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Research: Industrials
The class ‘Design Approval’ for Provaris’ H2Neo compressed green hydrogen carrier has been issued by the American Bureau of Shipping (ABS). This is a key step for Provaris, as discussed in our recent Q3 activity update note. The approval opens the way for Provaris, assisted by shipping expert Clarksons, to seek a shipyard to quote for and construct the carrier. The novel vessel design gives Provaris first-mover advantage in large-scale hydrogen transport solutions and paves the way for the much more cost-effective H2Max vessel, which has five-times the capacity.
Provaris Energy |
Project de-risked by class approval |
ABS ‘Design Approval’ award |
Industrial support services |
15 December 2022 |
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Business description
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Analyst
Provaris Energy is a research client of Edison Investment Research Limited |
The class ‘Design Approval’ for Provaris’ H2Neo compressed green hydrogen carrier has been issued by the American Bureau of Shipping (ABS). This is a key step for Provaris, as discussed in our recent Q3 activity update note. The approval opens the way for Provaris, assisted by shipping expert Clarksons, to seek a shipyard to quote for and construct the carrier. The novel vessel design gives Provaris first-mover advantage in large-scale hydrogen transport solutions and paves the way for the much more cost-effective H2Max vessel, which has five-times the capacity.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/21 |
0.2 |
(3.1) |
(0.7) |
0.0 |
N/A |
N/A |
06/22 |
0.4 |
(6.8) |
(1.3) |
0.0 |
N/A |
N/A |
06/23e |
0.3 |
(9.7) |
(1.7) |
0.0 |
N/A |
N/A |
06/24e |
0.3 |
(10.2) |
(1.6) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H2Neo approval opens door for commercialisation
Class approval of Provaris Energy’s novel H2Neo green hydrogen (GH2) carrier is a significant milestone for the company, which will now proceed to the selection of a shipyard for construction and to accurate budgeting. It provides a much clearer time scale for delivery, expected to coincide with the first available cargo at the end of 2026. The novel design points to Provaris having significant first-mover advantage in the compressed hydrogen-at-scale space. It will also highlight the advantages of compression over more costly and less carbon efficient transportation solutions. Finally, the H2Neo, if successful, paves the way for the H2Max vessel, which is five-times larger and has true scalability.
Development of Tiwi H2 Project and Total Eren MoU
In addition to the class approval, Provaris Energy continues to make progress at the Tiwi H2 Project, its clean energy and H2 production development on the Tiwi Islands off the Northern Territory in Australia, which may ultimately provide upstream volume for the H2Neo carriers. In addition, Provaris previously (in 2022) entered into a memorandum of understanding (MoU) with Total Eren to co-operate on the development of its compressed H2 supply chain in both Asia and Europe, with initial projects identified for investigation.
Valuation: ABS approval adds to confidence
The ABS ‘Design Approval’ sets a clear course for development of the H2Neo vessel. The next key milestone would be the signing of an offtake agreement, which would add even greater confidence to the commercial viability of Provaris’ ambitious projects. Our modelling, which produces internal rates of return of 9.7–18.7% from a range of scenarios and vessel sizes, remains robust. We would revisit this in the event of an offtake agreement being announced. We consider this as being likely, given the exponential growth in demand for GH2 forecast by the International Energy Agency.
The latest development opens voyage of discovery
Class approval of Provaris Energy’s novel H2Neo GH2 carrier is a significant milestone for the company as it opens the way for the selection of a shipyard for construction, to accurate budgeting and to a much clearer time scale for delivery. This is expected by management to coincide with the first available cargo at the end of 2026. Being novel, there is also expected to be a significant first-mover advantage in the compressed hydrogen-at-scale space, which is not only an edge for Provaris, but will also highlight the advantages of compression over more costly and less carbon efficient transportation solutions. Finally, the H2Neo, if successful, paves the way for the H2Max vessel, which is five-times larger and has true scalability.
Class approval by the ABS significantly de-risks project
Provaris Energy has been awarded (in December 2022) ‘Design Approval’ for its 26,000m3 H2Neo compressed hydrogen carrier from the ABS. This award significantly de-risks the entire investment process because it allows Provaris to push ahead with the next stage of the project, which is shipyard selection, and to undertake capex and opex analysis. The award follows 12 months of detailed work preparing the extensive front-end engineering design (FEED), which was completed on time and under budget.
