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Enel acquires AMP Resources

Fifteen months after agreeing to be acquired by Raser Technologies, and six months after backing out of that deal, AMP Resources has agreed to be acquired by Italian power company Enel. The jewel in Enel’s portfolio is the Larderello geothermal plant which has been in operation since 1906.

The headline on this deal is “Enel buys into US Market with 150MW acquisition of AMP Resources” but this is misleading as headlines can often be. That’s not to say that AMP’s assets are without value, it’s simply overstating what AMP has to justify a wild premium paid for those assets. AMP, according to its website, has the following assets:

  • 21MW nameplate Stillwater, Nevada geothermal plant and a second undeveloped anomaly on the lease
  • 12MW Cove Fort, Utah lease on 4,000 acres (the plant was closed for upgrade)
  • Salt Wells, Nevada lease of 3,000 acres (no plant)
  • Surprise Valley, California lease of 5,000 acres (no plant)
  • Undisclosed intellectual property related to Kalina cycle binary heat systems

Obviously, there may be other assets AMP has that are not enumerated on their web site, but that is what’s visible. The only functional and productive plant in the portfolio is Stillwater with a nameplate output of 21MW. However, our research indicates the average net output from the plant is on the order of 10MW at any given time due to high parasitic load consisting of cooling and pumping both geothermal resource and working fluid around the plant. A generous valuation for this asset is $30M.

The “brownfield site” of Cove Fort, Utah has much less risk than other undeveloped properties and as such should be assigned more value. It was producing gross 12MW before it was shut down for upgrade. It’s unclear where that project is at present, but until the upgrade is complete, it’s difficult to assign more value than when the plant was operational, call a generous valuation $20M.

That leaves the undeveloped properties including the area in the Stillwater lease that is still untapped. According to a PIER report for the San Francisco Public Utilities Commission from 2004, the Stillwater site has a most likely rating of 32MW gross and if we use the existing plant as the benchmark, we would expect no more than 15MW net to be harvested. This is undeveloped but known resource, a generous valuation is $1.5M.

The other two properties at Salt Wells and Surprise Valley are early development stages, but have their charms like location close to transmission lines and some early exploration and sizing work complete. However, at this stage, generous valuation of these properties taken together is no more than $2M.

Finally, there is the IP and associated products. With the entry of companies like UTC into the binary harvest market, these assets are far less valuable than a few years ago. Between Ormat and UTC, it’s hard to see AMP and now Enel competing effectively in the binary system space. I don’t know how to value this asset, but the total is likely much less than the differential between the purchase price and the sum of the tangible assets enumerated above.

My conclusion is that with a $90M acquisition price tag, Enel has paid a $36.5M, or 40% premium over the intrinsic value of the corporation and assets. Admittedly, that values the IP at $0, but the tangible assets are all priced above at the high end of the pricing spectrum which means that the IP is likely priced appropriately relative to the actual value of the tangible assets. We’ll see if this deal ultimately goes through, after the prior deal fell apart with Raser, there is a precedent and some reason for skepticism.

Disclosure statement: The principals of Montara Energy Ventures hold no shares in and have no other financial relationship with Raser Technologies, AMP Resources, or Enel.

3 Comments so far

  1. Brent Cook March 22nd, 2007 7:37 am

    Great acquisition for ENEL. I would like to discuss with an ENEL officer geothermal potential in the US.

  2. mike March 22nd, 2007 8:33 am

    Brent, we have no specific contacts with Enel. I’m sure that names are available from the Enel North America site. Good luck with your discussion.

  3. R. Phillip July 25th, 2007 1:54 am

    Interesting article. AND your valuations, esp. Stillwater are as stated “generous”. As a matter of fact overly so.
    I personally hope that ENEL can make good with their new acquisitions. I am very familiar with their properties of acquisition. Unfortunately it is my opinion that the overpayment has a larger spread! Also very true. Competition on the binary market, especially with Kalina, is near to impossible! I hope their pockets are deep or they may need a tourniquet!