not to have either. So I haven’t noticed anything in West Virginia or Ohio that would lead us to be concerned that they were going to – the stage we are going tightening up activity or producing permitting activity in anyway. It’s been in other parts of the country. Brian Butler Okay, great. Kirk Trosclair To validate that Brian, we had a meeting yesterday with one of our customers on one of our sites. And he had just left meeting at the Ohio Department of Natural Resources. And they had a meeting on that same very subject. And the guys in the DNR told him that there has been no change. They don’t foresee anything coming down the pipe for the next foreseeable future. And so that was promising to hear that coming from one of our customers as well and the USA guys. Brian Butler Okay, great. Very helpful. Thank you very much guys. Kirk Trosclair Thank you. Operator There are no further questions at this time. I will turn the call back over to the presenters. Kirk Trosclair Thank you so much operator. And with that, no other questions, I think that will conclude today’s call. Thanks for dialing in and we will talk to you next quarter. Bye. Operator This concludes today’s conference call. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. 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Don’t Let The SEC Scare You Away From These JPM Funds

In a quarterly document filed with the Securities and Exchange Commission (SEC), JPMorgan Chase & Co. (NYSE: JPM ) provided updates on its previously disclosed investigations as well as new probes. The company disclosed a new inquiry from the SEC and other government authorities over the sale and use of proprietary products such as JPMorgan mutual funds in the company’s wealth management businesses. JPM has received subpoenas and inquiries from the SEC and other regulators investigating how the banking behemoth sells its own mutual funds and other products. The company stated in the filing that it is cooperating with the concerned authorities. The SEC Investigation The SEC’s enforcement division is investigating if JPMorgan and brokerages offered bonuses and incentives to financial advisers to convince clients to buy in-house funds, structured notes and other investments which earned the bank fees. Bloomberg had reported this in March. “The SEC is scrutinizing, among other things, how the largest U.S. bank by assets managed pensions and other accounts that hold it to a so-called fiduciary standard, which obligates it to put clients’ financial interests ahead of its own,” reported Bloomberg in March. Reportedly, the SEC is looking into if JPMorgan had breached the bank’s duties to clients and if the bank adequately disclosed its compensation and other practices to the clients. The probe into a possible conflict of interest has been running for two years, but has become active now. According to sources, the Office of the Comptroller of the Currency is assisting the probe. Wendel Investissement Investigation Separately, JPMorgan provided an update about the Wendel Investissement ( OTC:WNDLF ) investigation, which has been underway since 2012. The company stated that it received a notification last month about the initiation of a formal probe against it by French authorities. Senior managers of Wendel restructured their shareholdings during the period from 2004 through 2007, with financing for certain transactions provided by the Paris branch of JPMorgan. The French criminal authorities have been investigating this case. White House Warns of Backdoor Payments This comes at a time when the Obama administration is serious about cracking down on the unfair practices that many Wall Street firms are engaged in when they advise retirement investors. The Wall Street firms are accused of deriving benefits via backdoor payments and hidden fees. The Labor Department has announced a proposal, which would require brokers to have a legal duty to prioritize clients’ interests. The protection is believed will save $40 billion in fees over 10 years. According to the Bloomberg, “Brokers could earn sales commissions and other fees that create conflicts of interest if they sign a “best-interest” contract with investors,” said Labor Secretary Thomas Perez. JPMorgan’s Stance In a 2015 disclosure statement for endowment and foundation clients, JPMorgan stated: We prefer internally managed strategies because they generally align well with our forward-looking views and our familiarity with the investment process, as well as the risk and compliance philosophy that comes from being part of the same firm…It is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included. JPMorgan’s asset-management unit has expanded though its other major banks face regulatory pressure. JPMorgan enjoyed the best percentage growth in asset inflows in the five years ending 2014. A February presentation to investors noted JPMorgan had $1.7 trillion in assets under management at the end of 2014. The asset-management unit was structured by expanding JPMorgan’s mutual fund operation. On the other hand, major banks like Morgan Stanley, Citigroup Inc. and Bank of America Corp. have trimmed their mutual fund businesses over the last 10 years, notes Bloomberg. 