San Jacinto geothermal plant now producing close to 77 MW nameplate capacity

Pipes at San Jacinto geothermal plant, Nicaragua (source: Polaris Infrastructure)

Alexander Richter 8 Aug 2018

Polaris Infrastructure Inc. (TSX: PIF) has published its financial and operating results for the quarter ended June 30, 2018. With the financial results, the company also provides details on its operational status for its San Jacinto-Tizate geothermal plant and project in Nicaragua, Central America.

San Jacinto-Tizate Project Highlights

• Record-level power generation approaching capacity: The San Jacinto-Tizate Power Plant (the “San Jacinto project”) generated 139 GWh (net) (an average of 63.7 MW (net)), resulting in revenue of $17.7 million for the three months ended June 30, 2018, versus revenue of $15.9 million on generation of 129 GWh (net) (an average of 59.2 MW (net)) in the prior year period. The 11% revenue increase was due to higher average production in the second quarter of 2018 as well as the impact of the 3% annual tariff increase.
• Strong cash flow generation: The Company generated Adjusted EBITDA (a non-GAAP measure) of $15.1 million in the three months ended June 30, 2018, an 11.5% increase from the prior year period, reflecting revenue growth with ongoing control of costs. This quarterly result is evidence of the fundamentally strong cash generating ability of the San Jacinto project, with Adjusted EBITDA margins improving slightly to 85.7%. 
  
• Positive net earnings expected to continue going forward: The Company generated Total Earnings of $3.9 million for the three months ended June 30, 2018, primarily because of increased power generation. We expect positive quarterly earnings to continue such that 2018 will be the second consecutive fiscal year of profitability for the Company.
• Connection of new wells following 2017/2018 Drilling Program: The Company’s wholly-owned operating subsidiary, Polaris Energy Nicaragua S.A. (“PENSA”), which owns and operates the San Jacinto project, successfully connected both recently drilled wells, SJ 12-4 and SJ 12-5. Commissioning of a new separator station on pad 12, HPS3, along with connection of accompanying piping and infrastructure, was concluded on April 30, 2018. The commissioning of HPS3 serves to substantially increase separation capacity for the pad 12 wells and has allowed for the connection of all recently drilled wells. Initial steam production from SJ 12-4 and SJ 12-5, combined with other production wells has brought the San Jacinto plant close to its 77 MW (gross) nameplate capacity. At this time the plant is operating in the 70-74 MW (gross) range and we will continue to implement operational adjustments with the objective of producing as close to capacity limit as possible.

Comment on the political situation in Nicaragua

Along with the PENSA management team, we have been monitoring the situation in Nicaragua closely, since April 2018, and remain hopeful for a peaceful and expedient resolution.  The Company is pleased to confirm that both San Jacinto operations and our regional head office, located in central Managua, have been unaffected by the political unrest.  In fact, the San Jacinto plant achieved availability in excess of 99% in the second quarter of 2018, helping drive record level power generation.  The PENSA team has also been working to implement various optimizing activities, as we seek to maximize average generation.

Marc Murnaghan, Chief Executive Officer of Polaris Infrastructure, commented, “While mindful of the recent social and political unrest in Nicaragua, we have not experienced any impact on our operations.  We are optimistic with respect to improved stability within Nicaragua and look forward to continuing our robust social and environmental programs with local communities.”

Financial Overview

The financial results of Polaris Infrastructure for the three and six months ended June 30, 2018 and 2017 are summarized below:

For the three months ended June 30, 2018, the Company reported revenue of $17.7 million and Adjusted EBITDA of $15.1 million, compared to revenue of $15.9 million and Adjusted EBITDA of $13.6 million, for the same period in 2017. The increase in revenue resulted from an 8% increase in power generation at the San Jacinto project, combined with the 3% annual tariff increase under the power purchase agreement. The improvement in Adjusted EBITDA reflects increased contribution from the San Jacinto plant combined with ongoing control of costs. See Use of Non-GAAP Measures section below for reconciliation of Adjusted EBITDA to Total loss and comprehensive loss.

For the six months ended June 30, 2018, the Company reported revenue of $32.4 million and Adjusted EBITDA of $27.5 million, compared to revenue of $29.3 million and Adjusted EBITDA of $24.5 million, for the same period in 2017. The increase in revenue was again driven by the increase in power generation at the San Jacinto project stemming from connection of new geothermal wells, combined with the 3% annual tariff increase. The improvement in Adjusted EBITDA reflects increased contribution from the San Jacinto plant combined with ongoing control of costs. See Use of Non-GAAP Measures section below for reconciliation of Adjusted EBITDA to Total loss and comprehensive loss.

For the six months ended June 30, 2018, the Company had net operating cash inflows of $17.8 million and net financing cash outflows of $11.3 million.  Net investing cash outflows of $9.2 million included $7.2 million of capital expenditure related to the substantial conclusion of the 2017/2018 drilling and infrastructure program, as well as $0.7 million with respect to turbine maintenance activities.  At June 30, 2018, the Company had cash of $34.5 million, of which $12.4 million was held in a debt service reserve account for the San Jacinto project.

“Reflecting back to the position of the Company at the time of the 2015 recapitalization transaction, it is very satisfying to see the San Jacinto project operating so close to its nameplate capacity,” said Mr. Murnaghan. “This achievement reflects considerable time and effort on the part of the entire Polaris Energy Nicaragua team, along with the guidance and consultation of our Board.  Having largely achieved our objectives with respect to optimizing operations at San Jacinto, we are well positioned to realize upon substantial cash flow generation and seek to drive shareholder returns in other ways.”

Source: Company release