Late October is shaping up to be a pretty busy period for spinoffs and one of the many expected separations will be IDT Corporation’s (IDT) spinoff of Genie Energy. Please read our earlier post about the spin here, but as a quick refresher, the plan is to spin out IDT’s energy assets from its telecommunications business. Yes, IDT has energy assets.
After the spin, Genie Energy will be comprised of IDT Energy, an ESCO providing energy in NY, NJ and PA, and Genie Oil & Gas (GOGAS) which operates ‘unconventional energy’ (mainly shale) assets in Colorado and Israel. A copy of the registration statement filed with the SEC detailing the new company can be found here.
Here is a high level look at the historical financial operations for the business:
|(Data in Thousands)||2007||2008||2009||2010||2011|
|Net (loss) Income||(2,555)||14,081||22,728||(681)||6,233|
It is worth noting that currently 100% of the revenues come from IDT Energy while GOGAS contributed operating losses of $13.6m and $7.2m in 2011 and 2010 respectively. In fact, right now (and potentially forever) GOGAS produces absolutely no oil or gas. However, given the potential behind the shale boom, I expect these to be the company’s more exciting assets and thus warrant a bit further exploration. Here is what is included in GOGAS:
1) American Shale Oil Corporation (AMSO) – the company operates leases covering 160 acres of land for oil shale production in Western Colorado. These assets are jointly owned by Total SA who purchased a 50% stake in exchange for committing to fund the majority of the expenditures. However, as more money is sunk into the venture, AMSO is on the hook for additional funds. AMSO has already constructed a pilot plant which is completing its pre-operational test whose results will reveal more about its potential.
2) Israel Energy Initiatives (IEI) – the company has exclusive rights for shale E&P in Israel’s Shfela basin. The big news about this project was the announcement by Dr. Harold Vinegar (IEI’s current Chief Scientist and former chief scientist of Royal Dutch Shell) that these assets potentially hold the equivalent of 250 billion barrels of oil, a number which is close to Saudi Arabia’s proven reserves. Pretty remarkable if true and accessible. It is worth noting that in the registration statement, the company estimate is only ~40 billion barrels of oil. Still nice, but not nearly as nice. Of course there are numerous risks involved here as the project is hotly contested by environmentalists in Israel, the government recently increased the tax rate on energy earnings and the Middle East isn’t exactly the most stable and peaceful area of the world. Oh yeah and the company has yet to demonstrate its ability to extract these assets.
The registration statement is a must read in order to gain a better understanding of these assets and their respective risks.
Also found within the filing is that the new company is expected to start out with ~$115m in cash to help with the necessary CapEx, but the alternative energy projects (especially IEI) could seriously start to drain those resources. It will be interesting to see how the company balances re-investing in IDT Energy while also funding its R&D and shale operations.
In our earlier post, you can see that some pretty big names have been interested in Genie Energy (and a few are even part owners) and IDT’s CEO Howard Jonas (who will become Chairman of Genie Energy) sounds pretty excited about the company’s prospects during the most recent conference call. Claude Pupkin, who has been managing the company’s shale assets, will become CEO of Genie while Mr. Jonas will remain CEO of IDT.
The logic behind this spinoff appears sound as the end result will be two companies operating in completely different worlds and in different phases of the business cycle. The telecom business is fairly mature while the energy side is just in the development/growth phase. Genie is certainly more risky (even the ESCO presents its own risks), but now investors will have a choice about which assets they prefer to own.
The spin is expected to be completed around October 28th and will trade under the ticker ‘GNE’ (regular trading is expected to begin on October 31st). Shareholders of IDT’s Class A or B stock will receive one share of Genie per share of IDT.
Disclosure: Author holds no position in any stock mentioned.