The major gas wholesaler, which has rights to about 40% of the remaining Maui reserves, today reported a drop in half-yearly net profit of $5.65 million to $30.05 million. The energy company recorded a $35.7 million profit in the same March 31 period a year ago, but that result was boosted by a $10 million one-off gain.
Chief executive Steve Barrett said the company believed major new electricity generation capacity would be needed in the near term and that Contact Energy wanted to be the party which built the new generation plant.
However, the development of the third 400MW gas-fired power station at its Otahuhu site in south Auckland would not go ahead until sufficient gas supplies were ensured and the transmission regime applying to new gas supplies was sorted out.
Other key issues for Contact were a further evaluation of the economics of the project; and clearing up uncertainties over the future electricity market institutions. Delays in securing resource consents for the project had also been a factor.
Contact was not prepared to commit shareholders' funds to a new investment of this magnitude at this time, Barrett said.
"If we can be sure that these issues can be resolved in a way which gives Contact confidence that the project will deliver an appropriate return on capital, and that risks can be properly addressed, activities can be scheduled to deliver the project in an appropriate timeframe.
"We are particularly concerned about the gas availability and regulatory issues. Recent proposals, such as mandatory (electricity) hedge tendering, could seriously compromise any investor's capacity to earn an appropriate return on capital from new plant."
The Analyst Energy Review predicted the possible postponement of planned gas-fired power stations when it reported on the first Maui redetermination meeting in Wellington last month.
Contact is one of those parties involved in the redetermination process, which will reassign total remaining quantities available in light of last year's shock announcement by field owner Maui Development Ltd that this country's biggest energy resource could be depleted as early as mid-2007 and not the contracted 2009.
The first meeting to discuss reduced Maui gas reserves was held in Wellington in April 11, but procedural matters only were discussed, so the signs are not good for a speedy resolution of this critical issue.
Barrett is the latest of several energy bosses to raise concerns regarding future gas supplies and pipeline access issues during the past few months.
Both Shell New Zealand chairman Lloyd Taylor and Todd Energy managing director Richard Tweedie have said gaining third-party access to the Maui pipeline, so Pohokura gas can be piped north, will be vital to the development of the $750 million Pohokura field.
They have also said New Zealand needs to find several Pohokura-sized fields, each containing 1tcf of gas or more, in the next few years to prevent serious gas supply shortfalls after Maui runs out, perhaps as early as 2007.
Contact Energy's total revenue for the six months to March 31 rose to $453.0 million from $444.0 million and the operating profit before tax and unusual items rose to $45.1 million from $34.8 million.
Barrett said robust growth in its customer base and retail sales had underpinned a solid performance.
While gas and wholesale electricity revenues in the six months were lower than for the equivalent period last year, this was more than offset by strong growth in retail electricity sales, which grew by 17% in the six months and totalled $265.8 million.
In its gas business, Contact reported slightly lower wholesale gas revenues of $65.5 million. This was due to lower sales following the loss of some low margin, large volume customers.