5 Safe JPMorgan Funds to Own Investors need not be jittery right away due to the ongoing investigations. If a JPMorgan fund has been performing well and returning handsome gains then investors may stay invested. Also, funds with low expense ratio and favorable Zacks Mutual Fund Rank should continue to be potential investment instruments. Here we will list 5 mutual funds from the JPMorgan fund family that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy) as we expect the funds to outperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. These funds also have encouraging 1 year and 3-year annualized returns. These funds carry no sales load and have low expense ratios. The management fee for these funds is less than 1%. The management fee is the annual percentage of fund assets paid to the fund’s investment manager as compensation for managing the fund. Often this fee is graded; that is, the percentage fee is reduced in steps on assets in excess of various breakpoints. Generally, the management fee will not exceed 1% of total net assets. JPMorgan Intrepid America R5 (MUTF: JIARX ) seeks capital appreciation over the long term. It invests a majority of its assets plus borrowings in large and mid cap domestic firms. While the mid-cap firms have market capitalization between $1 billion and $10 billion, the market cap for large cap firms are over $10 billion. JPMorgan Intrepid America R5 carries a Zacks Mutual Fund Rank #1 (Strong Buy). JIARX has returned 14.8% and 20% over the last 1 and 3-year periods. The annual expense ratio is 0.58%, lower than the category average of 1.08%. The 10-year expense projection for every $10,000 invested is $689, compared to category average of $1,641. JPMorgan Large Cap Value R5 (MUTF: JLVRX ) invests majority of its assets in large-cap companies. JLVRX invests in equities, including common stocks and also debt and preferred stocks that can be converted to common stock. These large-cap firms have market capitalization equal to the ones listed on the Russell 1000 Value Index. JPMorgan Large Cap Value R5 currently carries a Zacks Mutual Fund Rank #2 (Buy). JLVRX has returned 12.1% and 19.9% over the last 1 and 3-year periods. The annual expense ratio is 0.57%, lower than the category average of 1.13%. The 10-year expense projection for every $10,000 invested is $726, compared to category average of $1,627. JPMorgan US Equity R5 (MUTF: JUSRX ) aims to provide high total return. JUSRX invests a lion’s share of its assets in domestic companies. JUSRX mostly invests in common stocks of mid to large-cap domestic firms. It may also invest a maximum of 20% of its assets in foreign companies. JPMorgan US Equity R5 currently carries a Zacks Mutual Fund Rank #2 (Buy). JUSRX has returned 14.3% and 19.5% over the last 1 and 3-year periods. The annual expense ratio is 0.59%, lower than the category average of 1.08%. The 10-year expense projection for every $10,000 invested is $735, compared to category average of $1,641. JPMorgan Growth Advantage R5 (MUTF: JGVRX ) seeks capital appreciation. JGVRX invests mostly in companies of all market capitalizations. However, at a given time, JPMorgan Growth Advantage R5’s assets may be invested in one particular type of market capitalization. JPMorgan Growth Advantage R5 currently carries a Zacks Mutual Fund Rank #2 (Buy). JGVRX has returned 20.3% and 20.6% over the last 1 and 3-year periods. The annual expense ratio is 0.85%, lower than the category average of 1.19%. The 10-year expense projection for every $10,000 invested is $1,014, compared to category average of $1,670. JPMorgan Realty Income R5 (MUTF: JRIRX ) seeks to provide total return, offering both income and capital growth. JRIRX invests heavily in real estate investment trusts (REITs) and may purchase equity securities of small cap REITs. It may invest in equity as well as mortgage REITs. JPMorgan Realty Income R5 currently carries a Zacks Mutual Fund Rank #1 (Strong Buy). JRIRX has returned 11.5% and 9.9% over the last 1 and 3-year periods. The annual expense ratio is 0.78%, lower than the category average of 1.31%. The 10-year expense projection for every $10,000 invested is $1,114, compared to category average of $1,796. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Northland Power’s (NPIFF) CEO John Brace on Q1 2015 Results – Earnings Call Transcript

Executives John Brace – CEO Paul Bradley – CFO Sean Durfy – President and CDO Analysts Nelson Ng – RBC Capital Markets Paul Lechem – CIBC Rupert Merer – National Bank Sean Steuart – TD Securities Matthew Akman – Scotiabank Steven Paget – FirstEnergy Northland Power, Inc. ( OTCPK:NPIFF ) Q1 2015 Earnings Conference Call May 12, 2015 10:00 AM ET Operator Welcome to the Northland Power Conference Call to Discuss the 2015 First Quarter Results. During the presentation all participants will be in listen-only mode. [Operator Instructions] As a reminder this conference is being recorded Tuesday, May 12, 2015 at 10 AM Easter Time. Conducting this call for Northland Power are John Brace, Chief Executive Officer; Sean Durfy, President and Chief Development Officer; Paul Bradley, Chief Financial Officer; and Adam Beaumont, Director of Finance. Northland Power management has asked me to caution you that their summary of results and responses to your questions may contain forward-looking statements that include assumptions and are subject to various risks. Actual results may differ materially from management’s expected or forecasted results. Please read the forward-looking statements section in yesterday’s news release announcing Northland Power’s results and be guided by its content in making investment decisions or recommendations. The release is available at www.northlandpower.ca. I’d now like turn the call over to John Brace. Please go ahead. John Brace Thank you very much operator and good morning everyone. The first couple of months since 2015 have been some of the positive in over 25 years at Northland Power. Our transformation from an independent generally focused power producer into an international developer and owner of sustainable energy infrastructure is well underway. We have long defined our business strategy as one of focusing on measured growth that enables us to deliver sustainable