Noble Americas Energy Solutions: Is Noble framing a situation different from the reality ?

If you were sitting on a trading desk like Noble Americas Energy Solutions, expecting power prices to follow record loads last summer, you would have been be sorely disappointed.

In August, Peak power prices for ERCOT, during the record demand, averaged near mid-$40s/MWh, hardly a level one might expect when compared with events in the past as prices were seen moving up and sometimes in the $400s/MWH territory for real-time markets.

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THE ENDANGERED BUSINESS MODEL OF NOBLE AMERICAS ENERGY SOLUTIONS:

In most cases, when a market is short on supply, this situation presents an opportunity for someone like NAES to step up to fill in a gap.

-Short-term contracts that typically involves scheduling in the day ahead market and selling when the prices are moving up. 

-With respect to volatility, these contracts do not generate profit at a low variance. 

-NAES are also securing the shorts under long-term contracts, selling power to counter-parties assuming that higher electricity prices will materialize over seasons, years.

In a presentation, Noble valued these contracts at a book-value of more than $1.45 billion.

It is not a coincidence if the Singapore-listed trader, who is at the center of a profit accounting dispute, has hired Morgan Stanley for the disposal of Noble Americas Energy Solutions. 

Why aren’t they de-listed ? 

To facilitate the disposals is the 1ST REASON.

The current market situation in the U.S power is not a compelling business future case for Noble Americas Energy Solutions, (path dependent for the group own survival). 

This should cause a little concern among those who are trying to determine the intrinsic value of NAES currently on the sale block.

They have lost more than $3B in FCF over the last 24 months.

During Q2, the cash-flows from the operations didn’t even covered the cash interests expenses of their debt service.

Given that the trader is not generating cash and cannot expand its borrowing base, we can only assume that they are told that they have to sell Noble Americas Energy Solutions to repay the debtload. 

This is at 20-50% below the advertised book value to hit a bidder => and the house will consequently have to raise a significant shortfall in equity to repay the loans its lenders $3 billion, hence outlining the second and last REASON explaining why the Noble Group counter has remained listed on the Singapore Exchange at the present time.





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