The world’s first ‘Design Approval’ for a compressed H2 carrier from the ABS follows its awarding of an ‘Approval in Principle’ (AiP) for two classes of compressed GH2 carriers, namely the H2Neo (capacity: 26,000m3) and the much larger H2Max (120,000m3). The former will be taken through to construction-ready status in 2023, with the H2Max to follow in 2026.
The ‘Design Approval’ confirms a number of crucial outcomes, including that:
■
the vessel design is verified as capable of transporting compressed H2 at bulk scale at 250 bar pressure, ie c 3,600psi;
■
the FEED package is sufficiently detailed for shipbuilders to quote (price and schedule with confidence); and
■
critical safety studies, process and risk analyses have been carried out, which allowed the ABS to verify relevant safety aspects of the ship’s design and operation.
Exhibit 1: H2Neo development schedule |
Source: Provaris Energy |
ABS Consulting, a separate entity to ABS, has completed risk and safety workshops (hazard identification, HAZID) and specialist studies concerning gas dispersion, explosion and fire analysis to assess and mitigate the risks associated with the storage and transportation of H2 at such high pressure. This is the first time that an extensive HAZID and FEED level design has been concluded for a novel compressed hydrogen carrier.
As can be seen in Exhibit 1, Provaris expects to select a shipyard for construction of the final design and a prototype for testing in 2023. In order to seek and select a suitable shipyard, Provaris has engaged Clarksons’ newbuild team in London to assist.
Proprietary design provides first-mover advantage
Exhibit 2 clearly shows the starboard tank in the hold of the N2Neo, one of two tanks that sit beside each other. Each tank is designed to have a maximum allowable operating pressure of 250 bar, which implies that the H2 will remain at an ambient temperature and therefore in a gaseous state. This has two important advantages:
■
It avoids the need to use energy-intensive cooling to maintain H2 in a liquid state (H2 liquifies at -253°C).
■
It avoids the requirement to transport H2 in an alternative state, such as ammonia, which requires costly conversion and then reconversion.
The patented tank design and Provaris’ intellectual property mean that the tanks will be made of relatively thick steel layers ‘nested’ together and will then be lined with a special stainless steel material to avoid embrittlement, which occurs when H2 is exposed to steel, especially under pressure. The design of the tanks avoids the risk of sudden rupture, which would release a catastrophic amount of energy.
The tanks will be incorporated into a relatively conventional hull with shallow operating drafts, which reduces design and construction costs while allowing for access to most ports in the world. Numerous safety measures are to be applied to monitor the tanks’ integrity and Provaris will additionally monitor the outermost layer of the tanks using components and software that are proven and readily available.
Exhibit 2: H2Neo showing Provaris’ proprietary compressed H2 cargo tank |
Source: Provaris Energy |
The loading of compressed H2 directly on to the GH2 carriers is relatively straightforward using existing and proven technology (compressors), which eliminates costly storage and conversion facilities, while unloading is equally straightforward using simple decompression. This simple compression model should give Provaris first-mover advantage in the regional trade in H2.
The design of the H2Neo incorporates modern hull optimisation characteristics and new technologies that will result in reduced fuel consumption relative to traditional vessel designs. The H2Neo’s propulsion system is electric, including batteries for a hybrid configuration, which allows for further fuel savings. It also incorporates a scalable battery platform that will allow for both existing and new technologies that will ultimately facilitate a zero-carbon propulsion system.
N2Neo de-risks path to large-scale hydrogen supply
The production and shipping of compressed GH2 at scale is a novel development. The H2Neo development programme is designed to align with Provaris Energy’s initial GH2 cargo from 2026, and a small fleet of vessels would have the capacity to handle the GH2 output from a single project of up to 200,000 tonnes per year, depending on distance to market. It is designed to carry 26,000m3 of H2 at 250 bar. Success with this programme would de-risk the path to the development and construction of the much larger H2Max vessel.
The H2Max design is designed to carry 120,000m3 of H2, also at 250 bar, which is nearly five-times the capacity of the H2Neo, with a modest fleet being able to handle the output of a facility of up to 950,000 tonnes of H2 per year. The design of the vessel will now also lead to the development of floating barge solutions for storage.
The H2Max received class AiP in 2021 and will leverage the FEED design, HAZID and other approvals of the H2Neo. Given the larger scale of the H2Max, it is expected to benefit from a much reduced H2 delivery cost and the availability of modern low-emission propulsion solutions.
The two differing vessel sizes will ultimately allow users to tailor shipping solutions depending on output, distance to market and demand.