returns. Our activity and result so far in 2015 demonstrate that we are applying the strategy with equal parts of boldness and diligence. Paul will provide more detail on our financial results shortly but I can tell you that while our quarterly adjusted EBITDA was marginally lower than the same period last year is result of us taking advantage to some exceptional opportunities in the natural gas market due to high prices last winter our overall results were in line with our expectations. The first three months of 2015 saw a successfully complete over $2 billion of debt and equity financing or taking big steps forward when our European offshore wind portfolio and Ontario renewable projects. In March we closed financing on a total of €1.2 billion for a second 332 megawatt offshore wind project called Nordsee One located approximately 40 kilometers off the coast of Germany in the North Sea. We also closed financing on our 100 megawatt Grand Bend wind project located in Ontario with the projected cost of $384 million. Both Nordsee One and Grand Band are now under construction. Construction is also progressing well on our 600 megawatt Gemini offshore wind project in the Netherlands and our four remaining Ground-mounted Solar projects here in Ontario above which I’ll talk more shortly. Our 2015 focus is on successfully delivering or advancing all of these projects and so far so good I look forward to provide any more detailed presentation on our progress at our upcoming AGM on May 19th I can tell you in the mean time that all construction projects are proceeding well. On Gemini production at the 200 kilometers of electrical interconnection cables which you can see illustrated on the covers of our 2014 annual report is nearing completion and installation out at sea has already started. Almost 90% of the 150 monopile foundations for the turbines have been made in progress on the two offshore high voltage substation platforms is significant. The remainder of the project components are in production and onshore construction is also taking place. As part of our due diligence for Northland and under our rules as members of the Gemini Board of Directors both Paul Bradley and I have been visiting some of the Gemini manufacturing facilities. These have included the electric cable, monopiles, transition pieces, offshore platforms and foundations and the turbine manufacturing facilities. I can tell you that seeing the scale and size of the equipment being produced and the huge number of components that have already been made is extremely impressive. What is most important however is that overall things are progressing well and so far both Gemini and Nordsee are proceeding on schedule and on budget. We are creating infrastructure that will meet the electricity needs of millions of people for many years into the future while supporting the Europe Union’s clean energy transformation. We see a healthy appetite and therefore significant opportunities for this version in technology. In fact a new report from global data indicates that Germany is set to overtake the UK as the global leader for annual offshore wind turbine installations in 2015 with over 2,000 megawatts estimated to be added this year. Globally annual offshore wind installations are expected to more than double and we are excited to be a part of this growing industry. And here at home, well on the smaller scale we’re also building important clean energy infrastructure at our Grand Ben Wind project which is a 50-50 partnership with two first nations. Excavation has already begun along the underground transmission line, the turbines and other major components are on order. Construction will continue throughout 2015 and the project is anticipated to start producing electricity in the first half of 2016. Finally, progress on our four remaining Ground-Mounted Solar Projects, divide into two parts. First is the completion of the construction. As we told you on our last call, Ganotec Inc. has taken over construction on the remaining four projects. Construction on all four sites is progressing well, and they are expected to be complete in 2015. Second, thus a situation with the original contractor H.B. White; whom we terminated at the end of last year for breach of the EPC contract. Expectedly the wait in the number of subcontractors have filed liens and claims on the projects and we have filed our own claims against White for cost, losses and damages for breaches of the contract. It will undoubtedly take some time for these legal matters to be sorted out and we are convinced of the legitimacy of our position. In the meantime the projects will be finished and in production. Despite these challenges, we remain confident that overall, our Ground-Mounted Solar portfolio will meet return expectations and deliver attractive reliable results over the long term. Moving to an update on our long term assets, I’d also like to provide to you an update of the global adjustment phase that affects three of our interior power projects agreements. Back in March, the quarter rolled in favor of Northland and other power producers in relation to the escalators in our power purchase agreements. Disappointingly but I suppose unsurprisingly the ruling was appealed by the contract counterparty. We feel confident that the courts will continue to rule in our favor as the case progresses through the legal system. I am also pleased to remind you that our Kirkland Lake facility has already signed a new 20-year contract for the 30 megawatt gas peaking portion of that generation station. The details of an agreement for the final base load gas field portion of the facility are being papered. We are also working trying to ensure a long future for our Kirkland