Boone Pickens: "lost my ass in the wind business"

Before we bring you this article on US billionaire Boone Pickens, we would like to preface it by saying we heard Mr Pickens interviewed perhaps three years ago on the CBC on the topic of wind power and his foray into Ontario. We thought he was the most honest wind power developer we had heard from: he never mentioned people dying, nevr mentioned climate change or the need to "save" the environment---investing in wind power, he said, was all about the money. He came to Ontario because of the generous subsidies but he also allowed as to how wind power was really all about natural gas.
  We are also reminded in reading this story of a remark made by media personality Kevin O'Leary on the Lang-O'Leary Exchange, also on CBC, that as an investor, he wouldn't "touch wind with a ten-foot pole."
   "Anything that relies on subsidies isn't a real business," he snapped.
   Here now, several years on, is the fate of Mr Pickens and wind power.

Daily Caller News Foundation

  

Wind investments blow Pickens off the Forbes 400 list

5:28 PM 09/16/2013

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Breanna Deutsch

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Businessman T. Boone Pickens was dropped from the Forbes 400 list of richest Americans after losing much of his fortune in the wind farming industry.
According to Forbes, Pickens’ fortune dropped below the $ 1 billion mark for the first time since 2005. His net worth once amounted to an estimated $2 billion, but now it sits at around $950 million.
He told the hosts of MSNBC’s “Morning Joe” that he had “lost [his] ass in the [wind] business.” He added, “the jobs are in oil and gas.”
In 2008, Pickens debuted his “Pickens Plan,” which aimed to increase the nation’s use of wind energy and decrease America’s dependence on OPEC oil. With the help of investors he spent 80 million dollars on TV ads to promote his plan and $2 billion on General Electric wind turbines. Pickens hoped that once the wind farm was constructed, it would be the largest in the world.
The plan collapsed after natural gas prices fell and selling wind power was no longer economically feasible. He lost $150 million of his personal fortune on the failed wind plan.
After his failure in the wind market, Pickens revamped his Pickens Plan to focus on the use of natural gas as well as any other American-based energy source.
He has made moves to convert all trucks from using gasoline to natural gas. As part of this effort, he has encouraged Obama to use subsidies in order to incentivize the trucking industry to make the switch.
Pickens says that this new endeavor is mainly an effort to “end America’s addiction to foreign oil,” though critics also speculate that although the former billionaire is now 84, profits are driving his interest in energy policy.
The American energy man wants the world to know that he will be able to survive living off of his mere $950 million. When ESPN’s Darren Rovell confronted Pickens over Twitter about his new status as a millionaire, Pickens tweeted, “Don’t worry. At $950 million, I’m doing fine. Funny, my $1 billion charitable giving exceeds my net worth.”

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A look at Northland Power: Globe and Mail analyst

Those of us in the know about the workings of the predatory wind power developers who have invaded Ontario to take advantage of the government's generous (and poorly thought out) subsidy program, will not be surprised by the opinion of one analyst, that the developers' rosy profit picture might come with substantial risk. Here from today's Globe and Mail, an opinion on Northland Power. But it could just as easily be Algonquin Power (whose claims of 40% efficiency rate across the board for their 20-year contract at Amherst Island are just plain nonsense), or other wind power developers active in Ontario. Factor in the pending and potential legal actions from injuriously affected property owners across Ontario due to the huge impact of wind power projects, and suddenly these developers don't look quite so promising.
  Kevin O'Leary remarked several years ago that he would "never" invest in wind power: "It's not a real business," he said.

Beware Northland Power's lofty yield

John Heinzl
The Globe and Mail
On the surface, Northland Power looks like a tempting investment.
The company produces electricity – something everyone needs. It has a healthy pipeline of solar, wind and hydro projects. And the stock sports a 6.9-per-cent yield – more than twice as high as the yield on the S&P/TSX composite index.
   But when a yield gets that high, you need to ask why. In Northland’s case, there are several risks to keep in mind.
Dividend is high – but not growing
Perhaps the most troubling sign is that Northland hasn’t raised its dividend – currently 9 cents a month – since August, 2006. Given the company’s aggressive dividend payout ratio and future investment plans, don’t hold your breath for an increase any time soon.
   For fiscal 2013, Northland estimates that it will pay out 80 to 90 per cent of its free cash flow as dividends. But the company also acknowledged that the true payout ratio is actually much higher – 115 to 125 per cent – if you include dividends that are paid in shares, instead of cash, under the company’s dividend reinvestment plan (DRIP).
   Northland says the lofty payout ratio is largely a timing issue, reflecting “the level of spending on growth initiatives and payments of dividends on equity capital already raised for construction projects for which corresponding cash flows will not be received until future years.”
   But judging by the stock’s 20-per-cent slide since early May, some investors are apparently losing patience.
Payout ratio could remain elevated
When Northland released second-quarter results on Aug. 7, it said the board and management are committed to maintaining the current dividend of $1.08 annually. That’s the good news. The bad news is that the payout ratio will probably have to remain above 100 per cent to keep those fat dividend cheques coming.
   Northland had hoped to bring the payout ratio below 100 per cent in 2014, helped by a new natural gas-fired plant in North Battleford, Sask., that came into service in June. However, analysts say that if Northland proceeds with a proposed $400-million investment in the Gemini offshore wind development, located in the North Sea off the coast of the Netherlands, the payout ratio will likely exceed 100 per cent at least until the project’s estimated completion in 2017.
   Going ahead with Gemini would almost certainly put the kibosh on dividend hikes “for the foreseeable future,” Nelson Ng, an analyst with RBC Dominion Securities, said in a recent note in which he cut his price target on Northland to $17 from $19. The shares closed Tuesday at $15.71 on the Toronto Stock Exchange.
Dividend not the only worry
Apart from the lack of dividend growth, investors are concerned about the perceived risks of developing offshore wind power, said Mr. Ng, who has a “sector perform” rating on the shares. Rising bond yields and delays faced by several of the company’s wind, solar and hydro projects aren’t helping the stock, either.
   But one of the biggest uncertainties facing Northland is still years away – namely the expiration of long-term power purchase agreements (PPAs) at two Ontario gas-fired plants, in Iroquois Falls and Kingston.
   The PPAs, which were signed at a time of much higher power prices, together account for nearly one-third of Northland’s estimated 2014 earnings before interest, taxes, depreciation and amortization, said Darryl McCoubrey, an analyst with Veritas Investment Research.
   The expiration of the Iroquois Falls and Kingston PPAs in January, 2017, and December, 2021, respectively, “is the key risk factor underlying the [Northland Power] story,” he said in a recent note. While Gemini “could more than compensate for the potential lost profit” if the Ontario plants renew their PPAs at lower rates, the move into offshore wind power – a new technology for Northland in a new jurisdiction – is “unsettling,” he said.
   Nonetheless, Mr. McCoubrey maintained his “buy” rating on the shares, citing the company’s strong management team and track record of developing new assets. As for the dividend, he doesn’t see any “near-term risk” of a cut.
   If you’re tempted by Northland’s juicy yield, just remember that it’s high for a reason.

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