Exhibit 3: Data and statistics of the H2Neo and H2Max vessels |
Source: Provaris Energy |
Financials and future funding
Provaris Energy had net cash on the balance sheet of A$11.6m at the end of June 2022, which included c A$10m of equity funds raised in the year. It is likely, in our view, to need additional funding over the next three years to bring the project forward. In our model below, we have assumed equity funding totalling A$18m is raised at a notional 8c/share, roughly the average price over the last 12 months. The underlying assumptions were originally published in our initiation note in July 2021. Clearly, this implies potential dilution. Provaris will need to examine other funding sources to fully develop its plans, most likely inviting equity partners to fund various aspects of the project.
Exhibit 4: Financial summary
A$m |
2020 |
2021 |
2022 |
2023e |
2024e |
||
June year end |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
1.5 |
0.2 |
0.4 |
0.3 |
0.3 |
Profit Before Tax (norm) |
|
|
(2.9) |
(3.1) |
(6.8) |
(9.7) |
(10.2) |
Profit Before Tax (reported) |
|
|
(2.9) |
(3.1) |
(6.8) |
(9.7) |
(10.2) |
Reported tax |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit After Tax (norm) |
(2.9) |
(3.1) |
(6.8) |
(9.7) |
(10.2) |
||
Profit After Tax (reported) |
(2.9) |
(3.1) |
(6.8) |
(9.7) |
(10.2) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(2.9) |
(3.1) |
(6.8) |
(9.7) |
(10.2) |
||
Net income (reported) |
(2.9) |
(3.1) |
(6.8) |
(9.7) |
(10.2) |
||
Basic average number of shares outstanding (m) |
393.5 |
417.3 |
512.9 |
579.5 |
648 |
||
EPS - normalised (c) |
|
|
(0.7) |
(0.7) |
(1.3) |
(1.7) |
(1.57) |
Revenue growth (%) |
34.9 |
(84.0) |
53.4 |
(29.2) |
0.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
6.3 |
5.8 |
5.4 |
5.0 |
4.6 |
Intangible Assets |
6.2 |
5.8 |
5.4 |
5.0 |
4.6 |
||
Tangible Assets |
0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Investments & other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
3.2 |
6.7 |
12.0 |
8.1 |
5.6 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
0.1 |
0.1 |
0.3 |
0.3 |
0.3 |
||
Cash & cash equivalents |
3.1 |
6.6 |
11.6 |
7.7 |
5.3 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(0.3) |
(0.2) |
(0.8) |
(0.8) |
(0.8) |
Creditors |
(0.2) |
(0.2) |
(0.8) |
(0.8) |
(0.8) |
||
Other |
(0.1) |
(0.0) |
(0.1) |
(0.1) |
(0.1) |
||
Long Term Liabilities |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Assets |
|
|
9.2 |
12.3 |
16.5 |
12.2 |
9.4 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
9.2 |
12.3 |
16.5 |
12.2 |
9.4 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Receipts from the ATO (Covid-19 cash boost) |
0.1 |
0.1 |
0.0 |
0.0 |
0.0 |
||
Payments to suppliers and employees |
(2.9) |
(2.3) |
(3.1) |
(3.5) |
(3.8) |
||
Research and development |
(0.1) |
(0.0) |
0.0 |
(3.0) |
(3.0) |
||
Project development |
(1.0) |
(0.5) |
(1.9) |
(2.5) |
(2.8) |
||
Interest received |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Interest paid for lease liabilities |
(0.0) |
(0.0) |
0.0 |
(0.0) |
1.0 |
||
Research and development tax concession rebate |
1.4 |
0.2 |
0.0 |
0.0 |
0.0 |
||
WA Renewable Hydrogen Fund grant |
0.0 |
0.0 |
0.1 |
0.3 |
0.3 |
||
Working capital |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Tax |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
(2.5) |
(2.6) |
(4.8) |
(8.8) |
(8.3) |
Capex |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
3.5 |
6.3 |
10.5 |
5.0 |
6.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.3) |
(0.3) |
(0.7) |
(0.2) |
(0.2) |
||
Net Cash Flow |
0.7 |
3.4 |
5.1 |
(3.9) |
(2.4) |
||
Opening net debt/(cash) |
|
|
(2.4) |
(3.1) |
(6.6) |
(11.6) |
(7.7) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(3.1) |
(6.6) |
(11.6) |
(7.7) |
(5.3) |
Source: Company accounts, Edison Investment Research
|
|
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