facility, however as power purchase agreements extension expired as of midnight last night at which time we cease to generating electricity. We’ve not yet permanently shut down the facility or decreased our efforts towards attaining a contract renewal or further extension. Our staff remained employed as we continue to do everything we can to secure a new agreement. We have the support of the community in the region. The facility is critically important to North Eastern Ontario and its forestry industries and our host community in Kirkland. We will continue to work hard to find a solution, building a sustainable future for our host communities translates to a sustainable investment for our shareholders. On that note the quarter has seen significant activity from the financing perspective. As part of the over $2 billion in debt and equity financing that I mentioned at the start, we successfully completed over $400 million of convertible debentures and common share offerings during the first quarter. The proceeds were used to help fund our investments in the Nordsee One and Grand Bend projects. In February, we closed the sale of our interest in the Frampton wind project for net proceeds of approximately $10 million. To achieve our continued growth objectives we are applying our proven strategies on an ever increasing scale. The result is in increasingly diverse portfolio of clean and creating a long term energy assets. I would now like to turn the microphone over to Paul for further discussion on our financial results. Paul Bradley Thank you, John. I’d like to extend my thanks to everybody for joining us this morning. As John mentioned it’s been extremely busy quarter for us. Last night, Northland Power released its 2015 first quarter results. Northland’s plant operations for the most part met or exceeded our expectations for the quarter, with the company generating $97 million of adjusted EBITDA. As John noted, the first quarter of last year that’s 2014, produced exceptionally strong results. The period of high natural gas prices provide us with opportunities to curtail electricity production and resell the natural gas at certain facilities, which created unexpectedly high natural gas resell margins. So as those spikes and gas prices did not recur this year, Northland’s performance reflected the more normal level of operations resulting in a 5% decrease in adjusted EBITDA from the same quarter last year and free cash flow down $50 million, 11% lower. The sites of the non-recurring gas resale’s margins, other key factors that affected our adjusted EBITDA for the quarter included the following. Higher interest income earned on Northland’s portion of the Gemini subordinated debt, inclusion of Mclean’s which became operational in May 2014 as well as the non-recurrence of the write-off of deferred development cost into 2014. These increases to adjusted EBITDA were more than offset by several items. First a onetime charge associated with an IESO generator cost recovery program for Thorold. Second, lower performance incentive fees earned from Cochrane and Kirkland Lake, also may be due to the 2014 gas resale margins. Third, lower investment income largely due to higher dividends for Panda-Brandywine in 2014. And lastly increased corporate management and administration cost. Northland’s free cash flow are 50 million for the quarter were 7 million lower than the same quarter in 2014 for the same reason as a decrease in adjusted EBITDA and largely due to the high level gas resale in 2014. Other factors contributing the lower free cash flow over 2014 include an increase in net interest expense increase primarily due to the inclusion of interest on the claims and Ground-mounted Solar Phase II debt, interest on the convertible debentures from those issued in January and interest on Northland’s corporate term facility; also an increase in scheduled debt repayments from these new debt facilities. These net decreases in free cash flow were partially offset by the net proceeds from the sale of the Frampton wind farm in 2015. Our dividend payout ratio for the quarter was 81% versus 63% in 2014 on a total dividend basis, including the effective dividends invested through Northland’s DRIP program, the cash dividend payout was 60% compared to 49% in the first quarter of 2014. The increase in payout ratio reflects the decreased free cash flow and the new share capital issuances to fund Nordsee One, Grand Bend and in Gemini projects. This is in line with our expectations as we execute on our development and construction program. The GAAP net loss of 26 million exceeded the prior year primarily as a result of the non-cash fair value accounting loss on interest rate swaps at Gemini and Nordsee One. This net loss does not reflect the economic substance of the projects, because the interest rate swaps are used to effectively fix the interest rates at Gemini and Nordsee One. These fair value adjustments are non-cash items that will reverse over time and have no impact on the cash obligations of Northland towards projects. Turning to Northland’s financing activities this quarter. We have continued the vigorous pace of 2014. In the first three months of the year we completed over $2 billion of debt and equity financings as we advanced our projects into construction. To assistant funding our Nordsee One and Grand Bend wind projects, we issued as convertible debenture offering in the amount of 158 million and a common share offering with gross proceeds of 281 million which includes the private placement of 50 million from our Founder and Chairman, Jim Temerty. The funds will also be used to refurnish working capital and general corporate purposes. Approximately 70% of Nordsee One’s €1.2 million project cost will be provided from a non-recourse bank loan for multiple international commercial lenders. Reflecting the strength of the project the financing was over-subscribed and completed in only six months from the commencement of the bank debt process. Late in March, we also completed financing on the Grand Bend wind project. The total project cost is expected to be 384 million and approximately 85% of the projects required financing has been provided by an institutional style fixed rate amortizing loan. The total co-generation bank term loan coming due in September was refinanced for 183 million with its maturity extended to March 2030, with this financing Northland has extinguished all of its project refinancing liquidity risk and has locked in all interest rates towards project debt. Northland also entered into foreign exchange contracts to effectively fix the foreign exchange conversion rate on substantially all projected euro denominated cash inflows from Nordsee One over the fixed cash period. As you can see it was extremely busy quarter for Northland’s financing team. For our financial outlook for 2015 Northland continues to expect our adjusted EBITDA to be in the range of 380 million to 400 million in 2015. We are currently guiding towards the lower end of the range allowing unfavorable outcomes of the contract extension of Cochrane and potentially different interim arrangements on the appeal of the global adjustment court case and should these two items come out as we don’t expect then we have some allowance at our guidance for that. For payout ratio in 2015 we continue to expect the ratio to be in the range of 100% to 115% of free cash flow on a total dividend basis. As we have said in the past Northland’s payout ratio is expected to exceed 100% on a total dividend basis, until Gemini and Nordsee are completed in 2017. On a net basis however, including the impact of reinvested dividends through the DRIP, we expect the cash dividends to be 75% to 85% of free cash flow. As demonstrated by all the financing activity this quarter, management’s continued objective is to effectively manage our balance sheet and minimize the amount of dilutive equity raised while prudently maintaining healthy credit metrics. And with that I will turn the call back to John for concluding remarks before taking your questions. John Brace Thank you, Paul. I believe our results this quarter demonstrate significant progress towards achieving our 2015 commitments. Results are gratifying to see the Northland team’s efforts acknowledged by the international finance and business community through awards from a number of prestigious publications. Some of these we told you about on our last call but here is a summary of all of the awards, Projects Finance International, Power Deal of the year Europe awarded to our Gemini project, Infrastructure Journal and Project Finance Magazine, Win Deal of the Year Europe and overall winner for Europe and Africa awarded to Gemini, Netherlands Canadian chamber of Commerce Northland named 2014 business of the year, Environmental Finance Win Deal of the year of the year 2015 awarded to Gemini and Investor Relations Magazine awarded Paul Bradley, best Investor Relations Canada by our CFO. It has been over 25 years since we opened our first facility in Cochrane, Ontario and we have since transformed into an international power producer. We are now in the period of significant growth and we are focused on successfully delivering in that growth while continuing to deliver on our commitments to our investors. We believe our ability to marry entrepreneurialism and prudence that are focused on effectively managing risk will hoping to forge the worldwide shifts to sustainable energy is helping to divine Northland as a leader an innovator and a company to watch. We have big things ahead of us and we look forward to showing you what were capable of. As we grow, we remained focused on our core promise to deliver sustainable value that our shareholders can depend on today and well into the future. That includes our formal remarks. And would be pleased to take your questions at this time. Operator if you can please hand over questions. Question-and-Answer Session. Operator Thank you. Ladies and gentlemen [Operator Instructions] Our first question comes from the line of Nelson Ng with RBC Capital Markets. Please proceed with your question. Nelson Ng Great, thanks. Good morning everyone. Just the quick question on Cochrane, so if the facility stops running for period until hopefully get another contract are there any issues with the biomass or a gas supply and do you expect the facility to be running mainly on gas if it becomes bigger? John Brace There is several parts to answer my question like Nelson first we are doing our best to make sure that gas supplies and wood supplies will still be available to us when we get to start our facility up again if the plan were to continue on operating as it was than it would be gas and biomass that as it has always been, if negotiations with the government were to proceed in a fashion that it would be turned into a partly peaking facility then one could expect that the gas part of that would be that probably the biomass would continue on in more or less a base load mode we are making sure as from a contractual point of view and a physical point of view that we laying up the facility in the interim period here while we’re now running to be capable of generating well long with into the future. Nelson Ng Okay, thanks. And then I have a few questions about Nordsee One, in terms of send we on the turbines I’m sure that banks are pretty comfortable with the turbines given the financial close has been achieved but can you provide some color in terms of like from your perspective in terms of like the technology risk like I understand the turbines are pretty big like 6.5 megawatts and it’s not that common out there right now and I’m not sure if the website is updated but I think Senvion’s website indicates that there is about 4 off shore in projects with those blades operating so can you just give me a sense of how your perspective of the technology risk? John Brace This very part answer with slide going to a longer one Nelson was there were very comfortable with the turbines it’s in fact one of them Senvion is one of the larger turbine producers for the off shore wind industry. The turbine were using is already been deployed in other wind farms and is in operation and so and has a good track record so there is one known issue to do with the bearing’s on the turbine and Senvion has both the short term fix and a long term program in place for dealing with that and you can bet that in our contract to Senvion their contractual provisions they relate to keeping us immune as it were from any difficulties with the bearing which I think frankly reflects Senvion’s confidence in the future and also center bridge their recent purchase risk confidence in Senvion as a long term performer in the off shore wind industry. On top of that off course as you mentioned the banks and the banks due diligent engineers have been all through it and Senvion’s turbines are the ones we are using for our project and their prior track record come up with good marks. Nelson Ng I see. And then just one kind of follow up question on Senvion, so you mentioned that they were recently acquired I think earlier this year for 1.2 billion. Can you talk about counter party risk and any changes in the direction of the company or the company’s strategy? Paul Bradley Yes. I think Nelson net net we were positively impressed by the [Centerbridge] acquisition, Senvion has always been — and for those who don’t know Senvion is rename of REpower and everyone knows REpower is one of the first turbine companies in the wind business and they’ve always been a consistent performer year-over-year and a very solid technology. With [Centerbridge’s] acquisition it basically took a very weak and unhealthy pattern out of the picture and the concern always was hate as the company get rated or the assets gate rated to help the weak pattern. The acquisition and we were pretty to a number of the dates around the acquisition from both [Centerbridge] and the company, but the company actually has a number of protections in place that put us in a much better position overall. And also the acquisition price reflects the strength of Senvion’s ability to produce income. So I think once we got through all of our due diligence of the acquisition we were net net very happy about the file. Nelson Ng Thanks, Paul. And then just one last question relaying to your general overhead cost I think management and [win] cost have increased, I was just wondering in terms of I guess directionally do you expect those cost to continue to increase over the next few years with the two offshore wind projects I guess being commissioned in 2017. And then also I wanted to ask whether the development cost will kind of ramp up going forward and whether you’ve started spending development cost in Latin America yet? Paul Bradley I’ll talk about the first one, we’ve been over the past year but probably back end loaded to earlier in 2015 has been building in the necessary infrastructure to take us from kind of a fairly small Canadian base company to a company that’s positioning itself to be powerhouse in a much broader market and much bigger project. So that as you can imagine take some infrastructure from systems and compliance and all kinds of internal folks. So you’re seeing us walk away through that I certainly wouldn’t want — all believe for a moment that’s a trend but there is a bit of the step that we’re going through at the current time for the overhead cost. We’re seeing some good productivity coming out of it and from the risk management standpoint and from other elements that it’s the right thing to do and it was time for us to do some of it. So period no time like the present to make those investments. I’ll let Sean cover from the development side, Sean Durfy, our President and Chief Development Officer. Sean Durfy Thanks, Paul. Nelson, from the perspective of development costs our costs are in line and somewhat lower actually due to development expenses than we had last year. And we’re also very prudent in how we go about spending development cost once we get further into the development cycle. When it comes to Latin America we’re still very much in the origination stage of development so very little excessive cost going into that, in other words we don’t have foreign deals yet. So we’re still very much in the origination phase so lower expense cost. Operator Our next question comes from the line of Paul Lechem with CIBC. Please proceed with your question. Paul Lechem Thank you. Good morning. I’m just wondering for Cochrane, if the plant remain shut down for the balance of Q2, what should we expect in terms of cost just to maintain that facility until potentially a new deal is struck? John Brace Paul, we’re not going to nearly go into that I mean Cochrane is less than 2% of our current take on everything no matter what you do to it. So we haven’t really tried to pull us out as you can imagine there is some competitive attention here with our off take or not disclosing orderly on our financial information so if don’t mind we’ll passing that question. Paul Lechem Fair enough. On the Brand Bend still, bit of an update in the last call you gave an update — expected to build the project, is that number that you gave last quarter that still what you believe you can bring these facilities in under. John Brace Yes. Paul Lechem The 75 to that 13 project is still help? John Brace Yes. Paul Lechem Okay. And lastly on Gemini, can you give us over the next few months what milestone should we expect maybe between now and the next call on the Gemini construction. Thanks. Paul Bradley The main thing that will happen on July 1st under our environmental permit were allowed to start installing the monopile foundations for the turbines. So on our next call presumably we’ll be able to tell you something about the number of foundations that have already been late. In addition to that there should be fair amount of the offshore cable, the export cable about 200 kilometers of undersea cable I mentioned in the earlier remarks laid on the ocean floor and depending on the exact timing we may be close to sending the offshore platforms out to sea but can’t remember when our next call is actually scheduled for the date, it’s August so they should be out. Operator Our next question comes from the line of Rupert Merer with National Bank. Please proceed with your question. Rupert Merer So looking at your construction pipeline as a few projects moved to financial close. [I imagine] you put all your equity into those projects today, is that correct? John Brace That’s correct. Let`s say typically Rupert the banks insisted the equity goes in first. Rupert Merer Right, so sounds like your approach going well, so given where you are now and what you’ve learned over the last few quarters, what keeps you up at [night] today with those projects if anything and already you see [indiscernible] risky or you’re scheduled on budget today? John Brace That’s pretty wide reaching question. I think from my perspective, we are confident that all of the projects which are under-construction will meet their schedules and budgets. What we have to do as the owners, is make sure in the case of Gemini and Nordsee, whether actually large teams of people that are the owners side of the table over in Europe watching that the contractors do what they’re supposed to do with a right degree of quality and the right rate level of health and safety and environmental protection and cost control that the projects unfold. So from Northland’s point of view our role to a large degree is ensuring that our two teams of 40 odd people in Europe perform and watch the contractor the way they are supposed to do. In the case of North America here for Grand Bend’s we have a classical balance plan contract with [indiscernible] and we are — our role is much closer to the home in terms of watching them and making sure they do what they are supposed to do. And off course in the [indiscernible] we are in slightly different relationship now with [indiscernible] than we were with White, so we are paying close attention to scheduling cost on those projects. So the shorter form version of it is, I wouldn’t say, it keeps me up at night in a frightened state by any means but as owners, we have to make sure that we absorb these projects and influence these projects to best we can to make sure they stay on schedule and on budget. And off course overwriting everything is the need and the absolute necessity of clean health and safety records and environmental records on those projects. Rupert Merer Yes, great, thanks, just a quick follow up on Nelson’s question, in early classification of Nordsee and Grand Bend, from development of TPNA, will you see a decline in your development cost for the rest of the year? John Brace I think, remember our business is one big pipeline. Absolutely after continue to develop, but we do it prudently, right now we don’t have any projects in the stage of where Nordsee was six months ago, so we’ll continue on the origination side and continue developing deals and really it’s the Nordsee shows the most promise over the short term. So our development budget is what it is and as I said it’s a touch lower than it was the previous year. Operator Our next question comes from the line of Sean Steuart with TD Securities. Please proceed with your question. Sean Steuart Couple of questions, with respect to Phase III of the Solar, I think the wording in the MD&A was you’re not in a position to determine expected final returns but you do expect it to reach minimum hurdles. I guess just with products underway here and it seems like a fair degree certainty on CapEx. I’m surprised you aren’t able to nail that in, is it just with respect to the ongoing legal proceedings with the former contractor? John Brace Yes, that’s a main part Sean, as in our view we’re very convinced of the legitimacy of our position as I mentioned earlier on, it’s how much money that White ends up pawning up to the table and [that is, we’ll be able] to fight to get there, so that’s a fairly uncertain number at this stage. Paul Bradley And that’s why we put the outside barrier number in there Sean, just to let people get a sense of where we believe the worst outcome comes and then Sean, we believe we’ll do better than that, but we feel it’s responsible for the outside number. Sean Steuart Okay, understood. And then on Kirkland Lake, can you give us any context on the economics for the TPA for the 30 megawatt peaker? John Brace With rather which we get the whole package done because we’re in the middle of a very commercial sensitive negotiations, so let us defer that if you don’t mind Sean? Operator [Operator instructions] Our next question comes from the line of Matthew Akman with Scotiabank. Please proceed with your question. Matthew Akman Good morning. Paul I wonder if you could just recap the [thorough] refinance terms versus prior any advantages in the refinance terms relative to what it was in place? Paul Bradley Yes, so basically a largely awash, we didn’t over finance it, [indiscernible] plenty of money out and if you realize the interest rate had been swapped out there really was no gain on the underline and [indiscernible] was done at a time when spreads were at historical low so the spreads were ted higher than that we had before but we are also able to pick that up in better amortization of the final debt so from a free cash flow perspective the financing kind of kept us about the same maybe as snick below where you were but nothing was mentioning. Matthew Akman Good was the amortization disclose? Paul Bradley Well. Typically we do disclose it I don’t believe we’ve come out with an area since we’ve done that as typically we will put it there but it’s basically closer at the end of the life with the PPA along with CAF I think if you go back if you want to get the exact one you can pull out what the institutional change was amendment [Indiscernible] Matthew Akman Okay. Thank you. In terms of the FX hedges and the projects finance on North Sea can you make any comments about where you hedged out versus your expectations for returns and your project analysis going in. Paul Bradley While we hedge we typically look at our projects pre-hedged only to keep the discipline of trying to make the hedging decision as a corporate decision not a project decision because it’s really the corporate investors that are enjoying those cash flows not the project per say. What I can tell you is that the euro cad forward swap rates tend to still be very favorable versus just a plain forward spot rates so in other words we will have picked up a fair bit of return over the course of time if you kind of take the swap and marry it up with the actual project cash flows but again I would like to reiterate that we keep the corporate hedging transactions we try to keep that little bit separate from the actual project transactions. Matthew Akman Okay, thanks for that. And finally is it too early to talk about contingencies on Gemini and North Sea and whether you have started to chug and to those at all at a normal pace or do you waits for another 3 months to 6 months to start hearing about that? John Brace By thinking the case with North Sea it’s too early for sure in the case with Gemini and we’ve been under way for a year now there has been a small use of contingency but nothing significant at this point in time. Operator Our next question comes from the line of Steven Paget with FirstEnergy. Please proceed with your question. Steven Paget Thank you and good morning. Gentlemen off shore wind went from a technology or skill set that was expensive to something that was economic and could be brought in on time on budget and that’s when Gemini and North Sea team in the picture am I correct. Unidentified Company Representative Yes. Unidentified Analyst So what three technologies are coming in that you will be looking at as in that off shore wind renewable or power generation technologies that are just becoming economic and you saw. Paul Bradley I’ll start and then John can jump in. I think the Steven we are sort of 15 years into the commercial application of off shore wind so it’s still a very young industry and I think there is incredible potential still in the off shore wind space be it in the North Sea another parts of the world so our concentrated development efforts have been continue to look at that technology the company was started on the basis of thermal technologies and we still see plenty of opportunities there as well and off course with solar we’ve got our first solar plant in Latin American countries, solar is becoming closer to grid parity and a lot of opportunity there as well, so leading edge technologies I don’t know I could let John answer it but from my perspective and a development perspective I think we got lots of opportunity in those three technological fields. Unidentified Company Representative Well just before [Indiscernible] oracle of the future I just like to remind everybody that we are kind of an infrastructure company so we aren’t even looking to necessarily be cutting edge on new technologies we to your point Steven we did enter an off shore wind when it was at the point that we felt the maturity was sufficient and probably the rest of the world thinks it’s a bit early and there end lies the superior returns that you can get at a certain technology but as when it comes to things like wave technology or some of the storage ideas are out there I think you would certainly wait for them to mature that before you saw a stuff filing in those areas and now John Brace. John Brace I think maybe on the one thing to add to elaborate a bid on something Paul just mentioned storage as a lot of stuff going on and storage with all search of different technologies but I would just like to remind everyone it doesn’t need to be new technology to solve the misuse of the day and those are of project which is from storage are very old technology or very proven technology and wonderful project so you don’t really need new technologies to move the ball down the court on the developments and improvement of the electricity generating system. Operator Mr. Brace there are no further questions at this time. I will turn the call back to you. John Brace Thank you very much operator and everyone for joining us today. We will hold our next call following the release of our second quarter results in August and we look forward to talking to you then. Thank you. Operator Ladies and gentlemen, that does conclude the conference call for today. 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